What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-01 · 308 added, 347 removed, 1604 unchanged (29% of the section changed)

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of German American Bancorp, Inc.

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework:

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(2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No.

326, Financial Instruments – Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles .

Basis for Opinions

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• Substantively testing the accuracy of both the loan risk ratings as well as testing the accuracy of the transition matrix.

/s/ Crowe LLP

We have served as the Company's auditor since 1977.

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Retained Earnings 405,167 350,364

Accumulated Other Comprehensive Income 15,484 35,375

Accumulated Other Comprehensive Income (Loss) ( 263,438 ) 15,484

TOTAL SHAREHOLDERS’ EQUITY 558,393 668,459

21 unchanged sentences

NON-INTEREST INCOME

Wealth Management and Investment Services Income 10,321 8,005 7,278

Wealth Management Fees 10,076 10,321 8,005

Service Charges on Deposit Accounts 11,457 7,723 7,334

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See accompanying notes to the consolidated financial statements.

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income (Loss)

Dollars in thousands

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Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

Balances, December 31, 2019 26,671,368 $ 26,671 $ 278,954 $ 253,090 $ 15,105 $ 573,820

Cumulative Effect of Change in Accounting Principles (1)

( 6,717 ) ( 6,717 )

Balances, January 1, 2020 26,671,368 26,671 278,954 246,373 15,105 567,103

4 unchanged sentences

Issuance of Common Stock for:

Acquisition of Citizens First Corporation 1,663,954 1,664 48,360 50,024

Restricted Share Grants 52,701 53 998 1,051

Stock Repurchase ( 221,912 ) ( 222 ) ( 5,567 ) ( 5,789 )

Balances, December 31, 2020 26,502,157 26,502 274,385 288,447 35,375 624,709

Cumulative Effect of Change in Accounting Principles ( 6,717 ) ( 6,717 )

Balances, January 1, 2020 26,671,368 26,671 278,954 246,373 15,105 567,103

Net Income 84,137 84,137

4 unchanged sentences

Restricted Share Grants 51,351 52 1,672 1,724

Stock Repurchase ( 221,912 ) ( 222 ) ( 5,567 ) ( 5,789 )

Balances, December 31, 2021 26,553,508 26,554 276,057 350,364 15,484 668,459

4 unchanged sentences

Issuance of Common Stock for:

Acquisition of Citizens Union Bancorp 2,870,975 2,871 108,852 111,723

Restricted Share Grants 68,710 68 2,262 2,330

Balances, December 31, 2022 29,493,193 $ 29,493 $ 387,171 $ 405,167 $ ( 263,438 ) $ 558,393

(1) The Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments on January 1, 2020 using the modified retrospective approach.

As a result, the Company recorded a net reduction of retained earnings upon adoption.

See accompanying notes to the consolidated financial statements.

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Sale of Bank Branches — 1,694 —

Acquisition of Citizens First Corporation — — 5,545

Acquisition of Citizens Union Bancorp of Shelbyville, Inc.

Net Cash from Investing Activities ( 24,181 ) ( 640,299 ) ( 346,078 )

2 unchanged sentences

Change in Short-term Borrowings 29,817 15,423 ( 114,832 )

Advances in Long-term Debt — — 89,214

Repayments of Long-term Debt ( 41,690 ) ( 58,091 ) ( 40,625 )

8 unchanged sentences

Income Taxes 11,649 14,434 11,505

Supplemental Non Cash Disclosures (See Note 18 for Business Combinations)

Supplemental Non Cash Disclosures

Loans Transferred to Other Real Estate $ 30 $ — $ —

Reclassification of Land and Buildings to Other Assets — — 5,712

Right of Use Asset Obtained in Exchange for Lease Liabilities — — 9,034

Interest Rate Swap Fair Value Activity 4,988 ( 4,287 ) 6,199

Supplemental Schedule for Investing Activities (See Note 18 for Business Combinations)

Assets acquired, net of purchase consideration 945,160 — —

Liabilities assumed 1,003,756 — —

Goodwill $ 58,596 $ — $ —

See accompanying notes to the consolidated financial statements.

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NOTE 1 – Summary of Significant Accounting Policies

Impact of COVID-19

The novel coronavirus disease 2019 (COVID-19) pandemic continued to impact our operations during 2021.

While uncertainty remains as to the future effects of the pandemic, an improving business climate, supported by unprecedented fiscal stimulus, an accommodative Federal Reserve, and the demonstrated ability of states and local governments to respond to COVID-19 and its variants, has helped to mitigate the negative impacts of the pandemic on our financial condition and results of operations, despite the challenges presented by very low interest rates, muted loan growth, excess liquidity and rising inflation.

Description of Business and Basis of Presentation

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Debt securities classified as available-for-sale are securities that the Company intends to hold for an indefinite period of time, but not necessarily until maturity.

Held-to-maturity securities, when present, are carried at amortized cost.

As of December 31, 2022, and 2021, the Company held no securities classified as held-to-maturity.

These include securities that management may use as part of its asset/liability strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, or similar reasons.

Securities classified as available-for-sale are reported at fair value with unrealized gains or losses included as a separate component of equity, net of tax.

Securities classified as available-for-sale are reported at fair value with unrealized gains or losses included as a separate component of equity (other comprehensive income), net of tax.

Interest income includes amortization of purchase premium or discount.

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The initial allowance for credit losses on loans determined on a collective basis

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

is allocated to individual loans.

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The allowance for credit losses is a valuation account that is deducted from the loans ’ amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Loans are charged off against the allowance when management believes the

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

uncollectibility of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company utilizes the static pool methodology in determining expected future credit losses.

Static pool analysis includes segmenting and tracking loans over a period of time based on similar risk characteristics such as loan structure, collateral type, industry of borrower and concentrations, contractual terms and credit risk indicators.

Static pool calculates a loss rate on a closed pool of loans that existed on a specified start date based upon the remaining life of each segment.

The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data.

The Company’s historical look-back period includes January 2014 through the current period, on a monthly basis.

The Company estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

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The allowance for credit losses is measured on a collective (pooled) basis when similar risk characteristics exist.

The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

The Company has identified the following portfolio segments and identified the risk characteristics of each portfolio listed below:

Commercial and Industrial Loans - The principal risk of commercial and industrial loans is that these loans are primarily based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans.

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Loan Modifications and Troubled Debt Restructurings due to COVID-19

On April 7, 2020, the Board of Governors of the Federal Reserve System (the “FRB”), the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation (the “FDIC” and, together with the FRB and OCC, the “federal banking regulators”) issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as troubled debt restructurings and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings.

Similarly, under the CARES Act, provisions were included that allow for loan modifications to not be classified as TDRs if certain criteria are met.

This TDR exemption, which was set to expire on December 31, 2020, was extended under the 2021 Consolidated Appropriations Act adopted on December 27, 2020, to the earlier of (i) 60 days after the national emergency concerning the COVID-19 outbreak terminates, and (ii) January 1, 2022.

On April 7, 2020, the Board of Governors of the Federal Reserve System (the “FRB”), the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation (the “FDIC” and, together with the FRB and OCC, the “federal banking regulators”) issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally would not need to categorize COVID-19-related modifications as troubled debt restructurings and that the agencies would not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings.

Similarly, under the CARES Act, provisions were included that allowed for loan modifications to not be classified as TDRs if certain criteria were met.

This TDR exemption expired on January 1, 2022.

Allowance for Credit Losses on Available-For-Sale Securities

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Both cash and stock dividends are reported as income.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Premises, Furniture and Equipment

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Buildings and related components are depreciated using the straight-line method with useful lives ranging generally from 10 to 40 years.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Furniture, fixtures, and equipment are depreciated using the straight-line method with useful lives ranging generally from 3 to 10 years.

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Compensation cost is recognized over the required service period, generally defined as the vesting period.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Comprehensive Income

1 unchanged sentence

Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and changes in unrecognized amounts in pension and other postretirement benefits, which are also recognized as a separate component of equity.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

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Recently Adopted Accounting Guidance

In June 2016, the Financial Accounting Standards Board ( “ FASB ” ) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments).

The new CECL model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions.

The standard provides significant flexibility and requires a high degree of judgement with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses.

The Company adopted ASC 326 on January 1, 2020 using the modified retrospective approach.

Results for reporting periods after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company recorded a net reduction of retained earnings of $ 6,717 upon adoption.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30.

In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $ 6,886 of the allowance for credit losses.

The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2020.

The Company expanded the loan portfolio segments used to determine the allowance for credit losses for loans into eight loan segments as opposed to six loan segments under the incurred loss methodology.

The following table illustrates the impact of the segment expansion as of January 1, 2020.

(dollars in thousands) December 31, 2019 Statement Balance Segment Portfolio Reclassifications December 31, 2019 After Reclassification

Commercial and Industrial Loans $ 589,758 $ ( 57,257 ) $ 532,501

Commercial Real Estate Loans 1,495,862 N/A 1,495,862

Agricultural Loans 384,526 N/A 384,526

Leases N/A 57,257 57,257

Home Equity Loans 225,755 N/A 225,755

Consumer Loans 81,217 ( 11,953 ) 69,264

Credit Cards N/A 11,953 11,953

Residential Mortgage Loans 304,855 N/A 304,855

Total Loans $ 3,081,973 $ — $ 3,081,973

The following table illustrates the impact of ASC 326:

(dollars in thousands) December 31, 2019 After Reclassification Impact of ASC 326 Adoption January 1, 2020 Post-ASC 326 Adoption

Commercial and Industrial Loans $ 532,501 $ 2,191 $ 534,692

Commercial Real Estate Loans 1,495,862 4,385 1,500,247

Agricultural Loans 384,526 128 384,654

Leases 57,257 — 57,257

Home Equity Loans 225,755 35 225,790

Consumer Loans 69,264 — 69,264

Credit Cards 11,953 — 11,953

Residential Mortgage Loans 304,855 147 305,002

Allowance for Credit Losses on Loans ( 16,278 ) ( 15,653 ) ( 31,931 )

Allowance for Credit Losses on Unfunded Loan Commitments $ — $ ( 173 ) $ ( 173 )

In December 2018, federal banking regulators approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL.

The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.

On March 27, 2020, in an action related to the CARES Act, the federal banking regulators announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL.

The interim final rule, which was finalized effective September 30, 2020, maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Company has taken advantage of the capital transition relief over the permissible five-year period and will begin the three-year phase-in of the regulatory impact effective January 1, 2022.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles - Goodwill and Other:

Simplifying the Test for Goodwill Impairment.

To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test.

The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.

The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The amendments should be applied on a prospective basis.

The nature of and reason for the change in accounting principle should be disclosed upon transition.

The amendments in this update became effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and did not have a material impact on the Company ’ s financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.

The amendment removes certain disclosures required by Topic 820 related to transfers between Level 1 and Level 2 of the fair value hierarchy;

the policy for timing of transfers between levels;

and the valuation processes for Level 3 fair value measurements.

The update also adds certain disclosure requirements related to changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments in this update became effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019 and did not have a material impact on the Company ’ s financial statements.

In March 2020, the FASB issued ASU No.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, “Reference Rate Reform (Topic 848):

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It is intended to help stakeholders during the global market-wide reference rate transition period.

In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The guidance is effective for all entities as of March 12, 2020 through December 31, 2024.

The Company is continuing to evaluate the impact of adopting this standard over the effective period, and does not expect it to have a material impact.

The Company has discontinued originating LIBOR based loans and has a plan in place to transition LIBOR indexed loans primarily to term SOFR or other indices.

On March 31, 2022, the FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures” which eliminates the troubled debt restructuring (TDR) recognition and measurement guidance and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosures and include new disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

To improve consistency for vintage disclosures, the ASU requires that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20.

For entities that have adopted ASU 2016-13, the amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

For entities that have not adopted ASU 2016-13, the effective dates for the amendments are the same as the effective dates in ASU 2016-13.

Early adoption is permitted if ASU 2016-13 has been adopted, including adoption in an

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

interim period.

If an entity elects to adopt the amendments in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period.

The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

The SEC released Staff Accounting Bulletin No.

121 (“SAB 121”), which provides interpretive guidance regarding the accounting for obligations to safeguard crypto-assets an entity holds for its customers, either directly through an agent or another third party acting on its behalf.

SAB 121 requires an entity to recognize a liability on its balance sheet to reflect the obligation to safeguard the crypto-assets of others, along with a corresponding safeguarding asset, both of which are measured at fair value.

The Company has completed an evaluation and concluded that it does not have a safeguarding obligation under SAB 121 and therefore the disclosures do not apply.

NOTE 2 – Securities

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Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

Treasury $ 64,097 $ 22 $ — $ 64,119

Obligations of State and Political Subdivisions 939,193 673 ( 162,014 ) 777,852

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Total $ 1,869,198 $ 36,068 $ ( 15,649 ) $ 1,889,617

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 2 – Securities (continued)

All mortgage-backed securities in the above table (identified above and throughout this Note 2 as “MBS/CMO”) are residential and multi-family mortgage-backed securities and guaranteed by government sponsored entities.

11 unchanged sentences

Total $ 2,094,826 $ 1,761,669

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 2 – Securities (continued)

2022 2021 2020

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The carrying value of securities pledged to secure repurchase agreements, public and trust deposits, and for other purposes as required by law was $ 354,123 and $ 222,896 as of December 31, 2022 and 2021, respectively.

Below is a summary of securities with unrealized losses as of year-end 2021 and 2020, presented by length of time the securities have been in a continuous unrealized loss position:

Below is a summary of securities with unrealized losses as December 31, 2022 and 2021, presented by length of time the securities have been in a continuous unrealized loss position:

Less than 12 Months 12 Months or More Total

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Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly.

For available-for-sale debt securities in an unrealized loss position, the Company assesses whether we intend to sell,

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 2 – Securities (continued)

or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.

For available-for-sale debt securities in an unrealized loss position, the Company assesses whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

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Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.

The increase in unrealized losses from December 31, 2021 to December 31, 2022 in the obligations of state and political subdivisions, MBS/CMO and US government sponsored entities and agencies was primarily the result of fair value adjustments caused by the rise in market interest rates.

No allowance for credit losses for available-for-sale debt securities was needed at December 31, 2022 or 2021.

Accrued interest receivable on available-for-sale debt securities totaled $ 8,990 at December 31, 2021 and is excluded from the estimate of credit losses.

The unrealized losses attributable to our state and political subdivisions, mortgage-backed securities and US government sponsored entities and agencies are the result of fluctuations in interest rates.

Accrued interest receivable on available-for-sale debt securities totaled $ 10,637 at December 31, 2022 and $ 8,990 at December 31, 2021.

Accrued interest receivable is excluded from the estimate of credit losses.

The Company’s equity securities are listed as Other Investments on the Consolidated Balance Sheets and consist of one non-controlling investment in a single banking organization at December 31, 2022 and 2021.

The original investment totaled $ 1,350 and other-than-temporary impairment was previously recorded totaling $ 997 .

The Company’s equity securities are considered not to have readily determinable fair value and are carried at cost and evaluated for impairment.

The Company’s equity securities are

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 2 – Securities (continued)

considered not to have readily determinable fair value and are carried at cost and evaluated for impairment.

There was no additional impairment recognized through earnings during 2022 or 2021.

1 unchanged sentence

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.

The notional amounts of these interest rate swaps and the offsetting counterparty derivative instruments were $ 143.6 million and $ 117.6 million at December 31, 2021 and 2020, respectively.

The notional amounts of these interest rate swaps and the offsetting counterparty derivative instruments were $ 134,684 at December 31, 2022 and $ 143,593 at December 31, 2021.

These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions with approved, reputable, independent counterparties with substantially matching terms.

The agreements are considered stand-alone derivatives and changes in the fair value of derivatives are reported in earnings as non-interest income.

While the derivatives represent economic hedges, they do not qualify as hedges for accounting purposes.

Credit risk arises from the possible inability of counterparties to meet the terms of their contracts.

3 unchanged sentences

In addition, the Company minimizes credit risk through credit approvals, limits, and monitoring procedures.

The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of:

The following table reflects the fair value of derivative instruments included in the Consolidated Balance Sheets as of:

December 31, 2022 December 31, 2021

25 unchanged sentences

Loans, net $ 3,740,766 $ 2,967,247

The table above includes $ 21,149 and $ 9,861 of purchase credit deteriorated loans as of December 31, 2022 and 2021, respectively.

As further described in Note 18, during 2022 the Company acquired loans at fair value as part of a business combination.

The table below summarizes the loans acquired on January 1, 2022.

Acquired Loan Balance Fair Value Discounts Fair Value

Bank Acquisition $ 683,501 $ ( 5,359 ) $ 678,142

The table below summarizes the remaining carrying amount of acquired loans included in the December 31, 2022 table above.

Loans Commercial

Loans Agricultural

Loans Leases Consumer

Loans Home Equity Loans Credit Cards Residential

Loan Balance $ 48,330 $ 319,893 $ 46,181 $ — $ 10,249 $ 21,766 $ — $ 70,250 $ 516,669

Fair Value (Discount)/Premium ( 1,051 ) ( 1,893 ) 172 — ( 45 ) ( 176 ) — 477 ( 2,516 )

The Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The carrying amount of these loans is as follow:

Purchase Price of Loans at Acquisition $ 32,997

Allowance for Credit Losses at Acquisition 3,117

Non-Credit Discount/(Premium) at Acquisition 1,456

Total $ 37,570

As previously disclosed, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law in March 2020, providing an approximately $2 trillion stimulus package that included direct payments to individual taxpayers, economic stimulus to significantly impacted industry sectors, emergency funding for hospitals and providers, small business loans, increased unemployment benefits, and a variety of tax incentives.

For small businesses, eligible nonprofits and certain others, the CARES Act established a Paycheck Protection Program (“PPP”), a lending program administered by the Small Business Administration (“SBA”) that is intended to incentivize participants to retain their employees by providing them with loans that are fully guaranteed by the U.S.

For small businesses, eligible nonprofits and certain others, the CARES Act established a Paycheck Protection Program (“PPP”), a lending program administered by the Small Business Administration (“SBA”) that was intended to incentivize participants to retain their employees by providing them with loans that are fully guaranteed by the U.S.

government and subject to forgiveness if program guidelines are met.

The PPP was later extended and modified by the Paycheck Protection Program and Health Care Enhancement Act in April 2020 and the Paycheck Protection Program Flexibility Act in June 2020, with PPP funding under this initial round expiring on August 8, 2020.

In December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was signed into law as part of the Consolidated Appropriations Act, 2021 (the “CAA”).

In addition to direct stimulus payments and other aid, this Act provided for a second round of PPP loans through March 31, 2021.

Under the American Rescue Plan Act of 2021 and the PPP Extension Act of 2021, which were both enacted during March 2021, additional funds were provided for the program and the deadline for applying for PPP loans was extended through May 31, 2021 (with the SBA having been given until June 30, 2021 to process loan applications).

The Company actively participated in both rounds of the PPP, lending funds primarily to its existing loan and/or deposit customers.

The PPP loans carry an interest rate of 1.00 % and included a processing fee that varied depending on the balance of the loan at origination (which fee is recognized over the life of the loan).

The vast majority of the Company’s PPP loans made during 2020 had two-year maturities, while PPP loans made during 2021 have five-year maturities.

Under the first round of the PPP (i.e., the 2020 round), the Company originated loans totaling approximately $ 351,260 in principal amount, with approximately $ 12,024 of related net processing fees on 3,070 PPP loan relationships.

As of December 31, 2021, $ 349,152 of those first round PPP loans had been forgiven by the SBA and repaid to the Company pursuant to the terms of the program or repaid by customers, with $ 12,012 in net processing fees having been recognized by the Company.

Under the second round of the PPP (i.e., the 2021 round), the Company originated loans totaling approximately $ 157,042 in principal amount, with approximately $ 9,022 of related net processing fees, on 2,601 PPP loan relationships.

As of December 31, 2021, $ 138,828 of second round PPP loans had been forgiven by the SBA and repaid to the Company, with $ 8,160 in net processing fees having been recognized by the Company.

As a result of the forgiveness of the first and second round PPP loans, $ 20,322 of total PPP loans remain outstanding as of December 31, 2021, with approximately $ 872 of net fees remaining deferred on that date.

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 4 – Loans (continued)

The Company actively participated in the PPP, lending funds primarily to its existing loan and/or deposit customers.

The PPP loans carried an interest rate of 1.00 % and included a processing fee that varied depending on the balance of the loan at origination (which fee is recognized over the life of the loan).

The vast majority of the Company’s PPP loans made during 2020 had two-year maturities, while PPP loans made during 2021 had five-year maturities.

Under the PPP, the Company originated loans totaling approximately $ 508,302 in principal amount, with approximately $ 21,046 of related net processing fees, on 5,671 PPP loan relationships.

As of December 31, 2021, $ 487,980 of the PPP loans had been forgiven by the SBA and repaid to the Company pursuant to the terms of the program, or otherwise repaid by customers, with $ 20,172 in net processing fees having been recognized by the Company.

As of December 31, 2022, all $ 508,302 of the PPP loans had been forgiven by the SBA and repaid to the Company, or repaid by customers, with all $ 21,046 in net processing fees having been recognized by the Company.

As a result, as of December 31, 2022, no PPP loans remain outstanding and all net fees have been recognized.

Allowance for Credit Losses for Loans:

8 unchanged sentences

Beginning Balance $ 9,554 $ 19,245 $ 4,505 $ 200 $ 507 $ 1,061 $ 240 $ 1,705 $ — $ 37,017

Acquisition of Citizens Union Bank of Shelbyville, KY - PCD Loans 376 1,945 689 — 2 — — 105 — 3,117

Provision (Benefit) for Credit Losses 4,942 463 ( 1,006 ) 9 991 351 163 437 — 6,350

9 unchanged sentences

Allowance for Credit Losses:

Beginning Balance $ 6,445 $ 29,878 $ 6,756 $ 200 $ 490 $ 996 $ 150 $ 1,944 $ — $ 46,859

Provision (Benefit) for Credit Losses 5,825 ( 10,663 ) ( 2,251 ) — 385 44 387 ( 227 ) — ( 6,500 )

Loans Charged-off ( 2,777 ) ( 10 ) — — ( 675 ) ( 15 ) ( 313 ) ( 45 ) — ( 3,835 )

Recoveries Collected 61 40 — — 307 36 16 33 — 493

Total Ending Allowance Balance $ 9,554 $ 19,245 $ 4,505 $ 200 $ 507 $ 1,061 $ 240 $ 1,705 $ — $ 37,017

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

December 31, 2020 Commercial

Loans Commercial

Loans Agricultural

Loans Leases Consumer

Loans Home Equity Loans Credit Cards Residential

Loans Unallocated Total

Allowance for Credit Losses:

Beginning balance Prior to Adoption of ASC 326 $ 4,799 $ 4,692 $ 5,315 $ — $ 434 $ 200 $ — $ 333 $ 505 $ 16,278

18 unchanged sentences

The allowance for credit losses is measured on a collective (pooled) basis when similar risk characteristics exist.

Based on the potential increased losses related to the economic impact of the COVID-19 pandemic, the Bank considered

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

the potential for losses to align with loss experience from the recessionary period from 2008-2011 and qualitative adjustments were made accordingly.

Based on the potential increased losses related to the advancing stress on the economy as a result of inflationary pressures, rising interest rates and financial market volatility, the Bank has considered this loss experience may align with loss experience from the recessionary period from 2008-2011 and qualitative adjustments have been made accordingly.

Loans that do not share risk characteristics are evaluated on an individual basis.

1 unchanged sentence

When the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date adjusted for selling costs.

For the year ended December 31, 2021, the allowance for credit losses decreased primarily due to a decline in individually analyzed loans as well as a decline in the reserve attributable to pandemic-related stressed sectors.

While there continues to be great uncertainty related to COVID-19 on our borrowers and communities, we have recognized improvements in employment and gross domestic product which are key indicators utilized in our forecasting for our allowance calculations.

The impact of fiscal stimulus, including direct payments to individuals, ongoing increased unemployment benefits, as well as the various government-sponsored loan programs, was also considered in our qualitative adjustments.

Since PPP loans are guaranteed by the Small Business Administration (SBA), they have minimal impact on the allowance for credit losses.

For the year ended December 31, 2022, the allowance for credit losses increased primarily due to the acquisition of Citizens Union Bancorp of Shelbyville, Inc.

(see Note 18 (Business Combinations, Goodwill and Intangible Assets) in the Notes), which is slightly offset by a decline in individually analyzed loans as well as a decline in the reserve attributable to financially stressed sectors.

Key indicators utilized in forecasting for the allowance calculations include unemployment rates and gross domestic product.

There has been some improvement in these factors over previous periods;

however, rising interest rates and the expanded inflationary impact on consumer discretionary spending were considered in the qualitative factors to determine the allowance for credit losses.

All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful.

For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

Uncollected accrued interest for each class of loans is reversed against income at the time a loan is placed on non-accrual.

14 unchanged sentences

(1) Includes non-accrual loans with no allowance for credit loss and are also included in Non-Accrual loans totaling $ 12,888 .

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

December 31, 2021 Non-Accrual With No Allowance for Credit Loss ⁽¹⁾ Non-Accrual Loans Past Due Over 89 Days Still Accruing

9 unchanged sentences

Interest income on non-accrual loans recognized during the years ended December 31, 2022 and 2021 totaled $ 32 and $ 80 .

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2022 and 2021:

57 unchanged sentences

The Company uses the same methodology for loans acquired with deteriorated credit quality as for all other loans when determining whether the loan is a troubled debt restructuring.

As of December 31, 2021 and 2020, the Company had trouble debt restructurings totaling $ 104 and $ 111 , respectively.

As of December 31, 2022 the Company had no troubled debt restructurings.

As of December 31, 2021, the Company had troubled debt restructurings totaling $ 104 .

The Company had no specific allocation of allowance for these loans at December 31, 2021.

The Company had no t committed to lending any additional amounts during 2021 or 2020 to customers with outstanding loans that are classified as trouble debt restructurings.

The Company had no t committed to lending any additional amounts during 2022 or 2021 to customers with outstanding loans that are classified as troubled debt restructurings.

During the years ended December 31, 2022 and 2021, the Company had no loans modified as troubled debt restructurings.

Additionally, there were no loans modified as trouble debt restructurings for which there was a payment default within twelve months following the modification during the years ended December 31, 2021 and 2020.

Additionally, there were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the years ended December 31, 2022 and 2021.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

2 unchanged sentences

NOTE 4 – Loans (continued)

Loan Modifications and Troubled Debt Restructurings due to COVID-19

On April 7, 2020, the federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as troubled debt restructurings and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings.

Similarly, under the CARES Act, provisions were included that allow for loan modifications to not be classified as TDRs if certain criteria are met.

This TDR exemption, which was set to expire on December 31, 2020, was extended under the CAA to, effectively, January 1, 2022.

In response to requests from borrowers who had experienced pandemic-related business or personal cash flow interruptions, and in accordance with regulatory guidance, the Company began making short-term loan modifications involving both partial and full payment deferrals in April 2020.

As of December 31, 2021, the Company has just one commercial real estate loan, in the principal amount of $ 3.5 million, with a payment modification that is still in effect, with such credit relationship making full interest payments.

Credit Quality Indicators:

111 unchanged sentences

For certain retail loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

The following tables present the recorded investment in credit cards based on payment activity:

The following table presents the recorded investment in retail loans based on payment activity:

Credit Cards December 31, 2022 December 31, 2021

15 unchanged sentences

$ 46,737 $ 20,132 $ ( 24 ) $ ( 15,759 ) $ — $ 51,086

Allowance for Loan Losses (Prior to January 1, 2020)

Prior to the adoption of ASC 326 on January 1, 2020, the Company calculated the allowance for loan losses using the incurred loss methodology.

The following tables are disclosures related to the allowance for loan losses in prior periods.

The following tables present the activity in the allowance for loan losses by portfolio class for the year ended December 31, 2019:

Leases Commercial

Loans Agricultural

Loans Consumer

Loans Residential

Loans Unallocated Total

December 31, 2019

Beginning Balance $ 2,953 $ 5,291 $ 5,776 $ 229 $ 420 $ 472 $ 682 $ 15,823

Provision for Loan Losses 5,600 ( 308 ) ( 461 ) ( 27 ) 727 ( 29 ) ( 177 ) 5,325

Recoveries 56 29 — 8 432 7 — 532

Loans Charged-off ( 3,810 ) ( 320 ) — ( 10 ) ( 1,145 ) ( 117 ) — ( 5,402 )

Ending Balance $ 4,799 $ 4,692 $ 5,315 $ 200 $ 434 $ 333 $ 505 $ 16,278

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The following tables present the average balance and related interest income of loans individually evaluated for impairment by class of loans for the year ended December 31, 2019:

Investment Interest

Recognized Cash

December 31, 2019

With No Related Allowance Recorded:

Commercial and Industrial Loans and Leases $ 1,175 $ 19 $ 1

Commercial Real Estate Loans 2,947 81 1

Agricultural Loans 1,790 1 —

Subtotal 5,912 101 2

With An Allowance Recorded:

Commercial and Industrial Loans and Leases 3,753 — 1

Commercial Real Estate Loans 3,141 — 1

Agricultural Loans — — —

Subtotal 6,894 — 2

Total $ 12,806 $ 101 $ 4

Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 4,321 $ 61 $ 3

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 1,766 $ — $ —

NOTE 5 – Premises, Furniture, and Equipment

7 unchanged sentences

Depreciation expense was $ 6,648 , $ 5,802 and $ 5,988 for 2022, 2021 and 2020, respectively.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 6 – Deposits

3 unchanged sentences

Total $ 428,469

Time deposits and brokered certificates of deposit of $250 or more at December 31, 2021 and 2020 were $ 56,195 and $ 104,518 , respectively.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 6 – Deposits (continued)

Time deposits and brokered certificates of deposit exceeding the FDIC insurance limit of $250 at December 31, 2022 and 2021 were $ 71,081 and $ 56,195 , respectively.

Time deposits originated from outside the geographic area, generally through brokers, totaled $ 3,277 and $ 4,001 at December 31, 2022 and 2021, respectively.

Deposits from principal officers, directors, and their affiliates at year-end 2021 and 2020 were $ 72.0 million and $ 79.9 million, respectively.

Deposits from principal officers, directors, and their affiliates at year-end 2022 and 2021 were $ 62,435 and $ 71,968 , respectively.

NOTE 7 – FHLB Advances and Other Borrowings

1 unchanged sentence

Information regarding each of these types of borrowings or other indebtedness is as follows:

Principal Unamortized Discount and Debt Issuance Costs Principal Unamortized Discount and Debt Issuance Costs

Long-term Advances from Federal Home Loan Bank collateralized by qualifying mortgages, investment securities, and mortgage-backed securities $ 25,000 $ — $ 25,000 $ —

Junior Subordinated Debentures assumed from American Community Bancorp, Inc.

8,248 ( 1,873 ) 8,248 ( 2,023 )

Junior Subordinated Debentures assumed from River Valley Bancorp, Inc.

7,217 ( 1,082 ) 7,217 ( 1,188 )

Junior Subordinated Debentures assumed from Citizens First Corporation 5,155 ( 919 ) 5,155 ( 984 )

Junior Subordinated Debentures assumed from Citizens Union Bancorp of Shelbyville, Inc.

20,600 ( 2,020 ) — —

Subordinated Debentures 40,000 ( 538 ) 40,000 ( 621 )

9 unchanged sentences

The Company may be required to provide additional collateral based on the value of the underlying securities.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 7 - FHLB Advances and Other Borrowings (continued)

Average Daily Balance During the Year $ 52,932 $ 52,824

2 unchanged sentences

Weighted Average Interest Rate at Year-end 0.57 % 0.10 %

At December 31, 2021, the Company held one long-term FHLB advance with an interest rate of 1.54 %.

At December 31, 2020 interest rates on the fixed rate long-term FHLB advances ranged from 1.54 % to 2.23 % with a weighted average rate of 1.87 %.

At December 31, 2022 and 2021, the Company held one long-term FHLB advance with an interest rate of 1.54 %.

At December 31, 2022 and 2021, the Company had no advances containing options whereby the FHLB may convert a fixed rate advance to an adjustable rate advance.

On June 25, 2019, the Company sold and issued $ 40.0 million in aggregate principal amount of its 4.50 % Fixed-to-Floating Rate Subordinated Notes due 2029 (the “Notes”).

The Company used the proceeds from the offering to pay $ 15.0 million of the approximately $ 15.5 million of cash consideration upon closing of the Citizens First Corporation merger and the remaining balance to repay the Company’s $ 25.0 million term loan from U.S.

Bank National Association (“U.S.

Bank”) dated October 11, 2018.

The Notes have a ten-year term, from and including the date of issuance to but excluding June 30, 2024, and will bear interest at a fixed annual rate of 4.50 %, payable semi-annually in arrears.

From and including June 30, 2024 to but excluding the maturity date or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then-current three-

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 7 - FHLB Advances and Other Borrowings (continued)

month LIBOR (provided, however, that in the event three-month LIBOR is less than zero , three-month LIBOR shall be deemed to be zero ) plus 268 basis points, payable quarterly in arrears.

The Notes are redeemable, in whole or in part, on June 30, 2024, on any scheduled interest payment date thereafter and at any time upon the occurrence of certain events.

The Purchase Agreement contains certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand.

The Notes were issued under an Indenture, dated June 25, 2019, by and between the Company and U.S.

Bank National Association, as trustee.

At December 31, 2022 and 2021, the Company had outstanding $ 39,462 and $ 39,379 , respectively, in aggregate principal amount, of its 4.50 % Fixed-to-Floating Rate Subordinated Notes due 2029 (the “Notes”).

The Notes bear interest at a fixed annual rate of 4.50 % until but excluding June 30, 2024, payable semi-annually in arrears.

The indenture for the Notes provides that, from and including June 30, 2024 to but excluding the maturity date of June 30, 2029, or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then-current three-month LIBOR (provided, however, that in the event three-month LIBOR is less than zero , three-month LIBOR shall be deemed to be zero ) plus 268 basis points, payable quarterly in arrears.

However, in anticipation of LIBOR being discontinued, the indenture also provided for an alternate rate being used when a successor reference rate had been selected by a central bank, reserve bank, monetary authority or any similar institution.

As the Secured Overnight Financing Rate (“SOFR”) has been identified as the preferred alternate rate by the Alternative Reference Rates Committee, a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, and the Federal Reserve subsequently adopted final regulations that, among other things, established LIBOR benchmark replacements based on SOFR under certain circumstances, the Company anticipates that, on June 30, 2024, the quarterly interest on the Notes will be based upon the CME Term SOFR, as the replacement benchmark, including a static spread adjustment for the appropriate tenor as provided by the Federal Reserve regulations, plus the 268 basis points referenced above.

See Replacement of LIBOR Benchmark below for additional information.

The Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries.

4 unchanged sentences

At December 31, 2022, the parent company had a $ 15 million line of credit with U.S.

Bank, which had no outstanding balance.

Bank National Association, which had no outstanding balance.

The line of credit matures September 26, 2023.

Interest on the line of credit is based upon one-month LIBOR plus 1.75 % and includes an unused commitment fee of 0.30 %.

Interest on the line of credit is based upon one-month Term SOFR plus 1.85 %.

At December 31, 2022, scheduled principal payments on long-term borrowings, excluding the capitalized lease obligation and acquired subordinated debentures (which are discussed below) are as follows:

1 unchanged sentence

Total $ 64,462

The Company assumed the obligations of junior subordinated debentures through the acquisitions of American Community Bancorp, Inc., River Valley Bancorp and Citizens First Corporation.

The junior subordinated debentures were issued to ACB Capital Trust I, ACB Capital Trust II, RIVR Statutory Trust I, and Citizens First Statutory Trust I.

The Company assumed the obligations of junior subordinated debentures through the acquisitions of American Community Bancorp, Inc., River Valley Bancorp, Citizens First Corporation and Citizens Union Bancorp of Shelbyville, Inc.

The junior subordinated debentures were issued to ACB Capital Trust I, ACB Capital Trust II, RIVR Statutory Trust I, Citizens First Statutory Trust I, CUB Capital Trust I and CUB Capital Trust II.

The trusts are wholly owned by the Company.

In accordance with accounting guidelines, the trusts are not consolidated with the Company’s financials, but rather the subordinated debentures are shown as borrowings.

The Company guarantees payment of distributions on the trust preferred securities issued by ACB Trust I, ACB Trust II, RIVR Statutory Trust I, and Citizens First Statutory Trust I.

The Company guarantees payment of distributions on the trust preferred securities issued by the various trusts.

Interest is payable on a quarterly basis.

1 unchanged sentence

$ 34,378 of the junior subordinated debentures were treated as Tier 1 capital for regulatory capital purposes as of December 31, 2022.

$ 15,764 of the junior subordinated debentures were treated as Tier 1 capital for regulatory capital purposes as of December 31, 2020.

As a result of the acquisitions of American Community, River Valley, and Citizens First these liabilities were recorded at fair value at the acquisition date with the discount amortizing into interest expense over the life of the liability, ultimately accreting to the issuance amount disclosed below.

$ 16,081 of the junior subordinated debentures were treated as Tier 1 capital for regulatory

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 7 - FHLB Advances and Other Borrowings (continued)

capital purposes as of December 31, 2021.

As a result of the acquisitions, these liabilities were recorded at fair value at the acquisition date with the discount amortizing into interest expense over the life of the liability, ultimately accreting to the issuance amount disclosed below.

The following table summarizes the terms of each issuance:

12 unchanged sentences

5.39 % 1.78 % January 2037

CUB Capital Trust I 10/21/2004 10,310 9,593 3-Month LIBOR + 2.00 %

6.69 % N/A November 2034

CUB Capital Trust II 8/17/2005 10,310 8,987 3-Month LIBOR + 1.50 %

5.58 % N/A October 2035

Replacement of LIBOR Benchmark:

On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law in response to the U.K.

Financial Conduct Authority, the authority regulating LIBOR, announcing that, among other things, the 1-month, 3-month, 6-month and 12-month U.S.

dollar LIBOR settings would cease to exist after June 30, 2023.

The LIBOR Act establishes a uniform national approach for replacing LIBOR in legacy contracts that do not provide for the use of a clearly defined replacement benchmark rate.

As directed by the LIBOR Act, on December 16, 2022, the Federal Reserve issued a final rule setting forth regulations to implement the LIBOR Act, including establishing benchmark replacements based on SOFR for contracts governed by U.S.

law that reference certain tenors of U.S.

dollar LIBOR (the overnight and one-, three-, six-, and 12-month tenors) and that do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate (“fallback provisions”) following the first London banking day after June 30, 2023.

As the junior subordinated debentures discussed above do not have LIBOR fallback provisions, after June 30, 2023, the interest paid on those debentures will be based upon the CME Term SOFR, as the replacement benchmark, including a static spread adjustment for the appropriate tenor, as provided by the LIBOR Act and related Federal Reserve regulations.

The relevant spread adjustment for a three-month tenor is 0.26161 percent.

NOTE 8 - Shareholders ’ Equity

2 unchanged sentences

Capital amounts and classifications are also subject to qualitative judgments by regulators.

Failure to meet capital requirements can initiate

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 8 – Shareholders' Equity (continued)

regulatory action.

Failure to meet capital requirements can initiate regulatory action.

The current risk-based capital rules, as adopted by federal banking regulators, are based upon guidelines developed by the Basel Committee on Banking Supervision and reflect various requirements of the Dodd-Frank Act (the “Basel III Rules”).

9 unchanged sentences

There are no conditions or events since that notification that management believes have changed the institution’s category.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 8 – Shareholders ’ Equity (continued)

At December 31, 2022, consolidated and bank actual capital and minimum required levels are presented below:

15 unchanged sentences

(1) Excludes 2.5 % capital conservation buffer.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 8 – Shareholders' Equity (continued)

At December 31, 2021, consolidated and bank actual capital and minimum required levels are presented below:

17 unchanged sentences

There have been no conditions or events that management believes has changed the classification of the Bank under the prompt corrective action regulations since the last notification from regulators.

Regulations require the maintenance of certain capital levels at the Bank, and may limit the dividends payable by the affiliate to the holding company, or by the holding company to its shareholders.

At December 31, 2021 the Bank had $ 75,000 in retained earnings available for payment of dividends to the parent company without prior regulatory approval.

Regulations require the maintenance of certain capital levels at the Bank, and may limit the

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 8 – Shareholders ’ Equity (continued)

dividends payable by the affiliate to the holding company, or by the holding company to its shareholders.

At December 31, 2022 the Bank had approximately $ 125,000 in retained earnings available for payment of dividends to the parent company without prior regulatory approval.

In December 2018, federal banking regulators approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL.

1 unchanged sentence

The Company has taken advantage of the capital transition relief over the permissible five-year period and will begin the three-year phase-in of the regulatory impact effective January 1, 2022.

The interim final rule, which was finalized effective September 30, 2020, maintained the three-year transition option in the previous rule and provided banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

The Company has taken advantage of the capital transition relief over the permissible five-year period and began the three-year phase-in of the regulatory impact effective January 1, 2022.

Equity Plans and Equity Based Compensation

3 unchanged sentences

It will remain in effect until May 16, 2029, or until all shares of common stock subject to the 2019 LTI Plan are distributed, all awards have expired or terminated, or the plan is terminated pursuant to its terms, whichever occurs first.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 8 – Shareholders' Equity (continued)

Stock Options

9 unchanged sentences

The Company recorded no other stock compensation expense applicable to options during the years ended December 31, 2022, 2021 and 2020.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 8 – Shareholders ’ Equity (continued)

Restricted Stock

15 unchanged sentences

Unrecognized expense associated with the restricted stock grants and cash entitlements totaled $ 2,781 , $ 2,497 , and $ 2,046 as of December 31, 2022, 2021, and 2020, respectively.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 8 – Shareholders' Equity (continued)

The following table presents information on restricted stock grants outstanding for the period shown:

9 unchanged sentences

Employee Stock Purchase Plan

Through August 16, 2019, the company maintained the 2009 Employee Stock Purchase Plan (the “2009 ESPP”) whereby eligible employees had the option to purchase the Company’s common stock at a discount.

The purchase price of the shares under this plan was set at 95 % of the market value of the Company’s common stock as of the last day of the plan year.

The plan had provided for the purchase of up to 750,000 shares of common stock, which the Company may obtain by purchases on the open market or from private sources, or by issuing authorized but unissued common shares.

The Company’s shareholders approved the Company’s new 2019 Employee Stock Purchase Plan on May 16, 2019, as well as an Amended and Restated 2019 Employee Stock Purchase Plan on May 21, 2020, which was amended and restated to reflect certain clarifying changes (the “2019 ESPP”).

The 2019 ESPP replaces the 2009 ESPP, which expired on its own terms on August 16, 2019.

The 2019 ESPP, which first became effective as of October 1, 2019, provides for a series of 3 -month offering periods, commencing on the first day and ending on the last trading day of each calendar quarter, for the purchase of the Company’s common stock by participating employees.

The Company’s shareholders approved the Company’s 2019 Employee Stock Purchase Plan on May 16, 2019, as well as an Amended and Restated 2019 Employee Stock Purchase Plan on May 21, 2020, which was amended and restated to reflect certain clarifying changes (the “2019 ESPP”).

The 2019 ESPP replaced the Company’s 2009 Employee Stock Purchase Plan, which expired by its own terms on August 16, 2019.

The 2019 ESPP provides for a series of 3 -month offering periods, commencing on the first day and ending on the last trading day of each calendar quarter, for the purchase of the Company’s common stock by participating employees.

The purchase price of the shares has been set at 95 % of the fair market value of the Company’s common stock on the last trading day of the offering period.

4 unchanged sentences

In 2021, the Company recorded $ 45 of expense, $ 34 net of tax, for the employee stock purchase plan.

In 2019, the Company recorded $ 23 of expense, $ 1 net of tax, for the employee stock purchase plan.

In 2020, the Company recorded $ 40 of expense,

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 8 – Shareholders ’ Equity (continued)

$ 30 net of tax, for the employee stock purchase plan.

There was no unrecognized compensation expense as of December 31, 2022, 2021 and 2020 for the Employee Stock Purchase Plans.

9 unchanged sentences

The actual timing, number and share price of shares purchased under the repurchase plan will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted.

Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S.

corporations, like the Company.

With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

NOTE 9 - Employee Benefit Plans

11 unchanged sentences

In conjunction with the plans, the Company purchased life insurance on certain directors and officers.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 9 – Employee Benefit Plans (continued)

Postretirement Medical and Life Benefit Plan

23 unchanged sentences

Discount Rate 4.83 % 2.31 % 1.81 %

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 9 – Employee Benefit Plans (continued)

Assumed Health Care Cost Trend Rates at Year-end:

2 unchanged sentences

Year that the Rate Reaches the Rate it is Assumed to Remain at 2028 2028

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan.

A one-percentage-point change in assumed health care cost trend rates would have the following effects as of December 31, 2021:

One-Percentage-Point

Increase One-Percentage-Point

Effect on Total of Service and Interest Cost $ 17 $ ( 15 )

Effect on Postretirement Benefit Obligation $ 116 $ ( 103 )

Contributions

3 unchanged sentences

2028-2032 857

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 9 – Employee Benefit Plans (continued)

Multi-Employer Pension Plan

11 unchanged sentences

The Company's contributions to the Pentegra DB Plan for the fiscal year ending December 31, 2022 were not more than 5 % of total contributions to the Pentegra DB Plan for the year ending June 30, 2021.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 10 - Income Taxes

11 unchanged sentences

Income from Tax-exempt Loans and Investments ( 5,223 ) ( 3,872 ) ( 2,681 )

Non-deductible Merger Costs 177 — —

State Income Tax, Net of Federal Tax Effect 1,923 2,492 1,116

3 unchanged sentences

Total Income Taxes $ 17,351 $ 18,648 $ 12,834

The net deferred tax liability at December 31 consists of the following:

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 10 – Income Taxes (continued)

The net deferred tax asset/(liability) at December 31 consists of the following:

Deferred Tax Assets:

1 unchanged sentence

Lease Liability (Operating Leases) 1,585 1,542

Unrealized Loss on Securities 70,234 —

Deferred Compensation and Employee Benefits 1,162 878

5 unchanged sentences

Non-Accrual Loan Interest Income 629 567

General Business Tax Credits 198 —

Net Operating Loss Carryforward 828 447

15 unchanged sentences

Valuation Allowance — —

Net Deferred Tax Liability $ ( 6,931 ) $ ( 9,635 )

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 10 – Income Taxes (continued)

Net Deferred Tax Asset/(Liability) $ 66,480 $ ( 6,931 )

Under the Internal Revenue Code, through 1996, three acquired banking companies, which are now a part of the Company’s single banking subsidiary, were allowed a special bad debt deduction related to additions to tax bad debt reserves established for the purpose of absorbing losses.

8 unchanged sentences

The unrecorded deferred income tax liability on the above amount at December 31, 2022 was approximately $ 1,070 .

As of December 31, 2021, the Company had net operating loss carryforwards of $ 11,317 , which expire in years ranging from 2022 through 2039.

These net operating loss carryforwards were primarily derived from the acquisition of First Security and Citizens First.

As of December 31, 2022, the Company had Kentucky net operating loss carryforwards of $ 20,974 , which expire in years ranging from 2029 through 2040.

These net operating loss carryforwards are expected to be fully utilized before their expiration dates.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 10 – Income Taxes (continued)

Unrecognized Tax Benefits

4 unchanged sentences

Federal income tax return, which is subject to examination for all years after 2018.

The Company and its corporate subsidiaries doing business in Indiana file a combined Indiana unitary return, which is subject to examination for all years after 2016.

The Company and its corporate subsidiaries file combined/unitary returns in various states, which are subject to examination for all years after 2018.

NOTE 11 - Revenue Recognition

5 unchanged sentences

In-Scope of Topic 606:

Wealth Management & Investment Services Income $ 10,321 $ 8,005 $ 7,278

Wealth Management Fees $ 10,076 $ 10,321 $ 8,005

Service Charges on Deposit Accounts 11,457 7,723 7,334

8 unchanged sentences

The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services.

Transaction-based fees, which include services such as stop payment charges and

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 11 – Revenue Recognition (continued)

statement rendering, are recognized at the time the transaction is executed (the point in time the Company fills the customer’s request).

Transaction-based fees, which include services such as stop payment charges and statement rendering, are recognized at the time the transaction is executed (the point in time the Company fills the customer’s request).

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.

3 unchanged sentences

Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Wealth Management and Investment Services Income:

Wealth Management Fees:

The Company earns wealth management and investment services income from its contracts with wealth management customers to manage assets for investment and/or to transact their accounts.

4 unchanged sentences

These commissions are primarily earned over time as the Company provides the contracted insurance product to customers.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 12 – Per Share Data

21 unchanged sentences

The lease liability is included in the ‘Accrued Interest Payable and Other Liabilities’ line of the consolidated balance sheet.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 13 – Leases (continued)

The Company used the implicit lease rate when determining the present value of lease payments for finance leases.

8 unchanged sentences

Total Lease Cost $ 2,044 $ 2,058

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 13 – Leases (continued)

The weighted average lease term and discount rates were as follows:

20 unchanged sentences

Financing Cash Flows from Finance Leases 186 155

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 13 – Leases (continued)

The following table presents a maturity analysis of Finance and Operating Lease Liabilities:

14 unchanged sentences

The Company uses the same credit policy to make commitments as it uses for on-balance sheet items.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 14 – Commitments and Off-balance Sheet Items (continued)

The Company’s exposure to credit risk for commitments to sell loans is dependent upon the ability of the counter-party to purchase the loans.

16 unchanged sentences

Collateral obtained upon exercise of the commitment is determined using management’s credit evaluation of the borrower, and may include accounts receivable, inventory, property, land, and other items.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 15 – Fair Value

12 unchanged sentences

Level 3 pricing is obtained from a third-party based upon similar trades that are not traded frequently without adjustment by the Company.

At December 31, 2021, the Company held no Level 3 securities which consist of non-rated Obligations of State and Political Subdivisions.

Absent the credit rating, significant assumptions must be made such that the credit risk input becomes an unobservable input and thus these investment securities are reported by the Company in a Level 3 classification.

At December 31, 2022, the Company held $ 83 in Level 3 securities which consist of non-rated Obligations of State and Political Subdivisions and $ 906 in Level 3 securities which consist of non-rated MBS/CMO.

Absent the credit rating, significant

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)

assumptions must be made such that the credit risk input becomes an unobservable input and thus these investment securities are reported by the Company in a Level 3 classification.

The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

19 unchanged sentences

The fair values of loans held for sale are determined by using quoted prices for similar assets, adjusted for specific attributes of that loan resulting in a Level 2 classification.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)

Assets and Liabilities Measured on a Recurring Basis

9 unchanged sentences

(Level 3) Total

Treasury $ 64,119 $ — $ — $ 64,119

Obligations of State and Political Subdivisions — 777,769 83 777,852

5 unchanged sentences

Derivative Liabilities $ — $ 9,749 $ — $ 9,749

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)

Fair Value Measurements at December 31, 2021 Using

19 unchanged sentences

The total amount of gains and losses from changes in fair value included in earnings for the years ended December 31, 2022, 2021 and 2020 for loans held for sale were $( 163 ), $( 237 ), and $ 191 , respectively.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2022 and 2021:

Obligations of State and Political Subdivisions

Obligations of State and Political Subdivisions MBS/CMO

2022 2021 2022 2021

Balance of Recurring Level 3 Assets at January 1 $ — $ 497 $ — $ —

1 unchanged sentence

Maturities / Calls — ( 495 ) — —

Purchases — —

Acquired through Bank Acquisition 100 — 982 —

Balance of Recurring Level 3 Assets at December 31 $ 83 $ — $ 906 $ —

Of the total gain/loss included in earnings for the years ended December 31, 2022 and 2021, $( 93 ) and $( 2 ) was attributable to other changes in fair value, respectively.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)

Assets and Liabilities Measured on a Non-Recurring Basis

9 unchanged sentences

Agricultural Loans — — 2,970 2,970

Consumer Loans — — 8 8

Home Equity Loans — — 368 368

9 unchanged sentences

Agricultural Loans — — 79 79

Consumer Loans — — — —

Home Equity Loans — — 345 345

22 unchanged sentences

Not all of the Company’s assets and liabilities are considered financial instruments, and therefore are not included in the tables.

Because no active market exists for a significant portion of the Company’s financial instruments, fair value estimates were based on subjective judgments, and therefore cannot be determined with precision.

Because no active market exists for a significant

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 15 – Fair Value (continued)

portion of the Company’s financial instruments, fair value estimates were based on subjective judgments, and therefore cannot be determined with precision.

Fair Value Measurements at

42 unchanged sentences

The evaluation process for segments does not include holding company income and expense.

Holding company amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the column labeled “Other” below, along with amounts to eliminate transactions between segments.

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 16 – Segment Information (continued)

company amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the column labeled “Other” below, along with amounts to eliminate transactions between segments.

Banking Wealth Management Services Insurance Other Consolidated

3 unchanged sentences

Net Gains on Securities 589 — — ( 27 ) 562

Wealth Management and Investment Services Income 4 10,317 — — 10,321

Wealth Management Fees 4 10,072 — — 10,076

Insurance Revenues 31 12 9,977 — 10,020

10 unchanged sentences

Net Gains on Securities 2,247 — — — 2,247

Wealth Management and Investment Services Income 3 8,002 — — 8,005

Wealth Management Fees 4 10,317 — — 10,321

Insurance Revenues 14 7 9,247 — 9,268

10 unchanged sentences

Net Gains on Securities 4,081 — — — 4,081

Wealth Management and Investment Services Income 4 7,274 — — 7,278

Wealth Management Fees 3 8,002 — — 8,005

Insurance Revenues 12 15 8,895 — 8,922

Noncash Items:

Provision for Loan Losses 5,325 — — — 5,325

Provision for Credit Losses 17,550 — — — 17,550

Depreciation and Amortization 9,012 28 68 321 9,429

27 unchanged sentences

NOTE 17 – Parent Company Financial Statements (continued)

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,

17 unchanged sentences

NET INCOME 81,825 84,137 62,210

Other Comprehensive Income:

Other Comprehensive Income (Loss):

Changes in Unrealized Gain (Loss) on Securities, Available-for-Sale ( 278,976 ) ( 19,891 ) 20,270

Changes in Unrecognized Loss in Postretirement Benefit Obligation, Net 54 — —

TOTAL COMPREHENSIVE INCOME $ 64,246 $ 82,480 $ 81,425

TOTAL COMPREHENSIVE INCOME (LOSS) $ ( 197,097 ) $ 64,246 $ 82,480

Notes to the Consolidated Financial Statements

17 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from Issuance of Long-term Debt — — 39,213

Repayment of Long-term Debt — — ( 25,000 )

Issuance (Retirement) of Common Stock — — ( 5,789 )

6 unchanged sentences

Business Combinations

Citizens First Acquisition

Effective July 1, 2019, the Company acquired Citizens First Corporation (“Citizens First”) and its subsidiary, Citizens First Bank, Inc., pursuant to an Agreement and Plan of Reorganization dated February 22, 2019.

The acquisition was accomplished by the merger of Citizens First with and into the Company, immediately followed by the merger of Citizens First Bank with and into the Company’s subsidiary bank, German American Bank.

Citizens First Bank operated 8 banking offices in Barren, Hart, Simpson and Warren Counties in Kentucky.

Citizens First’s consolidated assets and equity (unaudited) as of July 1, 2019 totaled $ 456.0 million and $ 49.8 million, respectively.

The Company accounted for the transaction under the acquisition method of accounting which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition.

In accordance with ASC 805, the Company expensed approximately $ 3.3 million of direct acquisition costs and recorded $ 17.7 million of goodwill and $ 4.5 million of intangible assets.

On January 1, 2022, the Company acquired Citizens Union Bancorp of Shelbyville, Inc.

(“CUB”) through the merger of CUB with and into the Company.

This was immediately followed by the merger of Citizens Union Bank of Shelbyville, Inc., a wholly-owned subsidiary of CUB, into the Company’s subsidiary bank, German American Bank.

CUB, headquartered in Shelbyville, Kentucky, operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through Citizens Union Bank of Shelbyville, Inc.

As of the closing of the transaction, CUB had total assets of $ 1,108,546 , total loans of $ 683,807 , and total deposits of $ 930,533 .

The Company accounted for the transaction under the acquisition method of accounting which means these financial assets and liabilities were recorded at fair value at the day of acquisition.

The fair value of the common shares issued as part of the consideration paid for CUB was based upon the closing price of the Company’s common shares on the acquisition date.

In accordance with ASC 805, the Company has expensed approximately $ 12,323 of direct acquisition costs and recorded $ 58,596 of goodwill and $ 7,572 of intangible assets.

The goodwill of $ 58,596 arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies.

This goodwill will be evaluated annually for impairment and is non-deductible for tax purposes.

The intangible assets are related to core deposits and are being amortized over 8 years.

For tax purposes, goodwill totaling $ 17.7 million is non-deductible but will be evaluated annually for impairment.

The following table summarizes the fair value of the total consideration transferred as a part of the Citizens First acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.

The following table summarizes the fair value of the total consideration transferred as a part of the CUB acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.

Notes to the Consolidated Financial Statements

8 unchanged sentences

Cash $ 20,244

Federal Funds Sold and Other Short-term Investments 238,325

Interest-bearing Time Deposits with Banks 250

13 unchanged sentences

Goodwill $ 58,596

Under the terms of the merger agreement, each Citizens First common shareholder of record at the effective time of the merger (other than those holding shares in the Citizens First Bank 401(k) Profit Sharing Plan (the “CFB 401(k) Plan”)) became entitled to receive a cash payment of $ 5.80 and a 0.6629 share of common stock of the Company for each of their former shares of Citizens First common stock.

In addition, as record holder of shares of Citizens First common stock held in the CFB 401(k) Plan, the plan administrator was entitled to receive a cash payment of $ 25.77 for each share held by the CFB 401(k) Plan, which amount is equal to (i) the exchange ratio multiplied by the closing trading price of the Company’s common stock on June 28, 2019, plus (ii) $ 5.80 .

As a result, in connection with the closing of the merger on July 1, 2019, the Company issued approximately 1,664,000 shares of its common stock to the former shareholders of Citizens First and paid cash consideration in the aggregate amount of $ 15.5 million.

Under the terms of the merger agreement, each CUB common shareholder of record at the effective time of the merger became entitled to receive a cash payment of $ 13.44 and a 0.7739 share of common stock of the Company for each of their former shares of CUB common stock.

As a result, in connection with the closing of the merger on January 1, 2022, the Company issued 2,870,975 shares of its common stock to the former shareholders of CUB and paid cash consideration in the aggregate amount of $ 50.8 million.

This acquisition is consistent with the Company’s strategy to build a regional presence in central and western Kentucky.

The acquisition offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region.

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date.

The fair value adjustments were determined using discounted cash flows.

However, the Company believes that all contractual cash flows related to these financial instruments will be collected.

As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which are loans that have shown evidence of credit deterioration since origination.

Receivables acquired that were not subject to these requirements include non-impaired loans and customer receivables with a fair value of $ 349.9 million and unpaid principal of $ 353.3 million on the date of acquisition.

The fair value of purchased financial assets with credit deterioration was $ 29,868 on the date of acquisition.

The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $ 34,453 .

The Company estimates, on the date of acquisition, that $ 3,117 of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2021 after giving effect to certain adjustments.

The unaudited pro forma information for the year ended December 30, 2022 and 2021 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects.

The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 18 – Business Combinations, Goodwill and Intangible Assets (continued)

Unaudited Pro Forma

Year Ended 12/31/2022 Unaudited Pro Forma

Year Ended 12/31/2021

Net Interest Income $ 200,584 $ 195,691

Non-interest Income 59,133 64,951

Total Revenue 259,717 260,642

Provision for Credit Losses 50 ( 8,707 )

Non-interest Expense 141,868 142,978

Income Before Income Taxes 117,799 126,371

Income Tax Expense 21,858 24,260

Net Income $ 95,941 $ 102,111

Earnings Per Share and Diluted Earnings Per Share $ 3.26 $ 3.47

For the year ended December 31, 2022, the above pro forma financial information excludes non-recurring merger costs that totaled $ 12,323 on a pre-tax basis and Day 1 provision for credit losses under the CECL model of $ 6,300 on a pre-tax basis.

The changes in the carrying amount of goodwill for the periods ended December 31, 2022, 2021, and 2020, were classified as follows:

2 unchanged sentences

Acquired Goodwill 58,596 ( 195 ) 650

Adjustments ( 195 ) — —

Impairment — — —

End of Year $ 180,357 $ 121,761 $ 121,956

Of the $ 180,357 carrying amount of goodwill, $ 179,025 is allocated to the core banking segment, and $ 1,332 is allocated to the insurance segment for the period ended December 31, 2022.

Of the $ 121,761 carrying amount of goodwill, $ 120,429 is allocated to the core banking segment, and $ 1,332 is allocated to the insurance segment for the period ended December 31, 2021.

The decrease of $ 195 in 2021 is attributable to the sale of two branches located in Lexington, Kentucky.

1 unchanged sentence

During 2020, the Company finalized valuation estimates for the Citizens First acquisition and recorded $ 650 of additional goodwill.

Of the $ 121,306 carrying amount of goodwill, $ 119,974 is allocated to the core banking segment, and $ 1,332 is allocated to the insurance segment for the period ended December 31, 2019.

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value.

8 unchanged sentences

Total $ 38,912 $ ( 30,636 )

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 18 – Business Combinations, Goodwill and Intangible Assets (continued)

Gross Amount Accumulated Amortization

4 unchanged sentences

Amortization Expense was $ 3,711 , $ 2,731 and $ 3,539 , for 2022, 2021 and 2020.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 18 – Business Combinations, Goodwill and Intangible Assets (continued)

Estimated amortization expense for each of the next five years is as follows:

27 unchanged sentences

Ending Balance $ 16,052 $ ( 568 ) $ 15,484

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 19 – Other Comprehensive Income (Loss) (continued)

The table below summarizes the classifications out of accumulated other comprehensive income (loss) by component for the year ended December 31, 2022:

8 unchanged sentences

Total Reclassifications for the Period $ 444

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 19 – Other Comprehensive Income (Loss) (continued)

The table below summarizes the classifications out of accumulated other comprehensive income (loss) by component for the year ended December 31, 2021:

17 unchanged sentences

— Income Tax Expense

( 27 ) Net of Tax

Total Reclassifications for the Period $ 3,224

NOTE 20 - Subsequent Events

On January 1, 2022, the Company acquired Citizens Union Bancorp of Shelbyville, Inc.

(“CUB”) through the merger of CUB with and into the Company.

This was immediately followed by the merger of Citizens Union Bank of Shelbyville, Inc., a wholly-owned subsidiary of CUB, into the Company’s subsidiary bank, German American Bank.

As of the closing of the transaction, CUB had total assets of approximately $ 1,108,546 (unaudited), total loans of approximately $ 683,807 (unaudited), and total deposits of approximately $ 930,533 (unaudited).

The acquired assets and liabilities will be recorded at fair value at the date of acquisition and will be reflected in the Company’s March 31, 2022 financial statements as such.

At the time of these consolidated financial statements, the Company is evaluating CUB’s loan portfolio to determine the impact of day-one accounting under the CECL methodology.

Valuations and appraisals on other assets and liabilities are also in process and are not complete as of the time of these financial statements.

The Company issued approximately 2.9 million shares of its common stock, and paid approximately $ 50,805 in cash, in exchange for all of the issued and outstanding shares of common stock of CUB.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 20 – Subsequent Events (continued)

This acquisition was consistent with the Company’s strategy to build a regional presence in Southern Indiana and Kentucky.

Consideration

Cash for Stock Options and Fractional Shares $ 942

Cash Consideration 49,863

Equity Instruments 111,914

Fair Value of Total Consideration Transferred $ 162,719

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data