What changed in this filing

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Item 1. Financial Statements

2022-04-27 compared with 2021-10-27 · 220 added, 431 removed, 791 unchanged (45% of the section changed)

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

September 30,

2022 December 31,

16 unchanged sentences

Total deposits 5,820,623 5,735,407

Federal Home Loan Bank advances 75,000 75,000

Miscellaneous borrowings 0 10,500

Total borrowings 75,000 85,500

Borrowings - Federal Home Loan Bank advances 75,000 75,000

Accrued interest payable 2,303 2,619

4 unchanged sentences

90,000,000 shares authorized, no par value

25,775,133 shares issued and 25,299,178 outstanding as of September 30, 2021

25,816,997 shares issued and 25,346,149 outstanding as of March 31, 2022

25,777,609 shares issued and 25,300,793 outstanding as of December 31, 2021

1 unchanged sentence

Retained earnings 596,578 583,134

Accumulated other comprehensive income 10,932 27,744

Treasury stock at cost ( 475,955 shares as of September 30, 2021, 473,660 shares as of December 31, 2020)

Accumulated other comprehensive income (loss) ( 93,687 ) 16,093

Treasury stock at cost ( 470,848 shares as of March 31, 2022, 476,816 shares as of December 31, 2021)

( 15,016 ) ( 15,025 )

3 unchanged sentences

Total liabilities and equity $ 6,572,259 $ 6,557,323

* Beginning January 1, 2021 calculation is based on the current expected credit loss methodology.

Prior to January 1, 2021 calculation was based on the incurred loss methodology.

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

NET INTEREST INCOME

21 unchanged sentences

Merchant card fee income 815 622

Bank owned life insurance income 640 932 2,101 1,476

Bank owned life insurance income (loss) ( 83 ) 756

Interest rate swap fee income 50 249

Mortgage banking income (loss) ( 32 ) 1,005 1,756 2,945

Mortgage banking income 509 1,373

Net securities gains 0 753

18 unchanged sentences

DILUTED EARNINGS PER COMMON SHARE $ 0.92 $ 0.90

* Beginning January 1, 2021 calculation is based on the current expected credit loss methodology.

Prior to January 1, 2021 calculation was based on the incurred loss methodology.

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited - in thousands)

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited - in thousands)

Three months ended March 31,

Net income $ 23,642 $ 22,983

12 unchanged sentences

Total other comprehensive income (loss), net of tax ( 109,780 ) ( 12,634 )

Comprehensive income $ 12,780 $ 23,198 $ 54,638 $ 72,910

Comprehensive income (loss) $ ( 86,138 ) $ 10,349

The accompanying notes are an integral part of these consolidated financial statements.

7 unchanged sentences

Interest Total

Balance at July 1, 2020

25,233,280 $ 113,424 $ 496,891 $ 24,802 $ ( 14,314 ) $ 620,803 $ 89 $ 620,892

Comprehensive income:

Net income 22,776 22,776 22,776

Other comprehensive income, net of tax 422 422 422

Cash dividends declared and paid, $ 0.30 per share

( 7,626 ) ( 7,626 ) ( 7,626 )

Treasury shares purchased under deferred directors' plan ( 4,709 ) 212 ( 212 ) 0 0

Stock activity under equity compensation plans 7,800 0 0 0

Stock based compensation expense 375 375 375

Balance at September 30, 2020 25,236,371 $ 114,011 $ 512,041 $ 25,224 $ ( 14,526 ) $ 636,750 $ 89 $ 636,839

Balance at July 1, 2021

Balance at January 1, 2021

25,239,748 $ 114,927 $ 529,005 $ 27,744 $ ( 14,581 ) $ 657,095 $ 89 $ 657,184

Adoption of ASU 2016-13 ( 6,951 ) ( 6,951 ) $ ( 6,951 )

Comprehensive income:

Net income 22,983 22,983 22,983

Other comprehensive income, net of tax ( 11,339 ) ( 11,339 ) ( 11,339 )

Other comprehensive income (loss), net of tax ( 12,634 ) ( 12,634 ) ( 12,634 )

Cash dividends declared and paid, $ 0.34 per share

4 unchanged sentences

Stock based compensation expense 1,381 1,381 1,381

Balance at September 30, 2021 25,299,178 $ 119,625 $ 567,518 $ 10,932 $ ( 14,962 ) $ 683,113 $ 89 $ 683,202

Nine Months Ended

Common Stock Retained

Earnings Accumulated Other Comprehensive

Income (Loss) Treasury

Stock Total Stockholders’

Equity Noncontrolling

Interest Total

Balance at March 31, 2021 25,290,908 $ 114,764 $ 536,390 $ 15,110 $ ( 14,685 ) $ 651,579 $ 89 $ 651,668

Balance at January 1, 2022

Comprehensive income:

Net income 59,745 59,745 59,745

Other comprehensive income, net of tax 13,165 13,165 13,165

Cash dividends declared and paid, $ 0.90 per share

25,300,793 $ 120,615 $ 583,134 $ 16,093 $ ( 15,025 ) $ 704,817 $ 89 $ 704,906

Treasury shares purchased under share repurchase plan ( 289,101 ) 0 ( 10,012 ) ( 10,012 ) ( 10,012 )

Treasury shares purchased under deferred directors' plan ( 10,450 ) 480 ( 480 ) 0 0

Treasury shares sold and distributed under deferred directors' plan 5,748 ( 119 ) 119 0 0

Stock activity under equity compensation plans 85,899 ( 2,030 ) ( 2,030 ) ( 2,030 )

Stock based compensation expense 822 822 822

Balance at September 30, 2020 25,236,371 $ 114,011 $ 512,041 $ 25,224 $ ( 14,526 ) $ 636,750 $ 89 $ 636,839

Balance at January 1, 2021 25,239,748 $ 114,927 $ 529,005 $ 27,744 $ ( 14,581 ) $ 657,095 $ 89 $ 657,184

Adoption of ASU 2016-13 ( 6,951 ) ( 6,951 ) ( 6,951 )

Comprehensive income:

Comprehensive loss:

Net income 23,642 23,642 23,642

Other comprehensive loss, net of tax ( 16,812 ) ( 16,812 ) ( 16,812 )

Other comprehensive income (loss), net of tax ( 109,780 ) ( 109,780 ) ( 109,780 )

Cash dividends declared and paid, $ 0.40 per share

4 unchanged sentences

Stock based compensation expense 2,260 2,260 2,260

Balance at September 30, 2021 25,299,178 $ 119,625 $ 567,518 $ 10,932 $ ( 14,962 ) $ 683,113 $ 89 $ 683,202

Balance at March 31, 2022 25,346,149 $ 121,138 $ 596,578 $ ( 93,687 ) $ ( 15,016 ) $ 609,013 $ 89 $ 609,102

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)

Nine Months Ended September 30, 2021 2020

Three Months Ended March 31, 2022 2021

Cash flows from operating activities:

3 unchanged sentences

Provision for credit losses 417 1,477

Gain on sale and write down of other real estate owned ( 53 ) 0

Amortization of loan servicing rights 223 198

7 unchanged sentences

Stock based compensation expense 2,260 1,381

Earnings on life insurance ( 2,101 ) ( 1,476 )

Losses (earnings) on life insurance 83 ( 756 )

Gain on life insurance 0 ( 202 )

12 unchanged sentences

Purchases of land, premises and equipment ( 1,091 ) ( 2,162 )

Proceeds from sales of other real estate 946 0

Proceeds from redemption of Federal Home Loan Bank stock 932 0

Proceeds from life insurance 0 329

3 unchanged sentences

Net increase (decrease) in short-term borrowings 0 ( 10,500 )

Payments on short-term FHLB borrowings 0 ( 170,000 )

Proceeds from long-term FHLB borrowings 0 75,000

Common dividends paid ( 10,198 ) ( 8,647 )

Preferred dividends paid ( 13 ) ( 13 )

Payments related to equity incentive plans ( 1,728 ) ( 1,648 )

Purchase of treasury stock ( 212 ) ( 219 )

Sale of treasury stock 221 115

Net cash from financing activities 73,299 172,266

4 unchanged sentences

Interest $ 3,470 $ 5,973

Income taxes 20,637 14,380

Supplemental non-cash disclosures:

1 unchanged sentence

Securities purchases payable 2,146 5,855

* Beginning January 1, 2021 calculation is based on the current expected credit loss methodology.

Prior to January 1, 2021 calculation was based on the incurred loss methodology.

Right-of-use assets obtained in exchange for lease liabilities 1,612 0

The accompanying notes are an integral part of these consolidated financial statements.

10 unchanged sentences

In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included.

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2021.

Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2022.

The Company’s 2021 Annual Report on Form 10-K should be read in conjunction with these statements.

Adoption of New Accounting Standards

In June 2016, the FASB issued ASU 2016-13 Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This update, commonly referred to as the current expected credit losses methodology (“CECL”), changes the accounting for credit losses on loans and debt securities.

Under the new guidance, the Company’s measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

For loans, this measurement takes place at the time the financial asset is first added to the balance sheet and periodically thereafter.

This differs significantly from the “incurred loss” model previously required, but still permitted, under GAAP, which delays recognition until it is probable a loss has been incurred.

In addition, the guidance modifies the other-than-temporary impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods.

This guidance was effective, subject to optional delay discussed below, for the Company for fiscal years beginning after December 15, 2019, including interim periods in those fiscal years.

As previously disclosed, the Company implemented the CECL methodology and ran it concurrently with the historical incurred method.

Under a provision provided by the CARES Act, the Company elected to delay the adoption of FASB’s new rule covering the CECL standard.

On December 27, 2020, then-President Trump signed into law the Consolidated Appropriations Act, 2021.

This law extended relief for troubled debt restructurings and provided for further delay of the current expected credit losses adoption under the CARES Act to January 1, 2022, with early adoption permitted.

The Company elected to remain on the incurred loan loss methodology for 2020.

The Company adopted ASU 2016-13 during the first quarter of 2021, effective January 1, 2021.

Upon adoption, the Company recognized a $ 9.1 million increase in the allowance for credit losses.

This resulted in a one-time cumulative effect adjustment decreasing retained earnings as of January 1, 2021 by $ 7.0 million, net of deferred taxes of $ 2.1 million.

The Company did not recognize an allowance for credit impairment for available-for-sale securities.

The following table illustrates the impact of adoption of the ASU:

January 1, 2021

(dollars in thousands) As Reported Under

ASC 326 Pre-ASC 326

Adoption Impact of

Commercial and industrial loans $ 32,645 $ 28,333 $ 4,312

Commercial real estate and multi-family residential loans 27,223 22,907 4,316

Agri-business and agricultural loans 4,103 3,043 1,060

Other commercial loans 1,357 416 941

Consumer 1-4 family loans 3,572 2,619 953

Other consumer loans 1,300 951 349

Unallocated 258 3,139 ( 2,881 )

Allowance for credit losses $ 70,458 $ 61,408 $ 9,050

The Company’s loan segmentation, as disclosed in “Note 3 – Loans”, did not change as a result of adopting this ASU.

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC 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.

In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL.

The interim final rule 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).

The Company is not adopting the capital transition relief over the permissible three-year or five-year periods.

In August 2018, the FASB issued ASU 2018-14 “Compensation — Retirement Benefits — Defined Benefit Plans — General (Topic 715-20):

Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans.” The ASU updated the annual disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans by adding, clarifying and removing certain disclosures.

These amendments are effective for fiscal years ending after December 15, 2020, for public business entities, and are to be applied on a retrospective basis to all periods presented.

The Company adopted this new accounting standard on January 1, 2021, and the adoption did not have a material impact on its financial statements.

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” These amendments remove specific exceptions to the general principles in Topic 740 in GAAP.

It eliminates the need for an organization to analyze whether the following apply in a given period:

exception to the incremental approach for intraperiod tax allocation;

exceptions to accounting for basis differences where there are ownership changes in foreign investments;

and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

It also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for:

franchise taxes that are partially based on income;

transactions with a government that result in a step up in the tax basis of goodwill;

separate financial statements of legal entities that are not subject to tax.

It also enacts changes in tax laws in interim periods.

The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The Company adopted this new accounting standard on January 1, 2021, and the adoption did not have a material impact on its financial statements.

In January 2020, the FASB issued ASU No.

2020-1 “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” These amendments, among other things, clarify that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments-Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

The amendments also clarify that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.

The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early application is permitted, including early adoption in an interim period.

An entity should apply ASU 2020-1 prospectively at the beginning of the interim period that includes the adoption date.

The Company adopted ASU 2020-1 on January 1, 2021 and it did not have a material impact on its financial statements.

In October 2020, the FASB issued ASU No.

2020-8, " Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs ," to clarify that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period.

The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and early application is not permitted.

The Company adopted this new accounting standard on January 1, 2021, and the adoption did not have a material impact on its financial statements.

Newly Issued But Not Yet Effective Accounting Standards

On March 12, 2020, the FASB issued Accounting Standards Update (ASU) 2020-04, " Reference Rate Reform (“ASC 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASC 848 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

" ASC 848 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

The Company has formed a cross-functional project team to lead the transition from LIBOR to a planned adoption of reference rates which could include Secured Overnight Financing Rate (“SOFR”), amongst others.

2 unchanged sentences

The Company has adhered to the International Swaps and Derivatives Association 2020 IBOR Fallbacks Protocol that was released on October 23, 2020.

The Company will discontinue the use of new LIBOR-based loans no later than December 31, 2021, according to regulatory guidelines, and is operationally preparing for this change during the fourth quarter of 2021.

The Company discontinued the use of new LIBOR-based loans by December 31, 2021, according to regulatory guidelines.

Legacy LIBOR-based loans will be transitioned to an alternative reference rate on or before June 30, 2023.

The guidance under ASC 848 will be available for a limited time, generally through December 31, 2022.

The Company expects to adopt the LIBOR transition relief allowed under this standard.

In August 2021, the FASB issued ASU 2021-6, "Presentation of Financial Statements (Topic 205), Financial Services - Depository and Lending (Topic 942) and Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants ." The guidance is effective upon its addition to the FASB codification.

The Company is currently assessing the impact of ASU 2021-6 on its disclosures.

Reclassifications

The Company expects to adopt the LIBOR transition relief allowed under this standard, and does note expect such adoption to have a material impact on the consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, " Derivatives and Hedging (ASC 815):

Fair Value Hedging - Portfolio Layer Method.

" ASC 815 currently permits only prepayable financial assets and one or more beneficial interests secured by a portfolio of prepayable financial instruments to be included in a last-of-layer closed portfolio.

The amendments in this Update allow nonprepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method.

That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and nonpreapayble financial assets, thereby allowing consistent accounting for similar hedges.

The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, " Financial Instruments - Credit Losses (ASC 326):

Troubled Debt Restructurings (TDRs) and Vintage Disclosures.

" The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty.

Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan.

These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year.

The Company is currently assessing the impact of ASU 2022-02 on its disclosures and control structure;

however, the Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

Reclassification

Certain amounts appearing in the consolidated financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation.

3 unchanged sentences

Cost Gross Unrealized Gain Gross Unrealized Losses Allowance for Credit Losses Fair Value

September 30, 2021

March 31, 2022

Treasury securities $ 2,250 $ 0 $ ( 4 ) $ 0 $ 2,246

7 unchanged sentences

December 31, 2021

Treasury securities $ 900 $ 0 $ 0 $ 0 $ 900

government sponsored agencies 145,858 39 ( 2,445 ) 0 143,452

5 unchanged sentences

Total $ 1,376,969 $ 30,244 $ ( 8,655 ) $ 0 $ 1,398,558

Information regarding the fair value and amortized cost of available-for-sale debt securities by maturity as of September 30, 2021 is presented below.

Information regarding the fair value and amortized cost of available-for-sale debt securities by maturity as of March 31, 2022 is presented below.

Maturity information is based on contractual maturity for all securities other than mortgage-backed securities.

9 unchanged sentences

Securities proceeds, gross gains and gross losses are presented below.

Three months ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands) 2022 2021

7 unchanged sentences

Gains and losses on sales are based on the amortized cost of the security sold and recorded on the trade date.

Securities with carrying values of $ 314.7 million and $ 382.7 million were pledged as of September 30, 2021 and December 31, 2020, respectively, as collateral for borrowings from the Federal Home Loan Bank and Federal Reserve Bank and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of September 30, 2021 and December 31, 2020 is presented below.

Securities with carrying values of $ 272.6 million and $ 300.8 million were pledged as of March 31, 2022 and December 31, 2021, respectively, as collateral for borrowings from the Federal Home Loan Bank and Federal Reserve Bank and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of March 31, 2022 and December 31, 2021 is presented below.

The tables divide the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.

4 unchanged sentences

Value Unrealized

September 30, 2021

March 31, 2022

Treasury securities $ 2,246 $ 4 $ 0 $ 0 $ 2,246 $ 4

government sponsored agencies 126,338 8,757 26,554 2,865 152,892 11,622

9 unchanged sentences

residential 272,264 4,076 22,792 860 295,056 4,936

Mortgage-backed securities:

commercial 0 0 0 0 0 0

State and municipal securities 138,659 1,274 0 0 138,659 1,274

Total temporarily impaired $ 496,891 $ 6,714 $ 51,468 $ 1,941 $ 548,359 $ 8,655

The total number of securities with unrealized losses as of September 30, 2021 and December 31, 2020 is presented below.

The total number of securities with unrealized losses as of March 31, 2022 and December 31, 2021 is presented below.

12 months 12 months

or more Total

September 30, 2021

March 31, 2022

Treasury securities 6 0 6

government sponsored agencies 12 5 17

9 unchanged sentences

residential 29 3 32

Mortgage-backed securities:

commercial 0 0 0

State and municipal securities 80 0 80

4 unchanged sentences

For available-for sale debt securities that do not meet the criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.

assessment indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

In making this

assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.

If this assessment indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis.

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

No allowance for credit losses for available-for-sale debt securities was needed at September 30, 2021.

Accrued interest receivable on available-for-sale debt securities totaled $ 6.3 million at September 30, 2021 and is excluded from the estimate of credit losses.

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

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

Accrued interest receivable on available-for-sale debt securities totaled $ 8.8 million and $ 7.4 million at March 31, 2022 and December 31, 2021, respectively, and is excluded from the estimate of credit losses.

government sponsored agencies and mortgage-backed securities are either explicitly or implicitly guaranteed by the U.S.

1 unchanged sentence

Therefore, for those securities, we do not record expected credit losses.

Prior to the adoption of ASC 326, there was no other-than-temporary impairment ("OTTI") recorded during the nine months ended September 30, 2020.

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2022 December 31,

26 unchanged sentences

Loans, net $ 4,286,188 $ 4,220,068

The recorded investment in loans does not include accrued interest, which totaled $ 11.1 million at September 30, 2021.

The Company h ad $ 295,000 in residential real estate loans in the process of foreclosure as of September 30, 2021, com pared to $ 19,000 as of December 31, 2020.

The recorded investment in loans does not include accrued interest, which totaled $ 10.3 million and $ 10.0 million at March 31, 2022 and December 31, 2021, respectively.

The Company h ad $ 239,000 and $ 350,000 in residential real estate loans in the process of foreclosure as of March 31, 2022 and December 31, 2021, respectively.

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost.

Results for reporting periods beginning after January 1, 2021 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company maintains an allowance for credit losses to provide for expected credit losses.

47 unchanged sentences

and consumer 1-4 family mortgage and other consumer loans.

allocations of the allowance are determined by a historical loss rate based on the calculation of each pool’s probability of default-loss given default, subject to a floor.

General allocations of the allowance are determined by a historical loss rate based on the calculation of each pool’s probability of default-loss given default, subject to a floor.

The length of the historical period for each pool is based on the average life of the pool.

2 unchanged sentences

The unallocated component of the allowance for credit losses incorporates the Company’s judgmental determination of potential expected losses that may not be fully reflected in other allocations, including factors such as the level of classified credits, economic uncertainties, industry trends impacting specific portfolio segments, broad portfolio quality trends, and trends in the composition of the Company’s large commercial loan portfolio and related large dollar exposures to individual borrowers.

As a practical expedient, the Company has elected to treat accrued interest the same way it is treated in the incurred loss model, wherein it is stated separately from loan principal balances on the consolidated balance sheet.

Additionally, when a loan is placed on non-accrual, interest payments will be reversed through interest income, which is consistent with current practice.

For off balance sheet credit exposures outlined in the ASU at 326-20-30-11, it is the Company’s position that nearly all of the unfunded amounts on lines of credit are unconditionally cancellable, and therefore not subject to having a liability set up, which matches the current accounting conclusion in the incurred loss environment.

The following tables present the activity in the allowance for credit losses by portfolio segment for the three-month period ended September 30, 2021:

As a practical expedient, the Company has elected to disclose accrued interest separately from loan principal balances on the consolidated balance sheet.

Additionally, when a loan is placed on non-accrual, interest payments are reversed through interest income.

The following tables present the activity in the allowance for credit losses by portfolio segment for the periods ended:

(dollars in thousands) Commercial and Industrial Commercial Real Estate and Multifamily Residential Agri-business and Agricultural Other Commercial Consumer 1-4 Family Mortgage Other Consumer Unallocated Total

Three Months Ended September 30, 2021

Beginning balance, July 1 $ 33,130 $ 28,291 $ 3,930 $ 1,298 $ 3,165 $ 1,393 $ 506 $ 71,713

Three Months Ended March 31, 2022

Beginning balance, January 1 $ 30,595 $ 26,535 $ 5,034 $ 1,146 $ 2,866 $ 1,147 $ 450 $ 67,773

Provision for credit losses 730 319 ( 273 ) ( 88 ) ( 248 ) ( 55 ) 32 417

3 unchanged sentences

Ending balance $ 31,322 $ 26,257 $ 4,761 $ 1,058 $ 2,606 $ 1,040 $ 482 $ 67,526

The following tables present the activity in the allowance for credit losses by portfolio segment for the nine-month period ended September 30, 2021:

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2021

Beginning balance, January 1 $ 28,333 $ 22,907 $ 3,043 $ 416 $ 2,619 $ 951 $ 3,139 $ 61,408

20 unchanged sentences

Loans listed as Not Rated are consumer loans or commercial loans with consumer characteristics included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status.

The following table summarizes the risk category of loans by loan segment and origination date as of September 30, 2021:

The following table summarizes the risk category of loans by loan segment and origination date as of March 31, 2022:

(dollars in thousands) 2022 2021 2020 2019 2018 Prior Term Total Revolving Total

14 unchanged sentences

Pass 9,322 37,819 20,870 542 573 0 69,126 328,593 397,719

Special Mention 0 0 0 0 0 0 0 56 56

Total 9,322 37,819 20,870 542 573 0 69,126 328,649 397,775

Owner occupied loans:

6 unchanged sentences

Special Mention 0 11,667 307 0 0 14,120 26,094 0 26,094

Substandard 0 0 0 3,354 0 0 3,354 0 3,354

Total 41,921 153,737 146,895 105,635 21,701 101,200 571,089 47,604 618,693

30 unchanged sentences

Not Rated 1,420 4,756 6,189 1,158 892 136 1,278 11,073 0 11,073

Total 1,420 6,189 1,158 892 136 1,278 11,073 0 11,073

Other consumer loans

4 unchanged sentences

TOTAL $ 201,397 $ 816,358 $ 664,014 $ 378,947 $ 181,461 $ 395,936 $ 2,638,113 $ 1,715,601 $ 4,353,714

As of September 30, 2021, $ 91.9 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

These loans were included in this risk rating category because they are fully guaranteed by the Small Business Administration (“SBA”).

Nonaccrual and Past Due Loans:

The Company does not record interest on nonaccrual loans until principal is recovered.

For all loan classes, a loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectability of principal or interest.

Interest accrued but not received is reversed against earnings.

Cash interest received on these loans is applied to the principal balance until the principal is recovered or until the loan returns to accrual status.

Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current, remain current for a prescribed period, and future payments are reasonably assured.

The following table presents the aging of the amortized cost basis in past due loans as of September 30, 2021 by class of loans and loans past due 90 days or more and still accruing by class of loan:

(dollars in thousands) Loans Not Past Due 30-89 Days Past Due Greater than 89 Days Past Due and Accruing Total Accruing Total Nonaccrual Nonaccrual With No Allowance For Credit Loss Total

As of March 31, 2022, $ 12.5 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

These loans were included in this risk rating category because they are fully guaranteed by the SBA.

The following table summarizes the risk category of loans by loan segment and origination date as of December 31, 2021:

(dollars in thousands) 2021 2020 2019 2018 2017 Prior Term Total Revolving Total

Commercial and industrial loans:

Working capital lines of credit loans:

Pass $ 3,699 $ 830 $ 3,360 $ 0 $ 0 $ 0 $ 7,889 $ 558,634 $ 566,523

Special Mention 0 0 0 0 0 0 0 60,441 60,441

Substandard 0 0 35 0 0 0 35 25,928 25,963

Total 3,699 830 3,395 0 0 0 7,924 645,003 652,927

Non-working capital loans:

Pass 185,374 139,157 79,477 38,899 19,415 18,489 480,811 203,794 684,605

Special Mention 17,728 0 225 979 2,350 1,426 22,708 0 22,708

Substandard 2,996 6,948 1,091 2,534 5,465 426 19,460 3,321 22,781

Not Rated 2,265 1,758 837 563 128 14 5,565 0 5,565

Total 208,363 147,863 81,630 42,975 27,358 20,355 528,544 207,115 735,659

Commercial real estate and multi-family residential loans:

Construction and land development loans:

Pass 35,136 30,224 1,276 998 0 0 67,634 310,396 378,030

Total 35,136 30,224 1,276 998 0 0 67,634 310,396 378,030

Owner occupied loans:

Pass 135,861 169,404 124,117 85,070 78,155 93,925 686,532 29,611 716,143

Special Mention 6,555 0 880 933 7,387 1,235 16,990 0 16,990

Substandard 489 1,570 909 1,758 694 238 5,658 0 5,658

Total 142,905 170,974 125,906 87,761 86,236 95,398 709,180 29,611 738,791

Nonowner occupied loans:

Pass 146,342 154,433 107,262 19,054 31,023 59,154 517,268 44,362 561,630

Special Mention 11,825 331 0 0 0 14,253 26,409 0 26,409

Total 158,167 154,764 107,262 19,054 31,023 73,407 543,677 44,362 588,039

Multifamily loans:

Pass 84,678 53,195 36,575 12,286 17,105 14,574 9,793 211,101 13,434 224,535

Special Mention 0 0 0 0 22,252 0 22,252 0 22,252

Total 84,678 53,195 36,575 12,286 36,826 9,793 233,353 13,434 246,787

Agri-business and agricultural loans:

Loans secured by farmland:

Pass 47,532 37,035 16,249 10,469 10,454 17,021 138,760 61,774 200,534

Special Mention 0 1,985 2,303 0 180 30 4,498 918 5,416

Substandard 207 0 0 0 0 145 352 0 352

Total 47,739 39,020 18,552 10,469 10,634 17,196 143,610 62,692 206,302

Loans for agricultural production:

Pass 36,238 25,855 4,224 11,072 1,331 4,178 82,898 138,142 221,040

Special Mention 448 8,642 1,171 0 0 0 10,261 8,272 18,533

Total 36,686 34,497 5,395 11,072 1,331 4,178 93,159 146,414 239,573

Other commercial loans:

Pass 6,556 21,111 3,243 1,273 8,592 7,460 48,235 21,145 69,380

Special Mention 0 0 0 0 0 3,798 3,798 0 3,798

Total 6,556 21,111 3,243 1,273 8,592 11,258 52,033 21,145 73,178

Consumer 1-4 family mortgage loans:

Closed end first mortgage loans

Pass 14,635 16,173 5,312 5,903 3,049 3,221 48,293 5,005 53,298

Special Mention 0 0 0 0 0 1,274 1,274 0 1,274

Not Rated 45,089 27,738 9,248 5,217 7,628 26,321 121,241 482 121,723

Total 59,724 43,911 14,560 11,120 10,677 30,816 170,808 5,487 176,295

Open end and junior lien loans

Pass 679 453 379 159 313 0 0 1,530 5,074 6,604

Substandard 0 0 0 0 0 0 0 98 98

Not Rated 21,945 5,624 5,987 3,899 1,653 1,526 40,634 110,523 151,157

Total 22,624 6,003 6,146 4,212 1,653 1,526 42,164 115,695 157,859

Residential construction loans

Other consumer loans 91,829 118 0 91,629 318 0 91,947

Not Rated 7,926 4,756 1,537 960 138 171 1,125 11,857 0 11,857

Total 7,926 1,537 960 138 171 1,125 11,857 0 11,857

As of September 30, 2021 there were no loans 30-89 days past due or greater than 89 days past due on nonaccrual.

Additionally, interest income recognized on nonaccrual loans was insignificant during the nine month period ended September 30, 2021.

When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of the collateral.

The class of loan represents the primary collateral type associated with the loan.

Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.

The following table presents the amortized cost basis of collateral dependent loans by class of loan as of September 30, 2021:

(dollars in thousands) Real Estate General

Assets Other Total

Commercial and industrial loans:

Working capital lines of credit loans $ 0 $ 14,181 $ 0 $ 14,181

Non-working capital loans 1,632 13,757 229 15,618

Commercial real estate and multi-family residential loans:

Owner occupied loans 1,456 1,675 1,161 4,292

Nonowner occupied loans 3,358 0 0 3,358

Agri-business and agricultural loans:

Loans secured by farmland 0 145 0 145

Consumer 1-4 family mortgage loans:

Closed end first mortgage loans 3,056 0 0 3,056

Other consumer loans

Pass 3,401 957 1,523 0 1,155 0 7,036 12,998 20,034

Substandard 36 23 230 0 0 0 289 0 289

Not Rated 21,652 14,931 7,474 5,844 1,890 1,203 52,994 9,227 62,221

Total 25,089 15,911 9,227 5,844 3,045 1,203 60,319 22,225 82,544

Troubled Debt Restructurings:

Troubled debt restructured loans are included in the totals for individually analyzed loans.

The Company has allocated $ 6.1 million and $ 5.5 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2021 and December 31, 2020, respectively.

The Company is not committed to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring.

(dollars in thousands) September 30,

2021 December 31,

Accruing troubled debt restructured loans $ 4,973 $ 5,237

Nonaccrual troubled debt restructured loans 6,093 6,476

Total troubled debt restructured loans $ 11,066 $ 11,713

During the three and nine months ended September 30, 2021, no loans were modified as troubled debt restructurings.

During the three months ended September 30, 2020, no loans were modified as troubled debt restructurings.

During the nine months ended September 30, 2020, certain loans were modified as troubled debt restructurings.

The modified terms of these loans include one or a combination of the following:

inadequate compensation for the terms of the restructure or renewal;

a modification of the repayment terms which delays principal repayment for some period;

or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the nine months ended September 30, 2020:

Modified Repayment Terms

(dollars in thousands) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Extension Period or Range (in months)

Troubled Debt Restructurings

Commercial and industrial loans:

Working capital lines of credit loans 1 $ 250 $ 315 1 0

Non-working capital lines of credit loans 2 4,288 3,691 2 0

Commercial real estate and multi-family residential loans:

Owner occupied loans 1 1,528 1,527 1 0

TOTAL $ 839,292 $ 719,840 $ 414,127 $ 207,202 $ 217,546 $ 266,255 $ 2,664,262 $ 1,623,579 $ 4,287,841

For the nine month period ended September 30, 2020, the troubled debt restructurings described above increased the allowance for credit losses by $ 2.4 million, and charge-offs of $ 666,000 were recorded.

As of September 30, 2021, total deferrals attributed to COVID-19 were $ 22.3 million representing three borrowers.

This represented 0.5 % of the total loan portfolio.

Two were commercial loan borrowers and there was one retail borrower with COVID-19 deferrals.

Of the total commercial deferrals attributed to COVID-19, $ 8.0 million represented a second deferral action and $ 14.3 million represented a third deferral action.

All COVID-19 related loan deferrals remain on accrual status, as each deferral is evaluated individually, and management has determined that all contractual cashflows are collectable at this time.

In accordance with Section 4013 of the CARES Act, loan deferrals granted to customers that resulted from the impact of COVID-19 and who were not past due at December 31, 2019 were not considered troubled debt restructurings as of September 30, 2021.

This provision was extended to January 1, 2022 under the Consolidated Appropriations Act, 2021.

Management continues to monitor these deferrals and has adequately considered these credits in the September 30, 2021 allowance for credit losses balance.

Allowance for Loan Losses (Prior to January 1, 2021):

Prior to the adoption of ASC 326 on January 1, 2021 the Company calculated the allowance for loan losses using the incurred losses 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 segment for the three-month period ended September 30, 2020:

(dollars in thousands) Commercial and Industrial Commercial Real Estate and Multfamily Residential Agri-business and Agricultural Other Commercial Consumer 1-4 Family Mortgage Other Consumer Unallocated Total

Three Months Ended September 30, 2020

Beginning balance, July 1 $ 26,744 $ 21,063 $ 3,408 $ 542 $ 3,434 $ 774 $ 3,054 $ 59,019

Provision for credit losses 1,574 175 ( 314 ) 30 ( 50 ) 237 98 1,750

Loans charged-off ( 6 ) 0 0 0 ( 70 ) ( 229 ) 0 ( 305 )

Recoveries 51 177 3 0 4 48 0 283

Net loans charged-off 45 177 3 0 ( 66 ) ( 181 ) 0 ( 22 )

Ending balance $ 28,363 $ 21,415 $ 3,097 $ 572 $ 3,318 $ 830 $ 3,152 $ 60,747

The following tables present the activity in the allowance for loan losses by portfolio segment for the nine-month period ended September 30, 2020:

Nine Months Ended September 30, 2020

Beginning balance, January 1 $ 25,789 $ 15,796 $ 3,869 $ 447 $ 2,086 $ 345 $ 2,320 $ 50,652

Provision for credit losses 6,264 5,312 ( 780 ) 125 1,298 799 832 13,850

Loans charged-off ( 4,037 ) 0 0 0 ( 83 ) ( 445 ) 0 ( 4,565 )

Recoveries 347 307 8 0 17 131 0 810

Net loans charged-off ( 3,690 ) 307 8 0 ( 66 ) ( 314 ) 0 ( 3,755 )

Ending balance $ 28,363 $ 21,415 $ 3,097 $ 572 $ 3,318 $ 830 $ 3,152 $ 60,747

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2020:

December 31, 2020

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment $ 6,310 $ 1,377 $ 84 $ 0 $ 270 $ 0 $ 0 $ 8,041

Collectively evaluated for impairment 22,023 21,530 2,959 416 2,349 951 3,139 53,367

Total ending allowance balance $ 28,333 $ 22,907 $ 3,043 $ 416 $ 2,619 $ 951 $ 3,139 $ 61,408

Loans individually evaluated for impairment $ 12,533 $ 5,518 $ 428 $ 0 $ 1,700 $ 0 $ 0 $ 20,179

Loans collectively evaluated for impairment 1,772,393 1,887,054 429,234 93,912 342,999 103,385 0 4,628,977

Total ending loans balance $ 1,784,926 $ 1,892,572 $ 429,662 $ 93,912 $ 344,699 $ 103,385 $ 0 $ 4,649,156

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2020:

(dollars in thousands) Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated

With no related allowance recorded:

Commercial and industrial loans:

Working capital lines of credit loans $ 346 $ 173 $ 0

Non-working capital loans 2,399 968 0

Commercial real estate and multi-family residential loans:

Owner occupied loans 3,002 2,930 0

Agri-business and agricultural loans:

Loans secured by farmland 603 283 0

Consumer 1‑4 family loans:

Closed end first mortgage loans 316 236 0

Open end and junior lien loans 5 5 0

With an allowance recorded:

As of December 31, 2021, $ 26.2 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

These loans were included in this risk rating category because they are fully guaranteed by the SBA.

Nonaccrual and Past Due Loans:

The Company does not record interest on nonaccrual loans until principal is recovered.

Interest accrued but not received is reversed against earnings.

Cash interest received on these loans is applied to the principal balance until the principal is recovered or until the loan returns to accrual status.

The following table presents the aging of the amortized cost basis in past due loans as of March 31, 2022 by class of loans and loans past due 90 days or more and still accruing by class of loan:

(dollars in thousands) Loans Not Past Due 30-89 Days Past Due Greater than 89 Days Past Due and Accruing Total Accruing Total Nonaccrual Nonaccrual With No Allowance For Credit Loss Total

Commercial and industrial loans:

2 unchanged sentences

Commercial real estate and multi-family residential loans:

Construction and land development loans 397,775 0 0 397,775 0 0 397,775

Owner occupied loans 723,968 0 0 720,812 3,156 1,516 723,968

Nonowner occupied loans 618,693 0 0 618,693 0 0 618,693

Multifamily loans 213,654 0 0 213,654 0 0 213,654

Agri-business and agricultural loans:

Loans secured by farmland 164,225 0 0 163,890 335 0 164,225

Loans for agricultural production 259,495 0 0 259,495 0 0 259,495

Other commercial loans 78,118 0 0 78,118 0 0 78,118

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans 179,872 301 18 179,980 211 140 180,191

Total $ 22,939 $ 20,179 $ 8,041

The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended September 30, 2020:

(dollars in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Interest Income Recognized

With no related allowance recorded:

Commercial and industrial loans:

Working capital lines of credit loans $ 174 $ 0 $ 0

Non-working capital loans 995 5 5

Commercial real estate and multi-family residential loans:

Owner occupied loans 2,054 4 4

Agri-business and agricultural loans:

Loans secured by farmland 283 0 0

Consumer 1‑4 family loans:

Closed end first mortgage loans 274 0 0

Open end and junior lien loans 160,043 195 0 160,210 28 28 160,238

Residential construction loans 11,073 0 0 11,073 0 0 11,073

With an allowance recorded:

Other consumer loans 83,150 45 0 82,913 282 0 83,195

Total $ 4,350,026 $ 3,670 $ 18 $ 4,339,814 $ 13,900 $ 6,468 $ 4,353,714

As of March 31, 2022 there were an insignificant number of loans 30-89 days past due or greater than 89 days past due on nonaccrual.

Additionally, interest income recognized on nonaccrual loans was insignificant during the three month period ended March 31, 2022.

The following table presents the aging of the amortized cost basis in past due loans as of December 31, 2021 by class of loans and loans past due 90 days or more and still accruing by class of loan:

(dollars in thousands) Loans Not Past Due 30-89 Days Past Due Greater than 89 Days Past Due and Accruing Total Accruing Total Nonaccrual Nonaccrual With No Allowance For Credit Loss Total

Commercial and industrial loans:

2 unchanged sentences

Commercial real estate and multi-family residential loans:

Construction and land development loans 378,030 0 0 378,030 0 0 378,030

Owner occupied loans 738,791 0 0 735,157 3,634 2,129 738,791

Nonowner occupied loans 588,039 0 0 588,039 0 0 588,039

Multifamily loans 246,787 0 0 246,787 0 0 246,787

Agri-business and agricultural loans:

Loans secured by farmland 206,302 0 0 205,967 335 0 206,302

Loans for agricultural production 239,573 0 0 239,573 0 0 239,573

Other commercial loans 73,178 0 0 73,178 0 0 73,178

Consumer 1‑4 family mortgage loans:

2 unchanged sentences

Residential construction loans 11,857 0 0 11,857 0 0 11,857

Other consumer loans 82,472 72 0 82,255 289 0 82,544

Total $ 4,286,997 $ 727 $ 117 $ 4,272,868 $ 14,973 $ 7,711 $ 4,287,841

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine-month period ended September 30, 2020:

(dollars in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Interest Income Recognized

With no related allowance recorded:

Commercial and industrial loans:

Working capital lines of credit loans $ 442 $ 0 $ 0

Non-working capital loans 766 16 16

Commercial real estate and multi-family residential loans:

Owner occupied loans 2,101 13 13

Agri-business and agricultural loans:

Loans secured by farmland 283 0 0

Consumer 1‑4 family loans:

Closed end first mortgage loans 304 2 2

Open end and junior lien loans 63 0 0

Residential construction loans 3 0 0

With an allowance recorded:

As of December 31, 2021 there were an insignificant number of loans 30-89 days past due or greater than 89 days past due on nonaccrual.

Additionally, interest income recognized on nonaccrual loans was insignificant during the year ended December 31, 2021.

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of the collateral.

The class of loan represents the primary collateral type associated with the loan.

Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.

The following tables present the amortized cost basis of collateral dependent loans by class of loan as of:

March 31, 2022

(dollars in thousands) Real Estate General

Assets Other Total

Commercial and industrial loans:

8 unchanged sentences

Open end and junior lien loans 28 0 0 28

Residential construction loans 46 0 0

Other consumer loans 0 0 63 63

Total $ 5,974 $ 16,667 $ 1,453 $ 24,094

The following table presents the aging of the recorded investment in past due loans as of December 31, 2020 by class of loans:

(dollars in thousands) Loans Not

Past Due 30‑89

Days Past Due Greater than 90 Days Past Due Nonaccrual Total Past Due and Nonaccrual Total

December 31, 2021

(dollars in thousands) Real Estate General

Assets Other Total

Commercial and industrial loans:

2 unchanged sentences

Commercial real estate and multi-family residential loans:

Construction and land development loans 361,664 0 0 0 0 361,664

Owner occupied loans 1,435 1,505 1,161 4,101

Nonowner occupied loans 579,050 0 0 0 0 579,050

Multifamily loans 304,284 0 0 0 0 304,284

Agri-business and agricultural loans:

Loans secured by farmland 190 145 0 335

Loans for agricultural production 234,191 108 0 0 108 234,299

Other commercial loans 93,912 0 0 0 0 93,912

Consumer 1-4 family mortgage loans:

1 unchanged sentence

Open end and junior lien loans 98 0 0 98

Residential construction loans 11,962 0 0 0 0 11,962

Other consumer loans 0 0 59 59

Total $ 6,312 $ 17,091 $ 1,449 $ 24,950

As of December 31, 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(dollars in thousands) Pass Special

Mention Substandard Doubtful Not

Troubled Debt Restructurings:

Troubled debt restructured loans are included in the totals for individually analyzed loans.

The Company has allocated $ 6.0 million and $ 5.8 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2022 and December 31, 2021, respectively.

The Company is not committed to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring.

(dollars in thousands) March 31,

2022 December 31,

Accruing troubled debt restructured loans $ 4,976 $ 5,121

Nonaccrual troubled debt restructured loans 6,443 6,218

Total troubled debt restructured loans $ 11,419 $ 11,339

During the three months ended March 31, 2022, one loan was identified as a troubled debt restructuring.

This loan was an over line of credit extended to an existing borrower with other previously modified loans as a result of financial difficulty to assist with cash flow needs.

No additional credit enhancements were obtained in conjunction with the extension of this over line of credit.

(dollars in thousands) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment

Troubled Debt Restructurings

Commercial and industrial loans:

Working capital lines of credit loans 1 $ 226 $ 226

Non-working capital loans 1,111,989 26,523 14,820 0 5,495 1,158,827

Commercial real estate and multi-family residential loans:

Construction and land development loans 361,664 0 0 0 0 361,664

Owner occupied loans 608,845 31,355 7,374 0 0 647,574

Nonowner occupied loans 547,790 31,260 0 0 0 579,050

Multi-family loans 282,031 22,253 0 0 0 304,284

Agri-business and agricultural loans:

Loans secured by farmland 183,983 10,728 652 0 0 195,363

Loans for agricultural production 185,875 48,424 0 0 0 234,299

Other commercial loans 93,912 0 0 0 0 93,912

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans 40,682 0 1,695 0 125,124 167,501

Open end and junior lien loans 8,424 0 5 0 156,807 165,236

Residential construction loans 0 0 0 0 11,962 11,962

Other consumer loans 36,979 253 0 0 66,153 103,385

Total 1 $ 226 $ 226

For the periods ended September 30, 2021 and December 31, 2020, the Company had an advance outstanding from the Federal Home Loan Bank (“FHLB”) in the amount of $ 75.0 million.

For the three month period ended March 31, 2022, the troubled debt restructuring described above did not increase the allowance for credit losses, and no charge-offs were recorded.

During the three months ended March 31, 2021, no loans were modified as troubled debt restructurings.

For the periods ended March 31, 2022 and December 31, 2021, the Company had an advance outstanding from the Federal Home Loan Bank (“FHLB”) in the amount of $ 75.0 million.

The outstanding FHLB advance is a ten-year fixed-rate putable advance with a rate of 0.39 % and is due on March 4, 2030.

The advance may not be prepaid by the Company without penalty.

All FHLB notes require monthly interest payments and are secured by residential real estate loans and securities.

The note requires monthly interest payments and is secured by residential real estate loans and securities.

On August 2, 2019 the Company entered into an unsecured revolving credit agreement with another financial institution allowing the Company to borrow up to $ 30.0 million;

this credit agreement was subsequently amended and renewed on July 30, 2021.

Funds provided under the agreement may be used to repurchase shares of the Company’s common stock under the share repurchase program, which was reauthorized by the Company’s board of directors on April 13, 2021.

The credit agreement includes a negative pledge agreement whereby the Company agrees not to pledge or otherwise encumber the stock of the Bank.

The credit agreement has a one year term which may be amended, extended, modified or renewed.

Outstanding borrowings on the credit agreement were $ 0 and $ 10.5 million at September 30, 2021 and December 31, 2020, respectively.

There were no outstanding borrowings on the credit agreement at March 31, 2022 and December 31, 2021.

FAIR VALUE DISCLOSURES

11 unchanged sentences

These models utilize the market approach with standard inputs that include, but are not limited to benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.

For certain municipal securities that are not rated and observable inputs about the specific issuer are not available, fair values are estimated using observable data from other municipal securities presumed to be similar or other market data on other non-rated municipal securities (Level 3 inputs).

For certain municipal securities that are not rated and observable inputs about the specific issuer are not available, fair values are estimated

using observable data from other municipal securities presumed to be similar or other market data on other non-rated municipal securities (Level 3 inputs).

The Company’s Finance Department, which is responsible for all accounting and SEC disclosure compliance, and the Company’s Treasury Department, which is responsible for investment portfolio management and asset/liability modeling, are the two areas that determine the Company’s valuation policies and procedures.

19 unchanged sentences

Collateral dependent loans:

Collateral dependent loans with specific allocations of the allowance for credit losses generally based on the fair value of the underlying collateral when repayment is expected solely from the collateral.

Collateral dependent loans with specific allocations of the allowance for credit losses are generally based on the fair value of the underlying collateral when repayment is expected solely from the collateral.

Fair value is determined using several methods.

11 unchanged sentences

Mortgage servicing rights:

As of September 30, 2021, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 2.9 million, carried at amortized cost of $ 3.4 million less a $ 518,000 valuation reserve.

These residential mortgage loans have a weighted average interest rate of 3.49 %, a weighted average maturity of 20 years and are secured by homes generally within the Company’s market area of Northern Indiana and Indianapolis.

As of March 31, 2022, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 2.7 million, carried at amortized cost of $ 3.0 million less a $ 355,000 valuation reserve.

These residential mortgage loans have a weighted average interest rate of 3.39 %, a weighted average maturity of 21 years and are

secured by homes generally within the Company’s market area of Northern Indiana and Indianapolis.

A third-party valuation is used to estimate fair value by stratifying the portfolios on the basis of certain risk characteristics, including loan type and interest rate.

4 unchanged sentences

The most significant unobservable assumption is the discount rate.

At September 30, 2021, the constant prepayment speed (“PSA”) used was 2.67 and discount rate used was 9.5 %.

At March 31, 2022, the constant prepayment speed (“PSA”) used was 228 and discount rate used was 9.5 %.

At December 31, 2021, the PSA used was 249 and the discount rate used was 9.5 %.

9 unchanged sentences

The tables below presents the balances of assets measured at fair value on a recurring basis:

September 30, 2021

March 31, 2022

Fair Value Measurements Using Assets

19 unchanged sentences

(dollars in thousands) Level 1 Level 2 Level 3

Treasury securities $ 900 $ 0 $ 0 $ 900

government sponsored agency securities 0 143,452 0 143,452

13 unchanged sentences

The tables below presents the balances of assets measured at fair value on a nonrecurring basis:

September 30, 2021

March 31, 2022

Fair Value Measurements Using Assets

7 unchanged sentences

Owner occupied loans 0 0 880 880

Nonowner occupied loans 0 0 3,131 3,131

Agri-business and agricultural loans:

15 unchanged sentences

Loans secured by farmland 0 0 231 231

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans 0 0 411 411

Total collateral dependent loans 0 0 6,364 6,364

1 unchanged sentence

Total assets $ 0 $ 0 $ 6,560 $ 6,560

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2021:

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at March 31, 2022:

(dollars in thousands) Fair Value Valuation Methodology Unobservable Inputs Average Range of Inputs

2 unchanged sentences

Collateral dependent loans:

Commercial real estate 3,783 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 38 % 7%-99%

Commercial real estate and multi-family residential loans 880 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 46 % 34 %- 68 %

Collateral dependent loans:

Agribusiness and agricultural 43 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 70 % N/A

Agribusiness and agricultural 231 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 36 % 3 %- 68 %

Other real estate owned 196 Appraisals Discount to reflect current market conditions and ultimate collectability 38 %

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at December 31, 2021:

1 unchanged sentence

Collateral dependent loans:

Commercial and industrial $ 5,082 Collateral basedmeasurements Discount to reflect current market conditions and ultimate collectability 55 % 16 %- 100 %

Collateral dependent loans:

Commercial real estate 1,211 Collateral basedmeasurements Discount to reflect current market conditions and ultimate collectability 53 % 21 %- 74 %

Commercial and industrial $ 5,342 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 65 % 22 %- 99 %

Collateral dependent loans:

Agribusiness and agricultural 61 Collateral basedmeasurements Discount to reflect current market conditions and ultimate collectability 58 % N/A

Commercial real estate and multi-family residential loans 791 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 51 % 34 %- 68 %

Collateral dependent loans:

Consumer 1-4 family mortgage 411 Collateral basedmeasurements Discount to reflect current market conditions and ultimate collectability 11 % 10 %- 15 %

Agribusiness and agricultural 231 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 35 % 3 %- 68 %

Other real estate owned 196 Appraisals Discount to reflect current market conditions and ultimate collectability 38 %

The following tables contain the estimated fair values and the related carrying values of the Company’s financial instruments.

Items which are not financial instruments are not included.

September 30, 2021

March 31, 2022

Value Estimated Fair Value

32 unchanged sentences

All other deposits ( 4,905,889 ) ( 4,905,889 ) 0 0 ( 4,905,889 )

Miscellaneous borrowings ( 10,500 ) 0 ( 10,500 ) 0 ( 10,500 )

Federal Home Loan Bank advances ( 75,000 ) 0 ( 66,118 ) 0 ( 66,118 )

4 unchanged sentences

OFFSETTING ASSETS AND LIABILITIES

The following tables summarize gross and net information about financial instruments and derivative instruments that are offset in the statement of financial position or that are subject to an enforceable master netting arrangement at September 30, 2021 and December 31, 2020.

September 30, 2021

March 31, 2022

Gross Amounts of Recognized Assets/Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position Net Amount

16 unchanged sentences

Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock based awards and warrants, none of which were antidilutive.

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Weighted average shares outstanding for basic earnings per common share 25,515,271 25,457,659

Dilutive effect of stock based awards and warrants 155,634 68,590 136,470 134,072

Dilutive effect of stock based awards 175,101 92,452

Weighted average shares outstanding for diluted earnings per common share 25,690,372 25,550,111

2 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables summarize the changes within each classification of accumulated other comprehensive income for the three months ended September 30, 2021 and 2020, all shown net of tax:

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the three months ended March 31, 2022 and 2021, all shown net of tax:

(dollars in thousands) Unrealized Gains and Losses on Available-

for-Sales Securities Defined Benefit Pension Items Total

Balance at July 1, 2021

Balance at January 1, 2022

$ 17,056 $ ( 963 ) $ 16,093

Other comprehensive income before reclassification ( 11,385 ) 0 ( 11,385 )

Amounts reclassified from accumulated other comprehensive income 0 46 46

Other comprehensive loss before reclassification ( 109,807 ) 0 ( 109,807 )

Amounts reclassified from accumulated other comprehensive loss 0 27 27

Net current period other comprehensive income (loss) ( 109,807 ) 27 ( 109,780 )

Balance at September 30, 2021 $ 12,234 $ ( 1,302 ) $ 10,932

(dollars in thousands) Unrealized Gains and Losses on Available-

for-Sales Securities Defined Benefit Pension Items Total

Balance at July 1, 2020

$ 26,256 $ ( 1,454 ) $ 24,802

Other comprehensive income before reclassification 622 0 622

Amounts reclassified from accumulated other comprehensive income ( 248 ) 48 ( 200 )

Net current period other comprehensive income 374 48 422

Balance at September 30, 2020 $ 26,630 $ ( 1,406 ) $ 25,224

The following tables summarize the changes within each classification of accumulated other comprehensive income for the nine months ended September 30, 2021 and 2020, all shown net of tax:

Balance at March 31, 2022 $ ( 92,751 ) $ ( 936 ) $ ( 93,687 )

(dollars in thousands) Unrealized Gains and Losses on Available-

1 unchanged sentence

Balance at January 1, 2021

$ 29,182 $ ( 1,438 ) $ 27,744

Other comprehensive loss before reclassification ( 12,084 ) 0 ( 12,084 )

1 unchanged sentence

Net current period other comprehensive income (loss) ( 12,679 ) 45 ( 12,634 )

Balance at September 30, 2021 $ 12,234 $ ( 1,302 ) $ 10,932

(dollars in thousands) Unrealized Gains and Losses on Available-

for-Sales Securities Defined Benefit Pension Items Total

Balance at January 1, 2020 $ 13,607 $ ( 1,548 ) $ 12,059

Other comprehensive income before reclassification 13,310 0 13,310

Amounts reclassified from accumulated other comprehensive income ( 287 ) 142 ( 145 )

Net current period other comprehensive income 13,023 142 13,165

Balance at September 30, 2020 $ 26,630 $ ( 1,406 ) $ 25,224

Reclassifications out of accumulated comprehensive income for the three months ended September 30, 2021 are as follows:

Details about

Accumulated Other

Comprehensive

Income Components Amount

Reclassified From Accumulated Other Comprehensive Income Affected Line Item

in the Statement Where Net Income is Presented

(dollars in thousands)

Realized gains and losses on available-for-sale securities $ 0 Net securities gains

Tax effect 0 Income tax expense

Amortization of defined benefit pension items ( 61 ) Other expense

Tax effect 15 Income tax expense

( 46 ) Net of tax

Total reclassifications for the period $ ( 46 ) Net income

Reclassifications out of accumulated comprehensive income for the three months ended September 30, 2020 are as follows:

Details about

Accumulated Other

Comprehensive

Income Components Amount

Reclassified From Accumulated Other Comprehensive Income Affected Line Item

in the Statement Where Net Income is Presented

(dollars in thousands)

Realized gains and losses on available-for-sale securities $ 314 Net securities gains

Tax effect ( 66 ) Income tax expense

248 Net of tax

Amortization of defined benefit pension items ( 63 ) Other expense

Tax effect 15 Income tax expense

( 48 ) Net of tax

Total reclassifications for the period $ 200 Net income

Reclassifications out of accumulated comprehensive income for the nine months ended September 30, 2021 are as follows:

Balance at March 31, 2021 $ 16,503 $ ( 1,393 ) $ 15,110

Reclassifications out of other accumulated comprehensive loss for the three months ended March 31, 2022 are as follows:

Details about

5 unchanged sentences

(dollars in thousands)

Realized gains and losses on available-for-sale securities $ 797 Net securities gains

Tax effect ( 167 ) Income tax expense

630 Net of tax

Amortization of defined benefit pension items $ ( 36 ) Other expense

2 unchanged sentences

Total reclassifications for the period $ ( 27 ) Net income

Reclassifications out of accumulated comprehensive income for the nine months ended September 30, 2020 are as follows:

Reclassifications out of other accumulated comprehensive income for the three months ended March 31, 2021 are as follows:

Details about

28 unchanged sentences

The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases, as allowed as practical expedient of the standard.

The following is a maturity analysis of the operating lease liabilities as of September 30, 2021:

The following is a maturity analysis of the operating lease liabilities as of March 31, 2022:

Years ending December 31, (in thousands) Operating Lease Obligation

4 unchanged sentences

Right-of-use asset $ 5,699

Three months ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three months ended March 31,

Operating lease cost $ 170 $ 135

3 unchanged sentences

Operating cash outflows from operating leases $ 170 $ 135

Weighted-average remaining lease term - operating leases 8.1 years 9.1 years 8.1 years 9.1 years

Weighted-average remaining lease term - operating leases 8.9 years 8.6 years

Weighted average discount rate - operating leases 2.5 % 2.8 %

3 unchanged sentences

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-Q

Item 1. Financial Statements