What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-11 compared with 2020-03-06 · 138 added, 90 removed, 222 unchanged (51% of the section changed)

5 unchanged sentences

Actual results could differ from those estimates.

Allowance for loan losses.

The allowance for loan losses represents management's estimate of probable incurred losses in the existing loan portfolio.

The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries.

The allowance for loan losses is determined based on management's assessment of several factors:

reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions and nonperforming loans.

Loans are considered impaired if, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest according to the contractual terms of the loan agreement.

When a loan is deemed impaired, impairment is measured by using the fair value of underlying collateral, for loans deemed to be collateral dependent, the present value of the future cash flows discounted at the effective interest rate stipulated in the loan agreement, or the estimated market value of the loan.

In measuring the fair value of the collateral, management uses assumptions (e.g., discount rate) and methodologies (e.g., comparison to the recent selling price of similar assets) consistent with those that would be utilized by unrelated third parties.

Changes in the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of the various markets in which collateral may be sold may affect the required level of the allowance for loan losses and the associated provision for loan losses.

Should cash flow assumptions or market conditions change, a different amount may be recorded for the allowance for loan losses and the associated provision for loan losses.

Allowance for credit losses.

The allowance for credit losses represents management's estimate of expected losses inherent within the existing loan portfolio.

The allowance for credit losses is increased by the provision for credit losses charged to expense and reduced by loans charged off, net of recoveries.

The allowance for credit losses is determined based on management's assessment of several factors:

reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions, nonperforming loans, and reasonable and supportable forecasts.

Loans are individually evaluated when they do not share risk characteristics with other loans in the respective pool.

Loans evaluated individually are excluded from the collective evaluation.

Management elected the collateral dependent practical expedient upon adoption of ASC 326.

Expected credit losses on individually evaluated loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

We utilize a cohort methodology to determine the allowance for credit losses.

This method identifies and captures the balance of a pool of loans with similar risk characteristics, as of a particular point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over their remaining life.

Our cohorts track loan balances and historical loss experience since 2008.

Where past performance may not be representative of future losses, loss rates are adjusted for qualitative and economic forecast factors.

Qualitative factors include items such as changes in lending policies or procedures, asset specific risks, the impact of COVID-19 on customer's operations, and economic uncertainty in forward-looking forecasts.

Economic indicators utilized in forecasting include unemployment rate, gross domestic product, housing starts, and interest rates.

Changes in the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of the various markets in which collateral may be sold may affect the required level of the allowance for credit losses and the associated provision for credit losses.

Should cash flow assumptions or market conditions change, a different amount may be recorded for the allowance for credit losses and the associated provision for credit losses.

Securities valuation and potential impairment.

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Equity securities that do not have readily determinable fair values are carried at cost.

Additionally, all securities are required to be evaluated for other than temporary impairment (OTTI).

In determining whether a fair value decline is other than temporary, management considers the reason for the decline, the extent of the decline, the duration of the decline and whether the Corporation intends to sell a security or is more likely than not to be required to sell a security before recovery of its amortized cost.

If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date.

If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors.

The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings.

Changes in credit ratings, financial condition of underlying debtors, default experience and market liquidity affect the conclusions on whether securities are other-than-temporarily impaired.

Additional losses may be recorded through earnings for other than temporary impairment, should there be an adverse change in the expected cash flows for these investments.

Additionally, all securities are required to be evaluated for impairment related to credit losses.

In evaluating for impairment, management considers the reason for the decline, the extent of the decline, and whether the Corporation intends to sell a security or is more likely than not to be required to sell a security before recovery of its amortized cost.

If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the security's amortized cost is written down to fair value through income.

If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, 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 securities was needed at December 31, 2020.

The carrying value of goodwill requires management to use estimates and assumptions about the fair value of the reporting unit compared to its book value.

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Fair values of the reporting units are determined by an analysis which considers cash flows streams, profitability and estimated market values of the reporting unit.

With the decrease in market value as a result of the pandemic, the Corporation engaged a third party to conduct an in-depth analysis of the Corporation as of October 31, 2020.

The final results determined that there was no impairment of goodwill.

From the effective date of the analysis to December 31, 2020, the Corporation's market value increased.

The majority of the Corporation's goodwill is recorded at First Financial Bank, N.

Management believes the accounting estimates related to the allowance for loan losses, valuation of investment securities and the valuation of goodwill are "critical accounting estimates" because:

(1) the estimates are highly susceptible to change from period to period because they require management to make assumptions concerning, among other factors, the changes in the types and volumes of the portfolios, valuation assumptions, and economic conditions, and (2) the impact of recognizing an impairment or loan loss could have a material effect on the Corporation's assets reported on the balance sheet as well as net income.

Management believes the accounting estimates related to the allowance for credit losses, valuation of investment securities and the valuation of goodwill are "critical accounting estimates" because:

(1) the estimates are highly susceptible to change from period to period because they require management to make assumptions concerning, among other factors, the changes in the types and volumes of the portfolios, valuation assumptions, and economic conditions, and (2) the impact of recognizing an impairment or credit loss could have a material effect on the Corporation's assets reported on the balance sheet as well as net income.

RESULTS OF OPERATIONS - SUMMARY FOR 2020

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Net income for 2020 was $53.8 million, or $3.93 per share versus $48.9 million, or $3.80 per share for 2019.

The increase in 2019 net income results from the acquisition of HopFed, Inc.

2018 net income includes the recovery of a security previously written down for other-than temporary impairment, which contributed $2.4 million pre-tax to interest income and $4.5 million pre-tax to other income.

The increase in 2020 net income is primarily due to an increase in net interest income related to full year impact of acquisition.

2019 net income includes the results from the acquisition of HopFed, Inc.

Return on average assets at December 31, 2020 decreased 11.97% to 1.25% compared to 1.42% at December 31, 2019.

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Total average interest earning assets increased to $3.71 billion in 2020 from $3.20 billion in 2019.

The tax-equivalent yield on these assets increased to 4.79% in 2019 from 4.67% in 2018 .

The tax-equivalent yield on these assets decreased to 4.43% in 2020 from

4.79% in 2019.

Total average interest-bearing liabilities increased to $2.98 billion in 2020 from $2.59 billion in 2019.

The average cost of these interest-bearing liabilities increased to 0.67% in 2019 from 0.47% in 2018 .

The average cost of these interest-bearing liabilities decreased to 0.47% in 2020 from 0.67% in 2019.

The net interest margin decreased from 4.25% in 2019 to 4.05% in 2020.

Earning asset yields increased 12 basis points while the rate on interest-bearing liabilities increased by 20 basis points.

Earning asset yields decreased 36 basis points while the rate on interest-bearing liabilities decreased by 20 basis points.

CONSOLIDATED BALANCE SHEET - AVERAGE BALANCES AND INTEREST RATES

(Dollar amounts in thousands)

2020 2019 2018

(Dollar amounts in thousands) Average

Balance Interest Yield/

Interest-earning assets:

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Premises and equipment, net 63,145 54,336 47,550

Other assets 187,415 121,411 101,711

Less allowance for loan losses (23,318) (20,401) (20,099)

TOTALS $ 4,312,919 $ 3,439,793 $ 2,976,517

LIABILITIES AND SHAREHOLDERS' EQUITY

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Total interest-bearing liabilities:

2,981,673 14,139 0.47 % 2,590,589 17,469 0.67 % 2,071,631 9,645 0.47 %

Non interest-bearing liabilities:

Demand deposits 660,011 292,445 425,639

Other 77,444 59,430 54,973

3,719,128 2,942,464 2,552,243

Shareholders' equity 593,791 497,329 424,274

TOTALS $ 4,312,919 $ 3,439,793 $ 2,976,517

Net interest earnings $ 150,590 $ 135,770 $ 120,579

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(1)For purposes of these computations, non-accruing loans are included in the daily average loan amounts outstanding.

(2)Interest income includes the effect of tax equivalent adjustments using a federal tax rate of 21% for 2019 and 2018 and a rate of 35% for 2017.

(2)Interest income includes the effect of tax equivalent adjustments using a federal tax rate of 21%.

The following table sets forth the components of net interest income due to changes in volume and rate.

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2020 Compared to 2019 Increase

(Decrease) Due to

2018 Compared to 2017 Increase

(Decrease) Due to 2019 Compared to 2018 Increase

(Decrease) Due to

(Dollar amounts in thousands)

(Dollar amounts in thousands) Volume Rate Volume/

Rate Total Volume Rate Volume/

Interest earned on interest-earning assets:

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(1)For purposes of these computations, non-accruing loans are included in the daily average loan amounts outstanding.

(2)Interest income includes the effect of tax equivalent adjustments using a federal tax rate of 21% for 2019 and 2018 and a rate of 35% for 2017.

PROVISION FOR LOAN LOSSES

The provision for loan losses charged to expense is based upon credit loss experience and the results of a detailed analysis estimating an appropriate and adequate allowance for loan losses.

The analysis includes the evaluation of impaired loans as prescribed under Accounting Standards Codification (ASC-310), pooled loans as prescribed under ASC 450-10, and economic and other risk factors as outlined in various Joint Interagency Statements issued by the bank regulatory agencies.

For the year ended December 31, 2019 , the provision for loan losses was $ 4.7 million , an decrease of $1.1 million, or 18.5%, compared to 2018 .

Impaired loans decreased to $7.1 million at December 31, 2019 from $10.5 million at December 31, 2018 .

The allowance allocation for these impaired loans decreased to $48 thousand from $737 thousand during this period, contributing to the decrease in provision in 2019 compared to 2018 .

(2)Interest income includes the effect of tax equivalent adjustments using a federal tax rate of 21%.

PROVISION FOR CREDIT LOSSES

The provision for credit losses charged to expense is based upon current expected loss and the results of a detailed analysis estimating an appropriate and adequate allowance for credit losses.

The analysis is governed by Accounting Standards Codification (ASC 326), implemented in 2020, which uses an economic forecast that includes the impact of the COVID-19 pandemic.

For the year ended December 31, 2020, the provision for credit losses was $10.5 million, an increase of $5.8 million, or 124%, compared to 2019.

Additional provisions were primarily recorded to accommodate anticipated losses from the pandemic.

Continued loan growth in future periods, an increase in charge-offs, or a decline in our current level of recoveries could result in an increase in provision expense.

Additionally, with the adoption of ASC 326 in 2020, provision expense may become more volatile due to changes in CECL model assumptions of credit quality, economic conditions, and loan composition, which drive allowance for credit losses.

Net charge-offs for 2020 were $3.5 million as compared to $5.2 million for 2019 and $5.2 million for 2018.

Non-accrual loans, excluding TDR's, decreased to $9.5 million at December 31, 2019 from $11.0 million at December 31, 2018 .

Non-accrual loans, excluding TDR's, increased to $15.4 million at December 31, 2020 from $9.5 million at December 31, 2019.

Loans past due 90 days and still on accrual increased to $2.3 million compared to $1.6 million at December 31, 2019.

NON-INTEREST INCOME

Non-interest income of $ 38.5 million increased $246 thousand from the $ 38.2 million earned in 2018 .

Non-interest income increased due to the acquisition of HopFed, Inc.

and a gain in BOLI income, which was offset by the recovery of a security previously written down for other-than temporary impairment of $4.5 million in 2018.

Non-interest income of $42.5 million increased $4.0 million from the $38.5 million earned in 2019.

Non-interest income increased primarily due to an increase in gains on sales of mortgage loans.

NON-INTEREST EXPENSES

Non-interest expenses increased to $112.8 million in 2020 from $104.4 million in 2019.

The increase was largely due to the acquisition of HopFed, Inc.

The increase was mainly due to a full year of increased expenses from the acquisition of HopFed, Inc.

Salaries and benefits, as well as equipment expense increases were due to recognizing a full year of expenses from the acquisition of HopFed, Inc.

The Corporation's federal income tax provision was $11.7 million in 2020 compared to $12.1 million in 2019.

The overall effective tax rate in 2019 of 20.0% increased as compared to a 2018 effective rate of 19.3% .

The overall effective tax rate in 2020 of 17.8% decreased as compared to a 2019 effective rate of 20.0%.

The decrease is primarily due to increase of general business tax credits benefits earned in 2020.

COMPARISON OF 2019 TO 2018

Net income for 2019 was $48.9 million or $3.80 per share compared to $46.6 million in 2018 or $3.80 per share.

The increase in 2018 net income includes the recovery of a security previously written down for other-than temporary impairment, which contributed $2.4 million pre-tax to interest income and $4.5 million pre-tax to other income.

The 2017 results were negatively impacted by the revaluation of the Corporation's deferred tax assets as a result of the passage of the Tax Cuts and Jobs Act resulting in a noncash tax expense of $6.3 million.

The increase in 2019 net income results from the acquisition of HopFed, Inc.

Net interest income increased $15.1 million in 2019 compared to 2018.

The provision for loan losses increased $473 thousand from $ 5.3 million in 2017 to $ 5.8 million in 2018 .

Non-interest expenses increased $2.5 million and non-interest income increased $2.3 million.

The increase in non-interest income resulted primarily from the recovery of a security previously written down for other-than-temporary impairment.

The provision for income taxes decreased $9.5 million from 2017 to 2018 and the effective tax rate decreased to 19.3% in 2018 from 41.5% in 2017 .

The tax decrease is primarily due to the deferred tax adjustment related to the Tax Cuts and Jobs Act of 2017.

The provision for loan losses decreased $1.1 million from $5.8 million in 2018 to $4.7 million in 2019.

Non-interest expenses increased $13.1 million and non-interest income increased $246 thousand.

The increase in non-interest expenses was largely due to the acquisition of HopFed, Inc.

The provision for income taxes increased $1.0 million from 2018 to 2019 and the effective tax rate increased to 20.0% in 2019 from 19.3% in 2018.

COMPARISON AND DISCUSSION OF 2020 BALANCE SHEET TO 2019

The Corporation's total assets increased 33.7% or $1.0 billion at December 31, 2019 , from a year earlier.

The Corporation's total assets increased 13.3% or $534.3 million at December 31, 2020, from a year earlier.

Available-for-sale securities increased $94.0 million at December 31, 2020, from the previous year.

Loans, net increased by $702.9 million to $2.64 billion.

Loans, net decreased by $73.2 million to $2.56 billion.

Deposits increased $480.6 million while borrowings increased by $10.8 million.

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The portfolio structure will continue to provide cash flows to be reinvested during 2021.

1 year and less

5 to 10 years

Over 10 Years

(Dollar amounts in thousands)

1 year and less 1 to 5 years 5 to 10 years Over 10 Years 2020

(Dollar amounts in thousands) Balance Rate Balance Rate Balance Rate Balance Rate Total

government sponsored entity mortgage-backed securities and agencies and U.S.

Treasury (1) $ 8,892 2.21 % $ 36,343 1.87 % $ 40,007 5.02 % $ 388,936 2.44 % $ 474,178

Collateralized mortgage obligations (1) — — % 3,728 5.19 % 5,400 1.67 % 205,032 2.42 % 214,160

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Collateralized debt obligations — — % — — % — — % 3,136 — % 3,136

TOTAL $ 13,306 2.53 % $ 75,722 2.64 % $ 103,162 3.74 % $ 828,554 2.55 % $ 1,020,744

(1) Distribution of maturities is based on the estimated life of the asset.

1 year and less

5 to 10 years

Over 10 Years

(Dollar amounts in thousands)

1 year and less 1 to 5 years 5 to 10 years Over 10 Years 2019

(Dollar amounts in thousands) Balance Rate Balance Rate Balance Rate Balance Rate Total

government sponsored entity mortgage-backed securities and agencies (1) $ 7,095 2.11 % $ 47,977 1.37 % $ 60,946 5.20 % $ 260,606 3.08 % $ 376,624

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Collateralized debt obligations — — % — — % — — % 3,619 — % 3,619

TOTAL 14,044 2.55 % 89,279 2.26 % 121,801 4.16 % 701,593 2.86 % 926,717

(1) Distribution of maturities is based on the estimated life of the asset.

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Loan Category

(Dollar amounts in thousands)

Commercial $ 1,521,711 $ 1,584,447 $ 1,166,352 $ 1,139,490 $ 1,106,182

Residential 604,652 682,077 443,670 436,143 423,911

Consumer 479,750 386,006 341,041 327,976 305,881

TOTAL $ 2,606,113 $ 2,652,530 $ 1,951,063 $ 1,903,609 $ 1,835,974

Within After One

But Within After Five

(Dollar amounts in thousands) One Year Five Years Years Total

MATURITY DISTRIBUTION

Commercial, financial and agricultural $ 510,679 $ 701,562 $ 309,470 $ 1,521,711

Residential 604,652

Consumer 479,750

TOTAL $ 2,606,113

Loans maturing after one year with:

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Variable interest rates 352,985 7,053

ALLOWANCE FOR LOAN LOSSES

The activity in the Corporation's allowance for loan losses is shown in the following analysis:

TOTAL $ 701,562 $ 309,470

ALLOWANCE FOR CREDIT LOSSES

The activity in the Corporation's allowance for credit losses is shown in the following analysis:

(Dollar amounts in thousands) 2020 2019 2018 2017 2016

1 unchanged sentence

Average amount of loans by year $ 2,702,225 $ 2,270,313 $ 1,922,588 $ 1,855,092 $ 1,792,609

Allowance for loan losses at beginning of year

Allowance for credit losses at beginning of year $ 19,943 $ 20,436 $ 19,909 $ 18,773 $ 19,946

Loans charged off:

Commercial 1,097 2,616 1,122 1,572 2,659

Residential 944 1,050 841 761 1,011

Consumer 6,355 7,007 6,868 6,429 5,279

Total loans charged off 8,396 10,673 8,831 8,762 8,949

Recoveries of loans previously charged off:

Commercial 856 1,092 606 1,377 1,663

Residential 657 1,360 639 842 676

Consumer 3,404 3,028 2,345 2,384 2,137

Total recoveries 4,917 5,480 3,590 4,603 4,476

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Provision charged to expense * 10,528 4,700 5,768 5,295 3,300

CECL adoption 20,060 — — — —

Balance at end of year $ 47,052 $ 19,943 $ 20,436 $ 19,909 $ 18,773

Ratio of net charge-offs during period to average loans outstanding 0.13 % 0.23 % 0.27 % 0.22 % 0.25 %

The allowance is maintained at an amount management believes sufficient to absorb probable incurred losses in the loan portfolio.

The allowance is maintained at an amount management believes sufficient to absorb expected losses in the loan portfolio.

Monitoring loan quality and maintaining an adequate allowance is an ongoing process overseen by senior management and the loan review function.

On at least a quarterly basis, a formal analysis of the adequacy of the allowance is prepared and reviewed by management and the Board of Directors.

This analysis serves as a point in time assessment of the level of the allowance and serves as a basis for provisions for loan losses.

This analysis serves as a point in time assessment of the level of the allowance and serves as a basis for provisions for credit losses.

The loan quality monitoring process includes assigning loan grades and the use of a watch list to identify loans of concern.

Included in the $2.7 billion of loans outstanding at December 31, 2019 are loans acquired on December 30, 2011 in the Freestar acquisition.

The acquired portfolio includes purchased credit impaired loans with a carrying value of $1.1 million and a contractual balance due of $1.2 million .

Also included are loans acquired on July 27, 2019 in the HopFed acquisition.

The acquired portfolio includes purchased credit impaired loans with a carrying value of $5.9 million and a contractual balance due of $11.8 million.

The analysis of the allowance for loan losses includes the allocation of specific amounts of the allowance to individual impaired loans, generally based on an analysis of the collateral securing those loans.

Portions of the allowance are also allocated to loan portfolios, based upon a variety of factors including historical loss experience, trends in the type and volume of the loan portfolios, trends in delinquent and non-performing loans, and economic trends affecting our market.

The analysis of the allowance for credit losses includes the allocation of specific amounts of the allowance to individually evaluated loans, generally based on an analysis of the collateral securing those loans.

These components are added together and compared to the balance of our allowance at the evaluation date.

The allowance for loan losses as a percentage of total loans decreased to 0.75% at year end 2019 compared to 1.05% at year end 2018 .

The decrease is primarily due to acquired loans being recorded at fair value.

The Corporation’s unallocated allowance position of $1.4 million at December 31, 2019 decreased from $1.8 million at December 31, 2018 and decreased from $1.5 million December 31, 2017 .

The calculation of historical losses used in the allowance computation averages the net charge off activity and qualitative factors that supplement historical losses and consider internal and external factors that influence management's expectations of loss in the portfolio and the unallocated portion of the allowance reflects management's uncertainty about whether the more modest levels of net charge offs in the recent years, particularly in the commercial segment of the portfolio, are sustainable and representative of the risk in the loan portfolio.

Non-performing loans of $15.3 million at December 31, 2019 decreased from $16.6 million at December 31, 2018 due in large part to the resolution of certain commercial credits in 2019 .

Management believes the allowance for loan losses balance at year end 2019 , including the unallocated portion, is reasonable based on their analysis of specific loans and the credit trends reflected within the loan portfolio.

The allowance for credit losses as a percentage of total loans increased to 1.80% at year end 2020 compared to 0.75% at year end 2019.

The increase is primarily due to the adoption of CECL.

A portion of the increase was due to the requirement to include an allowance for credit losses on purchased loans that previously only required an allocation if there was a deterioration since acquisition date.

The calculation of historical losses used in the allowance computation averages the net charge off activity and qualitative factors that supplement historical losses and consider internal and external factors, including reasonable and supportable forecasts, that influence management's expectations of loss in the portfolio.

Non-performing loans of $20.7 million at December 31, 2020 increased from $15.3 million at December 31, 2019.

Management believes the allowance for credit losses balance at year end 2020 is reasonable based on their analysis of specific loans and the credit trends reflected within the loan portfolio.

The table below presents the allocation of the allowance to the loan portfolios at year-end.

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(Dollar amounts in thousands) 2020 2019 2018 2017 2016

TOTAL ALLOWANCE FOR LOAN LOSSES

Commercial $ 16,901 $ 8,945 $ 9,848 $ 10,281 $ 9,731

Residential 19,142 1,302 1,313 1,455 1,553

Consumer 11,009 8,304 7,481 6,709 5,767

Unallocated — 1,392 1,794 1,464 1,722

TOTAL ALLOWANCE FOR CREDIT LOSSES $ 47,052 $ 19,943 $ 20,436 $ 19,909 $ 18,773

NONPERFORMING LOANS

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The amounts shown below represent non-accrual loans, loans which have been restructured to provide for a reduction or deferral of interest or principal because of deterioration in the financial condition of the borrower and those loans which are past due more than 90 days where the Corporation continues to accrue interest.

Restructured loans declined in 2019 and 2018 due to the reduced number and balance of loans added combined with the continued receipt of payments in accordance with the restructuring terms as well as in 2015 there was one large commercial credit paid off.

Restructured loans increased slightly in 2020 and decreased in 2019 due to the reduced number and balance of loans added combined with the continued receipt of payments in accordance with the restructuring terms.

Additional information regarding restructured loans is available in the footnotes to the financial statements.

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Accruing loans past due over 90 days 2,324 1,610 798 1,403 610

$ 20,743 $ 15,339 $ 16,578 $ 21,682 $ 22,667

The ratio of the allowance for loan losses as a percentage of nonperforming loans was 226.83% at December 31, 2020, compared to 130.01% in 2019.

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Consumer loans 1,308 9 % 590 6 %

$ 15,367 100 % $ 9,535 100 %

Past due 90 days or more:

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Consumer loans 362 16 % 222 14 %

Management considers the present allowance to be appropriate and adequate to cover probable incurred losses inherent in the loan portfolio based on the current economic environment.

$ 2,324 100 % $ 1,610 100 %

Management considers the present allowance to be appropriate and adequate to cover expected losses inherent in the loan portfolio based on the current economic environment.

However, future economic changes cannot be predicted.

Deteriorating economic conditions could result in an increase in the risk characteristics of the loan portfolio and an increase in the potential for loan losses.

Deteriorating economic conditions could result in an increase in the risk characteristics of the loan portfolio and an increase in the potential for credit losses.

The information below presents the average amount of deposits and rates paid on those deposits for 2020, 2019 and 2018.

(Dollar amounts in thousands)

2020 2019 2018

(Dollar amounts in thousands) Amount Rate Amount Rate Amount Rate

Non-interest-bearing demand deposits $ 660,011 $ 292,445 $ 425,639

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Other time deposits 329,661 1.05 % 307,756 1.08 % 225,082 0.70 %

TOTAL $ 3,532,736 $ 2,797,330 $ 2,450,224

The maturities of certificates of deposit of more than $100 thousand outstanding at December 31, 2020, are summarized as follows:

4 unchanged sentences

Over 12 months 104,716

TOTAL $ 258,382

OTHER BORROWINGS

Advances from the Federal Home Loan Bank increased to $ 20.8 million in 2019 compared to zero in 2018 .

Other borrowings included trust preferred securities acquired in the assumption of liabilities of HopFed, Inc.

Advances from the Federal Home Loan Bank decreased to $5.9 million in 2020 compared to $20.8 million in 2019.

In 2019 other borrowings included trust preferred securities acquired in the assumption of liabilities of HopFed, Inc.

totaling $10.2 million.

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The Asset/Liability position is measured using sophisticated risk management tools, including earnings simulation and market value of equity sensitivity analysis.

These tools allow management to quantify and monitor both short-and long-term exposure to interest rate risk.

allow management to quantify and monitor both short-and long-term exposure to interest rate risk.

Simulation modeling measures the effects of changes in interest rates, changes in the shape of the yield curve and the effects of embedded options on net interest income.

measure projects earnings in the various environments over the next three years.

This measure projects earnings in the various environments over the next three years.

It is important to note that measures of interest rate risk have limitations and are dependent on various assumptions.

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These estimates assume all rate changes occur overnight and management takes no action as a result of this change.

Percentage Change in Net Interest Income

Interest Rate Change

Basis Point Percentage Change in Net Interest Income

Interest Rate Change 12 months 24 months 36 months

Down 100 -4.70 % -7.08 % -8.57 %

Up 100 5.38 % 9.89 % 13.30 %

Up 200 6.91 % 15.58 % 22.50 %

Typical rate shock analysis does not reflect management's ability to react and thereby reduce the effects of rate changes, and represents a worst-case scenario.

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Payments Due in

(Dollar amounts in thousands)

Note One year One year to Three to Over Five

(Dollar amounts in thousands) Reference or less Three Years Five Years Years Total

Deposits without a stated maturity $ 3,186,386 $ — $ — $ — $ 3,186,386

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Further discussion of these commitments is included in Note 15 to the consolidated financial statements.

(Dollar amounts in thousands)

Total Amount One year Over One

(Dollar amounts in thousands) Committed or less Year

Commitments to extend credit:

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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 7. Management’s Discussion and Analysis