What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-11 compared with 2020-03-06 · 670 added, 446 removed, 1250 unchanged (47% of the section changed)

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of First Financial Corporation (the "Corporation") as of December 31, 2019 and 2018, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements").

We also have audited the Corporation’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework:

We have audited the accompanying consolidated balance sheets of First Financial Corporation (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework:

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Change in Accounting Principle

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

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

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

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinions

The Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Corporation’s financial statements and an opinion on the Corporation’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Corporation in accordance with the U.S.

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans

In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, the Company adopted Accounting Standards Codification (“ASC”) 326 as of January 1, 2020 as described in Note 1 of the consolidated financial statements using the modified retrospective method.

Also see the Change in Accounting Principle paragraph above.

The ASU requires financial assets, including the Company's loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected.

Estimates of expected credit losses for loans are based on relevant information about past events, current conditions, and reasonable and supportable forecasts related to macroeconomic conditions, resulting in recognition of lifetime expected credit losses upon loan origination.

The Company disclosed the impact of adoption of this standard on January 1, 2020 with a $20 million increase to the allowance for credit losses, which included a $6 million increase related to the acquired loan portfolio and a $10.5 million decrease to retained earnings for the cumulative effect adjustment recorded upon adoption.

Provision for credit loss

expense for the year ending December 31, 2020 was $10.5 million and the Allowance for Credit Losses at December 31, 2020 was $47.1 million.

The Company utilizes the cohort or open pool methodology for determining the allowance for credit losses.

The open pool methodology 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.

The methodology then tracks the respective losses generated by that cohort of loans over their remaining lives.

When past performance may not be representative of future losses, the historical loss experience is supplemented with other current factors based on the risks present for each portfolio segment.

These current factors include changes in lending policies or procedures, asset specific risks, the impact of COVID-19 on customers’ operations, and economic uncertainty in forward-looking forecasts.

Economic indicators that are used in determining the economic forecast factors include unemployment rate, gross domestic product, housing starts and interest rates.

The Allowance for Credit Losses was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout the initial adoption and subsequent application processes.

The principal considerations resulting in our determination included the following:

• Significant audit effort to evaluate the appropriateness of selection of loss estimation model, loan segmentation and historical loss periods used in the calculation

• Significant auditor judgment and effort were used in evaluating the qualitative factors used in the calculation.

• Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecast of economic variables.

• Significant audit effort to test the completeness and accuracy of the critical data used in the cohort methodology, including accuracy of loan type, loan balance, origination date, renewal date, charge-off or recovery amount, charge-off or recovery date.

The primary procedures performed to address this critical audit matter included:

• Testing the effectiveness of management’s internal controls over the Company’s significant model assumptions and judgments, loan segmentation, reasonable and supportable forecasts, qualitative factor adjustments, completeness and accuracy of data used in the model, charge-off approval, information systems and model validation

• Testing the effectiveness of controls over the Company’s preparation and review of the allowance for credit loss calculation, including data used as the basis for adjustments related to the qualitative factors, the development and reasonableness of qualitative factors and mathematical accuracy and appropriateness of the overall calculation

• Testing the completeness and accuracy of data used in the model and the mathematical accuracy of the calculation

• Evaluating management’s judgments in the selection of the loss estimation model as well as the loan segmentation and historical loss periods used in the model

• Evaluating management’s judgments in the selection and application of reasonable and supportable forecast of economic variables

• Testing management’s process for developing the qualitative factors and assessing reasonableness, relevance and reliability of data used to develop factors, including evaluating their judgments and assumptions for reasonableness

/s/ Crowe LLP

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Securities available-for-sale 1,020,744 926,717

Loans, net of allowance of $19,943 in 2019 and $20,436 in 2018

Loans, net of allowance for credit losses of $ 47,052 in 2020 and $ 19,943 in 2019

2,563,242 2,636,447

Restricted stock 14,812 15,394

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Bank-owned life insurance 95,849 94,251

Goodwill 78,592 78,592

Other intangible assets 8,972 10,643

Other real estate owned 1,012 3,625

Other assets 37,530 41,556

TOTAL ASSETS $ 4,557,544 $ 4,023,250

LIABILITIES AND SHAREHOLDERS’ EQUITY

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Other interest-bearing deposits 2,915,487 2,601,430

3,755,945 3,275,357

Short-term borrowings 116,061 80,119

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Treasury shares at cost- 2,516,643 in 2020 and 2,313,641 in 2019

( 76,702 ) ( 68,645 )

TOTAL SHAREHOLDERS’ EQUITY 596,992 557,608

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Loans, including related fees $ 137,241 $ 124,788 $ 100,541

Taxable 13,625 15,191 16,942

Tax-exempt 7,952 7,674 7,455

Other 1,667 1,468 1,286

TOTAL INTEREST AND DIVIDEND INCOME 160,485 149,121 126,224

INTEREST EXPENSE:

Deposits 12,801 15,711 9,032

Short-term borrowings 568 1,105 501

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NET INTEREST INCOME 146,346 131,652 116,579

Provision for loan losses

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

Provision for credit loss expense 10,528 4,700 5,768

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 135,818 126,952 110,811

NON-INTEREST INCOME:

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Gain on sale of mortgage loans 6,626 2,573 1,829

Other 4,136 4,859 6,200

TOTAL NON-INTEREST INCOME 42,476 38,452 38,206

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Federal Deposit Insurance 316 693 929

Other 31,741 33,041 25,845

TOTAL NON-INTEREST EXPENSE 112,758 104,405 91,289

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Provision for income taxes 11,692 12,127 11,145

NET INCOME 53,844 48,872 46,583

OTHER COMPREHENSIVE INCOME

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Comprehensive

(Dollar amounts in thousands, except per share data)

Income/(Loss)

Common Additional Retained Accumulated

Comprehensive Treasury

(Dollar amounts in thousands, except per share data) Stock Capital Earnings Income/(Loss) Stock Total

Balance, January 1, 2018 $ 1,822 $ 75,624 $ 420,275 $ ( 14,704 ) $ ( 69,448 ) $ 413,569

Net income — — 46,583 — — 46,583

Other comprehensive income (loss) — — — ( 6,384 ) — ( 6,384 )

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Contribution of 23,250 shares to ESOP

— 407 — — 680 1,087

ASU 2018-02 adjustment — — 2,366 (2,366) — —

Cash Dividends, $ 1.02 per share

— — ( 12,508 ) — — ( 12,508 )

Balance, December 31, 2018 1,824 76,774 456,716 ( 23,454 ) ( 69,159 ) 442,701

Net income — — 48,872 — — 48,872

Other comprehensive income (loss) — — — 15,953 — 15,953

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Contribution of 28,470 shares to ESOP

ASU 2018-02 adjustment

— 422 — — 829 1,251

Acquisition of HopFed, Inc.

(1,423,143 shares) 178 61,700 — — — 61,878

Cash Dividends, $ 1.04 per share

— — ( 13,533 ) — — ( 13,533 )

Balance, December 31, 2019 2,005 139,694 492,055 ( 7,501 ) ( 68,645 ) 557,608

Cumulative change in accounting principle (Note 1) — — (10,483) — — (10,483)

Balance, January 1, 2020 2,005 139,694 481,572 (7,501) (68,645) 547,125

Net income — — 53,844 — — 53,844

Other comprehensive income (loss) — — — 17,265 — 17,265

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Contribution of 39,029 shares to ESOP

Acquisition of HopFed, Inc.

(1,423,143 shares)

— 308 — — 1,163 1,471

Cash Dividends, $ 1.05 per share

— — ( 14,313 ) — — ( 14,313 )

Balance, December 31, 2020 $ 2,007 $ 140,820 $ 521,103 $ 9,764 $ ( 76,702 ) $ 596,992

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income $ 53,844 $ 48,872 $ 46,583

Adjustments to reconcile net income to net cash provided by operating activities:

Net (accretion) amortization on securities 7,184 4,848 3,622

Provision for loan losses

Provision for credit losses 10,528 4,700 5,768

Securities (gains) losses ( 233 ) ( 44 ) ( 2 )

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Proceeds from loans held for sale 170,834 79,454 62,098

Other, net 1,998 ( 9,080 ) ( 3,971 )

NET CASH FROM OPERATING ACTIVITIES 77,425 49,901 57,448

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Cash paid for the year for:

Interest $ 14,845 $ 16,339 $ 9,408

Income Taxes $ 7,549 $ 9,595 $ 7,185

See accompanying notes.

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Inter-company transactions and balances have been eliminated.

First Chanticleer Corporation was dissolved in December 2020.

First Financial Bank also has two investment subsidiaries, Portfolio Management Specialists A (Specialists A) and Portfolio Management Specialists B (Specialists B), which were established to hold and manage certain assets as part of a strategy to better manage various income streams and provide opportunities for capital creation as needed.

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Realized gains and losses on sales are based on the amortized cost of the security sold.

Management evaluates securities for other-than temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

Loans that management has the intent and ability to hold for the foreseeable future until maturity or pay-off are reported at the principal balance outstanding, net of unearned interest, purchase premiums and discounts, deferred loan fees and costs, and allowance for loan losses.

Management evaluates securities for impairment related to credit losses at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

Loans held for sale are reported at the lower of cost or fair value, on an aggregate basis.

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The above policies are consistent for all segments of loans.

Certain Purchased Loans:

The Corporation purchases individual loans and groups of loans, some of which have shown evidence of credit deterioration since origination.

These purchased loans are recorded at the amount paid, such that there is no carryover of the seller's allowance for loan losses.

After acquisition, losses are recognized by an increase in the allowance for loan losses.

Such purchased loans are accounted for individually.

The Corporation estimates the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of amount paid are recorded as interest income over the remaining life of the loan (accretable yield).

The excess of the loan's contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan, expected cash flows continue to be estimated.

If the present value of expected cash flows is less than the carrying amount, a provision for loan loss is recorded.

If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Purchased Credit Deteriorated (PCD) Loans:

The Corporation purchases individual loans and groups of loans, some of which have experienced more than insignificant credit deterioration since origination.

PCD loans are recorded at the amount paid .

An allowance for credit losses is determined using the same methodology as other loans held for investment.

The initial allowance for credit losses determined on a collective basis is allocated to individual loans.

The sum of the loan's purchase price and initial allowance for credit losses becomes its amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is accreted or amortized into interest income over the life of the loan.

Subsequent changes to the allowance for credit losses are recorded through provision for credit losses.

Concentration of Credit Risk:

Most of the Corporation's business activity is with customers located within west central Indiana and east central Illinois.

Most of the Corporation's business activity is with customers located within west-central Indiana, east-central Illinois, western Kentucky, and middle and western Tennessee.

Therefore, the Corporation's exposure to credit risk is significantly affected by changes in the economy of this area.

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Overall risks within the consumer portfolio are mitigated by the mix of various loan products, lending in various markets and the overall make-up of the portfolio (small loan sizes and a large number of individual borrowers).

Allowance for Loan Losses:

The allowance for loan losses is a valuation allowance for probable incurred credit losses.

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

Subsequent recoveries, if any, are credited to the allowance.

Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors.

Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off.

The allowance consists of specific and general components.

The specific component relates to loans that are individually classified as impaired.

The general component covers non-classified loans as well as non-impaired classified loans and is based on historical loss experience adjusted for current factors.

A loan is impaired when full payment under the loan terms is not expected.

Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgages and consumer loans, and on an individual basis for other loans.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows, using the loan's existing rate, or at the fair value of collateral if repayment is expected solely from the collateral.

Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and, accordingly, they are not separately identified for impairment disclosures.

The general component covers non-classified loans as well as non-impaired classified loans and is based on historical loss experience adjusted for current factors.

The historical loss experience is based on the actual loss history experienced over the most recent four years.

This actual loss experience is supplemented with other current factors based on the risks present for each portfolio segment.

These current factors include consideration of the following:

levels of and trends in delinquent, classified, and impaired loans;

levels of and trends in charge-offs and recoveries;

national and local economic trends and conditions;

changes in lending policies and procedures;

trends in volume and terms of loans;

experience, ability, and depth of lending management and other relevant staff;

credit concentrations;

value of underlying collateral for collateral dependent loans;

and other external factors such as competition and legal and regulatory requirements.

The following portfolio segments have been identified:

commercial loans, residential loans and consumer loans.

A characteristic of the commercial loan segment is that the loans are for business purchases.

A characteristic of the residential loan segment is that the loans are secured by residential properties.

A characteristic of the consumer loan segment is that the loans are for automobiles and other consumer purchases.

Commercial loans are generally well secured, which mitigates the risk of loss and has contributed to the low historical loss rate.

However, concentrations in commercial real estate, along with the potential impact of rising interest rates to commercial real estate, raises the risk of loss on commercial loans.

For these reasons, commercial loans have the highest adjustment to the historical loss rate.

Continued weakness in local

economic conditions along with declining auto values resulted in consumer loans having the next highest level of adjustment to the historical loss rate.

The residential loan portfolio segment had the lowest level of adjustment to the historical loss rate.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at inception.

If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.

For troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

Allowance for Credit Losses:

Credit quality of loans is continuously monitored by management and is reflected within the allowance for credit losses for loans.

The allowance for credit losses is an estimate of expected losses inherent within the Company’s loan portfolio.

Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses.

The allowance for credit losses is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

We have made a policy election to report accrued interest receivable as a separate line item on the balance sheet.

The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of the loan portfolio segments.

These segments are further disaggregated into loan classes based on the level at which credit risk is monitored.

When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future.

Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain.

In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

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 at a particular point in time to form a cohort.

Then it tracks the respective losses generated by that cohort of loans over their remaining life.

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

The allowance level is influenced by loan volumes, loan quality rating migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.

The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses consists of specific and pooled components.

The specific component relates to loans that are individually evaluated.

A loan is individually evaluated when the loan no longer shares similar risk characteristics with other loans in its respective loan pool.

If a loan is individually evaluated, a portion of the allowance is allocated so that the loan is reported at the fair value of collateral, adjusted for selling costs, if repayment is expected solely from the collateral.

The pooled component covers pools of loans that share similar risk characteristics, and is based on historical loss experienced since 2008.

This historical loss experience is supplemented with other current factors based on the risks present for each portfolio segment.

These current factors include items such as changes in lending policies or procedures, asset specific risks, the impact of COVID-19 on customers’ operations,

and economic uncertainty in forward-looking forecasts.

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

We maintain an allowance for credit losses on unfunded lending commitments to provide for the risk of loss inherent in these arrangements.

Unfunded commitments include funds available for disbursement on commercial and agriculture operating lines, commercial real estate and residential construction loans, and home equity lines of credit.

The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment.

The allowance for credit losses on unfunded commitments was $3.5 million at December 31, 2020.

Foreclosed Assets:

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relinquished.

Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Corporation, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

exchange the transferred assets, and the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Bank-Owned Life Insurance:

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The Corporation has selected December 31 as the date to perform the annual impairment test.

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.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

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The short-term portion of the plan is paid out within 75 days of year end and the long-term plan vests over a three year period and is paid out within 75 days of the end of each vesting period.

The compensation expense related to the plans in 2019 , 2018 and 2017 was $1.9 million , $1.7 million and $1.6 million , respectively, and resulted in a liability of $1.0 million at December 31, 2019 and $899 thousand at December 31, 2018 .

The compensation expense related to the plans in 2020, 2019 and 2018 was $ 2.2 million, $ 1.9 million and $ 1.7 million, respectively, and resulted in a liability of $ 1.4 million at December 31, 2020 and $ 1.0 million at December 31, 2019.

The Omnibus Equity Incentive Plan is a long term incentive plan that was designed to align the interests of participants with the interest of shareholders.

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Accounting Pronouncements Adopted:

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2016-02, Leases.

The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S.

GAAP and disclosing key information about leasing arrangements.

The new standard was adopted by the Corporation on January 1, 2019.

ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption.

The Corporation elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and did not restate comparative periods.

Adoption of ASU 2016-02 resulted in the recognition of lease liabilities totaling $7 million and the recognition of right-of- use assets totaling $7 million as of the date of adoption.

Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively.

The initial balance sheet gross up upon adoption was primarily related to operating leases of certain real estate properties.

The Corporation has no finance leases or material subleases or leasing arrangements for which it is the lessor of property or equipment.

The Corporation has elected to apply the package of practical expedients allowed by the new standard under which the Corporation need not reassess whether any expired or existing contracts are leases or contain leases, the Corporation need not reassess the lease classification for any expired or existing lease, and the Corporation need not reassess initial direct costs for any existing leases.

Adoption of ASU 2016-02 did not materially change the Corporation’s recognition of lease expense.

See Note 19 - Leases for additional disclosures related to leases.

In July 2018, the FASB issued ASU No.

2018-11, Leases - Targeted Improvements, to provide entities with relief from the costs

of implementing certain aspects of the new leasing standard, ASU No.

Specifically, under the amendments in ASU

(1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard,

and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met.

The amendments

have the same effective date as ASU 2016-02 (January 1, 2019 for the Corporation).

The Corporation elected both

transition options on January 1, 2019.

ASU 2018-11 did not have a material impact on the Corporation’s financial statements.

Recently Issued Not Yet Effective Accounting Pronouncements :

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

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The entity's estimate would consider relevant information about past events, current conditions, and reasonable and supportable forecasts, which will result in recognition of lifetime expected credit losses upon loan origination.

ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for annual reporting periods beginning after December 15, 2018.

ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by the President of the United States that included an option for entities to delay the implementation of ASU 2016-13 until the earlier of the termination date of the national emergency declaration by the President or December 31, 2020.

Due to the uncertainty on the economy and unemployment from COVID-19, the Corporation determined at that time to delay its implementation of ASU 2016-13 and calculated and recorded its provision for loan losses under the incurred loss model that existed prior to ASU 2016-13.

The Corporation adopted ASU 2016-13 on December 31, 2020 with an effective date of January 1, 2020.

The Corporation formed a cross-functional internal management committee and engaged a third party vendor to assist with the transition to the guidance set forth in this update.

The new allowance model implemented by the Corporation estimates credit losses over the expected life of the portfolio and includes a qualitative framework to account for the drivers of losses that are not captured by the quantitative model.

The results continue to be utilized to refine our models and estimation techniques.

Documentation of new methodologies and internal controls that will be implemented as part of CECL as well as model validation is also being finalized.

While the committee continues to analyze and modify calculations, the Corporation currently expects the adoption of ASU 2016-13 will result in an increase in allowance for loan losses amount at January 1, 2020 in the range of $15 million to $25 million.

The allowance for credit losses also increased due to the requirement to record an allowance on acquired loan portfolios, previously recorded at fair value.

Once finalized, the cumulative effect adjustment, as a result of the adoption of this guidance, will be recorded, net of tax, as an adjustment to retained earnings effective January 1, 2020.

This estimate is subject to change as key assumptions are refined and model validations are finalized.

not captured by the quantitative model.

The results continued to be utilized to refine our models and estimation techniques.

Documentation of new methodologies and internal controls implemented as part of CECL as well as model validation was finalized.

The Corporation adopted CECL using the modified retrospective method for all financial assets measured at amortized cost and off balance sheet credit exposures.

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

As of the adoption date, the Corporation increased the allowance for credit losses for loans, by $20 million, since the ASU covers credit losses over the expected life of a loan as well as considering future changes in macroeconomic conditions.

The increase included $6 million related to the acquired loan portfolio.

Under the previously applicable accounting guidance, any remaining loan discount on an individual loan could be used to offset a charge-off for that loan, so the allowance for credit losses needed for acquired loans was reduced by the remaining loan discounts.

ASU 2016-13 requires an allowance for credit losses to be recognized in addition to the loan discount.

The impact of adopting the ASU, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic conditions and forecasts, and loan composition, along with other management judgments.

As of January 1, 2020, the Corporation recorded a cumulative effect adjustment of $10.5 million to decrease retained earnings.

We adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired and accounted for under ASC 310-30.

In accordance with the standard, we did not reassess whether PCI assets meet the definition of PCD assets as of the date of adoption.

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

The Corporation did not record an allowance for credit losses on its available-for-sale debt securities under the newly codified available-for-sale security impairment model, as the majority of these securities are government agency-backed securities for which the risk is minimal.

In January 2017, the FASB issued ASU No.

2017-04, “Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.

2017-04, Simplifying the Test for Goodwill Impairment.

The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.

Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

2 unchanged sentences

Early adoption is permitted for any impairment tests performed after January 1, 2017.

The Corporation is assessing ASU 2017-04 but does not expect a significant impact on its accounting and disclosures.

The Corporation adopted ASU 2017-04 on January 1, 2020.

There was not a significant impact to accounting and disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair

Value Measurement.

2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements.

Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and

Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant

unobservable inputs for Level 3 fair value measurements.

2018-13 is effective for interim and annual reporting

periods beginning after December 15, 2019;

Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019;

early adoption is permitted.

Entities are also allowed to elect early adoption the

eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date.

2018-13 only revises disclosure requirements, it will not have a material impact on the Corporation’s financial

The Corporation adopted ASU 2018-13 on January 1, 2020.

2018-13 only revises disclosure requirements, it did not have a material impact on the Corporation’s financial statements.

In September 2018, the FASB issued ASU No.

2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred.

Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”).

The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service.

ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019;

early adoption is permitted.

The Corporation adopted ASU 2018-15 on January 1, 2020.

ASU 2018-15 did not have a material impact on the Corporation’s financial statements.

Recently Issued Not Yet Effective Accounting Pronouncements :

In August 2018, the FASB issued ASU No.

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the Corporation’s financial statements.

In September 2018, the FASB issued ASU No.

2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud

Computing Arrangement That Is a Service Contract.

This ASU requires an entity in a cloud computing arrangement (i.e.,

hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which

implementation costs to capitalize as assets or expense as incurred.

Capitalized implementation costs should be presented in the

same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”).

capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in

the same income statement line item as the fees paid for the hosted service.

ASU 2018-15 is effective for interim and annual

reporting periods beginning after December 15, 2019;

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;

and 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.

Early adoption is permitted.

ASU 2018-15 will not have a material

impact on the Corporation’s financial statements.

The Corporation is assessing ASU 2019-12 and its impact on its accounting and disclosure.

FAIR VALUES OF FINANCIAL INSTRUMENTS:

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Fair Value Measurement Using

(Dollar amounts in thousands)

Carrying Value

(Dollar amounts in thousands) Level 1 Level 2 Level 3 Carrying Value

Government entity mortgage-backed securities $ — $ 97,814 $ — $ 97,814

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Municipal taxable — 23,139 — 23,139

Treasury — 2,753 — 2,753

Collateralized debt obligations — — 3,136 3,136

TOTAL $ — $ 1,015,713 $ 5,031 $ 1,020,744

Derivative Assets $ 2,465

2 unchanged sentences

Fair Value Measurement Using

(Dollar amounts in thousands)

Carrying Value

(Dollar amounts in thousands) Level 1 Level 2 Level 3 Carrying Value

Government entity mortgage-backed securities $ — $ 103,633 $ — $ 103,633

Mortgage-backed securities, residential — 243,382 — 243,382

Mortgage-backed securities, commercial — 22,104 — 22,104

Collateralized mortgage obligations — 281,311 — 281,311

State and municipal obligations — 261,869 2,565 264,434

Municipal taxable — 730 — 730

Treasury — 7,504 — 7,504

Collateralized debt obligations — — 3,619 3,619

TOTAL $ — $ 920,533 $ 6,184 $ 926,717

Derivative Assets $ 828

4 unchanged sentences

December 31, 2020

State and municipal obligations

Collateralized debt obligations

State and municipal obligations Collateralized debt obligations Total

Beginning balance, January 1 $ 2,565 $ 3,619 $ 6,184

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Included in other comprehensive income — ( 483 ) ( 483 )

Purchases — — —

Settlements ( 670 ) — ( 670 )

Ending balance, December 31 $ 1,895 $ 3,136 $ 5,031

1 unchanged sentence

December 31, 2019

Collateralized

debt obligations

obligations Collateralized

debt obligations Total

Beginning balance, January 1 $ 3,135 $ 3,258 $ 6,393

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Included in other comprehensive income — 498 498

Transfers — — —

Settlements ( 570 ) ( 137 ) ( 707 )

Ending balance, December 31 $ 2,565 $ 3,619 $ 6,184

There were no unrealized gains and losses recorded in earnings for the years ended December 31, 2020, 2019 or 2018.

Impaired loans disclosed in footnote 7, which are measured for impairment using the fair value of collateral, are valued at Level 3.

They are carried at a fair value of $100 thousand , after a valuation allowance of $48 thousand at December 31, 2019 and at a fair value of $1.6 million , net of a valuation allowance of $0.7 million at December 31, 2018 .

The impact to the provision for loan losses for the twelve months ended December 31, 2019 and December 31, 2018 was a $689 thousand decrease and a $112 thousand increase, respectively.

Other real estate owned is valued at Level 3.

Other real estate owned at December 31, 2020 with a value of $ 1.0 million was reduced by zero for fair value adjustment.

At December 31, 2020 other real estate owned was comprised of $ 846 thousand from commercial loans and $ 167 thousand from residential loans.

Other real estate owned at December 31, 2019 with a value of $ 3.6 million was reduced $ 64 thousand for fair value adjustment.

At December 31, 2019 other real estate owned was comprised of $ 3.5 million from commercial loans and $ 142 thousand from residential loans.

Other real estate owned at December 31, 2018

with a value of $603 thousand was reduced $598 thousand for fair value adjustment.

At December 31, 2018 other real estate owned was comprised of $171 thousand from commercial loans and $432 thousand from residential loans.

Fair value is measured based on the value of the collateral securing those loans, and is determined using several methods.

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Values for non real estate collateral use much higher discounts than real estate collateral.

Other real estate and impaired loans carried at fair value are primarily comprised of smaller balance properties.

Other real estate and collateral dependent loans carried at fair value are primarily comprised of smaller balance properties.

The following tables present quantitative information about recurring and non-recurring Level 3 fair value measurements at December 31, 2020 and 2019.

Valuation Technique(s)

Unobservable Input(s)

State and municipal obligations

Discounted cash flow

Discount rate

2020 Fair Value Valuation Technique(s) Unobservable Input(s) Range

State and municipal obligations $ 1,895 Discounted cash flow Discount rate 3.41 %- 4.44 %

Probability of default — %

Other real estate

Sales comparison/income approach

Discount rate for age of appraisal and market conditions

Impaired Loans

Sales comparison/income approach

Discount rate for age of appraisal and market conditions

Valuation Technique(s)

Unobservable Input(s)

State and municipal obligations

Discounted cash flow

Discount rate

Other real estate $ 1,012 Sales comparison/income approach Discount rate for age of appraisal and market conditions 5.00 %- 20.00 %

Collateral dependent loans $ 6,581 Discounted cash flows Discount rate for age of appraisal and market conditions 0.00 %- 50.00 %

2019 Fair Value Valuation Technique(s) Unobservable Input(s) Range

State and municipal obligations $ 2,565 Discounted cash flow Discount rate 2.87 %- 4.44 %

Probability of default — %

Other real estate

Sales comparison/income approach

Discount rate for age of appraisal and market conditions

Impaired Loans

Sales comparison/income approach

Discount rate for age of appraisal and market conditions

The following tables present impaired collateral dependent loans measured at fair value on a non-recurring basis by class of loans as of December 31, 2019 and 2018 .

December 31, 2019

(Dollar amounts in thousands)

Carrying Value

Commercial & Industrial

Non Farm, Non Residential

All Other Commercial

All Other Residential

Motor Vehicle

All Other Consumer

Other real estate $ 3,625 Sales comparison/income approach Discount rate for age of appraisal and market conditions 5.00 %- 20.00 %

Impaired Loans $ 100 Sales comparison/income approach Discount rate for age of appraisal and market conditions 0.00 %- 50.00 %

The following table presents impaired collateral dependent loans measured at fair value on a non-recurring basis by class of loans as of December 31, 2019.

December 31, 2019

(Dollar amounts in thousands)

Carrying Value

(Dollar amounts in thousands) Carrying Value Allowance

Allocated Fair Value

Commercial & Industrial $ 148 $ 48 $ 100

Farmland — — —

Non Farm, Non Residential — — —

Agriculture — — —

All Other Commercial — — —

First Liens — — —

Home Equity — — —

Junior Liens — — —

Multifamily — — —

All Other Residential — — —

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All Other Consumer — — —

TOTAL $ 148 $ 48 $ 100

The carrying amounts and estimated fair values of financial instruments are shown below.

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It is not practicable to determine the fair value of restricted stock due to restrictions placed on their transferability.

For fixed-rate loans or deposits, variable rate loans or deposits with infrequent repricing or repricing limits, and for longer-term borrowings, fair value is based on discounted cash flows using current market rates applied to the estimated life

and credit risk.

Loan fair value estimates represent an exit price for 2020 and 2019.

2 unchanged sentences

The fair value of off-balance sheet items is not considered material.

The carrying amount and estimated fair value of assets and liabilities are presented in the table below and were determined based on the above assumptions:

The carrying amount and estimated fair value of assets and liabilities are presented in the tables below and were determined based on the above assumptions:

December 31, 2020

(Dollar amounts in thousands)

Carrying Fair Value

(Dollar amounts in thousands) Value Level 1 Level 2 Level 3 Total

Cash and due from banks $ 657,470 $ 25,645 $ 631,825 $ — $ 657,470

Securities available-for-sale 1,020,744 — 1,015,713 5,031 1,020,744

Restricted stock

Restricted stock 14,812 n/a n/a n/a n/a

Loans, net 2,563,242 — — 2,560,683 2,560,683

Accrued interest receivable 16,957 — 3,521 13,436 16,957

Deposits ( 3,755,945 ) — ( 3,763,358 ) — ( 3,763,358 )

Short-term borrowings ( 116,061 ) — ( 116,061 ) — ( 116,061 )

Other borrowings (5,859) — (6,297) — (6,297)

Accrued interest payable ( 1,033 ) — ( 1,033 ) — ( 1,033 )

December 31, 2019

(Dollar amounts in thousands)

Carrying Fair Value

(Dollar amounts in thousands) Value Level 1 Level 2 Level 3 Total

Cash and due from banks $ 127,426 $ 26,275 $ 101,151 $ — $ 127,426

Securities available-for-sale 926,717 — 920,533 6,184 926,717

Restricted stock

Restricted stock 15,394 n/a n/a n/a n/a

Loans, net 2,636,447 — — 2,648,692 2,648,692

Accrued interest receivable 18,523 — 3,583 14,940 18,523

Deposits ( 3,275,357 ) — ( 3,278,099 ) — ( 3,278,099 )

Short-term borrowings ( 80,119 ) — ( 80,119 ) — ( 80,119 )

Other borrowings (30,973) — (31,143) — (31,143)

Accrued interest payable ( 1,739 ) — ( 1,739 ) — ( 1,739 )

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Certain affiliate banks are required to maintain average reserve balances with the Federal Reserve Bank.

The amount of those reserve balances was approximately $16.9 million and $12.8 million at December 31, 2019 and 2018 , respectively.

The amount of those reserve balances was approximately zero and $ 16.9 million at December 31, 2020 and 2019, respectively.

The fair value of securities available-for-sale and related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

December 31, 2020

(Dollar amounts in thousands)

Amortized Unrealized

(Dollar amounts in thousands) Cost Gains Losses Fair Value

Government entity mortgage-backed securities $ 92,710 $ 5,105 $ ( 1 ) $ 97,814

4 unchanged sentences

Municipal taxable 22,440 702 (3) 23,139

Treasury 2,750 3 — 2,753

Collateralized debt obligations — 3,136 — 3,136

TOTAL $ 977,830 $ 43,354 $ ( 440 ) $ 1,020,744

December 31, 2019

(Dollar amounts in thousands)

Amortized Unrealized

(Dollar amounts in thousands) Cost Gains Losses Fair Value

Government entity mortgage-backed securities $ 102,490 $ 1,293 $ ( 150 ) $ 103,633

Mortgage-backed securities, residential 240,753 2,979 ( 350 ) 243,382

Mortgage-backed securities, commercial 22,036 73 (5) 22,104

Collateralized mortgage obligations 280,797 1,735 ( 1,221 ) 281,311

State and municipal obligations 253,277 11,265 ( 108 ) 264,434

Municipal taxable 728 2 — 730

Treasury 7,494 10 — 7,504

Collateralized debt obligations — 3,619 — 3,619

TOTAL $ 907,575 $ 20,976 $ ( 1,834 ) $ 926,717

As of December 31, 2020, the Corporation does not have any securities from any issuer, other than the U.S.

3 unchanged sentences

(Dollar amounts in thousands) 2020 2019 2018

Proceeds $ 36,696 $ 11,210 $ 2,418

Gross gains 290 55 5

Gross losses ( 57 ) ( 11 ) ( 3 )

Gains of $ 290 thousand and losses of $ 57 thousand in 2020 and gains of $ 55 thousand and losses of $11 thousand in 2019 and gains of $5 thousand and losses of $ 3 thousand in 2018 resulted from redemption premiums on called and sold securities.

2 unchanged sentences

Available-for-Sale

(Dollar amounts in thousands)

Amortized Fair

(Dollar amounts in thousands) Cost Value

Due in one year or less $ 13,168 $ 13,304

2 unchanged sentences

Due after ten years 278,413 302,113

403,737 432,973

Mortgage-backed securities and collateralized mortgage obligations 574,093 587,771

TOTAL $ 977,830 $ 1,020,744

The following tables show the securities' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at December 31, 2020 and 2019.

December 31, 2020

Less Than 12 Months

More Than 12 Months

(Dollar amounts in thousands)

Less Than 12 Months More Than 12 Months Total

Unrealized Unrealized Unrealized

(Dollar amounts in thousands) Fair Value Losses Fair Value Losses Fair Value Losses

Government entity mortgage-backed securities $ — $ — 944 ( 1 ) $ 944 $ ( 1 )

Mortgage-backed securities, residential 76,962 ( 279 ) — — 76,962 ( 279 )

Mortgage-backed securities, commercial

Collateralized mortgage obligations 12,282 ( 108 ) 3,767 ( 49 ) 16,049 ( 157 )

State and municipal obligations

Municipal taxable 747 ( 3 ) — — 747 ( 3 )

Treasury 250 — — — 250 —

Total temporarily impaired securities $ 90,241 $ ( 390 ) $ 4,711 $ ( 50 ) $ 94,952 $ ( 440 )

December 31, 2019

Less Than 12 Months

More Than 12 Months

(Dollar amounts in thousands)

Less Than 12 Months More Than 12 Months Total

Unrealized Unrealized Unrealized

(Dollar amounts in thousands) Fair Value Losses Fair Value Losses Fair Value Losses

Government entity mortgage-backed securities $ 29,183 $ ( 150 ) $ — $ — $ 29,183 $ ( 150 )

Mortgage-backed securities, residential 55,665 ( 243 ) 18,724 ( 107 ) 74,389 ( 350 )

Mortgage-backed securities, commercial 4,391 (5) — — 4,391 (5)

Collateralized mortgage obligations 33,398 ( 314 ) 61,781 ( 907 ) 95,179 ( 1,221 )

3 unchanged sentences

The unrealized losses on collateralized mortgage obligations, all mortgage-backed securities and state and municipal obligations represent negative adjustments to fair value relative to the rate of interest paid on the securities and not losses related to the creditworthiness of the issuer.

Gross unrealized losses on investment securities were $1.8 million as of December 31, 2019 and $15.2 million as of December 31, 2018 .

Gross unrealized losses on investment securities were $ 440 thousand as of December 31, 2020 and $ 1.8 million as of December 31, 2019.

Management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery.

Management believes the value will recover as the securities approach maturity or market rates change.

Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model.

Investment securities are generally evaluated for OTTI under FASB ASC 320, Investments—Debt and Equity Securities.

However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB ASC 325-40, Beneficial Interests in Securitized Financial Assets.

In determining OTTI under the FASB ASC-320 model, management considers many factors, including:

(1)the length of time and the extent to which the fair value has been less than cost, (2)the financial condition and near-term prospects of the issuer, (3) whether the fair value decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery.

The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

The second segment of the portfolio uses the OTTI guidance provided by FASB ASC-325 that is specific to purchase beneficial interests that, on the purchase date, were rated below AA.

Under the FASB ASC-325 model, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows.

An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss.

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, less any current-period credit loss, 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.

The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes.

The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Management evaluates securities for impairment related to credit losses at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

The investment securities portfolio is evaluated for impairment related to credit losses by segregating the portfolio into two general segments.

In evaluating for impairment, 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 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.

In prior years, a significant portion of the total unrealized losses relates to collateralized debt obligations that were separately evaluated under FASB ASC 325-40, Beneficial Interests in Securitized Financial Assets.

2 unchanged sentences

A second was called in second quarter 2018.

The remaining CDO has a contractual balance of $3.7 million at December 31, 2019 which has been reduced to $3.6 million by $750 thousand of interest payments received, $3.0 million of cumulative OTTI charges recorded through earnings to date and increased by $3.6 million recorded in other comprehensive income.

The remaining CDO has a contractual balance of $ 3.7 million at December 31, 2020 which has been reduced to $ 3.1 million by $ 750 thousand of interest payments received, $ 3.0 million of cumulative credit loss charges recorded through earnings to date and increased by $ 3.1 million recorded in other comprehensive income.

These securities are collateralized by trust preferred securities issued primarily by bank holding companies, but certain pools do include a limited number of insurance companies.

The Corporation uses the OTTI evaluation model to compare the present value of expected cash flows to the previous estimate to determine if there are adverse changes in cash flows during the year.

The OTTI model considers the structure and term of the CDO and the financial condition of the underlying issuers.

Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes.

Cash flows are projected using a forward rate LIBOR curve, as these CDOs are variable-rate instruments.

An average rate is then computed using this same forward rate curve to determine an appropriate discount rate ( 3 month LIBOR plus margin ranging from 160 to 180 basis points).

The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information, including announcements of interest payment deferrals or defaults of underlying trust preferred securities.

Assumptions used in the model include expected future default rates and prepayments.

We assume no recoveries on defaults and treat all interest payment deferrals as defaults.

In addition we use the model to “stress” each CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of the Corporation’s note class.

In the current year management determined there was no OTTI.

There was no OTTI recorded in 2019 or 2018.

Collateralized debt obligations include one additional investment in a CDO consisting of pooled trust preferred securities in which the issuers are primarily banks.

1 unchanged sentence

In the first quarter of 2017 a CDO with no remaining book value was called with the bank receiving $ 3.1 million, which is included in other non-interest income on the consolidated statements of income and comprehensive income.

In the second quarter of 2018 one of the obligations was called, resulting in the elimination of the OTTI associated with that obligation.

A recovery of previously recorded OTTI of $4.2 million was received and recognized in non-interest income for the period.

In the second quarter of 2018 one of the obligations was called, resulting in the elimination of the credit loss associated with that obligation.

A recovery of previously recorded credit loss of $4.2 million was received and recognized in non-interest income for the period.

In addition the Corporation received $2.4 million of interest income associated with the call.

6 unchanged sentences

(Dollar amounts in thousands) 2020 2019

Commercial $ 1,521,711 $ 1,584,447

Residential 604,652 682,077

Consumer 479,750 386,006

Total gross loans 2,606,113 2,652,530

Deferred costs, net 4,181 3,860

Allowance for loan losses

Allowance for credit losses ( 47,052 ) ( 19,943 )

TOTAL $ 2,563,242 $ 2,636,447

The Corporation periodically sells residential mortgage loans it originates based on the overall loan demand of the Corporation and the outstanding balances in the residential mortgage portfolio.

2 unchanged sentences

In 2020, the aggregate dollar amount of these loans to directors and executive officers who held office amounted to $ 89.5 million at the beginning of the year.

During 2019 , advances of $78.2 million , repayments of $58.1 million , and additions for new directors of $16.4 million were made with respect to related party loans for an aggregate dollar amount outstanding of $89.5 million at December 31, 2019 .

During 2020, advances of $ 22.8 million, repayments of $ 54.8 million, and additions

for new directors of $0.0 million were made with respect to related party loans for an aggregate dollar amount outstanding of $ 57.5 million at December 31, 2020.

Loans serviced for others, which are not reported as assets, total $ 490.4 million and $ 477.0 million at year-end 2020 and 2019.

4 unchanged sentences

Beginning of year $ 1,435 $ 1,431 $ 1,434

Additions 956 579 513

Amortized to expense ( 790 ) ( 575 ) ( 516 )

End of year $ 1,601 $ 1,435 $ 1,431

Third party valuations are conducted periodically for mortgage servicing rights.

14 unchanged sentences

The following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

(Dollar amounts in thousands)

As Initially Reported

Measurement Period Adjustments

(Dollar amounts in thousands) As Initially Reported Measurement Period Adjustments As Adjusted

Consideration

3 unchanged sentences

Assets acquired

Cash $ 34,518 $ 34,518

Investment securities available-for-sale 174,851 174,851

1 unchanged sentence

Federal Home Loan Bank stock 4,428 4,428

Loans 657,179 1,719 658,898

Premises and equipment 25,316 (6,494) 18,822

1 unchanged sentence

Other real estate owned 3,364 3,364

Other assets 6,596 1,600 8,196

Total assets acquired 927,314 (3,175) 924,139

Liabilities assumed

Deposits 735,526 735,526

FHLB advances 20,775 20,775

3 unchanged sentences

Net identifiable assets 88,164 (3,175) 84,989

Goodwill $ 41,062 $ 3,175 $ 44,237

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

The fair value adjustments were determined using discounted contractual cash flows.

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

As such, these receivables

were not considered impaired at the acquisition date and were not subject to guidance relating to purchase credit impaired loans, which have shown evidence of credit deterioration since origination.

Corporation believes that all contractual cash flows related to these financial instruments will be collected.

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

The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2018.

4 unchanged sentences

Net interest income $ 147,581 $ 145,136

Net income $ 51,088 $ 52,252

Basic and diluted earnings per share $ 3.97 $ 4.26

The Bank was party to a loss sharing agreement with the Federal Deposit Insurance Corporation (“FDIC”) as a result of a 2009 acquisition.

Under the loss-sharing agreement (“LSA”), the Bank shared in the losses on assets covered under the agreement (referred to as covered assets).

On losses up to $29 million , the FDIC agreed to reimburse the Bank for 80% of the losses.

On losses exceeding $29 million , the FDIC agreed to reimburse the Bank for 95% of the losses.

The loss-sharing agreement was subject to following servicing procedures as specified in the agreement with the FDIC.

Loans acquired that were subject to the loss-sharing agreement with the FDIC were referred to as covered loans for disclosure purposes.

Since the acquisition date the Bank has been reimbursed $24.3 million for losses and carrying expenses.

The balance of the loans that were covered by the loss share agreement excluding AS 310-30 loans at December 31, 2018 totaled $3.2 million .

The agreement expired on July 2, 2019.

FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable.

FASB ASC 310-30 prohibits carrying over or creating an allowance for loan losses upon initial recognition.

(Dollar amounts in thousands)

As Initially Reported

Measurement Period Adjustments

FASB ASC 310-30 prohibited carrying over or creating an allowance for loan losses upon initial recognition.

(Dollar amounts in thousands) As Initially Reported Measurement Period Adjustments As Adjusted

Contractually required payments receivable of loans purchased during the year:

Commercial $ 16,530 $ (3,523) $ 13,007

Consumer 391 (296) 95

$ 16,921 $ (3,819) $ 13,102

Fair value of acquired loans at acquisition $ 8,870 $ (1,857) $ 7,013

The carrying amount of loans accounted for in accordance with FASB ASC 310-30 at December 31, 2019 and 2018 , are shown in the following tables:

(Dollar amounts in thousands)

The carrying amount of loans accounted for in accordance with FASB ASC 310-30 at December 31, 2019, are shown in the following table:

(Dollar amounts in thousands) Commercial Consumer Total

Beginning balance $ 1,530 $ — $ 1,530

1 unchanged sentence

Measurement period adjustments (1,597) (260) $ (1,857)

ASC 310-30 Loans

(Dollar amounts in thousands)

Beginning balance

Disposals ( 1,274 ) — ( 1,274 )

ASC 310-30 Loans $ 7,269 $ — $ 7,269

ALLOWANCE FOR LOAN LOSSES:

The following table presents the activity of the allowance for loan losses by portfolio segment for the years ended December 31, 2019 , 2018 and 2017 .

Allowance for Loan Losses:

ALLOWANCE FOR CREDIT LOSSES:

The following table presents the activity of the allowance for credit losses by portfolio segment for the years ended December 31, 2020, 2019 and 2018.

Allowance for Credit Losses:

December 31, 2020

(Dollar amounts in thousands)

(Dollar amounts in thousands) Commercial Residential Consumer Total

Beginning balance $ 10,337 $ 1,302 $ 8,304 $ 19,943

Provision for loan losses

Impact of adopting ASC 326 8,427 9,515 2,118 20,060

Provision for credit losses ( 1,622 ) 8,612 3,538 10,528

Loans charged -off ( 1,097 ) ( 944 ) ( 6,355 ) ( 8,396 )

Recoveries 856 657 3,404 4,917

Ending Balance $ 16,901 $ 19,142 $ 11,009 $ 47,052

Allowance for Loan Losses:

Allowance for Credit Losses:

December 31, 2019

(Dollar amounts in thousands)

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

Beginning balance $ 9,848 $ 1,313 $ 7,481 $ 1,794 $ 20,436

Provision for loan losses

Provision for credit losses 621 ( 321 ) 4,802 ( 402 ) 4,700

Loans charged -off ( 2,616 ) ( 1,050 ) ( 7,007 ) — ( 10,673 )

Recoveries 1,092 1,360 3,028 — 5,480

Ending Balance $ 8,945 $ 1,302 $ 8,304 $ 1,392 $ 19,943

Allowance for Loan Losses:

Allowance for Credit Losses:

December 31, 2018

(Dollar amounts in thousands)

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

Beginning balance $ 10,281 $ 1,455 $ 6,709 $ 1,464 $ 19,909

Provision for loan losses

Provision for credit losses 83 60 5,295 330 5,768

Loans charged -off ( 1,122 ) ( 841 ) ( 6,868 ) — ( 8,831 )

Recoveries 606 639 2,345 — 3,590

Ending Balance $ 9,848 $ 1,313 $ 7,481 $ 1,794 $ 20,436

The following tables present the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method at December 31, 2019 and 2018 :

Allowance for Loan Losses:

December 31, 2019

(Dollar amounts in thousands)

Individually evaluated for impairment

Collectively evaluated for impairment

Acquired with deteriorated credit quality

BALANCE AT END OF YEAR

(Dollar amounts in thousands)

Individually evaluated for impairment

Collectively evaluated for impairment

Acquired with deteriorated credit quality

BALANCE AT END OF YEAR

Allowance for Loan Losses:

The following tables present the allocation of the allowance for credit losses and the recorded investment in loans by portfolio segment and based on impairment method at December 31, 2019:

Allowance for Credit Losses:

December 31, 2019

(Dollar amounts in thousands)

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

Individually evaluated for impairment $ 48 $ — $ — $ — $ 48

2 unchanged sentences

BALANCE AT END OF YEAR $ 8,945 $ 1,302 $ 8,304 $ 1,392 $ 19,943

(Dollar amounts in thousands)

(Dollar amounts in thousands) Commercial Residential Consumer Total

Individually evaluated for impairment $ 3,161 $ 3,952 $ — $ 7,113

3 unchanged sentences

The following tables present loans individually evaluated for impairment by class of loan.

December 31, 2019

With no related allowance recorded:

Commercial & Industrial

Non Farm, Non Residential

All Other Commercial

All Other Residential

Motor Vehicle

All Other Consumer

With an allowance recorded:

Commercial & Industrial

Non Farm, Non Residential

All Other Commercial

All Other Residential

Motor Vehicle

All Other Consumer

December 31, 2018

December 31, 2019 Allowance Cash Basis

Unpaid for Credit Average Interest Interest

Principal Recorded Losses Recorded Income Income

Balance Investment Allocated Investment Recognized Recognized

With no related allowance recorded:

Commercial & Industrial $ 1,519 $ 989 $ — $ 848 $ — $ —

Farmland 1,997 1,997 — 1,999 — —

Non Farm, Non Residential — — — — — —

Agriculture — — — — — —

All Other Commercial 27 27 — 461 — —

First Liens 3,952 3,952 — 4,055 — —

Home Equity — — — — — —

Junior Liens — — — — — —

Multifamily — — — — — —

All Other Residential — — — — — —

3 unchanged sentences

Commercial & Industrial 148 148 48 1,108 — —

Farmland — — — 84 — —

Non Farm, Non Residential — — — — — —

Agriculture — — — 138 — —

All Other Commercial — — — — — —

First Liens — — — — — —

Home Equity — — — — — —

Junior Liens — — — — — —

Multifamily — — — — — —

All Other Residential — — — — — —

1 unchanged sentence

All Other Consumer — — — — — —

December 31, 2017

TOTAL $ 7,643 $ 7,113 $ 48 $ 8,693 $ — $ —

December 31, 2018 Cash Basis

Average Interest Interest

Recorded Income Income

Investment Recognized Recognized

With no related allowance recorded:

Commercial & Industrial $ 698 $ — $ —

Farmland 1,579 — —

Non Farm, Non Residential 1,443 — —

Agriculture 49 — —

All Other Commercial 1,172 — —

First Liens 3,371 — —

Home Equity — — —

Junior Liens 23 — —

Multifamily — — —

All Other Residential — — —

3 unchanged sentences

Commercial & Industrial 688 — —

Farmland 1,691 — —

Non Farm, Non Residential — — —

Agriculture 316 — —

All Other Commercial — — —

First Liens 88 — —

Home Equity — — —

Junior Liens — — —

Multifamily — — —

All Other Residential — — —

1 unchanged sentence

All Other Consumer — — —

TOTAL $ 11,118 $ — $ —

The following tables present the recorded investment in nonperforming loans by class of loans.

December 31, 2020

Troubled Debt

(Dollar amounts in thousands)

Loans Past Non-accrual

90 Day Still With No Allowance

(Dollar amounts in thousands) Accruing Non-accrual For Credit Loss

Commercial & Industrial $ — $ 4,838 $ 1,080

Farmland — 195 —

Non Farm, Non Residential — 3,729 3,267

Agriculture — 409 —

All Other Commercial — 533 24

First Liens 1,746 2,604 86

Home Equity 88 30 —

Junior Liens 252 206 —

Multifamily — 1,380 —

All Other Residential — 135 —

1 unchanged sentence

All Other Consumer — 554 —

TOTAL $ 2,458 $ 15,367 $ 4,457

December 31, 2019

Troubled Debt

(Dollar amounts in thousands)

Loans Past Troubled Debt

90 Day Still Restructured

(Dollar amounts in thousands) Accruing Accrual Non-accrual Non-accrual

Commercial & Industrial $ — $ — $ 11 $ 2,191

Farmland 5 — — 2,410

Non Farm, Non Residential — — — 441

Agriculture — — — 485

All Other Commercial — — — 114

First Liens 625 3,007 396 2,876

Home Equity 12 — — 61

Junior Liens 51 94 9 175

Multifamily — — — —

All Other Residential 738 — — 203

1 unchanged sentence

All Other Consumer 4 239 444 452

TOTAL $ 1,662 $ 3,340 $ 875 $ 9,546

During the years ending December 31, 2020, 2019, and 2018 the terms of certain loans were modified as troubled debt restructurings (TDRs).

The following tables present the activity for TDR's.

(Dollar amounts in thousands)

(Dollar amounts in thousands) Commercial Residential Consumer Total

January 1, $ 11 $ 3,485 $ 698 $ 4,194

Added — 692 304 996

Charged Off — ( 6 ) ( 158 ) ( 164 )

Payments ( 11 ) ( 582 ) ( 227 ) ( 820 )

December 31, $ — $ 3,589 $ 617 $ 4,206

(Dollar amounts in thousands) Commercial Residential Consumer Total

January 1, $ 145 $ 4,043 $ 618 $ 4,806

Added — 195 375 570

Charged Off — ( 24 ) ( 81 ) ( 105 )

Payments ( 134 ) ( 729 ) ( 214 ) ( 1,077 )

December 31, $ 11 $ 3,485 $ 698 $ 4,194

(Dollar amounts in thousands) Commercial Residential Consumer Total

January 1, $ 2,709 $ 3,611 $ 714 $ 7,034

Added — 984 295 1,279

Charged Off — ( 16 ) ( 137 ) ( 153 )

Payments ( 2,564 ) ( 536 ) ( 254 ) ( 3,354 )

December 31, $ 145 $ 4,043 $ 618 $ 4,806

Modification of the terms of such loans typically include one or a combination of the following:

10 unchanged sentences

The Corporation has not committed to lend additional amounts as of December 31, 2020 and 2019 to customers with outstanding loans that are classified as troubled debt restructurings.

The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”).

To be eligible under section 4013, a loan modification must be (1) related to COVID-19;

(2) executed on a loan that was not more than 30 days past due as of December 31, 2019;

and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020.

In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40.

This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant.

Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

As of December 31, 2020, 1,545 loans totaling

$305 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

As of December 31, 2020, 361 loans totaling $222 million have resumed normal scheduled payments.

1,184 remaining loans are still under a debt relief plan, which include 35 commercial loans totaling $54 million that have been provided additional payment relief since the initial payment relief plan.

134 loans totaling $13 million are under the original payment relief plan.

The following table presents the amortized cost basis of collateral dependent loans by class of loans as of December 31, 2020:

Collateral Type

(Dollar amounts in thousands) Real Estate Other

Commercial & Industrial $ 3,293 $ 2,221

Farmland 2,771 —

Non Farm, Non Residential 6,838 —

Agriculture — 599

All Other Commercial 528 24

First Liens 86 —

Home Equity — —

Junior Liens — —

Multifamily 1,380 —

All Other Residential — —

Motor Vehicle — —

All Other Consumer — —

Total $ 14,896 $ 2,844

The following tables present the aging of the recorded investment in loans by past due category and class of loans.

December 31, 2019

(Dollar amounts in thousands)

December 31, 2020 30-59 Days 60-89 Days than 90 days Total

(Dollar amounts in thousands) Past Due Past Due Past Due Past Due Current Total

Commercial & Industrial $ 685 $ 746 $ 3,364 $ 4,795 $ 603,777 $ 608,572

Farmland 22 — 91 113 118,528 118,641

Non Farm, Non Residential 155 — 271 426 350,681 351,107

Agriculture 28 30 275 333 146,147 146,480

All Other Commercial — — 24 24 305,612 305,636

First Liens 5,506 1,866 2,365 9,737 314,730 324,467

Home Equity 260 29 104 393 60,362 60,755

Junior Liens 421 68 341 830 53,346 54,176

Multifamily — — — — 151,042 151,042

All Other Residential — 50 — 50 15,918 15,968

1 unchanged sentence

All Other Consumer 164 19 13 196 31,401 31,597

December 31, 2018

(Dollar amounts in thousands)

TOTAL $ 14,216 $ 4,102 $ 7,408 $ 25,726 $ 2,592,827 $ 2,618,553

December 31, 2019 30-59 Days 60-89 Days than 90 days Total

(Dollar amounts in thousands) Past Due Past Due Past Due Past Due Current Total

Commercial & Industrial $ 2,885 $ 766 $ 1,379 $ 5,030 $ 594,925 $ 599,955

Farmland 132 — 2,089 2,221 137,730 139,951

Non Farm, Non Residential 3,749 104 — 3,853 398,854 402,707

Agriculture 277 128 — 405 162,794 163,199

All Other Commercial — — 109 109 288,845 288,954

First Liens 6,452 1,292 1,458 9,202 375,924 385,126

Home Equity 124 63 34 221 70,813 71,034

Junior Liens 384 43 137 564 54,533 55,097

Multifamily — — — — 148,282 148,282

All Other Residential 1,082 — 890 1,972 22,510 24,482

1 unchanged sentence

All Other Consumer 228 42 2 272 31,692 31,964

TOTAL $ 21,801 $ 3,421 $ 6,368 $ 31,590 $ 2,634,852 $ 2,666,442

Credit Quality Indicators:

17 unchanged sentences

Loans listed as not rated are either less than $ 100 thousand or are included in groups of homogeneous loans.

As of December 31, 2019 and 2018 , and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

The following tables present the recorded investment of the commercial loan portfolio by risk category as of December 31, 2020:

December 31, 2020

(Dollar amounts in thousands)

Commercial & Industrial

Non Farm, Non Residential

All Other Commercial

All Other Residential

Motor Vehicle

All Other Consumer

Term Loans at Amortized Cost Basis by Origination Year Revolving

2020 2019 2018 2017 2016 Prior Loans Total

Commercial and Industrial Pass $ 159,494 $ 77,253 $ 64,298 $ 41,806 $ 20,564 $ 103,598 $ 91,615 $ 558,628

Special Mention 4,848 1,331 4,427 216 1,278 4,566 3,695 20,361

Substandard 3,780 323 4,187 1,148 3,543 2,565 3,124 18,670

Doubtful — — — — — — — —

Not Rated 2,618 1,772 1,446 580 105 2,255 — 8,776

Subtotal $ 170,740 $ 80,679 $ 74,358 $ 43,750 $ 25,490 $ 112,984 $ 98,434 $ 606,435

Farmland Pass $ 10,010 $ 12,775 $ 12,149 $ 10,089 $ 15,863 $ 40,338 $ 1,386 $ 102,610

Special Mention 988 947 — 230 1,900 2,656 — 6,721

Substandard 1,718 2,303 — 716 1,628 826 — 7,191

Doubtful — — — — — — — —

Not Rated — — — — — — — —

Subtotal $ 12,716 $ 16,025 $ 12,149 $ 11,035 $ 19,391 $ 43,820 $ 1,386 $ 116,522

Non Farm, Non Residential Pass $ 39,914 $ 33,261 $ 38,111 $ 63,371 $ 49,511 $ 83,052 $ 4,092 $ 311,312

Special Mention — 998 — 305 9,982 6,811 — 18,096

Substandard — 1,188 — 4,310 7,484 7,028 — 20,010

Doubtful — — — — — — — —

Not Rated — — — — — 682 — 682

Subtotal $ 39,914 $ 35,447 $ 38,111 $ 67,986 $ 66,977 $ 97,573 $ 4,092 $ 350,100

Agriculture Pass $ 13,336 $ 8,330 $ 3,485 $ 5,329 $ 3,732 $ 16,792 $ 67,052 $ 118,056

Special Mention — 1,483 1,203 664 5 428 7,611 11,394

Substandard — 3,834 18 223 2,435 1,988 5,926 14,424

Doubtful — — — — — — — —

Not Rated 159 216 110 6 13 — — 504

Subtotal $ 13,495 $ 13,863 $ 4,816 $ 6,222 $ 6,185 $ 19,208 $ 80,589 $ 144,378

Other Commercial Pass $ 44,673 $ 57,200 $ 41,470 $ 61,442 $ 40,196 $ 50,325 $ 5,162 $ 300,468

Special Mention — — — 7 — 2,786 — 2,793

Substandard — — — 24 528 24 — 576

Doubtful — — — — — — — —

Not Rated — 3 52 39 345 — — 439

Subtotal $ 44,673 $ 57,203 $ 41,522 $ 61,512 $ 41,069 $ 53,135 $ 5,162 $ 304,276

Multifamily >5 Residential Pass $ 44,599 $ 9,892 $ 36,563 $ 19,749 $ 4,676 $ 21,704 $ 1,293 $ 138,476

Special Mention — — — — 102 10,662 — 10,764

Substandard — — 1,380 — — — — 1,380

Doubtful — — — — — — — —

Not Rated — — — — — — — —

Subtotal $ 44,599 $ 9,892 $ 37,943 $ 19,749 $ 4,778 $ 32,366 $ 1,293 $ 150,620

Total Pass $ 312,026 $ 198,711 $ 196,076 $ 201,786 $ 134,542 $ 315,809 $ 170,600 $ 1,529,550

Special Mention 5,836 4,759 5,630 1,422 13,267 27,909 11,306 70,129

Substandard 5,498 7,648 5,585 6,421 15,618 12,431 9,050 62,251

Doubtful — — — — — — — —

Not Rated 2,777 1,991 1,608 625 463 2,937 — 10,401

Total commercial loans $ 326,137 $ 213,109 $ 208,899 $ 210,254 $ 163,890 $ 359,086 $ 190,956 $ 1,672,331

The Corporation evaluates the credit quality of its other loan portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity.

Accordingly, loans on non-accrual status, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings are considered to be nonperforming for purposes of credit quality evaluation.

The following table presents the recorded investment of our other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming as of December 31, 2020:

December 31, 2020

(Dollar amounts in thousands)

Term Loans at Amortized Cost Basis by Origination Year Revolving

2020 2019 2018 2017 2016 Prior Loans Total

First Liens Performing $ 47,875 $ 33,737 $ 31,634 $ 36,426 $ 30,419 $ 135,456 $ 3,235 $ 318,782

Non-performing — 40 95 343 107 4,062 — 4,647

Subtotal $ 47,875 $ 33,777 $ 31,729 $ 36,769 $ 30,526 $ 139,518 $ 3,235 $ 323,429

Home Equity Performing $ 854 $ 135 $ 644 $ 20 $ — $ 1,525 $ 57,334 $ 60,512

Non-performing — — 1 — — 91 24 116

Subtotal $ 854 $ 135 $ 645 $ 20 $ — $ 1,616 $ 57,358 $ 60,628

Junior Liens Performing $ 13,125 $ 12,742 $ 11,139 $ 6,214 $ 3,948 $ 5,099 $ 1,333 $ 53,600

Non-performing — 129 48 198 9 66 — 450

Subtotal $ 13,125 $ 12,871 $ 11,187 $ 6,412 $ 3,957 $ 5,165 $ 1,333 $ 54,050

Other Residential Performing $ 9,773 $ 2,775 $ 1,372 $ 292 $ 178 $ 733 $ 651 $ 15,774

Non-performing — 62 50 — — 39 — 151

Subtotal $ 9,773 $ 2,837 $ 1,422 $ 292 $ 178 $ 772 $ 651 $ 15,925

Motor Vehicle Performing $ 245,839 $ 113,293 $ 51,649 $ 24,786 $ 10,026 $ 1,600 $ — $ 447,193

Non-performing 318 355 257 127 36 11 — 1,104

Subtotal $ 246,157 $ 113,648 $ 51,906 $ 24,913 $ 10,062 $ 1,611 $ — $ 448,297

Other Consumer Performing $ 15,298 $ 7,328 $ 2,622 $ 724 $ 854 $ 703 $ 3,352 $ 30,881

Non-performing 231 200 92 22 — 8 19 572

Subtotal $ 15,529 $ 7,528 $ 2,714 $ 746 $ 854 $ 711 $ 3,371 $ 31,453

Total Performing $ 332,764 $ 170,010 $ 99,060 $ 68,462 $ 45,425 $ 145,116 $ 65,905 $ 926,742

Non-performing 549 786 543 690 152 4,277 43 7,040

Total other loans $ 333,313 $ 170,796 $ 99,603 $ 69,152 $ 45,577 $ 149,393 $ 65,948 $ 933,782

As of December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(Dollar amounts in thousands) Pass Mention Substandard Doubtful Not Rated Total

Commercial & Industrial $ 549,341 $ 19,253 $ 26,349 $ 5 $ 2,761 $ 597,709

Farmland 119,858 8,673 8,644 — 100 137,275

Non Farm, Non Residential 381,404 4,424 12,269 — 3,678 401,775

Agriculture 127,144 4,507 27,490 — 985 160,126

All Other Commercial 283,266 3,141 1,120 — 35 287,562

First Liens 174,338 926 4,382 — 204,266 383,912

Home Equity 18,417 — 134 11 52,280 70,842

Junior Liens 2,839 64 178 76 51,817 54,974

Multifamily 146,497 112 1,315 — 19 147,943

All Other Residential 12,624 — 205 — 11,577 24,406

1 unchanged sentence

All Other Consumer 3,155 — 38 — 28,615 31,808

TOTAL $ 1,821,763 $ 41,100 $ 82,662 $ 92 $ 706,913 $ 2,652,530

PREMISES AND EQUIPMENT:

1 unchanged sentence

(Dollar amounts in thousands) 2020 2019

Land $ 17,574 $ 17,574

Building and leasehold improvements 66,658 66,592

Furniture and equipment 42,167 39,715

126,399 123,881

Less accumulated depreciation ( 64,336 ) ( 61,305 )

TOTAL $ 62,063 $ 62,576

Aggregate depreciation expense was $ 4.4 million, $ 3.9 million and $ 3.7 million for 2020, 2019 and 2018, respectively.

2 unchanged sentences

Rent commitments, before considering renewal options that generally are present, were as follows:

Thereafter 795

See Note 19 for additional discussion on leases.

3 unchanged sentences

Intangible assets subject to amortization at December 31, 2020 and 2019 are as follows:

(Dollar amounts in thousands)

Gross Accumulated Gross Accumulated

(Dollar amounts in thousands) Amount Amortization Amount Amortization

Core deposit intangible $ 21,205 $ 12,233 $ 21,205 $ 10,562

Aggregate amortization expense was $923 thousand , $433 thousand and $479 thousand for 2019 , 2018 and 2017 , respectively.

$ 21,205 $ 12,233 $ 21,205 $ 10,562

Aggregate amortization expense was $ 1.7 million, $ 923 thousand and $ 433 thousand for 2020, 2019 and 2018, respectively.

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

1 unchanged sentence

(dollar amounts in thousands)

2021 $ 358,165

SHORT-TERM BORROWINGS:

3 unchanged sentences

Repurchase-agreements 109,561 79,219

$ 116,061 $ 80,119

(Dollar amounts in thousands) 2020 2019

6 unchanged sentences

The amounts received under these agreements represent short-term borrowings and are reflected as a liability in the consolidated balance sheets.

The securities underlying these agreements are included in investment securities

in the consolidated balance sheets.

The Corporation has no control over the market value of the securities, which fluctuates due to market conditions.

The securities underlying these agreements are included in investment securities in the consolidated balance sheets.

The Corporation has no control over the market value of the securities,

which fluctuates due to market conditions.

However, the Corporation is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price.

4 unchanged sentences

December 31, 2020

Repurchase Agreements and Repurchase to Maturity Transactions

Remaining Contractual Maturity of the Agreements

(Dollar amounts in thousands)

Overnight and continuous

Up to 30 days

Greater than 90 days

Repurchase Agreements and Repurchase to Maturity Transactions Remaining Contractual Maturity of the Agreements

(Dollar amounts in thousands) Overnight and continuous Up to 30 days 30 - 90 days Greater than 90 days Total

Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations $ 86,335 $ 1,086 $ 21,342 $ 798 $ 109,561

December 31, 2019

Repurchase Agreements and Repurchase to Maturity Transactions

Remaining Contractual Maturity of the Agreements

(Dollar amounts in thousands)

Overnight and continuous

Up to 30 days

Greater than 90 days

Repurchase Agreements and Repurchase to Maturity Transactions Remaining Contractual Maturity of the Agreements

(Dollar amounts in thousands) Overnight and continuous Up to 30 days 30 - 90 days Greater than 90 days Total

Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations $ 69,709 $ 1,927 $ 6,552 $ 1,031 $ 79,219

4 unchanged sentences

Junior subordinated debentures — 10,177

TOTAL $ 5,859 $ 30,973

The aggregate minimum annual retirements of other borrowings are as follows:

1 unchanged sentence

The Corporation's subsidiary banks are members of the Federal Home Loan Bank (FHLB) and accordingly are permitted to obtain advances.

There are $20.8 million of advances from the FHLB at December 31, 2019 , and no advances at December 31, 2018 , which accrue interest, payable monthly, at annual rates, primarily fixed, varying from 2.3% to 2.8% in 2019 and 1.6% to 2.4% during the year in 2018 .

There are $5.9 million of advances from the FHLB at December 31, 2020, and $20.8 million of advances at December 31, 2019, which accrue interest, payable monthly, at annual rates, primarily fixed, varying from 0.25 % to 0.39 % in 2020 and 2.3 % to 2.8 % during the year in 2019.

FHLB advances are, generally, due in full at maturity.

1 unchanged sentence

Based on this collateral and the Corporation's holdings of FHLB stock, the Corporation is eligible to borrow up to $ 397.1 million at year end

advances may be prepaid, without penalty, prior to maturity.

Certain advances may be prepaid, without penalty, prior to maturity.

The FHLB can adjust the interest rate from fixed to variable on certain advances, but those advances may then be prepaid, without penalty.

41 unchanged sentences

Currently payable $ 7,886 $ 7,118 $ 7,018

Expense due to enactment of federal tax reform

Deferred 1,188 2,435 1,793

9,074 9,553 8,811

Currently payable 2,422 2,168 1,699

The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate of 21% for 2019 and 2018 (35% for 2017) to income before income taxes is summarized as follows:

Deferred 196 406 635

2,618 2,574 2,334

TOTAL $ 11,692 $ 12,127 $ 11,145

The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate of 21 % to income before income taxes is summarized as follows:

(Dollar amounts in thousands) 2020 2019 2018

2 unchanged sentences

Tax exempt income ( 2,643 ) ( 2,551 ) ( 2,495 )

Non-deductible insurance brokerage goodwill

ESOP dividend deduction ( 98 ) ( 115 ) ( 103 )

State tax, net of federal benefit 2,068 2,034 1,846

Affordable housing credits

Expense due to enactment of federal tax reform

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law.

The primary change for the Corporation was to lower the corporate income tax rate from 35% to 21%, effective January 1, 2018.

The Corporation's deferred tax assets and liabilities were re-measured based on the income tax rates at which they are expected to reverse in the future, which is generally 21%.

The amount recorded related to the re-measurement of the Corporation's deferred tax balance was $6.3 million, an increase to income tax expense for the year ended December 31, 2017.

General business tax credits ( 1,648 ) ( 148 ) ( 148 )

Other, net 250 97 ( 77 )

TOTAL $ 11,692 $ 12,127 $ 11,145

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2020 and 2019, are as follows:

3 unchanged sentences

Net unrealized losses on retirement plans 8,132 7,465

Net unrealized losses on securities available for sale

Loan loss provisions 12,150 5,288

5 unchanged sentences

Deferred loss on acquisition — 482

Other 2,186 2,161

GROSS DEFERRED ASSETS 30,136 23,788

1 unchanged sentence

Net unrealized gains on securities available-for-sale ( 8,752 ) ( 4,248 )

Depreciation ( 2,155 ) ( 2,376 )

Mortgage servicing rights ( 390 ) ( 332 )

Pensions ( 843 ) ( 475 )

Right-of-use asset (1,446) (1,501)

Intangibles ( 5,458 ) ( 3,285 )

FHLB stock dividends (111) —

Other ( 3,963 ) ( 2,827 )

GROSS DEFERRED LIABILITIES ( 23,118 ) ( 15,044 )

9 unchanged sentences

The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next 12 months.

The total amount of interest and penalties recorded in the income statement for the years ended December 31, 2019 , 2018 and 2017 was an expense decrease of $9 thousand, an increase of $23 thousand, and an increase of $4 thousand, respectively.

The total amount of interest and penalties recorded in the income statement for the years ended December 31, 2020, 2019 and 2018 was an expense increase of $ 11 thousand, a decrease of $ 9 thousand, and an increase of $ 23 thousand, respectively.

The amount accrued for interest and penalties at December 31, 2020, 2019 and 2018 was $ 64 thousand, $ 53 thousand and $ 52 thousand, respectively.

5 unchanged sentences

These financial instruments include conditional commitments and commercial letters of credit.

The financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial

The financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements.

The Corporation's maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans is limited generally by the contractual amount of those instruments.

2 unchanged sentences

(Dollar amounts in thousands) 2020 2019

Home Equity $ 88,672 $ 87,327

Commercial Operating Lines 508,602 358,561

Other Commitments 119,108 105,872

TOTAL $ 716,382 $ 551,760

Commercial letters of credit $ 3,601 $ 3,851

15 unchanged sentences

The fair value of these contracts combined was zero, as gains offset losses.

The gross gain and loss associated with these interest rate swaps was $0.8 million and $0.1 million at December 31, 2019 and 2018 .

The gross gains and gross losses associated with these interest rate swaps was $ 2.5 million and $ 0.8 million at December 31, 2020 and 2019.

RETIREMENT PLANS:

11 unchanged sentences

The Corporation contributed $ 1.47 million, $ 1.25 million and $ 1.09 million to the ESOP in 2020, 2019 and 2018.

There were contributions of $926 thousand , $735 thousand and $676 thousand to the ESOP for employees no longer participating in the defined benefit plan in 2019 , 2018 and 2017 respectively.

There were contributions of $ 1.2 million, $ 926 thousand and $ 735 thousand to the ESOP for employees no longer participating in the defined benefit plan in 2020, 2019 and 2018 respectively.

The Corporation uses a measurement date of December 31.

17 unchanged sentences

Benefit obligation at January 1 $ 102,791 $ 87,796

Service cost 1,300 1,218

Interest cost 3,116 3,465

13 unchanged sentences

Prior service cost (credit) 1 2

$ 29,007 $ 27,788

The accumulated benefit obligation for the defined benefit pension plan was $ 105.2 million and $ 98.4 million at year-end

10 unchanged sentences

Plan Assets — The Corporation's pension plan weighted-average asset allocation for the years 2020 and 2019 by asset category are as follows:

Target Allocation

Target Allocation ESOP

Target Allocation Pension

Percentage of Plan

Assets at December 31,

Assets at December 31, ESOP

Percentage of Plan

2 unchanged sentences

Equity securities 25 - 75 %

63 % 63 % 99 % 98 %

Debt securities 0- 50 %

31 % 33 % — % — %

Other 0- 20 %

6 % 4 % 1 % 2 %

TOTAL 100 % 100 % 100 % 100 %

Fair Value of Plan Assets — Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date.

8 unchanged sentences

Quoted Prices

Identical Assets

(Dollar amounts in thousands)

Identical Assets Significant

Inputs Significant

(Dollar amounts in thousands) Total (Level 1) (Level 2) (Level 3)

Equity securities $ 55,235 $ 55,235 $ — $ —

5 unchanged sentences

Quoted Prices

Identical Assets

(Dollar amounts in thousands)

Identical Assets Significant

Inputs Significant

(Dollar amounts in thousands) Total (Level 1) (Level 2) (Level 3)

Equity securities $ 51,334 $ 51,334 $ — $ —

19 unchanged sentences

(Dollar amounts in thousands)

2026-2030 30,615

Supplemental Executive Retirement Plan — The Corporation has established a Supplemental Executive Retirement Plan (SERP) for certain executive officers.

12 unchanged sentences

(Dollar amounts on thousands)

2026-2030 3,104

Post-retirement medical benefits — The Corporation also provides medical benefits to certain employees subsequent to their retirement.

4 unchanged sentences

Benefit obligation at January 1 $ 3,975 $ 3,420

Service cost 38 34

Interest cost 125 145

15 unchanged sentences

(Dollar amounts in thousands) 2020 2019 2018

Service cost $ 38 $ 34 $ 42

Interest cost 125 146 131

7 unchanged sentences

A one-percentage-point change in the assumed health care cost trend rates would have the following effects:

(Dollar amounts in thousands)

1% Point 1% Point

(Dollar amounts in thousands) Increase Decrease

Effect on total of service and interest cost components $ 1 $ 1

3 unchanged sentences

(Dollar amounts in thousands)

2026-2030 1,177

STOCK BASED COMPENSATION:

14 unchanged sentences

Compensation related to the plan was $ 820 thousand, $ 799 thousand, and $ 745 thousand in 2020, 2019 and 2018, respectively.

Weighted Average

(shares in thousands)

Number Weighted Average

Grant Date Number Weighted Average

(shares in thousands) Outstanding Fair Value Outstanding Fair Value

Nonvested balance at January 1, 18,931 43.44 16,999 45.92

8 unchanged sentences

The following table summarizes the changes, net of tax within each classification of accumulated other comprehensive income for the years ended December 31, 2020 and 2019.

(Dollar amounts in thousands)

gains and 2020

for-sale Retirement

(Dollar amounts in thousands) Securities plans Total

Beginning balance, January 1 $ 14,893 $ ( 22,394 ) $ ( 7,501 )

2 unchanged sentences

Net current period other comprehensive income (loss) 19,269 ( 2,004 ) 17,265

ASU 2018-02 adjustment

Ending balance, December 31 $ 34,162 $ ( 24,398 ) $ 9,764

(Dollar amounts in thousands)

gains and 2019

for-sale Retirement

(Dollar amounts in thousands) Securities plans Total

Beginning balance, January 1 $ ( 6,105 ) $ ( 17,349 ) $ ( 23,454 )

2 unchanged sentences

Net current period other comprehensive income (loss) 20,998 ( 5,045 ) 15,953

ASU 2018-02 adjustment

Ending balance, December 31 $ 14,893 $ ( 22,394 ) $ ( 7,501 )

(Dollar amounts in thousands)

Period Balance

(Dollar amounts in thousands) 1/1/2020 Change 12/31/2020

Unrealized gains (losses) on securities available-for-sale

4 unchanged sentences

Unrealized loss on retirement plans ( 22,394 ) ( 2,004 ) ( 24,398 )

(Dollar amounts in thousands)

TOTAL $ ( 7,501 ) $ 17,265 $ 9,764

Period Balance

(Dollar amounts in thousands) 1/1/2019 Change 12/31/2019

Unrealized gains (losses) on securities available-for-sale

4 unchanged sentences

Unrealized loss on retirement plans ( 17,349 ) ( 5,045 ) ( 22,394 )

TOTAL $ ( 23,454 ) $ 15,953 $ ( 7,501 )

Balance at December 31, 2020

Details about accumulated

Amount reclassified from

Affected line item in

other comprehensive

accumulated other

the statement where

income components

comprehensive income

net income is presented

Details about accumulated Amount reclassified from Affected line item in

other comprehensive accumulated other the statement where

income components comprehensive income net income is presented

(in thousands)

Unrealized gains and losses

Net securities gains (losses)

on available-for-sale

Income tax expense

Amortization of

retirement plan items

Income tax expense

Total reclassifications for the period

Unrealized gains and losses $ 233 Net securities gains (losses)

on available-for-sale ( 58 ) Income tax expense

securities $ 175 Net of tax

Amortization of $ ( 1,967 ) (a)

retirement plan items 492 Income tax expense

$ ( 1,475 ) Net of tax

Total reclassifications for the period $ ( 1,300 ) Net of tax

(a) Included in the computation of net periodic benefit cost which is included in salaries and benefits.

1 unchanged sentence

Balance at December 31, 2019

Details about accumulated

Amount reclassified from

Affected line item in

other comprehensive

accumulated other

the statement where

income components

comprehensive income

net income is presented

Details about accumulated Amount reclassified from Affected line item in

other comprehensive accumulated other the statement where

income components comprehensive income net income is presented

(in thousands)

Unrealized gains and losses

Net securities gains (losses)

on available-for-sale

Income tax expense

Amortization of

retirement plan items

Income tax expense

Total reclassifications for the period

Unrealized gains and losses $ 44 Net securities gains (losses)

on available-for-sale ( 11 ) Income tax expense

securities $ 33 Net of tax

Amortization of $ ( 1,558 ) (a)

retirement plan items 390 Income tax expense

$ ( 1,168 ) Net of tax

Total reclassifications for the period $ ( 1,135 ) Net of tax

(a) Included in the computation of net periodic benefit cost which is included in salaries and benefits.

1 unchanged sentence

Balance at December 31, 2018

Details about accumulated

Amount reclassified from

Affected line item in

other comprehensive

accumulated other

the statement where

income components

comprehensive income

net income is presented

Details about accumulated Amount reclassified from Affected line item in

other comprehensive accumulated other the statement where

income components comprehensive income net income is presented

(in thousands)

Unrealized gains and losses

Net securities gains (losses)

on available-for-sale

Income tax expense

Amortization of

retirement plan items

Income tax expense

Total reclassifications for the period

Unrealized gains and losses $ 2 Net securities gains (losses)

on available-for-sale — Income tax expense

securities $ 2 Net of tax

Amortization of $ ( 1,447 ) (a)

retirement plan items 362 Income tax expense

$ ( 1,085 ) Net of tax

Total reclassifications for the period $ ( 1,083 ) Net of tax

(a) Included in the computation of net periodic benefit cost which is included in salaries and benefits.

13 unchanged sentences

Lease costs were as follows:

(Dollar amounts in thousands)

Year Ended December 31, 2019

(Dollar amounts in thousands) Year Ended

December 31, 2020

Operating lease cost $ 910

6 unchanged sentences

Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2020 were as follows:

(Dollar amounts in thousands)

December 31, 2019

(Dollar amounts in thousands) December 31, 2020

Twelve Months Ended December 31,

Thereafter 2,512

Total future minimum lease payments 6,132

11 unchanged sentences

banks (Basel lll rules) became effective for the Corporation on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.

Under the Basel lll rules, the Corporation must hold a capital conservation

buffer above the adequately capitalized risk-based capital ratios.

Under the Basel lll rules, the Corporation must hold a capital

conservation buffer above the adequately capitalized risk-based capital ratios.

The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019.

The capital conservation buffer for 2018 and 2017 is 1.875% and 1.25%, respectively.

The capital conservation buffer for 2018 was 1.875%.

The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.

5 unchanged sentences

To Be Well Capitalized

Under Prompt Corrective

Adequacy Purposes

Action Provisions

(Dollar amounts in thousands)

For Capital Under Prompt Corrective

Actual Adequacy Purposes Action Provisions

(Dollar amounts in thousands) Amount Ratio Amount Ratio Amount Ratio

Total risk-based capital

Corporation – 2019

Corporation – 2018

Corporation – 2020 $ 538,440 17.40 % $ 324,849 10.500 % N/A N/A

Corporation – 2019 $ 495,817 16.16 % $ 322,091 10.500 % N/A N/A

First Financial Bank – 2020 507,869 17.03 % 313,075 10.500 % 298,166 10.00 %

1 unchanged sentence

Common equity tier I capital

Corporation – 2019

Corporation – 2018

Corporation – 2020 $ 499,664 16.15 % $ 216,566 7.000 % N/A N/A

Corporation – 2019 $ 475,874 15.51 % $ 214,728 7.000 % N/A N/A

First Financial Bank – 2020 470,551 15.78 % 208,716 7.000 % 193,808 6.50 %

1 unchanged sentence

Tier I risk-based capital

Corporation – 2019

Corporation – 2018

Corporation – 2020 $ 499,664 16.15 % $ 262,973 8.500 % N/A N/A

Corporation – 2019 $ 475,874 15.51 % $ 260,741 8.500 % N/A N/A

First Financial Bank – 2020 470,551 15.78 % 253,441 8.500 % 238,533 8.00 %

1 unchanged sentence

Tier I leverage capital

Corporation – 2019

Corporation – 2018

Corporation – 2020 $ 499,664 11.24 % $ 177,781 4.00 % N/A N/A

Corporation – 2019 $ 475,874 12.04 % $ 158,081 4.00 % N/A N/A

First Financial Bank – 2020 470,551 10.90 % 172,728 4.00 % 215,910 5.00 %

First Financial Bank – 2019 457,649 11.93 % 153,453 4.00 % 191,816 5.00 %

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 Corporation is not adopting the capital transition relief.

PARENT COMPANY CONDENSED FINANCIAL STATEMENTS:

5 unchanged sentences

Land and headquarters building, net 4,614 4,807

Other 6,000 23

Total Assets $ 610,982 $ 575,608

LIABILITIES AND SHAREHOLDERS' EQUITY

Borrowings $ — $ 10,177

Dividends payable 7,182 7,142

7 unchanged sentences

Dividends from subsidiaries $ 31,069 $ 81,281 $ 13,651

Other income 1,054 720 720

Interest on borrowings (374) (142) —

Other operating expenses ( 3,430 ) ( 4,327 ) ( 2,814 )

3 unchanged sentences

Equity in undistributed earnings of subsidiaries 24,724 ( 29,568 ) 34,092

Net income $ 53,844 $ 48,872 $ 46,583

Comprehensive income $ 71,109 $ 64,825 $ 40,199

3 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income $ 53,844 $ 48,872 $ 46,583

Adjustments to reconcile net income to net cash provided by operating activities:

10 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on borrowings (10,310) — —

Purchase of treasury stock ( 9,220 ) ( 315 ) ( 391 )

6 unchanged sentences

Cash paid during the year for:

Interest $ 375 $ — $ —

Income taxes $ 7,538 $ 9,595 $ 7,185

SELECTED QUARTERLY DATA (UNAUDITED):

(Dollar amounts in thousands)

Net Income (a)

(a) The second quarter of 2018 included 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.

(Dollar amounts in thousands) Interest

Income Interest

Expense Net Interest

Income Provision

Losses Net Income Net Income

March 31 $ 41,403 $ 5,053 $ 36,350 $ 2,690 $ 12,181 $ 0.89

June 30 $ 39,256 $ 3,361 $ 35,895 $ 2,965 $ 11,924 $ 0.87

September 30 $ 39,539 $ 3,008 $ 36,531 $ 4,425 $ 14,000 $ 1.02

December 31 $ 40,287 $ 2,717 $ 37,570 $ 448 $ 15,739 $ 1.15

(Dollar amounts in thousands) Interest

Income Interest

Income Provision

Losses Net Income (a) Net Income

March 31 $ 32,616 $ 3,190 $ 29,426 $ 1,470 $ 9,682 $ 0.79

June 30 $ 33,259 $ 3,507 $ 29,752 $ 230 $ 12,569 $ 1.02

September 30 $ 39,595 $ 5,596 $ 33,999 $ 1,500 $ 12,257 $ 0.93

December 31 $ 43,651 $ 5,176 $ 38,475 $ 1,500 $ 14,364 $ 1.06

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data