UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20172022
 
Commission File Number 001-15877
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GERMAN AMERICAN BANCORP, INC.
(Exact name of registrant as specified in its charter)
INDIANAIndiana35-1547518
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
711 Main Street,Box 810, Jasper, IndianaJasper,Indiana47546
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (812) 482-1314
Securities registered pursuant to Section 12(b) of the Act
Title of Each ClassTrading Symbol(s)Name of each exchange on which registered
Common Shares, no par valueGABCThe NASDAQ StockNasdaq Global Select Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
þ  Yes
Yes
oNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o  Yes
Yes
þ
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ  Yes
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ  Yes
o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K:Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer

o
Non-accelerated filer
o
Smaller reporting company☐
Emerging growth company☐
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
 ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   ☐Yes
o  Yes
þ No
The aggregate market value of the registrant’s common shares held by non-affiliates as of June 30, 20172022 was approximately $716,866,972.$943,563,844. This calculation does not reflect a determination that persons are (or are not) affiliates for any other purpose.
 
As of February 20, 2018,23, 2023, there were outstanding 22,934,25329,493,049 common shares, no par value, of the registrant.


DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of German American Bancorp, Inc., for the Annual Meeting of its Shareholders to be held May 17, 2018,18, 2023, to the extent stated herein, are incorporated by reference into Part III (Items 10 through 14).



GERMAN AMERICAN BANCORP, INC.
ANNUAL REPORT ON FORM 10-K
For Fiscal Year Ended December 31, 20172022

Table of Contents
Glossary of Terms and Acronyms
3
PART I
Item 1.Business
35
Item 1A.Risk Factors
1117
Item 1B.Unresolved Staff Comments
1725
Item 2.Properties
1725
Item 3.Legal Proceedings
1725
Item 4.Mine Safety Disclosures
1725
PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
1826
Item 6.Selected Financial Data[Reserved]
2227
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
2328
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
4147
Item 8.Financial Statements and Supplementary Data
4349
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
94103
Item 9A.Controls and Procedures
94103
Item 9B.Other Information
94103
PART IIIItem 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
103
PART III
Item 10.Directors, Executive Officers and Corporate Governance
95104
Item 11.Executive Compensation
95104
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
95104
Item 13.Certain Relationships and Related Transactions, and Director Independence
95105
Item 14.Principal Accounting Fees and Services
95105
PART IV
Item 15.Exhibits, Financial Statement Schedules
96106
Item 16.Form 10-K Summary
100110
SIGNATURES
101111





GLOSSARY OF TERMS AND ACRONYMS

As used in this Report, references to “Company,” “we,” “our,” “us,” and similar terms refer to German American Bancorp, Inc. and its consolidated subsidiaries as a whole. Occasionally, we will refer to the term “parent company” or “holding company” when we mean to refer to only German American Bancorp, Inc. and the term “Bank” when we mean to refer only to German American Bank, the Company’s bank subsidiary.

The terms and acronyms identified below are used throughout this Report, including the Notes to Consolidated Financial Statements. You may find it helpful to refer to this Glossary as you read this Report.
2019 ESPP:     German American Bancorp, Inc. 2019 Employee Stock Purchase Plan
2019 LTI Plan:     German American Bancorp, Inc. 2019 Long-Term Equity Incentive Plan
AOCI:     Accumulated other comprehensive income (loss)
ASU:     Accounting Standards Update
Basel III Rules:    Regulatory capital rules agreed to by the Basel Committee on Banking Supervision, as issued by the FRB and OCC and published in the Federal Register on October 11, 2013
BHC Act:     Bank Holding Company Act of 1956, as amended
BSA:     Bank Secrecy Act (Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970)
CAA:2021 Consolidated Appropriations Act enacted on December 27, 2020, which included a $900 billion COVID-19 relief package

CARES Act:Coronavirus Aid, Relief and Economic Security Act

CBLR:     Community bank leverage ratio, which is the subject of rules adopted by federal banking regulators on October 29,2019 (the “CBLR framework”)
CECL:     Current expected credit losses, which are the subject of an accounting standard under GAAP
CET1:     Common Equity Tier 1 Capital
CFPB:     Consumer Financial Protection Bureau
CME Term SOFR: A forward-looking term Secured Overnight Financing Rate, as administered by CME Group Benchmark Administration Limited

CMO:     Collateralized mortgage obligations
COVID-19:Novel coronavirus disease 2019 declared, in March 2020, by the World Health Organization as a global pandemic and by the President of the United States as a national emergency

CRA:     Community Reinvestment Act of 1977
CUB:    Citizens Union Bancorp of Shelbyville, Inc., which was acquired by the company on January 1, 2022
DFI:     Indiana Department of Financial Institutions
DIF:     Deposit Insurance Fund of the FDIC
Dodd-Frank Act:     Dodd-Frank Wall Street Reform and Consumer Protection Act
Economic Growth Act:     Economic Growth, Relief and Consumer Protection Act of 2018
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ERISA:     Employee Retirement Income and Security Act of 1974
FASB:     Financial Accounting Standards Board
FDIC:     Federal Deposit Insurance Corporation
FDICIA:     Federal Deposit Insurance Corporation Improvements Act
federal banking
regulators:The FRB, the OCC, and the FDIC, collectively

FHLB:     Federal Home Loan Bank
FRB:     Board of Governors of the Federal Reserve System
GAAP:    Generally Accepted Accounting Principles in the United States of America
GLB Act:     Gramm-Leach-Bliley Financial Modernization Act of 1999
LIBOR:     London Interbank Offered Rate
LIBOR Act: Adjustable Interest Rate (LIBOR) Act enacted on March 15, 2022
MBS:     Mortgage-backed securities
Notes:The Company’s 4.50% Fixed-to-Floating Rate Subordinated Notes due 2029, issued and sold on June 25, 2019, in an aggregate principal amount of $40.0 million

NPV:     Net portfolio value
OCC:     Office of the Comptroller of the Currency
OFAC:     U.S. Treasury Department Office of Foreign Assets Control
PCAOB:     Public Company Accounting Oversight Board (United States)
PCD:Purchased with credit deterioration

PCI:Purchased credit impaired

PPP:Paycheck Protection Program established under the CARES Act

SBA:Small Business Administration

SEC:    Securities and Exchange Commission
SOFR: Secured Overnight Funding Rate

TDR:Troubled Debt Restructurings

USA Patriot Act: Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001

4

Information included in or incorporated by reference in this Annual Report on Form 10-K, our other filings with the Securities and Exchange Commission and our press releases or other public statements, contain or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to a discussion of our forward- looking statements and associated risks in Item 1, “Business - Forward-Looking Statements and Associated Risks” and our discussion of risk factors in Item 1A, “Risk Factors” in this Annual Report on Form 10-K.
 
PART I


Item 1. Business.


General


German American Bancorp, Inc., is a NASDAQ-tradedNasdaq-traded (symbol: GABC) bankfinancial holding company based in Jasper, Indiana. German American, through its banking subsidiary German American Bancorp,Bank, operates 5377 banking offices in 1920 contiguous southern Indiana counties and one northern Kentucky county.14 counties in Kentucky. The Company also owns an investment brokerage subsidiary (German American Investment Services, Inc.) and a full line property and casualty insurance agency (German American Insurance, Inc.).


Throughout this Report, when we use the term “Company”, we will usually be referring to the business and affairs (financial and otherwise) of German American Bancorp, Inc. and its consolidated subsidiaries as a whole. Occasionally, we will refer to the term “parent company” or “holding company” when we mean to refer to only German American Bancorp, Inc. and the term “Bank” when we mean to refer only to the Company’s bank subsidiary.


The Company’s lines of business include retail and commercial banking, comprehensive financial planning, full servicewealth management services, and insurance operations. Our retail and commercial banking business involves attracting deposits from the general public and using those funds to originate consumer, commercial and agricultural, commercial and agricultural real estate, and residential mortgage loans, primarily in the Company’s local markets. These core banking activities also include the sale of residential mortgage loans in the secondary market. Our wealth management services involve providing trust, investment advisory, brokerage and trust administration, andretirement planning services to customers. In our insurance operations, we offer a full range of personal and corporate property and casualty insurance products.products, primarily in the Company’s banking subsidiary’s local markets. Financial and other information by segment is included in Note 16 (Segment Information) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report and is incorporated into this Item 1 by reference. Substantially all of the Company’s revenues are derived from customers located in, and substantially all of its assets are located in, the United States.


Subsidiaries
 
The Company’s principal operating subsidiaries are described in the following table:
NameType of BusinessPrincipal Office Location
German American BancorpBankCommercial BankJasper, IN
German American Insurance, Inc.Multi-Line Insurance AgencyJasper, IN
German American Investment Services, Inc.Retail BrokerageJasper, IN


Effective April
Business Developments

On January 1, 2018,2022, the legal nameCompany completed the acquisition of German AmericanCitizens Union Bancorp will be changed toof Shelbyville, Inc. (“CUB”) through the merger of CUB with and into the Company. Immediately following completion of the CUB holding company merger, CUB’s subsidiary bank, Citizen Union Bank of Shelbyville, Inc., was merged with and into the Company’s subsidiary bank, German American Bank. The new name corresponds with the trade name already being used by theCUB, headquartered in Shelbyville, Kentucky, operated 15 retail banking subsidiaryoffices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and promotes further distinctionHardin counties in nomenclature between the banking subsidiary and the bank holding company, German American Bancorp,Kentucky through Citizens Union Bank of Shelbyville, Inc.
Business Developments

On February 12, 2018, German American Bancorp entered into a Purchase and Assumption Agreement (the “Purchase Agreement”) with MainSource Bank, a wholly-owned subsidiary in Kentucky. As of MainSource Financial Group, Inc. (“MainSource”), which provides for the acquisition by German American Bancorp of five MainSource Bank branch locations (four in Columbus, Indiana, and one in Greensburg, Indiana), and certain related assets, and the assumption by German American Bancorp of certain related liabilities.

Pursuant to the Purchase Agreement, German American Bancorp has agreed to assume approximately $160 million in deposits and purchase approximately $134 million in loans associated with the five bank branches. The transaction is expected to close in the second quarter of 2018, subject to regulatory approval, the closing of the previously-announced pending mergertransaction, CUB had total assets of MainSourceapproximately $1.109 billion, total loans of approximately $683.8 million, and First Financial Bancorp,total deposits of approximately $930.5 million. The Company issued approximately 2.9 million shares of its common stock, and other customary closing conditions.paid approximately $50.8 million in cash, in exchange for all of the issued and outstanding shares of common stock of CUB. For further information regarding this pendingmerger and acquisition see Note 21 (Subsequent Events) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note 21 is incorporated into this Item 1 by reference.

On March 1, 2016, the Company acquired by merger River Valley Bancorp ("River Valley") and its subsidiary, River Valley Financial Bank. River Valley Financial Bank, headquartered in Madison, Indiana, provided a full range of commercial and consumer banking services from 15 banking offices predominantly located in southeast Indiana. At the time of acquisition, River Valley reported on its balance sheet consolidated assets and equity (unaudited) as of February 29, 2016 that totaled $516.3 million and $56.6 million, respectively. For further information regarding the River Valley merger transaction, see Note 18 (Business


Combinations) Combinations, Goodwill and Intangible Assets) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note 18 is incorporated into this Item 1 by reference.


During 2021, the Company executed an operating optimization plan, pursuant to which its banking subsidiary, German American Bank, consolidated seven branch offices and implemented various staff reductions. In making its decision to
5

consolidate these branches, which were generally integrated with other nearby bank branches, the Company considered, among other factors, the operating costs of the branches, certain physical limitations impacting the bank facilities, and their proximity to other branch locations. In addition, the Company’s evaluation of the branch consolidations and the reductions in staff also took into consideration the numbers and types of transactions being conducted by its customers and the increased usage of online and mobile banking. Also as part of the operating optimization plan, in September 2021, German American Bank sold its two branches located in Lexington, Kentucky to The Home Savings and Loan Company of Kenton, Ohio (“HSLC”). HSLC assumed approximately $17.6 million in total deposits and purchased approximately $17.8 million in total loans as part of the sale.

The Company expects to continue to evaluate opportunities to expand its business through opening of new banking, insurance or trust, brokerage and financial planning offices, and through acquisitions of other banks, bank branches, portfolios of loans or other assets, and other financial-service-related businesses and assets in the future.


6

Office Locations
 
The Indiana map below illustrates the locations of the Company’s 5478 retail and commercial banking, insurance and investment offices as of February 20, 2018.offices.


 



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7

Competition


The industries in which the Company operates are highly competitive. The Bank competes for commercial and retail banking business within its core banking segment not only with financial institutions that have offices in the same counties but also with financial institutions that compete from other locations in Southern Indiana, Kentucky and elsewhere. Further, the Bank competes for loans and deposits not only with commercial banks but also with savings and loan associations, savings banks, credit unions, production credit associations, federal land banks, finance companies, credit card companies, personal loan companies, investment brokerage firms, insurance agencies, insurance companies, lease finance companies, money market funds, mortgage companies, and other non-depository financial intermediaries. There are numerous alternative providers (including national providers that advertise extensively and provide their services via e-mail, direct mail, telephone and the Internet) for the insurance products and services offered by German American Insurance, Inc., trust and financial planning services offered by the Bank and the brokerage products and financial planning services offered by German American Investment Services, Inc. In addition, financial technology, or “FinTech,” companies continue their rapid growth into key areas of banking. Many of these competitors have substantially greater resources than the Company.


EmployeesHuman Capital


At February 20, 201823, 2023, the Company and its subsidiaries employed approximately 614866 full-time equivalent employees. There are no collective bargaining agreements, and we consider employee relations are considered to be good.


People come first at German American. It is through our employees, and their ties to the local community, that we are able to proudly support the communities we serve. We are deeply rooted in these communities. Engrained in our culture is a commitment to give back to the individuals, families, and businesses in our communities. We have a long history of community involvement, from both a contributory standpoint and a dedication to hands-on volunteer efforts.

German American strives to attract, develop, and retain talented individuals in every community we serve. We understand that, in order to deliver the best financial products and services to our clients, we need to invest in our team’s personal and professional success, which includes helping to create a work/life balance and providing further growth opportunities. As a result, our employees have demonstrated a desire and determination to succeed. Our culture encourages them to take initiative, accept challenges, and be collaborative to achieve performance and operating excellence for our customers, shareholders, and communities. German American’s reputation relies on integrity. Our team trusts each other in words and actions, which enables our customers to trust our brand. We value honesty, transparency, and diverse perspectives with high ethical standards in all we do.

We have long been committed to comprehensive and competitive compensation and benefits programs as we recognize that we operate in an intensely competitive environment for employees. Retention of skilled and highly trained employees is critical to our strategy of being a trusted resource to our communities and customers. Furthering our philosophy to attract and retain talented and motivated employees who will continue to advance our purpose and contribute to our overall success, our compensation and benefits programs include: medical (including telemedicine and behavioral health care services), dental and vision plans; a 401(k) deferred compensation plan, with matching contribution, which covers substantially all employees; flexible spending and health savings accounts, competitive paid time off (PTO) programs, life insurance and a robust employee assistance program that covers an array of work-life benefits that supports employee well-being. In addition, we offer supplemental benefits such as accident, critical illness and hospital indemnity policies, quarterly performance incentives, discounted bank services and an Employee Stock Purchase Plan.

We also invest in our employees’ future by sponsoring and prioritizing continued education throughout the Company’s employee ranks. Full-time and part-time employees are eligible for our education assistance program which covers tuition and textbooks for work-related courses taken through a community college or university. Employees are also able to participate in on-the-job learning, classroom learning, mentoring and other internal and external career development programs. These programs focus on enhancing current skills as well as developing our next generation of leaders, bankers, commercial lenders and other financial professional roles.

We are committed to employee care and helping our employees improve their quality of life and place. As a result, we remain focused on continuous improvement throughout all departments in order to create positive outcomes and experiences for all. Most recently, we implemented a paid family bonding leave program, a paid-time off (PTO) donation program, and flexible work guidelines.

In order to develop a workforce that aligns with our purpose, we regularly sponsor local community events. We believe that the well-being of our employees and their personal and professional development is furthered by our outreach to the communities we serve. Our employees’ desire for active community involvement enables us to sponsor many local community events and initiatives, including leading financial literacy classes in community schools and volunteering to enhance the arts, education, economic development, and overall community enrichment in our footprint.

8


Regulation and Supervision
Overview


The Company is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (“FRB”) under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and is required to file with the FRB annual reports and such additional information as the FRB may require. The FRB may also make examinations or inspections of the Company. The Bank is under the supervision of and subject to examination by the Indiana Department of Financial Institutions (“DFI”), and the Federal Deposit Insurance Corporation (“FDIC”). Regulation and examination by banking regulatory agencies are primarily for the benefit of depositors rather than shareholders.
Under FRB policy and the Dodd-Frank Wall Street Reform and Consumer Protection Act, a complex and wide-ranging statute that was enacted by Congress and signed into law during July 2010 (the “Dodd-Frank Act”), the Company is required to act as a source of financial and managerial strength to the Bank, and to commit resources to support the Bank, even in circumstances where the Company might not do so absent such a requirement. Under current federal law, the FRB may require a bank holding company to make capital injections into a troubled subsidiary bank. It may charge the bank holding company with engaging in unsafe and unsound practices if the bank holding company fails to commit resources to such a subsidiary bank or if it undertakes actions that the FRB believes might jeopardize the bank holding company’s ability to commit resources to such subsidiary bank.
With certain exceptions, the BHC Act prohibits a bank holding company from engaging in (or acquiring direct or indirect control of more than 5 percent of the voting shares of any company engaged in) nonbanking activities. One of the principal exceptions to this prohibition is for activities deemed by the FRB to be “closely related to banking.” Under current regulations, bank holding companies and their subsidiaries are permitted to engage in such banking-related business ventures as consumer finance; equipment leasing; credit life insurance; computer service bureau and software operations; mortgage banking; and securities brokerage.
Under the BHC Act, certain well-managed and well-capitalized bank holding companies may electIn September 2019, we elected to be treated asbecome a “financial holding company” and, ascompany.” As a result, befinancial holding company, we are permitted to engage in a broader range of activities that are “financial in nature” and in activities that are determined to be incidental or complementary to activities that are financial in nature. These activities include underwriting and dealing in and making a market in securities (subject to certain limits and compliance procedures required by the so-called Volcker Rule provisions added by the Dodd-Frank Act, described below under “Other Aspects of the Dodd-Frank Act”);, insurance underwriting, and merchant banking. Banks may also engage through financial subsidiaries in certain of the activities permitted for financial holding companies, subject to certain conditions. The Company has not elected to becomeUpon becoming a financial holding company, we began operating GABC Risk Management, Inc., a wholly-owned subsidiary, as a pooled captive insurance company subsidiary to provide additional insurance coverage for the Company and its subsidiary bank hassubsidiaries related to the operations of the Company for which insurance may not electedbe economically feasible. In order to formcontinue as a financial subsidiaries.holding company, we must continue to be well-capitalized, well-managed and maintain compliance with the Community Reinvestment Act.
The Bank and the subsidiaries of the Bank may generally engage in activities that are permissible activities for state chartered banks under Indiana banking law, without regard to the limitations that might apply to such activities under the BHC Act if the Company were to engage directly in such activities at the parent company level or through parent company subsidiaries that were not also bank subsidiaries.
Indiana law and the BHC Act restrict certain types of expansion by the Company and its bank subsidiary. The Company and its subsidiaries may be required to apply for prior approval from (or give prior notice and an opportunity for review to) the FRB, the DFI, the FDIC, and/or other bank regulatory or other regulatory agencies, as a condition to the acquisition or establishment of new

offices, or the acquisition (by merger or consolidation, purchase or otherwise) of the stock, business or properties of other banks or other companies.
The earnings of commercial banks and their holding companies are affected not only by general economic conditions but also by the policies of various governmental regulatory authorities. In particular, the FRB regulates money and credit conditions and interest rates in order to influence general economic conditions, primarily through open-market operations in U.S. Government securities, varying the discount rate on bank borrowings, and setting reserve requirements against bank deposits. These policies have a significant influence on overall growth and distribution of bank loans, investments and deposits, and affect interest rates charged on loans and earned on investments or paid for time and savings deposits. FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and this is expected to continue in the future. The general effect, if any, of such policies upon the future business and earnings of the Company cannot accurately be predicted.
9

Capital Requirements


We are subject to various regulatory capital requirements both at the parent company and at the Bank level administered by the FRB and by the FDIC and DFI, respectively. Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “Prompt Corrective Action” (described below), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies. Our capital amounts and classification are also subject to judgments by the regulators regarding qualitative components, risk weightings, and other factors. We have consistently maintained regulatory capital ratios at or above the well-capitalized standards.
Generally, for purposes of satisfying these capital requirements, we must maintain capital sufficient to meet both risk-based asset ratio tests and a leverage ratio test on a consolidated basis. The risk-based ratios are determined by allocating assets and specified off-balance sheet commitments into various weighted categories, with higher weighting assigned to categories perceived as representing greater risk. A risk-based ratio represents the applicable measure of capital divided by total risk-weighted assets. The leverage ratio is a measure of our core capital divided by our total assets adjusted as specified in the guidelines.
Effective January 1, 2015 (subject to certain phase-in provisions), we became subject to newThe current risk-based capital rules, as adopted by federal banking agency rules implementing certain regulatory capital reforms agreed toregulators, are based upon guidelines developed by the Basel Committee on Banking Supervision (known as “Basel III”) and to certain changes required byreflect various requirements of the Dodd-Frank Act. Generally, under these new rules (and subject to certain phase-in provisions), (a) minimum requirements were increased for both the quality and quantity of capital held byAct (the “Basel III Rules”). The Basel III Rules require banking organizations (b) stricter criteria are applied in determining the eligibility for inclusion in regulatory capital of capital instruments (other than common equity), and (c) the methodology for calculating risk-weighted assets was changed. The rules include,to, among other requirements:things, maintain:
•a new minimum ratio of “Common Equity Tier 1 Capital” to risk-weighted assets of 4.5%;
, plus a new conservation buffer on Common Equity Tier 1 Capital equal to an additional 0.625% of risk-weighted assets during 2016 and increasing each year by another 0.625% until reaching 2.5% when fully phased-in during 2019“conservation buffer” (bringing the Common Equity Tier 1 Capital to risk-weighted assets ratio to a total of at least 7.0% when fully implemented));
•a minimum ratio of Tier 1 Capital to risk-weighted assets of 6% plus the conservation buffer (which when fully phased-in during 2019, will resultresults in a minimum required total Tier 1 Capital to risk-weighted assets ratio of 8.5%);
•a minimum ratio of Total Capital (that is, Tier 1 Capital plus instruments includable in a tier called Tier 2 Capital) to risk-weighted assets of at least 8.0% plus the conservation buffer (which when fully phased-in during 2019, will resultresults in a minimum Total Capital to risk-weighted assets ratio of 10.5%); and
•a minimum leverage ratio of 4% (calculated as the ratio of Tier 1 Capital to adjusted average consolidated assets).


The new capital measure “Common“Common Equity Tier 1” (“CET1”) Capital consists of common stock instruments that meet the eligibility criteria in the new rules, retained earnings, accumulated other comprehensive income (“AOCI”) and common equity Tier 1 minority interest.
Tier 1 Capital under the new rules consists of CET1 (subject to certain adjustments) and “additional Tier 1 capital” instruments meeting specified requirements, plus, in the case of smaller holding companies like ours, trust preferred securities in accordance with prior requirements for their inclusion in Tier I Capital.
Pursuant toUnder the present rules,Basel III Rules, we and our bank subsidiary elected in our March 31, 2015 financial report filed with banking agencies, to opt-out of the requirement to include AOCI in our CET1. As a result, most AOCI items will be treated, for regulatory capital purposes, in the same manner in which they were prior to Basel III.
Although banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the conservation buffer will technically comply with minimum capital requirements under the new rules, such institutions will face limitations on the


payment of dividends, common stock repurchases and discretionary cash payments to executive officers based on the amount of the shortfall.
In December 2018, federal banking agencies issued a joint final rule to revise their regulatory capital rules to, among other things: (i) address implementation of the “current expected credit losses” (“CECL”) accounting standard under GAAP; and (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects of adopting CECL. As discussed in Note 1 (Summary of Significant Accounting Policies) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, the FASB issued the CECL accounting standard in 2016 to address concerns relating to the ability to record credit losses that are expected, but do not yet meet the “probable” threshold by replacing the current “incurred loss” model for recognizing credit losses with an “expected life of loan loss” model referred to as the CECL model. The Company adopted the CECL standard on January 1, 2020.
In an action related to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), in September 2020, federal banking regulators adopted a final rule that allowed banking organizations to mitigate the estimated cumulative regulatory capital effects of CECL for up to two years. This two-year delay is in addition to the three-year phase-in period discussed above. By adopting this option, the Company was able to largely delay the effects of CECL on its regulatory capital through
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December 31, 2021. Beginning on January 1, 2022, the Company began the required three-year phase-in by reflecting 25% of the previously deferred estimated capital impact of CECL in its regulatory capital. An additional 25% was phased in on January 1, 2023 and another 25% will be phased in on each of January 1, 2024 and January 1, 2025 (at which time the adverse cumulative effects of adopting CECL will have been fully phased into our regulatory capital). Under this 2020 rule, the amount of adjustments to regulatory capital that could be deferred until the phase-in period included both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021. For information about the one-time cumulative adjustment to our allowance for credit losses on January 1, 2020 and changes in the allowance during the subsequent two-year period, please see Note 1 (Summary of Significant Accounting Policies) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report.
In April 2020, federal banking regulators modified the Basel III regulatory capital rules applicable to banking organizations to allow those organizations participating in the Paycheck Protection Program (“PPP”) established under the CARES Act to neutralize the regulatory capital effects of participating in the program by allowing PPP loans to receive a zero percent risk weight for purposes of determining risk-weighted assets and the CET1, Tier 1 and Total Risk-Based capital ratios. While there were no outstanding PPP loans at December 31, 2022, at December 31, 2021, risk-weighted assets included $19.5 million of PPP loans (net of deferred fees) at a zero risk weight. See “COVID-19 and Related Legislative and Regulatory Actions” below for additional information on the PPP.
Prompt Corrective Action Classifications


The Federal Deposit Insurance Corporation Improvements Act (enacted in 1991) (FDICIA) requires federal banking regulatory authorities to take regulatory enforcement actions known as Prompt Corrective Action with respect to depository institutions that do not meet minimum capital requirements. For these purposes, FDICIA establishes five capital tiers: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized.
Under FDICIA, a depository institution that is not well-capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. Since the Bank throughout 2017 was well-capitalized throughout 2022, the FDICIA brokered deposit rule did not adversely affect its ability to accept brokered deposits. The Bank had no such brokered deposits at December 31, 2017.2022. Further, a depository institution or its holding company that is not well-capitalized will generally not be successful in seeking regulatory approvals that may be necessary in connection with any plan or agreement to expand its business, such as through the acquisition (by merger or consolidation, purchase or otherwise) of the stock, business or properties of other banks or other companies.
Under the Prompt Corrective Action regulations, the applicable agency can treat an institution as if it were in the next lower category if the agency determines (after notice and an opportunity for hearing) that the institution is in an unsafe or unsound condition or is engaging in an unsafe or unsound practice. The degree of regulatory scrutiny of a financial institution will increase, and the permissible activities of the institution will decrease, as it moves downward through the capital categories. Institutions that fall into one of the three “undercapitalized” categories (as such term is used in the FDICIA) may be required to (i) submit a capital restoration plan; (ii) raise additional capital; (iii) restrict their growth, deposit interest rates, and other activities; (iv) improve their management; (v) eliminate management fees and dividends; or (vi) divest themselves of all or a part of their operations. Bank holding companies can be called upon to boost the capital of the financial institutions that they control, and to partially guarantee the institutions’ performance under their capital restoration plans. Critically under-capitalized institutions are subject to appointment of a receiver or conservator within 90 days of becoming so classified.
The minimum ratios defined by the Prompt Corrective Action regulations from time to time are merely guidelines and the bank regulators possess the discretionary authority to require higher capital ratios. Further, the risk-based capital standards of the FRB and the FDIC specify that evaluations by the banking agencies of a bank’s capital adequacy will include an assessment of the exposure to declines in the economic value of a bank’s capital due to changes in interest rates. These banking agencies issued a joint policy statement on interest rate risk describing prudent methods for monitoring such risk that rely principally on internal measures of exposure and active oversight of risk management activities by senior management.
To qualify as a “well-capitalized” institution, a depository institution under the Prompt Corrective Action requirements must have a leverage ratio of no less than 5%, a Tier I Capital ratio of no less than 8%, a CET1 ratio of no less than 6.5%, and a total risk-based capital ratio of no less than 10%, and the bank must not have been under any order or directive from the appropriate regulatory agency to meet and maintain a specific capital level. As of December 31, 2017,2022, the Bank exceeded the requirements contained in the applicable regulations, policies and directives pertaining to capital adequacy to be classified as “well-capitalized”, and is unaware of any material violation or alleged violation of these regulations, policies or directives. For a tabular presentation of our regulatory capital ratios and those of the Bank as of December 31, 2017,2022, see Note 8 (Shareholders' (Shareholders’
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Equity) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note 8 is incorporated herein by reference.
In October 2019, the FRB, the FDIC and the Office of the Comptroller of the Currency (the “OCC”) adopted a final rule to simplify the regulatory capital requirements for eligible community banks and holding companies that opt-in to the community bank leverage ratio framework (“CBLR framework”), as required by Section 201 of the Economic Growth, Relief and Consumer Protection Act of 2018 (the “Economic Growth Act”). Under the final rule, which became effective as of January 1, 2020, community banks and holding companies (which would include the Bank and the Company) that satisfy certain qualifying criteria, including having less than $10 billion in average total consolidated assets and a leverage ratio (referred to as the “community bank leverage ratio”) of greater than 9%, would be eligible to opt-in to the CBLR framework. The community bank leverage ratio is the ratio of a banking organization’s Tier 1 Capital to its average total consolidated assets, both as reported on the banking organization’s applicable regulatory filings. If this election is made, the Company and the Bank would satisfy their regulatory capital standards by calculating and reporting the community bank leverage ratio instead of the risk-weighted capital ratios and minimum leverage ratio currently required and would be deemed “well-capitalized” under the FRB’s and FDIC’s Prompt Corrective Action rules so long as they continue to satisfy the qualifying criteria of the CBLR framework. Despite this option, the Company intends to continue with its use of the existing layered ratio structure. Under either framework, the Company and the Bank would be considered well-capitalized under the applicable guidelines.
Future rulemaking and regulatory changes on capital requirements may impact the Company as it continues to grow and evaluate potential mergers and acquisitions.
Restrictions on Bank Dividends or Loans to, or other Transactions with, the Parent Company, and on Parent Company Dividends


German American Bancorp, Inc., which is the publicly-held parent of the Bank (German American Bancorp)Bank), is a corporation that is separate and distinct from the Bank and its other subsidiaries. Most of the parent company’s revenues historically have been comprised of dividends, fees, and interest paid to it by the Bank, and this is expected to continue in the future. There are, however, statutory limits under Indiana law on the amount of dividends that the Bank can pay to its parent company without regulatory approval. The Bank may not, without the approval of the DFI, pay a dividend in an amount greater than its undivided profits. In addition, the prior approval of the DFI is required for the payment of a dividend by an Indiana state-chartered bank if the total of all dividends declared in a calendar year would exceed the total of its net income for the year combined with its retained net income for the two preceding years, unless such a payment qualifies under certain exemptive criteria that exempt certain dividend payments by certain qualified banks from the prior approval requirement. At December 31, 2017,2022, the Bank was eligible for payment of dividends under the exemptive criteria established by DFI policy for this purpose, and could have declared and paid to the holding


company $64.0approximately $125 million of its undivided profits without approval by the DFI in accordance with such criteria. See Note 8 (Shareholders'(Shareholders’ Equity) of the Notes to Consolidated Financial Statements included in Item 8 of this Report for further discussion.
Insured depository institutions such as the Bank are also prohibited under the FDICIA from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become undercapitalized.
In addition, the FRB and other bank regulatory agencies have issued policy statements or advisories that provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings.
In addition to these statutory restrictions, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice, such authority may require, after notice and hearing, that such bank cease and desist from such practice. Accordingly, if the Bank were to experience financial difficulties, it is possible that the applicable regulatory authority could determine that the Bank would be engaged in an unsafe or unsound practice if the Bank were to pay dividends and could prohibit the Bank from doing so, even if availability existed for dividends under the statutory formula.
Further, the Bank is subject to affiliate transaction restrictions under federal laws, which limit certain transactions generally involving the transfer of funds by a subsidiary bank or its subsidiaries to its parent corporation or any nonbank subsidiary of its parent corporation, whether in the form of loans, extensions of credit, investments, or asset purchases, or otherwise undertaking certain obligations on behalf of such affiliates. Furthermore, covered transactions that are loans and extensions of credit must be secured within specified amounts. In addition, all covered transactions and other affiliate transactions must be conducted on terms and under circumstances that are substantially the same as such transactions with unaffiliated entities.
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Other Aspects of the Dodd-Frank Act


The Dodd-Frank Act (in addition to the regulatory changes discussed elsewhere in this “Regulation and Supervision” discussion and below under “Federal Deposit Insurance Premiums and Assessments”) made a variety of changes that affect the business and affairs of the Company and the Bank in other ways. For instance, the Dodd-Frank Act (or agency regulations adopted and implemented (or to be adopted and implemented) under the Dodd-Frank Act) altered the authority and duties of the federal banking and securities regulatory agencies, implemented certain corporate governance requirements for all public companies including financial institutions with regard to executive compensation, proxy access by shareholders, and certain whistleblower provisions; restricted certain proprietary trading and hedge fund and private equity activities of banks and their affiliates; eliminated the former statutory prohibition against the payment of interest on business checking accounts; limited interchange fees on debit card transactions by certain large processors; and established the Consumer Financial Protection Bureau (“CFPB”).
The CFPB was granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by the CFPB but continue to be examined and supervised by federal banking regulators for consumer compliance purposes.
The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The Dodd-Frank Act authorized the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, Dodd-Frank allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.
The CFPB issued a rule, effective as of January 14, 2014, designed to clarify for lenders how they can avoid monetary damages under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that satisfy this “qualified mortgage” safe-harbor will be presumed to have complied with the new ability-to-repay standard. Under the CFPB’s rule, a “qualified mortgage” loan must not contain certain specified features, and the borrower’s total monthly debt-to-income ratio may not exceed a specified percentage. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments.
On December 10, 2013, five financial regulatory agencies, includingThe Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the FRBfederal level and, FDIC, adopted final rules implementingin certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.
The so-called Volcker Rule, added to banking law by Section 619 ofwhich was adopted under the Dodd-Frank Act. These final rules prohibitAct, prohibits banking entities from, among other things, (1) engaging in short-term proprietary trading for their own accounts, and (2) having certain ownership interests in and relationships with hedge funds or private equity funds (“covered funds”). Community banks like the Bank have been afforded some relief under these final rules from onerous compliance obligations created by the rules; if banks are engaged only in exempted proprietary trading, such as trading in U.S. government, agency, state and municipal obligations, they are exempt entirely from


compliance program requirements. Moreover, even if a community bank engages in proprietary trading or covered fund activities under the rule, they need only incorporate references to the Volcker Rule into their existing policies and procedures. The Final Rules were effective April 1, 2014, butEconomic Growth Act also served to raise the conformance period was extended from its statutory end datethreshold of July 21, 2014 until July 21, 2015. In addition, the FRB granted extensions until July 21, 2017 of the conformance period for banking entities to conform investments in and relationships with covered funds that were in place prior to December 31, 2013 and, in December 2016, provided guidance allowing for additional extensionsbanks subject to the conformance period for certain illiquid funds. WeVolcker Rule to only those with more than $10 billion in assets. Although we do not yet meet that threshold, even if we were subject to it, we do not expect that the Volcker Rule willwould have any material financial implications on us or our investments or activities.
Certain Other Laws and Regulations


The Community Reinvestment Act of 1977 (the "CRA"“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. The applicable federal regulators regularly conduct CRA examinations to assess the performance of financial institutions and assign one of four ratings to the institution’s records of meeting the credit needs of its community. During its last examination, a rating of “satisfactory” was received by the Bank.
In accordance with the Gramm-Leach-Bliley Financial Modernization Act of 1999 (the "GLB Act"“GLB Act”), federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
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A major focus of governmental policy on financial institutions is combating money laundering and terrorist financing. The Bank Secrecy Act (the “BSA”) requires financial institutions to develop policies, procedures, and practices to prevent and deter money laundering, and mandates that every bank have a written, board-approved program that is reasonably designed to assure and monitor compliance with the BSA. In addition, banks are required to adopt a customer identification program as part of its BSA compliance program, and are required to file Suspicious Activity Reports when they detect certain known or suspected violations of federal law or suspicious transactions related to a money laundering activity or a violation of the BSA. In May 2016, the regulations implementing the BSA were amended to require covered institutions such as theThe Bank is also required to (1) identify and verify, subject to certain exceptions, the identity of the beneficial owners of all legal entity customers at the time a new account is opened, and (2) include, in its anti-money laundering program, risk-based procedures for conducting ongoing customer due diligence, which are tomust include procedures that: (a) assist in understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and (b) require the covered institutions to conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. The Bank must comply with these amendments and new requirements by May 11, 2018.
The USA PATRIOT Act of 2001, or the USA Patriot Act, substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The U.S. Treasury Department has issued a number of regulations that apply various requirements of the USA Patriot Act to financial institutions such as the Bank. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution.
The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. These are typically known as the “OFAC” rules based on their administration by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”). The OFAC-administered sanctions targeting countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.
The Bank is subject to a wide variety of other laws with respect to the operation of its businesses, and regulations adopted under those laws, including but not limited to the Truth in Lending Act, Truth in Savings Act, Equal Credit Opportunity Act, Electronic Funds Transfer Act, Fair Housing Act, Home Mortgage Disclosure Act, Fair Debt Collection Practices Act, Fair Credit Reporting


Act, Expedited Funds Availability (Regulation CC), Reserve Requirements (Regulation D), Insider Transactions (Regulation O), Privacy of Consumer Information (Regulation P), Margin Stock Loans (Regulation U), Right To Financial Privacy Act, Flood Disaster Protection Act, Homeowners Protection Act, Servicemembers Civil Relief Act, Real Estate Settlement Procedures Act, TILA-RESPA Integrated Disclosure Rule, Telephone Consumer Protection Act, CAN-SPAM Act, Children’s Online Privacy Protection Act, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) and the John Warner National Defense Authorization Act. The laws and regulations to which we are subject are constantly under review by Congress, the federal regulatory agencies, and the state authorities.
Federal Deposit Insurance Premiums and Assessments


The Bank’s deposit accounts are currently insured by the Deposit Insurance Fund (the "DIF"“DIF”) of the FDIC. The insurance benefit generally covers up to a maximum of $250,000 per separately insured depositor. As an FDIC-insured bank, our bank subsidiary is subject to deposit insurance premiums and assessments to maintain the DIF. The Bank’s deposit insurance premium assessment rate depends on the asset and supervisory categories to which it is assigned. The FDIC has authority to raise or lower assessment rates on insured banks in order to achieve statutorily required reserve ratios in the DIF and to impose special additional assessments.
Under the current system, deposit insurance assessments are based on average total assets minus average tangible equity. The FDIC assigns a banking institution to one of two categories based on asset size. As an institution with under $10 billion in assets, the Bank falls into the "Established“Established Small Institution"Institution” category. This category has three sub-categories based on supervisory ratings designed to measure risk (the FDIC's "CAMELS Composite"FDIC’s “CAMELS Composite” ratings). The assessment rate, which ranges from 1.5 to 30.0 basis points (such basis points representing a per annum rate) for Established Small Institutions, is determined based upon each applicable institution'sinstitution’s most recent supervisory and capital evaluations.
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In addition, each FDIC insured institution ishas been required to pay to the FDIC an assessment on the institution'sinstitution’s total assets less tangible capital in order to fund interest payments on bonds issued by the Financing Corporation, an agency of the federal government established to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will continue untilWith the Financing Corporation bonds maturehaving made its final bond payment in 2018 and 2019. ForSeptember 2019, the Bank's December 2017Bank made its last assessment payment, the bond assessmentwhich was equal to a per annum rate of 0.460.12 basis points.points, in March 2019.
COVID-19 and Related Legislative and Regulatory Actions

On January 30, 2020, the World Health Organization (“WHO”) announced that the outbreak of the novel coronavirus disease 2019 (COVID-19) constituted a public health emergency of international concern. On March 11, 2020, WHO declared COVID-19 to be a global pandemic and, on March 13, 2020, the President of the United States declared the COVID-19 outbreak a national emergency. In the two years since then, the pandemic has dramatically impacted global health and the economy, including millions of confirmed cases and deaths, business slowdowns or shutdowns, labor shortfalls, supply chain challenges, regulatory challenges, and market volatility. In response, the U.S. Congress, through the enactment of the CARES Act in March 2020, and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide emergency economic relief measures including, among others, the following:
Paycheck Protection Program. The CARES Act established the PPP, which is administered by the Small Business Administration (“SBA”), to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during the pandemic. The Company actively participated in assisting its customers with PPP funding during all phases of the program. The vast majority of the Company’s PPP loans made in 2020 had two-year maturities, while the loans made in 2021 had five-year maturities. Loans under the program earned interest at a fixed rate of 1 percent. Consistent with the terms of the program, virtually all of the Company’s PPP loans have been forgiven by the SBA and those that were not have otherwise been repaid by the customer. As a result, the Company did not have any PPP loans outstanding as of December 31, 2022, as compared to having $19.5 million outstanding at December 31, 2021.
Loan Modifications and Troubled Debt Restructures. The CARES Act, as amended by the 2021 Consolidated Appropriations Act, which was signed into law on December 27, 2020 (the “CAA”), allowed banks to suspend requirements under GAAP, through January 1, 2022, for certain loan modifications related to the COVID-19 pandemic. The federal banking agencies also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 or offer other borrower friendly options. In accordance with such guidance, the Company made various short-term modifications to borrowers who were current and otherwise not past due. These included short-term, 180 days or less, modifications in the form of payment deferrals.
Regulatory Capital. The CARES Act, the CAA, and certain actions by federal banking regulators resulted in modifications to, or delays in implementation of, various regulatory capital rules applicable to banking organizations. See “Capital Requirements” above for additional information.
Internet Address; Internet Availability of SEC Reports


The Company’s Internet address is www.germanamerican.com.
The Company makes available, free of charge through the Investor Relations - Financial Information section of its Internet website, the Company’s annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after those reports are filed with or furnished to the SEC.
Forward-Looking Statements and Associated Risks


The Company from time to time in its oral and written communications makes statements relating to its expectations regarding the future. These types of statements are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can include statements about the Company’s net interest income or net interest margin; adequacy of the Company'sCompany’s capital under regulatory requirements and of its allowance for loan losses, and the quality of the Company’s loans, investment securities and other assets; simulations of changes in interest rates; litigation results; dividend policy; acquisitions or mergers; estimated cost savings, plans and objectives for future operations; and expectations about the Company’s financial and business performance and other business matters as well as economic and market conditions and trends. All statements other than statements of historical fact included in this Report, including statements regarding our financial position, business strategy and the plans and objectives of our management for future operations, are forward-looking statements. When used in this Report, words such as “anticipate”, “believe”, “estimate”, “expect”
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“expect”, "plan"“plan”, “intend”, "should"“should”, "would"“would”, "could"“could”, "can"“can”, "may"“may”, "will"“will”, "might"“might” and similar expressions, as they relate to us or our management, identify forward-looking statements.
Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to our management, and are subject to risks, uncertainties, and other factors.
Actual results may differ materially and adversely from the expectations of the Company that are expressed or implied by any forward-looking statement. The discussions in Item 1A, “Risk Factors,” and in Item 7 of this Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” list some of the factors that could cause the Company’s actual results to vary materially from those expressed or implied by any forward-looking statements. OtherThose risks, and other risks, uncertainties, and factors that could cause the Company’s actual results to vary materially from those expressed or implied by any forward-looking statement, include but are not limited to:to:


the unknown future direction of•changes in interest rates and the timing and magnitude of any changes in interest rates;such changes;
•unfavorable economic conditions, including a prolonged period of inflation, and the resulting adverse impact on, among other things, credit quality;
•the impacts of epidemics, pandemics or other infectious disease outbreaks, including the continuation of the COVID-19 pandemic;
•changes in competitive conditions;
•the introduction, withdrawal, success and timing of asset/liability management strategies or of mergers and acquisitions and other business initiatives and strategies;
•changes in customer borrowing, repayment, investment and deposit practices;
•changes in fiscal, monetary and tax policies;
•changes in financial and capital markets;
potential deterioration in general economic conditions, either nationally or locally, resulting in, among other things, credit quality deterioration;
•capital management activities, including possible future sales of new securities, or possible repurchases or redemptions by the Company of outstanding debt or equity securities;
•risks of expansion through acquisitions and mergers, such as unexpected credit quality problems of the acquired loans or other assets, unexpected attrition of the customer base or employee base of the acquired institution or branches, and difficulties in integration of the acquired operations;
•factors driving impairment charges on investments;
•the impact, extent and timing of technological changes;
•potential cyber-attacks, information security breaches and other criminal activities;
•litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future;
•actions of the FRB;
•the possible effects of the replacement of the London Interbank Offering Rate (LIBOR);
•the potential for increases to, and volatility in, the balance of our allowance for credit losses and related provision expense due to the current expected credit loss (CECL) standard;
•changes in accounting principles and interpretations;
the expected impact of U.S. tax regulations passed in December 2017;
•potential increases of federal deposit insurance premium expense, and possible future special assessments of FDIC premiums, either industry wide or specific to the Company’s banking subsidiary;
•actions of the regulatory authorities under the Dodd-Frank Act and the Federal Deposit Insurance Act and other possible legislative and regulatory actions and reforms;
•impacts resulting from possible amendments or revisions to the Dodd-Frank Act and the regulations promulgated thereunder, or to CFPB rules and regulations; and
•the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends.dividends; and

•with respect to the merger with CUB, the possibility that the benefits of the transaction, including cost savings and strategic gains, do not continue as anticipated, including as a result of the impact of, or problems arising from, the continued integration of the two companies, unexpected credit quality problems of the acquired loans or other assets, or unexpected attrition of the customer base of the acquired institution or branches.

Such statements reflect our views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements. It is intended that these forward-looking statements speak only as of the date they are made. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.events.


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Item 1A. Risk Factors.


The following describes some of the principal risks and uncertainties to which our industry in general, and our securities, assets and businesses specifically, are subject; other risks are briefly identified in our cautionary statement that is included under the heading “Forward-Looking Statements and Associated Risks” in Part I, Item 1, “Business.” Although we seek ways to manage these risks and uncertainties and to develop programs to control those that we can, we ultimately cannot predict the future. Future results may differ materially from past results, and from our expectations and plans.
Risks Related to the Financial Services Industry

We operate in a highly regulated environment and changes in laws and regulations to which we are subject may adversely affect our results of operations.
The banking industry in which we operate is subject to extensive regulation and supervision under federal and state laws and regulations. The restrictions imposed by such laws and regulations limit the manner in which we conduct our business, undertake new investments and activities and obtain financing. These regulations are designed primarily for the protection of the deposit insurance funds and consumers and not to benefit our shareholders. Financial institution regulation has been the subject of significant legislation in recent years and may be the subject of further significant legislation, none of which is in our control. Significant new laws or changes in, or repeals of, existing laws (including changes in federal or state laws affecting corporate taxpayers generally or financial institutions specifically) could have a material adverse effect on our business, financial condition, results of operations or liquidity. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions, and any unfavorable change in these conditions could have a material adverse effect on our business, financial condition, results of operations or liquidity.


The Dodd-Frank Act and regulations adopted under that law could materially and adversely affect us by increasing compliance costs and heightening our risk of noncompliance with applicable regulations.
The Dodd-Frank Act (discussed in Item 1 - Business - Regulation and Supervision) has resulted in sweeping changes in the regulation of financial institutions. The Dodd-Frank Act contains numerous provisions that affect all banks and bank holding companies. Many of these provisions remain subject to regulatory rule-making and implementation, the effects of which are not yet known. Accordingly, we cannot predict the specific impact and long-term effects that the Dodd-Frank Act and the regulations promulgated thereunder will have on us and our prospects, our target markets and the financial industry more generally. However, the Dodd-Frank Act and the regulations promulgated thereunder have imposed additional administrative and regulatory burdens that obligate us to incur additional expenses (which adversely affect our margins and profitability) and increase the risk that we might not comply in all respects with the new requirements. Further, the CFPB’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could adversely impact our growth or profitability.
The banking industry may be subject to new legislation, regulation, and government policy including possible amendments or revisions to the Dodd-Frank Act and the regulations promulgated thereunder, and to CFPB rules and regulations. Future legislation, regulation, and government policy could affect the banking industry as a whole, including our business and results of operations, in ways that cannot accurately be predicted. In addition, our financial condition and results of operations also could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies.
Compliance with the Basel III Capital Rules may have an adverse effect on us.
We are subject to certain capital rules adopted by the federal banking agencies that are based on the international Basel III guidelines, which became effective January 1, 2015. See Item 1- Business - Regulation and Supervision. Some of these capital rules, which are being phased in over a three-year period that began in 2016, require us to satisfy additional, more stringent capital adequacy standards than we had in the past. These requirements could have a negative impact on our ability to lend, grow deposit balances, make acquisitions or make capital distributions in the form of dividends. Higher capital levels could also lower our return on equity.
Our FDIC insurance premiums may increase, and special assessments could be made, which might negatively impact our results of operations.
High levels of insured institution failures, as a result of the recent recession, significantly increased losses to the Deposit Insurance Fund of the FDIC. Further, the Dodd-Frank Act mandated the FDIC to increase the level of its reserves for future losses in its Deposit Insurance Fund. Since the Deposit Insurance Fund is funded by premiums and assessments paid by insured banks, our FDIC insurance premium could increase in future years depending upon the FDIC’s actual loss experience, changes in our Bank’s financial condition or capital strength, and future conditions in the banking industry.
Risks Related to Our Business and Financial Strategies


Economic weakness in our geographic markets could negatively affect us.

We conduct business from offices that are located in 1920 contiguous southern Indiana counties and one northern14 counties in Kentucky, county, from which substantially all of our customer base is drawn. Because of the geographic concentration of our operations and customer base, our results depend largely upon economic conditions in this area. Any material deteriorationA favorable business environment is generally characterized by, among other factors, economic growth, low inflation, low unemployment, high business and investor confidence, strong business earnings, and efficient capital markets.Unfavorable or uncertain economic and market conditions can be caused by a decline in economic growth in the markets where we operate and in the United States as a whole; declines in business activity or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; commodity price volatility; natural disasters; or a combination of these or other factors.

Current economic conditions in these marketsare being heavily impacted by elevated levels of inflation and rising interest rates. A prolonged period of inflation may impact our profitability by negatively impacting our fixed costs and expenses. Economic and inflationary pressure on consumers and uncertainty regarding economic improvement could have direct or indirect material adverse impacts on us, or on our customers or on the financial institutions with whom we deal as counterparties to financial transactions.Such deteriorationpressures could negatively impact customers’ ability to obtain new loans or to repay existing loans, diminish the values of any collateral securing such loans and could cause increases in the number of the Company’s customers experiencing financial distress and in the levels of the Company’s delinquencies, non-performing loans and other problem assets, charge-offs and provision for credit losses, all of which could materially adversely affect our financial condition and results of operations. The underwriting and credit monitoring policies and procedures that we have adopted cannot eliminate the risk that we might incur losses on account of factors relating to the economy like those identified above, and those losses could have a material adverse effect on our business, financial condition, results of operations and cash flows.

If our actual loan losses exceed our estimates, our earnings and financial condition will be impacted.

A significant source of risk for any bank or other enterprise that lends money arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail (because of financial difficulties or other reasons) to perform in accordance with the terms of their loan agreements. In our case, we originate many loans that are secured, but some loans are


unsecured depending on the nature of the loan. With respect to secured loans, the collateral securing the repayment of these loans includes a wide variety of real and personal property that may be insufficient to cover the obligations owed under such loans, due to adverse changes in collateral values caused by changes in prevailing economic, environmental and other conditions, including declines in the value of real estate and other external events.events.

We may experience increases to, and volatility in, the balance of our allowance for credit losses and related provision expense due to the adoption of the current expected credit loss (“CECL”) methodology.

Effective January 1, 2020, the Company adopted the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, and requires significant use of management judgments. This differs significantly from the incurred loss model, which delayed recognition until it was probable a loss had been incurred. Any failure of these judgments or forecasts to be correct could create more volatility in the level of our allowance for credit losses, and negatively affect our results of operations and financial condition.

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Our allowance for credit losses may not be adequate to cover actual losses.

We maintain an allowance for credit losses for the expected credit losses over the contractual life of the loan portfolio as well as unfunded loan commitments. The Company estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for changes in underwriting standards, portfolio mix, delinquency levels, changes in environmental conditions, unemployment rates, risk classifications and collateral values. We have also included assumptions about the continued effects of the advancing stress on the economy as a result of inflationary pressures, rising interest rates and financial market volatility, and economic conditions in general, all of which are highly uncertain and for which we have limited recent historical experience to draw upon. If our assumptions and judgments used to determine the allowance for credit losses prove to be incorrect, the allowance may not be adequate. We could sustain actual loan losses that are significantly higher than the amount of our allowance for credit losses.

We could be adversely affected by changes in interest rates.

Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, inflationary trends, demand for loans, securities and deposits, and policies of various governmental and regulatory agencies and, in particular, the monetary policies of the FRB. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, and (iii) the average duration of our securities portfolio. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. We maintain an investment portfolio consisting of various high quality liquid fixed-income securities. The nature of fixed-income securities is such that increases in prevailing market interest rates negatively impact the value of these securities, while decreases in prevailing market interest rates positively impact the value of these securities. Any substantial, unexpected, or prolonged change in market interest rates could have a material adverse effect on our financial condition, results of operations, and cash flows.

The replacement of the LIBOR benchmark interest rate may have an impact on our business, financial condition or results of operations.

Certain loans made by us and financing extended to us are made at variable rates that, historically, have used LIBOR as a benchmark for establishing the interest rate. In addition, we also have interest rate derivatives that reference LIBOR. After first announcing its intention to do so in July 2017, the United Kingdom’s Financial Conduct Authority, the authority regulating LIBOR, announced in March 2021 that, among other things: (i) a majority of the current LIBOR rate settings would cease to exist immediately after December 31, 2021 (including the 1-week and 2-month U.S. dollar LIBOR settings); and (ii) the 1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR settings would cease to exist after June 30, 2023.

To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (the “ARRC”), a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. As such, it is different from LIBOR in that it is a backward looking secured rate rather than a forward looking unsecured rate.

On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law. The LIBOR Act establishes a uniform national approach for replacing LIBOR in legacy contracts that do not provide for the use of a clearly defined replacement benchmark rate. As directed by the LIBOR Act, on December 16, 2022, the Federal Reserve issued a final rule setting forth regulations to implement the LIBOR Act, including establishing benchmark replacements for contracts governed by U.S. law that reference certain tenors of U.S. dollar LIBOR (the overnight and one-, three-, six-, and 12-month tenors) and that do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate (“fallback provisions”) following the first London banking day after June 30, 2023. The LIBOR Act also contains “safe harbor” provisions protecting lenders (as well as “determining” and “calculating” persons) for (i) the selection or use of a Board-
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selected SOFR-based benchmark replacement, (ii) the implementation of benchmark replacement conforming changes, or (iii) the determination of benchmark replacement conforming changes for contracts other than consumer loans.

As federal banking regulators required banks to stop originating new products using LIBOR by December 31, 2021, the Bank began primarily using SOFR in originating its indexed-based loans, that were formerly indexed to LIBOR, and other products following such date. The Bank is also continuing the transition of its existing LIBOR-based exposures to an appropriate alternative reference rate on or before June 30, 2023. Existing contracts without fallback provisions are expected to either be amended prior to June 30, 2023 to include such provisions or to transition to an alternative reference rate pursuant to the terms of the LIBOR Act and the related regulations.

While the regulatory framework for the continued transition away from LIBOR to an alternative reference rate has been established, that transition could have a range of adverse effects on our business, financial condition and results of operations, which effects are unknown at this time.

The Company’s business, results of operations and financial condition may be adversely affected by epidemics and pandemics, such as the COVID-19 outbreak, or other infectious disease outbreaks.

The Company may face risks related to epidemics, pandemics or other infectious disease outbreaks, which could result in a widespread health crisis that adversely affects general commercial activity, the global economy (including the states and local economies in which we operate) and financial markets. For example, the spread of COVID-19, which has been identified as a pandemic by the World Health Organization and declared a national emergency in the United States, created a global public-health crisis that resulted in significant economic uncertainty, and has impacted household, business, economic, and market conditions, including in the states and local economies in which we conduct nearly all of our business.

The continuation of the COVID-19 pandemic, or a new epidemic, pandemic or infectious disease outbreak, may result in the Company closing certain offices and may require us to limit how customers conduct business through our branch network. If our employees are required to work remotely, the Company will be exposed to increased cybersecurity risks such as phishing, malware, and other cybersecurity attacks, all of which could expose us to liability and could seriously disrupt our business operations. Furthermore, the Company’s business operations may be disrupted due to vendors and third-party service providers being unable to work or provide services effectively during such a health crisis, including because of illness, quarantines or other government actions.

In addition, an epidemic, a pandemic or another infectious disease outbreak, or the continuation of the COVID-19 pandemic, could again significantly impact households and businesses, or cause limitations on commercial activity, increased unemployment and general economic and financial instability. An economic slow-down, or the reversal of the economic recovery, in the regions in which we conduct our business could result in declines in loan demand and collateral values. Furthermore, negative impacts on our customers caused by such a health crisis, including the continuation of COVID-19, could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans. Moreover, governmental and regulatory actions taken in response to an epidemic, a pandemic or another infectious disease outbreak may include decreased interest rates, which could adversely impact the Company’s interest margins and may lead to decreases in the Company’s net interest income.

The extent to which a widespread health crisis, including the continuation of COVID-19, may impact the Company’s business, results of operations and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and severity of the crisis, the potential for seasonal or other resurgences, actions taken by governmental authorities and other third parties to contain and treat such an epidemic, a pandemic or another infectious disease outbreak, and how quickly and to what extent normal economic and operating conditions can resume. Moreover, the effects of a widespread health crisis, including the continuation of the COVID-19 pandemic, may heighten many of the other risks described in this “Risk Factors” section. As a result, the negative effects on the Company’s business, results of operations and financial condition from an epidemic, a pandemic or another infectious disease outbreak, including the continuation or resurgence of the COVID-19 pandemic, could be material.

As a participating lender in the SBA Paycheck Protection Program (“PPP”), the Company and the Bank are subject to additional risks of litigation from the Bank’s clients or other parties in connection with the Bank’s processing, funding, and servicing of loans for the PPP.

On March 27, 2020, the CARES Act established the PPP, which is administered by the SBA, to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during the pandemic. The Bank actively participated in assisting its customers with PPP funding during all phases of the program. Because of the short timeframe between the passing of the CARES Act and the April 3, 2020 opening of the PPP, there was some ambiguity in the laws, rules and guidance regarding the operation of the program, which exposes the Company to risks relating to noncompliance with the PPP.
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Following commencement of the PPP, several larger banks have been subject to litigation relating to the policies and procedures that they used in processing applications for the program. The Company and the Bank may be exposed to the risk of similar litigation. If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations.

The Bank may also be exposed to the risk that the SBA or U.S. Department of Justice determines there was a deficiency in the manner in which a PPP loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of such determination, the SBA or U.S. Department of Justice may seek recovery from the Bank of any loss related to the deficiency.

The banking and financial services business in our markets is highly competitive.

We compete with much larger regional, national, and international competitors, including competitors that have no (or only a limited number of) offices physically located within our markets, many of which compete with us via Internet and other electronic product and service offerings. In addition, banking and other financial services competitors (including newly organized companies) that are not currently represented by physical locations within our geographic markets could establish office facilities within our markets, including through their acquisition of existing competitors. In December 2016, the OCC announced its intentFinancial technology, or “FinTech,” companies continue to make special purpose national bank charters available to financial technology companies. While the agency issued a draft supplement to its licensing manualemerge in March 2017, providing more details on how companies applying for such charters would be evaluated, the OCC haskey areas of banking. Our competitors may have substantially greater resources and lending limits than we have and may offer services that we do not given any definitive indication as to whether or not it intends to move forward in making such special purpose charters available to financial technology companies. In any event, developments increasing the nature or levelcannot provide. Many of our nonfinancial institution competitors have fewer regulatory constraints, broader geographic service areas, and, in some cases, lower cost structures. Increased competition in our market may also result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or decreasingloan terms that are more favorable to the effectiveness by which we compete,borrower. Any of these results could have a material adverse effect on our business, financial condition, results of operations or liquidity. See also Part I, Item 1, of this Report, “Business - Competition,”Competition” and “Business - Regulation and Supervision.”Supervision” under Item 1 of Part I of this Report.

The manner in which we report our financial condition and results of operations may be affected by accounting changes.

Our financial condition and results of operations that are presented in our consolidated financial statements, accompanying notes to the consolidated financial statements, and selected financial data appearing in this Report, are, to a large degree, dependent upon our accounting policies. The selection of and application of these policies involve estimates, judgments and uncertainties that are subject to change, and the effect of any change in estimates or judgments that might be caused by future developments or resolution of uncertainties could be materially adverse to our reported financial condition and results of operations. In addition, authorities that prescribe accounting principles and standards for public companies from time to time change those principles or standards or adopt formal or informal interpretations of existing principles or standards. Such changes or interpretations (to the extent applicable to us) could result in changes that would be materially adverse to our reported financial condition and results of operations.
Recently enacted U.S.
We may be adversely affected by changes in tax legislation, as well as futurelaws.

Any change in federal or state tax legislation, may adverselylaws or regulations, including any increase in the federal corporate income tax rate from the current level of 21%, could negatively affect our business, results of operations, financial condition and cash flow.
On December 22, 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Among other things, the Tax Act includes significant changes to the U.S. corporate income tax system, including: reducing the federal corporate rate from 35% to 21%; modifying the rules regarding limitations on certain deductions for executive compensation; introducing a capital investment deduction in certain circumstances; placing certain limitations on the interest deduction; and modifying the rules regarding the usability of net operating losses. Based upon our initial analysis of the Tax Act, the Company revalued its deferred tax assets and deferred tax liabilities at December 31, 2017 and recorded a net tax benefit during the fourth quarter of 2017.  In addition, the rules and guidance further implementing the Tax Act, and any future tax legislation enacted by the U.S government or by the state governments where the Company has tax nexus, in each case, could have a material adverse effect on our business, results of operations, financial condition and cash flow.operations.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of securities or loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance


our activities or the terms of which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Although we have historically been able to replace maturing deposits and borrowings as necessary, we might not be able to replace such funds in the future if, among other things, our results of operations or financial condition or the results of operations or financial condition of our lenders or market conditions were to change.change.

The value of securities in our investment securities portfolio may be negatively affected by disruptions in securities markets.

Prices and volumes of transactions in the nation’s securities markets can be affected suddenly by economic crises, or by other national or international crises, such as national disasters, acts of war or terrorism, changes in commodities markets, or instability in foreign governments. Disruptions in securities markets may detrimentally affect the value of securities that we hold in our investment portfolio, such as through reduced valuations due to the perception of heightened credit and liquidity risks. There can be no assurance that declines in market value associated with these disruptions will not result in other than
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temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount due us.us.

We are dependent on key personnel and the loss of one or more of those key personnel could harm our business.

Competition for qualified employees and personnel in the financial services industry (including banking personnel, trust and investments personnel, and insurance personnel) is intense and there are a limited number of qualified persons with knowledge of and experience in our local Southern Indiana markets. Our success depends to a significant degree upon our ability to attract and retain qualified loan origination executives, sales executives for our trust and investment products and services, and sales executives for our insurance products and services. We also depend upon the continued contributions of our management personnel, and in particular upon the abilities of our senior executive management, and the loss of the services of one or more of them could harm our business.business.

Our controls and procedures may fail or be circumvented.

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Our methods of reducing risk exposure may not be effective.

The Company maintains a comprehensive risk management program designed to identify, quantify, manage, mitigate, monitor, aggregate, and report risks. However, instruments, systems and strategies used to hedge or otherwise manage exposure to various types of credit, market, liquidity, operational, compliance, financial reporting and strategic risks could be less effective than anticipated. As a result, the Company may not be able to effectively mitigate its risk exposures in particular market environments or against particular types of risk, which could have a material adverse effect on our business, results of operations, cash flows and financial condition. For more information regarding risk management, please see “RISK MANAGEMENT” under Item 7 of this Report (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”).

We are exposed to risk of environmental liabilities with respect to properties to which we take title.

In the course of our business, we may own or foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties (including liabilities for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination), or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property.

Climate change and related legislative and regulatory initiatives may materially affect the Company’s business and results of operations.

The global business community has increased its political and social awareness surrounding the state of the global environment and the issue climate change. Further, the U.S. Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives related to climate change. Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change. The lack of empirical data surrounding the credit and other financial risks posed by climate change make it impossible to predict how
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specifically climate change may impact our financial condition and results of operations. To the extent our customers experience unpredictable and more frequent weather disasters attributable to climate change, the value of real property securing the loans in our portfolios may be negatively impacted. Additionally, if insurance obtained by our borrowers is insufficient to cover any disaster-related losses sustained to the collateral, or if insurance coverage is otherwise unavailable to our borrowers, the collateral securing our loans may be negatively impacted, which could impact our financial condition and results of operations. Further, the effects of weather disasters attributed to climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact the communities in which we operate. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.

Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to the Company’s environmental, social and governance practices may impose additional costs on the Company or expose it to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG-related compliance costs for the Company as well as among our suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

Risks Related to the Financial Services Industry

We operate in a highly regulated environment and changes in laws and regulations to which we are subject may adversely affect our results of operations.

The banking industry in which we operate is subject to extensive regulation and supervision under federal and state laws and regulations. The restrictions imposed by such laws and regulations limit the manner in which we conduct our business, undertake new investments and activities and obtain financing. These regulations are designed primarily for the protection of the deposit insurance funds and consumers and not to benefit our shareholders.

Since its passage in 2010, the Dodd-Frank Act (discussed in “Business - Regulation and Supervision” of Item 1 above) has resulted in sweeping changes in the regulation of financial institutions. The Dodd-Frank Act contains numerous provisions that affect all banks and bank holding companies. While many of these provisions have been implemented, others are still being drafted. As a result, the impact of the future regulatory requirements continues to be uncertain. However, we expect the way we conduct business to continue to be affected by these regulatory requirements, including through limitations on our ability to pursue certain lines of business, enhanced reporting obligations, increased costs (which adversely affect our profitability) and increased risk that we might not comply in all respects with the new requirements.

In addition, significant new laws or changes in, or repeals of, existing laws (including changes in federal or state laws affecting corporate taxpayers generally or financial institutions specifically) could have a material adverse effect on our business, financial condition, results of operations or liquidity. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions, and any unfavorable change in these conditions could have a material adverse effect on our business, financial condition, results of operations or liquidity.

We are required to maintain certain minimum amounts and types of capital and may be subject to more stringent capital requirements in the future. A failure to meet applicable capital requirements could have an adverse effect on us.

We are subject to regulatory requirements specifying minimum amounts and types of capital that we must maintain. From time to time, banking regulators change these capital adequacy guidelines. For example, as a result of the Basel III Rules required by the Dodd-Frank Act, we are now required to satisfy additional, more stringent, capital adequacy standards than we had in the past. See “Business - Regulation and Supervision, Capital Requirements” of Item 1 above for additional information. We currently satisfy the well-capitalized and capital conservation standards set forth in Basel III, and based on our current capital composition and levels, we anticipate that our capital ratios, on a Basel III basis, will continue to exceed the well-capitalized minimum capital requirements and capital conservation buffer standards. However, a failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a negative impact on our ability to lend, grow deposit balances, make acquisitions or make capital distributions in the form of dividends. Higher capital levels could also lower our return on equity.
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Our FDIC insurance premiums may increase, and special assessments could be made, which might negatively impact our results of operations.

High levels of insured institution failures, as a result of the recent recession, significantly increased losses to the Deposit Insurance Fund of the FDIC. Further, the Dodd-Frank Act mandated the FDIC to increase the level of its reserves for future losses in its Deposit Insurance Fund. Since the Deposit Insurance Fund is funded by premiums and assessments paid by insured banks, our FDIC insurance premium could increase in future years depending upon the FDIC’s actual loss experience, changes in our Bank’s financial condition or capital strength, and future conditions in the banking industry.

Risks Related to Our Operations


We face significant operational risks due to the high volume and the high dollar value nature of transactions we process.

We operate in many different businesses in diverse markets and rely on the ability of our employees and systems to process transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions, errors relating to transaction processing and technology, breaches of our internal control systems or failures of those of our suppliers or counterparties, compliance failures, cyber-attacks or unforeseen problems encountered while implementing new computer systems or upgrades to existing systems,


business continuation and disaster recovery issues, and other external events. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. The occurrence of any of these events could cause us to suffer financial loss, face regulatory action and suffer damage to our reputation.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through a cyber-attack, other breach of our computer systems or otherwise, could harm our business.

In the normal course of our business, we collect, process and retain sensitive and confidential client and customer information on our behalf and on behalf of other third parties. Despite the security measures we have in place, our facilities and systems may be vulnerable to cyber-attacks, security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and / or human errors, or other similar events.

Information security risks for financial institutions like us have increased recently in part because of new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks against large financial institutions, particularly denial of service attacks, designed to disrupt key business services such as customer-facing web sites. We may not be able to anticipate or implement effective preventive measures against all security breaches of these types. Although we employ detection and response mechanisms designed to contain and mitigate security incidents, early detection may be thwarted by sophisticated attacks and malware designed to avoid detection.

We also face risks related to cyber-attacks and other security breaches in connection with credit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them. We also rely on numerous other third party service providers to conduct other aspects of our business operations and face similar risks relating to them. We cannot be sure that their information security protocols are sufficient to withstand a cyber-attack or other security breach.

Any cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information could severely damage our reputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material adverse effect on our business.

Our information systems may experience an interruption or breach in security.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in our customer relationship
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management, general ledger, deposit, loan, and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our information systems, we cannot completely ensure that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

We are dependent upon third parties for certain information system, data management and processing services and to provide key components of our business infrastructure.

We outsource certain information system and data management and processing functions to third party providers. These third party service providers are sources of operational and informational security risk to us, including risks associated with operational errors, information system interruptions or breaches, and unauthorized disclosures of sensitive or confidential client or customer information. If third party service providers encounter any of these issues, or if we have difficulty communicating with them, we could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have a material adverse effect on our results of operations or our business.



Third party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing.

While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Replacing these third party vendors could also entail significant delay and expense.

Risks Relating to Expansion of Our Businesses by Acquisition


Any acquisitions of banks, bank branches, or loans or other financial service assets pose risks to us.

We may acquire other banks, bank branches and other financial-service-related businesses and assets in the future. Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things:

•potential exposure to unknown or contingent liabilities of the acquired assets, operations or company;
•exposure to potential asset quality issues of the acquired assets, operations or company;
•environmental liability with acquired real estate collateral or other real estate;
•difficulty and expense of integrating the operations, systems and personnel of the acquired assets, operations or company;
•potential disruption to our ongoing business, including diversion of our management'smanagement’s time and attention;
•the possible loss of key employees and customers of the acquired operations or company;
•difficulty in estimating the value of the acquired assets, operations or company; and
•potential changes in banking or tax laws or regulations that may affect the acquired assets, operations or company.


We may not be successful in overcoming these risks or any other problems encountered in connection with mergers or acquisitions.

Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of the Company’s tangible book value per common share or net income per common share (or both) may occur in connection with any future transaction.

We may incur substantial costs to expand by acquisition, and such acquisitions may not result in the levels of profits we seek.

Integration efforts for any future acquisitions may not be successful and following any future acquisition, after giving it effect, we may not achieve financial results comparable to or better than our historical experience.
We may participate in FDIC-assisted acquisitions, which could present additional risks to our financial condition.
We may make opportunistic whole or partial acquisitions of troubled financial institutions in transactions facilitated by the FDIC. In addition to the risks frequently associated with acquisitions, an acquisition of a troubled financial institution may involve a greater risk that the acquired assets underperform compared to our expectations. Because these acquisitions are structured in a manner that would not allow us the time normally associated with preparing for and evaluating an acquisition, including preparing for integration of an acquired institution, we may face additional risks including, among other things, the loss of customers, strain on management resources related to collection and management of problem loans and problems related to integration of personnel and operating systems. Additionally, while the FDIC may agree to assume certain losses in transactions that it facilitates, there can be no assurances that we would not be required to raise additional capital as a condition to, or as a result of, participation in an FDIC-assisted transaction. Any such transactions and related issuances of stock may have dilutive effect on earnings per share and share ownership.
24

Risks Related to Our Common Stock


Our common stock price may fluctuate significantly, and this may make it difficult for you to resell our common stock at times or at prices acceptable to you.


Our common stock price constantly changes in response to a variety of factors (some of which are beyond our control), and we expect that our stock price will continue to fluctuate in the future. Factors impacting the price of our common stock include, among others:

•actual or anticipated variations in our quarterly results of operations;
•recommendations or research reports about us or the financial services industry in general published by securities analysts;
•the failure of securities analysts to cover, or continue to cover, us;
•operating and stock price performance of other companies that investors believe are comparable to us;
•news reports relating to trends, concerns and other issues in the financial services industry;


•perceptions in the marketplace regarding us, or our reputation, competitors or other financial institutions;
•actual or anticipated sales of our equity or equity-related securities;
•our past and future dividend practice;
•departure of our management team or other key personnel;
•new technology used, or services offered, by competitors;
•significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
•failure to integrate acquisitions or realize anticipated benefits from acquisitions;
•existing or increased regulatory and compliance requirements, changes or proposed changes in laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations; and
•litigation and governmental investigations.


General market fluctuations, industry factors and general economic and political conditions and events (such as(including any continuing effects of the COVID-19 pandemic, elevated inflation, interest rate changes, credit loss trends, or economic slowdowns or recessions, interest rate changes or credit loss trends)recessions) could also cause our stock price to decrease regardless of operating results.


Item 1B. Unresolved Staff Comments.


None.


Item 2. Properties.


The Company’s executive offices are located in the main office building of the Bank at 711 Main Street, Jasper, Indiana. The main office building, which is owned by the Bank and also serves as the main office of the Company’s other subsidiaries, contains approximately 23,600 square feet of office space. The Bank and the Company’s other subsidiaries also conduct their operations from 5550 other locations in Southern Indiana and one28 in Northern Kentucky of which 39Kentucky. Of the 78 total locations, 60 are owned by the Company and 1718 are leased from third parties.


Item 3. Legal Proceedings.


There are no material pending legal proceedings, other than routine litigation incidental to the business of the Company’s subsidiaries, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.


Item 4. Mine Safety Disclosures.


Not applicable.




25

PART II


Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.


Market and Dividend Informationfor Common Stock


German American Bancorp, Inc.’s stock is traded on NASDAQ’sthe Nasdaq Global Select Market under the symbol GABC. The quarterly high and low closing prices for the Company’s common stock as reported by NASDAQ and quarterly cash dividends declared and paid are set forth in the table below.

 2017 
2016 (1)
 High Low 
Cash
Dividend
 High Low 
Cash
Dividend
Fourth Quarter$38.75
 $34.48
 $0.13
 $35.95
 $25.24
 $0.12
Third Quarter$38.28
 $31.46
 $0.13
 $26.25
 $20.71
 $0.12
Second Quarter$34.85
 $30.55
 $0.13
 $22.75
 $20.23
 $0.12
First Quarter (1)
$35.00
 $29.55
 $0.13
 $21.84
 $19.99
 $0.12
     $0.52
     $0.48
            
(1) Per share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.


The Common Stock was held of record by approximately 3,4403,164 shareholders at February 20, 2018.

Cash dividends paid to the Company’s shareholders are primarily funded from dividends received by the parent company from its bank subsidiary. The declaration and payment of future dividends will depend upon the earnings and financial condition of the Company and its subsidiaries, general economic conditions, compliance with regulatory requirements affecting the ability of the bank subsidiary and the Company to declare dividends, (for further discussion of such requirements, see Item 1, “Business - Regulation and Supervision - Restrictions on Bank Dividends or Loans to, or other Transactions with, the Parent Company and Parent Company Dividends”), and other factors.

23, 2023.
Transfer Agent:
Computershare

Priority Processing
250
150 Royall St
St., Suite 101
Canton, MA 02021
Contact: Shareholder Relations

(800) 884-4225
Shareholder

Information and

Corporate Office:
Terri A. Eckerle

German American Bancorp, Inc.

P.O. Box 810

Jasper, Indiana 47547-0810

(812) 482-1314

(800) 482-1314




Stock Performance Graph


The following graph compares the Company’s five-year cumulative total returns with those of the Russell 2000 Stock Index, Russell Microcap Stock Index, and the Indiana Bank Peer Group. The Indiana Bank Peer Group (which is a custom peer group identified by Company management) includes all Indiana-based commercial bank holding companies (excluding companies owning thrift institutions that are not regulated as bank holding companies) that have been in existence as commercial bank holding companies throughout the five-year period ended December 31, 2017,2022, the stocks of which have been traded on an established securities market (NYSE, AMEX, NASDAQ)NYSE American or Nasdaq) throughout that five-year period. The companies comprising the Indiana Bank Peer Group for purposes of the December 20172022 comparison were: 1st Source Corp., First Financial Corp., First Merchants Corp., Lakeland Financial Corp., MainSource Financial Group, Old National Bancorp, Horizon Bancorp, First Internet Bancorp, and MutualFirstFirst Savings Financial Inc. MutualFirst Financial, Inc. was added to the Indiana Bank Peer Group for the first time in this Annual Report on Form 10-K as a result of having converted to a bank holding company effective January 1, 2012, and otherwise meeting the above criteria.Corp. The returns of each company in the Indiana Bank Peer Group have been weighted to reflect the company’s market capitalization. The Russell 2000 Stock Index, which is designed to measure the performance of the small-cap segment of the U.S. equity universe, is a subset of the Russell 3000 Index (which measures the performance of the largest 3,000 U.S. companies) that includes approximately 2,000 of the smallest securities in that index based on a combination of their market cap and current index membership, and is annually reconstituted at the end of each June. The Russell Microcap Stock Index is an index representing the smallest 1,000 securities in the small-cap Russell 2000 Index plus the next 1,000 securities, which is also annually reconstituted at the end of each June. The Company’s stock is currently included in the Russell 2000 Index and Russell Microcap Index.

gabc-20221231_g3.jpg
26










Stock Repurchase Program Information

The following table sets forth information regarding the Company’s purchases of its common shares during each of the three months ended December 31, 2017.

2022.
Period
Total Number of Shares

(or Units) Purchased
Average Price Paid Per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
October 20172022—
—$
— 		—
— 		409,184
1,000,000 
November 20172022—
—
—
409,1841,000,000 
December 20172022—
—
—
409,1841,000,000 
Totals— $— — 

(1) On April 26, 2001,January 31, 2022, the Company announced that itsCompany’s Board of Directors had approved a stockplan to repurchase program for up to 911,6311.0 million shares of itsthe Company’s outstanding common stock. On a share basis, the amount of common stock subject to the repurchase plan represented approximately 3% of the Company’s outstanding shares on the date it was approved. The Company is not obligated to purchase any shares under the plan, and the plan may be discontinued at any time. The actual timing, number and share price of whichshares purchased under the repurchase plan will be determined by the Company had purchased 502,447 common shares through December 31, 2017 (bothat its discretion and will depend upon such numbers adjusted for subsequentfactors as the market price of the stock, dividends). The Board of Directors established no expiration date for this program.general market and economic conditions and applicable legal requirements. The Company purchased nohas not repurchased any shares under this program during the quarter ended December 31, 2017.2022 repurchase plan.


Equity Compensation Plan Information


The Company maintains four plans under which it hasSee Item 12 of Part III of this Report for information regarding securities authorized the issuance of its Common Shares to employees and non-employee directors as compensation: its 1992 Stock Option Plan (under which no new grants may be made), its 1999 Long-Term Equity Incentive Plan (under which no new grants may be made), its 2009 Long-Term Equity Incentive Plan, and its 2009 Employee Stock Purchase Plan. Each of these four plans was approved by the requisite vote of the Company’s common shareholders in the year of adoption by the Board of Directors. The Company is not a party to any individual compensation arrangement involving the authorization for issuance of itsunder equity securities to any single person, other than option agreements and restricted stock award agreements that have been granted under the terms of one of the four plans identified above. The following table sets forth information regarding these plans as of December 31, 2017:compensation plans.

Plan Category
Number of Securities
to be Issued upon Exercise
of Outstanding Options, Warrants or Rights
Weighted Average
Exercise Price of
Outstanding Options, Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding
Securities Reflected in First Column)
Equity compensation plans approved by security holders—
(a)$—
943,957
(b)
Equity compensation plans not approved by security holders—
—
—
Total—
$—
943,957
(a)
Any shares that employees may have the right to purchase under the Employee Stock Purchase Plan in August 2018 in respect of employee payroll deductions of participating employees that had accumulated as of December 31, 2017 during the plan year that commenced in August 2017 have been excluded. Although these employees have the right under this Plan to have their accumulated payroll deductions applied to the purchase of Common Shares at a discounted price in August 2018, the price at which such shares may be purchased and the number of shares that may be purchased under that Plan at that time is not presently determinable.



(b)
Represents 557,203 shares that the Company may in the future issue to employees under the Employee Stock Purchase Plan (although the Company typically purchases the shares needed for sale to participating employees on the open market rather than issuing new issue shares to such employees) and 386,754 shares that were available for grant or issuance at December 31, 2017 under the 2009 Long-Term Equity Incentive Plan. Under the Long-Term Equity Incentive Plan, the aggregate number of Common Shares available for the grant of awards (subject to customary anti-dilution adjustment provisions) cumulatively following the adoption of the Plan in 2009 through the expiration of the Plan in 2019 may not exceed the sum of the following: (a) 500,000 shares, plus (b) any shares exchanged by a participant as full or partial payment to the Company of the exercise price of an option granted to the participant under the Plan; plus (c) at the beginning of each calendar year, an additional number of shares (if any) equal to the number of shares that would result in the number of shares available for awards as of such date being equal to one percent (1%) of the total number of the Company’s shares outstanding as of the immediately preceding December 31, on a fully-diluted basis.

For additional information regarding the Company’s equity incentive plans and employee stock purchase plan, see Note 8 (Shareholders' Equity) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report.


Item 6. Selected Financial Data.[Reserved]

The following selected data should be read in conjunction with the consolidated financial statements and related notes that are included in Item 8 of this Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in Item 7 of this Report (dollars in thousands, except per share data). Year-to-year financial information comparability is affected by the acquisition accounting treatment for mergers and acquisitions, including but not limited to the Company’s acquisition of United Commerce Bancorp, effective October 1, 2013 and the Company's acquisition of River Valley Bancorp, effective March 1, 2016.

27
  2017 2016 2015 2014 2013
Summary of Operations:  
  
  
  
  
Interest Income $111,030
 $103,365
 $81,620
 $80,386
 $75,672
Interest Expense 11,121
 8,461
 6,068
 6,047
 7,155
Net Interest Income 99,909
 94,904
 75,552
 74,339
 68,517
Provision for Loan Losses 1,750
 1,200
 —
 150
 350
Net Interest Income after Provision For Loan Losses 98,159
 93,704
 75,552
 74,189
 68,167
Non-interest Income 31,854
 32,013
 27,444
 23,937
 23,615
Non-interest Expense 77,803
 76,587
 61,326
 57,713
 54,905
Income before Income Taxes 52,210
 49,130
 41,670
 40,413
 36,877
Income Tax Expense 11,534
 13,946
 11,606
 12,069
 11,464
Net Income $40,676
 $35,184
 $30,064
 $28,344
 $25,413
           
Year-end Balances:  
  
  
  
  
Total Assets $3,144,360
 $2,955,994
 $2,373,701
 $2,237,099
 $2,163,827
Total Loans, Net of Unearned Income 2,141,638
 1,989,955
 1,564,347
 1,447,982
 1,382,382
Total Deposits 2,484,052
 2,349,551
 1,826,376
 1,779,761
 1,812,156
Total Long-term Debt 141,717
 120,560
 95,606
 64,591
 87,237
Total Shareholders’ Equity 364,571
 330,267
 252,348
 228,824
 200,097
           
Average Balances:  
  
  
  
  
Total Assets $3,002,695
 $2,841,096
 $2,267,555
 $2,170,761
 $2,037,236
Total Loans, Net of Unearned Income 2,036,717
 1,904,779
 1,483,752
 1,406,000
 1,272,055
Total Deposits 2,395,146
 2,249,892
 1,825,913
 1,783,348
 1,695,796
Total Shareholders’ Equity 350,913
 321,520
 241,018
 214,496
 189,689
           
Per Share Data:(1)
  
  
  
  
  
Net Income (2)
 $1.77
 $1.57
 $1.51
 $1.43
 $1.32
Cash Dividends 0.52
 0.48
 0.45
 0.43
 0.40
Book Value at Year-end 15.90
 14.42
 12.67
 11.54
 10.13
Tangible Book Value Per Share (3)
 13.45
 11.94
 11.57
 10.40
 8.92
           
Other Data at Year-end:  
  
  
  
  
Number of Shareholders 3,459
 3,513
 3,343
 3,398
 3,444
Number of Employees 621
 605
 479
 473
 478
Weighted Average Number of Shares (1)(2)
 22,924,726
 22,391,115
 19,888,374
 19,834,766
 19,211,517
           
Selected Performance Ratios:  
  
  
  
  
Return on Assets 1.35% 1.24% 1.33% 1.31 % 1.25%
Return on Equity 11.59% 10.94% 12.47% 13.21 % 13.40%
Equity to Assets 11.59% 11.17% 10.63% 10.23 % 9.25%
Dividend Payout 29.11% 30.21% 29.97% 29.81 % 30.18%
Net Charge-offs (Recoveries) to Average Loans 0.04% 0.04% 0.03% (0.01)% 0.10%
Allowance for Loan Losses to Loans 0.73% 0.74% 0.92% 1.03 % 1.05%
Net Interest Margin 3.76% 3.75% 3.70% 3.76 % 3.67%

(1) Share and Per Share Data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.
(2) Share and Per Share Data includes the dilutive effect of stock options.
(3) Tangible Book Value per Share is defined as Total Shareholders' Equity less Goodwill and Other Intangible Assets divided by End of Period Shares Outstanding.



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.


INTRODUCTION



German American Bancorp, Inc., is a NASDAQ-tradedNasdaq-traded (symbol: GABC) bankfinancial holding company based in Jasper, Indiana. German American, through its banking subsidiary German American Bancorp,Bank, operates 5377 banking offices in 1920 contiguous southern Indiana counties and one northern Kentucky county.14 counties in Kentucky. The Company also owns an investment brokerage subsidiary (German American Investment Services, Inc.) and a full line property and casualty insurance agency (German American Insurance, Inc.).


Throughout this Management’s Discussion and Analysis, as elsewhere in this Report, when we use the term “Company”, we will usually be referring to the business and affairs (financial and otherwise) of the Company and its subsidiaries and affiliates as a whole. Occasionally, we will refer to the term “parent company” or “holding company” when we mean to refer to only German American Bancorp, Inc., and the term “Bank” when we mean to refer to only the Company’s bank subsidiary.


This Management’s Discussion and Analysis includes an analysis of the major components of the Company’s operations for the years 20152020 through 20172022 and its financial condition as of December 31, 20172021 and 2016.2022. This information should be read in conjunction with the accompanying consolidated financial statements and footnotes contained elsewhere in this Report and with the description of business included in Item 1 of this Report (including the cautionary disclosure regarding “Forward Looking Statements and Associated Risks”). Financial and other information by segment is included in Note 16 (Segment Information) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report and is incorporated into this Item 7 by reference.


The statements of management’s expectations and goals concerning the Company’s future operations and performance that are set forth in the following Management Overview and in other sections of this Item 7 are forward-looking statements, and readers are cautioned that these forward-looking statements are based on assumptions and are subject to risks, uncertainties, and other factors. Actual results may differ materially from the expectations of the Company that is expressed or implied by any forward-looking statement. This Item 7, as well as the discussions in Item 1 (“Business”) entitled “Forward-Looking Statements and Associated Risks” and in Item 1A (“Risk Factors”) (which discussions are incorporated in this Item 7 by reference) list some of the factors that could cause the Company’s actual results to vary materially from those expressed or implied by any such forward-looking statements.

On March 1, 2016 (as discussed in Note 18 (Business Combinations) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note 18 is incorporated herein by reference), the Company completed its acquisition of River Valley Bancorp and its subsidiaries, including River Valley Financial Bank. This transaction significantly increased the levels of the Company’s total assets, liabilities, shareholders equity. River Valley's consolidated assets and equity (unaudited) as of February 29, 2016 totaled $516.3 million and $56.6 million, respectively. The transaction was accounted for under the acquisition method of accounting. Under the acquisition method, the purchase price was allocated to identifiable assets and assumed liabilities based on their fair values. Any excess was accounted for as goodwill. Intangible assets with definite lives are being amortized over their estimated useful lives. Goodwill and intangible assets determined to have indefinite lives will not be amortized, but will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that management of the Company determines that the value of goodwill or intangible assets has become impaired, an impairment charge will be recorded in the fiscal quarter in which such determination is made.


Any statements of management’s expectations and goals concerning the Company’s future operations and performance, and future financial condition, liquidity and capital resources that are set forth in the following Management Overview and in other sections of this Item 7 are forward-looking statements, and readers are cautioned that these forward-looking statements are based on assumptions and are subject to risks, uncertainties, and other factors. Actual results may differ materially from the expectations of the Company that is expressed or implied by any forward-looking statement. This Item 7, as well as the discussions in Item 1 (“Business”) entitled “Forward-Looking Statements and Associated Risks” and in Item 1A (“Risk Factors”) (which discussions are incorporated in this Item 7 by reference) list some of the factors that could cause the Company’s actual results to vary materially from those expressed or implied by any such forward-looking statements.



MANAGEMENT OVERVIEW

Business Developments
Net income forOn January 1, 2022, the year ended December 31, 2017 totaled $40,676,000 or $1.77 per share, an increaseCompany completed the acquisition of $5,492,000, or approximately 13% on a per share basis, fromCitizens Union Bancorp of Shelbyville, Inc. (“CUB”) through the year ended December 31, 2016 net incomemerger of $35,184,000 or $1.57 per share. The 2017 results of operations were positively impacted byCUB with and into the revaluationCompany. Immediately following completion of the Company's deferred tax assetsCUB holding company merger, CUB's subsidiary bank, Citizen Union Bank of Shelbyville, Inc., was merged with and deferred tax liabilities related to the Tax Act (as defined below). The revaluation resulted in a net tax benefit of $2,284,000, or approximately $0.10 per share during 2017. In addition, the 2016 results of operations included only ten month's operations of River Valley


Bancorp, which the Company acquired effective March 1, 2016. The level of earnings during 2017 represented the Company's eighth consecutive year of record earnings performance and also represented the thirteenth consecutive year of double digit return on shareholders' equity.

On March 27, 2017, the Company declared a 3-for-2 stock split oninto the Company’s authorized and outstanding common shares. The stock split was distributed on April 21, 2017 to shareholders of record as of April 6, 2017. Except as otherwise noted or implied, all share and per share data in this Annual Report on Form 10-K relating to a date or period that precedes April 21, 2017 have been adjusted and are reflective of the stock split.

On December 22, 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Among other things, the Tax Act includes significant changes to the U.S. corporate income tax system, including: reducing the federal corporate rate from 35% to 21%; modifying the rules regarding limitations on certain deductions for executive compensation; introducing a capital investment deduction in certain circumstances; placing certain limitations on the interest deduction; and modifying the rules regarding the usability of net operating losses. Based upon our initial analysis of the Tax Act, the Company revalued its deferred tax assets and deferred tax liabilities at December 31, 2017 and recorded the net tax benefit described above.

On February 12, 2018,subsidiary bank, German American Bancorp entered into a PurchaseBank. CUB, headquartered in Shelbyville, Kentucky operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Assumption Agreement (the “Purchase Agreement”) with MainSourceHardin counties in Kentucky through Citizens Union Bank a wholly-owned subsidiary of MainSource Financial Group,Shelbyville, Inc. (“MainSource”), which provides for the acquisition by German American Bancorpin Kentucky. As of five MainSource Bank branch locations (four in Columbus, Indiana, and one in Greensburg, Indiana), and certain related assets, and the assumption by German American Bancorp of certain related liabilities.

Pursuant to the Purchase Agreement, German American Bancorp has agreed to assume approximately $160 million in deposits and purchase approximately $134 million in loans associated with the five bank branches. The transaction is expected to close in the second quarter of 2018, subject to regulatory approval, the closing of the previously-announced pending mergertransaction, CUB had total assets of MainSourceapproximately $1.109 billion, total loans of approximately $683.8 million, and First Financial Bancorp,total deposits of approximately $930.5 million. The Company issued approximately 2.9 million shares of its common stock, and other customary closing conditions. paid approximately $50.8 million in cash, in exchange for all of the issued and outstanding shares of common stock of CUB.

For further information regarding this pendingmerger and acquisition transaction, see Note 21 (Subsequent Events)18 (Business Combinations, Goodwill and Intangible Assets) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report.


28

As previously disclosed, during 2021, the Company executed an operating optimization plan, pursuant to which its banking subsidiary, German American Bank, consolidated seven branch offices and implemented various staff reductions. In making its decision to consolidate these branches, which were generally integrated with other nearby bank branches, the Company considered, among other factors, the operating costs of the branches, certain physical limitations impacting the bank facilities, and their proximity to other branch locations. In addition, the Company’s evaluation of the branch consolidations and the reductions in staff also took into consideration the numbers and types of transactions being conducted by its customers and the increased usage of online and mobile banking. Also as part of the operating optimization plan, in September 2021, German American Bank sold its two branches located in Lexington, Kentucky to The Home Savings and Loan Company of Kenton, Ohio (“HSLC”). HSLC assumed approximately $17.6 million in total deposits and purchased approximately $17.8 million in total loans as part of the sale.

Financial Overview
Net income for the year ended December 31, 2022 totaled $81,825,000, or $2.78 per share, a decline of $2,312,000, or approximately 12% on a per share basis, from the year ended December 31, 2021 net income of $84,137,000, or $3.17 per share. The change in net income during 2022, compared with 2021, was largely impacted by acquisition-related expenses for the CUB transaction that closed on January 1, 2022. The 2022 results of operations included acquisition-related expenses of $12,323,000 ($9,372,000 or $0.32 per share, on an after tax basis) and also included Day 1 provision for credit losses under the CECL model of $6,300,000 ($4,725,000 or $1.16 per share, on an after tax basis). The decline in per share net income for the year ended December 31, 2022, as compared to 2021, was also impacted by the Company's January 1, 2022 issuance of approximately 2.9 million shares of common stock as part of the merger consideration in the CUB transaction.

Net income for the year ended December 31, 2021 totaled $84,137,000, or $3.17 per share, an increase of $21,927,000, or approximately 35% on a per share basis, from the year ended December 31, 2020 net income of $62,210,000, or $2.34 per share. The net income growth during 2021 compared with 2020 was driven by a number of factors including improved net interest income, lower provision for credit losses and increased non-interest revenue which was partially offset by a modestly higher level of non-interest expense.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES


The financial condition and results of operations for the Company presented in the Consolidated Financial Statements, accompanying Notes to the Consolidated Financial Statements, and selected financial data appearing elsewhere within this Report, are, to a large degree, dependent upon the Company’s accounting policies. The selection of and application of these policies involve estimates, judgments, and uncertainties that are subject to change. The critical accounting policies and estimates that the Company has determined to be the most susceptible to change in the near term relate to the determination of the allowance for loancredit losses, the valuation of securities available for sale, income tax expense, and the valuation of goodwill and other intangible assets.


Allowance for Loan LossesALLOWANCE FOR CREDIT LOSSES


The Company maintains an allowance for loancredit losses to cover probable incurredthe estimated expected credit losses atover the balance sheet date.expected contractual life of the loan portfolio. 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. 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. A provision for loancredit losses is charged to operations based on management’s periodic evaluation of the necessary allowance balance. Evaluations are conducted at least quarterly and more often if deemed necessary. The ultimate recovery of all loans is susceptible to future market factors beyond the Company’s control.
 
The Company has an established process to determine the adequacy of the allowance for loancredit losses. The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on impairedindividually analyzed loans, estimated losses on other classified loans and pools of homogeneous loans, and consideration of past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, reasonable and supportable forecasts and other factors, all of which may be susceptible to significant change. The allowance consists of two components of allocations, specific and general. These two components represent the total allowance for loancredit losses deemed adequate to cover expected credit losses inherent inover the expected life of the loan portfolio.
 
29

Commercial and agricultural loans are subject to a standardized grading process administered by an internal loan review function. The need for specific reserves is considered for credits identified as impaired when: (a) the customer’s cash flow or net worth appears insufficient to repay the loan; (b) the loan has been criticized in a regulatory examination; (c) the loan is on non-accrual; or (d) other reasons where the ultimate collectability of the loan is in question, or the loan characteristics require special monitoring.


monitoring. Specific allowances are established in cases where management has identified significant conditions or circumstances related to an individual credit that we believe indicates the loan is impaired.


Specific allocationsreserves on impairedindividually analyzed loans are determined by comparing the loan balance to the present value of expected cash flows or expected collateral proceeds. Allocations are also applied to categories of loans not considered individually impairedanalyzed but for which the rate of loss is expected to be greater than historical averages,other similar type loans, including non-performing consumer or residential real estate loans. Such allocations are based on past loss experience, reasonable and supportable forecasts and information about specific borrower situations and estimated collateral values.


General allocations are made for commercial and agricultural loans that are graded as substandard based on migration analysis techniques to determine historical average lossesand special mention, but are not individually analyzed for similar types of loans. General allocations are also made forspecific reserves as well as other pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss.  General allocations of the allowance are primarily made based on historical averages for loan losses for these portfolios along with reasonable and supportable forecasts, judgmentally adjusted for economic, external and internal quantitative and qualitative factors and portfolio trends. Economic factors include evaluating changes in international, national, regional and local economic and business conditions that affect the collectability of the loan portfolio. Internal factors include evaluating changes in lending policies and procedures; changes in the nature and volume of the loan portfolio; and changes in experience, ability and depth of lending management and staff. In setting our external

The allowance for credit losses for loans represents management’s estimate of all expected credit losses over the expected contractual life of the loan portfolio. Determining the appropriateness and internaladequacy of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio may result in significant changes in the allowance for credit losses in future periods.

The Company uses a number of economic variables in its scenarios to estimate the allowance for credit losses, with the most significant drivers being unemployment rate forecast, gross domestic product and agricultural producer price index as well as qualitative adjustments. Historical loss rates from periods where the average unemployment rate, gross domestic product and agricultural producer pricing index matches the forecast range are considered when calculating the forecast period loss rate. The impact of the changes in the unemployment and gross domestic product forecast range between December 31, 2022, and December 31, 2021, resulted in a decrease in the allowance for credit losses of approximately $600,000.

Based on sensitivity analysis of all portfolios, a 0.050% change (slight improvement or decline on the Company's scale) in all ten qualitative risk factors we also considerwould have a $1,900,000 impact on the overall levelreserve allocation. The sensitivity and related range of impact is a hypothetical analysis and is not intended to represent management's judgements or assumptions of qualitative loss factors that were utilized at December 31, 2022 in estimation of the allowance for loancredit losses on loans recognized on the Consolidated Balance Sheets.

SECURITIES VALUATION
Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to total loans; our allowance coverage as comparedcredit losses at least quarterly. For available-for-sale debt securities in an unrealized loss position, the Company assesses whether we intend to similar size bank holding companies; and regulatory requirements.

Duesell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for sale debt securities that do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the imprecise naturerating of estimating the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for loancredit losses is recorded, limited to the Company’samount 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 loancredit losses includes a minor unallocated component. The unallocated component of the allowance for loan losses incorporates the Company’s judgmental determination of inherent losses that may not be fully reflectedis recognized in other allocations, including factors such as economic uncertainties, lending staff quality, industry trends impacting specific portfolio segments, and broad portfolio quality trends.  Therefore, the ratio of allocated to unallocated components within the total allowance may fluctuate from period to period.

Securities Valuation
Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported separately in accumulated other comprehensive income, (loss), net of tax. The Company obtains market valuesapplicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at December 31, 2022. Accrued interest receivable on available-for-sale debt securities is excluded from a third partythe estimate of credit losses. As of December 31, 2022, gross unrealized gains on a monthly basis in order to adjust the securities to fair value. available-for-sale portfolio totaled approximately $695,000 and gross unrealized losses totaled approximately $333,852,000. The net amount of these two items, net of applicable taxes, is included in other comprehensive income (loss).
30


Equity securities that do not have readily determinable fair values are carried at cost. Additionally, when securities are deemed to be other than temporarily impaired, a charge will be recorded through earnings; therefore, futurecost, less impairment with observable price changes being recognized in the fair value of securities could have a significant impact on the Company’s operating results. In determining whether a market value decline is other than temporary, management considers the reason for the decline, the extent of the decline, the duration of the decline and whether the Company intends to sell or believes it will be required to sell the securities prior to recovery.  As of December 31, 2017, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $7,149,000 and gross unrealized losses totaled approximately $10,150,000.earnings.  


Income Tax ExpenseINCOME TAX EXPENSE
 
Income tax expense involves estimates related to the valuation allowance on deferred tax assets and loss contingencies related to exposure from tax examinations presumed to occur.
 
A valuation allowance reduces deferred tax assets to the amount management believes is more likely than not to be realized. In evaluating the realization of deferred tax assets, management considers the likelihood that sufficient taxable income of appropriate character will be generated within carry-back and carry-forward periods, including consideration of available tax planning strategies. Tax-related loss contingencies, including assessments arising from tax examinations and tax strategies, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. In considering the likelihood of loss, management considers the nature of the contingency, the progress of any examination or related protest or appeal, the views of legal counsel and other advisors, experience of the Company or other enterprises in similar matters, if any, and management’s intended response to any assessment.


Goodwill and Other Intangible AssetsGOODWILL AND OTHER INTANGIBLE ASSETS


Goodwill resulting from business combinations represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected December 31 as the date to perform the annual impairment test. Intangible assets with definite useful lives


are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s balance sheet. No impairment to Goodwill was indicated based on year-end testing.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Other intangible assets consist of core deposit and acquired customer relationship intangible assets. They are initially measured at fair value and then are amortized over their estimated useful lives, which range from 6 to 10 years.


RESULTS OF OPERATIONS


NET INCOME


Net income for the year ended December 31, 20172022 totaled $40,676,000$81,825,000, or $1.77$2.78 per share, an increasea decline of $5,492,000,$2,312,000, or approximately 13%12% on a per share basis, from the year ended December 31, 20162021 net income of $35,184,000$84,137,000, or $1.57$3.17 per share. The 2017change in net income during 2022, compared with 2021, was largely impacted by acquisition-related expenses for the CUB transaction that closed on January 1, 2022. The 2022 results of operations were positivelyincluded acquisition-related expenses of $12,323,000 ($9,372,000 or $0.32 per share, on an after tax basis) and also included Day 1 provision for credit losses under the CECL model of $6,300,000 ($4,725,000 or $1.16 per share, on an after tax basis). The decline in per share net income for the year ended December 31, 2022, as compared to 2021, was also impacted by the revaluationCompany's January 1, 2022 issuance of approximately 2.9 million shares of common stock as part of the Company's deferred tax assets and deferred tax liabilities related tomerger consideration in the Tax Act. The revaluation resulted in a net tax benefit of $2,284,000, or approximately $0.10 per share during 2017.CUB transaction.


Net income for the year ended December 31, 20162021 totaled $35,184,000$84,137,000, or $1.57$3.17 per share, an increase of $5,120,000,$21,927,000, or approximately 4%35% on a per share basis, from the year ended December 31, 20152020 net income of $30,064,000$62,210,000, or $1.51$2.34 per share. The 2016 resultsnet income growth during 2021 compared with 2020 was driven by a number of operations included ten month's operations of River Valleyfactors including improved net interest income, lower provision for credit losses and were impacted by merger related charges associated with the closing of the River Valley transactionincreased non-interest revenue which was effective March 1, 2016. These merger related charges totaled approximately $4,318,000, or $2,725,000 on an after tax basis, which represented approximately $0.12 per share during 2016.partially offset by a modestly higher level of non-interest expense.


NET INTEREST INCOME


Net interest income is the Company’s single largest source of earnings, and represents the difference between interest and fees realized on earning assets, less interest paid on deposits and borrowed funds. Several factors contribute to the determination of net interest income and net interest margin, including the volume and mix of earning assets, interest rates, and income taxes. Many factors affecting net interest income are subject to control by management policies and actions. Factors beyond the
31

control of management include the general level of credit and deposit demand, Federal Reserve Board monetary policy, and changes in tax laws.


Net interest income increased $5,005,000, or 5% (an increase of $5,587,000 or 6% on a tax-equivalent basis), forDuring the year ended December 31, 2017 compared with 2016.2022, net interest income totaled $200,584,000, representing an increase of $39,754,000, or 25%, from the year ended December 31, 2021 net interest income of $160,830,000. The increased level ofincrease in net interest income during 20172022 compared with 20162021 was driven primarily byattributable to a higher level of earning assets, resultingdriven in large part by the CUB acquisition, and an expansion of the Company’s net interest margin. The increase in net interest income was partially offset by a lower level of PPP loan fee recognition.

During the year ended December 31, 2021, net interest income totaled $160,830,000, representing an increase of $5,587,000, or 4%, from organicthe year ended December 31, 2020 net interest income of $155,243,000. The increase in net interest income during 2021 compared with 2020 was largely attributable to an increase in average earning assets, a higher level of fees recognized related to PPP loans which were partially offset by a lower level of accretion of loan growthdiscounts on acquired loans, and the acquisitiona decreased level of River Valley Bancorp effective March 1, 2016.interest expense on interest bearing liabilities related to lower interest rates.


The net interest margin represents tax-equivalent net interest income expressed as a percentage of average earning assets. The tax equivalentnet interest margin for the year ended December 31, 2022 was 3.45% compared to 3.31% in 2021 and 3.63% in 2020. The improvement in the Company’s net interest margin during 2022 compared to 2021 was largely attributable to improved yields on earning assets driven by increased market rates. Historically low market interest rates impacted the Company’s net interest margin in both 2021 and 2020 by reducing earning asset yields, with those declines being partially mitigated by a lower cost of funds. Also contributing to the lower net interest margin was 3.76%excess liquidity the Company had on its balance sheet that resulted from significant deposit growth during 2017 compared to 3.75% during 2016. 2021 and 2020, PPP loan forgiveness and somewhat muted loan growth.

The tax equivalent yieldCompany’s net interest margin for all periods presented was impacted by the accretion of discounts on earning assets totaled 4.16% during 2017 compared to 4.07% in 2016, whileacquired loans. In 2021 and 2020, the cost of funds (expressedCompany's net interest margin was also impacted by fees recognized as a percentagepart of average earning assets)the PPP. Fees recognized on PPP loans through net interest income totaled 0.40%$873,000 during 2017 compared2022 and $12,196,000 during 2021. The fees recognized related to 0.32% in 2016.

The modest increase inthe PPP contributed approximately 1 basis point to the net interest margin during 2017 compared within 2022 and 24 basis points to the prior year was primarily attributable to an improved yield on the Company's securities portfolio combined with a larger loan portfolio, partially offset by a higher cost of funds and a lower level of accretion of loan discounts on acquired loans.net interest margin in 2021. Accretion of loan discounts on acquired loans contributed approximately 97 basis points to the net interest margin during 2017both 2022 and 2021, and 13 basis points in 2016. The Company's costduring 2020. Accretion of funds increased approximately 8 basis points during 2017 compared with 2016. The higher cost of funds was largely attributable to an increase in short-term market interest rates over the past several quarters.

Net interest income increased $19,352,000, or 26% (an increase of $20,398,000 or 26% on a tax-equivalent basis), for year ended December 31, 2016 compared with 2015. The increased level of net interest income during 2016 compared with 2015 was driven primarily by a higher level of earning assets resulting from the acquisition of River Valley and from organic loan growth, which excludes the purchased River Valley loan portfolio.

The tax equivalent net interest margin was 3.75% during 2016 compared to 3.70% during 2015. The tax equivalent yield on earning assets totaled 4.07% during 2016 compared to 3.98% in 2015, while the cost of funds totaled 0.32% during 2016 compared to 0.28% in 2015.

The increase in the net interest margin during 2016 was primarily attributable to an increase in the amount of accretion of loan discounts on acquired loans combined with an increased loan yield stemming largely from the addition of the River Valley loantotaled $4,341,000 during 2022, $3,476,000 during 2021, and $5,769,000 during 2020.



32

portfolio and a securities portfolio mix shift to a higher percentage of total securities in non-taxable securities rather than in taxable securities, partially offset by a higher cost of funds. Accretion of loan discounts on acquired loans contributed approximately 13 basis points to the net interest margin on an annualized basis during 2016 and 4 basis points in 2015. The increase in accretion during 2016 was largely attributable to loans acquired in the River Valley merger transaction. The increase in the cost of funds was largely attributable to the increase in short-term market interest rates that occurred late in the fourth quarter of 2015 and to the addition of the River Valley deposit portfolio.

The following table summarizes net interest income (on a tax-equivalent basis) for each of the past three years. For tax-equivalent adjustments, an effective tax rate of 35%21% was used for all yearsperiods presented (1).


Average Balance Sheet
(Tax-equivalent basis, dollars in thousands)


 
Twelve Months Ended
December 31, 2017
 
Twelve Months Ended
December 31, 2016
 
Twelve Months Ended
December 31, 2015
Twelve Months Ended
December 31, 2022		Twelve Months Ended
December 31, 2021		Twelve Months Ended
December 31, 2020
 
Principal
Balance
 
Income /
Expense
 
Yield /
Rate
 
Principal
Balance
 
Income /
Expense
 
Yield /
Rate
 
Principal
Balance
 
Income /
Expense
 
Yield /
Rate
Principal
Balance		Income /
Expense		Yield /
Rate		Principal
Balance		Income /
Expense		Yield /
Rate		Principal
Balance		Income /
Expense		Yield /
Rate
ASSETS  
  
  
  
  
  
  
  
  
ASSETS   
Federal Funds Sold and Other Short-term Investments $12,405
 $134
 1.09% $22,180
 $74
 0.33% $19,187
 $13
 0.07%Federal Funds Sold and Other Short-term Investments$458,230 $5,765 1.26 %$390,362 $488 0.12 %$209,012 $382 0.18 %
                  
Securities:  
  
  
  
  
  
  
  
  
Securities:
Taxable 482,331
 10,898
 2.26% 484,744
 9,638
 1.99% 455,303
 9,017
 1.98%Taxable1,015,958 20,453 2.01 %824,204 12,962 1.57 %555,961 10,447 1.88 %
Non-taxable 262,654
 12,697
 4.83% 238,300
 11,464
 4.81% 178,929
 9,001
 5.03%Non-taxable844,772 29,810 3.53 %728,765 22,504 3.09 %420,294 15,040 3.58 %
Total Loans and Leases (2)
 2,036,717
 92,449
 4.54% 1,904,779
 86,755
 4.55% 1,483,752
 67,109
 4.52%
Total Loans and Leases ⁽²⁾Total Loans and Leases ⁽²⁾3,680,708 169,593 4.61 %3,072,302 139,378 4.54 %3,185,542 151,946 4.77 %
                  
TOTAL INTEREST EARNING ASSETS 2,794,107
 116,178
 4.16% 2,650,003
 107,931
 4.07% 2,137,171
 85,140
 3.98%TOTAL INTEREST EARNING ASSETS5,999,668 225,621 3.76 %5,015,633 175,332 3.50 %4,370,809 177,815 4.07 %
                  
Other Assets 223,939
  
  
 206,213
  
  
 145,517
  
  
Other Assets559,949   397,147 398,102 
Less: Allowance for Loan Losses (15,351)  
  
 (15,120)  
  
 (15,133)  
  
Less: Allowance for Credit LossesLess: Allowance for Credit Losses(45,587)  (43,073)(39,905)
                  
TOTAL ASSETS $3,002,695
  
  
 $2,841,096
  
  
 $2,267,555
  
  
TOTAL ASSETS$6,514,030   $5,369,707 $4,729,006 
                  
LIABILITIES AND SHAREHOLDERS’ EQUITY  
  
  
  
  
  
  
  
  
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Interest-bearing Demand Deposits $836,262
 $2,893
 0.35% $755,775
 $1,745
 0.23% $574,021
 $796
 0.14%Interest-bearing Demand Deposits$2,013,969 $8,583 0.43 %$1,595,579 $1,789 0.11 %$1,309,998 $4,089 0.31 %
Savings Deposits and Money Market Accounts 606,212
 1,078
 0.18% 566,818
 770
 0.14% 471,058
 547
 0.12%Savings Deposits and Money Market Accounts1,473,772 2,879 0.20 %1,106,692 885 0.08 %912,183 1,885 0.21 %
Time Deposits 380,316
 3,123
 0.82% 414,100
 2,672
 0.65% 350,522
 2,633
 0.75%Time Deposits474,409 2,052 0.43 %412,935 2,281 0.55 %567,932 7,722 1.36 %
FHLB Advances and Other Borrowings 233,315
 4,027
 1.73% 242,483
 3,274
 1.35% 178,767
 2,092
 1.17%FHLB Advances and Other Borrowings159,029 4,828 3.04 %186,750 4,594 2.46 %221,832 5,430 2.45 %
                  
TOTAL INTEREST-BEARING LIABILITIES 2,056,105
 11,121
 0.54% 1,979,176
 8,461
 0.43% 1,574,368
 6,068
 0.39%TOTAL INTEREST-BEARING LIABILITIES4,121,179 18,342 0.45 %3,301,956 9,549 0.29 %3,011,945 19,126 0.63 %
                  
Demand Deposit Accounts 572,356
  
  
 513,199
  
  
 430,312
  
  
Demand Deposit Accounts1,738,349   1,378,647 1,070,284 
Other Liabilities 23,321
  
  
 27,201
  
  
 21,857
  
  
Other Liabilities44,436   46,170 51,996 
TOTAL LIABILITIES 2,651,782
  
  
 2,519,576
  
  
 2,026,537
  
  
TOTAL LIABILITIES5,903,964   4,726,773 4,134,225 
                  
Shareholders’ Equity 350,913
  
  
 321,520
  
  
 241,018
  
  
Shareholders’ Equity610,066   642,934 594,781 
                  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $3,002,695
  
  
 $2,841,096
  
  
 $2,267,555
  
  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$6,514,030   $5,369,707 $4,729,006 
                  
COST OF FUNDS  
  
 0.40%  
  
 0.32%  
  
 0.28%COST OF FUNDS  0.31 %0.19 %0.44 %
                  
NET INTEREST INCOME  
 $105,057
  
  
 $99,470
  
  
 $79,072
  
NET INTEREST INCOME $207,279  $165,783 $158,689 
                  
NET INTEREST MARGIN  
  
 3.76%  
  
 3.75%  
  
 3.70%NET INTEREST MARGIN  3.45 %3.31 %3.63 %
 
(1)
Effective tax rates were determined as though interest earned on the Company's investments in municipal bonds and loans was fully taxable.
(2)
Loans held-for-sale and non-accruing loans have been included in average loans. Interest income on loans includes loan fees of $3,216, $4,283, and $2,102 for 2017, 2016 and 2015, respectively.

(1)Effective tax rates were determined as though interest earned on the Company's investments in municipal bonds and loans was fully taxable.

(2)Loans held-for-sale and non-accruing loans have been included in average loans. Interest income on loans includes loan fees of $6,972, $15,761, and $15,003 for 2022, 2021 and 2020, respectively.
33

The following table sets forth for the periods indicated a summary of the changes in interest income and interest expense resulting from changes in volume and changes in rates:


Net Interest Income – Rate / Volume Analysis
(Tax-Equivalent basis, dollars in thousands)
 
2017 compared to 2016
Increase / (Decrease) Due to (1)
 
2016 compared to 2015
Increase / (Decrease) Due to (1)
2022 compared to 2021
Increase / (Decrease) Due to ⁽¹⁾		2021 compared to 2020
Increase / (Decrease) Due to ⁽¹⁾
 Volume Rate Net Volume Rate Net VolumeRateNetVolumeRateNet
Interest Income:  
  
  
  
  
  
Interest Income:      
Federal Funds Sold and Other  
  
  
  
  
  
Federal Funds Sold and Other      
Short-term Investments $(45) $105
 $60
 $3
 $58
 $61
Short-term Investments$99 $5,178 $5,277 $254 $(148)$106 
Taxable Securities (48) 1,308
 1,260
 585
 36
 621
Taxable Securities3,399 4,093 7,492 4,426 (1,911)2,515 
Non-taxable Securities 1,177
 56
 1,233
 2,871
 (408) 2,463
Non-taxable Securities3,852 3,453 7,305 9,764 (2,300)7,464 
Loans and Leases 5,990
 (296) 5,694
 19,172
 474
 19,646
Loans and Leases28,001 2,214 30,215 (5,290)(7,278)(12,568)
Total Interest Income 7,074
 1,173
 8,247
 22,631
 160
 22,791
Total Interest Income35,351 14,938 50,289 9,154 (11,637)(2,483)
            
Interest Expense:  
  
  
  
  
  
Interest Expense:   
Savings and Interest-bearing Demand 245
 1,211
 1,456
 418
 754
 1,172
Savings and Interest-bearing Demand978 7,810 8,788 1,083 (4,383)(3,300)
Time Deposits (231) 682
 451
 440
 (401) 39
Time Deposits310 (539)(229)(1,714)(3,727)(5,441)
FHLB Advances and Other Borrowings (128) 881
 753
 826
 356
 1,182
FHLB Advances and Other Borrowings(744)978 234 (863)27 (836)
Total Interest Expense (114) 2,774
 2,660
 1,684
 709
 2,393
Total Interest Expense544 8,249 8,793 (1,494)(8,083)(9,577)
            
Net Interest Income $7,188
 $(1,601) $5,587
 $20,947
 $(549) $20,398
Net Interest Income$34,807 $6,689 $41,496 $10,648 $(3,554)$7,094 
 
(1)
The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

(1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

See the Company’s Average Balance Sheet above and the discussions headed USESunder the headings “USES OF FUNDS, SOURCES” “SOURCES OF FUNDS,” and “RISK MANAGEMENT – Liquidity and Interest Rate Risk Management” for further information on the Company’s net interest income, net interest margin, and interest rate sensitivity position.
 
PROVISION FOR LOANCREDIT LOSSES


The Company provides for loancredit losses through regular provisions to the allowance for loancredit losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations required onof the allowanceallowance. During 2022, the Company recorded a provision for loan losses. Provisionscredit losses of $6,350,000 compared with a negative provision for loancredit losses totaled $1,750,000, $1,200,000,of $6,500,000 during 2021 and $0 in 2017, 2016, and 2015, respectively.a provision for credit losses of $17,550,000 during 2020.


During 2017,2022, the provision for loan losscredit losses represented approximately 917 basis points of average loans on an annualized basis.loans. The increased level of provision during 2017 was largelyfor credit losses in 2022 included $6,300,000 for the Day 1 CECL addition to the allocation for credit loss related to an increased level of allowancethe CUB acquisition for loan loss that has been allocated to the Company's commercial and industrial loan portfolio.non-PCD loans. The Company realized net charge-offs of $864,000$2,316,000 or 4 basis points of average loans outstanding during 2017.

During 2016, the provision for loan loss represented approximately 6 basis points of average loans on an annualized basis.during 2022.

During 2021, the negative provision for credit losses represented approximately 21 basis points of average loans. The increased level ofnegative provision during 2016for credit losses in 2021 was largely relateddue to an increased leveldeclines in certain adversely criticized assets and improvement in certain pandemic-related stressed sectors for which the Company had provided significant levels of allowance for loan loss that has been allocated to the Company's agricultural loan portfolio.credit losses during 2020. The Company realized net charge-offs of $830,000$3,342,000 or 411 basis points of average loans outstanding during 2016, compared with net charge-offs of $491,000 or 3 basis points of average loans outstanding during 2015.2021.


The Company’s allowanceprovision for loancredit losses represented 0.73% of total loans at year-end 2017 compared with 0.74% of total loans at year-end 2016. Under acquisition accounting, loans are recorded at fair value which includes a credit risk component, and therefore the allowance on loans acquired is not carried over from the seller.

Provisions for loan losses in all periods weremade during 2022 was made at levelsa level deemed necessary by management to absorb estimated, probable incurredexpected losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for loancredit losses is completed quarterly by management, the results of which are used to determine provisionsprovision for loancredit losses. 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 reasonable and supportable forecasts along with other qualitative and quantitative factors. Refer also to the sections entitled CRITICAL“CRITICAL ACCOUNTING POLICIES AND ESTIMATESESTIMATES” and “RISK MANAGEMENT - Lending and Loan Administration” for further discussion of the provision and allowance for loancredit losses.




34

NON-INTEREST INCOME


During the year ended December 31, 2017,2022, non-interest income declined less than$329,000 or 1% from the year ended December 31, 2016.2021. During 2016, non-interest income increased approximately 17% from 2015 with the increase largely the result of the acquisition of River Valley and an increase in the level of gains on the sale of securities. The year ended December 31, 2017 included a full2021, non-interest income increased $4,988,000, or 9%, from the year of River Valley operations while 2016 included ten months of River Valley operations.ended December 31, 2020.
Non-interest Income
(dollars in thousands)
 Years Ended December 31, 
% Change From
Prior Year
  2017 2016 2015 2017 2016
Trust and Investment Product Fees $5,272
 $4,644
 $3,957
 14 % 17%
Service Charges on Deposit Accounts 6,178
 5,973
 4,826
 3
 24
Insurance Revenues 7,979
 7,741
 7,489
 3
 3
Company Owned Life Insurance 1,341
 987
 846
 36
 17
Interchange Fee Income 4,567
 3,627
 3,110
 26
 17
Other Operating Income 2,641
 3,703
 3,532
 (29) 5
Subtotal 27,978
 26,675
 23,760
 5
 12
Net Gains on Sales of Loans 3,280
 3,359
 2,959
 (2) 14
Net Gains on Securities 596
 1,979
 725
 (70) 173
TOTAL NON-INTEREST INCOME $31,854
 $32,013
 $27,444
 
n/m (1)

 17
(1)
n/m = not meaningful

Non-interest Income
(dollars in thousands)		Years Ended December 31,% Change From
Prior Year
20222021202020212020
Wealth Management Fees$10,076 $10,321 $8,005 (2)%29 %
Service Charges on Deposit Accounts11,457 7,723 7,334 48 5 
Insurance Revenues10,020 9,268 8,922 8 4 
Company Owned Life Insurance2,264 1,529 2,307 48 (34)
Interchange Fee Income15,820 13,116 10,529 21 25 
Other Operating Income5,116 6,991 3,388 (27)106 
Subtotal54,753 48,948 40,485 12 21 
Net Gains on Sales of Loans3,818 8,267 9,908 (54)(17)
Net Gains on Securities562 2,247 4,081 (75)(45)
TOTAL NON-INTEREST INCOME$59,133 $59,462 $54,474 (1)9 
Trust and investment productWealth management fees declined $245,000, or 2%, during 2022 compared with 2021. Wealth management fees increased $628,000,$2,316,000, or 14%29%, during 20172021 compared with 2016.2020. The increase in 2021 compared to 2020 was primarilylargely attributable to fees generated from increased assets under management in the Company'sCompany’s wealth advisorymanagement group. Trust and investment product fees increased $687,000, or 17%, during 2016 compared with 2015 primarily due to growth in assets under management within the Company's wealth advisory group with this growth coming through both the existing footprint of the Company and the River Valley acquisition.


Service charges on deposit accounts increased $205,000,$3,734,000, or 3%48%, during 20172022 compared to 2021. The increase during 2022 compared with 2016.2021 was the result of the CUB acquisition as well as increased deposit customer activity. Service charges on deposit accounts increased $1,147,000,$389,000, or 24%5%, during 20162021 compared with 2015 due primarily to the River Valley acquisition.2020.

Insurance revenues increased $238,000, or 3%, during 2017 as compared to 2016 as a result of increased commercial insurance revenue and personal insurance revenue partially offset by a decline in contingency revenue. Insurance revenues increased $252,000, or 3%, during 2016 as compared to 2015 as a result of increased commercial insurance revenue, personal insurance revenue and contingency revenue. Contingency revenue totaled $992,000 in 2017 compared with $1,114,000 in 2016 and $949,000 in 2015. Contingency revenue is reflective of claims and loss experience with insurance carriers that the Company represents through its property and casualty insurance agency.


Company owned life insurance revenue increased $354,000,$735,000, or 36%48%, during 20172022 compared with 2016.2021. The increase during 2022 compared with 2021 was largely related to death benefits received from life insurance policies during 2017.2022 and to the CUB acquisition. Company owned life insurance increased $141,000,revenue declined $778,000, or 17%34%, during 20162021 compared with 2015.2020. The increasedecline during 2021 compared with 2020 was largely the result of the River Valley acquisition.related to death benefits received from life insurance policies during 2020.


Interchange fee incomefees increased $940,000,$2,704,000, or 26%21%, during 20172022 compared with 2016.2021. The increaseincreased level of fees during 2022 compared with 2021 was attributablerelated to the CUB acquisition as well as increased card utilization by customers and a full yearcustomers. Interchange fees increased $2,587,000, or 25%, during 2021 compared to 2020. The increased level of operations from River Valley included in 2017fees during 2021 compared with ten months of operations of River Valley included in 2016. Interchange fee income2020 was due to increased $517,000, or 17%, during 2016 compared with 2015. The increase was attributable toeconomic activity and increased card utilization by customers and the acquisition of River Valley.customers.


Other operating income declined $1,062,000,$1,875,000 or 29%27%, during 2017the year ended December 31, 2022 compared with 2016. The2021. This decline was largelyprimarily attributable to decreasedthe net gain of $1.4 million related to the sale of the two branch office locations in Lexington, Kentucky during the third quarter of 2021 and to a lower level of interest rate swap transaction fees and fair value adjustments associated with swap transactions with loan customers. Other operating income increased $151,000,$3,603,000, or 5%106%, during 20162021 compared with 2015.

Net gains on sales2020. The increase during 2021 was largely attributable to the net gain of loans declined $79,000, or 2%, during 2017 compared with 2016. Net gains on sales of loans increased $400,000, or 14%, during 2016 compared with 2015. Loan sales for 2017, 2016, and 2015 totaled $130.3approximately $1.4 million $133.6 million, $132.6 million, respectively.

During 2017, the Company realized net gains on the sale of securities of $596,000 related to the aforementioned sale of the two branch office locations and approximately $48.3 million$863,000 of securities. During 2016, the Company realized net gains on the sale of securities of $1,979,000 relatedfair value adjustments and higher transaction fees associated with interest rate swap transactions with loan customers. Also contributing to the sale of approximately $163.1 million of securities. During 2015, the Company realized net gains on the sale of securities of $725,000 related to the sale of approximately $18.3 million of securities.



NON-INTEREST EXPENSE
During 2017, non-interest expense increased $1,216,000, or 2%, compared with 2016. During 2016, non-interest expense increased $15,261,000, or 25%, compared with 2015. During 2016, the Company recorded costs related to the River Valley merger transaction that totaled $4,318,000. The majority of the remainder of the increase in operating expenses during 2016 compared with 2015 were related to the operating costs of River Valley.
Non-interest Expense
(dollars in thousands)
 Years Ended December 31, 
% Change From
Prior Year
  2017 2016 2015 2017 2016
Salaries and Employee Benefits $46,642
 $43,961
 $35,042
 6 % 25 %
Occupancy, Furniture and Equipment Expense 9,230
 8,558
 6,812
 8
 26
FDIC Premiums 954
 1,151
 1,144
 (17) 1
Data Processing Fees 4,276
 5,686
 3,541
 (25) 61
Professional Fees 2,817
 3,672
 2,661
 (23) 38
Advertising and Promotion 3,543
 2,657
 3,669
 33
 (28)
Intangible Amortization 942
 1,062
 790
 (11) 34
Other Operating Expenses 9,399
 9,840
 7,667
 (4) 28
TOTAL NON-INTEREST EXPENSE $77,803
 $76,587
 $61,326
 2
 25

Salaries and benefits increased $2,681,000, or 6%, during 2017 compared with the 2016. The increase in 2017 compared with 20162021, was primarily attributable to having River Valley's operations included for the entire year in 2017 compared with ten months of 2016 combined with an increased number of full-time equivalent employees and higher levels of employee benefit costs including health insurance costs. Salaries and benefits increased $8,919,000, or 25%, in 2016 compared with 2015. Included in the increase in 2016 was $1,934,000 of merger costs related to the settlement of various employment and benefit arrangements. The remainder of the increase was largely related to a higher number of full-time equivalent employees stemming from the acquisition of River Valley.

Occupancy, furniture and equipment expense increased $672,000, or 8%, in 2017 compared with 2016. This increase was largely related to capital investments into the Company's branch network and to the operation of River Valley's 15 branch network during all of 2017. Occupancy, furniture and equipment expense increased $1,746,000, or 26%, in 2016 compared with 2015. This increase was related to the operation of River Valley's 15 branch network during 2016.

Data processing fees declined $1,410,000, or 25%, in 2017 compared with 2016. The decline during 2017 compared with 2016 was primarily due to expenses totaling $1,288,000 related to the consolidation of various data processing and information systems that were incurred for the River Valley acquisition during 2016. Data processing fees increased $2,145,000, or 61%, in 2016 compared with 2015 driven largely by the aforementioned $1,288,000 of merger costs and the on-going operation of River Valley.

Professional fees declined $855,000, or 23%, in 2017 compared with 2016. Professional fees increased $1,011,000, or 38%, in 2016 compared with 2015. The decline during 2017 compared with 2016 and the increase in 2016 compared with 2015 were attributable to expenses totaling $770,000 associated with the acquisition of River Valley.

Advertising and promotion increased $886,000, or 33%, in 2017 compared with 2016. The primary driver of the increase in advertising and promotion was a contribution expense of $773,000 related to the donation of a former branch facility to a municipality in one of the Company's market areas. Advertising and promotion declined $1,012,000, or 28%, during 2016 compared with 2015. The decline in advertising and promotion during 2016 compared with 2015 was related to the recognition of a $1,750,000 contribution expense during 2015 in connection with the donation of a building and accompanying real estate to an economic development foundationa local municipality in one of the Company'sCompany’s market areas.


Other operating expensesNet gains on sales of loans declined $441,000,$4,449,000, or 4%54%, during 2017the year ended December 31, 2022 compared with 2016. Other operating expenses increased $2,173,000, or 28%,2021. The decline in 20162022 compared with 2015. Included2021 was generally attributable to a lower volume of loans sold and lower pricing levels. Net gains on sales of loans declined $1,641,000, or 17%, during 2021 compared with the 2020. The decline in 2021 compared with 2020 was generally attributable to a lower level of fair value adjustments on commitments to sell loans and a modestly lower level of loans sold, which were partially offset by higher pricing levels on loans sold. Loan sales totaled $168.1 million during 2022, $266.0 million during 2021, and $316.4 million during 2020.

The Company realized $562,000 in gains on sales of securities during 2022 compared with $2,247,000 during 2021 and $4,081,000 during 2020. The sales of securities in all periods were done as part of shifts in the allocations within the securities portfolio.
35

NON-INTEREST EXPENSE

During the year ended December 31, 2022, non-interest expense totaled $154,191,000, an increase of $30,184,000, or 24%, compared with the year ended December 31, 2021. The 2022 non-interest expenses included approximately $12,323,000 of non-recurring acquisition-related expenses for the acquisition of CUB. The primary drivers of the remaining increases during 2022 compared with 2021 were the operating costs for CUB. During 2021, non-interest expense totaled $124,007,000, an increase of $6,884,000, or 6%, compared with 2020.
Non-interest Expense
(dollars in thousands)		Years Ended December 31,% Change From
Prior Year
20222021202020212020
Salaries and Employee Benefits$84,145 $68,570 $68,112 23 %1 %
Occupancy, Furniture and Equipment Expense14,921 14,831 14,024 1 6 
FDIC Premiums1,860 1,419 740 31 92 
Data Processing Fees15,406 7,611 6,889 102 10 
Professional Fees6,295 5,009 3,998 26 25 
Advertising and Promotion4,416 4,197 3,589 5 17 
Intangible Amortization3,711 2,731 3,539 36 (23)
Other Operating Expenses23,437 19,639 16,232 19 21 
TOTAL NON-INTEREST EXPENSE$154,191 $124,007 $117,123 24 6 
Salaries and benefits increased $15,575,000, or 23%, during 2022 compared with 2021. The increase in 2016salaries and benefits during 2022 compared with 2021 was $284,000largely attributable to the CUB acquisition, including approximately $1,480,000 of merger related costs. The inclusionacquisition-related salary and benefit costs of River Valley's operations was the primary driver ofa non-recurring nature, with the remainder of the increase in 2016due primarily to the salaries and benefits costs for the CUB employee base. Salaries and benefits were relatively stable during 2021 compared with 2015.2020, increasing by $458,000, or less than 1%.


Occupancy, furniture and equipment had a minimal increase of $90,000, or 1%, during 2022 compared with 2021. Occupancy, furniture and equipment expense increased $807,000, or 6%, during 2021 compared with 2020. The increase during 2021 was due in large part to lease termination costs associated with the Company’s operating optimization plan.

FDIC premiums increased $441,000, or 31%, during 2022 compared with 2021. This increase is primarily attributable to an increase in total assessable assets from the acquisition of CUB as well as organic growth. FDIC premiums increased $679,000, or 92%, during 2021 compared with 2020. The increase during 2021 compared with 2020 was related to credits received from the FDIC during 2020. No credits were received during 2021. The credits received in 2020 and prior years were due to the reserve ratio of the deposit insurance fund exceeding the FDIC targeted levels.

Data processing fees increased $7,795,000, or 102%, during the year ended December 31, 2022 compared with 2021. The increase during 2022 compared with 2021 was largely driven by acquisition-related costs, which totaled approximately $4,982,000 during 2022, along with the CUB operating costs and costs related to continued data system enhancements. Data processing fees increased $722,000, or 10%, during 2021 compared with 2020. The increase was related to various software costs including expenses related to the PPP loan program as well as increased data processing fees for the branch sales during 2021.

Professional fees increased $1,286,000, or 26%, during 2022 compared with 2021. The increase during 2022 was primarily due to professional fees associated with the CUB acquisition. Merger and acquisition-related professional fees totaled approximately $1,802,000 during 2022 compared with $678,000 during 2021. Professional fees increased $1,011,000, or 25%, during 2021 compared with 2020. The increase during 2021 compared with 2020 was largely attributable to professional fees associated with the acquisition of CUB and an increase in legal fees related to non-acquisition related legal matters.

Advertising and promotion expense increased $219,000, or 5%, during the year ended December 31, 2022 compared with 2021. Advertising and promotion expense increased $608,000, or 17%, during 2021 compared with 2020. The increase during 2021 was attributable to the donation of a building and accompanying real estate to a local municipality in one of the Company’s market areas.

Other operating expenses increased $3,798,000, or 19%, during the year ended December 31, 2022 compared with 2021. The increase in 2022 compared to 2021 was primarily attributable to acquisition-related costs that totaled approximately $3,862,000 during 2022 and operating costs associated with CUB. The acquisition-related costs were primarily vendor contract termination costs. Other operating expenses increased $3,407,000, or 21%, during 2021 compared with 2020. The increase during 2021
36

was primarily attributable to the establishment of a settlement reserve for a lawsuit challenging the Company’s assessment of overdraft fees for certain debit card transactions. Settlement and dismissal of the lawsuit was approved by the court and completed in 2022. In addition, the Company recognized $1,276,000 of charges related to various fixed asset write-downs as a part of the Company’s operating optimization plans announced in March 2021.

PROVISION FOR INCOME TAXES


The Company records a provision for current income taxes payable, along with a provision for deferred taxes payable in the future. Deferred taxes arise from temporary differences, which are items recorded for financial statement purposes in a different period than for income tax returns. The Company’s effective tax rate was 22.1%17.5%, 28.4%18.1%, and 27.9%17.1%, respectively, in 2017, 2016,2022, 2021, and


2015. 2020. The effective tax rate in all periods is lower than the blended statutory rate. The lower effective rate in all periods primarily resulted from the Company’s tax-exempt investment income on securities, loans, and company owned life insurance, income tax credits generated by investments in affordable housing projects, and income generated by subsidiaries domiciled in a state with no state or local income tax.

In addition to the aforementioned items, the 2017 income tax provision was positively impacted by the revaluation of the Company's deferred tax assets and deferred tax liabilities related to the Tax Act. The revaluation resulted in a net tax benefit of $2,284,000 during the fourth quarter of 2017 and was based on reasonable estimates by the Company of certain income tax effects of the Tax Act. These effects may be subject to adjustment as the Company completes its evaluation during 2018.


See Note 10 to the Company’s consolidated financial statements included in Item 8 of this Report for additional details relative to the Company’s income tax provision.


CAPITAL RESOURCES


As of December 31, 2017,2022, shareholders’ equity increaseddeclined by $34.3$110.1 million to $364.6$558.4 million compared with $330.3$668.5 million at year-end 2016.2021. The increasedecline in shareholders'shareholders’ equity was primarily attributable to a decline in accumulated other comprehensive income ("AOCI") of $278.9 million related to the decrease in value of the Company’s available-for-sale securities portfolio. Partially offsetting the decline in shareholders’ equity was the issuance of the Company’s common shares in the acquisition of Citizens Union Bancorp of Shelbyville, Inc. Approximately 2.9 million shares were issued to CUB shareholders resulting in an increase to shareholders’ equity of $29.3$111.7 million. Also partially offsetting the decline in shareholders’ equity that was attributable to AOCI was the increase in retained earnings of $54.8 million due to net income of $81.8 million during 2022 which was partially offset by the payment of $27.0 million in retained earnings. shareholder dividends.

Shareholders’ equity represented 11.6%9.1% of total assets at December 31, 20172022 and 11.2%11.9% of total assets at December 31, 2016.2021. Shareholders’ equity included $56.2$189.8 million of goodwill and other intangible assets at December 31, 20172022 compared to $56.9$127.6 million of goodwill and other intangible assets at December 31, 2016.2021. This increase in goodwill and other intangible assets was primarily related to the acquisition of CUB.


On January 25, 2021, the Company’s Board of Directors approved a stock repurchase program for up to 1.0 million of its outstanding common shares. The Company did not repurchase any shares of common stock under the repurchase plan during 2021.

On January 31, 2022, the Company’s Board of Directors terminated the 2021 repurchase program and approved a new plan to repurchase up to 1.0 million shares of the Company’s outstanding common stock. On a share basis, the amount of common stock subject to the new repurchase plan represented approximately 3% of the Company’s outstanding shares on the date it was approved, which was inclusive of the approximately 2.9 million shares issued in conjunction with the CUB acquisition. The Company is not obligated to purchase any shares under the plan, and the plan may be discontinued at any time. The actual timing, number and share price of shares purchased under the repurchase plan will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements. The Company has not repurchased any shares of common stock under the 2022 repurchase plan.

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations, like the Company. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

Federal banking regulations provide guidelines for determining the capital adequacy of bank holding companies and banks. These guidelines provide for a more narrow definition of core capital and assign a measure of risk to the various categories of assets. The Company is required to maintain minimum levels of capital in proportion to total risk-weighted assets and off-balance sheet exposures.

As
37

The current risk-based capital rules, as adopted by federal banking regulators, are based upon guidelines developed by the Basel Committee on Banking Supervision and reflect various requirements of January 1, 2015, the Company and its subsidiary bank adopted the newDodd-Frank Act (the “Basel III Rules”). The Basel III regulatory capital framework. The adoptionRules require banking organizations to, among other things, maintain a minimum ratio of this new framework modified the regulatory capital calculations,Total Capital to risk-weighted assets, a minimum capital levels and well-capitalized thresholds and added the new Commonratio of Tier 1 Capital to risk-weighted assets, a minimum ratio of “Common Equity Tier 1 capital ratio. Additionally,Capital” to risk-weighted assets, and a minimum leverage ratio (calculated as the ratio of Tier 1 Capital to adjusted average consolidated assets). In addition, under the new rules,Basel III Rules, in order to avoid limitations on capital distributions, including dividend payments, the Company is required to maintain a 2.5% capital conservation buffer above the adequately capitalized regulatory capital ratios. The capital conservation buffer is being phased in from 0.00% in 2015 to 2.50% in 2019. For December 31, 2017, the capital conservation buffer was 1.25%. At December 31, 2017,2022, the capital levels for the Company and its subsidiary bank remained well in excess of of the minimum amounts needed for capital adequacy purposes and the bank'sBank’s capital levels met the necessary requirements to be considered well-capitalized.


The table below presents the Company’s consolidated and the subsidiary bank'sbank’s capital ratios under regulatory guidelines:
 12/31/2022
Ratio		12/31/2021
Ratio		Minimum for Capital Adequacy Purposes ⁽¹⁾Well-Capitalized Guidelines
Total Capital (to Risk Weighted Assets)
Consolidated15.45 %16.20 %8.00 %N/A
Bank14.07 13.36 8.00 10.00 %
Tier 1 (Core) Capital (to Risk Weighted Assets)
Consolidated13.97 %14.61 %6.00 %N/A
Bank13.42 12.83 6.00 8.00 %
Common Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets)
Consolidated13.26 %14.18 %4.50 %N/A
Bank13.42 12.83 4.50 6.50 %
Tier 1 Capital (to Average Assets)
Consolidated10.50 %10.10 %4.00 %N/A
Bank10.09 8.88 4.00 5.00 %
  
12/31/2017
Ratio
 
12/31/2016
Ratio
 
Minimum for Capital Adequacy Purposes (1)
 Well-Capitalized Guidelines
Total Capital (to Risk Weighted Assets)        
Consolidated 13.62% 13.30% 8.00% N/A
Bank 12.29
 12.48
 8.00
 10.00%
Tier 1 (Core) Capital (to Risk Weighted Assets)        
Consolidated 12.99% 12.66% 6.00% N/A
Bank 11.66
 11.84
 6.00
 8.00%
Common Tier 1, (CET 1) Capital Ratio (to Risk Weighted Assets)        
Consolidated 12.55% 12.19% 4.50% N/A
Bank 11.66
 11.84
 4.50
 6.50%
Tier 1 Capital (to Average Assets)        
Consolidated 10.71% 10.09% 4.00% N/A
Bank 9.63
 9.46
 4.00
 5.00%
(1) Excludes capital conservation buffer.


UnderIn December 2018, the thefederal banking regulators approved a final rules provided for by Basel III, accumulated other comprehensive income ("AOCI") wasrule to be included in aaddress changes to credit loss accounting under GAAP, including banking organization's Common Equity Tier 1 capital.organizations’ implementation of CECL. The final rules allowed community banksrule provides banking organizations the option to makephase in over a one-time election not to includethree-year period the additional components of AOCI inday-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. On March 27, 2020, in an action related to the CARES Act, the federal banking regulators announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule, which was finalized effective September 30, 2020, maintained the three-year transition option in the previous rule and instead useprovided banks the existing treatment underoption to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the general risk-basedincurred loss methodology’s effect on regulatory capital, rules that excludes most AOCI components from regulatory capital.followed by a three-year transition period (five-year transition option). The Company elected to adopt the five-year transition option and, as a result, began the required three-year phase-in by reflecting 25% of the previously deferred estimated capital impact of CECL in its March 31, 2015 regulatory filings (Call Report and FR Y-9), to opt-out and continue the existing treatment of AOCI for regulatory capital purposes.effective January 1, 2022. An additional 25% is to be phased in at the beginning of each subsequent year until fully phased in by January 1, 2025. Under the five-year transition option, the amount of adjustments to regulatory capital that could be deferred until the phase-in period began included both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021.



On April 9, 2020, federal banking regulators issued an interim final rule to modify the Basel III regulatory capital rules applicable to banking organizations to allow those organizations participating in the PPP to neutralize the regulatory capital effects of participating in the program. Specifically, the agencies have clarified that banking organizations, including the Company and the Bank, are permitted to assign a zero percent risk weight to PPP loans for purposes of determining risk-weighted assets and risk-based capital ratios. While there were no outstanding PPP loans at December 31, 2022, at December 31, 2021, risk-weighted assets included $19.5 million of PPP loans (net of deferred fees) at a zero risk weight.

USES OF FUNDS


LOANS


December 31, 20172022 total loans outstanding increased $151.6$780.7 million, or 8%26%, from year-end 2016.compared with December 31, 2021. The increase in total loans during 2017at December 31, 2022 compared with year-end 2021 was largely due to the acquisition of CUB and organic loan growth from virtually all categories withthroughout the exception of residential mortgage loans which experiencedCompany’s existing market areas, partially offset by a modest decline. This growth came from across the Company's entire Southern Indiana market area.decrease in PPP loans. Commercial and industrial
38

loans increased $29.3approximately $128.1 million, or 6%23%, compared with year-end 2021, commercial real estate loans increased $70.6$436.2 million, or 8%28%, and agricultural loans increased $30.1$59.3 million, or 10%, consumer17%. At December 31, 2022, as compared with year-end 2021, retail loans increased $26.2$157.1 million, or 14%, and residential mortgage loans decreased $4.6 million, or 2%28%.


December 31, 20162021 total loans increased $425.3declined $84.1 million, or 27%3%, compared with December 31, 2015.2020. The year-over-year increasedecline in total loans at December 31, 2021 compared to year-end 2020 was largely attributableprimarily due to the acquisitiona decrease in PPP loans. PPP loans, net of River Valley as well as growth within the Company's existing branch network, excluding River Valley, whichdeferred fees, totaled approximately $117.8$19.5 million or 8% growth. During 2016, from the Company's existing branch network, commercial real estate loans increased $82.2($20.3 million or 13%, agricultural loans increased $15.2principal balance and $0.8 million or 6%, and consumer loans including home equity loans increased $19.6of remaining net deferred fees) at December 31, 2021 compared with $182.0 million or 13%.at December 31, 2020.


The composition of the loan portfolio has remained relatively stable and diversified over the past several years, including 2017.2022. The portfolio is most heavily concentrated in commercial real estate loans at 43%52% of the portfolio. The Company’s exposure to non-owner occupiedportfolio and commercial real estate, including multi-family housing, was limited to 31%and industrial loans at 18% of the total loan portfolio, and agricultural loans at year-end 2017.11% of the portfolio. The Company’s commercial lending is extended to various industries, including multi-family housing and hotel,lodging, agribusiness and manufacturing, as well as health care, wholesale, and retail services. The Company also continues to have only limited exposure in construction and development lending with this segment representing approximately 6% of the total loan portfolio.

Loan Portfolio December 31,Loan PortfolioDecember 31,
(dollars in thousands) 2017 2016 2015 2014 2013(dollars in thousands)20222021202020192018
Commercial and Industrial Loans and Leases $486,668
 $457,372
 $418,154
 $380,079
 $350,955
Commercial and Industrial Loans and Leases$676,502 $548,350 $694,437 $589,758 $543,761 
Commercial Real Estate Loans 926,729
 856,094
 618,788
 583,086
 582,066
Commercial Real Estate Loans1,966,884 1,530,677 1,467,397 1,495,862 1,208,646 
Agricultural Loans 333,227
 303,128
 246,886
 216,774
 192,880
Agricultural Loans417,413 358,150 376,186 384,526 365,208 
Home Equity and Consumer Loans 219,662
 193,520
 147,931
 134,847
 130,628
Home Equity and Consumer Loans377,164 307,184 297,702 306,972 285,534 
Residential Mortgage Loans 178,733
 183,290
 136,316
 137,204
 128,683
Residential Mortgage Loans350,682 263,565 256,276 304,855 328,592 
Total Loans 2,145,019
 1,993,404
 1,568,075
 1,451,990
 1,385,212
Total Loans3,788,645 3,007,926 3,091,998 3,081,973 2,731,741 
Less: Unearned Income (3,381) (3,449) (3,728) (4,008) (2,830)Less: Unearned Income(3,711)(3,662)(3,926)(4,882)(3,682)
Subtotal 2,141,638
 1,989,955
 1,564,347
 1,447,982
 1,382,382
Subtotal3,784,934 3,004,264 3,088,072 3,077,091 2,728,059 
Less: Allowance for Loan Losses (15,694) (14,808) (14,438) (14,929) (14,584)Less: Allowance for Loan Losses(44,168)(37,017)(46,859)(16,278)(15,823)
Loans, Net $2,125,944
 $1,975,147
 $1,549,909
 $1,433,053
 $1,367,798
Loans, Net$3,740,766 $2,967,247 $3,041,213 $3,060,813 $2,712,236 
Net PPP Loans (Included in Commercial and Industrial above)Net PPP Loans (Included in Commercial and Industrial above)— 19,450 181,984 — — 
          
Ratio of Loans to Total Loans  
  
  
  
  
Ratio of Loans to Total Loans
Commercial and Industrial Loans and Leases 23% 23% 27% 26% 25%Commercial and Industrial Loans and Leases18 %18 %23 %19 %20 %
Commercial Real Estate Loans 43% 43% 39% 40% 42%Commercial Real Estate Loans52 %51 %47 %49 %44 %
Agricultural Loans 16% 15% 16% 15% 14%Agricultural Loans11 %12 %12 %12 %13 %
Home Equity and Consumer Loans 10% 10% 9% 9% 10%Home Equity and Consumer Loans10 %10 %10 %10 %11 %
Residential Mortgage Loans 8% 9% 9% 10% 9%Residential Mortgage Loans9 %9 %8 %10 %12 %
Total Loans 100% 100% 100% 100% 100%Total Loans100 %100 %100 %100 %100 %


The Company’s policy is generally to extend credit to consumer and commercial borrowers in its primary geographic market area in Southern Indiana.southern Indiana and central and western Kentucky. Commercial extensions of credit outside this market area are generally concentrated in real estate loans within a 120 mile radiusreasonable proximity of the Company’s primary market and are granted on a selective basis.



The following table indicates the amounts of loans (excluding residential mortgages on 1-4 family residences and consumer loans) outstanding as of December 31, 2017,2022, which, based on remaining scheduled repayments of principal, are due in the periods indicated (dollars in thousands). 
  
Within
One Year
 
One to Five
Years
 
After
Five Years
 Total
Commercial and Agricultural $584,191
 $816,359
 $346,074
 $1,746,624

  Interest Sensitivity
  Fixed Rate Variable Rate
Loans Maturing After One Year $192,843
 $969,590
Within
One Year		One to Five
Years		After
Five Years		Total
Commercial and Agricultural$849,395 $1,540,495 $668,472 $3,058,362 
Interest Sensitivity
Fixed RateVariable Rate
Loans Maturing After One Year$717,107 $1,491,860 

39


INVESTMENTS


The investment portfolio is a principal source for funding the Company’s loan growth and other liquidity needs of its subsidiaries. The Company’s securities portfolio primarily consists of money market securities, collateralized and uncollateralized federal agency securities, municipal obligations of state and political subdivisions, and mortgage-backed securities and collateralized mortgage obligations (MBS/CMO - Residential) issued by U.S. government agencies. Money market securities include federal funds sold, interest-bearing balances with banks, and other short-term investments. The composition of the year-end balances in the investment portfolio is presented in Note 2 (Securities) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report and in the table below:
Investment Portfolio, at Amortized CostDecember 31,
(dollars in thousands)2022%2021%2020%
Federal Funds Sold and Other Short-term Investments$41,905 2 %$349,717 16 %$287,776 20 %
U.S. Treasury64,097 3 — — — — 
Obligations of State and Political Subdivisions939,193 44 896,048 40 548,273 37 
MBS/CMO - Residential846,519 40 797,693 36 535,526 37 
US Gov't Sponsored Entities & Agencies245,017 11 175,457 8 88,376 6 
Equity Securities353 n/m ⁽¹⁾353 n/m ⁽¹⁾353 n/m ⁽¹⁾
Total Securities Portfolio$2,137,084 100 %$2,219,268 100 %$1,460,304 100 %
Investment Portfolio, at Amortized Cost December 31,
(dollars in thousands) 2017 % 2016 % 2015 %
             
Federal Funds Sold and Other Short-term Investments $12,126
 2% $16,349
 2% $15,947
 2%
U.S. Treasury and Agency Securities —
 —
 —
 —
 10,000
 2
Obligations of State and Political Subdivisions 267,437
 35
 247,350
 34
 195,360
 30
MBS/CMO - Residential 476,205
 63
 471,852
 64
 426,087
 66
Equity Securities 353
 
n/m (1)

 353
 
n/m (1)

 353
 
n/m (1)

Total Securities Portfolio $756,121
 100% $735,904
 100% $647,747
 100%
(1)n/m = not meaningful
(1)
n/m = not meaningful


The amortized cost of investment securities, including federal funds sold and short-term investments, increased $20.2decreased $82.2 million, or 3%4%, at year-end 20172022 compared to year-end 2021 and increased $759.0 million, or 52%, at year-end 2021 compared with year-end 2016 and increased $88.2 million, or 14%, at2020. The decline from year-end 20162022 compared with year-end 2015. The increase during 2016year end 2021 was largelyprimarily attributable to the River Valley acquisition.decrease in federal funds sold which is partially offset by the increase in amortized cost of obligations of state and political subdivisions, agency issued mortgage related securities and collateralized and uncollateralized federal agency securities. The largest componentincrease in the securities portfolio comparing year-end 2021 to year-end 2020 resulted from increased levels of deposits during 2021 in addition to PPP loan forgiveness and repayment activity over that same period.

The investment portfolio continues to be inrelatively balanced with agency issued mortgage related securities which totaled $476.2 million and represents 63%collateralized and uncollateralized federal agency securities, totaling $1.092 billion, or 51% of the total securities portfolio at December 31, 2017.2022. The Company’s level of obligations of state and political subdivisions increased to $267.4$939.2 million or 35%44% of the portfolio at December 31, 2017.2022.


Investment Securities, at Carrying Value
(dollars in thousands)
December 31,
Securities Available-for-Sale202220212020
U.S. Treasury$64,119 $— $— 
Obligations of State and Political Subdivisions777,852 925,706 581,247 
MBS/CMO - Residential714,681 791,950 548,307 
US Gov't Sponsored Entities & Agencies205,017 171,961 88,298 
Total Securities$1,761,669 $1,889,617 $1,217,852 
Investment Securities, at Carrying Value      
(dollars in thousands)  
  December 31,
Securities Held-to-Maturity 2017 2016 2015
Obligations of State and Political Subdivisions $—
 $—
 $95
       
Securities Available-for-Sale  
  
  
U.S. Treasury and Agency Securities $—
 $—
 $9,898
Obligations of State and Political Subdivisions 273,309
 247,519
 203,628
MBS/CMO - Residential 467,332
 461,914
 423,961
Equity Securities 353
 353
 353
Subtotal of Securities Available-for-Sale 740,994
 709,786
 637,840
Total Securities $740,994
 $709,786
 $637,935


The Company’s $741.0 million available-for-sale portiondecline in the available for sale portfolio during 2022 compared with 2021 was largely attributable to fair value adjustments in the portfolio caused by the rise in market interest rates. The fair value adjustment of the available for sale portfolio totaled $333.2 million at December 31, 2022. The increase in the available for sale portfolio comparing year-end 2021 to year-end 2020 was largely the result of additions to the portfolio resulting from increased levels of deposits, PPP loan forgiveness and repayment activity during 2021. The Company’s $1.762 billion available-for-sale investment portfolio provides an additional funding source for the liquidity needs of the Company’s subsidiaries and for asset/liability management requirements. Although management has the ability to sell these securities if the need arises, their designation as available-for-sale should not necessarily be interpreted as an indication that management anticipates such sales.



40

The amortized cost of available-for-sale debt securities at December 31, 20172022 is shown in the following table by contractual maturity. MBS/CMO - Residential securities are based on estimated average lives. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations. Equity securities do not have contractual maturities, and are excluded from the table below.


Maturities and Average Yields of Securities at December 31, 20172022
(dollars in thousands)
Within
One Year		After One But
Within Five Years		After Five But
Within Ten Years		After Ten
Years
 AmountYieldAmountYieldAmountYieldAmountYield
U.S. Treasury$64,097 4.15 %$— — %$— — %$— — %
Obligations of State and Political Subdivisions3,266 3.98 %15,449 4.25 %55,747 3.46 %864,731 3.06 %
MBS/CMO - Residential— — %34,908 2.74 %45,649 2.24 %765,962 1.78 %
US Gov't Sponsored Entities & Agencies4 3.49 %26,349 3.71 %19,465 2.19��%199,199 1.83 %
Total Securities$67,367 4.14 %$76,706 3.38 %$120,861 2.79 %$1,829,892 2.39 %
  
Within
One Year
 
After One But
Within Five Years
 
After Five But
Within Ten Years
 
After Ten
Years
  Amount
 Yield
 Amount
 Yield
 Amount
 Yield
 Amount
 Yield
Obligations of State and Political Subdivisions $2,706
 4.98% $23,789
 5.07% $78,661
 4.91% $162,281
 4.75%
MBS/CMO - Residential 5
 4.63% —
 —% 20,133
 1.95% 456,067
 2.28%
                 
Total Securities $2,711
 4.98% $23,789
 5.07% $98,794
 4.31% $618,348
 2.93%
A tax-equivalent adjustment using a tax rate of 3521 percent was used in the above table.


CONTRACTUAL OBLIGATIONS

In addition to the other uses of funds discussed previously, the Company hadhas certain long-term contractual obligations as of December 31, 2017.to make cash payments. These contractual obligations primarily consistedconsist of long-term borrowings withfrom the Federal Home Loan Bank (“FHLB”) and, junior subordinated debentures, time deposits, repurchase agreements, and lease commitments for certain office facilities. Scheduled principal payments on long-term borrowings, time deposits,A summary of these payment obligations is set forth below.
Contractual and Other ObligationsPayments Due In
(dollars in thousands)One Year or LessOver One YearTotal
Deposits without Stated Maturities$4,921,582 $— $4,921,582 
Time Deposits317,454 111,015 428,469 
Federal Home Loan Bank Advances25,000 25,000 50,000 
Other Borrowings (Subordinated Notes and Debentures)— 74,788 74,788 
Federal Funds Purchased11,200 — 11,200 
Securities Sold under Repurchase Agreements64,961 — 64,961 
Lease Obligations1,895 9,857 11,752 
Total Contractual and Other Obligations$5,342,092 $220,660 $5,562,752 

In the normal course of business, the Company makes commitments to extend credit and future minimum lease paymentscommitments to sell loans, which are outlinednot reflected in its consolidated financial statements. For further information about such commitments, see Note 14 (Commitments and Off-balance Sheet Items) in Notes to the table below.Consolidated Financial Statements included in Item 8 of this Report.

Contractual Obligations Payments Due By Period
(dollars in thousands) Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years
Long-term Borrowings $138,067
 $40,210
 $56,626
 $5,000
 $36,231
Time Deposits 387,885
 221,568
 113,681
 52,457
 179
Capital Lease Obligations 7,105
 519
 1,038
 1,038
 4,510
Operating Lease Commitments 7,220
 1,050
 1,799
 1,391
 2,980
Total Contractual Obligations $540,277
 $263,347
 $173,144
 $59,886
 $43,900

SOURCES OF FUNDS


The Company’s primary source of funding is its base of core customer deposits. Core deposits consist of demand deposits, savings, interest-bearing checking, money market accounts, and certificates of deposit of less than $100,000. Other sources of funds are certificates of deposit of $100,000 or more, brokered deposits, overnight borrowings from other financial institutions and securities sold under agreement to repurchase. The membership of the Company’s affiliate bank in the Federal Home Loan Bank System provides a significant additional source for both long and short-term collateralized borrowings. In addition, the Company, as a separate and distinct corporation from its bank and other subsidiaries, also has the ability to borrow funds from other financial institutions and to raise debt or equity capital from the capital markets and other sources. The following pages contain a discussion of changes in these areas.

41

The table below illustrates changes between years in the average balances of all funding sources:
Funding Sources - Average Balances
(dollars in thousands)
 December 31, 
% Change From
Prior Year
  2017 2016 2015 2017 2016
Demand Deposits  
  
  
  
  
Non-interest-bearing $572,356
 $513,199
 $430,312
 12 % 19%
Interest-bearing 836,262
 755,775
 574,021
 11
 32
Savings Deposits 233,056
 215,032
 165,302
 8
 30
Money Market Accounts 373,156
 351,786
 305,756
 6
 15
Other Time Deposits 204,371
 219,408
 193,263
 (7) 14
Total Core Deposits 2,219,201
 2,055,200
 1,668,654
 8
 23
Certificates of Deposits of $100,000 or more and Brokered Deposits 175,945
 194,692
 157,259
 (10) 24
FHLB Advances and Other Borrowings 233,315
 242,483
 178,767
 (4) 36
Total Funding Sources $2,628,461
 $2,492,375
 $2,004,680
 5
 24


Funding Sources - Average Balances
(dollars in thousands)		December 31,% Change From
Prior Year
20222021202020222021
Demand Deposits     
Non-interest-bearing$1,738,349 $1,378,647 $1,070,284 26 %29 %
Interest-bearing2,013,969 1,595,579 1,309,998 26 22 
Savings Deposits640,653 460,945 358,389 39 29 
Money Market Accounts833,119 645,747 553,794 29 17 
Other Time Deposits262,764 226,419 288,762 16 (22)
Total Core Deposits5,488,854 4,307,337 3,581,227 27 20 
Certificates of Deposits of $100,000 or more and Brokered Deposits211,645 186,516 279,170 13 (33)
FHLB Advances and Other Borrowings159,029 186,750 221,832 (15)(16)
Total Funding Sources$5,859,528 $4,680,603 $4,082,229 25 15 
Maturities of certificates of deposit of $100,000 or more and brokered deposits are summarized as follows:
(dollars in thousands)
3 Months
Or Less		3 - 6
Months		6 - 12 MonthsOver
12 Months		Total
December 31, 2022$44,420 $31,600 $77,286 $39,944 $193,250 
  
3 Months
Or Less
 
3 Thru
6 Months
 
6 Thru
12 Months
 
Over
12 Months
 Total
December 31, 2017 $57,700
 $43,120
 $30,894
 $57,525
 $189,239


CORE DEPOSITS


The Company’s overall level of average core deposits increased approximately $164.0 million,$1.2 billion, or 8%27%, during 2017 following2022 compared with 2021, largely as a $386.5 million, or 23%, increase during 2016.result of the CUB acquisition. During 2017,2022, average demand deposits (non-interest bearing and interest bearing) increased $139.6$778.1 million, average savings deposits increased $18.0$179.7 million, and average money market demand deposits increased $21.4$187.4 million whileand average time deposits under $100,000 increased $36.3 million. The Company’s overall level of average core deposits increased approximately $726.1 million, or 20%, during 2021 compared with 2020. During 2021, average demand deposits (non-interest bearing and interest bearing) increased $593.9 million, average savings deposits increased $102.6 million, average money market demand deposits increased $92.0 million and average time deposits under $100,000 declined $15.0$62.3 million. During 2016, the most significant contributor to the increase level of core deposits was the acquisition of River Valley, which occurred on March 1, 2016.


The Company’s ability to attract core deposits continues to be influenced by competition and the interest rate environment, as well as the availability of alternative investment products. Core deposits continue to represent a significant funding source for the Company’s operations and represented 84%94% of average total funding sources during 20172022 compared with 82%92% during 20162021 and 83%88% during 2015.2020.


Demand, savings, and money market deposits have provided a growing source of funding for the Company in each of the periods reported. Average demand, savings, and money market deposits increased 10%28% during 20172022 following 24% growth during 2016.2021. Average demand, savings, and money market deposits totaled $2.015$5.226 billion or 91%95% of core deposits (77%(89% of total funding sources) in 20172022 compared with $1.836$4.080 billion or 89%95% of core deposits (74%(87% of total funding sources) in 20162021 and $1.475$3.292 billion or 88%92% of core deposits (74%(81% of total funding sources) in 2015.2020.

Other time deposits consist of certificates of deposits in denominations of less than $100,000. These average deposits declinedincreased by 7%16% during 20172022 following an increasea decline of 14%22% during 2016.2021. Other time deposits comprised 9%5% of core deposits in 2017, 11%2022, 5% in 20162021 and 12%8% in 2015.2020.


OTHER FUNDING SOURCES
 
Federal Home Loan Bank advances and other borrowings represent the Company’s most significant source of other funding. Average borrowed funds declined $9.2 million, or 4%, during 2017 following an increase of $63.7 million, or 36%, during 2016. Borrowings comprised approximately 9% of average total funding sources during 2017 compared with 10% in 2016 and 9% in 2015.

Certificates of deposits in denominations of $100,000 or more and brokered deposits are an additional source of other funding for the Company’s bank subsidiary. Large denomination certificates and brokered deposits decreased $18.7increased $25.1 million, or 10%13%, following a decline of $92.7 million, or 33%, during 2017 following an increase of $37.4 million, or 24% during 2016.2021. Large certificates and brokered deposits comprised approximately 7%4% of average total funding sources in 20172021 compared with 8%4% in 20162021 and 8%7% in 2015.2020. This type of funding is used as both long-term and short-term funding sources.


Federal Home Loan Bank advances and other borrowings represent an important source of other funding for the Company. Average borrowed funds declined $27.8 million, or 15%, during 2022 and declined $35.1 million, or 16%, during 2021.
42

Borrowings comprised approximately 3% of average total funding sources during 2022 compared with 4% in 2021 and 5% in 2020.

The bank subsidiary of the Company also utilizes short-term funding sources from time to time. These sources consist of overnight federal funds purchased from other financial institutions, secured repurchase agreements that generally mature within one day of the transaction date, and secured overnight variable rate borrowings from the FHLB. These borrowings represent an important source of short-term liquidity for the Company’s bank subsidiary. Long-term debt at the Company’s bank subsidiary is in the form of FHLB advances, which are secured by the pledge of certain investment securities, residential and housing-related mortgage loans, and certain other commercial real estate loans. See Note 7 (FHLB Advances and Other Borrowings) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report for further information regarding borrowed funds.


PARENT COMPANY FUNDING SOURCES


The parent company is a corporation separate and distinct from its bank and other subsidiaries. For information regarding the financial condition, result of operations, and cash flows of the Company, presented on a parent-company-only basis, see Note 17 (Parent Company Financial Statements) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report.


The Company uses funds at the parent company level to pay dividends to its shareholders, to acquire or make other investments in other businesses or their securities or assets, to repurchase its stock from time to time, and for other general corporate purposes. The parent company does not have access to the deposits and certain other sources of funds that are available to its bank subsidiary to support its operations. Instead, the parent company has historically derived most of its revenues from dividends paid to the


parent company by its bank subsidiary. The Company’s banking subsidiary is subject to statutory restrictions on its ability to pay dividends to the parent company. See Note 8 (Shareholders’ Equity) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which is incorporated herein by reference. The parent company has, in recent yearsfrom time-to-time, supplemented the dividends received from its subsidiaries with borrowings. For details related to borrowings, which are discussed in detail below.

Effective January 1, 2011,see Note 7 (FHLB Advances and as a result of the acquisition of American Community Bancorp, Inc., the Company assumed long-term debt obligations of American Community in the form of two junior subordinated debentures issued by American Community in the aggregate unpaid principal amount of approximately $8.3 million. Effective March 1, 2016, and as a result of the acquisition of River Valley Bancorp, the Company assumed long-term debt obligations of River Valley in the form of a junior subordinated debenture issued by River Valley in the aggregate unpaid principal amount of approximately $7.2 million.

The junior subordinated debentures were issued to certain statutory trusts established by American Community and River Valley (in support of related issuances of trust preferred securities issued by those trusts) and mature in installments of principal payable in 2035 and 2033, respectively, and bear interest payable on a quarterly basis at a floating rate, adjustable quarterly based on the 90-day LIBOR plus a specified percentage. These debentures are of a type that are eligible (under current regulatory capital requirements) to qualify as Tier 1 capital (with certain limitations) for regulatory purposes and as of December 31, 2017 approximately $11.1 million of the junior subordinated debentures were treated as Tier 1 capital for regulatory capital purposes.

See Note 17 (Parent Company Financial Statements)Other Borrowings) of the Notes to the Consolidated Financial Statements included in Item 8 of this ReportReport.

At year-end 2022, the Company had available to it a $15 million revolving line of credit facility that will mature on September 26, 2023. Borrowings are available for further information regardinggeneral working capital purposes. Interest is payable quarterly at a floating rate based upon term SOFR rate plus a margin payable in respect of any principal amounts advanced under the parent company borrowed funds and other indebtedness.revolving line of credit. There was no outstanding balance as of December 31, 2022.


RISK MANAGEMENT
 
The Company is exposed to various types of business risk on an on-going basis. These risks include credit risk, liquidity risk and interest rate risk. Various procedures are employed at the Company’s subsidiary bank to monitor and mitigate risk in the loan and investment portfolios, as well as risks associated with changes in interest rates. Following is a discussion of the Company’s philosophies and procedures to address these risks.


LENDING AND LOAN ADMINISTRATION


Primary responsibility and accountability for day-to-day lending activities rests with the Company’s subsidiary bank. Loan personnel at the subsidiary bank have the authority to extend credit under guidelines approved by the bank’sBank’s board of directors. The executive loan committee serves as a vehicle for communication and for the pooling of knowledge, judgment and experience of its members. The committee provides valuable input to lending personnel, acts as an approval body, and monitors the overall quality of the bank’sBank’s loan portfolio. The Corporate Credit Risk Management Committee comprised of members of the Company’s and its subsidiary bank’sBank’s executive officers and board of directors, strives to ensure a consistent application of the Company’s lending policies. The Company also maintains a comprehensive risk-grading and loan review program, which includes quarterly reviews of problem loans, delinquencies and charge-offs. The purpose of this program is to evaluate loan administration, credit quality, loan documentation and the adequacy of the allowance for loancredit losses.


The Company maintains an allowance for loancredit losses to cover probable, incurredmanagement's estimate of all expected credit losses identified during itsover the expected contractual life of the loan review process.portfolio. Management estimates the required level of allowance for loancredit losses using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, along with reasonable and supportable forecasts, judgmentally adjusted for economic, external and internal quantitative and qualitative factors and
43

portfolio trends. Economic factors include evaluating changes in international, national, regional and local economic and business conditions that affect the collectability of the loan portfolio. Internal factors include evaluating changes in lending policies and other factors.procedures; changes in the nature and volume of the loan portfolio; and changes in experience, ability and depth of lending management and staff. 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. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.


The allowance for loancredit losses is comprised of: (a) specific reserves on individual credits; and (b) general reserves for certain loan categories and industries, and overall historical loss experience; and (c) unallocated reserves based on performance trends in the loan portfolios, current economic conditions, and other factors that influence the level of estimated probablecredit losses. The need for specific reserves are considered for credits when: (a) the customer’s cash flow or net worth appears insufficient to repay the loan; (b) the loan has been criticized in a regulatory examination; (c) the loan is on non-accrual; or, (d) other reasons where the ultimate collectability of the loan is in question, or the loan characteristics require special monitoring.



Allowance for Credit Losses
(dollars in thousands)		Years Ended December 31,
20222021202020192018
Balance of Allowance for Possible Losses at Beginning of Period$37,017 $46,859 $16,278 $15,823 $15,694 
Impact of adopting ASC 326— — 8,767 — — 
Impact of adopting ASC 326 - PCD loans— — 6,886 — — 
Loans Charged-off:
Commercial and Industrial Loans and Leases1,149 2,777 2,119 3,810 1,500 
Commercial Real Estate Loans79 10 36 320 49 
Agricultural Loans— — — — — 
Home Equity and Consumer Loans1,598 1,003 942 1,155 922 
Residential Mortgage Loans24 45 39 117 75 
Total Loans Charged-off2,850 3,835 3,136 5,402 2,546 
Recoveries of Previously Charged-off Loans:     
Commercial and Industrial Loans and Leases26 61 23 56 141 
Commercial Real Estate Loans24 40 129 29 20 
Agricultural Loans— — — — 20 
Home Equity and Consumer Loans479 359 358 440 387 
Residential Mortgage Loans5 33 4 7 37 
Total Recoveries534 493 514 532 605 
Net Loans Recovered (Charged-off)(2,316)(3,342)(2,622)(4,870)(1,941)
Acquisition of Citizens Union Bank of Shelbyville, KY - PCD Loans3,117 — — — — 
Additions to Allowance Charged to Expense6,350 (6,500)17,550 5,325 2,070 
Balance at End of Period$44,168 $37,017 $46,859 $16,278 $15,823 
Net Charge-offs (Recoveries) to Average Loans Outstanding0.06 %0.11 %0.08 %0.17 %0.08 %
Provision for Credit Losses to Average Loans Outstanding0.17 %(0.21)%0.55 %0.18 %0.09 %
Allowance for Credit Losses to Total Loans at Year-end1.17 %1.23 %1.52 %0.53 %0.58 %


Allowance for Loan Losses
(dollars in thousands)
 Years Ended December 31,
  2017 2016 2015 2014 2013
           
Balance of Allowance for Possible Losses at Beginning of Period
 $14,808
 $14,438
 $14,929
 $14,584
 $15,520
           
Loans Charged-off:  
  
  
  
  
Commercial and Industrial Loans and Leases 151
 66
 36
 199
 503
Commercial Real Estate Loans 220
 54
 350
 329
 538
Agricultural Loans 49
 22
 —
 —
 —
Home Equity and Consumer Loans 765
 612
 345
 370
 607
Residential Mortgage Loans 93
 346
 233
 117
 24
Total Loans Charged-off 1,278
 1,100
 964
 1,015
 1,672
           
Recoveries of Previously Charged-off Loans:  
  
  
  
  
Commercial and Industrial Loans and Leases 14
 32
 102
 111
 128
Commercial Real Estate Loans 48
 10
 107
 863
 102
Agricultural Loans 9
 1
 —
 —
 —
Home Equity and Consumer Loans 280
 211
 246
 215
 148
Residential Mortgage Loans 63
 16
 18
 21
 8
Total Recoveries 414
 270
 473
 1,210
 386
           
Net Loans Recovered (Charged-off) (864) (830) (491) 195
 (1,286)
Additions to Allowance Charged to Expense 1,750
 1,200
 —
 150
 350
Balance at End of Period $15,694
 $14,808
 $14,438
 $14,929
 $14,584
           
Net Charge-offs (Recoveries) to Average Loans Outstanding 0.04% 0.04% 0.03% (0.01)% 0.10%
Provision for Loan Losses to Average Loans Outstanding 0.09% 0.06% 0.00% 0.01 % 0.03%
Allowance for Loan Losses to Total Loans at Year-end 0.73% 0.74% 0.92% 1.03 % 1.05%

The following table indicates the breakdown of the allowance for loancredit losses for the periods indicated (dollars in thousands):

Years Ended December 31,
20222021202020192018
Commercial and Industrial Loans and Leases$13,958 $9,754 $6,645 $4,799 $2,953 
Commercial Real Estate Loans21,598 19,245 29,878 4,692 5,291 
Agricultural Loans4,188 4,505 6,756 5,315 5,776 
Home Equity and Consumer Loans2,196 1,808 1,636 634 649 
Residential Mortgage Loans2,228 1,705 1,944 333 472 
Unallocated— — — 505 682 
Total Allowance for Credit Losses$44,168 $37,017 $46,859 $16,278 $15,823 

44
  Years Ended December 31,
  2017 2016 2015 2014 2013
Commercial and Industrial Loans and Leases $4,735
 $3,725
 $4,242
 $4,627
 $3,983
Commercial Real Estate Loans 4,591
 5,452
 6,342
 7,273
 8,335
Agricultural Loans 4,894
 4,094
 2,115
 1,123
 946
Home Equity and Consumer Loans 628
 518
 613
 600
 427
Residential Mortgage Loans 343
 329
 414
 622
 281
Unallocated 503
 690
 712
 684
 612
           
Total Allowance for Loan Losses $15,694
 $14,808
 $14,438
 $14,929
 $14,584


The Company’s allowance for loancredit losses totaled $15.7$44.2 million at December 31, 2017 representing an increase of $886,000, or 6%, compared with year-end 2016. During 2017, the allowance for commercial and industrial loans increased primarily as a result of specific allocations on two commercial borrowing relationships that were moved to impaired and non-performing status during 2017. The allowance for loan losses was increased for agricultural loans primarily due to an increased level of criticized and classified agricultural loans during 2017 when2022 compared to year-end 2016.

The Company’s allowance for loan losses totaled $14.8$37.0 million at December 31, 2016 representing an increase of $370,000, or 3%, compared with year-end 2015. During 2016, the overall allowance for loan and lease losses was increased in the agricultural sector as a result of qualitative considerations for current economic conditions and trends which included a decline in the aggregate debt service coverage ratios for agricultural borrowers and a decline in per acre values of crop production real estate.2021. The allowance for commercial real estate loans declined during 2016 primarily as a result of the repayment of a single non-accrual commercial real estate credit during 2016.

The allowance for loan losses represented 0.73%1.17% of period-end loans at December 31, 20172022 compared with 0.74%1.23% of period-end loans at December 31, 2016 and 0.92% at December 31, 2015. year-end 2021.

The declineCompany adopted ASU No. 2016-13, Financial instruments - Credit Losses (Topic 326) (“CECL”) on January 1, 2020. The Company added $9.4 million to the allowance for credit losses in conjunction with the closing of the CUB acquisition on January 1, 2022 related to the CUB loan portfolio. Of the increase in allowance for credit losses for the CUB portfolio, $6.3 million was recorded through the provision for credit losses on “Day 1” under the CECL model for non-PCD loans. The Company also acquired $29.9 million in PCD loans (at time of acquisition) for which the company recorded a credit adjustment of $3.1 million which was included in the allowance for loan loss ascredit losses. Under the CECL model, certain acquired loans continue to carry a percent of total loans during 2016 was the result of the acquisition of River Valley. Under acquisition accounting treatment, loans acquired are recorded at fair value which includes adiscount as well as an allowance for credit risk component, and thereforelosses. As of December 31, 2022, the allowance on loans acquired is not carried over from the seller. The Company held a discountnet discounts on acquired loans of $7.6$6.0 million which included $2.4 million related to the CUB loan portfolio.

The allowance for credit losses declined during 2021 as a result of December 31, 2017, $10.0the Company recording a negative $6.5 million at December 31, 2016 and $3.0 million at December 31, 2015.provision for credit losses while recording modest net charge-offs.




The Company realized net charge-offs of $864,000,$2,316,000, or 0.04%0.06% of average loans outstanding during 20172022 compared with net charge-offs of $830,000,$3,342,000, or 0.04%0.11% of average loans outstanding during 20162021 and $491,000,$2,622,000, or 0.03%0.08% of average loans during 2015.2020.


Please see “RESULTS OF OPERATIONS - Provision for LoanCredit Losses” and “CRITICAL ACCOUNTING POLICIES AND ESTIMATES - Allowance for LoanCredit Losses” for additional information regarding the allowance.


NON-PERFORMING ASSETS


Non-performing assets consist of: (a) non-accrual loans; (b) loans which have been renegotiated to provide for a reduction or deferral of interest or principal because of deterioration in the financial condition of the borrower; (c) loans past due 90 days or more as to principal or interest; and, (d) other real estate owned. Loans are placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. Uncollected accrued interest is reversed against income at the time a loan is placed on non-accrual. Loans are typically charged-off at 180 days past due, or earlier if deemed uncollectible. Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection. The following table presents an analysis of the Company’s non-performing assets.


Non-performing AssetsDecember 31,
(dollars in thousands)20222021202020192018
Non-accrual Loans$12,888 $14,602 $21,507 $13,802 $12,579 
Past Due Loans (90 days or more and accruing)1,427 156 — 190 633 
Total Non-performing Loans14,315 14,758 21,507 13,992 13,212 
Other Real Estate— — 325 425 286 
Total Non-performing Assets$14,315 $14,758 $21,832 $14,417 $13,498 
Restructured Loans$— $104 $111 $116 $121 
Non-performing Loans to Total Loans0.38 %0.49 %0.70 %0.45 %0.48 %
Allowance for Credit Losses to Non-performing Loans308.54 %250.83 %217.88 %116.34 %119.76 %
Non-performing Assets December 31,
(dollars in thousands) 2017 2016 2015 2014 2013
           
Non-accrual Loans $11,091
 $3,793
 $3,143
 $5,970
 $8,378
Past Due Loans (90 days or more) 719
 2
 143
 140
 8
Total Non-performing Loans 11,810
 3,795
 3,286
 6,110
 8,386
Other Real Estate 54
 242
 169
 356
 1,029
Total Non-performing Assets $11,864
 $4,037
 $3,455
 $6,466
 $9,415
           
Restructured Loans $149
 $28
 $2,203
 $2,726
 $2,418
Non-performing Loans to Total Loans 0.55% 0.19% 0.21% 0.42% 0.61%
Allowance for Loan Losses to Non-performing Loans 132.89% 390.20% 439.38% 244.34% 173.91%

Non-performing assets totaled $11.9$14.3 million, or 0.38%0.23% of total assets at December 31, 20172022 compared to $4.0$14.8 million, or 0.14%0.26% of total assets at December 31, 20162021 and compared to $3.5$21.8 million, or 0.15%0.44% of total assets at December 31, 2015.2020.  Non-performing loans totaled $11.8$14.3 million, or 0.55%0.38% of total loans at December 31, 20172022 compared with $3.8$14.8 million, or 0.19%0.49% of total loans at December 31, 20162021 and $3.3$21.5 million, or 0.21%0.70% of total loans at December 31, 2015.  2020. The decline in the level of non-performing commercial and industrial loans and leases during 2022 was primarily attributable to certain credits that were either charged-off or paid off, which were in non-accrual status. The decline in the level of commercial real estate non-performing loans during 2021 was largely attributable to the payoff of a commercial real estate credit in the lodging industry that was placed in non-accrual status.

45

The increase in non-performing assets during the year-ended December 31, 2017 was primarily related to two commercial lending relationships that were moved into impaired and non-performing status during 2017. The increase inlevel of non-performing assets and non-performing loans during the 2016at December 31, 2020 compared with year-end 2019 was primarilylargely attributable to the merger transaction with River Valley which included $2.5 milliongross-up of non-accrualpurchased credit deteriorated loans at December 31, 2016.upon the adoption of the CECL standard during 2020 and a commercial real estate credit in the lodging industry that was moved to non-performing status.


The following tables present an analysis of the Company'sCompany’s non-accrual loans and loans past due 90 days or more and still accruing.
Non-Accrual LoansDecember 31,
(dollars in thousands)20222021202020192018
Commercial and Industrial Loans and Leases$7,936 $10,530 $8,133 $4,940 $2,430 
Commercial Real Estate Loans1,950 2,243 10,188 3,433 6,833 
Agricultural Loans1,062 1,136 1,915 2,739 1,449 
Home Equity Loans310 24 271 79 88 
Consumer Loans400 82 170 115 162 
Residential Mortgage Loans1,230 587 830 2,496 1,617 
Total$12,888 $14,602 $21,507 $13,802 $12,579 
Non-Accrual Loans December 31,
Loans Past Due 90 Days or More & Still AccruingLoans Past Due 90 Days or More & Still AccruingDecember 31,
(dollars in thousands) 2017 2016 2015 2014 2013(dollars in thousands)20222021202020192018
          
Commercial and Industrial Loans and Leases $4,753
 $86
 $134
 $161
 $31
Commercial and Industrial Loans and Leases$1,427 $— $— $190 $— 
Commercial Real Estate Loans 4,618
 1,408
 2,047
 3,460
 6,658
Commercial Real Estate Loans— 156 — — 364 
Agricultural Loans 748
 792
 —
 —
 —
Agricultural Loans— — — — 269 
Home Equity Loans 199
 73
 204
 268
 114
Home Equity Loans— — — — — 
Consumer Loans 286
 85
 90
 196
 236
Consumer Loans— — — — — 
Residential Mortgage Loans 487
 1,349
 668
 1,885
 1,339
Residential Mortgage Loans— — — — — 
Total $11,091
 $3,793
 $3,143
 $5,970
 $8,378
Total$1,427 $156 $— $190 $633 




Loans Past Due 90 Days or More & Still Accruing December 31,
(dollars in thousands) 2017 2016 2015 2014 2013
           
Commercial and Industrial Loans and Leases $—
 $2
 $96
 $68
 $—
Commercial Real Estate Loans 471
 —
 47
 —
 8
Agricultural Loans 248
 —
 —
 72
 —
Home Equity Loans —
 —
 —
 —
 —
Consumer Loans —
 —
 —
 —
 —
Residential Mortgage Loans —
 —
 —
 —
 —
Total $719
 $2
 $143
 $140
 $8

The Company purchases individual loans and groups of loans. Purchased loans that show evidence of credit deterioration since origination are recorded at the amount paid (or allocated fair value in a purchase business combination), such that there is no carryover of the seller’s allowance for loan losses. After acquisition, incurred losses are recognized by an increase in the allowance for loan losses.
Purchased loans that indicated evidence of credit deterioration since origination at the time of acquisition by the Company did not have a material adverse impact on the Company’s key credit metrics during 2017 or 2016. The key credit metrics the Company measures generally include non-performing loans, past due loans, and adversely classified loans.

Loan impairment is reported when full repayment under the terms of the loan is not expected. 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. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. The amount of loans individually evaluated for impairment, including purchase credit impaired loans, totaled $12.6 million and $2.5 million at December 31, 2017 and 2016, respectively. For additional detail on impairedindividually analyzed loans, see Note 4 in the Notes to the Company’s consolidated financial statementsConsolidated Financial Statements included in Item 8 of this Report.


Interest income recognized on non-performing loans for 20172022 was $27,000.$141,000. The gross interest income that would have been recognized in 20172022 on non-performing loans if the loans had been current in accordance with their original terms was $415,000.$1,227,000. Loans are typically placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more, unless the loan is well secured and in the process of collection.


LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
 
Liquidity is a measure of the ability of the Company’s subsidiary bank to fund new loan demand, existing loan commitments and deposit withdrawals. The purpose of liquidity management is to match sources of funds with anticipated customer borrowings and withdrawals and other obligations to ensure a dependable funding base, without unduly penalizing earnings. Failure to properly manage liquidity requirements can result in the need to satisfy customer withdrawals and other obligations on less than desirable terms. The liquidity of the parent company is dependent upon the receipt of dividends from its bank subsidiary, which are subject to certain regulatory limitations explained in Note 8 (Shareholders'(Shareholders’ Equity) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report. The subsidiary bank’s source of funding is predominately core deposits, time deposits in excess of $100,000 and brokered certificates of deposit, maturities of securities, repayments of loan principal and interest, federal funds purchased, securities sold under agreements to repurchase and borrowings from the Federal Home Loan Bank and Federal Reserve Bank.


Interest rate risk is the exposure of the Company’s financial condition to adverse changes in market interest rates. In an effort to estimate the impact of sustained interest rate movements to the Company’s earnings, the Company monitors interest rate risk through computer-assisted simulation modeling of its net interest income. The Company’s simulation modeling monitors the potential impact to net interest income under various interest rate scenarios. The Company’s objective is to actively manage its asset/liability position within a one-year interval and to limit the risk in any of the interest rate scenarios to a reasonable level of tax-equivalent net interest income within that interval. The Company’s Asset/Liability Committee monitors compliance within established guidelines of the Funds Management Policy. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk section for further discussion regarding interest rate risk.




46
OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements other than stand-by letters of credit as disclosed in Note 14 (Commitments and Off-balance Sheet Items) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report.



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 
The Company’s exposure to market risk is reviewed on a regular basis by the Asset/Liability Committee and Boards of Directors of the parent company and its subsidiary bank. Primary market risks which impact the Company’s operations are liquidity risk and interest rate risk.


The liquidity of the parent company is dependent upon the receipt of dividends from its subsidiary bank, which is subject to certain regulatory limitations. The Bank’s source of funding is predominately core deposits, maturities of securities, repayments of loan principal and interest, federal funds purchased, securities sold under agreements to repurchase and borrowings from the Federal Home Loan Bank.


The Company monitors interest rate risk by the use of computer simulation modeling to estimate the potential impact on its net interest income under various interest rate scenarios, and by estimating its static interest rate sensitivity position. Another method by which the Company’s interest rate risk position can be estimated is by computing estimated changes in its net portfolio value (“NPV”). This method estimates interest rate risk exposure from movements in interest rates by using interest rate sensitivity analysis to determine the change in the NPV of discounted cash flows from assets and liabilities. NPV represents the market value of portfolio equity and is equal to the estimated market value of assets minus the estimated market value of liabilities.


Computations for measuring both net interest income and NPV are based on a number of assumptions, including the relative levels of market interest rates and prepayments in mortgage loans and certain types of investments. These computations do not contemplate any actions management may undertake in response to changes in interest rates, and should not be relied upon as indicative of actual results. In addition, certain shortcomings are inherent in the method of computing both net interest income and NPV. Should interest rates remain or decrease below current levels, the proportion of adjustable rate loans could decrease in future periods due to refinancing activity. In the event of an interest rate change, prepayment levels would likely be different from those assumed in the modeling. Lastly, the ability of many borrowers to repay their adjustable rate debt may decline during a rising interest rate environment.


The Company from time to time utilizes derivatives to manage interest rate risk. Management continuously evaluates the merits of such interest rate risk products but does not anticipate the use of such products to become a major part of the Company’s risk management strategy.


The table below provides an assessment of the risk to net interest income over the next 12 months in the event of a sudden and sustained 1% and 2% increase and decrease in prevailing interest rates (dollars in thousands).


Interest Rate Sensitivity as of December 31, 20172022 - Net Interest Income
Net Interest Income
  
Changes in RatesAmount% Change
+2%$223,005 2.27 %
+1%220,788 1.25 
Base218,060 — 
-1%213,585 (2.05)
-2%205,675 (5.68)
  Net Interest Income 
      
Changes in Rates Amount
 % Change
 
+2% $103,816
 (2.26)% 
+1% 105,056
 (1.10) 
Base 106,221
 —
 
-1% 100,808
 (5.10) 
-2% 94,739
 (10.81) 


The above table is a measurement of the Company’s net interest income at risk, assuming a static balance sheet as of December 31, 20172022 and instantaneous parallel changes in interest rates. The Company also monitors interest rate risk under other scenarios including a more gradual movement in market interest rates. This type of scenario can at times produce different modeling results in measuring interest rate risk sensitivity. As an example, a gradual change in rates compared with a sudden and significant change in interest rates can impact rate movement of the Company’s variable rate commercial and agricultural loan portfolio due to the Company’s extensive utilization of interest rate floors in its commercial and agricultural portfolio.

47
The Company’s loan portfolio as of December 31, 2017 totaled approximately $2.1 billion of which approximately $1.7 billion were commercial and industrial, commercial real estate, and agricultural loans and leases. Within the commercial and agricultural portfolio, approximately 17% were fixed rate and 83% were variable rate loans. Of the total commercial and agricultural variable rate loans, approximately 15% were currently at their interest rate floors, which were, on a weighted average basis, approximately 103 basis points above their fully indexed rate based on current market interest rates.




The table below provides an assessment of the risk to NPV in the event of a sudden and sustained 1% and 2% increase and decrease in prevailing interest rates (dollars in thousands).


Interest Rate Sensitivity as of December 31, 20172022 - Net Portfolio Value
 Net Portfolio Value  Net Portfolio Value as a % of Present Value of AssetsNet Portfolio Value Net Portfolio Value as a % of Present Value of Assets
Changes in Rates Amount % Change NPV Ratio ChangeChanges in RatesAmount% ChangeNPV RatioChange
        
+2% $414,890
 (8.61)% 14.11% (57) b.p.
+2%$809,819 (8.71)%14.81 %(36) b.p.
+1% 436,762
 (3.79) 14.48
 (20) b.p.
+1%848,905 (4.31)15.02 (15) b.p.
Base 453,983
 —
 14.68
 —
Base887,112 — 15.17 — 
-1% 433,291
 (4.56) 13.74
 (94) b.p.
-1%914,987 3.14 15.14 (3) b.p.
-2% 381,910
 (15.88) 11.93
 (275) b.p.
-2%925,626 4.34 14.84 (33) b.p.
 
The above discussion, and the portions of MANAGEMENT’S DISCUSSION AND ANALYSIS in Item 7 of this Report that are referenced in the above discussion contain statements relating to future results of the Company that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, simulation of the impact on net interest income from changes in interest rates. Actual results may differ materially from those expressed or implied therein as a result of certain risks and uncertainties, including those risks and uncertainties expressed above, those that are described in MANAGEMENT’S DISCUSSION AND ANALYSIS in Item 7 of this Report, and those that are described in Item 1 of this Report, “Business,” under the caption “Forward-Looking Statements and Associated Risks,” which discussions are incorporated herein by reference.





48

Item 8. Financial Statements and Supplementary Data.

       Report of Independent Registered Public Accounting Firm




Shareholders and the Board of Directors of
German American Bancorp, Inc.
Jasper, Indiana


Opinions on the Financial Statements and Internal Control over Financial Reporting


We have audited the accompanying consolidated balance sheets of German American Bancorp, Inc. (the "Company"“Company”) as of December 31, 20172022 and 2016,2021, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2022, and the related notes (collectively referred to as the "financial statements"“financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2022, 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 Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 20172022 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, 2017,2022, based on criteria established in Internal Control -– Integrated Framework: (2013) issued by COSO.


Basis for Opinions


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 overOver 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. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB"(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.


Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.













49

       Report of Independent Registered Public Accounting Firm

Definition and Limitations of Internal Control Over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



       Report of Independent Registered Public Accounting Firm


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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 Matters

Crowe Horwath LLPThe 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

As discussed in Notes 1 and 4, the allowance for credit losses (the “ACL”) is an accounting estimate of expected credit losses over the estimated life of financial assets carried at amortized cost and off-balance-sheet credit exposures in accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requires 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 historical experience, current conditions and reasonable and supportable forecasts over the estimated life of the loans. In order to estimate the expected credit losses, the Company utilizes a loss estimation model. The Company utilizes the static pool methodology for determining the allowance for credit losses. The static pool methodology tracks loan pool by segment over a period of time to calculate a loss rate. Loss rates are then qualitatively adjusted for current conditions and reasonable and supportable forecast. Commercial and agricultural loans graded special mention and substandard are also adjusted based on a migration analysis technique.

Auditing the Allowance for Credit Losses for Loans 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. The principal considerations resulting in our determination included the following:

•Significant auditor judgment and effort were used in evaluating the qualitative factors used in the calculation.
•Significant audit effort to test the completeness and accuracy of data used in the migration analysis calculation, including accuracy of loan risk rating, and its application to the commercial and agricultural loan segments.

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

•Testing the effectiveness of controls over the Company’s preparation and review of the allowance for credit loss calculation, including relevance and reliability of data used as the basis for adjustments related to the qualitative factors, management’s judgments and significant assumptions in the development and reasonableness of qualitative factors, and mathematical accuracy and appropriateness of the application of qualitative factors;

50

       Report of Independent Registered Public Accounting Firm

•Substantively testing management’s process for developing the qualitative factors and assessing relevance and reliability of data used to develop factors, including evaluating their judgments and significant assumptions for reasonableness, and mathematical accuracy and appropriateness of the application of qualitative factors;
•Testing the effectiveness of controls over the Company’s loan risk rating;
•Substantively testing the accuracy of both the loan risk ratings as well as testing the accuracy of the transition matrix.




gabc-20221231_g4.gif
Crowe LLP

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


Indianapolis, IndianaLouisville, Kentucky
March 1, 20182023








                                
                                
 




51
Consolidated Balance Sheets
Dollars in thousands, except share and per share data



     December 31,
 20222021
ASSETS  
Cash and Due from Banks$77,174 $47,173 
Federal Funds Sold and Other Short-term Investments41,905 349,717 
Cash and Cash Equivalents119,079 396,890 
Interest-bearing Time Deposits with Banks500 745 
Securities Available-for-Sale, at Fair Value (Amortized Cost $2,094,826 for December 31, 2022; Amortized Cost $1,869,198 for December 31, 2021; No Allowance for Credit Losses)1,761,669 1,889,617 
Other Investments353 353 
Loans Held-for-Sale, at Fair Value8,600 10,585 
Loans3,788,645 3,007,926 
Less:   Unearned Income(3,711)(3,662)
Allowance for Credit Losses(44,168)(37,017)
Loans, Net3,740,766 2,967,247 
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost15,037 13,048 
Premises, Furniture and Equipment, Net112,237 88,863 
Other Real Estate— — 
Goodwill180,357 121,761 
Intangible Assets9,426 5,845 
Company Owned Life Insurance83,998 70,070 
Accrued Interest Receivable and Other Assets123,969 43,515 
TOTAL ASSETS$6,155,991 $5,608,539 
LIABILITIES  
Non-interest-bearing Demand Deposits$1,691,804 $1,529,223 
Interest-bearing Demand, Savings, and Money Market Accounts3,229,778 2,867,994 
Time Deposits428,469 347,099 
Total Deposits5,350,051 4,744,316 
FHLB Advances and Other Borrowings203,806 152,183 
Accrued Interest Payable and Other Liabilities43,741 43,581 
TOTAL LIABILITIES5,597,598 4,940,080 
Commitments and Contingencies (See Note 14)
SHAREHOLDERS’ EQUITY  
Common Stock, no par value, $1 stated value; 45,000,000 shares authorized29,493 26,554 
Additional Paid-in Capital387,171 276,057 
Retained Earnings405,167 350,364 
Accumulated Other Comprehensive Income (Loss)(263,438)15,484 
TOTAL SHAREHOLDERS’ EQUITY558,393 668,459 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$6,155,991 $5,608,539 
End of period shares issued and outstanding29,493,193 26,553,508 
       December 31,
     
  2017 2016
ASSETS  
  
Cash and Due from Banks $58,233
 $48,467
Federal Funds Sold and Other Short-term Investments 12,126
 16,349
Cash and Cash Equivalents 70,359
 64,816
     
Securities Available-for-Sale, at Fair Value 740,994
 709,786
     
Loans Held-for-Sale, at Fair Value 6,719
 15,273
     
Loans 2,145,019
 1,993,404
Less:    Unearned Income (3,381) (3,449)
Allowance for Loan Losses (15,694) (14,808)
Loans, Net 2,125,944
 1,975,147
     
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost 13,048
 13,048
Premises, Furniture and Equipment, Net 54,246
 48,230
Other Real Estate 54
 242
Goodwill 54,058
 54,058
Intangible Assets 2,102
 2,835
Company Owned Life Insurance 46,385
 46,642
Accrued Interest Receivable and Other Assets 30,451
 25,917
     
TOTAL ASSETS $3,144,360
 $2,955,994
     
LIABILITIES  
  
Non-interest-bearing Demand Deposits $606,134
 $571,989
Interest-bearing Demand, Savings, and Money Market Accounts 1,490,033
 1,399,381
Time Deposits 387,885
 378,181
     
Total Deposits 2,484,052
 2,349,551
     
FHLB Advances and Other Borrowings 275,216
 258,114
Accrued Interest Payable and Other Liabilities 20,521
 18,062
     
TOTAL LIABILITIES 2,779,789
 2,625,727
     
Commitments and Contingencies (Note 14) 

 

     
SHAREHOLDERS’ EQUITY  
  
Preferred Stock, no par value; 500,000 shares authorized, no shares issued —
 —
Common Stock, no par value, $1 stated value; 45,000,000 shares authorized (1)
 22,934
 15,261
Additional Paid-in Capital 165,288
 171,744
Retained Earnings 178,969
 149,666
Accumulated Other Comprehensive (Loss) Income (2,620) (6,404)
     
TOTAL SHAREHOLDERS’ EQUITY 364,571
 330,267
     
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $3,144,360
 $2,955,994
     
End of period shares issued and outstanding (1)
 22,934,403
 22,904,157

(1) Share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.



See accompanying notes to the consolidated financial statements.
52
Consolidated Statements of Income
Dollars in thousands, except per share data



Years Ended December 31,
 202220212020
INTEREST INCOME   
Interest and Fees on Loans$169,158 $139,151 $151,658 
Interest on Federal Funds Sold and Other Short-term Investments5,765 488 382 
Interest and Dividends on Securities:   
Taxable20,453 12,962 10,447 
Non-taxable23,550 17,778 11,882 
TOTAL INTEREST INCOME218,926 170,379 174,369 
INTEREST EXPENSE   
Interest on Deposits13,514 4,955 13,696 
Interest on FHLB Advances and Other Borrowings4,828 4,594 5,430 
TOTAL INTEREST EXPENSE18,342 9,549 19,126 
NET INTEREST INCOME200,584 160,830 155,243 
Provision for Credit Losses6,350 (6,500)17,550 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES194,234 167,330 137,693 
NON-INTEREST INCOME   
Wealth Management Fees10,076 10,321 8,005 
Service Charges on Deposit Accounts11,457 7,723 7,334 
Insurance Revenues10,020 9,268 8,922 
Company Owned Life Insurance2,264 1,529 2,307 
Interchange Fee Income15,820 13,116 10,529 
Other Operating Income5,116 6,991 3,388 
Net Gains on Sales of Loans3,818 8,267 9,908 
Net Gains on Securities562 2,247 4,081 
TOTAL NON-INTEREST INCOME59,133 59,462 54,474 
NON-INTEREST EXPENSE   
Salaries and Employee Benefits84,145 68,570 68,112 
Occupancy Expense11,223 11,081 10,033 
Furniture and Equipment Expense3,698 3,750 3,991 
FDIC Premiums1,860 1,419 740 
Data Processing Fees15,406 7,611 6,889 
Professional Fees6,295 5,009 3,998 
Advertising and Promotion4,416 4,197 3,589 
Intangible Amortization3,711 2,731 3,539 
Other Operating Expenses23,437 19,639 16,232 
TOTAL NON-INTEREST EXPENSE154,191 124,007 117,123 
Income before Income Taxes99,176 102,785 75,044 
Income Tax Expense17,351 18,648 12,834 
NET INCOME$81,825 $84,137 $62,210 
Basic Earnings per Share$2.78 $3.17 $2.34 
Diluted Earnings per Share$2.78 $3.17 $2.34 
  Years Ended December 31,
       
  2017 2016 2015
INTEREST INCOME  
  
  
       
Interest and Fees on Loans $91,745
 $86,202
 $66,740
Interest on Federal Funds Sold and Other Short-term Investments 134
 74
 13
Interest and Dividends on Securities:  
  
  
Taxable 10,898
 9,638
 9,017
Non-taxable 8,253
 7,451
 5,850
       
TOTAL INTEREST INCOME 111,030
 103,365
 81,620
       
INTEREST EXPENSE  
  
  
       
Interest on Deposits 7,094
 5,187
 3,976
Interest on FHLB Advances and Other Borrowings 4,027
 3,274
 2,092
       
TOTAL INTEREST EXPENSE 11,121
 8,461
 6,068
       
NET INTEREST INCOME 99,909
 94,904
 75,552
       
Provision for Loan Losses 1,750
 1,200
 —
       
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 98,159
 93,704
 75,552
       
NON-INTEREST INCOME  
  
  
       
Trust and Investment Product Fees 5,272
 4,644
 3,957
Service Charges on Deposit Accounts 6,178
 5,973
 4,826
Insurance Revenues 7,979
 7,741
 7,489
Company Owned Life Insurance 1,341
 987
 846
Debit Interchange Fee Income 4,567
 3,627
 3,110
Other Operating Income 2,641
 3,703
 3,532
Net Gains on Sales of Loans 3,280
 3,359
 2,959
Net Gains on Securities 596
 1,979
 725
       
TOTAL NON-INTEREST INCOME 31,854
 32,013
 27,444
       
NON-INTEREST EXPENSE  
  
  
       
Salaries and Employee Benefits 46,642
 43,961
 35,042
Occupancy Expense 6,609
 6,297
 4,939
Furniture and Equipment Expense 2,621
 2,261
 1,873
FDIC Premiums 954
 1,151
 1,144
Data Processing Fees 4,276
 5,686
 3,541
Professional Fees 2,817
 3,672
 2,661
Advertising and Promotion 3,543
 2,657
 3,669
Intangible Amortization 942
 1,062
 790
Other Operating Expenses 9,399
 9,840
 7,667
       
TOTAL NON-INTEREST EXPENSE 77,803
 76,587
 61,326
       
Income before Income Taxes 52,210
 49,130
 41,670
Income Tax Expense 11,534
 13,946
 11,606
       
NET INCOME $40,676
 $35,184
 $30,064
       
Basic Earnings per Share (1)
 $1.77
 $1.57
 $1.51
Diluted Earnings per Share (1)
 $1.77
 $1.57
 $1.51
Dividends per Share (1)
 $0.52
 $0.48
 $0.45


(1) Per share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.


See accompanying notes to the consolidated financial statementsstatements.
53
Consolidated Statements of Comprehensive Income (Loss)
Dollars in thousands except per share data



Years Ended December 31,
 202220212020
NET INCOME$81,825 $84,137 $62,210 
Other Comprehensive Income (Loss):   
Unrealized Gains (Losses) on Securities:   
Unrealized Holding Gain (Loss) Arising During the Period(353,013)(23,011)29,783 
Reclassification Adjustment for Gains Included in Net Income(563)(2,247)(4,081)
Tax Effect74,600 5,367 (5,432)
Net of Tax(278,976)(19,891)20,270 
Postretirement Benefit Obligation:   
Net (Loss) Arising During the Period— — — 
Reclassification Adjustment for Amortization of Prior Service Cost and Net54 — — 
Tax Effect— — — 
Net of Tax54 — — 
Total Other Comprehensive Income (Loss)(278,922)(19,891)20,270 
COMPREHENSIVE INCOME$(197,097)$64,246 $82,480 

  Years Ended December 31,
  2017 2016 2015
       
NET INCOME $40,676
 $35,184
 $30,064
       
Other Comprehensive Income (Loss):  
  
  
Unrealized Gains (Losses) on Securities:  
  
  
Unrealized Holding Gain (Loss) Arising During the Period 7,364
 (13,830) 2,153
Reclassification Adjustment for Gains Included in Net Income (596) (1,979) (725)
Tax Effect (2,377) 5,607
 (496)
Net of Tax 4,391
 (10,202) 932
Postretirement Benefit Obligation:  
  
  
Net (Loss) Arising During the Period (226) (24) (22)
Reclassification Adjustment for Amortization of Prior Service Cost and Net Loss Included in Net Periodic Pension Cost 8
 6
 5
Tax Effect 80
 4
 7
Net of Tax (138) (14) (10)
       
Total Other Comprehensive Income (Loss) 4,253
 (10,216) 922
       
COMPREHENSIVE INCOME $44,929
 $24,968
 $30,986
































































 
See accompanying notes to the consolidated financial statements.
54
Consolidated Statements of Changes in Shareholders’ Equity
Dollars in thousands, except share and per share data



Common Stock
 SharesAmountAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Shareholders' Equity
Balances, December 31, 201926,671,368 $26,671 $278,954 $253,090 $15,105 $573,820 
Cumulative Effect of Change in Accounting Principles (1)
(6,717)(6,717)
Balances, January 1, 202026,671,368 26,671 278,954 246,373 15,105 567,103 
Net Income  62,210  62,210 
Other Comprehensive Income (Loss)    20,270 20,270 
Cash Dividends ($0.76 per share)   (20,136) (20,136)
Issuance of Common Stock for:     
Restricted Share Grants52,701 53 998   1,051 
Stock Repurchase(221,912)(222)(5,567) (5,789)
Balances, December 31, 202026,502,157 26,502 274,385 288,447 35,375 624,709 
Net Income   84,137  84,137 
Other Comprehensive Income (Loss)    (19,891)(19,891)
Cash Dividends ($0.84 per share)   (22,220) (22,220)
Issuance of Common Stock for:      
Restricted Share Grants51,351 52 1,672   1,724 
Balances, December 31, 202126,553,508 26,554 276,057 350,364 15,484 668,459 
Net Income   81,825  81,825 
Other Comprehensive Income (Loss)    (278,922)(278,922)
Cash Dividends ($0.92 per share)   (27,022) (27,022)
Issuance of Common Stock for:      
Acquisition of Citizens Union Bancorp2,870,975 2,871 108,852 111,723 
Restricted Share Grants68,710 68 2,262   2,330 
Balances, December 31, 202229,493,193 $29,493 $387,171 $405,167 $(263,438)$558,393 

  Common Stock        
  Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity
Balances, January 1, 2015 13,215,800
 $13,216
 $108,660
 $104,058
 $2,890
 $228,824
             
Net Income  
 

 

 30,064
 

 30,064
Other Comprehensive Income (Loss)  
 

 

 

 922
 922
Cash Dividends ($.45 per share) (1)
  
 

 

 (9,010) 

 (9,010)
Issuance of Common Stock for:  
      
  
  
Exercise of Stock Options 12,985
 13
 36
 

 

 49
Restricted Share Grants 34,826
 35
 928
 

 

 963
Employee Stock Purchase Plan 15,213
 15
 432
 

 

 447
Income Tax Benefit From Restricted Share Vesting  
 

 89
 

 

 89
             
Balances, December 31, 2015 13,278,824
 13,279
 110,145
 125,112
 3,812
 252,348
             
Net Income  
 

 

 35,184
 

 35,184
Other Comprehensive Income (Loss)  
 

 

 

 (10,216) (10,216)
Cash Dividends ($.48 per share) (1)
  
 

 

 (10,630) 

 (10,630)
Issuance of Common Stock for:  
  
  
  
  
  
Exercise of Stock Options 4,166
 4
 51
 

 

 55
Acquisition of River Valley Bancorp 1,942,429
 1,942
 59,977
 

 

 61,919
Restricted Share Grants 36,012
 36
 1,371
 

 

 1,407
Income Tax Benefit From Restricted Share Vesting  
 

 200
 

 

 200
             
Balances, December 31, 2016 15,261,431
 15,261
 171,744
 149,666
 (6,404) 330,267
             
Net Income  
 

 

 40,676
 

 40,676
Other Comprehensive Income (Loss)  
 

 

 

 4,253
 4,253
Reclass Upon Adoption of ASU 2018-02 (See Note 1 - Summary of Significant Accounting Policies)       469
 (469) —
Cash Dividends ($.52 per share) (1)
  
 

 

 (11,842) 

 (11,842)
Issuance of Common Stock for:  
  
  
  
  
  
3-for-2 Stock Split 7,642,726
 7,643
 (7,672) 

 

 (29)
Restricted Share Grants 30,246
 30
 1,216
 

 

 1,246
Income Tax Benefit From Restricted Share Vesting  
 

 —
 

 

 —
             
Balances, December 31, 2017 22,934,403
 $22,934
 $165,288
 $178,969
 $(2,620) $364,571
(1) The Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments on January 1, 2020 using the modified retrospective approach. As a result, the Company recorded a net reduction of retained earnings upon adoption.


(1) Per share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.
































See accompanying notes to the consolidated financial statements. 
55
Consolidated Statements of Cash Flows
Dollars in thousands



 Years Ended December 31,Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES 2017 2016 2015CASH FLOWS FROM OPERATING ACTIVITIES202220212020
Net Income $40,676
 $35,184
 $30,064
Net Income$81,825 $84,137 $62,210 
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:  
  
  
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:   
Net Amortization on Securities 3,543
 3,675
 2,548
Net Amortization on Securities6,452 6,638 5,671 
Depreciation and Amortization 4,687
 4,315
 4,264
Depreciation and Amortization10,116 8,770 9,429 
Loans Originated for Sale (122,518) (138,192) (137,687)Loans Originated for Sale(162,959)(261,529)(317,032)
Proceeds from Sales of Loans Held-for-Sale 134,316
 137,307
 136,088
Proceeds from Sales of Loans Held-for-Sale171,591 276,417 327,172 
Provision for Loan Losses 1,750
 1,200
 —
Provision for Credit LossesProvision for Credit Losses6,350 (6,500)17,550 
Gain on Sale of Loans, net (3,280) (3,359) (2,959)Gain on Sale of Loans, net(3,818)(8,267)(9,908)
Gain on Securities, net (596) (1,979) (725)Gain on Securities, net(562)(2,247)(4,081)
Loss (Gain) on Sales of Other Real Estate and Repossessed Assets (17) (55) 63
Loss (Gain) on Sales of Other Real Estate and Repossessed Assets(18)(101)28 
Loss on Disposition and Donation of Premises and Equipment 870
 5
 389
Loss (Gain) on Disposition and Donation of Premises and EquipmentLoss (Gain) on Disposition and Donation of Premises and Equipment(37)1,640 223 
Loss (Gain) on Disposition of LandLoss (Gain) on Disposition of Land— — 43 
Post Retirement Medical Benefit (34) 7
 15
Post Retirement Medical Benefit54 — — 
Increase in Cash Surrender Value of Company Owned Life Insurance (1,370) (1,068) (689)Increase in Cash Surrender Value of Company Owned Life Insurance(1,820)(1,369)(1,449)
Equity Based Compensation 1,246
 1,407
 963
Equity Based Compensation2,330 1,724 1,051 
Excess Tax Benefit from Restricted Share Grant 240
 200
 89
Excess Tax Benefit from Restricted Share Grant— — 3 
Change in Assets and Liabilities:  
  
  
Change in Assets and Liabilities:   
Interest Receivable and Other Assets (4,528) 5,813
 172
Interest Receivable and Other Assets(1,094)2,716 (2,925)
Interest Payable and Other Liabilities (110) (2,547) (1,328)Interest Payable and Other Liabilities1,626 (1,185)4,433 
Net Cash from Operating Activities 54,875
 41,913
 31,267
Net Cash from Operating Activities110,036 100,844 92,418 
      
CASH FLOWS FROM INVESTING ACTIVITIES  
  
  
CASH FLOWS FROM INVESTING ACTIVITIES   
Purchase of Other Short-term Investments —
 (1,000) —
Proceeds from Maturity of Other Short-term Investments —
 1,992
 100
Proceeds from Maturity of Other Short-term Investments495 496 744 
Proceeds from Maturities, Calls, Redemptions of Securities Available-for-Sale 79,955
 103,301
 90,702
Proceeds from Maturities of Securities Available-for-SaleProceeds from Maturities of Securities Available-for-Sale143,418 208,156 200,968 
Proceeds from Sales of Securities Available-for-Sale 49,459
 165,102
 18,999
Proceeds from Sales of Securities Available-for-Sale145,237 111,124 125,106 
Purchase of Securities Available-for-Sale (156,802) (225,456) (116,942)Purchase of Securities Available-for-Sale(417,940)(1,020,695)(664,989)
Proceeds from Maturities of Securities Held-to-Maturity —
 95
 89
Purchase of Federal Home Loan Bank Stock —
 (1,350) (2,395)
Proceeds from Redemption of Federal Home Loan Bank Stock —
 —
 864
Proceeds from Redemption of Federal Home Loan Bank Stock8,089 120 800 
Purchase of Loans (5,547) (5,383) (9,895)Purchase of Loans(933)— — 
Proceeds from Sales of Loans 1,106
 2,029
 —
Proceeds from Sales of Loans Held for InvestmentProceeds from Sales of Loans Held for Investment3,916 — 3,128 
Loans Made to Customers, net of Payments Received (149,336) (106,198) (108,007)Loans Made to Customers, net of Payments Received(107,236)59,557 (10,114)
Proceeds from Sales of Other Real Estate 1,435
 1,429
 1,170
Proceeds from Sales of Other Real Estate88 1,423 340 
Property and Equipment Expenditures (11,183) (5,234) (1,614)Property and Equipment Expenditures(7,852)(4,686)(7,071)
Proceeds from Sales of Property and Equipment 6
 —
 —
Proceeds from Sale of Land and BuildingProceeds from Sale of Land and Building— 1,963 3,928 
Proceeds from Life Insurance 1,627
 —
 —
Proceeds from Life Insurance773 549 1,082 
Acquisition of River Valley Bancorp —
 (1,016) —
Sale of Bank BranchesSale of Bank Branches— 1,694 — 
Acquisition of Citizens Union Bancorp of Shelbyville, Inc.Acquisition of Citizens Union Bancorp of Shelbyville, Inc.207,764 — — 
Net Cash from Investing Activities (189,280) (71,689) (126,929)Net Cash from Investing Activities(24,181)(640,299)(346,078)
      
CASH FLOWS FROM FINANCING ACTIVITIES  
  
  
CASH FLOWS FROM FINANCING ACTIVITIES   
Change in Deposits 134,737
 118,231
 46,630
Change in Deposits(324,771)655,485 676,906 
Change in Short-term Borrowings (4,054) (40,163) 36,244
Change in Short-term Borrowings29,817 15,423 (114,832)
Advances in Long-term Debt 75,000
 —
 75,000
Repayments of Long-term Debt (53,864) (24,910) (44,135)Repayments of Long-term Debt(41,690)(58,091)(40,625)
Issuance (Retirement) of Common Stock (29) 55
 49
Issuance (Retirement) of Common Stock— — (5,789)
Employee Stock Purchase Plan —
 —
 447
Dividends Paid (11,842) (10,630) (9,010)Dividends Paid(27,022)(22,220)(20,136)
Net Cash from Financing Activities 139,948
 42,583
 105,225
Net Cash from Financing Activities(363,666)590,597 495,524 
      
Net Change in Cash and Cash Equivalents 5,543
 12,807
 9,563
Net Change in Cash and Cash Equivalents(277,811)51,142 241,864 
Cash and Cash Equivalents at Beginning of Year 64,816
 52,009
 42,446
Cash and Cash Equivalents at Beginning of Year396,890 345,748 103,884 
Cash and Cash Equivalents at End of Year $70,359
 $64,816
 $52,009
Cash and Cash Equivalents at End of Year$119,079 $396,890 $345,748 
      
Cash Paid During the Year for  
  
  
Cash Paid During the Year for   
Interest $10,852
 $8,348
 $6,146
Interest$17,442 $10,020 $20,484 
Income Taxes 12,462
 9,254
 9,083
Income Taxes11,649 14,434 11,505 
      
Supplemental Non Cash Disclosures (See Note 18 for Business Combinations)  
  
  
Supplemental Non Cash DisclosuresSupplemental Non Cash Disclosures   
Loans Transferred to Other Real Estate $1,230
 $565
 $1,046
Loans Transferred to Other Real Estate$30 $— $— 
Reclassification of Land to Other Assets 330
 664
 —
Interest Rate Swap Fair Value ActivityInterest Rate Swap Fair Value Activity4,988 (4,287)6,199 
Supplemental Schedule for Investing Activities (See Note 18 for Business Combinations)Supplemental Schedule for Investing Activities (See Note 18 for Business Combinations)
Assets acquired, net of purchase considerationAssets acquired, net of purchase consideration945,160 — — 
Liabilities assumedLiabilities assumed1,003,756 — — 
GoodwillGoodwill$58,596 $— $— 
See accompanying notes to the consolidated financial statements.
56
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies

Description of Business and Basis of Presentation
The operations of German American Bancorp, Inc's. operationsInc. (the “Company”) are primarily comprised of three business segments: core banking, trust and investment advisory services, and insurance operations. The accounting and reporting policies of German American Bancorp, Inc.the Company and its subsidiaries conform to U.S. generally accepted accounting principles. The more significant policies are described below. The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all material intercompany accounts and transactions. Certain prior year amounts have been reclassified to conform with current classifications. Reclassifications had no impact on shareholders'shareholders’ equity or net income. To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.
 
Securities
SecuritiesDebt securities classified as available-for-sale are securities that the Company intends to hold for an indefinite period of time, but not necessarily until maturity. Held-to-maturity securities, when present, are carried at amortized cost. As of December 31, 2022, and 2021, the Company held no securities classified as held-to-maturity. These include securities that management may use as part of its asset/liability strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, or similar reasons. EquitySecurities classified as available-for-sale are reported at fair value with unrealized gains or losses included as a separate component of equity (other comprehensive income), net of tax.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on trade date and determined using the specific identification method.
Investments with readily determinable values (except those accounted for under equity method of accounting or those that result in consolidation of the investee) are measured at fair values are classified as available-for-sale.value with changes in fair value recognized in net income. Equity securities that do not have readily determinable fair values are carried at historical cost and evaluated for impairment on a periodic basis. Securities classified as available-for-sale are reported at fair value with unrealized gains or losses included as a separate component of equity, net of tax. Securities classified as held-to-maturity are securities that the Company has both the ability and positive intent to hold to maturity. Securities held-to-maturity are carried at amortized cost.
Premium amortization is deducted from, and discount accretion is added to, interest income using the level yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on trade date and are computed on the identified securities method.
Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.  For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.
 
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at fair value. Fair value is determined based on collateral value and prevailing market prices for loans with similar characteristics. Net unrealized gains or losses are recorded through earnings.

Mortgage loans held for sale are generally sold on a servicing released basis. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans
Loans that management originates and has the intent and ability to hold for the foreseeable future or until maturity or pay-offpayoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of unearned interest,purchase premiums and discounts, deferred loan fees and costs,costs. Accrued interest receivable totaled $16,816 at December 31, 2022 and an allowance for loan losses.was reported in Accrued Interest Receivable and Other Assets on the Consolidated Balance Sheets. Interest income is accrued on the unpaid principal balance and includes amortization of net deferred loanbalance. Loan origination fees and costs overare deferred and recognized in interest income using the loan termlevel-yield method without anticipating prepayments.


All classesPurchase Credit Deteriorated (PCD) Loans
The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are generally placedrecorded at the amount paid. An allowance for credit losses on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. Uncollected accrued interest for each class of loans is reversed against income atdetermined using the timesame methodology as other loans held for investment. The initial allowance for credit losses on loans determined on a collective basis
is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses on loans becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is placeda noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses on non-accrual. Interest received on such loans are recorded through provision expense.

Allowance for Credit Losses - Loans
The allowance for credit losses is accounted fora valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the cash-basis or cost-recovery method, until qualifying for return to accrual. All classes of loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.loans. Loans are typicallycharged off against the allowance when management believes the
57
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 1 – Summary of Significant Accounting Policies (continued)

charged-off at 180 days past due, or earlier if deemed uncollectible. Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection.
Certain Purchased Loans
The Company purchases individual loans and groups of loans. Purchased loans that show evidence of credit deterioration since origination are recorded at the amount paid (or allocated fair value in a purchase business combination), such that there is no carryover of the seller’s allowance for loan losses. After acquisition, incurred losses are recognized by an increase in the allowance for loan losses. Such purchased loans are accounted for individually. The Company estimates the amount and timing of expected cash flows for each purchased loan and the expected cash flows in excess of amount paid is 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 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.
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. SubsequentExpected recoveries if any, are crediteddo not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company utilizes the allowance. Managementstatic pool methodology in determining expected future credit losses. Static pool analysis includes segmenting and tracking loans over a period of time based on similar risk characteristics such as loan structure, collateral type, industry of borrower and concentrations, contractual terms and credit risk indicators. Static pool calculates a loss rate on a closed pool of loans that existed on a specified start date based upon the remaining life of each segment. The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look-back period includes January 2014 through the current period, on a monthly basis.

The Company estimates the allowance balance required using relevant available information, from internal and external sources, relating to past loanevents, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the nature and volumebasis for the estimation of the portfolio,expected credit losses. Adjustments to historical loss information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may beare made for specific loans, but the entire allowance is available for any loan that,changes 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 or loans otherwise classified as substandard or special mention. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.
Loan impairment is reported when full repayment under the terms of the loan is not expected. 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. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous loans are evaluated for impairmentunderwriting standards, portfolio mix, delinquency level, changes in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
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 at the fair value of the collateral net of disposition costs. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.
The general component of the allowance for loan losses covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment andenvironmental conditions, unemployment rates, risk classifications and is based on the actual loss history experienced by the Company over a 20 quarter average.collateral values. The Company separately assigns allocations for substandard and special mention commercial and agricultural credits as well as other categories of loans based on migration analysis techniques. This actual loss experienceThe migration analysis factors are calculated using a transition matrix to determine the likelihood of a customer’s asset quality rating migrating from its current rating to any other rating.
The allowance for credit losses is supplemented with other external and internal factors basedmeasured on the risks present for each portfolio segment. These factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes ina collective (pooled) basis when similar risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.characteristics exist. The Company has identified the following portfolio segments have been identified: Commercial Loans and Retail Loans. Commercial Loans have been classified according toidentified the following risk characteristics: characteristics of each portfolio listed below:

Commercial and Industrial Loans - The principal risk of commercial and Leases, Commercial Real Estate, and Agricultural Loans. Commercial and Industrialindustrial loans is that these loans are primarily based on the cash flows of the business operations and secured by assets being financed and other assets such as accounts receivable and inventory. Commercial Real Estate Loans and Agricultural Loans are primarily based onidentified cash flow of the borrower and their business and furthersecondarily on the collateral underlying the loans. Most commercial loans are secured by accounts receivable, inventory and equipment. If cash flow from business operations is reduced, the borrower’s ability to repay the loan may diminish, and over time, it may also be difficult to substantiate current value of inventory and equipment. Repayment of these loans are more sensitive than other types of loans to adverse conditions in the general economy.

Commercial Real Estate Loans - Commercial real estate lending is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. Commercial real estate loans are collateralized by the borrower’s underlying real estate. AllTherefore, diminished cash flows not only affects the ability to repay the loan, it may also reduce the underlying collateral value.

Agricultural Loans - This portfolio is diversified between real estate financing, equipment financing and lines of credit in various segments including grain production, poultry production and livestock production. Mitigating any concentration of risk that may exist in the Company’s agricultural loan portfolio is the use of federal government guarantee programs.

Leases - Leases are primarily for equipment leased to varying types of commercial and agricultural (real estatebusinesses. If the cash flows from the business operations is reduced, the business’s ability to repay the lease is diminished as well.

Home Equity Loans - Home equity loans are generally secured and non-real estate) may also come withby 1-4 family residences that are owner-occupied. Repayment of these loans is primarily dependent on the personal guaranteesincome of the borrowers, and business owners. Retail Loans have been classified accordingwhich can be impacted by unemployment levels in the market area due to the following risk characteristics: Home Equity Loans, economic conditions.

Consumer Loans - Consumer loan repayment is typically dependent on the borrower remaining employed through the life of the loan as well as the borrower maintaining the underlying collateral adequately.

Credit Cards - Credit card loans are unsecured and repayment is primarily dependent on the personal income of the borrower.

Residential Mortgage Loans. RetailLoans - Residential mortgage loans are generallytypically secured by 1-4 family residences that are owner-occupied. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by unemployment levels in the market area due to economic conditions. Repayment may also be impacted by changes in residential property values.

58
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 1 – Summary of Significant Accounting Policies (continued)

ofLoans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are also not included in the customer,collective evaluation. When the borrower is experiencing financial difficulty at the reporting date and repayment is dependent on borrower’s personal cash flow and employment status which canexpected to be affected by general economic conditions. Additionally,provided substantially through the operation or sale of the collateral, values may fluctuateexpected credit losses are based on the impact of economic conditions on residential real estate values and other consumer type assets such as automobiles.
Loans or portions of loans shall be charged off when there is a distinct probability of loss identified. A distinct probability of loss exists when it has been determined that any remaining sources of repayment are insufficient to cover all outstanding principal. The probable loss is immediately calculated based on the value of the remaining sources of repayment and charged to the allowance for loan loss.
Servicing Rights
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts when available or, alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Through the acquisition of River Valley Bancorp in 2016, German American acquired a portfolio of servicing rights on mortgage loans. The fair value of mortgage servicing rights were $547 and $611 at December 31, 2017 and 2016, respectively.

On a quarterly basis, loan servicing rights are evaluated for impairment based upon the fair value of the rightscollateral at the reporting date adjusted for selling costs.

Troubled Debt Restructurings (“TDR”)
A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR. The allowances for credit losses on loans on a TDR is measured using the same method as all other loans held for investment.

Loan Modifications and Troubled Debt Restructurings due to COVID-19
On April 7, 2020, the Board of Governors of the Federal Reserve System (the “FRB”), the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation (the “FDIC” and, together with the FRB and OCC, the “federal banking regulators”) issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally would not need to categorize COVID-19-related modifications as troubled debt restructurings and that the agencies would not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings. Similarly, under the CARES Act, provisions were included that allowed for loan modifications to not be classified as TDRs if certain criteria were met. This TDR exemption expired on January 1, 2022.

Allowance for Credit Losses on Available-For-Sale Securities
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to carrying amount. The valuation model utilizes interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data.

Servicing fee income is reported on the income statement as other operating income. The fees are based on a contractual percentageamortized cost basis of the outstanding principalsecurity. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recorded in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense included in other expense on the consolidated income when earned.statement. The amortizationestimate includes consideration of mortgage servicing right is netted against loan servicing fee income.the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Expected utilization rates are compared to the current funded portion of the total commitment amount as a practical expedient for funded exposure at default.


Federal Home Loan Bank (FHLB) Stock
The Bank is a member of the FHLB of Indianapolis. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
 
Premises, Furniture and Equipment
Land is carried at cost. Premises, furniture, and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging generally from 10 to 40 years.
59
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)
Furniture, fixtures, and equipment are depreciated using the straight-line method with useful lives ranging generally from 3 to 10 years.


Other Real Estate
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of commercial/residential real estate property collateralizing a commercial/consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through the completion of a deed in lieu of foreclosure or through a similar legal agreement. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
 
Goodwill and Other Intangible Assets
Goodwill resultingarises from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009,and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected December 31 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s balance sheet.
 
Other intangible assets consist of core deposit and acquired customer relationship intangible assets. They are initially measured at fair value and then are amortized over their estimated useful lives, which range from 6 to 10 years.

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)


Company Owned Life Insurance
The Company has purchased life insurance policies on certain directors and executives. This life insurance is recorded at its cash surrender value or the amount that can be realized, which considers any adjustments or changes that are probable at settlement.
 
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe currently that there are any such matters that will have a material impact on the financial statements.

Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.


Restrictions on Cash
At December 31, 20172022 and 2016, respectively,2021, the Company was not required to have $10,967 and $11,659balance on depositdeposits with the Federal Reserve, or as cash on hand.
 
Long-term Assets
Premises and equipment, core deposit and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
 
Stock Based Compensation
Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period.

Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and changes in unrecognized amounts in pension and other postretirement benefits, which are also recognized as a separate component of equity.
60
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax liabilitiesassets and assets are determined at each balance sheet date andliabilities are the result ofexpected future tax amounts for the temporary differences in the financial statementbetween carrying amounts and tax bases of assets and liabilities.liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
 
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in other operating expense.
 
Retirement Plans
Pension expense under the suspended defined benefit plan is the net of interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Employee 401(k) and profit sharing plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.
 
Earnings Per Share
Earnings per share are based on net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share show the potential dilutive effect of additional common shares issuable under the Company’s stock based compensation plans. Earnings per share are retroactively restated for stock splits and stock dividends.
 
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Cash Flow Reporting
The Company reports net cash flows for customer loan transactions, deposit transactions, deposits made with other financial institutions and short-term borrowings. Cash and cash equivalents are defined to include cash on hand, demand deposits in other institutions and Federal Funds Sold.

Fair Values of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 15. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

NewRecently Adopted Accounting Pronouncements Guidance
In May 2014,March 2020, the Financial Accounting Standards Board (the "FASB"(“FASB”) amendedissued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities as of March 12, 2020 through December 31, 2024. The Company has discontinued originating LIBOR based loans and has a plan in place to transition LIBOR indexed loans primarily to term SOFR or other indices.

On March 31, 2022, the FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” which eliminates the troubled debt restructuring (TDR) recognition and measurement guidance and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing guidance (ASU 2014-09 Revenue From Contracts With Customers (Topic 606))loan. The amendments also enhance existing disclosures and include new disclosure requirements related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changescertain modifications of receivables made to borrowers experiencing financial difficulty. To improve consistency for vintage disclosures, the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer. These amendments are effective forASU requires that public business entities disclose current-period gross write-offs by year of origination for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.

The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. The Company adopted the new guidance effective January 1, 2018financing receivables and intends to utilize the modified retrospective method.

The Company established a task force for evaluating the impact of ASU 2014-09 on the Company's consolidated results. The new standard did not resultnet investments in a material change in the manner in which it recognizes revenue because the majority of the Company's financial instruments are notleases within the scope of Topic 606. Revenue streams within Other Noninterest IncomeSubtopic 326-20. For entities that the Company evaluated primarily included Service Charges on Deposit Accounts, Trust and Investment Product Fees, and Insurance Revenues.

This pronouncement will not have a material impact onadopted ASU 2016-13, the Company's consolidated results of operations and financial condition as the Company's core revenue does not fall under this guidance. Even though this pronouncement will not have a material impact on the Company's consolidated results, the Company will have additional disclosures in its Form 10-Q for the first quarter of 2018 as required by this guidance.

In January 2016, the FASB amended existing guidance (ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities) that requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. It requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. It requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). It eliminates that requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These amendments are effective for public business entities for fiscal years beginning after December 15, 2017,2022, including interim periods within those fiscal years. For entities that reporting period. The Company notes thathave not adopted ASU 2016-13, the impact ofeffective dates for the amendments are the same as the effective dates in ASU 2016-13. Early adoption is to carry the equity security at fair value through the income statement or at cost, less impairment when fair value is not readily determinable, with observable price changes being recognizedpermitted if ASU 2016-13 has been adopted, including adoption in earnings. The Company doesn't expect the impact to have a material effect on the Company's operating results or financial condition; however, it will impact the fair value disclosures included in Note 15 - Fair Value. For additional information on this equity security, see Note 2 - Securities.an

61
In February 2016, the FASB amended existing guidance (ASU No. 2016-02, Leases (Topic 842)) that requires lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date (1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 1 – Summary of Significant Accounting Policies (continued)

guidance, lessor accounting is largely unchanged. Certain targeted improvements were madeinterim period. If an entity elects to align, where necessary, lessor accounting withadopt the lessee accounting model and Topic 606, Revenue from Contracts with Customers. These amendments are effective for public business entities for fiscal years beginning after December 15, 2018, includingin an interim periods within that reporting period. Based on our leases outstanding as of December 31, 2017, the Company does not expect this new guidance to have a material impact on the consolidated results of operation. However as a result of this new guidance, the Company anticipates an estimated increase in its Consolidated Balance Sheet of approximately $6,000. This impact will vary based on the Company's future decisions to enter into new lease agreements or exit/renew current lease agreements prior to the date of implementation.

In June 2016, the FASB issued guidance (ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326)) to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. This standard will be effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that reporting period.

Transition:
For debt securities with other-than-temporary impairment (OTTI),period, the guidance willshould be applied prospectively.
Existing purchased credit impaired (PCI) assets will be grandfathered and classified as purchased credit deteriorated (PCD) assets at the date of adoption. The asset will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance.
For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period in whichfiscal year that includes the guidance is effective.

interim period. The Company has formed a CECL committee that is assessing data and system needs in order to evaluatecurrently evaluating the impact of adopting the new guidance. guidance on the consolidated financial statements.

The Company expectsSEC released Staff Accounting Bulletin No. 121 (“SAB 121”), which provides interpretive guidance regarding the accounting for obligations to safeguard crypto-assets an entity holds for its customers, either directly through an agent or another third party acting on its behalf. SAB 121 requires an entity to recognize a one-time cumulative adjustmentliability on its balance sheet to reflect the allowance for loan losses asobligation to safeguard the crypto-assets of the beginningothers, along with a corresponding safeguarding asset, both of the first reporting period in which the new standard is effective, but can not estimate the amountare measured at this time.

In August 2016, the FASB issued ASU (ASU No. 2016-15, Statement of Cash Flows (Topic 320): Classification of Certain Cash Receipts and Cash Payments) to address the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows including the following:
Debt Prepayment or Debt Extinguishment Costs;
Settlement of Zero-Coupon Bonds or Debt with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate;
Contingent Consideration payments Made Soon After a Business Combination;
Proceeds From the Settlement of Insurance Claims;
Proceeds From the Settlement of BOLI and COLI Policies;
Distributions Received From Equity Method Investees;
Beneficial Interests in Securitization Transactions; and
Application of the Predominance Principle.
These amendments are effective for public business entities beginning January 1, 2018. This guidance currently has no material impact on the Company's Consolidated Statements of Cash Flows; however, the Company will continue to monitor it going forward.

In March 2017, the FASB amended existing guidance (ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20)) to amend the amortization period for certain purchased callable debt securities held at a premium. The amortization period has been shortened to the earliest call date. Under current generally accepted accounting principles, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. These amendments are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.fair value. The Company early adopted this guidance in 2017has completed an evaluation and concluded that it diddoes not have a material impact onsafeguarding obligation under SAB 121 and therefore the Company's operating results or financial condition.disclosures do not apply.


In January 2018, the FASB issued new guidance (ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)) to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Act and will improve the usefulness of information reported to financial statement users. This amendment is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company early adopted this guidance in 2017 and it did not have a material impact on the Company's operating results or financial condition.

NOTE 2 -– Securities


The amortized cost, unrealized gross gains and losses recognized in accumulated other comprehensive income (loss), and fair value of Securities Available-for-Sale were as follows:
Securities Available-for-Sale:Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
2022    
U.S. Treasury$64,097 $22 $— $64,119 
Obligations of State and Political Subdivisions939,193 673 (162,014)777,852 
MBS/CMO846,519 — (131,838)714,681 
US Gov’t Sponsored Entities & Agencies245,017 — (40,000)205,017 
Total$2,094,826 $695 $(333,852)$1,761,669 
2021    
Obligations of State and Political Subdivisions$896,048 $31,138 $(1,480)$925,706 
MBS/CMO797,693 4,738 (10,481)791,950 
US Gov’t Sponsored Entities & Agencies175,457 192 (3,688)171,961 
Total$1,869,198 $36,068 $(15,649)$1,889,617 
Securities Available-for-Sale: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
2017  
  
  
  
Obligations of State and Political Subdivisions $267,437
 $6,733
 $(861) $273,309
MBS/CMO – Residential 476,205
 416
 (9,289) 467,332
Equity Securities 353
 —
 —
 353
Total $743,995
 $7,149
 $(10,150) $740,994
         
2016  
  
  
  
Obligations of State and Political Subdivisions $247,350
 $3,847
 $(3,678) $247,519
MBS/CMO - Residential 471,852
 480
 (10,418) 461,914
Equity Securities 353
 —
 —
 353
Total $719,555
 $4,327
 $(14,096) $709,786
Equity securities that do not have readily determinable fair values are included in the above totals and are evaluated for impairment on a periodic basis. All mortgage-backed securities in the above table (identified above and throughout this Note 2 as “MBS/CMO”) are residential and multi-family mortgage-backed securities and guaranteed by government sponsored entities. The US Gov’t Sponsored Entities & Agencies in the above table have underlying collateral of equipment, machinery and commercial real estate.


The amortized cost and fair value of Securitiessecurities at December 31, 20172022 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay certain obligations with or without call or prepayment penalties. Mortgage-backed and Equity Securitiessecurities are not due at a single maturity date and are shown separately.
Amortized
Cost		Fair
Value
Securities Available-for-Sale:  
Due in one year or less$67,363 $67,383 
Due after one year through five years15,449 15,496 
Due after five years through ten years55,747 53,536 
Due after ten years864,731 705,556 
MBS/CMO846,519 714,681 
US Gov’t Sponsored Entities & Agencies245,017 205,017 
Total$2,094,826 $1,761,669 

62
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data
NOTE 2 – Securities (continued)

  
Amortized
Cost
 
Fair
Value
Securities Available-for-Sale:  
  
Due in one year or less $2,706
 $2,739
Due after one year through five years 23,789
 24,531
Due after five years through ten years 78,661
 81,215
Due after ten years 162,281
 164,824
MBS/CMO - Residential 476,205
 467,332
Equity Securities 353
 353
Total $743,995
 $740,994
202220212020
Proceeds from the Sales of Securities are summarized below:Available-
for-Sale		Available-
for-Sale		Available-
for-Sale
Proceeds from Sales$145,237 $111,124 $125,106 
Gross Gains on Sales562 2,247 4,081 
Income Taxes on Gross Gains118 472 857 

  2017 2016 2015
Proceeds from the Sales of Securities are summarized below: 
 
Available-
for-Sale
 
Available-
for-Sale
 
Available-
for-Sale
       
Proceeds from Sales $49,459
 $165,102
 $18,999
Gross Gains on Sales 596
 1,979
 725
       
Income Taxes on Gross Gains 209
 693
 254


The carrying value of securities pledged to secure repurchase agreements, public and trust deposits, and for other purposes as required by law was $165,404$354,123 and $186,572$222,896 as of December 31, 20172022 and 2016,2021, respectively.

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data
NOTE 2 – Securities (continued)



Below is a summary of securities with unrealized losses as of year-end 2017December 31, 2022 and 2016,2021, presented by length of time the securities have been in a continuous unrealized loss position: 
 Less than 12 Months12 Months or MoreTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
December 31, 2022      
Obligations of State and Political Subdivisions$579,267 $(117,423)$122,992 $(44,591)$702,259 $(162,014)
MBS/CMO240,344 (20,920)474,327 (110,918)714,671 (131,838)
US Gov’t Sponsored Entities & Agencies198,702 (38,818)6,314 (1,182)205,016 (40,000)
Total$1,018,313 $(177,161)$603,633 $(156,691)$1,621,946 $(333,852)
  Less than 12 Months 12 Months or More Total
  
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
At December 31, 2017  
  
  
  
  
  
Obligations of State and Political Subdivisions $33,230
 $(237) $24,161
 $(624) $57,391
 $(861)
MBS/CMO - Residential 172,354
 (2,048) 250,520
 (7,241) 422,874
 (9,289)
Equity Securities —
 —
 —
 —
 —
 —
Total $205,584
 $(2,285) $274,681
 $(7,865) $480,265
 $(10,150)


 Less than 12 Months12 Months or MoreTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
December 31, 2021
Obligations of State and Political Subdivisions$165,210 $(1,386)$1,500 $(94)$166,710 $(1,480)
MBS/CMO467,888 (9,100)36,827 (1,381)504,715 (10,481)
US Gov’t Sponsored Entities & Agencies126,103 (3,480)7,288 (208)133,391 (3,688)
Total$759,201 $(13,966)$45,615 $(1,683)$804,816 $(15,649)

  Less than 12 Months 12 Months or More Total
  
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
At December 31, 2016  
  
  
  
  
  
Obligations of State and Political Subdivisions $108,918
 $(3,678) $—
 $—
 $108,918
 $(3,678)
MBS/CMO - Residential 356,040
 (8,782) 47,271
 (1,636)��403,311
 (10,418)
Equity Securities —
 —
 —
 —
 —
 —
Total $464,958
 $(12,460) $47,271
 $(1,636) $512,229
 $(14,096)

SecuritiesAvailable-for-sale debt securities in unrealized loss positions are written downevaluated for impairment related to fair value when a declinecredit losses at least quarterly. For available-for-sale debt securities in fair value is not considered temporary. In estimating other-than-temporary losses, 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 market decline was affected by macroeconomic conditions, and (4) whetheran unrealized loss position, the Company has the intentassesses whether we intend to sell, the debt security or it is more likely than not that we will be required to sell the debt security before recovery of its anticipated recovery. The Company doesn’t intendamortized cost basis. If either of the criteria regarding intent or requirement to sell or expectis met, the security’s amortized cost basis is written down to be required to sell thesefair value through income. For available-for sale debt securities andthat do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is largely dueless than amortized cost, any changes to changesthe rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. The increase in unrealized losses from December 31, 2021 to December 31, 2022 in the obligations of state and political subdivisions, MBS/CMO and US government sponsored entities and agencies was primarily the result of fair value adjustments caused by the rise in market interest rates, therefore,rates. No allowance for credit losses for available-for-sale debt securities was needed at December 31, 2022 or 2021.

Accrued interest receivable on available-for-sale debt securities totaled $10,637 at December 31, 2022 and $8,990 at December 31, 2021. Accrued interest receivable is excluded from the Company does not consider these securities to be other-than-temporarily impaired. All mortgage-backed securities and collateralized mortgages obligations (MBS/CMO - Residential) in the Company’s portfolio are guaranteed by government sponsored entities, are investment grade, and are performing as expected.estimate of credit losses.

The Company’s equity securities are listed as Other Investments on the Consolidated Balance Sheets and consist of one non-controlling investment in a single banking organization at December 31, 20172022 and 2016.2021. The original investment totaled $1,350 and other-than-temporary impairment was previously recorded totaling $997. When a declineThe Company’s equity securities are
63
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data
NOTE 2 – Securities (continued)

considered not to have readily determinable fair value belowand are carried at cost is deemed to be other-than-temporary, the unrealized loss must beand evaluated for impairment. There was no additional impairment recognized as a charge to earnings.through earnings during 2022 or 2021.


NOTE 3 –- Derivatives

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of these interest rate swaps and the offsetting counterparty derivative instruments were $87.8 million and $67.9 million$134,684 at December 31, 20172022 and 2016, respectively.$143,593 at December 31, 2021. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions with approved, reputable, independent counterparties with substantially matching terms. The agreements are considered stand alonestand-alone derivatives and changes in the fair value of derivatives are reported in earnings as non-interest income. While the derivatives represent economic hedges, they do not qualify as hedges for accounting purposes.
 
Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Company’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. There are provisions in the agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, the Company minimizes credit risk through credit approvals, limits, and monitoring procedures.

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 3 – Derivatives (continued)


The following table reflects the fair value hedgesof derivative instruments included in the Consolidated Balance Sheets as of: 
 December 31, 2017 December 31, 2016 December 31, 2022December 31, 2021
 
Notional
Amount
 Fair Value 
Notional
Amount
 Fair ValueNotional
Amount		Fair ValueNotional
Amount		Fair Value
Included in Other Assets:  
  
  
  
Included in Other Assets:    
Interest Rate Swaps $87,788
 $1,564
 $67,902
 $1,291
Interest Rate Swaps$134,684 $9,899 $143,593 $4,519 
Included in Other Liabilities:  
  
  
  
Included in Other Liabilities:
Interest Rate Swaps $87,788
 $1,633
 $67,902
 $1,238
Interest Rate Swaps$134,684 $9,749 $143,593 $4,762 
 
The following table presents the effect of derivative instruments on the Consolidated Statements of Income for the years ended December 31, 2017, 20162022, 2021 and 2015 are2020 is as follows: 
 2017 2016 2015 202220212020
Interest Rate Swaps:  
  
  
Interest Rate Swaps:   
Included in Other Income $478
 $1,207
 $491
Included in Other Income$403 $1,131 $268 
 
64
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data
NOTE 4 – Loans
Loans were comprised of the following classifications at December 31: 
 20222021
Commercial:  
Commercial and Industrial Loans$620,106 $493,005 
Commercial Real Estate Loans1,966,884 1,530,677 
Agricultural Loans417,413 358,150 
Leases56,396 55,345 
Retail:
Home Equity Loans279,748 222,525 
Consumer Loans79,904 70,302 
Credit Cards17,512 14,357 
Residential Mortgage Loans350,682 263,565 
Subtotal3,788,645 3,007,926 
Less: Unearned Income(3,711)(3,662)
Allowance for Credit Losses(44,168)(37,017)
Loans, net$3,740,766 $2,967,247 

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

As further described in Note 18, during 2022 the Company acquired loans at fair value as part of a business combination. The table below summarizes the loans acquired on January 1, 2022.

Acquired Loan BalanceFair Value DiscountsFair Value
Bank Acquisition$683,501 $(5,359)$678,142 

The table below summarizes the remaining carrying amount of acquired loans included in the December 31, 2022 table above.
Commercial
and
Industrial
Loans		Commercial
Real Estate
Loans		Agricultural
Loans		LeasesConsumer
Loans		Home Equity LoansCredit CardsResidential
Mortgage
Loans		Total
Loan Balance$48,330 $319,893 $46,181 $— $10,249 $21,766 $— $70,250 $516,669 
Fair Value (Discount)/Premium(1,051)(1,893)172 — (45)(176)— 477 (2,516)

The Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of these loans is as follow:
2022
Purchase Price of Loans at Acquisition$32,997
Allowance for Credit Losses at Acquisition3,117
Non-Credit Discount/(Premium) at Acquisition1,456
Total$37,570

As previously disclosed, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law in March 2020, providing an approximately $2 trillion stimulus package that included direct payments to individual taxpayers, economic stimulus to significantly impacted industry sectors, emergency funding for hospitals and providers, small business loans, increased unemployment benefits, and a variety of tax incentives. For small businesses, eligible nonprofits and certain others, the CARES Act established a Paycheck Protection Program (“PPP”), a lending program administered by the Small Business Administration (“SBA”) that was intended to incentivize participants to retain their employees by providing them with loans that are fully guaranteed by the U.S. government and subject to forgiveness if program guidelines are met.

65
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)
  2017 2016
Commercial:  
  
Commercial and Industrial Loans and Leases $486,668
 $457,372
Commercial Real Estate Loans 926,729
 856,094
Agricultural Loans 333,227
 303,128
Retail:  
  
Home Equity Loans 152,187
 133,575
Consumer Loans 67,475
 59,945
Residential Mortgage Loans 178,733
 183,290
Subtotal 2,145,019
 1,993,404
Less: Unearned Income (3,381) (3,449)
Allowance for Loan Losses (15,694) (14,808)
Loans, net $2,125,944
 $1,975,147
The Company actively participated in the PPP, lending funds primarily to its existing loan and/or deposit customers. The PPP loans carried an interest rate of 1.00% and included a processing fee that varied depending on the balance of the loan at origination (which fee is recognized over the life of the loan). The vast majority of the Company’s PPP loans made during 2020 had two-year maturities, while PPP loans made during 2021 had five-year maturities.


Under the PPP, the Company originated loans totaling approximately $508,302 in principal amount, with approximately $21,046 of related net processing fees, on 5,671 PPP loan relationships. As of December 31, 2021, $487,980 of the PPP loans had been forgiven by the SBA and repaid to the Company pursuant to the terms of the program, or otherwise repaid by customers, with $20,172 in net processing fees having been recognized by the Company. As of December 31, 2022, all $508,302 of the PPP loans had been forgiven by the SBA and repaid to the Company, or repaid by customers, with all $21,046 in net processing fees having been recognized by the Company. As a result, as of December 31, 2022, no PPP loans remain outstanding and all net fees have been recognized.

Allowance for Credit Losses for Loans:

The following tables present the activity in the allowance for loancredit losses by portfolio classsegment for the years ended December 31, 2017, 2016,2022 and 2015: 2021:
December 31, 2022Commercial
and
Industrial
Loans		Commercial
Real Estate
Loans		Agricultural
Loans		LeasesConsumer
Loans		Home Equity LoansCredit CardsResidential
Mortgage
Loans		UnallocatedTotal
Allowance for Credit Losses:
Beginning Balance$9,554 $19,245 $4,505 $200 $507 $1,061 $240 $1,705 $— $37,017 
Acquisition of Citizens Union Bank of Shelbyville, KY - PCD Loans376 1,945 689 — 2 — — 105 — 3,117 
Provision (Benefit) for Credit Losses4,942 463 (1,006)9 991 351 163 437 — 6,350 
Loans Charged-off(1,149)(79)— — (1,364)(69)(165)(24)— (2,850)
Recoveries Collected26 24 — — 459 1 19 5 — 534 
Total Ending Allowance Balance$13,749 $21,598 $4,188 $209 $595 $1,344 $257 $2,228 $— $44,168 

December 31, 2021Commercial
and
Industrial
Loans		Commercial
Real Estate
Loans		Agricultural
Loans		LeasesConsumer
Loans		Home Equity LoansCredit CardsResidential
Mortgage
Loans		UnallocatedTotal
Allowance for Credit Losses:        
Beginning Balance$6,445 $29,878 $6,756 $200 $490 $996 $150 $1,944 $— $46,859 
Provision (Benefit) for Credit Losses5,825 (10,663)(2,251)— 385 44 387 (227)— (6,500)
Loans Charged-off(2,777)(10)— — (675)(15)(313)(45)— (3,835)
Recoveries Collected61 40 — — 307 36 16 33 — 493 
Total Ending Allowance Balance$9,554 $19,245 $4,505 $200 $507 $1,061 $240 $1,705 $— $37,017 

66
  
Commercial
and
Industrial
Loans and
Leases
 
Commercial
Real Estate
Loans
 
Agricultural
Loans
 
Home
Equity
Loans
 
Consumer
Loans
 
Residential
Mortgage
Loans
 Unallocated Total
December 31, 2017  
  
  
  
  
  
  
  
Beginning Balance $3,725
 $5,452
 $4,094
 $283
 $235
 $329
 $690
 $14,808
Provision for Loan Losses 1,147
 (689) 840
 78
 517
 44
 (187) 1,750
Recoveries 14
 48
 9
 8
 272
 63
 —
 414
Loans Charged-off (151) (220) (49) (39) (726) (93) —
 (1,278)
Ending Balance $4,735
 $4,591
 $4,894
 $330
 $298
 $343
 $503
 $15,694
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 4 – Loans (continued)

December 31, 2020Commercial
and
Industrial
Loans		Commercial
Real Estate
Loans		Agricultural
Loans		LeasesConsumer
Loans		Home Equity LoansCredit CardsResidential
Mortgage
Loans		UnallocatedTotal
Allowance for Credit Losses:
Beginning balance Prior to Adoption of ASC 326$4,799 $4,692 $5,315 $— $434 $200 $— $333 $505 $16,278 
Impact of Adopting ASC 3262,245 3,063 1,438 105 (59)762 124 1,594 (505)8,767 
Impact of Adopting ASC 326 - PCD Loans2,191 4,385 128 — — 35 — 147 — 6,886 
Provision (Benefit) for Credit Losses(694)17,645 (125)95 527 66 131 (95)— 17,550 
Initial Allowance on Loans Purchased with Credit Deterioration— — — — — — — — — — 
Loans Charged-off(2,119)(36)— — (766)(67)(109)(39)— (3,136)
Recoveries Collected23 129 — — 354 — 4 4 — 514 
Total Ending Allowance Balance$6,445 $29,878 $6,756 $200 $490 $996 $150 $1,944 $— $46,859 

  
Commercial
and
Industrial
Loans and
Leases
 
Commercial
Real Estate
Loans
 
Agricultural
Loans
 
Home
Equity
Loans
 
Consumer
Loans
 
Residential
Mortgage
Loans
 Unallocated Total
December 31, 2016  
  
  
  
  
  
  
  
Beginning Balance $4,242
 $6,342
 $2,115
 $383
 $230
 $414
 $712
 $14,438
Provision for Loan Losses (483) (846) 2,000
 33
 273
 245
 (22) 1,200
Recoveries 32
 10
 1
 3
 208
 16
 —
 270
Loans Charged-off (66) (54) (22) (136) (476) (346) —
 (1,100)
Ending Balance $3,725
 $5,452
 $4,094
 $283
 $235
 $329
 $690
 $14,808
The Company utilizes the Static Pool methodology in determining expected future credit losses. Static pool analysis means segmenting and tracking loans over a period of time based on similar risk characteristics such as loan structure, collateral type, industry of borrower and concentrations, contractual terms and credit risk indicators. Static pool calculates a loss rate on a closed pool of loans that existed on a specified start date based upon the remaining life of each segment.


The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look-back period includes January 2014 through the current period, on a monthly basis.
  
Commercial
and
Industrial
Loans and
Leases
 
Commercial
Real Estate
Loans
 
Agricultural
Loans
 
Home
Equity
Loans
 
Consumer
Loans
 
Residential
Mortgage
Loans
 Unallocated Total
December 31, 2015  
  
  
  
  
  
  
  
Beginning Balance $4,627
 $7,273
 $1,123
 $246
 $354
 $622
 $684
 $14,929
Provision for Loan Losses (451) (688) 992
 160
 (48) 7
 28
 —
Recoveries 102
 107
 —
 10
 236
 18
 —
 473
Loans Charged-off (36) (350) —
 (33) (312) (233) —
 (964)
Ending Balance $4,242
 $6,342
 $2,115
 $383
 $230
 $414
 $712
 $14,438

In determining the adequacyQualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration industry and collateral concentrations, acquired loan portfolio characteristics and other credit-related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible.
The Company estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the basis for loanthe estimation of expected credit losses. Adjustments to historical loss general allocationsinformation are made for poolschanges in underwriting standards, portfolio mix, delinquency level, changes in environmental conditions, unemployment rates, risk classifications and collateral values. The allowance for credit losses is measured on a collective (pooled) basis when similar risk characteristics exist. Based on the potential increased losses related to the advancing stress on the economy as a result of loans, including non-classified loans, homogeneous portfolios of consumerinflationary pressures, rising interest rates and residential real estate loans,financial market volatility, the Bank has considered this loss experience may align with loss experience from the recessionary period from 2008-2011 and loans within certain industry categories believedqualitative adjustments have been made accordingly.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When the borrower is experiencing financial difficulty at the reporting date and repayment is expected to present unique risk of loss. General allocationsbe provided substantially through the operation or sale of the allowancecollateral, expected credit losses are primarily made based on historical averages for loan losses for these portfolios, judgmentally adjusted for current economic factors and portfolio trends. 

Loan impairment is reported when full repayment under the terms of the loan is not expected. This methodology is used for all loans, including loans acquired with deteriorated credit quality if such loans perform worse than what was expected at the time of acquisition. For purchased loans, the assessment is made at the time of acquisition as well as over the life of loan. 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 the collateral if repayment is expected solely fromat the collateral. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individuallyreporting date adjusted for impairment. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.selling costs.


Specific allocations on impaired loans are determined by comparingFor the loan balance to the present value of expected cash flows or expected collateral proceeds. Allocations are also applied to categories of loans not considered individually impaired but for which the rate of loss is expected to be greater than historical averages, including non-performing consumer or residential real estate loans. Such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values.
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The following tables present the balance inyear ended December 31, 2022, the allowance for loancredit losses increased primarily due to the acquisition of Citizens Union Bancorp of Shelbyville, Inc. (see Note 18 (Business Combinations, Goodwill and Intangible Assets) in the Notes), which is slightly offset by a decline in individually analyzed loans as well as a decline in the reserve attributable to financially stressed sectors. Key indicators utilized in forecasting for the allowance calculations include unemployment rates and gross domestic product. There has been some improvement in these factors over previous periods; however, rising interest rates and the recorded investmentexpanded inflationary impact on consumer discretionary spending were considered in loans by portfolio class and based on impairment method as of December 31, 2017 and 2016:the qualitative factors to determine the allowance for credit losses.
December 31, 2017 Total 
Commercial
and
Industrial
Loans and Leases
 
Commercial
Real Estate Loans
 Agricultural Loans 
Home
Equity Loans
 Consumer Loans 
Residential
Mortgage Loans
 Unallocated
Allowance for Loan Losses:  
  
  
  
  
  
  
  
Ending Allowance Balance Attributable to Loans:  
  
  
  
  
  
  
  
Individually Evaluated for Impairment $2,228
 $1,399
 $829
 $—
 $—
 $—
 $—
 $—
Collectively Evaluated for Impairment 13,455
 3,333
 3,759
 4,894
 330
 298
 338
 503
Acquired with Deteriorated Credit Quality 11
 3
 3
 —
 —
 —
 5
 —
Total Ending Allowance Balance $15,694
 $4,735
 $4,591
 $4,894
 $330
 $298
 $343
 $503
                 
Loans:  
  
  
  
  
  
  
  
Loans Individually Evaluated for Impairment $11,633
 $5,918
 $5,552
 $163
 $—
 $—
 $—
 
n/m(2)

Loans Collectively Evaluated for Impairment 2,133,752
 481,152
 917,036
 336,849
 152,757
 67,647
 178,311
 
n/m(2)

Loans Acquired with Deteriorated Credit Quality 9,117
 988
 6,452
 789
 —
 —
 888
 
n/m(2)

Total Ending Loans Balance (1)
 $2,154,502
 $488,058
 $929,040
 $337,801
 $152,757
 $67,647
 $179,199
 
n/m(2)

(1) Total recorded investment in loans includes $9,483 in accrued interest.
(2)n/m = not meaningful

December 31, 2016 Total 
Commercial
and
Industrial
Loans and Leases
 
Commercial
Real Estate Loans
 Agricultural Loans 
Home
Equity Loans
 Consumer Loans 
Residential
Mortgage Loans
 Unallocated
Allowance for Loan Losses:  
  
  
  
  
  
  
  
Ending Allowance Balance Attributable to Loans:  
  
  
  
  
  
  
  
Individually Evaluated  for Impairment $255
 $24
 $231
 $—
 $—
 $—
 $—
 $—
Collectively Evaluated for Impairment 14,448
 3,698
 5,172
 4,046
 283
 230
 329
 690
Acquired with Deteriorated Credit Quality 105
 3
 49
 48
 —
 5
 —
 —
Total Ending Allowance Balance $14,808
 $3,725
 $5,452
 $4,094
 $283
 $235
 $329
 $690
                 
Loans:  
  
  
  
  
  
  
  
Loans Individually Evaluated for Impairment $1,239
 $113
 $832
 $294
 $—
 $—
 $—
 
n/m(2)

Loans Collectively Evaluated for Impairment 1,989,128
 456,769
 849,510
 305,946
 134,032
 60,046
 182,825
 
n/m(2)

Loans Acquired with Deteriorated Credit Quality 11,048
 1,656
 7,688
 706
 —
 53
 945
 
n/m(2)

Total Ending Loans Balance (1)
 $2,001,415
 $458,538
 $858,030
 $306,946
 $134,032
 $60,099
 $183,770
 
n/m(2)

(1) Total recorded investment in loans includes $8,011 in accrued interest.
(2)n/m = not meaningful

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The following tables present loans individually evaluated for impairment by class of loans as of December 31, 2017 and 2016:
  
Unpaid
Principal
Balance(1)
 
Recorded
Investment
 
Allowance for
Loan Losses
Allocated
December 31, 2017  
  
  
With No Related Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases $1,205
 $1,166
 $—
Commercial Real Estate Loans 1,812
 1,495
 —
Agricultural Loans 919
 749
 —
Subtotal 3,936
 3,410
 —
With An Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases 4,804
 4,763
 1,402
Commercial Real Estate Loans 4,489
 4,465
 832
Agricultural Loans —
 —
 —
Subtotal 9,293
 9,228
 2,234
Total $13,229
 $12,638
 $2,234
       
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $1,255
 $797
 $—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $252
 $208
 $6
(1) Unpaid Principal Balance is the remaining contractual payments gross of partial charge-offs and discounts.
  
Unpaid
Principal
Balance(1)
 
Recorded
Investment
 
Allowance for
Loan Losses
Allocated
December 31, 2016  
  
  
With No Related Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases $85
 $29
 $—
Commercial Real Estate Loans 1,278
 784
 —
Agricultural Loans 356
 294
 —
Subtotal 1,719
 1,107
 —
With An Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases 148
 107
 27
Commercial Real Estate Loans 839
 827
 280
Agricultural Loans 588
 497
 48
Subtotal 1,575
 1,431
 355
Total $3,294
 $2,538
 $355
       
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $1,018
 $531
 $—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $910
 $768
 $100
(1) Unpaid Principal Balance is the remaining contractual payments gross of partial charge-offs and discounts.
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The following tables present loans individually evaluated for impairment by class of loans for the years ended December 31, 2017, 2016 and 2015:
  
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Cash
Basis
Recognized
December 31, 2017  
  
  
With No Related Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases $635
 $27
 $2
Commercial Real Estate Loans 1,184
 57
 29
Agricultural Loans 690
 24
 16
Subtotal 2,509
 108
 47
With An Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases 1,986
 4
 2
Commercial Real Estate Loans 2,842
 17
 6
Agricultural Loans 363
 —
 —
Subtotal 5,191
 21
 8
Total $7,700
 $129
 $55
       
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $792
 $25
 $25
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $238
 $19
 $7
  
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Cash
Basis
Recognized
December 31, 2016  
  
  
With No Related Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases $295
 $29
 $15
Commercial Real Estate Loans 1,688
 92
 73
Agricultural Loans 461
 2
 1
Subtotal 2,444
 123
 89
With An Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases 102
 1
 1
Commercial Real Estate Loans 1,587
 6
 2
Agricultural Loans 249
 —
 —
Subtotal 1,938
 7
 3
Total $4,382
 $130
 $92
       
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $489
 $21
 $10
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $711
 $—
 $—
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

  
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Cash
Basis
Recognized
December 31, 2015  
  
  
With No Related Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases $447
 $29
 $29
Commercial Real Estate Loans 1,282
 104
 103
Agricultural Loans 9
 1
 1
Subtotal 1,738
 134
 133
With An Allowance Recorded:  
  
  
Commercial and Industrial Loans and Leases 1,726
 89
 89
Commercial Real Estate Loans 2,840
 5
 3
Agricultural Loans —
 —
 —
Subtotal 4,566
 94
 92
Total $6,304
 $228
 $225
       
Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $196
 $—
 $—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $—
 $—
 $—

All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan.
67
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)
Uncollected accrued interest for each class of loans is reversed against income at the time a loan is placed on non-accrual. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. All classes of loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans are typically charged-off at 180 days past due, or earlier if deemed uncollectible. Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection.
 
The following tables present the recorded investment inamortized cost basis of loans on non-accrual loansstatus and loans past due 90over 89 days or more still accruing as of December 31, 2022 and 2021:

December 31, 2022Non-Accrual With No Allowance for Credit Loss ⁽¹⁾Non-AccrualLoans Past Due Over 89 Days Still Accruing
Commercial and Industrial Loans$1,142 $7,936 $1,427 
Commercial Real Estate Loans49 1,950 — 
Agricultural Loans994 1,062 — 
Leases— — — 
Home Equity Loans262 310 — 
Consumer Loans240 254 — 
Credit Cards146 146 — 
Residential Mortgage Loans676 1,230 — 
Total$3,509 $12,888 $1,427 
(1) Includes non-accrual loans with no allowance for credit loss and are also included in Non-Accrual loans totaling $12,888.
December 31, 2021Non-Accrual With No Allowance for Credit Loss ⁽¹⁾Non-AccrualLoans Past Due Over 89 Days Still Accruing
Commercial and Industrial Loans$1,989 $10,530 $— 
Commercial Real Estate Loans145 2,243 156 
Agricultural Loans1,041 1,136 — 
Leases— — — 
Home Equity Loans1 24 — 
Consumer Loans16 18 — 
Credit Cards64 64 — 
Residential Mortgage Loans587 587 — 
Total$3,843 $14,602 $156 
(1) Includes non-accrual loans with no allowance for credit loss and are also included in Non-Accrual loans totaling $14,602.

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













68
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)
The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 20172022 and 2016:2021:
December 31, 2022Real EstateEquipmentAccounts ReceivableOtherTotal
Commercial and Industrial Loans$2,078 $1,219 $272 $5,851 $9,420 
Commercial Real Estate Loans12,192 36 — — 12,228 
Agricultural Loans4,944 318 — — 5,262 
Leases— — — — — 
Home Equity Loans467 — — — 467 
Consumer Loans8 2 — 12 22 
Credit Cards— — — — — 
Residential Mortgage Loans1,060 — — — 1,060 
Total$20,749 $1,575 $272 $5,863 $28,459 

December 31, 2021Real EstateEquipmentAccounts ReceivableOtherTotal
Commercial and Industrial Loans$1,716 $2,444 $549 $5,822 $10,531 
Commercial Real Estate Loans4,610 — — — 4,610 
Agricultural Loans1,522 — — — 1,522 
Leases— — — — — 
Home Equity Loans441 — — — 441 
Consumer Loans6 — — 2 8 
Credit Cards— — — — — 
Residential Mortgage Loans652 — — — 652 
Total$8,947 $2,444 $549 $5,824 $17,764 

69
      
Loans Past Due
90 Days or More
  Non-Accrual & Still Accruing
  2017 2016 2017 2016
Commercial and Industrial Loans and Leases $4,753
 $86
 $—
 $2
Commercial Real Estate Loans 4,618
 1,408
 474
 —
Agricultural Loans 748
 792
 268
 —
Home Equity Loans 199
 73
 —
 —
Consumer Loans 286
 85
 —
 —
Residential Mortgage Loans 487
 1,349
 —
 —
Total $11,091
 $3,793
 $742
 $2
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)
 $866
 $1,264
 $—
 $—
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 4 – Loans (continued)

The following tables present the aging of the recorded investmentamortized cost basis in past due loans by class of loans as of December 31, 20172022 and 2016:2021:

December 31, 2022December 31, 202230-59 Days
Past Due		60-89 Days
Past Due		Greater Than 89 Days Past DueTotal
Past Due		Loans Not
Past Due		Total
 Total 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 Days
or More
Past Due
 
Total
Past Due
 
Loans Not
Past Due
December 31, 2017  
  
  
  
  
  
Commercial and Industrial Loans and Leases $488,058
 $209
 $1,365
 $905
 $2,479
 $485,579
Commercial and Industrial LoansCommercial and Industrial Loans$268 $681 $8,285 $9,234 $610,872 $620,106 
Commercial Real Estate Loans 929,040
 1,229
 1,650
 677
 3,556
 925,484
Commercial Real Estate Loans1,617 14 616 2,247 1,964,637 1,966,884 
Agricultural Loans 337,801
 27
 —
 268
 295
 337,506
Agricultural Loans343 — 123 466 416,947 417,413 
LeasesLeases— — — — 56,396 56,396 
Home Equity Loans 152,757
 366
 93
 199
 658
 152,099
Home Equity Loans1,770 140 310 2,220 277,528 279,748 
Consumer Loans 67,647
 246
 97
 286
 629
 67,018
Consumer Loans219 64 252 535 79,369 79,904 
Credit CardsCredit Cards86 24 146 256 17,256 17,512 
Residential Mortgage Loans 179,199
 2,850
 1,247
 261
 4,358
 174,841
Residential Mortgage Loans6,330 2,783 1,051 10,164 340,518 350,682 
Total (1)
 $2,154,502
 $4,927
 $4,452
 $2,596
 $11,975
 $2,142,527
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)
 $9,117
 $342
 $74
 $27
 $443
 $8,674
TotalTotal$10,633 $3,706 $10,783 $25,122 $3,763,523 $3,788,645 

(1) Total recorded investment in loans includes $9,483 in accrued interest.
December 31, 202130-59 Days
Past Due		60-89 Days
Past Due		Greater Than 89 Days Past DueTotal
Past Due		Loans Not
Past Due		Total
      
Commercial and Industrial Loans$12 $— $6,147 $6,159 $486,846 $493,005 
Commercial Real Estate Loans— 5 891 896 1,529,781 1,530,677 
Agricultural Loans— — — — 358,150 358,150 
Leases— — — — 55,345 55,345 
Home Equity Loans225 229 25 479 222,046 222,525 
Consumer Loans158 58 4 220 70,082 70,302 
Credit Cards61 9 64 134 14,223 14,357 
Residential Mortgage Loans2,726 507 369 3,602 259,963 263,565 
Total$3,182 $808 $7,500 $11,490 $2,996,436 $3,007,926 
  Total 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 Days
or More
Past Due
 
Total
Past Due
 
Loans Not
Past Due
December 31, 2016            
Commercial and Industrial Loans and Leases $458,538
 $20
 $4
 $77
 $101
 $458,437
Commercial Real Estate Loans 858,030
 1,509
 21
 330
 1,860
 856,170
Agricultural Loans 306,946
 84
 50
 610
 744
 306,202
Home Equity Loans 134,032
 707
 16
 73
 796
 133,236
Consumer Loans 60,099
 175
 147
 85
 407
 59,692
Residential Mortgage Loans 183,770
 3,470
 1,251
 806
 5,527
 178,243
Total (1)
 $2,001,415
 $5,965
 $1,489
 $1,981
 $9,435
 $1,991,980
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)
 $11,048
 $130
 $—
 $627
 $757
 $10,291
Loans Acquired in Current Year
(Included in the Total Above)
 $262,809
 $2,752
 $862
 $1,126
 $4,740
 $258,069
(1) Total recorded investment in loans includes $8,011 in accrued interest.

Troubled Debt Restructurings:
 
In certain instances, the Company may choose to restructure the contractual terms of loans. A troubled debt restructuring occurs when the Bank grants a concession to the borrower that it would not otherwise consider due to a borrower’s financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the Company’s internal underwriting policy. The Company uses the same methodology for loans acquired with deteriorated credit quality as for all other loans when determining whether the loan is a troubled debt restructuring.
 
During the year endedAs of December 31, 2017, there were three loans modified as2022 the Company had no troubled debt restructurings. During the year endedAs of December 31, 2016, there were no loans modified as troubled debt restructurings.
The following tables present2021, the recorded investment ofCompany had troubled debt restructurings by classtotaling $104. The Company had no specific allocation of allowance for these loans as ofat December 31, 2017 and 2016: 2021.
  Total Performing 
Non-Accrual(1)
December 31, 2017  
  
  
Commercial and Industrial Loans and Leases $258
 $125
 $133
Commercial Real Estate Loans 24
 24
 —
Total $282
 $149
 $133
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

  Total Performing 
Non-Accrual(1)
December 31, 2016  
  
  
Commercial and Industrial Loans and Leases $28
 $28
 $—
Commercial Real Estate Loans —
 —
 —
Total $28
 $28
 $—
(1) The non-accrual troubled debt restructurings are included in the Non-Accrual Loan table presented on a previous page.

The Company hashad not committed to lending any additional amounts as of December 31, 2017 and 2016during 2022 or 2021 to customers with outstanding loans that are classified as troubled debt restructurings.


The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2017:
  Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
December 31, 2017  
  
  
Commercial and Industrial Loans and Leases 2
 $477
 $477
Commercial Real Estate Loans 1
 28
 28
Total 3
 $505
 $505
The troubled debt restructurings described above increased the allowance for loan losses by $149 and resulted in charge-offs of $0 during the year ending December 31, 2017.

ForDuring the years ended December 31, 20162022 and 2015,2021, the Company had no loans modified as troubled debt restructurings. Additionally, there were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the years ended December 31, 2017, 20162022 and 2015.2021.


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

70
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)
Credit Quality Indicators:
 
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company classifies loans as to credit risk by individually analyzing loans. This analysis includes commercial and industrial loans, commercial real estate loans, and agricultural loans with an outstanding balance greater than $250. This analysis is typically performed on at least an annual basis. The Company uses the following definitions for risk ratings:
 
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
 
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
 
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
 
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

































71
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)
Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202220222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
Commercial and Industrial:
Risk Rating
Pass$156,318 $117,648 $39,949 $46,505 $18,423 $51,482 $154,203 $584,528 
Special Mention56 148 577 78 551 2,346 1,672 5,428 
Substandard1,714 5,629 849 1,304 1,028 2,237 17,389 30,150 
Doubtful— — — — — — — — 
Total Commercial and Industrial Loans$158,088 $123,425 $41,375 $47,887 $20,002 $56,065 $173,264 $620,106 
Commercial Real Estate:
Risk Rating
Pass$398,631 $490,747 $261,462 $162,701 $129,151 $427,433 $35,163 $1,905,288 
Special Mention3,982 1,568 4,612 135 13,689 25,371 — 49,357 
Substandard— 4,628 489 1,415 979 4,728 — 12,239 
Doubtful— — — — — — — — 
Total Commercial Real Estate Loans$402,613 $496,943 $266,563 $164,251 $143,819 $457,532 $35,163 $1,966,884 
Agricultural:
Risk Rating
Pass$62,673 $47,682 $47,355 $25,431 $21,728 $92,344 $83,862 $381,075 
Special Mention634 842 6,066 4,149 2,355 11,440 4,310 29,796 
Substandard— 210 628 429 85 5,190 — 6,542 
Doubtful— — — — — — — — 
Total Agricultural Loans$63,307 $48,734 $54,049 $30,009 $24,168 $108,974 $88,172 $417,413 
Leases:
Risk Rating
Pass$20,057 $14,461 $9,648 $8,901 $1,851 $1,478 $— $56,396 
Special Mention— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total Leases$20,057 $14,461 $9,648 $8,901 $1,851 $1,478 $— $56,396 
72
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)
  Pass 
Special
Mention
 Substandard Doubtful Total
December 31, 2017  
  
  
  
  
Commercial and Industrial Loans and Leases $462,212
 $7,901
 $17,945
 $—
 $488,058
Commercial Real Estate Loans 894,027
 18,037
 16,976
 —
 929,040
Agricultural Loans 304,032
 27,288
 6,481
 —
 337,801
Total $1,660,271
 $53,226
 $41,402
 $—
 $1,754,899
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)
 $2,604
 $1,647
 $3,978
 $—
 $8,229
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202120212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Commercial and Industrial:
Risk Rating
Pass$141,133 $57,477 $60,883 $29,005 $15,936 $48,559 $122,377 $475,370 
Special Mention115 128 227 649 7 918 1,510 3,554 
Substandard100 1,221 — 1,062 1,378 2,457 7,863 14,081 
Doubtful— — — — — — — — 
Total Commercial and Industrial Loans$141,348 $58,826 $61,110 $30,716 $17,321 $51,934 $131,750 $493,005 
Commercial Real Estate:
Risk Rating
Pass$404,175 $264,011 $164,204 $131,746 $139,788 $336,066 $26,697 $1,466,687 
Special Mention2,279 — 710 14,426 17,356 13,916 — 48,687 
Substandard74 — 7,687 1,528 — 6,014 — 15,303 
Doubtful— — — — — — — — 
Total Commercial Real Estate Loans$406,528 $264,011 $172,601 $147,700 $157,144 $355,996 $26,697 $1,530,677 
Agricultural:
Risk Rating
Pass$44,510 $45,101 $22,482 $24,187 $24,325 $71,268 $81,011 $312,884 
Special Mention1,714 5,346 5,503 3,025 6,438 6,624 8,271 36,921 
Substandard— — 63 385 1,048 6,849 — 8,345 
Doubtful— — — — — — — — 
Total Agricultural Loans$46,224 $50,447 $28,048 $27,597 $31,811 $84,741 $89,282 $358,150 
Leases:
Risk Rating
Pass$19,689 $12,706 $12,990 $5,599 $2,473 $1,888 $— $55,345 
Special Mention— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total Leases$19,689 $12,706 $12,990 $5,599 $2,473 $1,888 $— $55,345 













73
  Pass 
Special
Mention
 Substandard Doubtful Total
December 31, 2016  
  
  
  
  
Commercial and Industrial Loans and Leases $437,353
 $10,454
 $10,731
 $—
 $458,538
Commercial Real Estate Loans 814,033
 26,549
 17,448
 —
 858,030
Agricultural Loans 287,975
 14,670
 4,301
 —
 306,946
Total $1,539,361
 $51,673
 $32,480
 $—
 $1,623,514
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)
 $1,897
 $3,121
 $5,032
 $—
 $10,050
Loans Acquired in Current Year
(Included in the Total Above)
 $175,915
 $11,638
 $8,145
 $—
 $195,698
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)
The Company considers the performance of the loan portfolio and its impact on the allowance for loancredit losses. For residential, home equity and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  The following tables present the amortized cost in residential, mortgagehome equity and consumer loans based on payment activity.

Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202220222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
Consumer:
Payment performance
Performing$42,685 $22,708 $5,610 $2,394 $1,543 $1,553 $3,157 $79,650 
Nonperforming3 19 212 8 2 10 — 254 
Total Consumer Loans$42,688 $22,727 $5,822 $2,402 $1,545 $1,563 $3,157 $79,904 
Home Equity:
Payment performance
Performing$63 $— $— $— $— $591 $278,784 $279,438 
Nonperforming— 20 — — 19 1 270 310 
Total Home Equity Loans$63 $20 $— $— $19 $592 $279,054 $279,748 
Residential Mortgage:
Payment performance
Performing$69,982 $97,176 $46,851 $20,080 $16,664 $98,699 $— $349,452 
Nonperforming— 161 253 — 78 738 — 1,230 
Total Residential Mortgage Loans$69,982 $97,337 $47,104 $20,080 $16,742 $99,437 $— $350,682 

Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202120212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Consumer:
Payment performance
Performing$39,923 $15,900 $4,325 $4,531 $600 $1,655 $3,350 $70,284 
Nonperforming3 — — — — 15 — 18 
Total Consumer Loans$39,926 $15,900 $4,325 $4,531 $600 $1,670 $3,350 $70,302 
Home Equity:
Payment performance
Performing$— $— $— $21 $— $835 $221,644 $222,500 
Nonperforming— — — — — 1 24 25 
Total Home Equity Loans$— $— $— $21 $— $836 $221,668 $222,525 
Residential Mortgage:
Payment performance
Performing$84,809 $38,717 $15,244 $17,369 $19,688 $87,164 $— $262,991 
Nonperforming— — — — — 574 — 574 
Total Residential Mortgage Loans$84,809 $38,717 $15,244 $17,369 $19,688 $87,738 $— $263,565 



74
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)
The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For certain retail loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in home equity, consumer and residential mortgageretail loans based on payment activity as of December 31, 2017 and 2016: activity:

Credit CardsCredit CardsDecember 31, 2022December 31, 2021
 
Home Equity
Loans
 
Consumer
Loans
 
Residential
Mortgage Loans
December 31, 2017  
  
  
Performing $152,558
 $67,361
 $178,712
Performing$17,366 $14,293 
Nonperforming 199
 286
 487
Nonperforming146 64 
Total $152,757
 $67,647
 $179,199
Total$17,512 $14,357 
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)
 $—
 $—
 $888
  
Home Equity
Loans
 
Consumer
Loans
 
Residential
Mortgage Loans
December 31, 2016  
  
  
Performing $133,959
 $60,014
 $182,421
Nonperforming 73
 85
 1,349
Total $134,032
 $60,099
 $183,770
Loans Acquired with Deteriorated Credit Quality
(Included in the Total Above)
 $—
 $53
 $945

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)


The following table presents financing receivablesloans purchased and/or sold during the year by portfolio segment:
Commercial and Industrial LoansCommercial Real Estate LoansAgricultural LoansLeasesConsumer LoansHome Equity LoansCredit CardsResidential Mortgage LoansTotal
December 31, 2022
Purchases$522 $411 $— $— $— $— $— $— $933 
Sales— 3,819 97 — — — — — 3,916 
December 31, 2021
Purchases$— $2,271 $— $— $— $— $— $— $2,271 
Sales2,273 15,415 111 — — — — — 17,799 
  Commercial and Industrial Loans and Leases Commercial Real Estate Loans Total
December 31, 2017      
Purchases $800
 $4,747
 $5,547
Sales —
 1,106
 1,106
  Commercial and Industrial Loans and Leases Commercial Real Estate Loans Total
December 31, 2016      
Purchases $—
 $5,383
 $5,383
Sales —
 2,029
 2,029

Contractually required payments receivable of loans purchased with evidence of credit deterioration during the year ended December 31, 2016 are included in the table below. The value of the purchased loans included in the table are as of acquisition date. There were no such loans purchased during the year ended December 31, 2017.
  2017 2016
     
Commercial and Industrial Loans $—
 $220
Commercial Real Estate Loans —
 10,612
Agricultural Loans —
 896
Home Equity Loans —
 —
Consumer Loans —
 87
Residential Mortgage Loans —
 2,279
Total $—
 $14,094
     
Cash Flows Expected to be Collected at Acquisition $—
 $11,051
Fair Value of Acquired Loans at Acquisition —
 8,807

The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The recorded investment of those loans at December 31 in the years presented is as follows:
  2017 2016 2015
       
Commercial and Industrial Loans $988
 $1,656
 $1,325
Commercial Real Estate Loans 6,452
 7,688
 5,363
Agricultural Loans 789
 706
 —
Consumer Loans —
 53
 —
Residential Mortgage Loans 888
 945
 867
Total $9,117
 $11,048
 $7,555
       
Carrying Amount, Net of Allowance $9,106
 $10,943
 $7,555
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

Accretable yield, or income expected to be collected, is as follows:
  2017 2016 2015
       
Balance at January 1 $2,521
 $1,279
 $1,685
New Loans Purchased —
 1,395
 —
Accretion of Income (425) (943) (483)
Reclassifications from Non-accretable Difference 638
 985
 104
Charge-off of Accretable Yield —
 (195) (27)
Balance at December 31 $2,734
 $2,521
 $1,279
For those purchased loans disclosed above, the Company increased the allowances for loan losses by $11, $107, and $0 during the years ended December 31, 2017, 2016, and 2015. The Company reversed allowances for loan losses of $110, $2, and $54 during the years ended December 31, 2017, 2016, and 2015.

The carrying amount of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction totaled $14 and $202 as of December 31, 2017 and 2016.


Certain directors, executive officers, and principal shareholders of the Company, including their immediate families and companies in which they are principal owners, were loan customers of the Company during 2017.2022. A summary of the activity of these loans follows:
Balance
January 1,
2022		AdditionsChanges in Persons or Interests IncludedDeductionsBalance
December 31,
2022
CollectedCharged-off
$46,737 $20,132 $(24)$(15,759)$— $51,086 



Balance
January 1,
2017
 Additions Changes in Persons Included Deductions 
Balance
December 31,
2017
   Collected Charged-off 
           
$14,276
 $11,340
 $—
 $(9,754) $—
 $15,862

NOTE 5 – Premises, Furniture, and Equipment

Premises, furniture, and equipment was comprised of the following classifications at December 31:
 20222021
Land$27,401 $20,776 
Buildings and Improvements109,682 91,512 
Furniture and Equipment46,665 41,424 
Total Premises, Furniture and Equipment183,748 153,712 
Less:  Accumulated Depreciation(71,511)(64,849)
Total$112,237 $88,863 
  2017 2016
     
Land $11,541
 $10,255
Buildings and Improvements 60,076
 55,676
Furniture and Equipment 28,902
 26,830
Total Premises, Furniture and Equipment 100,519
 92,761
Less:  Accumulated Depreciation (46,273) (44,531)
Total $54,246
 $48,230
Depreciation expense was $3,933, $3,774$6,648, $5,802 and $3,310$5,988 for 2017, 20162022, 2021 and 2015,2020, respectively.

The Company leases three of its branch buildings under a capital lease. These lease arrangements require monthly payments through 2033. The Company has included the leases in buildings and improvements as follows: 
75
  2017 2016
     
Capital Leases $4,219
 $4,219
Less: Accumulated Depreciation (1,312) (1,102)
Total $2,907
 $3,117
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 5 – Premises, Furniture, and Equipment (continued)

The following is a schedule of future minimum lease payments under the capitalized leases, together with the present value of net minimum lease payments at year end 2017:
2018 $519
2019 519
2020 519
2021 519
2022 519
Thereafter 4,511
Total minimum lease payments 7,106
Less: Amount representing interest (3,456)
Present Value of Net Minimum Lease Payments $3,650

NOTE 6 – Deposits

At year end 2017,2022, stated maturities of time deposits were as follows:
2023$317,454 
202470,260 
202516,128 
202616,650 
20277,960 
Thereafter17 
Total$428,469 
2018 $221,568
2019 55,575
2020 58,106
2021 37,081
2022 15,376
Thereafter 179
Total $387,885
Time deposits and brokered certificates of deposit exceeding the FDIC insurance limit of $250 or more and Brokered CDs at December 31, 20172022 and 20162021 were $119,802$71,081 and $92,624,$56,195, respectively.

Time deposits originated from outside the geographic area, generally through brokers, totaled $0$3,277 and $9,083$4,001 at December 31, 20172022 and 2016,2021, respectively.

Deposits from principal officers, directors, and their affiliates at year-end 2022 and 2021 were $62,435 and $71,968, respectively.
 
NOTE 7 – FHLB Advances and Other Borrowings

The Company’s funding sources include Federal Home Loan Bank advances, borrowings from other third party correspondent financial institutions, issuance and sale of subordinated debt and other capital securities, and repurchase agreements. Information regarding each of these types of borrowings or other indebtedness is as follows:
 December 31,
 20222021
PrincipalUnamortized Discount and Debt Issuance CostsPrincipalUnamortized Discount and Debt Issuance Costs
Long-term Advances from Federal Home Loan Bank collateralized by qualifying mortgages, investment securities, and mortgage-backed securities$25,000 $— $25,000 $— 
Junior Subordinated Debentures assumed from American Community Bancorp, Inc.8,248 (1,873)8,248 (2,023)
Junior Subordinated Debentures assumed from River Valley Bancorp, Inc.7,217 (1,082)7,217 (1,188)
Junior Subordinated Debentures assumed from Citizens First Corporation5,155 (919)5,155 (984)
Junior Subordinated Debentures assumed from Citizens Union Bancorp of Shelbyville, Inc.20,600 (2,020)— — 
Subordinated Debentures40,000 (538)40,000 (621)
Finance Lease Obligation2,857 — 3,051 — 
Long-term Borrowings109,077 (6,432)88,671 (4,816)
Overnight Variable Rate Advances from Federal Home Loan Bank collateralized by qualifying mortgages, investment securities, and mortgage-backed securities25,000 — — — 
Federal Funds Purchased11,200 — — — 
Repurchase Agreements64,961 — 68,328 — 
Short-term Borrowings101,161 — 68,328 — 
Total Borrowings$210,238 $(6,432)$156,999 $(4,816)
  December 31,
  2017 2016
Long-term Advances from Federal Home Loan Bank collateralized by qualifying mortgages, investment securities, and mortgage-backed securities $126,836
 $105,820
Junior Subordinated Debentures assumed from American Community Bancorp, Inc. 5,624
 5,474
Junior Subordinated Debentures assumed from River Valley Bancorp, Inc. 5,607
 5,501
Capital Lease Obligation 3,650
 3,765
Long-term Borrowings 141,717
 120,560
     
Overnight Variable Rate Advances from Federal Home Loan Bank collateralized by qualifying mortgages, investment securities, and mortgage-backed securities $92,000
 $91,500
Federal Funds Purchased —
 3,642
Repurchase Agreements 41,499
 42,412
Short-term Borrowings 133,499
 137,554
     
Total Borrowings $275,216
 $258,114
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data
NOTE 7 - FHLB Advances and Other Borrowings (continued)




Repurchase agreements, which are classified as secured borrowings, generally mature within one day of the transaction date. Repurchase agreements are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the value of the underlying securities. 
76
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data
NOTE 7 - FHLB Advances and Other Borrowings (continued)


 2017 2016 20222021
Average Daily Balance During the Year $40,476
 $33,317
Average Daily Balance During the Year$52,932 $52,824 
Average Interest Rate During the Year 0.47% 0.39%Average Interest Rate During the Year0.20 %0.10 %
Maximum Month-end Balance During the Year $47,934
 $45,313
Maximum Month-end Balance During the Year$72,084 $71,764 
Weighted Average Interest Rate at Year-end 0.50% 0.50%Weighted Average Interest Rate at Year-end0.57 %0.10 %
 
At December 31, 2017, interest rates on2022 and 2021, the fixed rateCompany held one long-term FHLB advances ranged from 1.36% to 7.22%advance with a weighted averagean interest rate of 1.84%1.54%. At December 31, 2016 interest rates on the fixed rate long-term FHLB advances ranged from 0.92% to 7.22% with a weighted average rate of 1.67%. At December 31, 20172022 and 2016,2021, the Company had no advances containing options whereby the FHLB may convert a fixed rate advance to an adjustable rate advance.


At December 31, 2016,2022 and 2021, the Company had outstanding $39,462 and $39,379, respectively, in aggregate principal amount, of its 4.50% Fixed-to-Floating Rate Subordinated Notes due 2029 (the “Notes”). The Notes bear interest at a fixed annual rate of 4.50% until but excluding June 30, 2024, payable semi-annually in arrears. The indenture for the Notes provides that, from and including June 30, 2024 to but excluding the maturity date of June 30, 2029, or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then-current three-month LIBOR (provided, however, that in the event three-month LIBOR is less than zero, three-month LIBOR shall be deemed to be zero) plus 268 basis points, payable quarterly in arrears. However, in anticipation of LIBOR being discontinued, the indenture also provided for an alternate rate being used when a successor reference rate had been selected by a central bank, reserve bank, monetary authority or any similar institution. As the Secured Overnight Financing Rate (“SOFR”) has been identified as the preferred alternate rate by the Alternative Reference Rates Committee, a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, and the Federal Reserve subsequently adopted final regulations that, among other things, established LIBOR benchmark replacements based on SOFR under certain circumstances, the Company anticipates that, on June 30, 2024, the quarterly interest on the Notes will be based upon the CME Term SOFR, as the replacement benchmark, including a static spread adjustment for the appropriate tenor as provided by the Federal Reserve regulations, plus the 268 basis points referenced above. See Replacement of LIBOR Benchmark below for additional information.

The Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Notes are not subject to redemption at the option of the holder. The Notes are unsecured, subordinated obligations of the Company only and are not obligations of, and are not guaranteed by, any subsidiary of the Company. The Notes rank junior in right to payment to the Company’s current and future senior indebtedness. The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes for the Company.

At December 31, 2022, the parent company had a $20$15 million line of credit with U.S. Bank National Association, which had no outstanding balance. The line of credit matured December 27, 2017.matures September 26, 2023. Interest on the line of credit is based upon 90-day LIBORone-month Term SOFR plus 2.875% and includes an unused commitment fee of 0.25%1.85%.


At December 31, 2017,2022, scheduled principal payments on long-term FHLB Advancesborrowings, excluding the capitalized lease obligation and acquired subordinated debentures (which are discussed below) are as follows:
2018 $40,210
2019 31,075
2020 25,551
2021 5,000
2022 —
Thereafter 25,000
Total $126,836
2023$— 
202425,000 
2025— 
2026— 
2027— 
Thereafter39,462 
Total$64,462 
 
The Company assumed the obligations of junior subordinated debentures through the acquisitions of American Community Bancorp, Inc. and, River Valley Bancorp.Bancorp, Citizens First Corporation and Citizens Union Bancorp of Shelbyville, Inc. The junior subordinated debentures were issued to ACB Capital Trust I, ACB Capital Trust II, and RIVR Statutory Trust I.I, Citizens First Statutory Trust I, CUB Capital Trust I and CUB Capital Trust II. The trusts are wholly owned by the Company. In accordance with accounting guidelines, the trusts are not consolidated with the Company'sCompany’s financials, but rather the subordinated debentures are shown as borrowings. The Company guarantees payment of distributions on the trust preferred securities issued by ACB Trust I, ACB Trust II and RIVR Statutory Trust I.the various trusts. Interest is payable on a quarterly basis. These securities qualify as Tier 1 capital (with certain limitations) for regulatory purposes. $11,060$34,378 of the junior subordinated debentures were treated as Tier 1 capital for regulatory capital purposes as of December 31, 2017. $10,8092022. $16,081 of the junior subordinated debentures were treated as Tier 1 capital for regulatory
77
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data
NOTE 7 - FHLB Advances and Other Borrowings (continued)


capital purposes as of December 31, 2016.2021. As a result of the acquisitions, of American Community and River Valley these liabilities were recorded at fair value at the acquisition date with the discount amortizing into interest expense over the life of the liability, ultimately accreting to the issuance amount disclosed below.

The following table summarizes the terms of each issuance:
Date of
Issuance		Issuance
Amount		Carrying
Amount at
December 31, 2022		Variable RateRate as of
December 31, 2022		Rate as of
December 31, 2021		Maturity
Date
ACB Trust I5/6/2005$5,155 $4,013 90 day LIBOR + 2.15%6.90 %2.37 %May 2035
ACB Trust II7/15/20053,093 2,362 90 day LIBOR + 1.85%6.54 %2.01 %July 2035
RIVR Statutory Trust I3/26/20037,217 6,135 3-Month LIBOR + 3.15%7.87 %3.37 %March 2033
Citizens First Statutory Trust I10/16/20065,155 4,236 3-Month LIBOR +1.65%5.39 %1.78 %January 2037
CUB Capital Trust I10/21/200410,310 9,593 3-Month LIBOR +2.00%6.69 %N/ANovember 2034
CUB Capital Trust II8/17/200510,310 8,987 3-Month LIBOR +1.50%5.58 %N/AOctober 2035

Replacement of LIBOR Benchmark:

On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law in response to the U.K. Financial Conduct Authority, the authority regulating LIBOR, announcing that, among other things, the 1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR settings would cease to exist after June 30, 2023. The LIBOR Act establishes a uniform national approach for replacing LIBOR in legacy contracts that do not provide for the use of a clearly defined replacement benchmark rate. As directed by the LIBOR Act, on December 16, 2022, the Federal Reserve issued a final rule setting forth regulations to implement the LIBOR Act, including establishing benchmark replacements based on SOFR for contracts governed by U.S. law that reference certain tenors of U.S. dollar LIBOR (the overnight and one-, three-, six-, and 12-month tenors) and that do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate (“fallback provisions”) following the first London banking day after June 30, 2023.

As the junior subordinated debentures discussed above do not have LIBOR fallback provisions, after June 30, 2023, the interest paid on those debentures will be based upon the CME Term SOFR, as the replacement benchmark, including a static spread adjustment for the appropriate tenor, as provided by the LIBOR Act and related Federal Reserve regulations. The relevant spread adjustment for a three-month tenor is 0.26161 percent.
  
Date of
Issuance
 
Issuance
Amount
 
Carrying
Amount at
December 31, 2017
 Variable Rate 
Rate as of
December 31, 2017
 
Rate as of
December 31, 2016
 
Maturity
Date
ACB Trust I 5/6/2005 $5,155
 $3,553
 90 day LIBOR + 2.15% 3.84% 3.15% May, 2035
ACB Trust II 7/15/2005 3,093
 2,071
 90 day LIBOR + 1.85% 3.30% 2.77% July, 2035
RIVR Statutory Trust 1 3/26/2003 7,217
 5,607
 3-Month LIBOR + 3.15% 4.82% 4.15% March, 2033
See also Note 5 regarding the capital lease obligation.

Deposits from principal officers, directors, and their affiliates at year-end 2017 and 2016 were $49.9 million and $48.2 million, respectively.
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 8 – Shareholders’ - Shareholders’ Equity

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The finalcurrent risk-based capital rules, implementingas adopted by federal banking regulators, are based upon guidelines developed by the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with allSupervision and reflect various requirements of the requirements being phased in overDodd-Frank Act (the “Basel III Rules”). The Basel III Rules require banking organizations to, among other things, maintain a multi- year scheduleminimum ratio of Total Capital to risk-weighted assets, a minimum ratio of Tier 1 Capital to risk-weighted assets, a minimum ratio of “Common Equity

Tier 1 Capital” to risk-weighted assets, and fully phased in by Januarya minimum leverage ratio (calculated as the ratio of Tier 1 2019. UnderCapital to adjusted average consolidated assets). In addition, under the Basel III rules,Rules, in order to avoid limitations on capital distributions, including dividend payments, the Company must holdis required to maintain a 2.5% capital conservation buffer above the adequately capitalized risk-basedregulatory capital ratios. The capital conservation buffer is being phased in from 0% for 2015 to 2.5% on January 1, 2019. The capital conservation buffer for 2017 is 1.25% and for 2016 is 0.625%. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. At December 31, 2017,2022, the Company and Bank meet all capital adequacy requirements to which they are subject.


Prompt corrective action regulations provide five classifications, including well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year end 20172022 and 2016,2021, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution'sinstitution’s category.
78
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 8 – Shareholders’ Equity (continued)
At December 31, 2017,2022, consolidated and bank actual capital and minimum required levels are presented below:
 Actual:Minimum Required For Capital Adequacy Purposes:Minimum Required To Be Well-Capitalized Under Prompt Corrective Action Regulations:
 AmountRatioAmountRatio ⁽¹⁾AmountRatio
Total Capital (to Risk Weighted Assets)      
Consolidated$747,542 15.45 %$387,024 8.00 %N/AN/A
Bank680,695 14.07 386,959 8.00 $483,698 10.00 %
Tier 1 (Core) Capital (to Risk Weighted Assets)
Consolidated$676,068 13.97 %$290,268 6.00 %N/AN/A
Bank649,221 13.42 290,219 6.00 $386,959 8.00 %
Common Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets)
Consolidated$641,690 13.26 %$217,701 4.50 %N/AN/A
Bank649,221 13.42 217,664 4.50 $314,404 6.50 %
Tier 1 (Core) Capital (to Average Assets)
Consolidated$676,068 10.50 %$257,622 4.00 %N/AN/A
Bank649,221 10.09 257,341 4.00 $321,677 5.00 %
  Actual: Minimum Required For Capital Adequacy Purposes: Minimum Required To Be Well-Capitalized Under Prompt Corrective Action Regulations:
  Amount Ratio Amount 
Ratio (1)
 Amount Ratio
Total Capital (to Risk Weighted Assets)  
  
  
  
  
  
Consolidated $339,391
 13.62% $199,363
 8.00% N/A
 N/A
Bank 305,773
 12.29
 199,093
 8.00
 $248,866
 10.00%
             
Tier 1 (Core) Capital (to Risk Weighted Assets)  
  
  
  
    
Consolidated $323,697
 12.99% $149,522
 6.00% N/A
 N/A
Bank 290,079
 11.66
 149,320
 6.00
 $199,093
 8.00%
             
Common Tier 1, (CET 1) Capital Ratio (to Risk Weighted Assets)  
  
  
  
    
Consolidated $312,637
 12.55% $112,142
 4.50% N/A
 N/A
Bank 290,079
 11.66
 111,990
 4.50
 $161,763
 6.50%
             
Tier 1 Core Capital (to Average Assets)  
  
  
  
  
  
Consolidated $323,697
 10.71% $120,862
 4.00% N/A
 N/A
Bank 290,079
 9.63
 120,509
 4.00
 $150,637
 5.00%
(1) Excludes 2.5% capital conservation buffer.
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 8 – Shareholders' Equity (continued)


At December 31, 2016,2021, consolidated and bank actual capital and minimum required levels are presented below:
 Actual:Minimum Required For Capital Adequacy Purposes:Minimum Required To Be Well-Capitalized Under Prompt Corrective Action Regulations:
 AmountRatioAmountRatio ⁽¹⁾AmountRatio
Total Capital (to Risk Weighted Assets)      
Consolidated$611,624 16.20 %$302,060 8.00 %N/AN/A
Bank503,549 13.36 301,495 8.00 $376,868 10.00 %
Tier 1 (Core) Capital (to Risk Weighted Assets)
Consolidated$551,532 14.61 %$226,545 6.00 %N/AN/A
Bank483,457 12.83 226,121 6.00 $301,495 8.00 %
Common Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets)
Consolidated$535,451 14.18 %$169,909 4.50 %N/AN/A
Bank483,457 12.83 169,591 4.50 $244,964 6.50 %
Tier 1 (Core) Capital (to Average Assets)
Consolidated$551,532 10.10 %$218,352 4.00 %N/AN/A
Bank483,457 8.88 217,839 4.00 $272,299 5.00 %
  Actual: Minimum Required For Capital Adequacy Purposes: Minimum Required To Be Well-Capitalized Under Prompt Corrective Action Regulations:
  Amount Ratio Amount 
Ratio (1)
 Amount Ratio
Total Capital (to Risk Weighted Assets)  
  
  
  
  
  
Consolidated $307,754
 13.30% $185,117
 8.00% N/A
 N/A
Bank 288,793
 12.48
 185,104
 8.00
 $231,380
 10.00%
             
Tier 1 (Core) Capital (to Risk Weighted Assets)  
  
  
  
    
Consolidated $292,946
 12.66% $138,838
 6.00% N/A
 N/A
Bank 273,985
 11.84
 138,828
 6.00
 $185,104
 8.00%
             
Common Tier 1, (CET 1) Capital Ratio (to Risk Weighted Assets)  
  
  
  
    
Consolidated $282,138
 12.19% $104,129
 4.50% N/A
 N/A
Bank 273,985
 11.84
 104,121
 4.50
 $150,397
 6.50%
             
Tier 1 Core Capital (to Average Assets)  
  
  
  
  
  
Consolidated $292,946
 10.09% $116,165
 4.00% N/A
 N/A
Bank 273,985
 9.46
 115,853
 4.00
 $144,816
 5.00%

(1) Excludes 2.5% capital conservation buffer.


The Company and the bankBank at year end 20172022 and 20162021 were categorized as well-capitalized. There have been no conditions or events that management believes has changed the classification of the bankBank under the prompt corrective action regulations since the last notification from regulators. Regulations require the maintenance of certain capital levels at the bank,Bank, and may limit the
79
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 8 – Shareholders’ Equity (continued)
dividends payable by the affiliate to the holding company, or by the holding company to its shareholders. At December 31, 20172022 the bankBank had $64,000approximately $125,000 in retained earnings available for payment of dividends to the parent company without prior regulatory approval.
 
In December 2018, federal banking regulators approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. On March 27, 2020, in an action related to the CARES Act, the federal banking regulators announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule, which was finalized effective September 30, 2020, maintained the three-year transition option in the previous rule and provided banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company has taken advantage of the capital transition relief over the permissible five-year period and began the three-year phase-in of the regulatory impact effective January 1, 2022.

Equity Plans and Equity Based Compensation
 
TheDuring the periods presented, the Company maintains threemaintained two equity incentive plans under which stock options, restricted stock, and other equity incentive awards cancould be granted. At December 31, 2017,Those plans include (i) the Company has reserved 386,754Company’s 2009 Long-Term Equity Incentive Plan, under which no new grants may be made, and (ii) the Company’s 2019 Long-Term Equity Incentive Plan (the “2019 LTI Plan”). The 2019 LTI Plan, which authorizes a maximum aggregate issuance of 1,000,000 shares of Common Stock (as adjusted for subsequentcommon stock dividends and(subject to certain permitted adjustments), became effective on May 16, 2019, following approval of the Company’s shareholders. It will remain in effect until May 16, 2029, or until all shares of common stock subject to further customary anti-dilution adjustments) for the purpose of issuance2019 LTI Plan are distributed, all awards have expired or terminated, or the plan is terminated pursuant to outstanding and future grants of options, restricted stock, and other equity awards to officers, directors and other employees of the Company.its terms, whichever occurs first.

Stock Options

Options may be designated as incentive stock options or as nonqualified stock options. While the date after which options are first exercisable is determined by the appropriate committee of the Board of Directors of the Company or, in the case of options granted to directors, by the Board of Directors, no stock option may be exercised after ten years from the date of grant (twenty years in the case of nonqualified stock options). The exercise price of stock options granted pursuant to the plans must be no less than the fair market value of the Common Stock on the date of the grant.
 
The plans authorize an optionee to pay the exercise price of options in cash or in common shares of the Company or in some combination of cash and common shares. An optionee may tender already-owned common shares to the Company in exercise of an option. Certain of these plans authorize an optionee to surrender the value of an unexercised option in payment of an equivalent amount of the exercise price of the option. The Company typically issues authorized but unissued common shares upon the exercise of options.
 
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 8 – Shareholders' Equity (continued)

The following table presents information related to stock options under the Company’s equity incentive plan during the years ended 2017, 2016 and 2015:
  2017 2016 2015
       
Intrinsic Value of Options Exercised $—
 $137
 $559
Cash Received from Option Exercises $—
 $—
 $—
Tax Benefit of Option Exercises $—
 $54
 $224
Weighted Average Fair Value of Options Granted $—
 $—
 $—

The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of common stock as of the reporting date.


During 2017, 20162022, 2021 and 2015,2020, the Company granted no options, and recorded no stock compensation expense related to option grants. The Company recorded no other stock compensation expense applicable to options during the years ended December 31, 2017, 20162022, 2021 and 2015 because all outstanding options were fully vested prior to 2007.2020.


80
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 8 – Shareholders’ Equity (continued)
Restricted Stock

During the periods presented, awards of long-term incentives were granted in the form of restricted stock. AwardsIn 2019 and prior, awards that were granted to management and selected other employees under athe Company’s management and employee incentive plan were granted in tandem with cash credit entitlements (typically in the form of 60% restricted stock grants and 40% cash credit entitlements). Theentitlements. In 2020, awards granted under the management incentive plan were granted in tandem with cash credit entitlements in the form of 66.67% restricted stock grants and employee33.33% cash credit entitlements. In 2019 and prior, the restricted stock grants and tandem cash credit entitlements, awardedgenerally, vested in three annual installments of 33.3% each. In 2020, 100% of the cash portion of an award vests towards the end of the year in which the grant was made, followed by the restricted stock grants vesting 50% in each of the 2nd and 3rd years. Beginning in 2021, for named executive officers, awards are granted in the form of 100% restricted stock grants which will vest in three equalone-third installments of 33.3% withon the first, annual vesting on December 5thsecond and third anniversaries of the year of the grant and on December 5th of the next two succeeding years.award date. Awards that wereare granted to directors as additional retainerretainers for their services do not include any cash credit entitlement. These director restricted stock grants are subject to forfeiture in the event that the recipient of the grant does not continue in service as a director of the Company through December 5th31 of the year after grant or dodoes not satisfy certain meeting attendance requirements, at which time they generally vest 100 percent. For measuring compensation costs, restricted stock awards are valued based upon the market value of the common shares on the date of grant.

The following table presents expense recorded for restricted stock and cash entitlements as well as the related tax effect for the years ended 2017, 2016,2022, 2021, and 2015:2020:
 202220212020
Restricted Stock Expense$2,308 $1,692 $1,051 
Cash Entitlement Expense646 732 995 
Tax Effect(766)(629)(531)
Net of Tax$2,188 $1,795 $1,515 
  2017 2016 2015
       
Restricted Stock Expense $1,246
 $1,407
 $963
Cash Entitlement Expense 657
 570
 580
Tax Effect (746) (782) (615)
Net of Tax $1,157
 $1,195
 $928
Unrecognized expense associated with the restricted stock grants and cash entitlements totaled $1,983, $1,774,$2,781, $2,497, and $1,542$2,046 as of December 31, 2017, 2016,2022, 2021, and 2015,2020, respectively.


The following table presents information on restricted stock grants outstanding for the period shown:
 
Year Ended
December 31, 2017
Year Ended
December 31, 2022
 
Restricted
Shares
 
Weighted
Average Market
Price at Grant
Restricted
Shares		Weighted
Average Market
Price at Grant
    
Outstanding at Beginning of Period 53,163
 $22.32
Outstanding at Beginning of Period67,160 $41.06 
Granted 43,386
 31.77
Granted74,020 39.27 
Issued and Vested (49,733) 24.79
Issued and Vested(60,997)39.03 
Forfeited (510) 27.22
Forfeited(5,310)39.52 
Outstanding at End of Period 46,306
 $28.47
Outstanding at End of Period74,873 41.05 
 
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 8 – Shareholders' Equity (continued)

Employee Stock Purchase Plan
 
The Company maintains anCompany’s shareholders approved the Company’s 2019 Employee Stock Purchase Plan whereby eligible employees haveon May 16, 2019, as well as an Amended and Restated 2019 Employee Stock Purchase Plan on May 21, 2020, which was amended and restated to reflect certain clarifying changes (the “2019 ESPP”). The 2019 ESPP replaced the option toCompany’s 2009 Employee Stock Purchase Plan, which expired by its own terms on August 16, 2019. The 2019 ESPP provides for a series of 3-month offering periods, commencing on the first day and ending on the last trading day of each calendar quarter, for the purchase of the Company’s common stock at a discount.by participating employees. The purchase price of the shares under this Plan has been set at 95% of the fair market value of the Company’s common stock as ofon the last trading day of the plan year.offering period. A total of 750,000 common shares has been reserved for issuance under the 2019 ESPP. The plan provided for2019 ESPP will continue until September 30, 2029, or, if earlier, until all of the purchase of up to 750,000 shares of common stock whichallocated to the Company may obtain by purchases on the open market or from private sources, or by issuing authorized but unissued common shares. At December 31, 2017, there were 557,203 shares available for future issuance under this plan.2019 ESPP have been purchased. Funding for the purchase of common stock is from employee and Company contributions.
 
In 2017,2022, the Company recorded $32$53 of expense, $19$39 net of tax, for the employee stock purchase plan. In 2016,2021, the Company recorded $82$45 of expense, $50$34 net of tax, for the employee stock purchase plan. In 2015,2020, the Company recorded $22$40 of expense, $13
81
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 8 – Shareholders’ Equity (continued)
$30 net of tax, for the employee stock purchase plan. There was no unrecognized compensation expense as of December 31, 2017, 20162022, 2021 and 20152020 for the Employee Stock Purchase Plan.Plans.
 
Stock Repurchase Plan

On April 26, 2001,January 25, 2021, the Company announced that itsCompany’s Board of Directors approved a stockplan to repurchase program for up to 911,631one million shares of the Company’s outstanding Common Sharescommon stock. On a share basis, the amount of common stock subject to the repurchase plan represented approximately 4% of the Company. Shares may be purchased fromCompany’s outstanding shares at the time it was adopted. During 2021, the Company did not repurchase any of its outstanding common stock. The 2021 plan replaced a similar share repurchase plan approved by the Company’s Board of Directors on January 27, 2020. At the time of its termination in 2021, the Company had repurchased 221,912 shares of common stock under the 2020 plan.

On January 31, 2022, the Company’s Board of Directors terminated the 2021 repurchase plan and approved a new plan to time inrepurchase up to one million shares of the open market and in large block privately negotiated transactions.Company’s outstanding common stock. On a share basis, the amount of common stock subject to the new repurchase plan represented approximately 3% of the Company’s outstanding shares on the date it was approved. The Company is not obligated to purchase any shares under the program,plan, and the programplan may be discontinued at any time before the maximumtime. The actual timing, number and share price of shares specified by the program are purchased. The Board of Directors established no expiration date for this program. As of December 31, 2017, the Company had purchased 502,447 shares under the program. No shares were purchased under the program duringrepurchase plan will be determined by the years endedCompany at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements.

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2017, 2016 and 2015.2022 by publicly traded U.S. corporations, like the Company. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

NOTE 9 –- Employee Benefit Plans

The Company provides a contributory trusteed 401(k) deferred compensation and profit sharing plan, which covers substantially all employees. The Company agrees to match certain employee contributions under the 401(k) portion of the plan, while profit sharing contributions are discretionary and are subject to determination by the Board of Directors. Company contributions were $1,328, $1,121,$2,152, $2,050, and $999$1,956 for 2017, 2016,2022, 2021, and 2015,2020, respectively.
 
The Company self-insures employee health benefits. Stop loss insurance covers annual losses exceeding $150$175 per covered family as well as an aggregating specific deductible of $255 for the Company.family. Management’s policy is to establish a reserve for claims not submitted by a charge to earnings based on prior experience. Charges to earnings were $4,192, $3,153,$7,619, $5,520, and $2,666$5,234 for 2017, 2016,2022, 2021, and 2015,2020, respectively.
 
The Company maintains deferred compensation plans for the benefit of certain directors and officers. Under the plans, the Company agrees in return for the directors and officers deferring the receipt of a portion of their current compensation, to pay a retirement benefit computed as the amount of the compensation deferred plus accrued interest at a variable rate. Accrued benefits payable totaled $1,896$3,212 and $1,882$2,279 at December 31, 20172022 and 2016.2021. Deferred compensation expense was $187, $297,$1,143, $302, and $149$304 for 2017, 2016,2022, 2021, and 2015,2020, respectively. In conjunction with the plans, the Company purchased life insurance on certain directors and officers.

The Company entered into early retirement agreements with certain officers of the Company. Accrued benefits payable as a result of the agreements totaled $84 and $136 at December 31, 2017 and 2016, respectively. Expense associated with these agreements totaled $48, $0, and $215 during 2017, 2016, and 2015, respectively. The benefits under the agreements will be paid through 2018.
82

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 9 – Employee Benefit Plans (continued)

Postretirement Medical and Life Benefit Plan
 
The Company has an unfunded postretirement benefit plan covering substantially all of its employees. The medical plan is contributory with the participants’ contributions adjusted annually; the life insurance plans are noncontributory.
Changes in Accumulated Postretirement Benefit Obligations:20222021
Obligation at the Beginning of Year$1,592 $1,634 
Unrecognized Loss (Gain)(71)(68)
Components of Net Periodic Postretirement Benefit Cost
Service Cost105 119 
Interest Cost35 28 
Net Expected Benefit Payments(131)(121)
Amendments— — 
Obligation at End of Year$1,530 $1,592 
Changes in Accumulated Postretirement Benefit Obligations: 2017 2016
Obligation at the Beginning of Year $814
 $783
Unrecognized Loss (Gain) 226
 24
     
Components of Net Periodic Postretirement Benefit Cost  
  
Service Cost 50
 41
Interest Cost 29
 29
     
Net Expected Benefit Payments (58) (63)
Obligation at End of Year $1,061
 $814


Components of Postretirement Benefit Expense: 2017 2016 2015Components of Postretirement Benefit Expense:202220212020
Service Cost $50
 $41
 $42
Service Cost$105 $119 $110 
Interest Cost 29
 29
 26
Interest Cost35 28 41 
Amortization of Prior Service CostsAmortization of Prior Service Costs(2)(2)2 
Amortization of Unrecognized Net (Gain) Loss 8
 6
 5
Amortization of Unrecognized Net (Gain) Loss43 55 64 
Net Postretirement Benefit Expense 87
 76
 73
Net Postretirement Benefit Expense181 200 217 
      
Net (Gain) Loss During Period Recognized in Other Comprehensive Income (Loss) 218
 18
 17
Net Gain (Loss) During Period Recognized in Other Comprehensive Income (Loss)Net Gain (Loss) During Period Recognized in Other Comprehensive Income (Loss)(112)(121)15 
      
Total Recognized in Net Postretirement Benefit Expense and Other Comprehensive Income $305
 $94
 $90
Total Recognized in Net Postretirement Benefit Expense and Other Comprehensive Income$69 $79 $232 
 
Assumptions Used to Determine Net Periodic Cost and Benefit Obligations: 2017 2016 2015Assumptions Used to Determine Net Periodic Cost and Benefit Obligations:202220212020
Discount Rate 3.35% 3.72% 3.82%Discount Rate4.83 %2.31 %1.81 %
 
Assumed Health Care Cost Trend Rates at Year-end:20222021
Health Care Cost Trend Rate Assumed for Next Year7.50 %8.00 %
Rate that the Cost Trend Rate Gradually Declines to4.50 %4.50 %
Year that the Rate Reaches the Rate it is Assumed to Remain at20282028
Assumed Health Care Cost Trend Rates at Year-end: 2017 2016
Health Care Cost Trend Rate Assumed for Next Year 8.00% 8.00%
Rate that the Cost Trend Rate Gradually Declines to 5.00% 5.00%
Year that the Rate Reaches the Rate it is Assumed to Remain at 2023
 2022
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects as of December 31, 2017:
  
One-Percentage-Point
Increase
 
One-Percentage-Point
Decrease
Effect on Total of Service and Interest Cost $7
 $(6)
Effect on Postretirement Benefit Obligation $66
 $(59)
Contributions
The Company expects to contribute $84$142 to its postretirement medical and life insurance plan in 2018.2023.
 
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 9 – Employee Benefit Plans (continued)

Estimated Future Benefits

The following postretirement benefit payments, which reflect expected future service, are expected to be paid:
2023$142 
2024131 
2025133 
2026159 
2027172 
2028-2032857 



83
2018 $84
2019 91
2020 86
2021 77
2022 85
2023-2027 547
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 9 – Employee Benefit Plans (continued)
Multi-Employer Pension Plan


Through the acquisition of River Valley Bancorp, the Company acquired a participation in a multi-employer defined benefit pension plan. Effective December 31, 2015, the plan was frozen. Pension expense was approximately $63$53 and $54$66 during 20172022 and 2016,2021, respectively. Specific plan asset and accumulated benefit information for the Company's portion of the fund is not available. Under the Employee Retirement Income and Security Act of 1974 ("ERISA"(“ERISA”), a contributor to a multi-employer pension plan may be liable in the event of complete or partial withdrawal for the benefit payments guaranteed under ERISA, but currently there is no intention to withdraw.


The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (the "Pentegra“Pentegra DB Plan"Plan”), a tax-qualified defined-benefit pension plan. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under ERISA and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.


The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to participants of other participating employers.


Total contributions made to the Pentegra DB Plan, as reported on Form 5500, equal $153,186$248,563 and $163,183$253,199 for the plan years ended June 30, 20162021 and 2015,2020, respectively. The Company's contributions to the Pentegra DB Plan for the fiscal year ending December 31, 20172022 were not more than 5% of total contributions to the Pentegra DB Plan.Plan for the year ending June 30, 2021.


NOTE 10 –- Income Taxes
The provision for income taxes consists of the following:202220212020
Current Federal$13,049 $13,437 $14,186 
Current State1,763 2,547 2,265 
Deferred Federal1,868 2,056 (2,765)
Deferred State671 608 (852)
Total$17,351 $18,648 $12,834 

Effective tax rates differ from the federal statutory rate of 21% for 2022, 2021 and 2020 applied to income before income taxes due to the following:
 202220212020
Statutory Rate Times Pre-tax Income$20,827 $21,585 $15,759 
Add (Subtract) the Tax Effect of:
Income from Tax-exempt Loans and Investments(5,223)(3,872)(2,681)
Non-deductible Merger Costs177 — — 
State Income Tax, Net of Federal Tax Effect1,923 2,492 1,116 
General Business Tax Credits(1,038)(1,013)(1,085)
Company Owned Life Insurance(476)(321)(484)
Other Differences1,161 (223)209 
Total Income Taxes$17,351 $18,648 $12,834 
84
The provision for income taxes consists of the following: 2017 2016 2015
       
Current Federal $10,481
 $11,468
 $11,407
Current State 473
 447
 898
Deferred Federal 276
 1,611
 (920)
Deferred State 304
 420
 221
Total $11,534
 $13,946
 $11,606
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 10 – Income Taxes (continued)

Income tax expense is reconciled to the 35% statutory rate applied to the pre-tax income for the years presented in the table below:
  2017 2016 2015
       
Statutory Rate Times Pre-tax Income $18,274
 $17,195
 $14,585
Add (Subtract) the Tax Effect of:  
  
  
Income from Tax-exempt Loans and Investments (3,304) (2,929) (2,250)
State Income Tax, Net of Federal Tax Effect 505
 564
 727
General Business Tax Credits (715) (621) (750)
Company Owned Life Insurance (469) (346) (296)
Revaluation of Deferred Tax Assets/Liabilities due to Tax Reform (2,284) —
 —
Other Differences (473) 83
 (410)
Total Income Taxes $11,534
 $13,946
 $11,606

The net deferred tax liabilityasset/(liability) at December 31 consists of the following:
 20222021
Deferred Tax Assets:  
Allowance for Credit Losses$10,478 $8,470 
Lease Liability (Operating Leases)1,585 1,542 
Unrealized Loss on Securities70,234 — 
Deferred Compensation and Employee Benefits1,162 878 
Other-than-temporary Impairment246 246 
Accrued Expenses1,325 1,288 
Business Combination Fair Value Adjustments205 138 
Pension and Postretirement Plans182 200 
Other Real Estate Owned70 — 
Non-Accrual Loan Interest Income629 567 
General Business Tax Credits198 — 
Net Operating Loss Carryforward828 447 
Mortgage Servicing Rights— 49 
Other1,190 1,860 
Total Deferred Tax Assets88,332 15,685 
Deferred Tax Liabilities:  
Depreciation(2,859)(2,496)
Leasing Activities, Net(10,983)(10,878)
Unrealized Gain on Securities— (4,366)
FHLB Stock Dividends(488)(199)
Prepaid Expenses(684)(646)
Intangibles(3,181)(1,651)
Deferred Loan Fees(1,127)(790)
Mortgage Servicing Rights(58)— 
Right of Use Asset (Operating Leases)(1,548)(1,515)
Other(924)(75)
Total Deferred Tax Liabilities(21,852)(22,616)
Valuation Allowance— — 
Net Deferred Tax Asset/(Liability)$66,480 $(6,931)
  2017 2016
Deferred Tax Assets:  
  
Allowance for Loan Losses $3,645
 $5,269
Unrealized Loss on Securities 665
 3,456
Deferred Compensation and Employee Benefits 702
 1,146
Other-than-temporary Impairment 243
 377
Accrued Expenses 645
 956
Business Combination Fair Value Adjustments 1,041
 2,838
Pension and Postretirement Plans 100
 67
Non-Accrual Loan Interest Income 152
 158
Net Operating Loss Carryforward —
 196
Unused Tax Credits —
 86
Other 302
 472
Total Deferred Tax Assets 7,495
 15,021
Deferred Tax Liabilities:  
  
Depreciation (1,309) (1,612)
Leasing Activities, Net (7,343) (9,845)
FHLB Stock Dividends (196) (304)
Prepaid Expenses (368) (461)
Intangibles (597) (1,113)
Deferred Loan Fees (483) (691)
Mortgage Servicing Rights (133) (231)
General Business Tax Credits —
 (235)
Other (1,098) (1,692)
Total Deferred Tax Liabilities (11,527) (16,184)
Valuation Allowance —
 —
Net Deferred Tax Liability $(4,032) $(1,163)

On December 22, 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Among other things, the Tax Act includes significant changes to the U.S. corporate income tax system, including: reducing the federal corporate rate from 35% to 21%; modifying the rules regarding limitations on certain deductions for executive compensation; introducing a capital investment deduction in certain circumstances; placing certain limitations on the interest deduction; and modifying the rules regarding the usability of net operating losses. Based upon its initial analysis of the Tax Act, the Company revalued its deferred tax assets and deferred tax liabilities at December 31, 2017 and, as a
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 10 – Income Taxes (continued)

result, recorded a $2,284 [reduction in income tax expense] during the fourth quarter of 2017. This benefit was based on reasonable estimates by the Company of certain income tax effects of the Tax Act.

Under the Internal Revenue Code, through 1996, three acquired banking companies, which are now a part of the Company’s single banking subsidiary, were allowed a special bad debt deduction related to additions to tax bad debt reserves established for the purpose of absorbing losses. The acquired banks were formerly known as River Valley Financial Bank (acquired in March 2016), Peoples Community Bank (acquired in October 2005) and First American Bank (acquired in January 1999). Subject to certain limitations, these Banksbanks were permitted to deduct from taxable income an allowance for bad debts based on a percentage of taxable income before such deductions or actual loss experience. The BanksEach of the banks generally computed its annual addition to its bad debt reserves using the percentage of taxable income method; however, due to certain limitations in 1996, the Banksbanks were only allowed a deduction based on actual loss experience.

Retained earnings at December 31, 2017,2022, include approximately $5,095 for which no provision for federal income taxes has been made. This amount represents allocations of income for allowable bad debt deductions. Reduction of amounts so allocated for purposes other than tax bad debt losses will create taxable income, which will be subject to the then current corporate income tax rate. It is not contemplated that amounts allocated to bad debt deductions will be used in any manner to create taxable income. The unrecorded deferred income tax liability on the above amount at December 31, 20172022 was approximately $1,070.


As of December 31, 2022, the Company had Kentucky net operating loss carryforwards of $20,974, which expire in years ranging from 2029 through 2040. These net operating loss carryforwards are expected to be fully utilized before their expiration dates.

85
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 10 – Income Taxes (continued)
Unrecognized Tax Benefits

The Company had no unrecognized tax benefits as of December 31, 2017, 2016,2022, 2021, and 2015,2020, and did not recognize any increase in unrecognized benefits during 20172022 relative to any tax positions taken in 2017.2022. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company’s policy to record such accruals in its income tax expense accounts; no such accruals existed as of December 31, 2017, 2016,2022, 2021, and 2015.2020. The Company and its corporate subsidiaries file a consolidated U.S. Federal income tax return, which is subject to examination for all years after 2013.2018. The Company and its corporate subsidiaries doing businessfile combined/unitary returns in Indiana file a combined Indiana unitary return,various states, which isare subject to examination for all years after 2013.2018.

NOTE 11 - Common Stock SplitRevenue Recognition


On March 27, 2017,The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), for the years ended December 31, 2022, 2021 and 2020. Trust and investment product fees are included in the wealth management services segment while insurance revenues are included in the insurance segment. All other revenue streams are primarily included in the banking segment.
Year Ended
December 31,
Non-interest Income202220212020
In-Scope of Topic 606:
Wealth Management Fees$10,076 $10,321 $8,005 
Service Charges on Deposit Accounts11,457 7,723 7,334 
Insurance Revenues10,020 9,268 8,922 
Interchange Fee Income15,820 13,116 10,529 
Other Operating Income3,223 2,877 2,361 
Non-interest Income (in-scope of Topic 606)50,596 43,305 37,151 
Non-interest Income (out-of-scope of Topic 606)8,537 16,157 17,323 
Total Non-interest Income$59,133 $59,462 $54,474 

A description of the Company’s revenue streams accounted for under Topic 606 follows:

Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as stop payment charges and statement rendering, are recognized at the time the transaction is executed (the point in time the Company declaredfills the customer’s request). Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a 3-for-2 stock splitmonth, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs.

Interchange Fee Income: The Company earns interchange fees from debit/credit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Wealth Management Fees: The Company earns wealth management and investment services income from its contracts with wealth management customers to manage assets for investment and/or to transact their accounts. These fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on the Company's authorizedmarket value of assets under management at month-end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed (trade date).

Insurance Revenues: The Company earns insurance revenue from commissions derived from the sale of personal and outstanding common shares. The stock split was distributed on April 21, 2017,corporate property and casualty insurance products. These commissions are primarily earned over time as the Company provides the contracted insurance product to shareholders of record as of April 6, 2017. All share and per share data in this Annual Report on Form 10-K relating to a date or period that precedes April 21, 2017 have been adjusted to retroactively reflect the stock split.customers.


86
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data
NOTE 12 – Per Share Data
The computation of Basic Earnings per Share and Diluted Earnings per Share are provided below:
  2017 2016 2015
Basic Earnings per Share:(1)
  
  
  
Net Income $40,676
 $35,184
 $30,064
Weighted Average Shares Outstanding 22,924,726
 22,389,137
 19,882,503
       
Basic Earnings per Share $1.77
 $1.57
 $1.51
       
Diluted Earnings per Share:(1)
  
  
  
Net Income $40,676
 $35,184
 $30,064
       
Weighted Average Shares Outstanding 22,924,726
 22,389,137
 19,882,503
Stock Options, Net —
 1,979
 5,871
Diluted Weighted Average Shares Outstanding 22,924,726
 22,391,116
 19,888,374
       
Diluted Earnings per Share $1.77
 $1.57
 $1.51
(1) Share and per share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017.
 202220212020
Basic Earnings per Share:   
Net Income$81,825 $84,137 $62,210 
Weighted Average Shares Outstanding29,464,591 26,537,311 26,539,024 
Basic Earnings per Share$2.78 $3.17 $2.34 
Diluted Earnings per Share:   
Net Income$81,825 $84,137 $62,210 
Weighted Average Shares Outstanding29,464,591 26,537,311 26,539,024 
Stock Options, Net— — — 
Diluted Weighted Average Shares Outstanding29,464,591 26,537,311 26,539,024 
Diluted Earnings per Share$2.78 $3.17 $2.34 
 
There were no anti-dilutive shares at December 31, 2017, 2016,2022, 2021, and 2015.2020. There were no stock options outstanding at December 31, 2022, 2021 and 2020. Restricted stock units are participating shares and included in outstanding shares for purposes of the calculation of earnings per share.

NOTE 13 - Leases

At the inception of a contract, an entity should determine whether the contract contains a lease. Topic 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Control over the use of an identified asset means that the customer has both (1) the right to obtain substantially all of the economic benefits from the use of the asset and (2) the right to direct the use of the asset.

German American has finance leases for branch offices as well as operating leases for branch offices, ATM locations and certain office equipment. The right-of-use asset is included in the ‘Premises, Furniture and Equipment, Net’ line of the consolidated balance sheet. The lease liability is included in the ‘Accrued Interest Payable and Other Liabilities’ line of the consolidated balance sheet.

The Company used the implicit lease rate when determining the present value of lease payments for finance leases. The present value of lease payments for operating leases was determined using the incremental borrowing rate as of the date the Company adopted this standard.

The components of lease expense were as follows:
December 31, 2022December 31, 2021
Finance Lease Cost:
Amortization of Right-of-Use Assets$210 $210 
Interest on Lease Liabilities326 345 
Operating Lease Cost1,508 1,423 
Short-term Lease Cost— 80 
Total Lease Cost$2,044 $2,058 

87
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 13 – Leases (continued)

The weighted average lease term and discount rates were as follows:
December 31, 2022December 31, 2021
Weighted Average Remaining Lease Term:
Finance Leases9 years10 years
Operating Leases7 years7 years
Weighted Average Discount Rate:
Finance Leases11.41 %11.45 %
Operating Leases2.98 %3.02 %

Supplemental balance sheet information related to leases were as follows:
December 31, 2022December 31, 2021
Finance Leases
Premises, Furniture and Equipment, Net$1,858 $2,068 
Other Borrowings$2,857 $3,051 
Operating Leases
Operating Lease Right-of-Use Assets$6,297 $6,115 
Operating Lease Liabilities$6,447 $6,227 

Supplemental cash flow information related to leases were as follows:
December 31, 2022December 31, 2021
Cash Paid for Amounts in the Measurement of Lease Liabilities:
Operating Cash Flows from Finance Leases$326 $345 
Operating Cash Flows from Operating Leases1,449 2,808 
Financing Cash Flows from Finance Leases186 155 

The following table presents a maturity analysis of Finance and Operating Lease CommitmentsLiabilities:
December 31, 2022
Finance LeasesOperating Leases
Year 1$519 $1,376 
Year 2519 1,187 
Year 3519 1,021 
Year 4519 845 
Year 5492 662 
Thereafter1,985 2,108 
Total Lease Payments4,553 7,199 
Less Imputed Interest(1,696)(752)
Total$2,857 $6,447 
The total rental expense for all operating leases for the years ended December 31, 2017, 2016, and 2015 was $1,213, $1,215, and $753 respectively, including amounts paid under short-term cancelable leases.

The following is a schedule of future minimum lease payments under operating leases for premises and equipment at year end 2017:
2018 $1,050
2019 956
2020 843
2021 752
2022 638
Thereafter 2,980
Total $7,219

NOTE 14 – Commitments and Off-balance Sheet Items
 
In the normal course of business, there are various commitments and contingent liabilities, such as commitments to extend credit and commitments to sell loans, which are not reflected in the accompanying consolidated financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policy to make commitments as it uses for on-balance sheet items. 

88
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

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


The Company’s exposure to credit risk for commitments to sell loans is dependent upon the ability of the counter-party to purchase the loans. This is generally assured by the use of government sponsored entity counterparts. These commitments are subject to market risk resulting from fluctuations in interest rates.

Commitments and contingent liabilities are summarized as follows, at December 31:
 20222021
Fixed
Rate		Variable
Rate		Fixed
Rate		Variable
Rate
Commitments to Fund Loans:    
Consumer Lines$15,238 $576,784 $16,784 $476,719 
Commercial Operating Lines161,058 611,357 59,917 473,033 
Residential Mortgages15,129 5,327 25,132 214 
Total Commitments to Fund Loans$191,425 $1,193,468 $101,833 $949,966 
Commitments to Sell Loans:
Mandatory$— $— $288 $— 
Non-mandatory$8,731 $— $12,589 $— 
Standby Letters of Credit$3,047 $17,117 $1,491 $8,447 
  2017 2016
  
Fixed
Rate
 
Variable
Rate
 Fixed
Rate		 Variable
Rate
Commitments to Fund Loans:  
  
  
  
Consumer Lines $10,997
 $260,934
 $10,081
 $237,087
Commercial Operating Lines 19,267
 308,381
 24,598
 274,619
Residential Mortgages 17,255
 655
 13,760
 765
Total Commitments to Fund Loans $47,519
 $569,970
 $48,439
 $512,471
         
Commitments to Sell Loans:        
Mandatory $681
 $—
 $973
 $—
Non-mandatory $24,628
 $188
 $30,708
 $677
         
Standby Letters of Credit $959
 $4,736
 $1,059
 $7,869

The fixed rate commitments to fund loans have interest rates ranging from 2.00% to 18.00%24.00% and maturities ranging from less than 1 year to 3227 years. Since many commitments to make loans expire without being used, these amounts do not necessarily represent future cash commitments. Collateral obtained upon exercise of the commitment is determined using management’s credit evaluation of the borrower, and may include accounts receivable, inventory, property, land, and other items.

NOTE 15 – Fair Value


Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
 
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
 
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
 
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
 
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
 
Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For investment securities where quoted prices are not available, fair values are calculated based on market prices of similar investment securities (Level 2). For investment securities where quoted prices or market prices of similar investment securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Level 3 pricing is obtained from a third-party based upon similar trades that are not traded frequently without adjustment by the Company. At December 31, 2017,2022, the Company held $6.0 million$83 in Level 3 securities which consist of $5.6 million of non-rated Obligations of State and Political Subdivisions and $353 thousand$906 in Level 3 securities which consist of equity securities that are not actively traded.non-rated MBS/CMO. Absent the credit rating, significant
89
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)
assumptions must be made such that the credit risk input becomes an unobservable input and thus these investment securities are reported by the Company in a Level 3 classification.
 
Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).
 
ImpairedIndividually Analyzed Loans: Fair values for impaired collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances includes consideration of offers obtained to purchase properties prior to foreclosure. Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach. The cost method bases value in the cost to replace the current property. Value of market comparison approach evaluates the sales price of similar properties in the same market area. The income approach considers net operating income generated by the property and an investor'sinvestor’s required return. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell. Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.
 
Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s Risk Management Area reviews the assumptions and approaches utilized in the appraisal. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used which include: physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.
 
Other Real Estate: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate (ORE) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property utilizing similar techniques as discussed above for Impaired Loans, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, impairment loss is recognized.

Loan Servicing Rights: On a quarterly basis, loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. The valuation model utilizes interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data.

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

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)


Assets and Liabilities Measured on a Recurring Basis
 
Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:
 Fair Value Measurements at December 31, 2022 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable  Inputs
(Level 3)		Total
Assets:    
U.S. Treasury$64,119 $— $— $64,119 
Obligations of State and Political Subdivisions— 777,769 83 777,852 
MBS/CMO— 713,775 906 714,681 
US Gov't Sponsored Entities & Agencies— 205,017 — 205,017 
Total Securities$64,119 $1,696,561 $989 $1,761,669 
Loans Held-for-Sale$— $8,600 $— $8,600 
Derivative Assets$— $9,899 $— $9,899 
Derivative Liabilities$— $9,749 $— $9,749 
  Fair Value Measurements at December 31, 2017 Using
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable  Inputs
(Level 3)
 Total
Assets:  
  
  
  
Obligations of State and Political Subdivisions $—
 $267,660
 $5,649
 $273,309
MBS/CMO - Residential —
 467,332
 —
 467,332
Equity Securities —
 —
 353
 353
Total Securities $—
 $734,992
 $6,002
 $740,994
         
Loans Held-for-Sale $—
 $6,719
 $—
 $6,719
         
Derivative Assets $—
 $1,564
 $—
 $1,564
         
Mortgage Servicing Rights $—
 $547
 $—
 $547
         
Derivative Liabilities $—
 $1,633
 $—
 $1,633


90
  Fair Value Measurements at December 31, 2016 Using
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 Total
Assets:  
  
  
  
Obligations of State and Political Subdivisions $—
 $240,495
 $7,024
 $247,519
MBS/CMO - Residential —
 461,914
 —
 461,914
Equity Securities —
 —
 353
 353
Total Securities $—
 $702,409
 $7,377
 $709,786
         
Loans Held-for-Sale $—
 $15,273
 $—
 $15,273
         
Derivative Assets $—
 $1,291
 $—
 $1,291
         
Mortgage Servicing Rights $—
 $611
 $—
 $611
         
Derivative Liabilities $—
 $1,238
 $—
 $1,238
There were no transfers between Level 1 and Level 2 for the periods ended December 31, 2017 and 2016.
At December 31, 2017, the aggregate fair value of the Loans Held-for-Sale was $6,719. Aggregate contractual principal balance was $6,576 with a difference of $143. At December 31, 2016, the aggregate fair value of the Loans Held-for-Sale was $15,273. Aggregate contractual principal balance was $14,983 with a difference of $290.
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 15 – Fair Value (continued)

 Fair Value Measurements at December 31, 2021 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable  Inputs
(Level 3)		Total
Assets:    
Obligations of State and Political Subdivisions$— $925,706 $— $925,706 
MBS/CMO— 791,950 — 791,950 
US Gov't Sponsored Entities & Agencies— 171,961 — 171,961 
Total Securities$— $1,889,617 $— $1,889,617 
Loans Held-for-Sale$— $10,585 $— $10,585 
Derivative Assets$— $4,519 $— $4,519 
Derivative Liabilities$— $4,762 $— $4,762 

As of December 31, 2022 and 2021, the aggregate fair value, contractual balance (including accrued interest), and gain or loss on Loans Held-for-Sale were as follows:
20222021
Aggregate Fair Value$8,600 $10,585 
Contractual Balance8,474 10,296 
Gain (Loss)126 289 

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

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 20172022 and 2016:2021:
 Obligations of State and Political Subdivisions Equity Securities Obligations of State and Political SubdivisionsMBS/CMO
 2017 2016 2017 2016 2022202120222021
Balance of Recurring Level 3 Assets at January 1 $7,024
 $8,749
 $353
 $353
Balance of Recurring Level 3 Assets at January 1$— $497 $— $— 
Total Gains or Losses Included in Other Comprehensive Income (60) (75) —
 —
Total Gains (Losses) Included in Other Comprehensive IncomeTotal Gains (Losses) Included in Other Comprehensive Income(17)(2)(76)— 
Maturities / Calls (1,315) (1,650) —
 —
Maturities / Calls— (495)— — 
Purchases —
 —
 —
 —
Acquired through Bank AcquisitionAcquired through Bank Acquisition100 — 982 — 
Balance of Recurring Level 3 Assets at December 31 $5,649
 $7,024
 $353
 $353
Balance of Recurring Level 3 Assets at December 31$83 $— $906 $— 
 
Of the total gain/loss included in earnings for the years ended December 31, 20172022 and 2016, ($60) and($75)2021, $(93) and $(2) was attributable to other changes in fair value, respectively.


91
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)
Assets and Liabilities Measured on a Non-Recurring Basis


Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
 Fair Value Measurements at December 31, 2017 Using Fair Value Measurements at December 31, 2022 Using
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 TotalQuoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
Assets:  
  
  
  
Assets:    
Impaired Loans  
  
  
  
Individually Analyzed LoansIndividually Analyzed Loans    
Commercial and Industrial Loans $—
 $—
 $3,354
 $3,354
Commercial and Industrial Loans$— $— $1,858 $1,858 
Commercial Real Estate Loans —
 —
 3,438
 3,438
Commercial Real Estate Loans— — 10,040 10,040 
Agricultural LoansAgricultural Loans— — 2,970 2,970 
Consumer LoansConsumer Loans— — 8 8 
Home Equity LoansHome Equity Loans— — 368 368 
Residential Mortgage LoansResidential Mortgage Loans— — 718 718 


 Fair Value Measurements at December 31, 2021 Using
Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
Assets:    
Individually Analyzed Loans    
Commercial and Industrial Loans$— $— $4,423 $4,423 
Commercial Real Estate Loans— — 1,672 1,672 
Agricultural Loans— — 79 79 
Consumer Loans— — — — 
Home Equity Loans— — 345 345 
Residential Mortgage Loans— — — — 
  Fair Value Measurements at December 31, 2016 Using
  Quoted Prices in Active Markets for Identical Assets
(Level 1)		 Significant Other Observable Inputs
(Level 2)		 Significant Unobservable Inputs
(Level 3)		 Total
Assets:  
  
  
  
Impaired Loans  
  
  
  
Commercial and Industrial Loans $—
 $—
 $60
 $60
Commercial Real Estate Loans —
 —
 348
 348
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $9,020 with a valuation allowance of $2,228, resulting in an increase to the provision for loan losses of $1,973 for the year ended December 31, 2017. Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $663 with a valuation allowance of $255, resulting in an increase to the provision for loan losses of $115 for the year ended December 31, 2016.


There was no Other Real Estate carried at fair value less costs to sell at December 31, 20172022 and 2016.2021. No charge to earnings was included in the yearyears ended December 31, 2017. A charge to earnings through Other Operating Income of $75 was included in the year ended December 31, 2016.2022 and 2021.

92
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 15 – Fair Value (continued)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 20172022 and 2016:2021:
December 31, 2022Fair ValueValuation Technique(s)Unobservable Input(s)Range (Weighted Average)
Individually Analyzed Loans - Commercial and Industrial Loans$1,858Sales comparison approachAdjustment for physical condition of comparable properties sold
0% - 100%
(40%)
Individually Analyzed Loans - Commercial Real Estate Loans$10,040Sales comparison approachAdjustment for physical condition of comparable properties sold
30% - 100%
(37%)
Individually Analyzed Loans - Agricultural Loans$2,970Sales comparison approachAdjustment for physical condition of comparable properties sold
30% - 100%
(48%)
Individually Analyzed Loans - Consumer Loans$8Sales comparison approachAdjustment for physical condition of comparable properties sold
27% - 100%
(20%)
Individually Analyzed Loans - Home Equity Loans$368Sales comparison approachAdjustment for physical condition of comparable properties sold
20% - 51%
(20%)
Individually Analyzed Loans - Residential Mortgage Loans$718Sales comparison approachAdjustment for physical condition of comparable properties sold
20% -100%
(21%)
December 31, 2017 Fair Value Valuation Technique(s) Unobservable Input(s) Range (Weighted Average)
Impaired Loans - Commercial and Industrial Loans $3,354
 Sales comparison approach Adjustment for physical condition of comparable properties sold 0% - 95%
(84%)
Impaired Loans - Commercial Real Estate Loans $3,438
 Sales comparison approach Adjustment for physical condition of comparable properties sold 30% - 76%
(47%)

December 31, 2016 Fair Value Valuation Technique(s) Unobservable Input(s) Range (Weighted Average)
Impaired Loans - Commercial and Industrial Loans $60
 Sales comparison approach Adjustment for physical condition of comparable properties sold 0% - 100%
(89%)
Impaired Loans - Commercial Real Estate Loans $348
 Sales comparison approach Adjustment for physical condition of comparable properties sold 33% - 77%
(56%)

December 31, 2021Fair ValueValuation Technique(s)Unobservable Input(s)Range (Weighted Average)
Individually Analyzed Loans - Commercial and Industrial Loans$4,423 Sales comparison approachAdjustment for physical condition of comparable properties sold
30% - 100%
(69%)
Individually Analyzed Loans - Commercial Real Estate Loans$1,672 Sales comparison approachAdjustment for physical condition of comparable properties sold
 30% - 100%
(46%)
Individually Analyzed Loans - Agricultural Loans$79 Sales comparison approachAdjustment for physical condition of comparable properties sold
30% - 96%
(90%)
Individually Analyzed Loans - Consumer Loans$— Sales comparison approachAdjustment for physical condition of comparable properties sold
100%
(100%)
Individually Analyzed Loans - Home Equity Loans$345 Sales comparison approachAdjustment for physical condition of comparable properties sold
20% - 23%
(22%)
Individually Analyzed Loans - Residential Mortgage Loans$— Sales comparison approachAdjustment for physical condition of comparable properties sold
—% - —%
(—%)
The carrying amounts and estimated fair values of the Company’s financial instruments not previously presented are provided in the tables below for the periods ending December 31, 20172022 and 2016.2021. Not all of the Company’s assets and liabilities are considered financial instruments, and therefore are not included in the table.tables. Because no active market exists for a significant
93
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)
portion of the Company’s financial instruments, fair value estimates were based on subjective judgments, and therefore cannot be determined with precision.
Fair Value Measurements at
December 31, 2022 Using
 Carrying ValueLevel 1Level 2Level 3Total
Financial Assets:     
Cash and Short-term Investments$119,079 $77,174 $41,905 $— $119,079 
Interest Bearing Time Deposits with Banks500 — 500 — 500 
Loans, Net3,724,804 — — 3,688,903 3,688,903 
Accrued Interest Receivable27,741 38 10,863 16,840 27,741 
Financial Liabilities: 
Demand, Savings, and Money Market Deposits(4,921,582)(4,921,582)— — (4,921,582)
Time Deposits(428,469)— (426,184)— (426,184)
Short-term Borrowings(101,161)(36,200)(64,961)— (101,161)
Long-term Debt(102,645)— (26,830)(72,272)(99,102)
Accrued Interest Payable(1,513)— (1,205)(308)(1,513)
    
Fair Value Measurements at
December 31, 2017 Using
  Carrying Value Level 1 Level 2 Level 3 Total
Financial Assets:  
  
  
  
  
Cash and Short-term Investments $70,359
 $58,233
 $12,126
 $—
 $70,359
Loans, Net 2,119,152
 —
 —
 2,120,154
 2,120,154
FHLB Stock and Other Restricted Stock 13,048
 N/A
 N/A
 N/A
 N/A
Accrued Interest Receivable 13,258
 —
 3,574
 9,684
 13,258
Financial Liabilities:  
  
  
  
  
Demand, Savings, and Money Market Deposits (2,096,167) (2,096,167) —
 —
 (2,096,167)
Time Deposits (387,885) —
 (388,640) —
 (388,640)
Short-term Borrowings (133,499) —
 (133,499) —
 (133,499)
Long-term Debt (141,717) —
 (129,366) (11,052) (140,418)
Accrued Interest Payable (1,058) —
 (1,042) (16) (1,058)

Fair Value Measurements at
December 31, 2021 Using
 Carrying ValueLevel 1Level 2Level 3Total
Financial Assets:     
Cash and Short-term Investments$396,890 $47,173 $349,717 $— $396,890 
Interest Bearing Time Deposits with Banks745 — 745 — 745 
Loans, Net2,960,278 — — 2,980,555 2,980,555 
Accrued Interest Receivable20,229 — 9,213 11,016 20,229 
Financial Liabilities:
Demand, Savings, and Money Market Deposits(4,397,217)(4,397,217)— — (4,397,217)
Time Deposits(347,099)— (347,876)— (347,876)
Short-term Borrowings(68,328)— (68,328)— (68,328)
Long-term Debt(83,855)— (28,320)(58,303)(86,623)
Accrued Interest Payable(613)— (579)(34)(613)
    
Fair Value Measurements at
December 31, 2016 Using
  Carrying Value Level 1 Level 2 Level 3 Total
Financial Assets:  
  
  
  
  
Cash and Short-term Investments $64,816
 $48,467
 $16,349
 $—
 $64,816
Loans, Net 1,974,074
 —
 —
 1,980,523
 1,980,523
FHLB Stock and Other Restricted Stock 13,048
 N/A
 N/A
 N/A
 N/A
Accrued Interest Receivable 11,413
 —
 3,289
 8,124
 11,413
Financial Liabilities:  
  
  
  
  
Demand, Savings, and Money Market Deposits (1,971,370) (1,971,370) —
 —
 (1,971,370)
Time Deposits (378,181) —
 (378,000) —
 (378,000)
Short-term Borrowings (137,554) —
 (137,554) —
 (137,554)
Long-term Debt (120,560) —
 (109,709) (10,793) (120,502)
Accrued Interest Payable (789) —
 (775) (14) (789)

 
Cash and Short-Term Investments:
The carrying amount of cash and short-term investments approximate fair values and are classified as Level 1 or Level 2. 

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 15 – Fair Value (continued)

FHLB Stock and Other Restricted Stock:
It is not practical to determine the fair values of FHLB stock and other restricted stock due to restrictions placed on their transferability.
Loans:
Fair values of loans, excluding loans held for sale and collateral dependent impaired loans carried at fair value, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued as described previously. The methods utilized to estimate fair value of loans do not necessarily represent an exit price.

Accrued Interest Receivable:
The carrying amount of accrued interest approximates fair value resulting in a Level 2 or Level 3 classification consistent with the asset they are associated with.

Deposits:
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed rate time deposits are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.
Short-term Borrowings:
The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.
Long-Term Debt:
The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.
The fair values of the Company’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification. 

Accrued Interest Payable:
The carrying amount of accrued interest approximates fair value resulting in a Level 2 or Level 3 classification consistent with the liability they are associated with.

NOTE 16 –- Segment Information


The Company’s operations include three primary segments: core banking, trust and investment advisorywealth management services, and insurance operations. The core banking segment involves attracting deposits from the general public and using such funds to originate consumer, commercial and agricultural, commercial and agricultural real estate, and residential mortgage loans, primarily in the Company’s local markets. The core banking segment also involves the sale of residential mortgage loans in the secondary market. The trust and investment advisory serviceswealth management segment involves providing trust, investment advisory, brokerage and brokerageretirement planning services to customers. The insurance segment offers a full range of personal and corporate property and casualty insurance products, primarily in the Company’s banking subsidiary’s local markets.
 
The core banking segment is comprised by the Company’s banking subsidiary, German American Bancorp,Bank, which operated through 5377 banking offices at December 31, 2017.2022. Net interest income from loans and investments funded by deposits and borrowings is the primary revenue for the core-banking segment. The trust and investment advisory serviceswealth management segment’s revenues are comprised primarily of fees generated by the trust operations of the Company's banking subsidiary and by German American Investment Services, Inc. These fees are derived by providing trust, investment advisory, brokerage and brokerageretirement planning services to its customers. The insurance segment primarily consists of German American Insurance, Inc., which provides a full line of personal and corporate insurance products. Commissions derived from the sale of insurance products are the primary source of revenue for the insurance segment.

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 16 – Segment Information (continued)


The following segment financial information has been derived from the internal financial statements of the Company which are used by management to monitor and manage financial performance. The accounting policies of the three segments are the same as those of the Company. The evaluation process for segments does not include holding company income and expense. Holding
94
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 16 – Segment Information (continued)
company amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the column labeled “Other” below, along with amounts to eliminate transactions between segments.
Core
Banking		Wealth Management ServicesInsuranceOtherConsolidated
Totals
Year Ended December 31, 2022     
Net Interest Income$204,259 $46 $27 $(3,748)$200,584 
Net Gains on Sales of Loans3,818 — — — 3,818 
Net Gains on Securities589 — — (27)562 
Wealth Management Fees4 10,072 — — 10,076 
Insurance Revenues31 12 9,977 — 10,020 
Noncash Items:
Provision for Credit Losses6,350 — — — 6,350 
Depreciation and Amortization9,571 41 48 456 10,116 
Income Tax Expense (Benefit)17,873 691 720 (1,933)17,351 
Segment Profit (Loss)82,965 2,157 2,281 (5,578)81,825 
Segment Assets at December 31, 20226,152,346 8,846 14,706 (19,907)6,155,991 

Core
Banking		Wealth Management ServicesInsuranceOtherConsolidated
Totals
Year Ended December 31, 2021     
Net Interest Income$163,395 $42 $11 $(2,618)$160,830 
Net Gains on Sales of Loans8,267 — — — 8,267 
Net Gains on Securities2,247 — — — 2,247 
Wealth Management Fees4 10,317 — — 10,321 
Insurance Revenues14 7 9,247 — 9,268 
Noncash Items:
Provision for Credit Losses(6,500)— — — (6,500)
Depreciation and Amortization8,346 46 57 321 8,770 
Income Tax Expense (Benefit)18,774 826 652 (1,604)18,648 
Segment Profit (Loss)82,066 2,543 2,034 (2,506)84,137 
Segment Assets at December 31, 20215,595,721 6,115 12,245 (5,542)5,608,539 

Core
Banking		Wealth Management ServicesInsuranceOtherConsolidated
Totals
Year Ended December 31, 2020     
Net Interest Income$157,936 $18 $11 $(2,722)$155,243 
Net Gains on Sales of Loans9,908 — — — 9,908 
Net Gains on Securities4,081 — — — 4,081 
Wealth Management Fees3 8,002 — — 8,005 
Insurance Revenues12 15 8,895 — 8,922 
Noncash Items:
Provision for Credit Losses17,550 — — — 17,550 
Depreciation and Amortization9,012 28 68 321 9,429 
Income Tax Expense (Benefit)13,758 452 536 (1,912)12,834 
Segment Profit (Loss)60,812 1,355 1,655 (1,612)62,210 
Segment Assets at December 31, 20204,963,655 4,480 10,263 (821)4,977,577 

95
  
Core
Banking
 
Trust and
Investment
Advisory
Services
 Insurance Other 
Consolidated
Totals
Year Ended December 31, 2017  
  
  
  
  
Net Interest Income $100,659
 $6
 $9
 $(765) $99,909
Net Gains on Sales of Loans 3,280
 —
 —
 —
 3,280
Net Gains on Securities 593
 —
 —
 3
 596
Trust and Investment Product Fees 3
 5,272
 —
 (3) 5,272
Insurance Revenues 28
 34
 7,917
 —
 7,979
Noncash Items:         

Provision for Loan Losses 1,750
 —
 —
 —
 1,750
Depreciation and Amortization 4,351
 4
 76
 256
 4,687
Income Tax Expense (Benefit) 12,262
 145
 512
 (1,385) 11,534
Segment Profit (Loss) 39,520
 217
 918
 21
 40,676
Segment Assets at December 31, 2017 3,142,096
 1,987
 10,078
 (9,801) 3,144,360
  
Core
Banking
 
Trust and
Investment
Advisory
Services
 Insurance Other 
Consolidated
Totals
Year Ended December 31, 2016  
  
  
  
  
Net Interest Income $95,562
 $1
 $7
 $(666) $94,904
Net Gains on Sales of Loans 3,359
 —
 —
 —
 3,359
Net Gains on Securities 1,979
 —
 —
 —
 1,979
Trust and Investment Product Fees (3) 4,662
 —
 (15) 4,644
Insurance Revenues 23
 29
 7,689
 —
 7,741
Noncash Items:         

Provision for Loan Losses 1,200
 —
 —
 —
 1,200
Depreciation and Amortization 4,002
 3
 72
 238
 4,315
Income Tax Expense (Benefit) 14,306
 168
 741
 (1,269) 13,946
Segment Profit (Loss) 35,070
 227
 1,147
 (1,260) 35,184
Segment Assets at December 31, 2016 2,958,585
 1,851
 8,494
 (12,936) 2,955,994

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 16 – Segment Information (continued)

  
Core
Banking
 
Trust and
Investment
Advisory
Services
 Insurance Other 
Consolidated
Totals
Year Ended December 31, 2015  
  
  
  
  
Net Interest Income $75,939
 $8
 $6
 $(401) $75,552
Net Gains on Sales of Loans 2,959
 —
 —
 —
 2,959
Net Gains on Securities 698
 —
 —
 27
 725
Trust and Investment Product Fees 3
 3,957
 —
 (3) 3,957
Insurance Revenues 24
 33
 7,432
 —
 7,489
Noncash Items:         

Provision for Loan Losses —
 —
 —
 —
 —
Depreciation and Amortization 3,994
 13
 107
 150
 4,264
Income Tax Expense (Benefit) 11,836
 (24) 663
 (869) 11,606
Segment Profit (Loss) 29,461
 (70) 1,003
 (330) 30,064
Segment Assets at December 31, 2015 2,367,296
 1,338
 7,022
 (1,955) 2,373,701

NOTE 17 - Parent Company Financial Statements

The condensed financial statements of German American Bancorp, Inc. are presented below:


CONDENSED BALANCE SHEETS
 December 31,
 20222021
ASSETS  
Cash$46,541 $86,391 
Other Investments353 353 
Investment in Subsidiary Bank566,494 616,459 
Investment in Non-banking Subsidiaries6,747 5,973 
Other Assets19,165 20,678 
Total Assets$639,300 $729,854 
LIABILITIES 
Borrowings$74,788 $55,804 
Other Liabilities6,119 5,591 
Total Liabilities80,907 61,395 
SHAREHOLDERS’ EQUITY 
Common Stock29,493 26,554 
Additional Paid-in Capital387,171 276,057 
Retained Earnings405,167 350,364 
Accumulated Other Comprehensive Income (Loss)(263,438)15,484 
Total Shareholders’ Equity558,393 668,459 
Total Liabilities and Shareholders’ Equity$639,300 $729,854 



















96
  December 31,
  2017 2016
ASSETS  
  
Cash $24,777
 $10,217
Securities Available-for-Sale, at Fair Value 353
 353
Investment in Subsidiary Bank 342,054
 322,138
Investment in Non-banking Subsidiaries 5,050
 4,673
Other Assets 8,906
 9,577
Total Assets $381,140
 $346,958
     
LIABILITIES  
  
Borrowings $11,231
 $10,975
Other Liabilities 5,338
 5,716
Total Liabilities 16,569
 16,691
     
SHAREHOLDERS’ EQUITY  
  
Common Stock 22,934
 15,261
Additional Paid-in Capital 165,288
 171,744
Retained Earnings 178,969
 149,666
Accumulated Other Comprehensive Income (Loss) (2,620) (6,404)
Total Shareholders’ Equity 364,571
 330,267
Total Liabilities and Shareholders’ Equity $381,140
 $346,958

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 17 – Parent Company Financial Statements (continued)

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

 Years Ended December 31,
 202220212020
INCOME 
Dividends from Subsidiaries 
Bank$35,000 $65,000 $40,000 
Non-bank— 1,470 1,580 
Interest Income104 109 118 
Other Income (Loss)31 11 25 
Total Income35,135 66,590 41,723 
EXPENSES 
Salaries and Employee Benefits535 537 498 
Professional Fees1,989 1,256 564 
Occupancy and Equipment Expense8 10 7 
Interest Expense3,963 2,763 2,907 
Other Expenses1,162 1,200 1,286 
Total Expenses7,657 5,766 5,262 
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES27,478 60,824 36,461 
Income Tax Benefit1,947 1,607 1,922 
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES29,425 62,431 38,383 
Equity in Undistributed Income of Subsidiaries52,400 21,706 23,827 
NET INCOME81,825 84,137 62,210 
Other Comprehensive Income (Loss): 
Changes in Unrealized Gain (Loss) on Securities, Available-for-Sale(278,976)(19,891)20,270 
Changes in Unrecognized Loss in Postretirement Benefit Obligation, Net54 — — 
TOTAL COMPREHENSIVE INCOME (LOSS)$(197,097)$64,246 $82,480 

























97
  Years Ended December 31,
  2017 2016 2015
INCOME  
  
  
Dividends from Subsidiaries  
  
  
Bank $25,000
 $15,000
 $15,900
Non-bank 975
 1,000
 1,504
Interest Income 34
 20
 30
Other Income (Loss) 25
 (27) 21
Total Income 26,034
 15,993
 17,455
       
EXPENSES  
  
  
Salaries and Employee Benefits 533
 1,006
 500
Professional Fees 602
 1,096
 739
Occupancy and Equipment Expense 7
 13
 8
Interest Expense 877
 742
 491
Other Expenses 794
 750
 657
Total Expenses 2,813
 3,607
 2,395
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 23,221
 12,386
 15,060
Income Tax Benefit 1,415
 1,284
 893
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 24,636
 13,670
 15,953
Equity in Undistributed Income of Subsidiaries 16,040
 21,514
 14,111
NET INCOME 40,676
 35,184
 30,064
       
Other Comprehensive Income:  
  
  
Changes in Unrealized Gain (Loss) on Securities, Available-for-Sale 4,391
 (10,202) 932
Changes in Unrecognized (Loss) in Postretirement Benefit Obligation, Net (138) (14) (10)
TOTAL COMPREHENSIVE INCOME $44,929
 $24,968
 $30,986

Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 17 – Parent Company Financial Statements (continued)

CONDENSED STATEMENTS OF CASH FLOWS
 Years Ended December 31,
 202220212020
CASH FLOWS FROM OPERATING ACTIVITIES 
Net Income$81,825 $84,137 $62,210 
Adjustments to Reconcile Net Income to Net Cash from Operations
Change in Other Assets3,861 (3,939)(8,575)
Change in Other Liabilities1,200 863 (142)
Equity Based Compensation2,330 1,723 1,051 
Excess Tax Benefit from Restricted Share Grant— — 3 
Equity in Excess Undistributed Income of Subsidiaries(52,400)(21,706)(23,827)
Net Cash from Operating Activities36,816 61,078 30,720 
CASH FLOWS FROM INVESTING ACTIVITIES 
Cash Used for Business Acquisitions(49,644)— — 
Net Cash from Investing Activities(49,644)— — 
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (Retirement) of Common Stock— — (5,789)
Dividends Paid(27,022)(22,220)(20,136)
Net Cash from Financing Activities(27,022)(22,220)(25,925)
Net Change in Cash and Cash Equivalents(39,850)38,858 4,795 
Cash and Cash Equivalents at Beginning of Year86,391 47,533 42,738 
Cash and Cash Equivalents at End of Year$46,541 $86,391 $47,533 

  Years Ended December 31,
  2017 2016 2015
CASH FLOWS FROM OPERATING ACTIVITIES  
  
  
Net Income $40,676
 $35,184
 $30,064
Adjustments to Reconcile Net Income to Net Cash from Operations  
  
  
Change in Other Assets 431
 2,085
 (5,331)
Change in Other Liabilities (122) 310
 1,226
Equity Based Compensation 1,246
 1,407
 963
Excess Tax Benefit from Restricted Share Grant 240
 200
 89
Equity in Excess Undistributed Income of Subsidiaries (16,040) (21,514) (14,111)
Net Cash from Operating Activities 26,431
 17,672
 12,900
       
CASH FLOWS FROM INVESTING ACTIVITIES  
  
  
Cash Used for Business Acquisitions —
 (15,992) —
Net Cash from Investing Activities —
 (15,992) —
       
CASH FLOWS FROM FINANCING ACTIVITIES  
  
  
Repayment of Long-term Debt —
 —
 (4,000)
Issuance (Retirement) of Common Stock (29) 55
 49
Employee Stock Purchase Plan —
 —
 447
Dividends Paid (11,842) (10,630) (9,010)
Net Cash from Financing Activities (11,871) (10,575) (12,514)
       
Net Change in Cash and Cash Equivalents 14,560
 (8,895) 386
Cash and Cash Equivalents at Beginning of Year 10,217
 19,112
 18,726
Cash and Cash Equivalents at End of Year $24,777
 $10,217
 $19,112

NOTE 18 –- Business Combinations, Goodwill and Intangible Assets


Effective MarchBusiness Combinations

On January 1, 2016,2022, the Company acquired River ValleyCitizens Union Bancorp ("River Valley"of Shelbyville, Inc. (“CUB”) and its subsidiaries, including River Valley Financial Bank, pursuant to an Agreement and Plan of Reorganization dated October 26, 2015. The acquisition was accomplished bythrough the merger of River ValleyCUB with and into the Company,Company. This was immediately followed by the merger of River Valley FinancialCitizens Union Bank with andof Shelbyville, Inc., a wholly-owned subsidiary of CUB, into the Company'sCompany’s subsidiary bank, subsidiary, German American Bancorp. River Valley Financial BankBank. CUB, headquartered in Shelbyville, Kentucky, operated 1415 retail banking offices located in Southeast IndianaShelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and 1 banking officeHardin counties in Northern Kentucky. River Valley's consolidatedKentucky through Citizens Union Bank of Shelbyville, Inc.

As of the closing of the transaction, CUB had total assets of $1,108,546, total loans of $683,807, and equity (unaudited) astotal deposits of February 29, 2016 totaled $516.3 million and $56.6 million, respectively.$930,533. The Company accounted for the transaction under the acquisition method of accounting which means that the acquiredthese financial assets and liabilities were recorded at fair value at the dateday of acquisition. The fair value of the common shares issued as part of the consideration paid for CUB was based upon the closing price of the Company’s common shares on the acquisition date.


In accordance with ASC 805, the Company has expensed approximately $4.3 million$12,323 of direct acquisition costs and recorded $33.5 million$58,596 of goodwill and $2.6 million$7,572 of intangible assets. The goodwill of $58,596 arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies. This goodwill will be evaluated annually for impairment and is non-deductible for tax purposes. The intangible assets are related to core deposits and are being amortized over 8 years. For tax purposes, goodwill totaling $33.5 million is non-deductible but will be evaluated annually for impairment. The following table summarizes the fair value of the total consideration transferred as a part of the River ValleyCUB acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.

98
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


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

Consideration
Cash for Options and Fractional Shares$942 
Cash Consideration49,863 
Equity Instruments111,914 
Fair Value of Total Consideration Transferred$162,719 
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash$20,244 
Federal Funds Sold and Other Short-term Investments238,325 
Interest-bearing Time Deposits with Banks250 
Securities102,233 
Loans678,142 
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost10,078 
Premises, Furniture & Equipment19,805 
Other Real Estate40 
Intangible Assets7,572 
Company Owned Life Insurance12,881 
Accrued Interest Receivable and Other Assets18,309 
Deposits - Non-interest Bearing(237,472)
Deposits - Interest Bearing(696,750)
FHLB Advances and Other Borrowings(60,837)
Accrued Interest Payable and Other Liabilities(8,697)
Total Identifiable Net Assets$104,123 
Goodwill$58,596 
Consideration  
Cash for Options and Fractional Shares $395
Cash Consideration 24,975
Equity Instruments 62,022
   
Fair Value of Total Consideration Transferred $87,392
   
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:  
     Cash $17,877
     Federal Funds Sold and Other Short-term Investments 6,477
     Interest-bearing Time Deposits with Banks 992
     Securities 132,396
     Loans 317,760
     Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost 3,127
     Premises, Furniture & Equipment 9,650
     Other Real Estate 882
     Intangible Assets 2,613
     Company Owned Life Insurance 12,842
     Accrued Interest Receivable and Other Assets 9,139
     Deposits - Non-interest Bearing (9,584)
     Deposits - Interest Bearing (395,862)
     FHLB Advances and Other Borrowings (49,910)
     Accrued Interest Payable and Other Liabilities (4,529)
   
     Total Identifiable Net Assets $53,870
   
Goodwill $33,522


Under the terms of the merger agreement, the Company issued approximately 1,942,000 shares of its common stock to the former shareholders of River Valley. Each River Valleyeach CUB common shareholder of record at the effective time of the merger became entitled to receive 0.770 sharesa cash payment of $13.44 and a 0.7739 share of common stock of the Company for each of their former shares of River ValleyCUB common stock.

In As a result, in connection with the closing of the merger on January 1, 2022, the Company paidissued 2,870,975 shares of its common stock to River Valley'sthe former shareholders of record at the close of business on February 29, 2016,CUB and paid cash consideration in the aggregate amount of $9.90 per River Valley share (an aggregate of $24,975 to shareholders) and the Company paid approximately $395 to persons who held options to purchase River Valley common stock (all of which rights were canceled at the effective time of the merger and were not assumed by the Company).$50.8 million.


This acquisition wasis consistent with the Company’s strategy to build a regional presence in Southern Indiana.central and western Kentucky. The acquisition offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region.


The fair value of netpurchased financial assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted cash flows. However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which are loans that have shown evidence ofwith credit deterioration since origination. Receivables acquired that were not subject to these requirements include non-impaired loans and customer receivables with a fair value of $309.0 million and unpaid principal of $316.4 millionwas $29,868 on the date of acquisition. The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $34,453. The Company estimates, on the date of acquisition, that $3,117 of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.


OnThe following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2017,2021 after giving effect to certain adjustments. The unaudited pro forma information for the Companyyear ended December 30, 2022 and 2021 includes adjustments for interest income on loans and securities acquired, certain assetsamortization of an existing insurance agency office located in Madison, Indiana.intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects. The assets became a partunaudited pro forma financial information is not necessarily indicative of German American Insurance, Inc., the Company's property and casualty insurance entity.results of operations that would have occurred had the transaction been effected on the assumed date.


The purchase price of this transaction was $209 in cash and resulted in $209 in customer list intangible. The customer relationship intangible is being amortized over seven years utilizing the straight-line method and deducted for tax purposes over 15 years using the straight-line method.
99
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


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

Unaudited Pro Forma
Year Ended 12/31/2022		Unaudited Pro Forma
Year Ended 12/31/2021
Net Interest Income$200,584 $195,691 
Non-interest Income59,133 64,951 
Total Revenue259,717 260,642 
Provision for Credit Losses50 (8,707)
Non-interest Expense141,868 142,978 
Income Before Income Taxes117,799 126,371 
Income Tax Expense21,858 24,260 
Net Income$95,941 $102,111 
Earnings Per Share and Diluted Earnings Per Share$3.26 $3.47 
For the year ended December 31, 2022, the above pro forma financial information excludes non-recurring merger costs that totaled $12,323 on a pre-tax basis and Day 1 provision for credit losses under the CECL model of $6,300 on a pre-tax basis.

Goodwill
 
The changes in the carrying amount of goodwill for the periods ended December 31, 2017, 2016,2022, 2021, and 2015,2020, were classified as follows:
 2017 2016 2015 202220212020
      
Beginning of Year $54,058
 $20,536
 $20,536
Beginning of Year$121,761 $121,956 $121,306 
Acquired Goodwill —
 33,522
 —
Acquired Goodwill58,596 (195)650 
Impairment —
 —
 —
Impairment— — — 
End of Year $54,058
 $54,058
 $20,536
End of Year$180,357 $121,761 $121,956 
 
Of the $54,058$180,357 carrying amount of goodwill, $52,726$179,025 is allocated to the core banking segment, and $1,332 is allocated to the insurance segment for the period ended December 31, 2017 and 2016.2022. Of the $20,536$121,761 carrying amount of goodwill, $19,204$120,429 is allocated to the core banking segment, and $1,332 is allocated to the insurance segment for the periodsperiod ended December 31, 2015.2021. The decrease of $195 in 2021 is attributable to the sale of two branches located in Lexington, Kentucky. Of the $121,956 carrying amount of goodwill, $120,624 is allocated to the core banking segment, and $1,332 is allocated to the insurance segment for the period ended December 31, 2020. During 2020, the Company finalized valuation estimates for the Citizens First acquisition and recorded $650 of additional goodwill.
 
Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At December 31, 2017,2022, the Company’s reporting units had positive equity, and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting units exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.value, resulting in no impairment.
 
Acquired Intangible Assets

Acquired intangible assets were as follows as of year end: 2017
  Gross Amount Accumulated Amortization
Core Banking  
  
Core Deposit Intangible $11,617
 $(9,694)
Branch Acquisition Intangible 257
 (257)
Insurance  
  
Customer List 5,408
 (5,229)
Total $17,282
 $(15,180)
Acquired intangible assets were as follows as of year end:
2022
 Gross AmountAccumulated Amortization
Core Banking  
Core Deposit Intangible$33,247 $(25,001)
Branch Acquisition Intangible257 (257)
Insurance
Customer List5,408 (5,378)
Total$38,912 $(30,636)
100
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 18 – Business Combinations, Goodwill and Intangible Assets (continued)
2021
Acquired intangible assets were as follows as of year end: 2016
 Gross Amount Accumulated Amortization Gross AmountAccumulated Amortization
Core Banking  
  
Core Banking  
Core Deposit Intangible $11,617
 $(8,782)Core Deposit Intangible$25,675 $(21,320)
Branch Acquisition Intangible 257
 (257)Branch Acquisition Intangible257 (257)
Insurance  
  
Insurance
Customer List 5,199
 (5,199)Customer List5,408 (5,348)
Total $17,073
 $(14,238)Total$31,340 $(26,925)
Amortization Expense was $942, $1,062$3,711, $2,731 and $790,$3,539, for 2017, 20162022, 2021 and 2015.2020.


Estimated amortization expense for each of the next five years is as follows:
2023$2,840 
20242,032 
20251,394 
2026916 
2027593 
2018 $753
2019 564
2020 383
2021 229
2022 114


Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data

NOTE 19 –- Other Comprehensive Income (Loss)


The tables below summarize the changes in accumulated other comprehensive income (loss) by component for the years ended December 31, 20172022 and 2016,2021, net of tax:
December 31, 2022Unrealized
Gains and Losses on
Available-for-Sale
Securities		Postretirement
Benefit Items		Total
Beginning Balance$16,052 $(568)$15,484 
Other Comprehensive Income (Loss) Before
Reclassification		(278,532)— (278,532)
Amounts Reclassified from Accumulated
Other Comprehensive Income (Loss)		(444)54 (390)
Net Current Period Other   
Comprehensive Income (Loss)(278,976)54 (278,922)
Ending Balance$(262,924)$(514)$(263,438)
December 31, 2017 
Unrealized
Gains and Losses on
Available-for-Sale
Securities
 
Postretirement
Benefit Items
 Total
       
Beginning Balance $(6,312) $(92) $(6,404)
Other Comprehensive Income (Loss) Before
Reclassification
 4,778
 (143) 4,635
Amounts Reclassified from Accumulated
Other Comprehensive Income (Loss)
 (387) 5
 (382)
Net Current Period Other  
  
  
Comprehensive Income (Loss) 4,391
 (138) 4,253
ASU 2018-02 Adoption (414) (55) (469)
Ending Balance $(2,335) $(285) $(2,620)


December 31, 2021Unrealized
Gains and Losses on
Available-for-Sale
Securities		Postretirement
Benefit Items		Total
Beginning Balance$35,943 $(568)$35,375 
Other Comprehensive Income (Loss) Before
Reclassification		(18,116)— (18,116)
Amounts Reclassified from Accumulated
Other Comprehensive Income (Loss)		(1,775)— (1,775)
Net Current Period Other   
Comprehensive Income (Loss)(19,891)— (19,891)
Ending Balance$16,052 $(568)$15,484 

101
December 31, 2016 
Unrealized
Gains and Losses on
Available-for-Sale
Securities
 
Postretirement
Benefit Items
 Total
       
Beginning Balance $3,890
 $(78) $3,812
Other Comprehensive Income (Loss) Before
Reclassification
 (8,916) (18) (8,934)
Amounts Reclassified from Accumulated
Other Comprehensive Income (Loss)
 (1,286) 4
 (1,282)
Net Current Period Other  
  
  
Comprehensive Income (Loss) (10,202) (14) (10,216)
Ending Balance $(6,312) $(92) $(6,404)
Notes to the Consolidated Financial Statements
Dollars in thousands, except per share data


NOTE 19 – Other Comprehensive Income (Loss) (continued)
The table below summarizes the classifications out of accumulated other comprehensive income (loss) by component for the year ended December 31, 2017:2022:
Details about Accumulated Other Comprehensive Income (Loss) Components Amount Reclassified From Accumulated Other Comprehensive Income (Loss) Affected Line Item in the Statement Where Net Income is Presented
     
Unrealized Gains and Losses on  
  
Available-for-Sale Securities $596
 Net Gain (Loss) on Securities
  (209) Income Tax Expense
  387
 Net of Tax
Amortization of Post Retirement Plan Items  
  
Actuarial Gains (Losses) $(8) Salaries and Employee Benefits
  3
 Income Tax Expense
  (5) Net of Tax
     
Total Reclassifications for the Period $382
  
Notes toDetails about Accumulated Other Comprehensive Income (Loss) ComponentsAmount Reclassified From Accumulated Other Comprehensive Income (Loss)Affected Line Item in the Consolidated Financial StatementsStatement Where Net Income is Presented
Dollars in thousands, except per share data
Unrealized Gains and Losses on
Available-for-Sale Securities$562Net Gain (Loss) on Securities
(118)Income Tax Expense
444Net of Tax
Amortization of Post Retirement Plan Items
Actuarial Gains (Losses)$—Salaries and Employee Benefits
—Income Tax Expense
—Net of Tax
Total Reclassifications for the Period$444

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


The table below summarizes the classifications out of accumulated other comprehensive income (loss) by component for the year ended December 31, 2016:2021:
Details about Accumulated Other Comprehensive Income (Loss) ComponentsAmount Reclassified From Accumulated Other Comprehensive Income (Loss)Affected Line Item in the Statement Where Net Income is Presented
Unrealized Gains and Losses on
Available-for-Sale Securities$2,247 Net Gain (Loss) on Securities
(472)Income Tax Expense
1,775 Net of Tax
Amortization of Post Retirement Plan Items
Actuarial Gains (Losses)$— Salaries and Employee Benefits
— Income Tax Expense
— Net of Tax
Total Reclassifications for the Period$1,775 
Details about Accumulated Other Comprehensive Income (Loss) Components Amount Reclassified From Accumulated Other Comprehensive Income (Loss) Affected Line Item in the Statement Where Net Income is Presented
     
Unrealized Gains and Losses on  
  
Available-for-Sale Securities $1,979
 Net Gain (Loss) on Securities
  (693) Income Tax Expense
  1,286
 Net of Tax
Amortization of Post Retirement Plan Items  
  
Actuarial Gains (Losses) $(6) Salaries and Employee Benefits
  2
 Income Tax Expense
  (4) Net of Tax
     
Total Reclassifications for the Period $1,282
  


The table below summarizes the classifications out of accumulated other comprehensive income (loss) by component for the year ended December 31, 2015:
Details about Accumulated Other Comprehensive Income (Loss) Components Amount Reclassified From Accumulated Other Comprehensive Income (Loss) Affected Line Item in the Statement Where Net Income is Presented
     
Unrealized Gains and Losses on  
  
Available-for-Sale Securities $725
 Net Gain (Loss) on Securities
  (254) Income Tax Expense
  471
 Net of Tax
Amortization of Post Retirement Plan Items  
  
Actuarial Gains (Losses) $(5) Salaries and Employee Benefits
  2
 Income Tax Expense
  (3) Net of Tax
     
Total Reclassifications for the Period $468
  

NOTE 20 – Quarterly Financial Data (Unaudited)
The following table represents selected quarterly financial data for the Company:
  Interest Income Net Interest Income Net Income Basic Earnings per Share Diluted Earnings per Share
2017  
  
  
  
  
First Quarter $27,033
 $24,725
 $9,556
 $0.42
 $0.42
Second Quarter 27,401
 24,813
 9,839
 0.43
 0.43
Third Quarter 27,986
 24,917
 9,660
 0.42
 0.42
Fourth Quarter 28,610
 25,454
 11,621
 0.51
 0.51
           
2016  
  
  
  
  
First Quarter $22,680
 $20,784
 $5,146
 $0.25
 $0.25
Second Quarter 26,850
 24,671
 9,788
 0.43
 0.43
Third Quarter 26,734
 24,560
 10,185
 0.45
 0.45
Fourth Quarter 27,101
 24,889
 10,065
 0.44
 0.44

2020:
Notes toDetails about Accumulated Other Comprehensive Income (Loss) ComponentsAmount Reclassified From Accumulated Other Comprehensive Income (Loss)Affected Line Item in the Consolidated Financial StatementsStatement Where Net Income is Presented
Dollars in thousands, except per share data
Unrealized Gains and Losses on
Available-for-Sale Securities$4,081 Net Gain (Loss) on Securities
(857)Income Tax Expense
3,224 Net of Tax
Amortization of Post Retirement Plan Items
Actuarial Gains (Losses)$— Salaries and Employee Benefits
— Income Tax Expense
— Net of Tax
Total Reclassifications for the Period$3,224 


NOTE 21 – Subsequent Events
102

On February 12, 2018, German American Bancorp entered into a Purchase and Assumption Agreement (the “Purchase Agreement”) with MainSource Bank, a wholly-owned subsidiary of MainSource Financial Group, Inc. (“MainSource”), which provides for the acquisition by German American Bancorp of five MainSource Bank branch locations (four in Columbus, Indiana, and one in Greensburg, Indiana), and certain related assets, and the assumption by German American Bancorp of certain related liabilities.


Pursuant to the Purchase Agreement, German American Bancorp has agreed to assume approximately $160 million in deposits and purchase approximately $134 million in loans associated with the five bank branches. German American Bancorp has agreed to pay a purchase price equal to the sum of: (i) 8.0% of the balances of certain checking accounts and other demand withdrawal accounts (excluding governmental accounts with public funds); (ii) 4.5% of the balances of governmental accounts with public funds, excluding time deposits; (iii) 4.5% of the balances of money market and savings deposits, excluding governmental accounts with public funds; (iv) the net book value of all assets, including loans but excluding any accrued interest on such loans; and (v) the accrued interest with respect to purchased loans. The purchase price will be adjusted to reflect increases or decreases in the deposit balances during the six month period following the closing date. Upon written notice, German American Bancorp will also have the ability to put loans back to MainSource Bank during such six month period. The expected premium to be paid for deposits under the Agreement is approximately $8 million. German American Bancorp is also assuming the obligations of MainSource Bank related to certain leases covering the five bank branches.

The transaction is expected to close in the second quarter of 2018, subject to regulatory approval, the closing of the previously-announced pending merger of MainSource and First Financial Bancorp, and other customary closing conditions.

Effective April 1, 2018, the legal name of German American Bancorp will be changed to German American Bank. The new name corresponds with the trade name already being used by the banking subsidiary and promotes further distinction in nomenclature between the banking subsidiary and the bank holding company, German American Bancorp, Inc.



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 
Not Applicable.


Item 9A. Controls and Procedures.
 
Disclosure Controls and Procedures
As of December 31, 2017,2022, the Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic reports filed with the Securities and Exchange Commission. There are inherent limitations to the effectiveness of systems of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective systems of disclosure controls and procedures can provide only reasonable assurances of achieving their control objectives.
 
Changes in Internal Control Over Financial Reporting in Most Recent Fiscal Quarter
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter of 20172022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework. Based on our assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2017.2022.
 
The Company’s independent registered public accounting firm has issued their report on the Company’s internal control over financial reporting. That report is included in Item 8. Financial Statements and Supplementary Data of this Report under the heading, Report of Independent Registered Public Accounting Firm.
 
Item 9B. Other Information.
 
Not applicable.
 


Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.

103

PART III
 
Item 10. Directors, Executive Officers, and Corporate Governance.
 
Information relatingresponsive to directors and executive officers of the Companythis Item 10 will be included under the captions “Election of Directors” andDirectors,” “Our Executive Officers” and “Section 16(a): Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held in May 20182023 which will be filed within 120 days of the end of the fiscal year covered by this Report (the “2018“2023 Proxy Statement”), which sections are incorporated herein in partial response to this Item’s informational requirements.
Section 16(a) Compliance. Information relating to Section 16(a) compliance will be included in the 2018 Proxy Statement under the caption of “Section 16(a): Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

Code of Business Conduct. The Company’s Board of Directors has adopted a Code of Business Conduct, which constitutes a “code of ethics” as that term is defined by SEC rules adopted under the Sarbanes-Oxley Act of 2002 (“SOA”). The Company has posted a copy of the Code of Business Conduct on its Internet website (www.germanamerican.com). The Company intends to satisfy its disclosure requirements under Item 5.05 of Form 8-K regarding certain amendments to, or waivers of, the Code of Business Conduct, by posting such information on its Internet website, except that waivers that must under NASDAQ rules be filed with the SEC on Form 8-K will be so filed.

Audit Committee Identification. The Board of Directors of the Company has a separately-designated standing audit committee established in accordance with Section 3(a) (58) (A) of the Securities Exchange Act of 1934. The description of the Audit Committee of the Board of Directors, and the identification of its members, will be set forth in the 2018 Proxy Statement under the caption “ELECTION OF DIRECTORS”, which section is incorporated herein by reference.
Audit Committee Financial Expert. The Board of Directors has determined that M. Darren Root, a director who serves on the Audit Committee of the Board of Directors and who is an independent director as defined by NASDAQ listing standards, is an “audit committee financial expert” as that term is defined by SEC rules adopted under SOA.
Lack of Changes in Nominating/Governance Committee Procedures re Shareholder Recommendations of Nominees. There has been no material change in the procedures by which the Company’s shareholders may recommend nominees for election to the Board of Directors of the Company that have been implemented since the last disclosure of such procedures in the Company’s Proxy Statement for the Annual Meeting of Shareholders that was held in May 2017.

Item 11. Executive Compensation.
 
Information relating to compensation of the Company’s executive officers and directors (including the required disclosures under the subheadings “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report”) will be included under the caption “Executive and Director Compensation” in the 20182023 Proxy Statement, which section is incorporated herein by reference.
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
Information relating to security ownership of certain beneficial owners and the directors and executive officers of the Company will be included under the captions “Ownership of Our Common Shares by Our Directors and Executive Officers” and “Principal Owners of Common Shares” of the 20182023 Proxy Statement, which sections are incorporated herein by reference.

Equity Compensation Plan Information
The Company maintains three equity incentive plans under which it has authorized the issuance of its Common Shares to employees and non-employee directors as compensation: its 2009 Long-Term Equity Incentive Plan (under which no new grants may be made), its 2019 Long-Term Equity Incentive Plan (the “2019 LTI Plan”) and its 2019 Employee Stock Purchase Plan (the “2019 ESPP”). Each of these plans was approved by the requisite vote of the Company’s common shareholders in the year of adoption by the Board of Directors. The Company is not a party to any individual compensation arrangement involving the authorization for issuance of its equity securities to any single person, other than option agreements and restricted stock award agreements that have been granted under the terms of one of the three plans identified above. The following table sets forth information regarding these plans as of December 31, 2022:
Plan CategoryNumber of Securities
to be Issued upon Exercise
of Outstanding Options, Warrants or Rights		Weighted Average
Exercise Price of
Outstanding Options, Warrants and Rights		Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding
Securities Reflected in First Column)
Equity compensation plans approved by security holders— (a)$— (a)1,562,062 (b)
Equity compensation plans not approved by security holders— — — 
Total— $— 1,562,062 
(a)On December 31, 2022, participants under the 2019 ESPP exercised options to purchase 4,621 Common Shares at the purchase price of $36.92 per share. The Company settled the option exercises in January 2023 with shares purchased on the open market.

(b)Represents 750,000 shares at December 31, 2022 that the Company may in the future issue to employees under the 2019 ESPP (although the Company typically purchases the shares needed for sale to participating employees on the open market rather than issuing new issue shares to such employees) and 812,062 shares that were available for grant or issuance at December 31, 2022 under the 2019 LTI Plan.

For additional information regarding the Company’s equity incentive plans and employee stock purchase plan, see Note 8 (Shareholders’ Equity) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report.
104

Item 13. Certain Relationships and Related Transactions, and Director Independence.
 
Information responsive to this Item 13 will be included under the captions “Election of Directors” and “Transactions with Related Persons” of the 20182023 Proxy Statement, which sections are incorporated herein by reference.
 
Item 14. Principal Accounting Fees and Services.
 
Information responsive to this Item 14 will be included in the 20182023 Proxy Statement under the caption “Principal Accountant Fees and Services”, which section is incorporated herein by reference.




105

PART IV


Item 15. Exhibits, Financial Statement Schedules.


(a)(1) Financial Statements


The following items are included in Item 8 of this Report:
     German American Bancorp, Inc. and Subsidiaries:Page #
     Report of Independent Registered Public Accounting Firm PCAOB ID 173
4349
     Consolidated Balance Sheets at December 31, 20172022 and 20162021
4552
     Consolidated Statements of Income, years ended December 31, 2017, 20162022, 2021 and 20152020
4653
     Consolidated Statements of Comprehensive Income (Loss), years ended December 31, 2017, 20162022, 2021 and 20152020
4754
     Consolidated Statements of Changes in Shareholders’ Equity, years ended December 31, 2017, 20162022, 2021 and 20152020
4855
     Consolidated Statements of Cash Flows, years ended December 31, 2017, 20162022, 2021 and 20152020
4956
     Notes to the Consolidated Financial Statements
5057


(a)(2) Financial Statement Schedules


None.
 








106


(a)(3) Exhibits


The following exhibits are included with this report or incorporated herein by reference:
Exhibit No.Description
2.13.1
AgreementAmended and PlanRestated Articles of Reorganization amongIncorporation of German American Bancorp, Inc., River Valley Bancorp, German American Bancorp and River Valley Financial Bank, dated October 26, 2015. The copy are incorporated by reference to Exhibit 3.1 of this exhibit filed as Exhibit 2.1 tothe Registrant’s Current Report on Form 8-K filed OctoberMay 26, 2015 (SEC File No. 001-15877) is incorporated herein by reference.
3.1
Restatement of the Articles of Incorporation of the Registrant is incorporated by reference from Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed May 9, 20172020 (SEC File No. 001-15877).
3.2
Amended and Restated Bylaws of German American Bancorp, Inc., as amended and restated July 27, 2009, is are incorporated by reference to Exhibit 3.23.1 of the Registrant's AnnualRegistrant’s Current Report on Form 10-K8-K filed March 9, 2015July 1, 2020 (SEC File No. 001-15877).
4.1
No long-term debt instrument issued by the Registrant exceeds 10% of consolidated total assets or is registered. In accordance with paragraph 4 (iii) of Item 601(b) of Regulation S-K, the Registrant will furnish the Securities and Exchange Commission copies of long-term debt instruments and related agreements upon request.
4.2
Terms of Common Shares and Preferred Shares of the Registrant (included in Restatement ofAmended and Restated Articles of Incorporation) are incorporated by reference fromto Exhibit 3.1 toof the Registrant’s QuarterlyCurrent Report on Form 10-Q for the quarter ended March 31, 2017,8-K filed May 9, 201726, 2020 (SEC File No. 001-15877).
4.34.2
Specimen stock certificate for Common Shares of the Registrant is incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed October 21, 2010 (SEC File No. 001-15877).
10.1*4.3
The Registrant’s 1992 Stock Option Plan,Indenture, dated as amended,of June 25, 2019, by and between German American Bancorp, Inc. and U.S. Bank National Association, as trustee, is incorporated by reference fromto Exhibit 10.1 to4.1 of the Registrant’s Registration StatementCurrent Report on Form S-48-K filed October 14, 1998June 25, 2019 (SEC File No. 333-65633)001-15877).
10.2*4.4
Amendment to 1992 Stock Option Plan effective April 1, 2012,Form of 4.50% Fixed-to-Floating Subordinated Note due 2029 of German American Bancorp, Inc. is incorporated by reference fromto Exhibit 10.2 to4.2 of the Registrant’s QuarterlyCurrent Report on Form 10-Q for the quarter ended8-K filed June 30, 2012, filed August 3, 201225, 2019 (SEC File No. 001-15877).
10.3*
4.5
Description of the securities of German American Bancorp, Inc. registered pursuant to Section 12 of the Exchange Act is incorporated by reference to Exhibit 4.6 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, filed March 2, 2020 (SEC File No. 001-15877).
10.1*Form of Director Deferred Compensation Agreement between The German American Bank and certain of its Directors is incorporated herein by reference from Exhibit 10.4 to the Registrant’s Registration Statement on Form S-4 filed January 21, 1993 (the Agreement entered into by former director George W. Astrike, a copy of which was filed as Exhibit 10.4 to the Registrant’s Registration Statement on Form S-4 filed January 21, 1993, is substantially identical to the Agreements entered into by the other Directors, some of whom remain directors of the Registrant). The schedule following such Exhibit 10.4 lists the Agreements with the other Directors and sets forth the material detail in which such Agreements differ from the Agreement filed as such Exhibit 10.4.
10.4*10.2*
10.5*10.3*
The Registrant’s 1999 Long-Term Equity IncentiveAdoption Agreement for the German American Bancorp, Inc. Nonqualified Savings Plan, as amended through February 22, 2008,effective January 1, 2009 is incorporated by reference fromto Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, filed March 2, 2020 (SEC File No. 001-15877).
10.4*
Basic Plan Document for the German American Bancorp, Inc. Nonqualified Savings Plan, effective January 1, 2009 is incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013,2019, filed March 13, 20142, 2020 (SEC File No. 001-15877).
10.6*10.5*
Basic Plan Document forFirst Amendment to the Registrant’sGerman American Bancorp, Inc. Nonqualified Savings Plan, effective January 1, 2020 is incorporated by reference fromto Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010,2019, filed March 11, 20112, 2020 (SEC File No. 001-15877).
10.7*10.6*
Adoption AgreementDescription of Director Compensation Arrangements for the Registrant’s Nonqualified Savings Plan dated August 17, 2004,12 month period ending on June 30, 2021 (including Restricted Stock Awards) is incorporated by reference fromto Exhibit 10.610.10 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2020, filed February 26, 2021 (SEC File No. 001-15877).
10.7*
Description of Director Compensation Arrangements for the 12 month period ending on June 30, 2022 is incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010,2021, filed March 11, 20111, 2022 (SEC File No. 001-15877).
10.8*+
First Amendment to the Registrant’s Nonqualified Savings Plan dated August 17, 2004, is incorporated by reference from Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010, filed March 11, 2011 (SEC File No. 001-15877).
10.9*
Form of Non-Employee Director Stock Option Agreement (new grant, ten year expiration, no vesting) that in prior periods was typically issued to non-employee members of the Board of Directors as part of annual director fee retainer (not Incentive Stock Option for tax purposes), is incorporated by reference from Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010, filed March 11, 2011 (SEC File No. 001-15877).
10.10*
Form of Employee Director Stock Option Agreement (new grant, ten year expiration, no vesting) that in prior periods was typically issued to employee members of the Board of Directors as part of annual director fee retainer (intended to be Incentive Stock Option for tax purposes), is incorporated by reference from Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010, filed March 11, 2011 (SEC File No. 001-15877).


Exhibit No.Description
10.11.A*
Description of Director Compensation Arrangements for the 12 month period ending on June 30, 2016 is incorporated by reference from the description included in Item 5.02 of the Registrant’s Current Report on Form 8-K filed July 1, 2015 (SEC File No. 001-15877).2023.
10.11.B*10.9*
Description of Additional Director Compensation Arrangements for the 12 month period ending on June 30, 2016 (Restricted Stock Awards) is incorporated by reference from the description included in Item 5.02 of the Registrant’s Current Report on Form 8-K filed December 18, 2015 (SEC File No. 001-15877).
10.12.A*
Description of Director Compensation Arrangements for the 12 month period ending on June 30, 2017 is incorporated by reference from the description included in Item 5.02 of the Registrant’s Current Report on Form 8-K filed June 28, 2016 (SEC File No. 001-15877).
10.12.B*
Description of Additional Director Compensation Arrangements for the 12 month period ending on June 30, 2017 (Restricted Stock Awards) is incorporated by reference from the description included in Item 5.02 of the Registrant’s Current Report on Form 8-K filed December 21, 2016 (SEC File No. 001-15877).
10.13.A*
Description of Director Compensation Arrangements for the 12 month period ending on June 30, 2018 is incorporated by reference from the description included in Item 5.02 of the Registrant’s Current Report on Form 8-K filed June 29, 2017 (SEC File No. 001-15877).
10.13.B*
Description of Additional Director Compensation Arrangements for the 12 month period ending on June 30, 2018 (Restricted Stock Awards) is incorporated by reference from the description included in Item 5.02 of the Registrant’s Current Report on Form 8-K filed December 20, 2017 (SEC File No. 001-15877).
10.14*
Description of Executive Management Incentive Plan for 20152020 (awards payable in 2016)2021) is incorporated by reference from the description contained in Item 5.02 of the Registrant’s Current Report on Form 8-K filed February 27, 2015April 3, 2020 (SEC File No. 001-15877).
10.15*10.10*
Description of Executive Management Incentive Plan for 20162021 (awards payable in 2017)2022) is incorporated by reference from the description contained in Item 5.02 of the Registrant's Current Report on Form 8-K filed March 12, 2021 (SEC File No. 001-15877).
10.11*
Description of Executive Management Incentive Plan for 2022 (awards payable in 2023) is incorporated by reference from the description contained in Item 5.02 of the Registrant’s Current Report on Form 8-K filed March 4, 201611, 2022 (SEC File No. 001-15877).
107

Exhibit No.Description
10.16*10.12*
Description of Executive Management Incentive Plan for 2017 (awards payable in 2018) is incorporated by reference from the description contained in Item 5.02 of the Registrant’s Current Report on Form 8-K filed March 9, 2017 (SEC File No. 001-15877).
10.17*
Executive Supplemental Retirement Income Agreement dated October 1, 1996, between First Federal Bank, F.S.B. and Bradley M. Rust, as amended by a First Amendment between Bradley M. Rust and the Registrant dated December 30, 2008, is incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, filed March 10, 2010 (SEC File No. 001-15877).
10.18*10.13*
Supplemental Executive Retirement Agreement between German American Bancorp and Keith A. Leinenbach, dated August 31, 2017, is incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed September 5, 2017 (SEC File No. 001-15877).
10.19*10.14*
Supplemental Executive Retirement Agreement between German American Bank and Randall L. Braun, dated March 8, 2021, is incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed March 12, 2021 (SEC File No. 001-15877).
10.15*
Form of LTI Restricted Stock Award Agreement that evidences the terms of awards of restricted stock grants and related cash entitlements that wereawards granted to executive officers during March 2015 pursuant tounder the 2009 Long-Term Equity Incentive Plan in conjunction with the Management Long-Term Incentive Plan component of the 2014 Executive Management Incentive Plan with respectfrom time to the performance period ended December 31, 2014. This exhibit is incorporated by reference from Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed May 11, 2015 (SEC File No. 001-15877).
10.20*
Form of LTI Restricted Stock Award Agreement that evidences the terms of awards of restricted stock grants and related cash entitlements that were granted to executive officers during March 2016 pursuant to the Management Long-Term Incentive Plan component of the 2015 Executive Management Incentive Plan with respect to the performance period ended December 31, 2015. This exhibit is incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed March 15, 2016 (SEC File No. 001-15877).
10.21*
Form of LTI Restricted Stock Award Agreement that evidences the terms of awards of restricted stock grants and related cash entitlements that were granted to executive officers during March 2017 pursuant to the Management Long-Term Incentive Plan component of the 2016 Executive Management Incentive Plan with respect to the performance period ended December 31, 2016. This exhibittime in effect is incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed March 16, 2017 (SEC File No. 001-15877).
10.22*10.16*
Form of LTI Restricted Stock Award Agreement that evidences the terms of restricted stock awards granted to executive officers under the 2019 Long-Term Equity Incentive Plan in conjunction with the Management Long-Term Incentive Plan from time to time in effect is incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, filed March 2, 2020 (SEC File No. 001-15877).
10.17*
Form of Restricted Stock Award Agreement that evidences the terms of awards of restricted stock grants granted under the 20092019 Long-Term Equity Incentive Plan to certain Directors in December 2015 is incorporated by reference from Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2015, filed March 9, 2016 (SEC File No. 001-15877).
10.23*
Formas part of Restricted Stock Award Agreement that evidences the terms of awards of restricted stock grants granted under the 2009 Long-Term Equity Incentive Plan to certain Directors in December 2016 is incorporated by reference from Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2016, filed March 9, 2017 (SEC File No. 001-15877).
10.24*+
Form of Restricted Stock Award Agreement that evidences the terms of awards of restricted stock grants granted under the 2009 Long-Term Equity Incentive Plan to certain Directors in December 2017.


Exhibit No.Description
10.25*
Resolutions of Stock Option Committee of Board of Directors of the Registrant amending outstanding stock options by accelerating in full all vesting periods and exercise date restrictions and terminating replacement stock option privileges in connection with future option exercises, adopted by written consent effective December 29, 2005,their annual compensation arrangement is incorporated by reference to Exhibit 10.1910.18 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011,2019, filed March 12, 20122, 2020 (SEC File No. 001-15877).
10.2610.18*
Loan Agreement between Stock Yards Bank & Trust Company and German American Bancorp, Inc. dated January 25, 2013. The copyAmended and Restated 2019 Employee Stock Purchase Plan is incorporated by reference to Exhibit 10.1 of this exhibit filed as Exhibit 99.1 to the Company’sRegistrant’s Current Report on Form 8-K filed January 29, 2013May 26, 2020 (SEC File No, 001-15877), is incorporated herein by reference.No. 000-15877).
10.2710.19*
Promissory Note (Term Note) made by German American Bancorp, Inc., 2019 Long-Term Equity Incentive Plan is incorporated by reference to Stock Yards Bank & Trust Company dated January 25, 2013. The copyExhibit 10.2 of this exhibit filed as Exhibit 99.2 to the Company’sRegistrant’s Current Report on Form 8-K filed January 29, 2013May 21, 2019 (SEC File No. 001-15877), is incorporated herein by reference.000-15877).
10.2821+
Promissory Note (Revolving Note) made by German American Bancorp, Inc., to Stock Yards Bank & Trust Company dated January 25, 2013. The copy of this exhibit filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed January 29, 2013 (SEC File No. 001-15877), is incorporated herein by reference.
10.29
Stock Pledge Agreement between Stock Yards Bank & Trust Company and German American Bancorp, Inc. dated January 25, 2013. The copy of this exhibit filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K filed January 29, 2013 (SEC File No. 001-15877), is incorporated herein by reference.
10.30
Omnibus Amendment to Loan Documents between Stock Yards Bank & Trust Company and German American Bancorp, Inc. dated as of December 31, 2013 is incorporated by reference from Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013, filed March 13, 2014 (SEC File No. 001-15877).
10.31
Second Omnibus Amendment to Loan Documents between Stock Yards Bank & Trust Company and German American Bancorp, Inc. dated as of December 31, 2014 is incorporated by reference from Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014, filed March 9, 2015 (SEC File No. 001-15877).
10.32
Third Omnibus Amendment to Loan Documents between Stock Yards Bank & Trust Company and German American Bancorp, Inc. dated as of December 29, 2015 is incorporated by reference from Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2015, filed March 9, 2016 (SEC File No. 001-15877).
10.33
Fourth Omnibus Amendment to Loan Documents between Stock Yards Bank & Trust Company and German American Bancorp, Inc. dated as of December 28, 2016 is incorporated by reference from Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2016, filed March 9, 2017 (SEC File No. 001-15877).
10.34*
German American Bancorp, Inc., 2009 Long Term Equity Incentive Plan. This exhibit is incorporated by reference from Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 (No. 333-160749) filed July 23, 2009.
10.35*
German American Bancorp, Inc., 2009 Employee Stock Purchase Plan. This exhibit is incorporated by reference from Exhibit 99.2 to the Registrant’s Registration Statement on Form S-8 (No. 333-160749) filed July 23, 2009.
21+
Subsidiaries of the Registrant
23+
Consent of Crowe Horwath LLP
31.1+
Sarbanes-Oxley Act of 2002, Section 302 Certification for President and Chief Executive Officer.
31.2+
Sarbanes-Oxley Act of 2002, Section 302 Certification for Executive Vice President (Principal Financial Officer).
32.1++
Sarbanes-Oxley Act of 2002, Section 906 Certification for President and Chief Executive Officer.
32.2++
Sarbanes-Oxley Act of 2002, Section 906 Certification for Executive Vice President (Principal Financial Officer).
101++101.INS+The following materials from German American Bancorp, Inc.’s Form 10-K Report forInline XBRL Instance Document (The instance document does not appear in the annual period ended December 31, 2017, formattedInteractive Data File because its XBRL tags are embedded within the Inline XBRL document.)
101.SCH+Inline XBRL Taxonomy Extension Schema Document.
101.CAL+Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF+Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB+Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE+Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders' Equity, (v) the Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements.Exhibit 101).


* Exhibits that describe or evidence all management contracts or compensatory plans or arrangements required to be filed as exhibits to this Report are indicated by an asterisk.

+ Exhibits that are filed with this Report (other than through incorporation by reference to other disclosures or exhibits) are indicated by a plus sign.

++ Pursuant to Rule 406TExhibits that are furnished with this Report are indicated by a double plus sign.

Note: No long-term debt instrument issued by the Registrant exceeds 10% of consolidated total assets or is registered. In accordance with paragraph 4 (iii) of Item 601(b) of Regulation S-T,S-K, to the Interactive Data Files on Exhibit 101 hereto are furnished andextent not deemedotherwise filed herewith or part of a registration statement or prospectus for purposes of Sections 11 and 12 ofincorporated
108

by reference hereby, the Registrant will furnish the Securities Actand Exchange Commission copies of 1933, as amended,long-term debt instruments and


are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. related agreements upon request.
In reviewing any agreements included as exhibits to this Report, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements may contain representations and warranties by the parties to the agreements, including us. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
•should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
•may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.


Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.


109

Item 16. Form 10-K Summary.


Not applicable.




110

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
GERMAN AMERICAN BANCORP, INC.
(Registrant)
Date:March 1, 20182023By: /s/Mark A. SchroederD. Neil Dauby
Mark A. Schroeder, ChairmanD. Neil Dauby, President and
Chief Executive Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date:March 1, 2023/s/Mark A. Schroeder
Mark A. Schroeder, Chairman   
Date:March 1, 2023/s/D. Neil Dauby
D. Neil Dauby, Director, President and Chief Executive Officer (principal executive officer)
Date:March 1, 20182023/s/Mark A. SchroederZachary W. Bawel
Mark A. Schroeder, Chairman and  Zachary W. Bawel, Director
Chief Executive Officer (principal executive officer)
Date:March 1, 2023/s/Angela Curry
Date:Angela Curry, Director
Date:March 1, 20182023/s/Douglas A. BawelSue J. Ellsperman
Douglas A. Bawel,Sue J. Ellsperman, Director
Date:March 1, 20182023/s/Lonnie D. Collins
Lonnie D. Collins, Director
Date:March 1, 2018/s/Christina M. Ernst
Christina M. Ernst, Director
Date:March 1, 2018/s/Marc D. Fine
Marc D. Fine, Director
Date:March 1, 20182023/s/U. Butch KlemJason M. Kelly
U. Butch Klem,Jason M. Kelly, Director
Date:March 1, 20182023/s/J. David LettDiane B. Medley
J. David Lett,Diane B. Medley, Director
Date:March 1, 20182023/s/Chris A. Ramsey
Chris A. Ramsey, Director
Date:March 1, 20182023/s/M. Darren Root
M. Darren Root, Director
Date:March 1, 20182023/s/Christina M. Ryan
Christina M. Ryan, Director
Date:March 1, 2023/s/Thomas W. Seger
Thomas W. Seger, Director
Date:March 1, 20182023/s/RaymondJack W. SnowdenSheidler
RaymondJack W. Snowden,Sheidler, Director
Date:March 1, 20182023/s/MichaelTyson J. VoylesWagler
MichaelTyson J. Voyles,Wagler, Director
Date:March 1, 20182023/s/Bradley M. Rust
Bradley M. Rust, Senior Executive Vice President, Chief Operating Officer and Chief Financial Officer (principal accounting officer and principal financial officer)
Date:March 1, 2023/s/Vicki L. Schuler
Vicki L. Schuler, Senior Vice President, Controller (principal accounting officer)


101111