Loans | Loans Loans were comprised of the following classifications: September 30, December 31, Commercial: Commercial and Industrial Loans $ 598,893 $ 620,106 Commercial Real Estate Loans 2,076,962 1,966,884 Agricultural Loans 398,109 417,413 Leases 66,999 56,396 Retail: Home Equity Loans 286,880 279,748 Consumer Loans 88,976 79,904 Credit Cards 20,144 17,512 Residential Mortgage Loans 356,610 350,682 Subtotal 3,893,573 3,788,645 Less: Unearned Income (6,023) (3,711) Allowance for Credit Losses (44,646) (44,168) Loans, net $ 3,842,904 $ 3,740,766 The table above includes $15,074 and $21,149 of purchase credit deteriorated loans as of September 30, 2023 and December 31, 2022, respectively. Allowance for Credit Losses for Loans The following tables present the activity in the allowance for credit losses by portfolio segment for the three months ended September 30, 2023 and 2022: September 30, 2023 Commercial and Industrial Commercial Real Estate Loans Agricultural Leases Consumer Loans Home Equity Loans Credit Cards Residential Mortgage Loans Total Allowance for Credit Losses: Beginning balance $ 13,567 $ 21,834 $ 3,956 $ 235 $ 640 $ 1,436 $ 288 $ 2,310 $ 44,266 Provision (Benefit) for credit loss expense (436) 1,117 (168) 19 258 9 93 8 900 Loans charged-off (175) (56) (2) — (352) — (64) (1) (650) Recoveries collected 2 5 — — 119 2 2 — 130 Total ending allowance balance $ 12,958 $ 22,900 $ 3,786 $ 254 $ 665 $ 1,447 $ 319 $ 2,317 $ 44,646 September 30, 2022 Commercial and Industrial Commercial Real Estate Loans Agricultural Leases Consumer Loans Home Equity Loans Credit Cards Residential Mortgage Loans Total Allowance for Credit Losses: Beginning balance $ 13,545 $ 22,349 $ 4,628 $ 191 $ 668 $ 1,233 $ 239 $ 2,178 $ 45,031 Provision (Benefit) for credit loss expense 141 (210) (99) 27 305 85 52 49 350 Loans charged-off (238) (1) — — (495) (5) (63) (18) (820) Recoveries collected 7 5 — — 116 — 8 2 138 Total ending allowance balance $ 13,455 $ 22,143 $ 4,529 $ 218 $ 594 $ 1,313 $ 236 $ 2,211 $ 44,699 The following tables present the activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2023 and 2022: September 30, 2023 Commercial and Industrial Commercial Real Estate Loans Agricultural Leases Consumer Loans Home Equity Loans Credit Cards Residential Mortgage Loans Total Allowance for Credit Losses: Beginning balance $ 13,749 $ 21,598 $ 4,188 $ 209 $ 595 $ 1,344 $ 257 $ 2,228 $ 44,168 Provision (Benefit) for credit loss expense 310 1,286 (375) 45 657 109 374 144 2,550 Loans charged-off (1,252) (56) (27) — (980) (39) (325) (58) (2,737) Recoveries collected 151 72 — — 393 33 13 3 665 Total ending allowance balance $ 12,958 $ 22,900 $ 3,786 $ 254 $ 665 $ 1,447 $ 319 $ 2,317 $ 44,646 September 30, 2022 Commercial and Industrial Commercial Real Estate Loans Agricultural Leases Consumer Loans Home Equity Loans Credit Cards Residential Mortgage Loans Total 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 376 1,945 689 — 2 — — 105 3,117 Provision (Benefit) for credit loss expense 3,803 1,013 (665) 18 823 309 131 418 5,850 Loans charged-off (299) (79) — — (1,027) (57) (153) (21) (1,636) Recoveries collected 21 19 — — 289 — 18 4 351 Total ending allowance balance $ 13,455 $ 22,143 $ 4,529 $ 218 $ 594 $ 1,313 $ 236 $ 2,211 $ 44,699 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. Qualitative 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 by anchoring to specific data points when 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 the estimation of expected credit losses. Adjustments to historical loss information are made for changes 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 inflationary pressures, rising interest rates and financial market volatility, the Company has considered this loss experience may align with loss experience from the recessionary period from 2008-2011 and qualitative adjustments have been made accordingly. Loans that do not share risk characteristics are evaluated on an individual basis. 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 be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date adjusted for selling costs. For the nine months ended September 30, 2023, the allowance for credit losses increased minimally compared to December 31, 2022. The Company saw improvement in individually analyzed loans and added reserve for loan portfolio growth. Key indicators utilized in forecasting for the allowance calculations include unemployment rates and gross domestic product as well as commodity prices for the agricultural segment of the portfolio. There has been some improvement in these factors over previous periods; however, rising interest rates and the expanded inflationary impact on consumer discretionary spending were considered in the qualitative factors to determine the allowance for credit losses. All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan. 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 amortized cost in non-accrual loans and loans past due over 89 days still accruing by class of loans as of September 30, 2023 and December 31, 2022: September 30, 2023 Non-Accrual With No Allowance for Credit Loss (1) Total Non-Accrual Loans Past Due Over 89 Days Still Accruing Commercial and Industrial Loans $ 554 $ 7,298 $ 1,000 Commercial Real Estate Loans 137 1,006 145 Agricultural Loans 698 1,036 25 Leases — — — Home Equity Loans 567 621 — Consumer Loans 32 32 — Credit Cards 146 146 — Residential Mortgage Loans 726 1,067 — Total $ 2,860 $ 11,206 $ 1,170 (1) Includes non-accrual loans with no allowance for credit loss and are also included in Total Non-Accrual loans of $11,206. Interest income on non-accrual loans recognized during the three and nine months ended September 30, 2023 totaled $62 and $99, respectively. December 31, 2022 Non-Accrual With No Allowance for Credit Loss (1) Total Non-Accrual Loans Past Due Over 89 Days Still Accruing Commercial and Industrial Loans $ 1,142 $ 7,936 $ 1,427 Commercial Real Estate Loans 49 1,950 — Agricultural Loans 994 1,062 — Leases — — — Home Equity Loans 262 310 — Consumer Loans 240 254 — Credit Cards 146 146 — Residential Mortgage Loans 676 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 Total Non-Accrual loans of $12,888. Interest income on non-accrual loans recognized during the year ended December 31, 2022 totaled $32. The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2023 and December 31, 2022: September 30, 2023 Real Estate Equipment Accounts Receivable Other Total Commercial and Industrial Loans $ 3,070 $ 134 $ — $ 6,707 $ 9,911 Commercial Real Estate Loans 8,367 — — — 8,367 Agricultural Loans 2,796 1,097 — — 3,893 Leases — — — — — Home Equity Loans 475 — — — 475 Consumer Loans 9 — — — 9 Credit Cards — — — — — Residential Mortgage Loans 847 — — — 847 Total $ 15,564 $ 1,231 $ — $ 6,707 $ 23,502 December 31, 2022 Real Estate Equipment Accounts Receivable Other Total Commercial and Industrial Loans $ 2,078 $ 1,219 $ 272 $ 5,851 $ 9,420 Commercial Real Estate Loans 12,192 36 — — 12,228 Agricultural Loans 4,944 318 — — 5,262 Leases — — — — — Home Equity Loans 467 — — — 467 Consumer Loans 8 2 — 12 22 Credit Cards — — — — — Residential Mortgage Loans 1,060 — — — 1,060 Total $ 20,749 $ 1,575 $ 272 $ 5,863 $ 28,459 The following tables present the aging of the amortized cost basis in past due loans by class of loans as of September 30, 2023 and December 31, 2022: September 30, 2023 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Loans Not Past Due Total Commercial and Industrial Loans $ 454 $ — $ 7,822 $ 8,276 $ 590,617 $ 598,893 Commercial Real Estate Loans 387 384 1,012 1,783 2,075,179 2,076,962 Agricultural Loans 337 — 639 976 397,133 398,109 Leases — — — — 66,999 66,999 Home Equity Loans 1,460 215 621 2,296 284,584 286,880 Consumer Loans 269 19 32 320 88,656 88,976 Credit Cards 87 58 146 291 19,853 20,144 Residential Mortgage Loans 8,233 1,345 855 10,433 346,177 356,610 Total $ 11,227 $ 2,021 $ 11,127 $ 24,375 $ 3,869,198 $ 3,893,573 December 31, 2022 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Loans Not Past Due Total Commercial and Industrial Loans $ 268 $ 681 $ 8,285 $ 9,234 $ 610,872 $ 620,106 Commercial Real Estate Loans 1,617 14 616 2,247 1,964,637 1,966,884 Agricultural Loans 343 — 123 466 416,947 417,413 Leases — — — — 56,396 56,396 Home Equity Loans 1,770 140 310 2,220 277,528 279,748 Consumer Loans 219 64 252 535 79,369 79,904 Credit Cards 86 24 146 256 17,256 17,512 Residential Mortgage Loans 6,330 2,783 1,051 10,164 340,518 350,682 Total $ 10,633 $ 3,706 $ 10,783 $ 25,122 $ 3,763,523 $ 3,788,645 Loan Modifications Made to Borrowers Experiencing Financial Difficulty Effective January 1, 2023, the Company prospectively adopted ASU 2022-02, which eliminated the accounting for troubled debt restructurings while establishing a new standard for the treatment of modifications made to borrowers experiencing financial difficulties. As such, effective with the adoption of the new standard, the Company will not include, prospectively, financial difficulty modifications in its presentation of nonperforming loans, nonperforming assets or classified assets. Prior period data, which included troubled debt restructurings, has not been adjusted. The Company’s loan modifications for borrowers experiencing financial difficulties will typically include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No modifications in 2023 resulted in the permanent reduction of the recorded investment in the loan. During the three and nine months ended September 30, 2023, the Company had no modified loans made to borrowers experiencing financial difficulty. There were no modified loans that had a payment default during the three and nine months ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. The Company considers a loan to be in payment default once it is 30 days contractually past due under the modified terms. Troubled Debt Restructurings Disclosures Prior to Adoption of ASU 2022-02 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. As of December 31, 2022, the Company had no troubled debt restructurings. The Company had no specific allocation of allowance for these loans at December 31, 2022. The Company had not committed to lending any additional amounts as of December 31, 2022 to customers with outstanding loans that are classified as troubled debt restructurings. For the year ended December 31, 2022, 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 year ended December 31, 2022. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. 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. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Based on the analysis performed at September 30, 2023 and December 31, 2022, the risk category of loans by class of loans is as follows: Term Loans Amortized Cost Basis by Origination Year As of September 30, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Commercial and Industrial: Risk Rating Pass $ 88,379 $ 140,656 $ 86,196 $ 30,700 $ 36,656 $ 51,279 $ 136,528 $ 570,394 Special Mention 48 470 498 1,609 642 1,991 5,843 11,101 Substandard — 391 6,284 787 1,116 1,510 7,310 17,398 Doubtful — — — — — — — — Total Commercial & Industrial Loans $ 88,427 $ 141,517 $ 92,978 $ 33,096 $ 38,414 $ 54,780 $ 149,681 $ 598,893 Current Period Gross Charge-Offs $ — $ 911 $ 32 $ 33 $ 7 $ 88 $ 181 $ 1,252 Commercial Real Estate: Risk Rating Pass $ 218,088 $ 424,293 $ 473,834 $ 227,014 $ 150,687 $ 482,924 $ 36,185 $ 2,013,025 Special Mention 13,591 2,171 11,239 4,471 264 21,051 — 52,787 Substandard — 203 5,360 1,152 748 3,372 315 11,150 Doubtful — — — — — — — — Total Commercial Real Estate Loans $ 231,679 $ 426,667 $ 490,433 $ 232,637 $ 151,699 $ 507,347 $ 36,500 $ 2,076,962 Current Period Gross Charge-Offs $ — $ — $ 56 $ — $ — $ — $ — $ 56 Agricultural: Risk Rating Pass $ 33,037 $ 58,537 $ 41,034 $ 42,723 $ 22,653 $ 104,949 $ 65,960 $ 368,893 Special Mention 2,528 240 635 5,037 2,552 10,101 2,649 23,742 Substandard — — 202 189 292 4,791 — 5,474 Doubtful — — — — — — — — Total Agricultural Loans $ 35,565 $ 58,777 $ 41,871 $ 47,949 $ 25,497 $ 119,841 $ 68,609 $ 398,109 Current Period Gross Charge-Offs $ — $ — $ — $ 2 $ — $ — $ 25 $ 27 Leases: Risk Rating Pass $ 27,207 $ 13,519 $ 11,533 $ 6,964 $ 6,076 $ 1,700 $ — $ 66,999 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total Leases $ 27,207 $ 13,519 $ 11,533 $ 6,964 $ 6,076 $ 1,700 $ — $ 66,999 Current Period Gross Charge-Offs $ — $ — $ — $ — $ — $ — $ — $ — Term Loans Amortized Cost Basis by Origination Year As of December 31, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total Commercial and Industrial: Risk Rating Pass $ 156,318 $ 117,648 $ 39,949 $ 46,505 $ 18,423 $ 51,482 $ 154,203 $ 584,528 Special Mention 56 148 577 78 551 2,346 1,672 5,428 Substandard 1,714 5,629 849 1,304 1,028 2,237 17,389 30,150 Doubtful — — — — — — — — Total Commercial & 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 Mention 3,982 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 Mention 634 842 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 The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential 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, home equity and consumer loans based on payment activity. Term Loans Amortized Cost Basis by Origination Year As of September 30, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Consumer: Payment performance Performing $ 40,108 $ 28,347 $ 10,852 $ 3,710 $ 1,139 $ 2,121 $ 2,667 $ 88,944 Nonperforming 4 6 11 6 — 5 — 32 Total Consumer Loans $ 40,112 $ 28,353 $ 10,863 $ 3,716 $ 1,139 $ 2,126 $ 2,667 $ 88,976 Current Period Gross Charge-Offs $ 880 $ 42 $ 23 $ 24 $ 3 $ 1 $ 7 $ 980 Home Equity: Payment performance Performing $ 225 $ 118 $ 87 $ 90 $ 68 $ 1,014 $ 284,657 $ 286,259 Nonperforming — — 251 — — 92 278 621 Total Home Equity Loans $ 225 $ 118 $ 338 $ 90 $ 68 $ 1,106 $ 284,935 $ 286,880 Current Period Gross Charge-Offs $ — $ — $ — $ — $ — $ 24 $ 15 $ 39 Residential Mortgage: Payment performance Performing $ 40,631 $ 66,546 $ 87,909 $ 42,517 $ 18,330 $ 99,610 $ — $ 355,543 Nonperforming — 110 140 123 109 585 — 1,067 Total Residential Mortgage Loans $ 40,631 $ 66,656 $ 88,049 $ 42,640 $ 18,439 $ 100,195 $ — $ 356,610 Current Period Gross Charge-Offs $ — $ — $ 22 $ 36 $ — $ — $ — $ 58 Term Loans Amortized Cost Basis by Origination Year As of December 31, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total Consumer: Payment performance Performing $ 42,685 $ 22,708 $ 5,610 $ 2,394 $ 1,543 $ 1,553 $ 3,157 $ 79,650 Nonperforming 3 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 The Company considers the performance of the loan portfolio and its impact on the allowance for credit loan 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 credit cards based on payment activity: Credit Cards September 30, 2023 December 31, 2022 Performing $ 19,998 $ 17,366 Nonperforming 146 146 Total $ 20,144 $ 17,512 The following tables present loans purchased and/or sold during the year by portfolio segment and excludes the business combination activity: September 30, 2023 Commercial and Industrial Loans Commercial Real Estate Loans Agricultural Loans Leases Consumer Loans Home Equity Loans Credit Cards Residential Mortgage Loans Total Purchases $ — $ 544 $ — $ — $ — $ — $ — $ — $ 544 Sales — — — — — — — — — December 31, 2022 Commercial and Industrial Loans Commercial Real Estate Loans Agricultural Loans Leases Consumer Loans Home Equity Loans Credit Cards Residential Mortgage Loans Total Purchases $ 522 $ 411 $ — $ — $ — $ — $ — $ — $ 933 Sales — 3,819 97 — — — — — 3,916 |