On May 18, 2018, German American Bank completed the acquisition of five branch locations of First Financial Bancorp (formerly branch locations of Mainsource Financial Group, Inc. prior to its merger with First Financial Bancorp on April 1, 2018) and certain related assets, and the assumption by German American Bank of certain related liabilities. Four of the branches are located in Columbus, Indiana, and one in Greensburg, Indiana. German American Bank acquired approximately $175.7 million in deposits and approximately $116.3 million in loans associated with the five bank branches. The premium paid on deposits by German American Bank was approximately $7.4 million. The premium was subject to adjustment to reflect increases or decreases in the deposit balances during the six month period following the closing date. In January 2019, an adjustment of approximately $0.1 million in additional premium was paid by German American Bank as a result of the change in deposits during the six month measurement period. German American Bank also had the ability, under certain circumstances, to put loans back to First Financial Bancorp’s bank subsidiary during such six month period. During the fourth quarter of 2018, approximately $1.3 million of loans were put back by German American Bank.

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 ~~these~~this merger and acquisition ~~transactions,~~transaction, see Note ~~18 (Business Combinations) and Note 21~~20 (Subsequent Events) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note ~~18 and Note 21 are~~20 is incorporated into this Item 1 by reference.

During 2021, the Company commenced an operating optimization plan, pursuant to which its banking subsidiary, German American Bank, would consolidate seven branch offices and implement various staff reductions during 2021. 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.

On July 1, 2019, the Company completed the acquisition of Citizens First Corporation (“Citizens First”) through the merger of Citizens First with and into the Company. Immediately following completion of the Citizens First holding company merger, Citizens First's subsidiary bank, Citizen First Bank, Inc., was merged with and into the Company’s subsidiary bank, German American Bank. Citizens First, headquartered in Bowling Green, Kentucky operated eight retail banking offices through Citizens First Bank, Inc. in Barren, Hart, Simpson and Warren Counties in Kentucky. As of the closing of the transaction, Citizens First had total assets of approximately $456.0 million, total loans of approximately $364.6 million, and total deposits of approximately $370.8 million. The Company issued approximately 1.7 million shares of its common stock, and paid approximately $15.5 million in cash, in exchange for all of the issued and outstanding shares of common stock of Citizens First.

For further information regarding this merger and acquisition transaction, see Note 18 (Business Combinations) 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.

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.

Office Locations

The map below illustrates the locations of the Company’s 6678 retail and commercial banking, insurance and investment ~~offices as of February 20, 2019.~~offices.

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 to emerge in key areas of banking. Many of these competitors have substantially greater resources than the Company.

~~Employees~~Human Capital

At February ~~20, 2019~~23, 2022, the Company and its subsidiaries employed approximately ~~738~~894 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 achieve goals. Their vast knowledge base and expertise enables them to work efficiently while providing customer service excellence to support strong performance. 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, open communication, diverse perspectives, and high ethical principles.

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, 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.

In order to develop a workforce that aligns with our corporate values, 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.

The health and well-being of our employees and customers will always be our top priority.This, of course, came to the forefront as COVID-19 began to spread exponentially in early 2020 and continued throughout 2021. In response, we have continued to adapt and adjust our Pandemic Response Plans within the Company to protect the health of our employees, customers and communities. Those plans included business continuity remote work options, support of vaccination through different vaccination incentive programs, paid leave, and more.

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 elect~~In September 2019, we elected to ~~be treated as~~become a “financial holding ~~company” and, as~~company.” As a ~~result, be~~financial 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 become~~Upon 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 has~~subsidiaries related to the operations of the Company for which insurance may not ~~elected~~be economically feasible. In order to ~~form~~continue 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.

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 new~~The current risk-based capital rules, as adopted by federal banking ~~agency rules implementing certain regulatory capital reforms agreed to~~regulators, are based upon guidelines developed by the Basel Committee on Banking Supervision ~~(known as “Basel III”)~~ and ~~to certain changes required by~~reflect various requirements of the Dodd-Frank ~~Act. Generally, under these new rules (which were subject to certain phase-in provisions), (a) minimum requirements were increased for both the quality and quantity of capital held by~~Act (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 effective as of January 1, 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 effective as January 1, 2019,~~ results 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 effective as of January 1, 2019,~~ results 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.

Under the Basel III ~~rules,~~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

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% is to be phased in at the beginning of each subsequent year until fully phased in by January 1, 2025. 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 and changes in the allowance during 2020, 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. 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 2018~~ was well-capitalized throughout 2021, the FDICIA brokered deposit rule did not adversely affect its ability to accept brokered deposits. The Bank had ~~$91.6 million of such~~no brokered deposits at December 31, ~~2018.~~2021. 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, ~~2018,~~2021, 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, ~~2018,~~2021, see Note 8 (Shareholders’ 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, ~~2018,~~2021, 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 ~~$76~~$75 million of its undivided profits without approval by the DFI in accordance with such criteria. See Note 8 (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.

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, including~~The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the ~~FRB~~federal level and, ~~FDIC, adopted final rules implementing~~in 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 of~~which was adopted under the Dodd-Frank ~~Act. These final rules prohibit~~Act, 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, but~~Economic Growth Act also served to raise the ~~conformance period was extended from its statutory end date~~threshold 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. We~~Volcker 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 ~~will~~would 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”) 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”), 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.

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. ~~Effective as of May 11, 2018, following implementation of recent amendments to the BSA regulations, covered institutions such as the~~The Bank ~~are~~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 must 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 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”) 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 Small Institution” category. This category has three sub-categories based on supervisory ratings designed to measure risk (the 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’s most recent supervisory and capital evaluations.

In addition, each FDIC insured institution ishas been required to pay to the FDIC an assessment on the institution’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. ~~The Federal Housing Finance Agency,~~With the ~~agency authorized to prescribe regulations relating to~~Financing

Corporation having made its final bond payment in September 2019, the ~~Financing Corporation, has projected that the~~Bank made its last assessment payment, ~~will be collected with the March 2019 assessment. For the Bank’s December 2018 payment, the bond assessment~~which was equal to a per annum rate of ~~0.14~~0.12 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 have two-year maturities, while the loans made in 2021 have five-year maturities. Loans under the program earn interest at a fixed rate of 1 percent. As of December 31, 2021, the Company had $19.5 million of PPP loans outstanding compared to the December 31, 2020 balance of $182.0 million. The Company will continue to monitor legislative, regulatory, and supervisory developments related to the PPP. However, it anticipates that the majority of the Company's remaining PPP loans will be forgiven by the SBA in accordance with the terms of the program.

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; the impact of the COVID-19 pandemic; adequacy of the Company’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”, “plan”, “intend”, “should”, “would”, “could”, “can”, “may”, “will”, “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. 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 not limited ~~to:~~to:

•the unknown future direction of interest rates and the timing and magnitude of any changes in interest rates;

•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;

•the severity and duration of the COVID-19 pandemic and its impact on general economic and financial market conditions and our business, results of operations and financial condition;

•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 impact of the current expected credit loss (CECL) standard;

•changes in accounting principles and ~~interpretations;~~interpretations,

•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 anticipated benefits of the transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the 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.

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 COVID-19 Pandemic

The ongoing COVID-19 pandemic and measures intended to prevent its spread have adversely impacted the Company’s business and financial results, and the continued impact will depend on future developments, which are highly uncertain and cannot be predicted, including the severity and duration of the pandemic and further actions taken by governmental authorities and other third parties to contain and treat the virus.

COVID-19, which has been identified as a pandemic by the World Health Organization and declared a national emergency in the United States, continues to cause disruptions in the global economy (including the states and local economies in which we operate) and instability in financial markets. The outbreak resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures, which could be implemented again in the future, significantly contributed to rising unemployment and negatively impacted consumer and business spending. As a result, the demand for the Company’s products and services has been, and may continue to be, adversely impacted. Furthermore, the pandemic has caused, and could continue to influence, the recognition of credit losses in the Company’s loan portfolio as customers are negatively impacted by economic conditions. The Company’s allowance for credit losses is also subject to further change as customers are impacted by economic fluctuations resulting from the pandemic. In addition, governmental actions taken in response to COVID-19 have resulted in decreased interest rates and yields, which have adversely impacted the Company's interest margins and which may lead to decreases in the Company’s net interest income.

As our banking regulators encouraged us to work prudently with borrowers who are unable to meet their contractual payment obligations due to the effects of COVID-19, the Bank provided certain hardship relief primarily in the form of payment deferrals. As a result, the Bank has made short-term loan modifications for borrowers who are current and otherwise not past due. As provided under the CARES Act and extended by the 2021 Consolidated Appropriations Act, these qualified loan modifications were exempt by law from classification as troubled debt restructures, as defined by GAAP, through January 1, 2022. The potential adverse impact resulting from the inability of these borrowers to repay loans on a timely basis cannot be determined at this time. However, the extent of such impact, as reflected in the Company’s financial statements, may have been muted by these loan modifications, which could have the effect of having delayed loss recognition until after the deferral period.

The spread of COVID-19 caused the Company to modify its business practices (including developing work from home and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities. Furthermore, the Company’s business operations have been, and may again in the future be, disrupted due to vendors and third-party service providers being unable to work or provide services effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic.

The extent to which COVID-19 continues to 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 pandemic, the potential for seasonal or other resurgences, actions taken by governmental authorities and other third parties to contain and treat the virus, and how quickly and to what extent normal economic and operating conditions can resume. Moreover, the effects of the COVID-19 pandemic may heighten many of the other risks described in this “Risk Factors” section. While we do not yet know the full extent of its impact, the pandemic could cause us to experience higher credit losses in our lending portfolio, impairment of our goodwill and other financial assets, reduced demand for our products and services, and other negative impacts on the Company’s business, results of operations and financial condition, which 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 of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.

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.

Since the opening 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 PPP. The Company and the Bank may be exposed to the risk of litigation, from both customers and non-customers that have approached the Bank in connection with PPP loans and its policies and procedures used in processing applications for the PPP. 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 also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the 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 a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Bank.

The ongoing COVID-19 pandemic has increased cyber-security risks.

The ongoing COVID-19 pandemic has introduced additional risk to our information systems and security procedures, controls and policies as a result of employees, contractors and other corporate partners working remotely. As a result of an increased remote workforce, we have increasingly relied on information technology systems that are outside our direct control, and these systems are also vulnerable to cyber-based attacks and security breaches. In addition, since the beginning of pandemic, there has been an increase attacks by cyber criminals on businesses and individuals, utilizing interest in pandemic-related information and the fear and uncertainty caused by the pandemic to increase phishing, malware, and other cybersecurity attacks designed to trick victims into transferring sensitive data or funds, steal credentials or deploy malware that compromises information systems. If one of our employees were to fall victim to one of these attacks, or our information technology systems are compromised, our operations could be disrupted, or we may suffer financial loss, reputational loss, loss of customer business or other critical assets, or become exposed to regulatory fines and intervention or civil litigation.

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~~

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 ~~has~~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 ~~subject~~impact of ~~significant legislation~~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 ~~recent years and may be~~all respects with the ~~subject of further~~new requirements.

In addition, 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~~We are required to maintain certain minimum amounts 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~~capital and 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 changesmore stringent capital requirements 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~~future. A failure to meet applicable capital requirements could have an adverse effect on ~~us.~~us.

We are subject to ~~certain~~regulatory requirements specifying minimum amounts and types of capital ~~rules adopted by~~that we must maintain. From time to time, banking regulators change these capital adequacy guidelines. For example, as a result of 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~~Rules required by

the Dodd-Frank Act, we are ~~being phased in over a three-year period that began in 2016, require us~~now required to satisfy additional, more stringent, capital adequacy standards than we had in the past. ~~These~~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.

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 2019 contiguous southern Indiana counties and ~~four~~14 counties in Kentucky, 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 deterioration in the economic conditions in these markets 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 deterioration 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 have adopted new accounting guidance, specifically the current expected credit loss (“CECL”) standard, to account for our credit losses that may be more volatile and may adversely impact our financial statements when forecasted market conditions change.

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 replaces 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 to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the incurred loss model, which delays recognition until it is probable a loss has been incurred. As a result, the CECL model may create more volatility in our earnings and the level of our allowance for credit losses.

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 level, changes in environmental conditions, unemployment rates, risk classifications and collateral values. We have also included assumptions about the severity and duration of the effects of the COVID-19 pandemic on our borrowers, their industry, and on economic conditions in general, all of which are highly uncertain and for which we have no 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. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, demand for loans, securities and deposits, and policies of various governmental and regulatory agencies and, in particular, the monetary policies of the FRB. 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, 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 the our business, financial condition or results of operations.

Certain loans made by us and financing extended to us are made at variable rates that use 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. On July 29, 2021, the ARRC formally 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.

At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, the United Kingdom or elsewhere or, whether the COVID-19 outbreak will have further effect on LIBOR transition plans. Any replacement interest rate(s) may perform differently and we may incur significant costs to transition both our borrowing arrangements and the loan agreements with our customers from LIBOR, which may have an adverse effect on our results of operations. In addition, amending certain contracts indexed to LIBOR may require consent from impacted counterparties which could be difficult to obtain. The financial and operational impact of the transition is unknown at this time. As federal banking regulators required banks to stop originating new products using LIBOR by December 31, 2021, the Bank began using alternative indices, including SOFR, in originating new loans or other products following such date.

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 intent~~Financial 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 manual~~emerge in ~~March 2017, providing more details on how companies applying for such charters would be evaluated, the OCC has~~key 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 level~~cannot 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 ~~decreasing~~loan 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.

~~Future impacts of~~We may be adversely affected by changes in tax laws.

Any change in federal or state tax laws or regulations, including any increase in the ~~Tax Cuts and Jobs Act (the “Tax Act”) on us and our customers are unknown at present, creating uncertainty and risk related to demand for credit and our future results.~~

~~Increased economic activity resulting~~federal corporate income tax rate from the ~~Tax Act’s lower tax rates on businesses, generally,~~current level of 21%, could ~~encourage additional borrowing. However, some customers may use the additional cash flow from lower taxes to fund existing levels~~negatively affect our business, financial condition and results of activity and, as a result, decreasing their borrowing needs. The elimination of the federal income tax deductibility of business interest expense for a significant number of our customers effectively increases the cost of borrowing and makes equity or hybrid funding relatively more attractive. This could have a long-term negative impact on business customer borrowing. While our 2018 net income was positively impacted by the Tax Act, there is no guarantee that our future results will benefit similarly. Some or all of the benefits realized in 2018 could be lost to the extent that the banks and financial services companies we compete with elect to lower interest rates and fees and we must do the same in order to remain competitive. Additionally, the benefits from the Tax Act could be repealedoperations.

~~as a result of future regulatory actions. As a result of these uncertainties, there is no assurance that we will realize the anticipated continued benefits of the Tax Act in the future.~~

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 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.~~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 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 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 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’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.

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 the effects of the COVID-19 pandemic, other economic slowdowns or recessions, interest rate changes or credit loss trends) 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 6050 other locations in Southern Indiana and ~~eight~~29 in ~~Northern Kentucky of which 54~~Kentucky. Of the 80 total locations, 62 are owned by the Company and 1518 are leased from third parties.

Item 3. Legal Proceedings.

In July 2020, the Company was named in a putative class action lawsuit filed in Marion County, Indiana Superior Court challenging the Company’s checking account practices associated with its assessment of overdraft fees for certain debit card transactions. The relief sought by the plaintiff includes restitution, other monetary damages, and injunctive and declaratory relief. The plaintiff also seeks to have the case certified by the Court as a class action on behalf all citizens of Indiana who are checking account holders at German American Bank and who were assessed overdraft fees on certain debit card transactions. The Company believes the plaintiff’s claims are unfounded and has vehemently defended against them, including by filing a motion to dismiss the plaintiff’s amended complaint. On August 25, 2021, while the Company’s motion to dismiss remained pending, the parties participated in a mediation conference. The mediation conference resulted in a settlement in principle, subject to execution of a definitive settlement agreement which would be subject to the Court’s approval. On October 21, 2021, the Company executed a Settlement Agreement and Release, pursuant to which the Company would pay the amount of $3,050,000 in full and complete settlement of plaintiff’s putative class action. The Settlement Agreement and Release has not yet been submitted to and remains subject to the Court’s approval.

There are no ~~material~~other 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.

PART II

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

Market for Common Stock

German American Bancorp, Inc.’s stock is traded on ~~NASDAQ’s~~the Nasdaq Global Select Market under the symbol GABC.

The Common Stock was held of record by approximately ~~3,684~~3,208 shareholders at February ~~20, 2019.~~

23, 2022.

Transfer Agent:

Computershare

Priority Processing

~~250 Royall St~~

~~Canton, MA 02021~~

462 South 4th Street
Louisville, KY 40202-3467
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, ~~2018,~~2021, the stocks of which have been traded on an established securities market (NYSE, NYSE American or ~~NASDAQ)~~Nasdaq) throughout that five-year period. The companies comprising the Indiana Bank Peer Group for purposes of the December ~~2018~~2021 comparison were: 1st Source Corp., First Financial Corp., First Merchants Corp., Lakeland Financial Corp., Old National Bancorp, Horizon Bancorp, ~~MutualFirst Financial, Inc., and First Internet Bancorp.~~ First Internet Bancorp, ~~was added to the Indiana Bank Peer Group for the first time in this Annual Report on Form 10-K as a result of being approved for listing on the NASDAQ Capital Market effective February 22, 2013,~~ and ~~otherwise meeting the above criteria.~~First Savings Financial 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.

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, ~~2018.~~

2021.



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 ~~2018~~2021	—	—$	—	—	—	~~409,184~~	1,000,000
November ~~2018~~2021	—	—			—		~~409,184~~1,000,000
December ~~2018~~2021	—	—			—		~~409,184~~1,000,000
Totals	—	$	—		—

⁽¹⁾ On ~~April 26, 2001,~~January 25, 2021, the ~~Company announced that its~~Company's Board of Directors ~~had~~ approved a stock repurchase program for up to ~~911,631~~1.0 million of its outstanding common shares. The Company did not repurchase any shares of ~~which~~common stock under the Company had purchased 502,447 common shares through December 31, 2018 (both such numbers adjusted for subsequent stock dividends). The Board of Directors established no expiration date for this program. The Company purchased no shares under this programrepurchase plan during the quarter ended December 31, ~~2018.~~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.

Equity Compensation Plan Information

~~The~~The Company maintains ~~four~~three equity incentive plans under which it has 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~~2009 Long-Term Equity Incentive Plan (under which no new grants may be made), its ~~2009~~2019 Long-Term Equity Incentive Plan (the “2019 LTI Plan”) and its ~~2009~~2019 Employee Stock Purchase ~~Plan.~~Plan (the “2019 ESPP”). 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 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 ~~four~~three plans identified above. The following table sets forth information regarding these plans as of December 31, ~~2018:~~

2021:

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)

—

(a)

~~845,697~~1,630,772

(b)

Equity compensation plans not approved by security holders

—

Total

—

~~845,697~~1,630,772

^(a)

(a)On December 31, 2021, participants under the 2019 ESPP exercised options to purchase 5,615 Common Shares at the purchase price of $40.46 per share. The Company settled the option exercises in January 2022 with shares purchased on the open market.

(b)Represents 750,000 shares at December 31, 2021 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 880,772 shares that were available for grant or issuance at December 31, 2021 under the 2019 LTI Plan. As stated in note (a) above, the Company settled certain option exercises in January 2022 with shares purchased on the open market. The issuance of such reacquired shares will result in a 5,615 share reduction in the amount remaining available for future issuance.

Any shares that employees may have the right to purchase under the Employee Stock Purchase Plan in August 2019 in respect of employee payroll deductions of participating employees that had accumulated as of December 31, 2018 during the plan year that commenced in August 2018 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 2019, 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 539,293 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 306,404 shares that were available for grant or issuance at December 31, 2018 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'~~(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 River Valley Bancorp, effective March 1, 2016, the acquisition of five branches from First Financial Bancorp effective May 18, 2018, and the acquisition of First Security, Inc effective October 15, 2018.

2018 2017 2016 2015 2014
Summary of Operations:

Interest Income $ 133,749
$ 111,030
$ 103,365
$ 81,620
$ 80,386
Interest Expense 19,139
11,121
8,461
6,068
6,047
Net Interest Income 114,610
99,909
94,904
75,552
74,339
Provision for Loan Losses 2,070
1,750
1,200
—
150
Net Interest Income after Provision For Loan Losses 112,540
98,159
93,704
75,552
74,189
Non-interest Income 37,070
31,854
32,013
27,444
23,937
Non-interest Expense 93,553
77,803
76,587
61,326
57,713
Income before Income Taxes 56,057
52,210
49,130
41,670
40,413
Income Tax Expense 9,528
11,534
13,946
11,606
12,069
Net Income $ 46,529
$ 40,676
$ 35,184
$ 30,064
$ 28,344

Year-end Balances:

Total Assets $ 3,929,090
$ 3,144,360
$ 2,955,994
$ 2,373,701
$ 2,237,099
Total Loans, Net of Unearned Income 2,728,059
2,141,638
1,989,955
1,564,347
1,447,982
Total Deposits 3,072,632
2,484,052
2,349,551
1,826,376
1,779,761
Total Long-term Debt 126,635
141,717
120,560
95,606
64,591
Total Shareholders’ Equity 458,640
364,571
330,267
252,348
228,824

Average Balances:

Total Assets $ 3,380,409
$ 3,002,695
$ 2,841,096
$ 2,267,555
$ 2,170,761
Total Loans, Net of Unearned Income 2,339,089
2,036,717
1,904,779
1,483,752
1,406,000
Total Deposits 2,716,712
2,395,146
2,249,892
1,825,913
1,783,348
Total Shareholders’ Equity 385,476
350,913
321,520
241,018
214,496

Per Share Data:

Net Income ⁽¹⁾
$ 1.99
$ 1.77
$ 1.57
$ 1.51
$ 1.43
Cash Dividends 0.60
0.52
0.48
0.45
0.43
Book Value at Year-end 18.37
15.90
14.42
12.67
11.54
Tangible Book Value Per Share ⁽²⁾
13.81
13.45
11.94
11.57
10.40

Other Data at Year-end:

Number of Shareholders 3,705
3,459
3,513
3,343
3,398
Number of Employees 747
621
605
479
473
Weighted Average Number of Shares ⁽¹⁾
23,381,616
22,924,726
22,391,115
19,888,374
19,834,766

Selected Performance Ratios:

Return on Assets 1.38 % 1.35 % 1.24 % 1.33 % 1.31 %
Return on Equity 12.07 % 11.59 % 10.94 % 12.47 % 13.21 %
Equity to Assets 11.67 % 11.59 % 11.17 % 10.63 % 10.23 %
Dividend Payout 30.25 % 29.11 % 30.21 % 29.97 % 29.81 %
Net Charge-offs (Recoveries) to Average Loans 0.08 % 0.04 % 0.04 % 0.03 % (0.01 )%
Allowance for Loan Losses to Loans 0.58 % 0.73 % 0.74 % 0.92 % 1.03 %
Net Interest Margin 3.75 % 3.76 % 3.75 % 3.70 % 3.76 %

⁽¹⁾ ~~Share and Per Share Data includes the dilutive effect of stock options.~~

⁽²⁾ ~~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-traded~~Nasdaq-traded (symbol: GABC) ~~bank~~financial holding company based in Jasper, Indiana. German American, through its banking subsidiary German American Bank, operates 6577 banking offices in 2019 contiguous southern Indiana counties and ~~four Kentucky counties.~~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 ~~2016~~2019 through ~~2018~~2021 and its financial condition as of December 31, ~~2017~~2020 and ~~2018.~~2021. 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.

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

Net income for the year ended December 31, ~~2018~~2021 totaled ~~$46,529,000~~$84,137,000, or ~~$1.99~~$3.17 per share, an increase of ~~$5,853,000,~~$21,927,000, or approximately ~~12%~~35% on a per share basis, from the year ended December 31, ~~2017~~2020 net income of ~~$40,676,000~~$62,210,000, or ~~$1.77~~$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. Net income for 2018 was positively impacted by lower federal income tax rates that became effective January 1, 2018, as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The lower federal income tax rates had a positive impact of approximately $0.26 per share for the year ended December 31, ~~2018.~~

~~Net income for 2018 was also impacted by merger and acquisition activity during~~2020 totaled $62,210,000, or $2.34 per share, an increase of $2,988,000, or approximately 2% on a per share basis, from the ~~year. The~~ year ended December 31, ~~2018 included acquisition-related expenses~~2019 net income of ~~approximately $4,592,000 (approximately $3,526,000~~$59,222,000, or ~~$0.15~~$2.29 per ~~share, on an after tax basis).~~share.

~~During the fourth quarter of 2017, as a result of the enactment of the Tax Act,~~As previously disclosed, in March 2021, the Company ~~revalued~~commenced an operating optimization plan, pursuant to which its ~~deferred tax assets and deferred tax liabilities. The revaluation resulted in a net tax benefit of $2,284,000, or approximately $0.10 per share during 2017.~~

~~On May 18, 2018,~~banking subsidiary, German American Bank, ~~completed~~would consolidate seven branch offices and implement various staff reductions during 2021. In making its decision to consolidate these branches, which were generally integrated with other nearby bank branches, the ~~acquisition~~Company considered, among other factors, the operating costs of ~~five~~the branches, certain physical limitations impacting the bank facilities, and their proximity to other branch ~~locations~~locations. In addition, the Company’s evaluation of ~~First Financial Bancorp (formerly~~the branch ~~locations of Mainsource Financial Group, Inc. prior to its merger with First Financial Bancorp on April 1, 2018) and certain related assets,~~

consolidations and the ~~assumption~~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 ~~certain related liabilities. Four~~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 ~~branches are located in~~sale.

Columbus, Indiana, and one in Greensburg, Indiana. German American Bank acquired approximately $175.7 million in deposits and approximately $116.3 million in loans associated with the five bank branches. The premium paid on deposits by German American Bank was approximately $7.4 million. The premium was subject to adjustment to reflect increases or decreases in the deposit balances during the six month period following the closing date. In January 2019, an adjustment of approximately $0.1 million in additional premium was paid by German American Bank as a result of the change in deposits during the six month measurement period. German American Bank also had the ability, under certain circumstances, to put loans back to First Financial Bancorp’s bank subsidiary during such six month period. During the fourth quarter of 2018, approximately $1.3 million of loans were put back by German American Bank.

On ~~October 15, 2018,~~January 1, 2022, the Company completed the acquisition of ~~First Security,~~Citizens Union Bancorp of Shelbyville, Inc. ~~("First Security"~~(“CUB”) through the merger of ~~First Security~~CUB with and into the Company. Immediately following completion of the ~~First Security~~CUB holding company merger, ~~First Security’s~~CUB's subsidiary bank, ~~First Security~~Citizen Union Bank of Shelbyville, Inc., was merged with and into the Company’s subsidiary bank, German American Bank. ~~First Security, based~~CUB, headquartered in ~~Owensboro,~~Shelbyville, Kentucky operated 1115 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through ~~First Security~~Citizens Union Bank of Shelbyville, Inc., in ~~Owensboro, Bowling Green, Franklin and Lexington, Kentucky and in Evansville and Newburgh, Indiana.~~Kentucky. As of the closing of the transaction, ~~First Security~~CUB had total assets of approximately ~~$553.2 million,~~$1.109 billion, total loans of approximately ~~$390.1~~$683.8 million, and total deposits of approximately ~~$424.4~~$930.5 million. The Company issued approximately ~~2.0~~2.9 million shares of its common stock, and paid approximately ~~$31.2~~$50.8 million in cash, in exchange for all of the issued and outstanding shares of common stock of ~~First Security and in cancellation of all outstanding options to acquire First Security common stock.~~CUB.

On February 21, 2019, the Company entered into an Agreement and Plan of Reorganization with Citizens First Corporation (“Citizens First”), pursuant to which Citizens First agreed to merge with and into the Company. The merger agreement also provides that Citizens First’s wholly-owned banking subsidiary, Citizens First Bank, Inc. will be merged with and into the Company’s subsidiary bank, German American Bank, immediately following the holding company merger. Based on the number of Citizens First common shares expected to be outstanding at closing, the Company would issue approximately 1.7 million shares of its common stock, and pay approximately $16 million cash, for all of the issued and outstanding common shares of Citizens First. Citizens First is a bank holding company headquartered in Bowling Green, Kentucky. It operates, through Citizens First Bank, Inc., branch offices in Barren, Hart, Simpson and Warren Counties in Kentucky, and a loan production office in Williamson County, Tennessee. At December 31, 2018, Citizens First reported total assets of approximately $476 million, total loans of approximately $372 million, and total deposits of approximately $389 million. Completion of the mergers is subject to approval by regulatory authorities and Citizens First’s shareholders, as well as certain other closing conditions. The transaction is expected to be completed in the third quarter of 2019.

For further information regarding this ~~pending~~merger and acquisition transaction, see Note 2120 (Subsequent Events) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report.

For further information regarding this merger and acquisition transaction, see Note 18 (Business Combinations) in the Notes to the Consolidated Financial Statements included in Item 8 of this Report.

COVID-19 PANDEMIC BUSINESS UPDATE

The novel coronavirus disease 2019 (COVID-19) pandemic continued to impact our operations during 2021. While uncertainty remains as to the future effects of the pandemic, an improving business climate, supported by unprecedented fiscal stimulus, an accommodative Federal Reserve, and modest increases in COVID-19 vaccination rates, has helped to mitigate the negative impacts of the pandemic on our financial condition and results of operations, despite the challenges presented by very low interest rates, muted loan growth, and excess liquidity.

CARES Act and the Paycheck Protection Program

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 is 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. The PPP was later extended and modified by the Paycheck Protection Program and Health Care Enhancement Act in April 2020 and the Paycheck Protection Program Flexibility Act in June 2020, with PPP funding under this initial round expiring on August 8, 2020.

In December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was signed into law as part of the Consolidated Appropriations Act, 2021 (the “CAA”). In addition to direct stimulus payments and other aid, this Act provided for a second round of PPP loans through March 31, 2021. Under the American Rescue Plan Act of 2021 and the PPP Extension Act of 2021, which were both enacted during March 2021, additional funds were provided for the program and the deadline for applying for PPP loans was extended through May 31, 2021 (with the SBA having been given until June 30, 2021 to process loan applications).

The Company actively participated in both rounds of the PPP, lending funds primarily to its existing loan and/or deposit customers. The PPP loans carry 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 have five-year maturities.

Under the first round of the PPP (i.e., the 2020 round), the Company originated loans totaling approximately $351.3 million in principal amount, with approximately $12.0 million of related net processing fees on 3,070 PPP loan relationships. As of December 31, 2021, $349.2 million of those first round PPP loans had been forgiven by the SBA and repaid to the Company pursuant to the terms of the program or repaid by customers, with approximately $12.0 million in net processing fees having been recognized by the Company.

Under the second round of the PPP (i.e., the 2021 round), the Company originated loans totaling approximately $157.0 million in principal amount, with approximately $9.0 million of related net processing fees, on 2,601 PPP loan relationships. As of December 31, 2021, $138.8 million of second round PPP loans had been forgiven by the SBA and repaid to the Company, with $8.1 million in net processing fees having been recognized by the Company. As a result of the forgiveness of the first and second round PPP loans, $20.3 million of total PPP loans remain outstanding as of December 31, 2021, with approximately $0.9 million of net fees remaining deferred on that date.

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 ~~loan~~credit losses, the valuation of securities available for sale, income tax expense, and the valuation of goodwill and other intangible assets.

Allowance for ~~Loan~~Credit Losses

The Company maintains an allowance for ~~loan~~credit losses to cover ~~probable incurred~~the 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 ~~loan~~credit 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 ~~loan~~credit 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 ~~impaired~~individually 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 ~~loan~~credit losses deemed adequate to cover expected credit losses ~~inherent in~~over the expected life of the loan portfolio.

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. ~~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 ~~allocations~~reserves on ~~impaired~~individually 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 ~~impaired~~analyzed 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 losses~~and special mention, but are not individually analyzed for ~~similar types of loans. General allocations are also made for~~specific 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 ~~internal factors we also consider the overall level~~adequacy of the allowance ~~for~~is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan ~~losses to total loans; our allowance coverage as compared to similar size bank holding companies; and regulatory requirements.~~

~~Due to the imprecise nature of estimating~~portfolio may result in significant changes in the allowance for ~~loan~~credit losses the Company’s allowance for loan 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 reflected 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.future periods.

Securities Valuation

~~Securities~~Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale ~~are carried at~~debt securities in an unrealized loss position, the Company assesses whether we intend to sell, 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 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, the Company compares the present value of cash flows expected to be collected from the security with ~~unrealized holding gains~~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 ~~reported separately~~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 ~~accumulated~~ other comprehensive income, ~~(loss),~~ net of ~~tax. The Company obtains market values~~applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at December 31, 2021. Accrued interest receivable on available-for-sale debt securities is excluded from ~~a third party~~the estimate of credit losses. As of December 31, 2021, gross unrealized gains on ~~a monthly basis in order to adjust~~ the securities ~~to fair value.~~ available-for-sale portfolio totaled approximately $36,068,000 and gross unrealized losses totaled approximately $15,649,000 net of applicable taxes is included in other comprehensive income.

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, future~~cost, 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, 2018, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $5,436,000 and gross unrealized losses totaled approximately $14,079,000.earnings.

Income 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 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. 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. ~~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.

RESULTS OF OPERATIONS

NET INCOME

Net income for 2018 was positively impacted by lower federal income tax rates that became effective January 1, 2018, as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The lower federal income tax rates had a positive impact of approximately $0.26 per share for the year ended December 31, 2018.

Net income for 2018 was also impacted by the five-branch acquisition completed in May 2018 and the First Security acquisition completed in October 2018. The year ended December 31, 2018 included acquisition-related expenses of approximately $4,592,000 (approximately $3,526,000 or $0.15 per share, on an after tax basis) for the aforementioned acquisitions.

Net income for the year ended December 31, ~~2017~~2020 totaled ~~$40,676,000~~$62,210,000, or ~~$1.77~~$2.34 per share, an increase of ~~$5,492,000,~~$2,988,000, or approximately ~~13%~~2% on a per share basis, from the year ended December 31, ~~2016~~2019 net income of ~~$35,184,000~~$59,222,000, or ~~$1.57~~$2.29 per share. The 2017 results of operations were 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, or approximately $0.10 per share during 2017.

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 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 $14,701,000, or 15%, for~~During the year ended December 31, ~~2018~~2021, net interest income totaled $160,830,000, representing an increase of $5,587,000, or 4%, from the year ended December 31, 2020 net interest income of $155,243,000. The increase in net interest income during 2021 compared with ~~2017.~~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 discounts on acquired loans, and a decreased level of interest expense on interest bearing liabilities related to lower interest rates.

During the year ended December 31, 2020, net interest income totaled $155,243,000, representing an increase of $10,018,000, or 7%, from the year ended December 31, 2019 net interest income of $145,225,000. The increased level of net interest income during ~~2018~~2020 compared with ~~2017~~2019 was ~~driven primarily by~~largely attributable to a higher level of average earning assets resulting from ~~organic loan~~the acquisition of Citizens First on July 1, 2019, significant deposit growth during 2020 and ~~merger and acquisition activity completed during 2018.~~participation in the PPP. In addition, the recognition of fees related to PPP loans also contributed to higher levels of net interest income, but was partially mitigated by a lower level of accretion of discounts on acquired loans.

The net interest margin represents tax-equivalent net interest income expressed as a percentage of average earning assets. The ~~tax equivalent~~ net interest margin for the year ended December 31, ~~2018~~2021 was ~~3.75%~~3.31% compared to ~~3.76%~~3.63% in ~~2017. The tax equivalent yield on~~2020 and 3.92% in 2019. Historically low market interest rates impacted the Company's net interest margin in both 2021 and 2020. Lower market interest rates have negatively impacted earning ~~assets totaled 4.36%~~asset yields during ~~2018 compared to 4.16% in 2017, while the~~2021 and 2020, with these declines being partially mitigated by a lower cost of ~~funds (expressed~~funds. Also contributing to the lower net interest margin has been excess liquidity the Company has carried on the balance sheet that resulted from significant deposit growth during 2021 and 2020, PPP loan forgiveness and somewhat muted loan growth.

The Company’s net interest margin in 2021 and 2020 has been impacted by fees recognized as a ~~percentage~~part of ~~average earning assets)~~the PPP and impacted in all periods presented by the accretion of discounts on acquired loans. Fees recognized on PPP loans through net interest income totaled ~~0.61%~~$12,196,000 during ~~2018 compared~~2021 and $7,978,000 during 2020. The fees recognized related to ~~0.40%~~the PPP contributed approximately 24 basis points to the net interest margin in ~~2017. The increased yield on earning assets~~2021 and ~~the increase~~18 basis points in ~~the cost of funds during 2018 were both impacted by increased short-term market interest rates.~~

2020. Accretion of ~~loan~~ discounts on acquired loans contributed approximately 87 basis points to the net interest margin during ~~2018 compared with 9~~2021, 13 basis points during 2020 and 23 basis points in ~~2017. The lower federal income tax rates during 2018 had an approximately 9 basis point negative impact on the Company's net interest margin and earning asset yield.~~

Net interest income increased $5,005,000, or 5%, for the year ended December 31, 2017 compared with 2016. The increased level of net interest income during 2017 compared with 2016 was driven primarily by a higher level of earning assets resulting from organic loan growth and the acquisition of River Valley Bancorp effective March 1, 2016.

The tax equivalent net interest margin was 3.76% during 2017 compared to 3.75% during 2016. The tax equivalent yield on earning assets totaled 4.16% during 2017 compared to 4.07% in 2016, while the cost of funds totaled 0.40% during 2017 compared to 0.32% in 2016.

The modest increase in the net interest margin during 2017 compared with 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.2019. Accretion of ~~loan~~ discounts on acquired loans ~~contributed approximately 9 basis points to the net interest margin~~totaled $3,476,000 during ~~2017~~2021, $5,769,000 during 2020 and ~~13 basis points in 2016. The Company's cost of funds increased approximately 8 basis points~~$8,559,000 during ~~2017 compared with 2016. The higher cost of funds was largely attributable to an increase in short-term market interest rates.~~2019.

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 21% was used for ~~2018 and an effective tax rate of 35% was used for 2017 and 2016~~ ^{all periods presented (1)}.

Average Balance Sheet

(Tax-equivalent basis, dollars in thousands)


	Twelve Months Ended December 31, 2018							Twelve Months Ended December 31, 2017							Twelve Months Ended December 31, 2016								Twelve Months Ended December 31, 2021						Twelve Months Ended December 31, 2020						Twelve Months Ended December 31, 2019
	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	$	18,587		$	308	1.65	%	$	12,405		$	134	1.09	%	$	22,180		$	74	0.33	%	Federal Funds Sold and Other Short-term Investments	$	390,362	$	488	0.12	%	$	209,012	$	382	0.18	%	$	27,166	$	522	1.92	%

Securities:																						Securities:
Taxable	488,291			12,398		2.54	%	482,331			10,898		2.26	%	484,744			9,638		1.99	%	Taxable	824,204		12,962		1.57	%	555,961		10,447		1.88	%	546,191		13,910		2.55	%
Non-taxable	280,070			11,341		4.05	%	262,654			12,697		4.83	%	238,300			11,464		4.81	%	Non-taxable	728,765		22,504		3.09	%	420,294		15,040		3.58	%	305,266		12,096		3.96	%
Total Loans and Leases ⁽²⁾	2,339,089			112,437		4.81	%	2,036,717			92,449		4.54	%	1,904,779			86,755		4.55	%
Total Loans and Leases ⁽²⁾																						Total Loans and Leases ⁽²⁾	3,072,302		139,378		4.54	%	3,185,542		151,946		4.77	%	2,899,939		152,836		5.27	%

TOTAL INTEREST EARNING ASSETS	3,126,037			136,484		4.36	%	2,794,107			116,178		4.16	%	2,650,003			107,931		4.07	%	TOTAL INTEREST EARNING ASSETS	5,015,633		175,332		3.50	%	4,370,809		177,815		4.07	%	3,778,562		179,364		4.75	%

Other Assets	270,022							223,939							206,213							Other Assets	397,147						398,102						366,171
Less: Allowance for Loan Losses	(15,650		)					(15,351		)					(15,120		)
Less: Allowance for Credit Losses																						Less: Allowance for Credit Losses	(43,073)						(39,905)						(16,198)

TOTAL ASSETS	$	3,380,409						$	3,002,695						$	2,841,096						TOTAL ASSETS	$	5,369,707					$	4,729,006					$	4,128,535

LIABILITIES AND SHAREHOLDERS’ EQUITY																						LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing Demand Deposits	$	969,922		$	5,755	0.59	%	$	836,262		$	2,893	0.35	%	$	755,775		$	1,745	0.23	%	Interest-bearing Demand Deposits	$	1,595,579	$	1,789	0.11	%	$	1,309,998	$	4,089	0.31	%	$	1,128,457	$	8,643	0.77	%
Savings Deposits and Money Market Accounts	646,636			1,954		0.30	%	606,212			1,078		0.18	%	566,818			770		0.14	%	Savings Deposits and Money Market Accounts	1,106,692		885		0.08	%	912,183		1,885		0.21	%	733,160		3,406		0.46	%
Time Deposits	459,289			5,916		1.29	%	380,316			3,123		0.82	%	414,100			2,672		0.65	%	Time Deposits	412,935		2,281		0.55	%	567,932		7,722		1.36	%	670,802		11,756		1.75	%
FHLB Advances and Other Borrowings	257,737			5,514		2.14	%	233,315			4,027		1.73	%	242,483			3,274		1.35	%	FHLB Advances and Other Borrowings	186,750		4,594		2.46	%	221,832		5,430		2.45	%	279,675		7,444		2.66	%

TOTAL INTEREST-BEARING LIABILITIES	2,333,584			19,139		0.82	%	2,056,105			11,121		0.54	%	1,979,176			8,461		0.43	%	TOTAL INTEREST-BEARING LIABILITIES	3,301,956		9,549		0.29	%	3,011,945		19,126		0.63	%	2,812,094		31,249		1.11	%

Demand Deposit Accounts	640,865							572,356							513,199							Demand Deposit Accounts	1,378,647						1,070,284						761,515
Other Liabilities	20,484							23,321							27,201							Other Liabilities	46,170						51,996						35,916
TOTAL LIABILITIES	2,994,933							2,651,782							2,519,576							TOTAL LIABILITIES	4,726,773						4,134,225						3,609,525

Shareholders’ Equity	385,476							350,913							321,520							Shareholders’ Equity	642,934						594,781						519,010

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,380,409						$	3,002,695						$	2,841,096						TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,369,707					$	4,729,006					$	4,128,535

COST OF FUNDS						0.61	%						0.40	%						0.32	%	COST OF FUNDS					0.19	%					0.44	%					0.83	%

NET INTEREST INCOME				$	117,345						$	105,057						$	99,470			NET INTEREST INCOME			$	165,783					$	158,689					$	148,115

NET INTEREST MARGIN						3.75	%						3.76	%						3.75	%	NET INTEREST MARGIN					3.31	%					3.63	%					3.92	%


⁽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 $3,151, $3,216, and $4,283 for 2018, 2017 and 2016, 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 $15,761, $15,003, and $8,397 for 2021, 2020 and 2019, respectively.

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)


	2018 compared to 2017 Increase / (Decrease) Due to ⁽¹⁾								2017 compared to 2016 Increase / (Decrease) Due to ⁽¹⁾									2021 compared to 2020 Increase / (Decrease) Due to ⁽¹⁾						2020 compared to 2019 Increase / (Decrease) Due to ⁽¹⁾
	Volume		Rate			Net			Volume			Rate			Net			Volume		Rate		Net		Volume		Rate		Net
Interest Income:																	Interest Income:
Federal Funds Sold and Other																	Federal Funds Sold and Other
Short-term Investments	$	86	$	88		$	174		$	(45	)	$	105		$	60	Short-term Investments	$	254	$	(148)	$	106	$	708	$	(848)	$	(140)
Taxable Securities	136		1,365			1,501			(48		)	1,308			1,260		Taxable Securities	4,426		(1,911)		2,515		244		(3,707)		(3,463)
Non-taxable Securities	802		(2,159		)	(1,357		)	1,177			56			1,233		Non-taxable Securities	9,764		(2,300)		7,464		4,208		(1,264)		2,944
Loans and Leases	14,304		5,684			19,988			5,990			(296		)	5,694		Loans and Leases	(5,290)		(7,278)		(12,568)		14,325		(15,215)		(890)
Total Interest Income	15,328		4,978			20,306			7,074			1,173			8,247		Total Interest Income	9,154		(11,637)		(2,483)		19,485		(21,034)		(1,549)

Interest Expense:																	Interest Expense:
Savings and Interest-bearing Demand	529		3,209			3,738			245			1,211			1,456		Savings and Interest-bearing Demand	1,083		(4,383)		(3,300)		1,994		(8,069)		(6,075)
Time Deposits	747		2,046			2,793			(231		)	682			451		Time Deposits	(1,714)		(3,727)		(5,441)		(1,639)		(2,395)		(4,034)
FHLB Advances and Other Borrowings	452		1,035			1,487			(128		)	881			753		FHLB Advances and Other Borrowings	(863)		27		(836)		(1,451)		(563)		(2,014)
Total Interest Expense	1,728		6,290			8,018			(114		)	2,774			2,660		Total Interest Expense	(1,494)		(8,083)		(9,577)		(1,096)		(11,027)		(12,123)

Net Interest Income	$	13,600	$	(1,312	)	$	12,288		$	7,188		$	(1,601	)	$	5,587	Net Interest Income	$	10,648	$	(3,554)	$	7,094	$	20,581	$	(10,007)	$	10,574


⁽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 USES~~under 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 ~~LOAN~~CREDIT LOSSES

The Company provides for ~~loan~~credit losses through regular provisions to the allowance for ~~loan~~credit losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations ~~required on~~of the ~~allowance~~allowance. During 2021, the Company recorded a negative provision for ~~loan losses. Provisions~~credit losses of $6,500,000 compared with a provision for credit losses of $17,550,000 during 2020 and a $5,325,000 provision for loan losses ~~totaled $2,070,000, $1,750,000, and $1,200,000 in 2018, 2017, and 2016, respectively.~~during 2019 under the incurred loss model.

During ~~2018,~~2021, the negative provision for ~~loan loss~~credit losses represented approximately 921 basis points of average loans. The negative provision for credit losses in 2021 was largely due to declines in certain adversely criticized assets and improvement in certain pandemic-related stressed sectors for which the Company had provided significant levels of allowance for credit losses during 2020. The Company realized net charge-offs of $3,342,000 or 11 basis points of average loans ~~on an annualized basis.~~during 2021.

During 2020, the provision for credit losses represented approximately 55 basis points of average loans. The increased level of provision during ~~2018~~2020 compared with 2019 was ~~largely~~primarily due to the developments related to ~~an increased level of net charge-offs during 2018 compared with 2017.~~the COVID-19 pandemic and the resulting impact on the economic assumptions used in the Company's CECL model. The Company realized net charge-offs of ~~$1,941,000~~$2,622,000 or 8 basis points of average loans outstanding during 2018. The increase in net charge-offs during 2018 was primarily attributable to a partial charge-off on a single commercial lending relationship in the first quarter of 2018 that was downgraded and largely reserved for during the fourth quarter of 2017.2020.

~~During 2017, the~~The provision for ~~loan loss represented approximately 9 basis points of average loans on an annualized basis. The increased level of provision~~credit losses made during ~~2017~~2021 was largely related to an increased level of allowance for loan loss that has been allocated to the Company's commercial and industrial loan portfolio. The Company realized net charge-offs of $864,000 or 4 basis points of average loans outstanding during 2017.

The Company’s allowance for loan losses represented 0.58% of total loans at year-end 2018 compared with 0.73% of total loans at year-end 2017. 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. The Company’s allowance for loan losses represented 0.77% of total non-acquired loans at year-end 2018 compared with 0.83% of total non-acquired loans at year-end 2017.

~~Provisions for loan losses in all periods were~~ made at ~~levels~~a level deemed necessary by management to absorb ~~estimated, probable incurred~~expected losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for ~~loan~~credit losses is completed quarterly by management, the results of which are used to determine ~~provisions~~provision for ~~loan~~credit 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 ~~ESTIMATES~~ESTIMATES” and “RISK MANAGEMENT - Lending and Loan Administration” for further discussion of the provision and allowance for ~~loan~~credit losses.

NON-INTEREST INCOME

During the year ended December 31, ~~2018,~~2021, non-interest income increased ~~$5,216,000,~~$4,988,000, or ~~16%~~9%, from the year ended December 31, ~~2017.~~2020. During the year ended December 31, ~~2017,~~2020, non-interest income ~~declined less than 1%~~increased $8,973,000, or 20%, from the year ended December 31, ~~2016.~~2019.

Non-interest Income
(dollars in thousands)
Years Ended December 31,
% Change From
Prior Year
2018 2017 2016 2018 2017
Trust and Investment Product Fees $ 6,680
$ 5,272
$ 4,644
27 % 14 %
Service Charges on Deposit Accounts 7,044
6,178
5,973
14
3
Insurance Revenues 8,330
7,979
7,741
4
3
Company Owned Life Insurance 1,243
1,341
987
(7 ) 36
Interchange Fee Income 7,278
4,567
3,627
59
26
Other Operating Income 2,785
2,641
3,703
5
(29 )
Subtotal 33,360
27,978
26,675
19
5
Net Gains on Sales of Loans 3,004
3,280
3,359
(8 ) (2 )
Net Gains on Securities 706
596
1,979
18
(70 )
TOTAL NON-INTEREST INCOME $ 37,070
$ 31,854
$ 32,013
16

n/m ⁽¹⁾


⁽¹⁾	~~n/m = not meaningful~~


Non-interest Income (dollars in thousands)	Years Ended December 31,						% Change From Prior Year
	2021		2020		2019		2020		2019
Trust and Investment Product Fees	$	10,321	$	8,005	$	7,278	29	%	10	%
Service Charges on Deposit Accounts	7,723		7,334		8,718		5		(16)
Insurance Revenues	9,268		8,922		8,940		4		—
Company Owned Life Insurance	1,529		2,307		2,005		(34)		15
Interchange Fee Income	13,116		10,529		9,450		25		11
Other Operating Income	6,991		3,388		3,229		106		5
Subtotal	48,948		40,485		39,620		21		2
Net Gains on Sales of Loans	8,267		9,908		4,633		(17)		114
Net Gains on Securities	2,247		4,081		1,248		(45)		227
TOTAL NON-INTEREST INCOME	$	59,462	$	54,474	$	45,501	9		20

Trust and investment product fees increased ~~$1,408,000,~~$2,316,000, or ~~27%~~29%, during ~~2018~~2021 compared with ~~2017.~~2020. Trust and investment product fees increased ~~$628,000,~~$727,000, or ~~14%~~10%, during ~~2017~~2020 compared with ~~2016.~~2019. The increase in both years was ~~primarily~~largely attributable to ~~fees generated from~~ increased assets under management in the Company's wealth management group.

Service charges on deposit accounts increased ~~$866,000,~~$389,000, or ~~14%~~5%, during ~~2018~~2021 compared with ~~2017. The increase during 2018 compared with 2017 was positively impacted by the acquisition activity completed during 2018.~~2020. Service charges on deposit accounts ~~increased $205,000,~~declined $1,384,000, or 3%16%, during ~~2017~~2020 compared with ~~2016.~~2019. The decline during 2020 compared with 2019 was largely related to the economic impacts of the COVID-19 pandemic and resulting change in deposit customer activity, partially mitigated by the acquisition of Citizens First.

~~Insurance revenues increased $351,000,~~Company owned life insurance revenue declined $778,000, or 4%34%, during ~~2018~~2021 compared with ~~2017. The increase during 2018 was primarily due to~~2020. Company owned life insurance revenue increased ~~contingency revenue. Insurance revenues increased $238,000,~~$302,000, or 3%15%, 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. Contingency revenue totaled $1,218,000 in 20182020 compared with ~~$992,000~~2019. The variance in ~~2017 and $1,114,000 in 2016. Contingency revenue is reflective of claims and loss experience with~~both periods was largely related to death benefits received from life insurance ~~carriers that the Company represents through its property and casualty insurance agency.~~policies during 2020.

Interchange fees increased ~~$2,711,000,~~$2,587,000, or ~~59%~~25%, during ~~2018~~2021 compared to ~~2017.~~2020. The increased level of fees during 2021 compared with 2020 was due to increased economic activity and increased card utilization by customers. Interchange fees increased $1,079,000, or 11%, during 2020 compared to 2019. The increase during ~~2018~~2020 compared with 2019 was largely attributable to the acquisition of Citizens First and increased card utilization by customers, the acquisition activity completed during 2018 and to the adoption of the new revenue recognition standard effective January 1, 2018. While the adoption of the standard did not have a significant impact on the Company's financial results, the recording of revenue gross versus net of certain expenses, in accordance with the standard, did result in the reclassification of some expenses associated with the interchange fee revenue during 2018. The reclassification of this expense for 2018 totaled $1,244,000. Interchange fee income increased $940,000, or 26%, during 2017 compared with 2016. The increase was attributable to increased card utilization by customers and a full year of operations from the River Vally Bancorp acquisition that closed during the first quarter of 2016.customers.

Other operating income increased ~~$144,000,~~$3,603,000, or 5%106%, during ~~2018~~2021 compared with ~~2017. Other operating income declined $1,062,000, or 29%,~~2020. The increase during ~~2017 compared with 2016. The decline~~2021 was largely attributable to ~~decreased fees~~the net gain of approximately $1.4 million related to the sale of the two branch office locations in Lexington, Kentucky and approximately $863,000 of fair value adjustments and higher transaction fees associated with interest rate swap transactions with loan customers. Also contributing to the increase in 2021, was the donation of a building and accompanying real estate to a local municipality in one of the Company’s market areas. The estimated fair value of the property was approximately $575,000 greater than the book value which increased other operating income. A corresponding contribution expense of $800,000 was recognized in advertising and promotion expense of the Company’s income statement related to the donation of the building and real estate.

Net gains on sales of loans declined ~~$276,000,~~$1,641,000, or 8%17%, during ~~2018~~2021 compared with ~~2017.~~the 2020. The decline in ~~the net gain~~2021 compared with 2020 was generally attributable to a lower level of fair value adjustments on ~~sales~~commitments to sell loans and a modestly lower level of loans ~~during 2018 compared with 2017 was largely attributable to lower~~sold, which were partially offset by higher pricing levels on loans sold. Net gains on sales of loans ~~declined $79,000,~~increased $5,275,000, or 2%114%, during ~~2017~~2020 compared with ~~2016. Loan sales for 2018, 2017, and 2016 totaled $135.3 million, $130.3 million, and $133.6 million, respectively.~~

~~During 2018,~~2019. The increase in the ~~Company realized~~ net gains on ~~the sale~~sales of loans during 2020 compared with 2019 was generally attributable to a higher sales volume and higher pricing levels on loans sold. Loan sales totaled $266.0 million during 2021, $316.4 million during 2020 and $185.4 million during 2019.

The Company realized $2,247,000 in gains on sales of securities during 2021 compared with $4,081,000 during 2020 and $1,248,000 during 2019. The sales of ~~$706,000~~securities in all periods were done as part of shifts in the allocations within the securities portfolio.

NON-INTEREST EXPENSE

During 2021, non-interest expense totaled $124,007,000, an increase of $6,884,000, or 6%, compared with 2020. The year ended December 31, 2021 included non-recurring expenses totaling $4,100,000 related to the ~~sale of approximately $90.3 million of securities. During 2017, the Company realized net gains on the sale of securities of $596,000~~Company’s previously discussed operating optimization plan, $3,050,000 related to a previously disclosed litigation reserve, and $735,000 of transaction-related expenses for the ~~sale~~acquisition of

~~approximately $48.3 million~~ Citizens Union Bancorp of ~~securities.~~Shelbyville, Inc., which was completed on January 1, 2022. During ~~2016, the Company realized net gains on the sale of securities of $1,979,000 related to the sale of approximately $163.1 million of securities.~~

~~NON-INTEREST EXPENSE~~

~~During 2018,~~2020, non-interest expense ~~increased~~totaled $117,123,000, an increase of ~~$15,750,000,~~$2,961,000, or ~~20%~~3%, compared with 2017. 2018 included operating expenses related to the branch acquisition completed during the second quarter of 2018 as well as operating expenses related to the bank acquisition completed early in the fourth quarter of 2018. 2018 also included acquisition-related expenses of a non-recurring nature of approximately $4,592,000 related to the aforementioned merger and acquisition activity. During 2017, non-interest expense increased $1,216,000, or 2%, compared with 2016.2019.

Non-interest Expense
(dollars in thousands)
Years Ended December 31,
% Change From
Prior Year
2018 2017 2016 2018 2017
Salaries and Employee Benefits $ 51,306
$ 46,642
$ 43,961
10 % 6 %
Occupancy, Furniture and Equipment Expense 10,877
9,230
8,558
18
8
FDIC Premiums 1,033
954
1,151
8
(17 )
Data Processing Fees 6,942
4,276
5,686
62
(25 )
Professional Fees 5,362
2,817
3,672
90
(23 )
Advertising and Promotion 3,492
3,543
2,657
(1 ) 33
Intangible Amortization 1,752
942
1,062
86
(11 )
Other Operating Expenses 12,789
9,399
9,840
36
(4 )
TOTAL NON-INTEREST EXPENSE $ 93,553
$ 77,803
$ 76,587
20
2


Non-interest Expense (dollars in thousands)	Years Ended December 31,						% Change From Prior Year
	2021		2020		2019		2020		2019
Salaries and Employee Benefits	$	68,570	$	68,112	$	63,885	1	%	7	%
Occupancy, Furniture and Equipment Expense	14,831		14,024		13,776		6		2
FDIC Premiums	1,419		740		533		92		39
Data Processing Fees	7,611		6,889		7,927		10		(13)
Professional Fees	5,009		3,998		4,674		25		(14)
Advertising and Promotion	4,197		3,589		4,230		17		(15)
Intangible Amortization	2,731		3,539		3,721		(23)		(5)
Other Operating Expenses	19,639		16,232		15,416		21		5
TOTAL NON-INTEREST EXPENSE	$	124,007	$	117,123	$	114,162	6		3

Salaries and benefits were relatively stable during 2021 compared with 2020 increasing by $458,000, or less than 1%. Salaries and benefits increased ~~$4,664,000,~~$4,227,000, or ~~10%~~7%, during ~~2018~~2020 compared with ~~2017.~~2019. The increase in salaries and benefits during ~~2018~~2020 compared with ~~2017~~2019 was ~~primarily~~largely attributable to an increased number of full-time equivalent employees ~~due in part to the acquisition transactions~~ during 2018. Salaries and benefits increased $2,681,000, or 6%, during 2017 compared with the 2016. The increase in 2017 compared with 2016 was primarily attributable to acquisition activity during 2016 combined with an increased number of full-time equivalent employees and higher levels of employee benefit costs including health insurance costs.2020.

Occupancy, furniture and equipment expense increased ~~$1,647,000,~~$807,000, or ~~18%~~6%, during ~~2018~~2021 compared with ~~2017.~~2020. The increase during ~~2018 compared to 2017~~2021 was ~~primarily~~ due to lease termination costs associated with the Company’s operating ~~costs related to the acquisition activity~~optimization plan that totaled approximately $1,411,000 during ~~2018 as well as other facilities the Company has placed into service over the past several quarters.~~2021. Occupancy, furniture and equipment expense increased ~~$672,000,~~$248,000, or 8%2%, ~~in 2017~~during 2020 compared with ~~2016. This~~2019.

FDIC premiums increased $679,000, or 92%, during 2021 compared with 2020 and increased $207,000, or 39%, during 2020 compared with 2019. The increase during 2021 compared with 2020 was ~~largely~~ related to ~~capital investments into~~credits received from the ~~Company's branch network~~FDIC during 2020. There were no credits received during 2021 and a lower level of credits in 2020 compared with 2019. The credits received in 2020 and prior years were due to the ~~acquisition activity during 2016.~~reserve ratio of the deposit insurance fund exceeding the FDIC targeted levels.

Data processing fees increased ~~$2,666,000,~~$722,000, or ~~62%~~10%, during ~~2018~~2021 compared ~~to 2017.~~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. Data processing fees declined $1,038,000, or 13%, during 2020 compared with 2019. The decline in data processing fees during 2020 compared with 2019 was largely due to acquisition related costs during 2019.

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. Professional fees declined $676,000, or 14%, during 2020 compared with 2019. The decline in professional fees during 2020 compared with 2019 was largely related to ~~costs associated with~~higher levels of merger and acquisition activities which totaled approximately $2,002,000 during 2018. 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 acquisition completed during 2016.~~

~~Professional fees increased $2,545,000, or 90%, during 2018 compared with 2017. The increase was primarily due to~~ professional fees ~~related to merger and acquisition activities which totaled $1,738,000 during 2018. Professional fees during 2018 also included approximately $930,000~~ in fees related to certain contract negotiations not related to the acquisition activity. Professional fees declined $855,000, or 23%, in 2017 compared with 2016. The decline during 2017 compared with 2016 was attributable to expenses totaling $770,000 associated with the acquisition completed during 2016.2019.

Advertising and promotion ~~declined $51,000,~~expense increased $608,000, or 1%17%, ~~in 2018~~during 2021 compared with ~~2017. Advertising and promotion increased $886,000, or 33%, in 2017 compared with 2016.~~2020. The ~~primary driver of the~~ increase ~~in advertising and promotion~~ during ~~2017~~2021 was ~~a contribution expense of $773,000 related~~attributable to the donation of a ~~former branch facility~~building and accompanying real estate to a local municipality in one of the ~~Company's~~Company’s market areas.

~~Intangible amortization increased $810,000,~~ The estimated fair value of the property was approximately $800,000 which resulted in the increase in the contribution expense during 2021. Advertising and promotion expense declined $641,000, or ~~86%~~15%, during ~~2018~~2020 compared with ~~2017.~~2019. The ~~increase in intangible amortization~~decline during 2020 was largely attributable to lesser marketing and sponsorship expenditures impacted by the ~~previously discussed acquisition transactions completed during 2018. Intangible amortization decreased $120,000, or 11%, during 2017 compared with 2016.~~COVID-19 pandemic.

Other operating expenses increased ~~$3,390,000,~~$3,407,000, or ~~36%~~21%, during ~~2018~~2021 compared with ~~2017.~~2020 and increased $816,000, or 5% during 2020 compared with 2019. The increase during ~~2018~~2021 was ~~largely~~primarily attributable to the ~~operating~~establishment of a settlement reserve for a lawsuit challenging the Company’s checking account practices associated with its assessment of overdraft fees for

certain debit card transactions. Like many other financial institutions, the Company has been the subject of an overdraft fee related putative class action lawsuit since the third quarter of 2020. This type of litigation is often time consuming and expensive to defend. In order to avoid further costs associated with this type of litigation, the Company determined it was in its best interest to pursue a settlement of this lawsuit during the third quarter of 2021 and therefore accrued a $3,050,000 settlement reserve. On October 21, 2021, the Company executed a settlement agreement for payment of that amount in connection with this lawsuit which remains subject to court approval. In addition, the Company recognized $1,276,000 of charges related to ~~the acquisitions completed in 2018 and to the adoption~~various fixed asset write-downs as a part of the ~~revenue recognition~~Company’s operating optimization plans announced in March 2021.

standard effective January 1, 2018 and the reclassification of expenses as previously discussed. The reclassification of this expense for 2018 totaled $1,244,000. Other operating expenses declined $441,000, or 4%, during 2017 compared with 2016.

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 ~~17.0%~~18.1%, ~~22.1%~~17.1%, and ~~28.4%~~16.9%, respectively, in ~~2018, 2017,~~2021, 2020, and ~~2016.~~2019. 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.

The Company's effective tax rate and provision for income tax was positively impacted during 2018 by the reduction of federal income tax rates from a statutory rate of 35% to 21% effective January 1, 2018 related to the enactment of the Tax Act during the fourth quarter of 2017. As a result of the enactment of the Tax Act, the Company revalued its its deferred tax assets and deferred tax liabilities during the fourth quarter of 2017 which resulted in a net tax benefit of $2,284,000 and consequently impacted the effective tax rate for 2017 as well.

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, ~~2018,~~2021, shareholders’ equity increased by ~~$94.1~~$43.8 million to ~~$458.6~~$668.5 million compared with ~~$364.5~~$624.7 million at year-end ~~2017.~~2020. The increase in shareholders' equity was ~~largely~~ attributable to increased retained earnings of $61.9 million due to net income of $84.1 million during 2021 which was partially offset by the ~~issuance~~payment of $22.2 million in shareholder dividends. Partially mitigating the increase in retained earnings was a decline in accumulated other comprehensive income of $19.9 million related to the decrease in value of the Company's ~~common shares in~~available-for-sale securities portfolio.

the acquisition of First Security. Approximately 1,988,000 shares were issued to First Security shareholders resulting in an increase to shareholders' equity of $64.7 million. The increase in shareholders' equity was also attributable to an increase of $32.5 million in retained earnings.

Shareholders’ equity represented ~~11.7%~~11.9% of total assets at December 31, ~~2018~~2021 and ~~11.6%~~12.6% of total assets at December 31, ~~2017.~~2020. Shareholders’ equity included ~~$113.6~~$127.6 million of goodwill and other intangible assets at December 31, ~~2018~~2021 compared to ~~$56.2~~$130.9 million of goodwill and other intangible assets at December 31, ~~2017.~~2020.

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.

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.

AsThe 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 new~~Dodd-Frank Act (the “Basel III Rules”). The Basel III ~~regulatory capital framework. The adoption~~Rules 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 Common~~ratio 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 was phased in from 0.00% in 2015 to 2.50% effective January 1, 2019. For December 31, 2018, the capital conservation buffer was 1.875%.~~

At December 31, ~~2018,~~2021, 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's~~Bank’s capital levels met the necessary requirements to be considered well-capitalized.

The table below presents the Company’s consolidated and the subsidiary bank's capital ratios under regulatory guidelines:


	12/31/2021 Ratio		12/31/2020 Ratio		Minimum for Capital Adequacy Purposes ⁽¹⁾		Well-Capitalized Guidelines
Total Capital (to Risk Weighted Assets)
Consolidated	16.20	%	15.86	%	8.00	%	N/A
Bank	13.36		14.00		8.00		10.00	%
Tier 1 (Core) Capital (to Risk Weighted Assets)
Consolidated	14.61	%	13.93	%	6.00	%	N/A
Bank	12.83		13.21		6.00		8.00	%
Common Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets)
Consolidated	14.18	%	13.48	%	4.50	%	N/A
Bank	12.83		13.21		4.50		6.50	%
Tier 1 Capital (to Average Assets)
Consolidated	10.10	%	10.07	%	4.00	%	N/A
Bank	8.88		9.56		4.00		5.00	%

12/31/2018
Ratio

12/31/2017
Ratio

Minimum for Capital Adequacy Purposes ⁽¹⁾
Well-Capitalized Guidelines
Total Capital (to Risk Weighted Assets)
Consolidated 12.36 % 13.62 % 8.00 % N/A
Bank 12.37
12.29
8.00
10.00 %
Tier 1 (Core) Capital (to Risk Weighted Assets)
Consolidated 11.85 % 12.99 % 6.00 % N/A
Bank 11.86
11.66
6.00
8.00 %
Common Equity Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets)
Consolidated 11.48 % 12.55 % 4.50 % N/A
Bank 11.86
11.66
4.50
6.50 %
Tier 1 Capital (to Average Assets)
Consolidated 9.75 % 10.71 % 4.00 % N/A
Bank 9.78
9.63
4.00
5.00 %

⁽¹⁾Excludes capital conservation buffer.

~~Under~~In December 2018, the ~~the~~federal banking regulators approved a final ~~rules provided for by Basel III, accumulated other comprehensive income ("AOCI") was~~rule to ~~be included in a~~address 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 banks~~rule provides banking organizations the option to ~~make~~phase in over a ~~one-time election not to include~~three-year period the ~~additional components of AOCI in~~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, maintains the three-year transition option in the previous rule and ~~instead use~~provides banks the ~~existing treatment under~~option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the ~~general risk-based~~incurred 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.

USES OF FUNDS

LOANS

December 31, ~~2018~~2021 total loans declined $84.1 million, or 3%, compared with December 31, 2020. The decline in total loans at December 31, 2021 compared to year-end 2020 was primarily due to a decrease in PPP loans. PPP loans, net of deferred fees, totaled $19.5 million ($20.3 million principal balance and $0.8 million of remaining net deferred fees) at December 31, 2021 compared with $182.0 million at December 31, 2020.

Excluding PPP loans, total loans increased ~~$586.7~~$86.8 million, or 3%, at December 31, 2021 compared with year-end ~~2017. As of December 31, 2018, outstanding~~2020. Commercial and industrial loans ~~from the First Security transaction, which closed in October 2018, totaled $374.5 million. At December 31, 2018, the~~increased approximately $18.5 million, or 4%, during 2021 compared with year-end 2020, commercial real estate loans ~~acquired as a part of the branch acquisition, which closed in May 2018, totaled $106.0 million.~~

~~Total loans from the Company's existing branch network, excluding the acquired First Security loans and the loans acquired in the branch acquisition, grew by approximately $106.2~~increased $69.5 million, or 5%, ~~at year-end 2018~~and agricultural loans declined $17.9 million, or 5% (excluding PPP loans). At December 31, 2021, as compared with year-end ~~2017 total loans. Included in this 2018 loan growth, excluding First Security and the branch acquisition, was an increase of approximately $16.1~~2020, retail loans increased $16.7 million, or 3%, in commercial and industrial loans, an increase of $56.8 million, or 6%, in commercial real estate loans, an increase of $22.0 million, or 7%, in agricultural loans, and an increase of $11.3 million, or 3%, in retail loans. The level of organic loan growth in the last half of 2018 from the Company’s existing branch network was impacted by an increased level of large balance pay-offs (approximately $52.0 million), which were largely driven by borrowers’ sales of individual properties and businesses..

December 31, ~~2017~~2020 total loans ~~outstanding~~ increased ~~$151.6~~$10.0 million, or 8%less than 1%, ~~from year-end 2016.~~compared with December 31, 2019. The increase in loans during ~~2017~~2020 compared with year-end 2019 was ~~from virtually all categories with~~primarily the ~~exception of residential mortgage~~result in the Company’s participation in the PPP. Excluding the $182.0 million in PPP loans ~~which experienced a modest decline. This growth came from across the Company's entire Southern Indiana market area. Commercial and industrial~~at December 31, 2020, total loans ~~increased $29.3~~declined by $172.0 million, or 6%, during 2020 compared with year-end 2019. The decline in total loans, excluding the PPP loans, was impacted by elevated pay-offs within the commercial real estate ~~loans increased $70.6 million, or 8%, agricultural loans increased $30.1 million, or 10%, consumer loans increased $26.2 million, or 14%,~~loan portfolio, reduced line utilization within the commercial loan portfolio partially attributable to the PPP loan originations during 2020, and continued pay-downs in the Company's residential ~~mortgage loans decreased $4.6 million, or 2%.~~and home equity loan portfolios related to a low interest rate environment.

The composition of the loan portfolio has remained relatively stable and diversified over the past several years, including ~~2018.~~2021. The portfolio is most heavily concentrated in commercial real estate loans at ~~44%~~51% of the ~~portfolio. The Company’s exposure to non-owner occupied~~portfolio 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 2018.~~12% 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 5% of the total loan portfolio.~~


Loan Portfolio	December 31,															Loan Portfolio	December 31,
(dollars in thousands)	2018			2017			2016			2015			2014			(dollars in thousands)	2021			2020			2019			2018			2017
Commercial and Industrial Loans and Leases	$	543,761		$	486,668		$	457,372		$	418,154		$	380,079		Commercial and Industrial Loans and Leases	$	548,350		$	694,437		$	589,758		$	543,761		$	486,668
Commercial Real Estate Loans	1,208,646			926,729			856,094			618,788			583,086			Commercial Real Estate Loans	1,530,677			1,467,397			1,495,862			1,208,646			926,729
Agricultural Loans	365,208			333,227			303,128			246,886			216,774			Agricultural Loans	358,150			376,186			384,526			365,208			333,227
Home Equity and Consumer Loans	285,534			219,662			193,520			147,931			134,847			Home Equity and Consumer Loans	307,184			297,702			306,972			285,534			219,662
Residential Mortgage Loans	328,592			178,733			183,290			136,316			137,204			Residential Mortgage Loans	263,565			256,276			304,855			328,592			178,733
Total Loans	2,731,741			2,145,019			1,993,404			1,568,075			1,451,990			Total Loans	3,007,926			3,091,998			3,081,973			2,731,741			2,145,019
Less: Unearned Income	(3,682		)	(3,381		)	(3,449		)	(3,728		)	(4,008		)	Less: Unearned Income	(3,662)			(3,926)			(4,882)			(3,682)			(3,381)
Subtotal	2,728,059			2,141,638			1,989,955			1,564,347			1,447,982			Subtotal	3,004,264			3,088,072			3,077,091			2,728,059			2,141,638
Less: Allowance for Loan Losses	(15,823		)	(15,694		)	(14,808		)	(14,438		)	(14,929		)	Less: Allowance for Loan Losses	(37,017)			(46,859)			(16,278)			(15,823)			(15,694)
Loans, Net	$	2,712,236		$	2,125,944		$	1,975,147		$	1,549,909		$	1,433,053		Loans, Net	$	2,967,247		$	3,041,213		$	3,060,813		$	2,712,236		$	2,125,944

Ratio of Loans to Total Loans																Ratio of Loans to Total Loans
Commercial and Industrial Loans and Leases	20		%	23		%	23		%	27		%	26		%	Commercial and Industrial Loans and Leases	18		%	23		%	19		%	20		%	23		%
Commercial Real Estate Loans	44		%	43		%	43		%	39		%	40		%	Commercial Real Estate Loans	51		%	47		%	49		%	44		%	43		%
Agricultural Loans	13		%	16		%	15		%	16		%	15		%	Agricultural Loans	12		%	12		%	12		%	13		%	16		%
Home Equity and Consumer Loans	11		%	10		%	10		%	9		%	9		%	Home Equity and Consumer Loans	10		%	10		%	10		%	11		%	10		%
Residential Mortgage Loans	12		%	8		%	9		%	9		%	10		%	Residential Mortgage Loans	9		%	8		%	10		%	12		%	8		%
Total Loans	100		%	100		%	100		%	100		%	100		%	Total Loans	100		%	100		%	100		%	100		%	100		%

Within
One Year

One to Five
Years

After
Five Years
Total
Commercial and Agricultural $ 695,122
$ 1,000,572
$ 421,921
$ 2,117,615

Interest Sensitivity
Fixed Rate Variable Rate
Loans Maturing After One Year $ 271,522
$ 1,150,971


	Within One Year		One to Five Years		After Five Years		Total
Commercial and Agricultural	$	860,098	$	1,243,604	$	315,567	$	2,419,269


	Interest Sensitivity
	Fixed Rate		Variable Rate
Loans Maturing After One Year	$	412,426	$	1,146,745

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 Cost	December 31,
(dollars in thousands)	2021		%		2020		%		2019		%

Federal Funds Sold and Other Short-term Investments	$	349,717	16	%	$	287,776	20	%	$	43,913	5	%
Obligations of State and Political Subdivisions	896,048		40		548,273		37		307,943		35
MBS/CMO - Residential	797,693		36		535,526		37		526,907		60
US Gov't Sponsored Entities & Agencies	175,457		8		88,376		6		—		n/m ⁽¹⁾
Equity Securities	353		n/m ⁽¹⁾		353		n/m ⁽¹⁾		353		n/m ⁽¹⁾
Total Securities Portfolio	$	2,219,268	100	%	$	1,460,304	100	%	$	879,116	100	%

Investment Portfolio, at Amortized Cost December 31,
(dollars in thousands) 2018 % 2017 % 2016 %

Federal Funds Sold and Other Short-term Investments $ 32,001
4 % $ 23,093
3 % $ 16,349
2 %
Obligations of State and Political Subdivisions 291,449
34
267,437
35
247,350
34
MBS/CMO - Residential 529,805
62
476,205
62
471,852
64
Equity Securities 353

n/m ⁽¹⁾

353

n/m ⁽¹⁾

353

n/m ⁽¹⁾

Total Securities Portfolio $ 853,608
100 % $ 767,088
100 % $ 735,904
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 ~~$86.5~~$759.0 million, or ~~11%~~52%, at year-end ~~2018~~2021 compared with year-end ~~2017~~2020 and increased ~~$31.2~~$581.2 million, or 4%66%, at year-end ~~2017~~2020 compared with year-end ~~2016.~~2019. The increase ~~during 2018~~over the past two years was largely attributable to ~~the First Security acquisition. The largest component~~increased levels of deposits during both 2021 and 2020 in ~~the~~addition to PPP loan forgiveness and repayment activity over those same periods.

The investment portfolio continues to be inrelatively balanced with agency issued mortgage related securities ~~which totaled $529.8~~and collateralized and uncollateralized federal agency securities, totaling $973.2 million, ~~and represents 62%~~or 44% of the total securities portfolio at December 31, ~~2018.~~2021. The Company’s level of obligations of state and political subdivisions increased to ~~$291.4~~$896.0 million or ~~34%~~40% of the portfolio at December 31, ~~2018.~~2021.


Investment Securities, at Carrying Value
(dollars in thousands)
	December 31,
Securities Available-for-Sale	2021		2020		2019
Obligations of State and Political Subdivisions	$	925,706	$	581,247	$	324,300
MBS/CMO - Residential	791,950		548,307		530,525
US Gov't Sponsored Entities & Agencies	171,961		88,298		—
Total Securities	$	1,889,617	$	1,217,852	$	854,825

Investment Securities, at Carrying Value
(dollars in thousands)
December 31,
Securities Available-for-Sale 2018 2017 2016
Obligations of State and Political Subdivisions $ 294,533
$ 273,309
$ 247,519
MBS/CMO - Residential 518,078
467,332
461,914
Total Securities $ 812,611
$ 740,641
$ 709,433

The Company’s ~~$812.6 million~~$1.890 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.

The amortized cost of available-for-sale debt securities at December 31, ~~2018~~2021 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, ~~2018~~2021

(dollars in thousands)


	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	$	2,806	4.32	%	$	18,670	4.19	%	$	70,964	3.86	%	$	803,608	2.97	%
MBS/CMO - Residential	—		—		785		3.00	%	25,587		2.05	%	771,321		1.59	%
US Gov't Sponsored Entities & Agencies	—		—		—		—	%	7,496		1.01	%	167,961		1.49	%

Total Securities	$	2,806	4.32	%	$	19,455	4.14	%	$	104,047	3.21	%	$	1,742,890	2.22	%

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 $ 2,195
4.06 % $ 16,401
4.29 % $ 82,449
4.14 % $ 190,404
4.09 %
MBS/CMO - Residential —
— % 4
4.00 % 36,843
2.02 % 492,958
2.59 %

Total Securities $ 2,195
4.06 % $ 16,405
4.29 % $ 119,292
3.49 % $ 683,362
3.01 %

A tax-equivalent adjustment using a tax rate of 21 percent was used in the above table.

CONTRACTUAL OBLIGATIONS

In addition to the other uses of funds discussed previously, the Company ~~had~~has certain ~~long-term~~ contractual obligations ~~as of December 31, 2018.~~to make cash payments. These contractual obligations primarily ~~consisted~~consist of ~~long-term~~ borrowings ~~with~~from 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 Obligations	Payments Due In
(dollars in thousands)	One Year or Less		Over One Year		Total
Deposits without Stated Maturities	$	4,397,217	$	—	$	4,397,217
Time Deposits	347,099		—		347,099
Federal Home Loan Bank Advances	—		25,000		25,000
Other Borrowings (Subordinated Notes and Debentures)	—		55,804		55,804
Securities Sold under Repurchase Agreements	68,328		—		68,328
Lease Obligations	1,735		10,314		12,049
Total Contractual and Other Obligations	$	4,814,379	$	91,118	$	4,905,497

In the normal course of business, the Company makes commitments to extend credit and ~~future minimum lease payments~~commitments to sell loans, which are ~~outlined~~not 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 $ 123,113
$ 31,075
$ 55,551
$ —
$ 36,487
Time Deposits 588,483
383,827
176,312
28,262
82
Capital Lease Obligations 6,585
519
1,038
1,038
3,990
Operating Lease Commitments 7,731
1,406
1,918
1,500
2,907
Total Contractual Obligations $ 725,912
$ 416,827
$ 234,819
$ 30,800
$ 43,466

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.

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
2018 2017 2016 2018 2017
Demand Deposits

Non-interest-bearing $ 640,865
$ 572,356
$ 513,199
12 % 12 %
Interest-bearing 969,922
836,262
755,775
16
11
Savings Deposits 254,581
233,056
215,032
9
8
Money Market Accounts 392,055
373,156
351,786
5
6
Other Time Deposits 206,864
204,371
219,408
1
(7 )
Total Core Deposits 2,464,287
2,219,201
2,055,200
11
8
Certificates of Deposits of $100,000 or more and Brokered Deposits 252,425
175,945
194,692
43
(10 )
FHLB Advances and Other Borrowings 257,737
233,315
242,483
10
(4 )
Total Funding Sources $ 2,974,449
$ 2,628,461
$ 2,492,375
13
5


Funding Sources - Average Balances (dollars in thousands)	December 31,						% Change From Prior Year
	2021		2020		2019		2021		2020
Demand Deposits
Non-interest-bearing	$	1,378,647	$	1,070,284	$	761,515	29	%	41	%
Interest-bearing	1,595,579		1,309,998		1,128,457		22		16
Savings Deposits	460,945		358,389		293,044		29		22
Money Market Accounts	645,747		553,794		440,116		17		26
Other Time Deposits	226,419		288,762		285,208		(22)		1
Total Core Deposits	4,307,337		3,581,227		2,908,340		20		23
Certificates of Deposits of $100,000 or more and Brokered Deposits	186,516		279,170		385,594		(33)		(28)
FHLB Advances and Other Borrowings	186,750		221,832		279,675		(16)		(21)
Total Funding Sources	$	4,680,603	$	4,082,229	$	3,573,609	15		14

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 Months		Over 12 Months		Total
December 31, 2021	$	47,577	$	34,927	$	39,941	$	22,971	$	145,416

3 Months
Or Less

3 Thru
6 Months

6 Thru
12 Months

Over
12 Months
Total
December 31, 2018 $ 71,380
$ 34,866
$ 56,928
$ 176,001
$ 339,175

CORE DEPOSITS

The Company’s overall level of average core deposits increased approximately ~~$245.1~~$726.1 million, or ~~11%~~20%, during ~~2017 following a $164.0 million, or 8%, increase during 2017.~~2021 compared with 2020. During ~~2018,~~2021, average demand deposits (non-interest bearing and interest bearing) increased ~~$202.2~~$593.9 million, average savings deposits increased ~~$21.5~~$102.6 million, average money market demand deposits increased ~~$18.9~~$92.0 million and average time deposits under $100,000 ~~increased $2.5~~declined $62.3 million. The ~~acquisition activity which occurred during the second quarter of 2018 and fourth quarter of 2018 was a significant contributor to the increased~~Company’s overall level of average core deposits increased approximately $672.9 million, or 23%, during ~~2018~~2020 compared with ~~2017.~~2019. The increase in total average core deposits during 2021 following the increase in 2020 was largely impacted by general inflows of customers deposits generally related to the COVID-19 pandemic, participation in the PPP, stimulus payments provided by the federal government, and an increase in public funds.

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 ~~83%~~92% of average total funding sources during ~~2018~~2021 compared with ~~84%~~88% during ~~2017~~2020 and ~~82%~~81% during ~~2016.~~2019.

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 ~~12%~~24% during ~~2018~~2021 following ~~10%~~26% growth during ~~2017.~~2020. Average demand, savings, and money market deposits totaled ~~$2.257~~$4.080 billion or 95% of core deposits (87% of total funding sources) in 2021 compared with $3.292 billion or 92% of core deposits ~~(76%~~(81% of total funding sources) in ~~2018 compared with $2.015~~2020 and $2.623 billion or ~~91%~~90% of core deposits ~~(77%~~(73% of total funding sources) in ~~2017 and $1.836 billion or 89% of core deposits (74% of total funding sources) in 2016.~~2019.

Other time deposits consist of certificates of deposits in denominations of less than $100,000. These average deposits ~~increased~~declined by 22% during 2021 following an increase of 1% during ~~2018 following a decline of 7% during 2017.~~2020. Other time deposits comprised 8%5% of core deposits in ~~2018, 9%~~2021, 8% in ~~2017~~2020 and ~~11%~~10% in ~~2016.~~2019.

OTHER FUNDING SOURCES

Federal Home Loan Bank advances and other borrowings represent the Company’s most significant source of other funding. Average borrowed funds increased $24.4 million, or 10%, during 2018 following a decline of $9.2 million, or 4%, during 2017. Borrowings comprised approximately 9% of average total funding sources during 2018 compared with 9% in 2017 and 10% in 2016.

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 ~~increased $76.5~~declined $92.7 million, or ~~43%~~33%, during ~~2018~~2021 following a decline of ~~$18.7~~$106.4 million, or ~~10%~~28% during ~~2017.~~2020. Large certificates and brokered deposits comprised approximately 8%4% of average total funding sources in ~~2018~~2021 compared with 7% in ~~2017~~2020 and 8%11% in ~~2016.~~2019. 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 $35.1 million, or 16%, during 2021 following a decline of $57.8 million, or 21%, during

2020. Borrowings comprised approximately 4% of average total funding sources during 2021 compared with 5% in 2020 and 8% in 2019.

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 years supplemented the dividends received from its subsidiaries with borrowings, which are discussed in detail below.

On ~~October 11, 2018,~~June 25, 2019, the Company ~~entered into a Loan Agreement with~~sold and issued $40.0 million in aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due 2029 (the “Notes”). The Company used the proceeds from the offering to pay $15.0 million of the approximately $15.5 million of cash consideration upon closing of the Citizens First Corporation merger and the remaining balance to repay the Company’s $25.0 million term loan from U.S. Bank National Association ~~providing~~dated October 11, 2018.

The Notes have a ten-year term, from and including the ~~Company with~~date of issuance to but excluding June 30, 2024, and will bear interest at a ~~term loan~~fixed annual rate of 4.50%, payable semi-annually in arrears. From and including June 30, 2024 to but excluding the maturity date 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 principal amount of $25,000,000 (the “Term Loan”), and with a revolving credit loan in the principal amount of up to $15,000,000 (the “Revolving Credit Loan” and, collectively with the Term Loan, the “Loans”). The Term Loan was advanced in its entirety on October 11, 2018, for purposes of funding a portion of the cash payment requiredevent three-month LIBOR is less than zero, three-month LIBOR shall be deemed to be ~~paid~~zero) plus 268 basis points, payable quarterly in arrears. The Notes are redeemable, in whole or in part, on June 30, 2024, on any scheduled interest payment date thereafter and at any time upon the occurrence of certain events. The Purchase Agreement contains certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand.

The Notes were issued under an Indenture, dated June 25, 2019, by and between the Company and U.S. Bank National Association, as trustee. 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 ~~connection with~~right to payment to the ~~First Security acquisition, which closed effective October 15, 2018.~~Company’s current and future senior indebtedness. The ~~Revolving Credit Loan~~Notes are intended to qualify as Tier 2 capital for regulatory capital purposes for the Company.

At year-end 2021, the Company had available to it a $15 million revolving line of credit facility that will ~~be used~~mature on September 26, 2022. Borrowings are available for general ~~corporate needs, operating expenditures and~~working capital ~~injections incurred~~purposes. Interest is payable quarterly at a floating rate based upon one-month LIBOR plus a margin payable in respect of any principal amounts advanced under the ~~ordinary course~~revolving line of ~~business.~~

~~The Term Loan,~~credit. There was no outstanding balance as ~~evidenced by a term loan promissory note (the “Term Note”), bears interest at an annual rate~~ of ~~5.24%. The Revolving Credit Loan, as evidenced by a revolving credit promissory note (the “Revolving Credit Note”), bears interest at an~~

annual rate equal to 1.75% plus the greater of (a) zero percent (0.00%) or (b) the one month LIBOR rate in effect two New York banking days prior to the beginning of each calendar month, adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation, as reset each month.

~~The Company will pay quarterly payments of accrued interest on the Loans which began on~~ December 31, ~~2018. The balance of all outstanding principal and accrued interest under the Term Note will become due and payable on September 30,~~ 2021. The balance of all outstanding principal and accrued interest under the Revolving Credit Note will become due and payable on September 30, 2019. As of the date hereof, there have been no borrowings under the Revolving Credit Note.

Effective January 1, 2011, 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.

Effective July 1, 2019, and as a result of the acquisition of Citizens First Bancorp, the Company assumed long-term debt obligations of Citizens First in the form of a junior subordinated debenture issued by Citizens First in the aggregate unpaid principal amount of approximately $5.2 million.

The junior subordinated debentures were issued to certain statutory trusts established by River Valley, American Community, and ~~River Valley~~Citizens First (in support of related issuances of trust preferred securities issued by those trusts) and mature in installments of principal payable in 2033, 2035 and ~~2033,~~2037, respectively, and bear interest payable on a quarterly basis at a floating rate, adjustable quarterly based on the ~~90-day~~three-month 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, ~~2018~~2021 approximately ~~$11.3~~$16.1 million of the junior subordinated debentures were treated as Tier 1 capital for regulatory capital purposes.

See Note 17 (Parent Company Financial Statements) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report for further information regarding the parent company borrowed funds and other indebtedness.

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’s~~Bank’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’s~~Bank’s loan portfolio. The Corporate Credit Risk Management Committee comprised of members of the Company’s and its subsidiary ~~bank’s~~Bank’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 ~~loan~~credit losses.

In response to requests from borrowers who had experienced pandemic-related business or personal cash flow interruptions, and in accordance with regulatory guidance, the Company began making short-term loan modifications involving both partial and full payment deferrals in April 2020. As of December 31, 2021, the Company has just one commercial real estate loan, in the principal amount of $3.5 million, with a payment modification that is still in effect, with such credit relationship making full interest payments.

The Company tracks lending exposure by industry classification to determine potential risk associated with industry concentrations, if any, that could lead to additional credit loss exposure. As a result of the COVID-19 pandemic, the Company identified certain loan segments that represented higher levels of credit risk, as many of the customers in these segments were expected to incur significant negative impacts to their businesses as a result of governmental stay-at-home orders and travel restrictions, limited attendance, social distancing and face mask requirements, and work-from-home and hybrid work models being used by employers. At December 31, 2021, the Company had the following exposure to these COVID-19-impacted loan segments:


Industry Segment (dollars in thousands)	Number of Loans	Outstanding Balance		% of Total Loans (excludes PPP Loans)		% of Industry Segment Under Deferral

Lodging / Hotels	32	$	113,381	3.8	%	3.1	%
Retail Shopping / Strip Centers	58	89,002		3.0	%	—	%
Restaurants	161	62,163		2.1	%	—	%

The Company maintains an allowance for ~~loan~~credit losses to cover ~~probable, incurred~~management's estimate of all expected credit losses ~~identified during its~~over the expected contractual life of the loan ~~review process.~~portfolio. Management estimates the required level of allowance for ~~loan~~credit 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 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 ~~loan~~credit losses is comprised of: (a) specific reserves on individual credits; (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 ~~probable~~credit 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,
	2021			2020			2019			2018			2017

Balance of Allowance for Possible Losses at Beginning of Period	$	46,859		$	16,278		$	15,823		$	15,694		$	14,808
Impact of adopting ASC 326	—			8,767			—			—			—
Impact of adopting ASC 326 - PCD loans	—			6,886			—			—			—
Loans Charged-off:
Commercial and Industrial Loans and Leases	2,777			2,119			3,810			1,500			151
Commercial Real Estate Loans	10			36			320			49			220
Agricultural Loans	—			—			—			—			49
Home Equity and Consumer Loans	1,003			942			1,155			922			765
Residential Mortgage Loans	45			39			117			75			93
Total Loans Charged-off	3,835			3,136			5,402			2,546			1,278

Recoveries of Previously Charged-off Loans:
Commercial and Industrial Loans and Leases	61			23			56			141			14
Commercial Real Estate Loans	40			129			29			20			48
Agricultural Loans	—			—			—			20			9
Home Equity and Consumer Loans	359			358			440			387			280
Residential Mortgage Loans	33			4			7			37			63
Total Recoveries	493			514			532			605			414

Net Loans Recovered (Charged-off)	(3,342)			(2,622)			(4,870)			(1,941)			(864)
Additions to Allowance Charged to Expense	(6,500)			17,550			5,325			2,070			1,750
Balance at End of Period	$	37,017		$	46,859		$	16,278		$	15,823		$	15,694

Net Charge-offs (Recoveries) to Average Loans Outstanding	0.11		%	0.08		%	0.17		%	0.08		%	0.04		%
Provision for Credit Losses to Average Loans Outstanding	(0.21)		%	0.55		%	0.18		%	0.09		%	0.09		%
Allowance for Credit Losses to Total Loans at Year-end	1.23		%	1.52		%	0.53		%	0.58		%	0.73		%

Allowance for Loan Losses
(dollars in thousands)
Years Ended December 31,
2018 2017 2016 2015 2014

Balance of Allowance for Possible Losses at Beginning of Period
$ 15,694
$ 14,808
$ 14,438
$ 14,929
$ 14,584

Loans Charged-off:

Commercial and Industrial Loans and Leases 1,500
151
66
36
199
Commercial Real Estate Loans 49
220
54
350
329
Agricultural Loans —
49
22
—
—
Home Equity and Consumer Loans 922
765
612
345
370
Residential Mortgage Loans 75
93
346
233
117
Total Loans Charged-off 2,546
1,278
1,100
964
1,015

Recoveries of Previously Charged-off Loans:

Commercial and Industrial Loans and Leases 141
14
32
102
111
Commercial Real Estate Loans 20
48
10
107
863
Agricultural Loans 20
9
1
—
—
Home Equity and Consumer Loans 387
280
211
246
215
Residential Mortgage Loans 37
63
16
18
21
Total Recoveries 605
414
270
473
1,210

Net Loans Recovered (Charged-off) (1,941 ) (864 ) (830 ) (491 ) 195
Additions to Allowance Charged to Expense 2,070
1,750
1,200
—
150
Balance at End of Period $ 15,823
$ 15,694
$ 14,808
$ 14,438
$ 14,929

Net Charge-offs (Recoveries) to Average Loans Outstanding 0.08 % 0.04 % 0.04 % 0.03 % (0.01 )%
Provision for Loan Losses to Average Loans Outstanding 0.09 % 0.09 % 0.06 % 0.00 % 0.01 %
Allowance for Loan Losses to Total Loans at Year-end 0.58 % 0.73 % 0.74 % 0.92 % 1.03 %

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


	Years Ended December 31,
	2021		2020		2019		2018		2017
Commercial and Industrial Loans and Leases	$	9,754	$	6,645	$	4,799	$	2,953	$	4,735
Commercial Real Estate Loans	19,245		29,878		4,692		5,291		4,591
Agricultural Loans	4,505		6,756		5,315		5,776		4,894
Home Equity and Consumer Loans	1,808		1,636		634		649		628
Residential Mortgage Loans	1,705		1,944		333		472		343
Unallocated	—		—		505		682		503

Total Allowance for Credit Losses	$	37,017	$	46,859	$	16,278	$	15,823	$	15,694

Years Ended December 31,
2018 2017 2016 2015 2014
Commercial and Industrial Loans and Leases $ 2,953
$ 4,735
$ 3,725
$ 4,242
$ 4,627
Commercial Real Estate Loans 5,291
4,591
5,452
6,342
7,273
Agricultural Loans 5,776
4,894
4,094
2,115
1,123
Home Equity and Consumer Loans 649
628
518
613
600
Residential Mortgage Loans 472
343
329
414
622
Unallocated 682
503
690
712
684

Total Allowance for Loan Losses $ 15,823
$ 15,694
$ 14,808
$ 14,438
$ 14,929

The Company’s allowance for ~~loan~~credit losses totaled ~~$15.8~~$37.0 million at December 31, 2018 representing an increase of $129,000, or 1%, compared with year-end 2017. During 2018, the allowance for commercial and industrial loans decreased primarily as a result of a partial charge-off taken on a single commercial borrowing relationships that was 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 2018 when2021 compared to ~~year-end 2017.~~

~~The Company’s allowance for loan losses totaled $15.7~~$46.9 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 2017.2020. The allowance for ~~loan losses was increased for agricultural loans primarily due to an increased level of criticized and classified agricultural loans during 2017 when compared to year-end 2016.~~

~~The allowance for loan~~credit losses represented ~~0.58%~~1.23% of period-end loans at December 31, ~~2018~~2021 compared with ~~0.73%~~1.52% of period-end loans at ~~December 31, 2017 and 0.74% at December 31, 2016. The decline in~~year-end 2020.

Under the ~~allowance for loan loss as a percent of total loans during 2018~~CECL model, which was ~~the result of the acquisition activity~~adopted by the Company ~~during 2018. Under acquisition accounting treatment,~~on January 1, 2020, certain acquired loans ~~acquired are recorded at~~continue to carry a fair value ~~which includes a~~discount as well as an allowance for credit ~~risk component, and therefore~~losses. As of December 31, 2021, the ~~allowance on loans acquired is not carried over from the seller. The~~ Company held ~~a discount~~net discounts on acquired loans of ~~$19.5 million as of December 31, 2018, $7.6 million at December 31, 2017 and $10.0 million at December 31, 2016.~~ $4.9 million.

The ~~Company’s~~ allowance for ~~loan~~credit losses ~~represented~~declined during 2021 as a result of the Company recording a negative $6.5 million provision for credit losses while recording modest net charge-offs. During 2020, the allowance for credit losses increased through elevated provision for credit losses primarily due to the developments during 2020 related to the COVID-19 pandemic and the resulting impact on the economic assumptions used in the CECL model.

~~0.77% of total non-acquired loans at year-end 2018 compared with 0.83% of total non-acquired loans at year-end 2017 and 0.89% at year-end 2016.~~

The Company realized net charge-offs of ~~$1,941,000,~~$3,342,000, or 0.11% of average loans outstanding during 2021 compared with net charge-offs of $2,622,000, or 0.08% of average loans outstanding during ~~2018 compared with net charge-offs of $864,000,~~2020 and $4,870,000, or ~~0.04% of average loans outstanding during 2017 and $830,000, or 0.04%~~0.17% of average loans during ~~2016.~~2019.

Please see “RESULTS OF OPERATIONS - Provision for ~~Loan~~Credit Losses” and “CRITICAL ACCOUNTING POLICIES AND ESTIMATES - Allowance for ~~Loan~~Credit 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 Assets	December 31,
(dollars in thousands)	2021			2020			2019			2018			2017

Non-accrual Loans	$	14,602		$	21,507		$	13,802		$	12,579		$	11,091
Past Due Loans (90 days or more and accruing)	156			—			190			633			719
Total Non-performing Loans	14,758			21,507			13,992			13,212			11,810
Other Real Estate	—			325			425			286			54
Total Non-performing Assets	$	14,758		$	21,832		$	14,417		$	13,498		$	11,864

Restructured Loans	$	104		$	111		$	116		$	121		$	149
Non-performing Loans to Total Loans	0.49		%	0.70		%	0.45		%	0.48		%	0.55		%
Allowance for Credit Losses to Non-performing Loans	250.83		%	217.88		%	116.34		%	119.76		%	132.89		%

Non-performing Assets December 31,
(dollars in thousands) 2018 2017 2016 2015 2014

Non-accrual Loans $ 12,579
$ 11,091
$ 3,793
$ 3,143
$ 5,970
Past Due Loans (90 days or more) 633
719
2
143
140
Total Non-performing Loans 13,212
11,810
3,795
3,286
6,110
Other Real Estate 286
54
242
169
356
Total Non-performing Assets $ 13,498
$ 11,864
$ 4,037
$ 3,455
$ 6,466

Restructured Loans $ 121
$ 149
$ 28
$ 2,203
$ 2,726
Non-performing Loans to Total Loans 0.48 % 0.55 % 0.19 % 0.21 % 0.42 %
Allowance for Loan Losses to Non-performing Loans 119.76 % 132.89 % 390.20 % 439.38 % 244.34 %

Non-performing assets totaled ~~$13.5~~$14.8 million, or ~~0.34%~~0.26% of total assets at December 31, ~~2018~~2021 compared to ~~$11.9~~$21.8 million, or ~~0.38%~~0.44% of total assets at December 31, ~~2017~~2020 and compared to ~~$4.0~~$14.4 million, or ~~0.14%~~0.33% of total assets at December 31, ~~2016.~~2019. Non-performing loans totaled ~~$13.2~~$14.8 million, or ~~0.48%~~0.49% of total loans at December 31, ~~2018~~2021 compared with ~~$11.8~~$21.5 million, or ~~0.55%~~0.70% of total loans at December 31, ~~2017~~2020 and ~~$3.8~~$14.0 million, or ~~0.19%~~0.45% of total loans at December 31, ~~2016.~~ 2019. 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 during the third quarter of 2020.

The increase in the level of non-performing assets and non-performing loans at December 31, 2020 compared with year-end ~~2018~~2019 was ~~primarily~~largely attributable to the ~~merger transaction with First Security which included $4.6 million~~gross-up of ~~non-accrual~~purchased credit deteriorated loans ~~at December 31, 2018. The increase~~upon the adoption of the CECL standard during 2020 and a commercial real estate credit in ~~non-performing assets during~~ the ~~year-ended December 31, 2017~~lodging industry that was ~~primarily related~~moved to ~~two commercial lending relationships that were moved into impaired and~~ non-performing status ~~during 2017.~~in the third quarter of 2020.

The following tables present an analysis of the ~~Company's~~Company’s non-accrual loans and loans past due 90 days or more and still accruing.


Non-Accrual Loans	December 31,
(dollars in thousands)	2021		2020		2019		2018		2017

Commercial and Industrial Loans and Leases	$	10,530	$	8,133	$	4,940	$	2,430	$	4,753
Commercial Real Estate Loans	2,243		10,188		3,433		6,833		4,618
Agricultural Loans	1,136		1,915		2,739		1,449		748
Home Equity Loans	24		271		79		88		199
Consumer Loans	82		170		115		162		286
Residential Mortgage Loans	587		830		2,496		1,617		487
Total	$	14,602	$	21,507	$	13,802	$	12,579	$	11,091


Non-Accrual Loans	December 31,
Loans Past Due 90 Days or More & Still Accruing											Loans Past Due 90 Days or More & Still Accruing	December 31,
(dollars in thousands)	2018		2017		2016		2015		2014		(dollars in thousands)	2021		2020		2019		2018		2017

Commercial and Industrial Loans and Leases	$	2,430	$	4,753	$	86	$	134	$	161	Commercial and Industrial Loans and Leases	$	—	$	—	$	190	$	—	$	—
Commercial Real Estate Loans	6,833		4,618		1,408		2,047		3,460		Commercial Real Estate Loans	156		—		—		364		471
Agricultural Loans	1,449		748		792		—		—		Agricultural Loans	—		—		—		269		248
Home Equity Loans	88		199		73		204		268		Home Equity Loans	—		—		—		—		—
Consumer Loans	162		286		85		90		196		Consumer Loans	—		—		—		—		—
Residential Mortgage Loans	1,617		487		1,349		668		1,885		Residential Mortgage Loans	—		—		—		—		—
Total	$	12,579	$	11,091	$	3,793	$	3,143	$	5,970	Total	$	156	$	—	$	190	$	633	$	719

Loans Past Due 90 Days or More & Still Accruing December 31,
(dollars in thousands) 2018 2017 2016 2015 2014

Commercial and Industrial Loans and Leases $ —
$ —
$ 2
$ 96
$ 68
Commercial Real Estate Loans 364
471
—
47
—
Agricultural Loans 269
248
—
—
72
Home Equity Loans —
—
—
—
—
Consumer Loans —
—
—
—
—
Residential Mortgage Loans —
—
—
—
—
Total $ 633
$ 719
$ 2
$ 143
$ 140

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 2018 or 2017. 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 $13.6 million and $12.6 million at December 31, 2018 and 2017, respectively. For additional detail on ~~impaired~~individually analyzed loans, see Note 4 in the Notes to the ~~Company’s consolidated financial statements~~Consolidated Financial Statements included in Item 8 of this Report.

Interest income recognized on non-performing loans for ~~2018~~2021 was ~~$77,000.~~$630,000. The gross interest income that would have been recognized in ~~2018~~2021 on non-performing loans if the loans had been current in accordance with their original terms was ~~$799,000.~~$891,000. 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.

~~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, ~~2018~~2021 - Net Interest Income


	Net Interest Income

Changes in Rates	Amount		% Change
+2%	$	147,827	(1.87)	%
+1%	148,436		(1.46)
Base	150,639		—
-1%	146,159		(2.97)
-2%	142,821		(5.19)

Net Interest Income

Changes in Rates Amount
% Change

+2% $ 129,924
(3.43 )%
+1% 132,337
(1.63 )
Base 134,535
—

-1% 133,890
(0.48 )
-2% 125,825
(6.47 )

The above table is a measurement of the Company’s net interest income at risk, assuming a static balance sheet as of December 31, ~~2018~~2021 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.

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, ~~2018~~2021 - Net Portfolio Value


	Net Portfolio Value				Net Portfolio Value as a % of Present Value of Assets				Net Portfolio Value				Net Portfolio Value as a % of Present Value of Assets
Changes in Rates	Amount		% Change		NPV Ratio		Change	Changes in Rates	Amount		% Change		NPV Ratio		Change

+2%	$	452,304	(9.15	)%	12.58	%	(60) b.p.	+2%	$	616,194	(10.00)	%	11.94	%	(54) b.p.
+1%	476,969		(4.20	)	12.94		(24) b.p.	+1%	654,725		(4.37)		12.30		(18) b.p.
Base	497,884		—		13.18		—	Base	684,667		—		12.48		—
-1%	497,569		(0.06	)	12.92		(26) b.p.	-1%	685,436		0.11		12.07		(41) b.p.
-2%	454,308		(8.75	)	11.60		(158) b.p.	-2%	546,441		(20.19)		9.60		(288) 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.

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, ~~2018~~2021 and ~~2017,~~2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, ~~2018,~~2021, 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, ~~2018,~~2021, 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, ~~2018~~2021 and ~~2017,~~2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, ~~2018~~2021 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, ~~2018,~~2021, based on criteria established in Internal Control -– Integrated Framework: (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

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 ~~over~~Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. 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. As permitted, the Company has excluded the operations of First Security, Inc. acquired during 2018, which is described in Note 18 of the consolidated financial statements, from the scope of management’s report on internal control over financial reporting. As such, it has also been excluded from the scope of our audit of internal control over financial reporting. 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.

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



~~Report of Independent Registered Public Accounting Firm~~

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.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans

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;

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.


/s/ Crowe LLP
Crowe LLP

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

~~Indianapolis, Indiana~~Louisville, Kentucky

March 1, ~~2019~~2022



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


	December 31,

	2021		2020
ASSETS
Cash and Due from Banks	$	47,173	$	57,972
Federal Funds Sold and Other Short-term Investments	349,717		287,776
Cash and Cash Equivalents	396,890		345,748

Interest-bearing Time Deposits with Banks	745		1,241
Securities Available-for-Sale, at Fair Value (Amortized Cost $1,869,198 for December 31, 2021; Amortized Cost $1,172,175 for December 31, 2020; No Allowance for Credit Losses)	1,889,617		1,217,852
Other Investments	353		353

Loans Held-for-Sale, at Fair Value	10,585		16,904

Loans	3,007,926		3,091,998
Less: Unearned Income	(3,662)		(3,926)
Allowance for Credit Losses	(37,017)		(46,859)
Loans, Net	2,967,247		3,041,213

Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost	13,048		13,168
Premises, Furniture and Equipment, Net	88,863		96,593
Other Real Estate	—		325
Goodwill	121,761		121,956
Intangible Assets	5,845		8,984
Company Owned Life Insurance	70,070		69,250
Accrued Interest Receivable and Other Assets	43,515		43,990

TOTAL ASSETS	$	5,608,539	$	4,977,577

LIABILITIES
Non-interest-bearing Demand Deposits	$	1,529,223	$	1,183,442
Interest-bearing Demand, Savings, and Money Market Accounts	2,867,994		2,428,636
Time Deposits	347,099		494,452

Total Deposits	4,744,316		4,106,530

FHLB Advances and Other Borrowings	152,183		194,529
Accrued Interest Payable and Other Liabilities	43,581		51,809

TOTAL LIABILITIES	4,940,080		4,352,868

Commitments and Contingencies (See Note 14)	0		0

SHAREHOLDERS’ EQUITY
Common Stock, no par value, $1 stated value; 45,000,000 shares authorized	26,554		26,502
Additional Paid-in Capital	276,057		274,385
Retained Earnings	350,364		288,447
Accumulated Other Comprehensive Income	15,484		35,375

TOTAL SHAREHOLDERS’ EQUITY	668,459		624,709

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,608,539	$	4,977,577

End of period shares issued and outstanding	26,553,508		26,502,157

December 31,

2018 2017
ASSETS

Cash and Due from Banks $ 64,549
$ 47,266
Federal Funds Sold and Other Short-term Investments 32,001
23,093
Cash and Cash Equivalents 96,550
70,359

Interest-bearing Time Deposits with Banks 250
—
Securities Available-for-Sale, at Fair Value 812,611
740,641
Other Investments 353
353

Loans Held-for-Sale, at Fair Value 4,263
6,719

Loans 2,731,741
2,145,019
Less: Unearned Income (3,682 ) (3,381 )
Allowance for Loan Losses (15,823 ) (15,694 )
Loans, Net 2,712,236
2,125,944

Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost 13,048
13,048
Premises, Furniture and Equipment, Net 80,627
54,246
Other Real Estate 286
54
Goodwill 103,681
54,058
Intangible Assets 9,964
2,102
Company Owned Life Insurance 59,896
46,385
Accrued Interest Receivable and Other Assets 35,325
30,451

TOTAL ASSETS $ 3,929,090
$ 3,144,360

LIABILITIES

Non-interest-bearing Demand Deposits $ 715,972
$ 606,134
Interest-bearing Demand, Savings, and Money Market Accounts 1,768,177
1,490,033
Time Deposits 588,483
387,885

Total Deposits 3,072,632
2,484,052

FHLB Advances and Other Borrowings 376,409
275,216
Accrued Interest Payable and Other Liabilities 21,409
20,521

TOTAL LIABILITIES 3,470,450
2,779,789

Commitments and Contingencies (Note 13)

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 24,967
22,934
Additional Paid-in Capital 229,347
165,288
Retained Earnings 211,424
178,969
Accumulated Other Comprehensive Loss (7,098 ) (2,620 )

TOTAL SHAREHOLDERS’ EQUITY 458,640
364,571

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 3,929,090
$ 3,144,360

End of period shares issued and outstanding 24,967,458
22,934,403

See accompanying notes to the consolidated financial statements.



Consolidated Statements of Income
Dollars in thousands, except per share data

104

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 $ 706
Net Gain (Loss) on Securities
(148 ) Income Tax Expense
558
Net of Tax
Amortization of Post Retirement Plan Items

Actuarial Gains (Losses) $ (32 ) Salaries and Employee Benefits
9
Income Tax Expense
(23 ) Net of Tax

Total Reclassifications for the Period $ 535



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:~~2020:


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	$	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

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

The table below summarizes the classifications out of accumulated other comprehensive income (loss) by component for the year ended December 31, ~~2016:~~

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

2019:



~~Notes to~~Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified From Accumulated Other Comprehensive Income (Loss)		Affected Line Item in the ~~Consolidated Financial Statements~~Statement Where Net Income is Presented
~~Dollars in thousands, except per share data~~
Unrealized Gains and Losses on
Available-for-Sale Securities	$	1,248	Net Gain (Loss) on Securities
	(262)		Income Tax Expense
	986		Net of Tax
Amortization of Post Retirement Plan Items
Actuarial Gains (Losses)	$	(37)	Salaries and Employee Benefits
	10		Income Tax Expense
	(27)		Net of Tax

Total Reclassifications for the Period	$	959

~~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
2018

First Quarter $ 29,145
$ 25,610
$ 11,813
$ 0.51
$ 0.51
Second Quarter 31,533
27,469
11,097
0.48
0.48
Third Quarter 33,475
28,548
12,639
0.55
0.55
Fourth Quarter 39,596
32,983
10,980
0.44
0.44

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

NOTE ~~21 –~~20 - Subsequent Events

On ~~February 21, 2019,~~January 1, 2022, the Company ~~entered into an Agreement and Plan~~acquired Citizens Union Bancorp of ~~Reorganization with Citizens First Corporation~~Shelbyville, Inc. (“~~Citizens First”~~CUB”)~~, pursuant to which Citizens First agreed to merge~~ through the merger of CUB with and into the Company. ~~The~~This was immediately followed by the merger ~~agreement also provides that~~of Citizens ~~First’s~~Union Bank of Shelbyville, Inc., a wholly-owned ~~banking~~ subsidiary ~~Citizens First Bank, Inc. will be merged with and~~of CUB, into the Company’s subsidiary bank, German American Bank. CUB, headquartered in Shelbyville, Kentucky, operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through Citizens Union Bank ~~immediately following~~of Shelbyville, Inc. in Kentucky.

As of the ~~holding company merger. Based on~~closing of the ~~number~~transaction, CUB had total assets of ~~Citizens First common shares expected to~~approximately $1,108,546 (unaudited), total loans of approximately $683,807 (unaudited), and total deposits of approximately $930,533 (unaudited). The acquired assets and liabilities will be ~~outstanding~~recorded at ~~closing,~~fair value at the date of acquisition and will be reflected in the Company’s March 31, 2022 financial statements as such. At the time of these consolidated financial statements, the Company ~~would issue~~is evaluating CUB’s loan portfolio to determine the impact of day-one accounting under the CECL methodology. Valuations and appraisals on other assets and liabilities are also in process and are not complete as of the time of these financial statements.

The Company issued approximately ~~1.7~~2.9 million shares of its common stock, and ~~pay~~paid approximately ~~$16 million~~$50,805 in cash, in exchange for all of the issued and outstanding ~~common~~ shares of ~~Citizens First. Based upon the $31.59 per share closing price~~common stock of ~~the Company’s common shares on February~~CUB.

105


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

NOTE 20 2019, the last business day prior to the public announcement of the mergers, the transaction has an aggregate indicated value of approximately $68.2 million. Completion of the mergers is subject to approval by regulatory authorities and Citizens First’s shareholders, as well as certain other closing conditions. The transaction is expected to be completed in the third quarter of 2019.– Subsequent Events (continued)

Citizens First is a bank holding company headquartered in Bowling Green, Kentucky. It operates, through Citizens First Bank, Inc., branch offices in Barren, Hart, Simpson and Warren Counties in Kentucky, and a loan production office in Williamson County, Tennessee. At December 31, 2018, Citizens First reported total assets of approximately $476 million, total loans of approximately $372 million, and total deposits of approximately $389 million.

This ~~pending~~ acquisition ~~will be~~was consistent with the ~~Company's~~Company’s strategy to build a regional presence in ~~central~~Southern Indiana 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.


Consideration
Cash for Stock Options and Fractional Shares	$	942
Cash Consideration	49,863
Equity Instruments	111,914
Fair Value of Total Consideration Transferred	$	162,719

106

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, ~~2018,~~2021, 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 ~~2018~~2021 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. As permitted, the Company has excluded the operations of First Security, Inc. acquired during 2018, which is described in Note 18 (Business Combinations) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, from the scope of management's report on internal control over financial reporting.

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, ~~2018.~~2021. 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, ~~2018.~~2021.

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.

107

PART III

Item 10. Directors, Executive Officers, and Corporate Governance.

Information ~~relating~~responsive to ~~directors and executive officers of the Company~~this Item 10 will be included under the captions “Election of ~~Directors” and~~Directors,” “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 ~~2019~~2022 which will be filed within 120 days of the end of the fiscal year covered by this Report (the ~~“2019~~“2022 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 2019 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 2019 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 2018.

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 ~~2019~~2022 Proxy Statement, which section is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required under this Item 12 relating to equity compensation plans is set forth under the heading “Equity Compensation Plan Information” in Part II, Item 5 of this Report. 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 ~~2019~~2022 Proxy Statement, which sections are incorporated herein by reference.

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 ~~2019~~2022 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 ~~2019~~2022 Proxy Statement under the caption “Principal Accountant Fees and Services”, which section is incorporated herein by reference.

108

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			4352

Consolidated Balance Sheets at December 31, ~~2018~~2021 and ~~2017~~2020			4555

Consolidated Statements of Income, years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016~~2019			4656

Consolidated Statements of Comprehensive Income, years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016~~2019			4757

Consolidated Statements of Changes in Shareholders’ Equity, years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016~~2019			4858

Consolidated Statements of Cash Flows, years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016~~2019			4959

Notes to the Consolidated Financial Statements			5060

(a)(2) Financial Statement Schedules

None.

109

(a)(3) Exhibits

The following exhibits are included with this report or incorporated herein by reference:



Exhibit No.		Description
~~2.1~~2.1#		Purchase and Assumption Agreement by and between German American Bancorp and MainSource Bank, dated February 12, 2018, is incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed February 13, 2018 (SEC File No. 001-15877).
~~2.2~~	Agreement and Plan of Reorganization by and among German American Bancorp, Inc., First Security, Inc., First Security Bank, Inc., and German American Bank, dated May 22, 2018, is incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed May 22, 2018 (SEC File No. 001-15877).
~~2.3~~	Agreement and Plan of Reorganization by and among German American Bancorp, Inc., German American Bank, Citizens ~~First Corporation~~Union Bancorp of Shelbyville, Inc. and Citizens ~~First~~Union Bank of Shelbyville, Inc., dated as of ~~February 21, 2019,~~September 20, 2021, is incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed ~~February 22, 2019~~September 21, 2021 (SEC File No. 001-15877).
3.1		~~Restatement of the~~Amended and Restated Articles of Incorporation of ~~the Registrant is~~German American Bancorp, Inc. are incorporated by reference ~~from~~to Exhibit 3.1 toof the Registrant’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended March 31, 2017,~~8-K filed May ~~9, 2017~~26, 2020 (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 ~~3.2~~3.1 of the Registrant's ~~Annual~~Current Report on Form ~~10-K~~8-K filed ~~March 9, 2015~~July 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, to the extent not otherwise filed herewith or incorporated by reference hereby, 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 of~~Amended and Restated Articles of Incorporation) are incorporated by reference ~~from~~to Exhibit 3.1 toof the Registrant’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended March 31, 2017,~~8-K filed May ~~9, 2017~~26, 2020 (SEC File No. 001-15877).
~~4.3~~4.2		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).
~~4.4~~4.3		~~Loan Agreement,~~Indenture, dated as of ~~October 11, 2018,~~June 25, 2019, by and between German American Bancorp, Inc. and U.S. Bank National Association, as trustee, is incorporated by reference to Exhibit 4.1 toof the Registrant’s Current Report on Form 8-K filed ~~October 15, 2018~~June 25, 2019 (SEC File No. 001-15877).
~~4.5~~4.4		~~Negative Pledge Agreement, dated October 11, 2018, by~~Form of 4.50% Fixed-to-Floating Subordinated Note due 2029 of German American Bancorp, Inc. ~~and in favor of U.S. Bank National Association~~ is incorporated by reference to Exhibit 4.2 toof the Registrant’s Current Report on Form 8-K filed ~~October 15, 2018~~June 25, 2019 (SEC File No. 001-15877).
~~4.6~~4.5		~~Term Note, in~~Description of the ~~principal sum~~securities of ~~$25,000,000, issued by~~ German American Bancorp, Inc. ~~on October 11, 2018,~~registered pursuant to ~~U.S. Bank National Association~~Section 12 of the Exchange Act is incorporated by reference to Exhibit ~~4.3~~4.6 to the Registrant’s ~~Current~~Annual Report on Form ~~8-K~~10-K for the year ended December 31, 2019, filed ~~October 15, 2018~~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.
10.2*		Second Amendment, effective as of December 18, 2017, to the Director Deferred Compensation Agreement, dated December 8, 1992, between German American Bancorp and Mark A. Schroeder, as amended, is incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 20, 2017 (SEC File No. 001-15877).
10.3*		Adoption Agreement for the German American Bancorp, Inc. Nonqualified Savings Plan, effective January 1, 2009 is incorporated by reference to 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 ~~Registrant’s~~German American Bancorp, Inc. Nonqualified Savings Plan, effective January 1, 2009 is incorporated by reference ~~from~~to Exhibit 10.4 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).
10.5*		First Amendment to the German American Bancorp, Inc. Nonqualified Savings Plan, effective January 1, 2020 is incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, ~~2010,~~2019, filed March ~~11, 2011~~2, 2020 (SEC File No. 001-15877).
10.410.6.A		Adoption Agreement for the Registrant’s Nonqualified Savings Plan dated August 17, 2004, is incorporated by reference from Exhibit 10.6 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).
10.5*	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).
10.6*	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.



~~Exhibit No.~~	~~Description~~
10.7*	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.
10.8.A*	Description of Director Compensation Arrangements for the 12 month period ending on June 30, ~~2017~~2020 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~~July 11, 2019 (SEC File No. 001-15877).
10.8.B10.6.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).
10.9.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).
10.9.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).
10.10.A*	Description of Director Compensation Arrangements for the 12 month period ending on June 30, 2019 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, 2018 (SEC File No. 001-15877).
10.10.B*	~~Description of Additional Director Compensation Arrangements for the 12 month period ending on June 30, 2019~~2020 (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, ~~2018~~2019 (SEC File No. 001-15877).
10.1110.7		Description of Director Compensation Arrangements for the 12 month period ending on June 30, 2021 (including Restricted Stock Awards) is incorporated by reference to Exhibit 10.10 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).
10.8*+		Description of Director Compensation Arrangements for the 12 month period ending on June 30, 2022.

110


Exhibit No.		Description
10.9*		Description of Executive Management Incentive Plan for ~~2016~~2019 (awards payable in ~~2017)~~2020) 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, 2016~~May 3, 2019 (SEC File No. 001-15877).
10.1210.10		Description of Executive Management Incentive Plan for ~~2017~~2020 (awards payable in ~~2018)~~2021) 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~~April 3, 2020 (SEC File No. 001-15877).
10.1310.11		Description of Executive Management Incentive Plan for ~~2018~~2021 (awards payable in ~~2019)~~2022) is incorporated by reference from the description contained in Item 5.02 of the ~~Registrant’s~~Registrant's Current Report on Form 8-K filed March ~~2, 2018~~12, 2021 (SEC File No. 001-15877).
10.1410.12		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).
10.1510.13		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).
10.1610.14		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 restricted stock awards granted to executive officers under the 2009 Long-Term Equity Incentive Plan in conjunction with the Management Long-Term Incentive Plan from time to time in ~~effect. This exhibit~~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).
10.1710.16		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 ~~2009~~2019 Long-Term Equity Incentive Plan to ~~certain~~ Directors ~~in December 2016~~as part of their annual compensation arrangement is incorporated by reference ~~from~~to Exhibit ~~10.22~~10.18 to the ~~Registrant's~~Registrant’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, filed March ~~9, 2017~~2, 2020 (SEC File No. 001-15877).
10.18*		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 is incorporated by reference from Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2017, filed March 1, 2018 (SEC File No. 001-15877).
~~10.19*+~~	~~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 2018.~~
~~10.20~~	~~Voting Agreement, dated as of February 21, 2019, among~~ German American Bancorp, Inc. Amended and ~~each member of the Board of Directors of Citizens First Corporation,~~Restated 2019 Employee Stock Purchase Plan is incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed ~~February 22,~~May 26, 2020 (SEC File No. 000-15877).
10.19*		German American Bancorp, Inc. 2019 Long-Term Equity Incentive Plan is incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed May 21, 2019 (SEC File No. ~~001-15877)~~000-15877).
21+		Subsidiaries of the Registrant
23+		Consent of Crowe 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.



~~Exhibit No.~~	~~Description~~
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 for~~Inline XBRL Instance Document (The instance document does not appear in the ~~annual period ended December 31, 2018, formatted~~Interactive 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.
104		Cover 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).

# Schedules to the subject agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished to the Securities and Exchange Commission upon request.

111

* 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 406T~~Exhibits 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 and~~extent not ~~deemed~~otherwise filed herewith or ~~part of a registration statement or prospectus for purposes of Sections 11 and 12 of~~incorporated by reference hereby, the Registrant will furnish the Securities ~~Act~~and 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.

112

Item 16. Form 10-K Summary.

Not applicable.

113

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, ~~2019~~2022	By: /s/~~Mark A. Schroeder~~D. Neil Dauby
			~~Mark A. Schroeder, Chairman~~D. 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, 2022	/s/Mark A. Schroeder
				Mark A. Schroeder, Executive Chairman

Date:			March 1, 2022	/s/D. Neil Dauby
				D. Neil Dauby, Director, President and Chief Executive Officer (principal executive officer)

Date:			March 1, ~~2019~~2022	~~/s/Mark A. Schroeder~~
		~~Mark A. Schroeder, Chairman and~~
		~~Chief Executive Officer (principal executive officer)~~

~~Date:~~	~~March 1, 2019~~	/s/Zachary W. Bawel
				Zachary W. Bawel, Director

Date:			March 1, ~~2019~~2022	/s/~~Lonnie D. Collins~~Sue J. Ellsperman
				~~Lonnie D. Collins,~~Sue J. Ellsperman, Director

Date:			March 1, ~~2019~~2022	~~/s/Christina M. Ernst~~
		~~Christina M. Ernst, Director~~

~~Date:~~	~~March 1, 2019~~	/s/Marc D. Fine
				Marc D. Fine, Director

Date:			March 1, ~~2019~~2022	/s/Jason M. Kelly
				Jason M. Kelly, Director

Date:			March 1, ~~2019~~2022	~~/s/U. Butch Klem~~
		~~U. Butch Klem, Director~~

~~Date:~~	~~March 1, 2019~~	/s/J. David Lett
				J. David Lett, Director

Date:			March 1, ~~2019~~2022	~~/s/Lee A. Mitchell~~
		~~Lee A. Mitchell, Director~~

~~Date:~~	~~March 1, 2019~~	/s/Chris A. Ramsey
				Chris A. Ramsey, Director

Date:			March 1, ~~2019~~2022	/s/M. Darren Root
				M. Darren Root, Director

Date:			March 1, ~~2019~~2022	/s/Christina M. Ryan
				Christina M. Ryan, Director

Date:			March 1, 2022	/s/Thomas W. Seger
				Thomas W. Seger, Director

Date:			March 1, ~~2019~~2022	/s/~~Raymond~~Jack W. ~~Snowden~~Sheidler
				~~Raymond~~Jack W. ~~Snowden,~~Sheidler, Director

Date:			March 1, ~~2019~~2022	/s/Tyson J. Wagler
				Tyson J. Wagler, Director

Date:			March 1, 2022	/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, 2022	/s/Vicki L. Schuler
				Vicki L. Schuler, Senior Vice President, Controller (principal accounting officer)

~~102~~

114



~~INDIANA~~Indiana						35-1547518
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, no par value	GABC	~~The NASDAQ Stock~~Nasdaq Global Select Market ~~LLC~~



Name	Type of Business	Principal Office Location
German American Bank	Commercial Bank	Jasper, IN
German American Insurance, Inc.	Multi-Line Insurance Agency	Jasper, IN
German American Investment Services, Inc.	Retail Brokerage	Jasper, IN


	Years Ended December 31,
	2021		2020		2019

NET INCOME	$	84,137	$	62,210	$	59,222

Other Comprehensive Income (Loss):
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gain (Loss) Arising During the Period	(23,011)		29,783		29,866
Reclassification Adjustment for Gains Included in Net Income	(2,247)		(4,081)		(1,248)
Tax Effect	5,367		(5,432)		(6,186)
Net of Tax	(19,891)		20,270		22,432
Postretirement Benefit Obligation:
Net (Loss) Arising During the Period	—		—		(310)
Reclassification Adjustment for Amortization of Prior Service Cost and Net	—		—		37
Tax Effect	—		—		44
Net of Tax	—		—		(229)

Total Other Comprehensive Income (Loss)	(19,891)		20,270		22,203

COMPREHENSIVE INCOME	$	64,246	$	82,480	$	81,425



	Years Ended December 31,
	2018			2017			2016

NET INCOME	$	46,529		$	40,676		$	35,184

Other Comprehensive Income (Loss):
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gain (Loss) Arising During the Period	(4,936		)	7,364			(13,830		)
Reclassification Adjustment for Gains Included in Net Income	(706		)	(596		)	(1,979		)
Tax Effect	1,218			(2,377		)	5,607
Net of Tax	(4,424		)	4,391			(10,202		)
Postretirement Benefit Obligation:
Net (Loss) Arising During the Period	(73		)	(226		)	(24		)
Reclassification Adjustment for Amortization of Prior Service Cost and Net Loss Included in Net Periodic Pension Cost	32			8			6
Tax Effect	(13		)	80			4
Net of Tax	(54		)	(138		)	(14		)

Total Other Comprehensive Income (Loss)	(4,478		)	4,253			(10,216		)

COMPREHENSIVE INCOME	$	42,051		$	44,929		$	24,968



			GERMAN AMERICAN BANCORP, INC.
			(Exact name of registrant as specified in its charter)



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.			☑


Glossary of Terms and Acronyms		3

PART I

Item 1.	Business	35

Item 1A.	Risk Factors	1216

Item 1B.	Unresolved Staff Comments	1825

Item 2.	Properties	1825

Item 3.	Legal Proceedings	1825

Item 4.	Mine Safety Disclosures	1826

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1927

Item 6.	~~Selected Financial Data~~[Reserved]	2129

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2230

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	4150

Item 8.	Financial Statements and Supplementary Data	4352

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	96107

Item 9A.	Controls and Procedures	96107

Item 9B.	Other Information	96107

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	97108

Item 11.	Executive Compensation	97108

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	97108

Item 13.	Certain Relationships and Related Transactions, and Director Independence	97108

Item 14.	Principal Accounting Fees and Services	97108

PART IV

Item 15.	Exhibits, Financial Statement Schedules	98109

Item 16.	Form 10-K Summary	~~101~~113

SIGNATURES		~~102~~114



	12/31/2018 Ratio		12/31/2017 Ratio		Minimum for Capital Adequacy Purposes ⁽¹⁾		Well-Capitalized Guidelines
Total Capital (to Risk Weighted Assets)
Consolidated	12.36	%	13.62	%	8.00	%	N/A
Bank	12.37		12.29		8.00		10.00	%
Tier 1 (Core) Capital (to Risk Weighted Assets)
Consolidated	11.85	%	12.99	%	6.00	%	N/A
Bank	11.86		11.66		6.00		8.00	%
Common Equity Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets)
Consolidated	11.48	%	12.55	%	4.50	%	N/A
Bank	11.86		11.66		4.50		6.50	%
Tier 1 Capital (to Average Assets)
Consolidated	9.75	%	10.71	%	4.00	%	N/A
Bank	9.78		9.63		4.00		5.00	%



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	$	123,113	$	31,075	$	55,551	$	—	$	36,487
Time Deposits	588,483		383,827		176,312		28,262		82
Capital Lease Obligations	6,585		519		1,038		1,038		3,990
Operating Lease Commitments	7,731		1,406		1,918		1,500		2,907
Total Contractual Obligations	$	725,912	$	416,827	$	234,819	$	30,800	$	43,466



	3 Months Or Less		3 Thru 6 Months		6 Thru 12 Months		Over 12 Months		Total
December 31, 2018	$	71,380	$	34,866	$	56,928	$	176,001	$	339,175



Consolidated Statements of Comprehensive Income
Dollars in thousands ~~except per share data~~


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balances, January 1, 2019	24,967,458	$	24,967	$	229,347	$	211,424	$	(7,098)	$	458,640
Net Income						59,222				59,222
Other Comprehensive Income (Loss)								22,203		22,203
Cash Dividends ($0.68 per share)						(17,556)				(17,556)
Issuance of Common Stock for:
Acquisition of Citizens First Corporation	1,663,954	1,664		48,360						50,024
Restricted Share Grants	39,956	40		1,247						1,287

Balances, December 31, 2019	26,671,368	26,671		278,954		253,090		15,105		573,820
Cumulative Effect of Change in Accounting Principles						(6,717)				(6,717)
Balances, January 1, 2020	26,671,368	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 Grants	52,701	53		998						1,051
Stock Repurchase	(221,912)	(222)		(5,567)						(5,789)

Balances, December 31, 2020	26,502,157	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 Grants	51,351	52		1,672						1,724
Balances, December 31, 2021	26,553,508	$	26,554	$	276,057	$	350,364	$	15,484	$	668,459


	Years Ended December 31,										Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES	2018			2017			2016			CASH FLOWS FROM OPERATING ACTIVITIES	2021		2020		2019
Net Income	$	46,529		$	40,676		$	35,184		Net Income	$	84,137	$	62,210	$	59,222
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	3,550			3,543			3,675			Net Amortization on Securities	6,638		5,671		3,862
Depreciation and Amortization	6,184			4,687			4,315			Depreciation and Amortization	8,770		9,429		8,630
Loans Originated for Sale	(131,916		)	(122,518		)	(138,192		)	Loans Originated for Sale	(261,529)		(317,032)		(198,326)
Proceeds from Sales of Loans Held-for-Sale	137,417			134,316			137,307			Proceeds from Sales of Loans Held-for-Sale	276,417		327,172		189,875
Provision for Loan Losses	2,070			1,750			1,200
Provision for Credit Losses										Provision for Credit Losses	(6,500)		17,550		5,325
Gain on Sale of Loans, net	(3,004		)	(3,280		)	(3,359		)	Gain on Sale of Loans, net	(8,267)		(9,908)		(4,633)
Gain on Securities, net	(706		)	(596		)	(1,979		)	Gain on Securities, net	(2,247)		(4,081)		(1,248)
Gain on Sales of Other Real Estate and Repossessed Assets	(41		)	(17		)	(55		)
Loss (Gain) on Sales of Other Real Estate and Repossessed Assets										Loss (Gain) on Sales of Other Real Estate and Repossessed Assets	(101)		28		200
Loss (Gain) on Disposition and Donation of Premises and Equipment	(36		)	870			5			Loss (Gain) on Disposition and Donation of Premises and Equipment	1,640		223		111
Loss on Disposition of Land	44			—			—
Loss (Gain) on Disposition of Land										Loss (Gain) on Disposition of Land	—		43		(352)
Post Retirement Medical Benefit	(55		)	(34		)	7			Post Retirement Medical Benefit	—		—		(228)
Increase in Cash Surrender Value of Company Owned Life Insurance	(1,141		)	(1,370		)	(1,068		)	Increase in Cash Surrender Value of Company Owned Life Insurance	(1,369)		(1,449)		(1,407)
Equity Based Compensation	1,355			1,246			1,407			Equity Based Compensation	1,724		1,051		1,287
Excess Tax Benefit from Restricted Share Grant	32			240			200			Excess Tax Benefit from Restricted Share Grant	—		3		25
Change in Assets and Liabilities:										Change in Assets and Liabilities:
Interest Receivable and Other Assets	2,211			(4,528		)	5,813			Interest Receivable and Other Assets	2,716		(2,925)		(1,602)
Interest Payable and Other Liabilities	(162		)	(110		)	(2,547		)	Interest Payable and Other Liabilities	(1,185)		4,433		4,488
Net Cash from Operating Activities	62,331			54,875			41,913			Net Cash from Operating Activities	100,844		92,418		65,229

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			Proceeds from Maturity of Other Short-term Investments	496		744		496
Proceeds from Maturities of Securities Available-for-Sale	78,714			79,955			103,301			Proceeds from Maturities of Securities Available-for-Sale	208,156		200,968		114,669
Proceeds from Sales of Securities Available-for-Sale	91,013			49,459			165,102			Proceeds from Sales of Securities Available-for-Sale	111,124		125,106		82,601
Purchase of Securities Available-for-Sale	(140,604		)	(156,802		)	(225,456		)	Purchase of Securities Available-for-Sale	(1,020,695)		(664,989)		(169,640)
Proceeds from Maturities of Securities Held-to-Maturity	—			—			95
Purchase of Federal Home Loan Bank Stock	—			—			(1,350		)
Proceeds from Redemption of Federal Home Loan Bank Stock	2,607			—			—			Proceeds from Redemption of Federal Home Loan Bank Stock	120		800		1,145
Purchase of Loans	(1,209		)	(5,547		)	(5,383		)	Purchase of Loans	—		—		(2,051)
Proceeds from Sales of Loans	6,000			1,106			2,029
Proceeds from Sales of Loans Held for Investment										Proceeds from Sales of Loans Held for Investment	—		3,128		—
Loans Made to Customers, net of Payments Received	(87,127		)	(149,336		)	(106,198		)	Loans Made to Customers, net of Payments Received	59,557		(10,114)		3,925
Proceeds from Sales of Other Real Estate	662			1,435			1,429			Proceeds from Sales of Other Real Estate	1,423		340		369
Property and Equipment Expenditures	(15,186		)	(11,183		)	(5,234		)	Property and Equipment Expenditures	(4,686)		(7,071)		(9,374)
Proceeds from Sales of Property and Equipment	40			6			—
Proceeds from Sale of Land	393			—			—

Proceeds from Sale of Land and Building										Proceeds from Sale of Land and Building	1,963		3,928		1,761
Proceeds from Life Insurance	765			1,627			—			Proceeds from Life Insurance	549		1,082		1,216
Acquisition of River Valley Bancorp	—			—			(1,016		)
Cash from Acquisition of Bank Branches	42,700			—			—
Acquisition of First Security, Inc.	(17,566		)	—			—
Sale of Bank Branches										Sale of Bank Branches	1,694		—		—

Acquisition of Citizens First Corporation										Acquisition of Citizens First Corporation	—		—		5,545
Net Cash from Investing Activities	(38,798		)	(189,280		)	(71,689		)	Net Cash from Investing Activities	(640,299)		(346,078)		30,662

CASH FLOWS FROM FINANCING ACTIVITIES										CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits	(11,112		)	134,737			118,231			Change in Deposits	655,485		676,906		(13,007)
Change in Short-term Borrowings	42,999			(4,054		)	(40,163		)	Change in Short-term Borrowings	15,423		(114,832)		(82,037)
Advances in Long-term Debt	25,000			75,000			—			Advances in Long-term Debt	—		—		89,214
Repayments of Long-term Debt	(40,155		)	(53,864		)	(24,910		)	Repayments of Long-term Debt	(58,091)		(40,625)		(65,171)
Issuance (Retirement) of Common Stock	—			(29		)	55			Issuance (Retirement) of Common Stock	—		(5,789)		—
Dividends Paid	(14,074		)	(11,842		)	(10,630		)	Dividends Paid	(22,220)		(20,136)		(17,556)
Net Cash from Financing Activities	2,658			139,948			42,583			Net Cash from Financing Activities	590,597		495,524		(88,557)

Net Change in Cash and Cash Equivalents	26,191			5,543			12,807			Net Change in Cash and Cash Equivalents	51,142		241,864		7,334
Cash and Cash Equivalents at Beginning of Year	70,359			64,816			52,009			Cash and Cash Equivalents at Beginning of Year	345,748		103,884		96,550
Cash and Cash Equivalents at End of Year	$	96,550		$	70,359		$	64,816		Cash and Cash Equivalents at End of Year	$	396,890	$	345,748	$	103,884

Cash Paid During the Year for										Cash Paid During the Year for
Interest	$	18,239		$	10,852		$	8,348		Interest	$	10,020	$	20,484	$	30,765
Income Taxes	5,920			12,462			9,254			Income Taxes	14,434		11,505		7,977

Supplemental Non Cash Disclosures (See Note 18 for Business Combinations)										Supplemental Non Cash Disclosures (See Note 18 for Business Combinations)
Loans Transferred to Other Real Estate	$	398		$	1,230		$	565		Loans Transferred to Other Real Estate	$	—	$	—	$	708
Reclassification of Land and Buildings to Other Assets	850			330			664			Reclassification of Land and Buildings to Other Assets	—		—		5,712
Right of Use Asset Obtained in Exchange for Lease Liabilities										Right of Use Asset Obtained in Exchange for Lease Liabilities	—		—		9,034


(dollars in thousands)		December 31, 2019 Statement Balance		Segment Portfolio Reclassifications		December 31, 2019 After Reclassification
Loans:
	Commercial and Industrial Loans	$	589,758	$	(57,257)	$	532,501
	Commercial Real Estate Loans	1,495,862		N/A		1,495,862
	Agricultural Loans	384,526		N/A		384,526
	Leases	N/A		57,257		57,257
	Home Equity Loans	225,755		N/A		225,755
	Consumer Loans	81,217		(11,953)		69,264
	Credit Cards	N/A		11,953		11,953
	Residential Mortgage Loans	304,855		N/A		304,855
	Total Loans	$	3,081,973	$	—	$	3,081,973


(dollars in thousands)	December 31, 2019 After Reclassification		Impact of ASC 326 Adoption		January 1, 2020 Post-ASC 326 Adoption
Assets:
Loans:
Commercial and Industrial Loans	$	532,501	$	2,191	$	534,692
Commercial Real Estate Loans	1,495,862		4,385		1,500,247
Agricultural Loans	384,526		128		384,654
Leases	57,257		—		57,257
Home Equity Loans	225,755		35		225,790
Consumer Loans	69,264		—		69,264
Credit Cards	11,953		—		11,953
Residential Mortgage Loans	304,855		147		305,002
Allowance for Credit Losses on Loans	(16,278)		(15,653)		(31,931)

Liabilities:
Allowance for Credit Losses on Unfunded Loan Commitments	$	—	$	(173)	$	(173)


Securities Available-for-Sale:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
2021
Obligations of State and Political Subdivisions	$	896,048	$	31,138	$	(1,480)	$	925,706
MBS/CMO	797,693		4,738		(10,481)		791,950
US Gov’t Sponsored Entities & Agencies	175,457		192		(3,688)		171,961
Total	$	1,869,198	$	36,068	$	(15,649)	$	1,889,617

2020
Obligations of State and Political Subdivisions	$	548,273	$	33,077	$	(103)	$	581,247
MBS/CMO	535,526		12,806		(25)		548,307
US Gov’t Sponsored Entities & Agencies	88,376		120		(198)		88,298
Total	$	1,172,175	$	46,003	$	(326)	$	1,217,852


	Amortized Cost		Fair Value
Securities Available-for-Sale:
Due in one year or less	$	2,806	$	2,844
Due after one year through five years	18,670		19,395
Due after five years through ten years	70,964		75,685
Due after ten years	803,608		827,782
MBS/CMO	797,693		791,950
US Gov’t Sponsored Entities & Agencies	175,457		171,961
Total	$	1,869,198	$	1,889,617


	Less than 12 Months				12 Months or More				Total
	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/CMO	467,888		(9,100)		36,827		(1,381)		504,715		(10,481)
US Gov’t Sponsored Entities & Agencies	126,103		(3,480)		7,288		(208)		133,391		(3,688)
Total	$	759,201	$	(13,966)	$	45,615	$	(1,683)	$	804,816	$	(15,649)


	December 31, 2018				December 31, 2017					December 31, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value			Notional Amount		Fair Value		Notional Amount		Fair Value
Included in Other Assets:									Included in Other Assets:
Interest Rate Swaps	$	85,587	$	1,713	$	87,788	$	1,564	Interest Rate Swaps	$	143,593	$	4,519	$	117,621	$	8,806
Included in Other Liabilities:									Included in Other Liabilities:
Interest Rate Swaps	$	85,587	$	1,734	$	87,788	$	1,633	Interest Rate Swaps	$	143,593	$	4,762	$	117,621	$	9,353


	2021		2020
Commercial:
Commercial and Industrial Loans	$	493,005	$	638,773
Commercial Real Estate Loans	1,530,677		1,467,397
Agricultural Loans	358,150		376,186
Leases	55,345		55,664
Retail:
Home Equity Loans	222,525		219,348
Consumer Loans	70,302		66,717
Credit Cards	14,357		11,637
Residential Mortgage Loans	263,565		256,276
Subtotal	3,007,926		3,091,998
Less: Unearned Income	(3,662)		(3,926)
Allowance for Credit Losses	(37,017)		(46,859)
Loans, net	$	2,967,247	$	3,041,213



	Acquired Loan Balance		Fair Value Discounts			Fair Value

Branch Acquisition	$	119,176	$	(2,871	)	$	116,305
Bank Acquisition	402,234		(12,128		)	390,106



	Loan Balance at December 31, 2018		Fair Value Discount at December 31, 2018

Branch Acquisition	$	108,505	$	(2,491	)
Bank Acquisition	385,557		(11,063		)



	Commercial and Industrial Loans and Leases			Commercial Real Estate Loans			Agricultural Loans		Home Equity Loans			Consumer Loans			Residential Mortgage Loans			Unallocated		Total
December 31, 2018
Beginning Balance	$	4,735		$	4,591		$	4,894	$	330		$	298		$	343		$	503	$	15,694
Provision for Loan Losses	(423		)	729			862		(52		)	608			167			179		2,070
Recoveries	141			20			20		12			375			37			—		605
Loans Charged-off	(1,500		)	(49		)	—		(61		)	(861		)	(75		)	—		(2,546		)
Ending Balance	$	2,953		$	5,291		$	5,776	$	229		$	420		$	472		$	682	$	15,823


December 31, 2021	Commercial and Industrial Loans		Commercial Real Estate Loans		Agricultural Loans		Leases		Consumer Loans		Home Equity Loans		Credit Cards		Residential Mortgage Loans		Unallocated		Total
Allowance for Credit Losses:
Beginning Balance	$	6,445	$	29,878	$	6,756	$	200	$	490	$	996	$	150	$	1,944	$	—	$	46,859
Provision (Benefit) for Credit Losses	5,825		(10,663)		(2,251)		—		385		44		387		(227)		—		(6,500)
Loans Charged-off	(2,777)		(10)		—		—		(675)		(15)		(313)		(45)		—		(3,835)
Recoveries Collected	61		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



December 31, 2018	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	$	1,823	$	143	$	1,680	$	—	$	—	$	—	$	—	$	—
Collectively Evaluated for Impairment	13,992		2,810		3,608		5,776		229		420		467		682
Acquired with Deteriorated Credit Quality	8		—		3		—		—		—		5		—
Total Ending Allowance Balance	$	15,823	$	2,953	$	5,291	$	5,776	$	229	$	420	$	472	$	682

Loans:
Loans Individually Evaluated for Impairment	$	9,619	$	3,536	$	6,083	$	—	$	—	$	—	$	—	n/m⁽²⁾
Loans Collectively Evaluated for Impairment	2,722,867		540,768		1,198,806		368,817		208,644		77,761		328,071		n/m⁽²⁾
Loans Acquired with Deteriorated Credit Quality	11,556		1,038		6,993		1,877		365		—		1,283		n/m⁽²⁾
Total Ending Loans Balance ⁽¹⁾	$	2,744,042	$	545,342	$	1,211,882	$	370,694	$	209,009	$	77,761	$	329,354	n/m⁽²⁾



	Unpaid Principal Balance⁽¹⁾		Recorded Investment		Allowance for Loan Losses Allocated
December 31, 2018
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	3,721	$	1,183	$	—
Commercial Real Estate Loans	5,828		4,383		—
Agricultural Loans	1,726		1,450		—
Subtotal	11,275		7,016		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases	2,353		2,353		143
Commercial Real Estate Loans	4,404		4,212		1,683
Agricultural Loans	—		—		—
Subtotal	6,757		6,565		1,826
Total	$	18,032	$	13,581	$	1,826

Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)	$	8,060	$	3,958	$	—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)	$	196	$	4	$	3



	Average Recorded Investment		Interest Income Recognized		Cash Basis Recognized
December 31, 2018
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	1,164	$	53	$	3
Commercial Real Estate Loans	2,163		80		36
Agricultural Loans	770		—		—
Subtotal	4,097		133		39
With An Allowance Recorded:
Commercial and Industrial Loans and Leases	2,956		2		9
Commercial Real Estate Loans	4,680		18		—
Agricultural Loans	—		—		—
Subtotal	7,636		20		9
Total	$	11,733	$	153	$	48

Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)	$	868	$	21	$	—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)	$	151	$	29	$	—


December 31, 2021	Non-Accrual With No Allowance for Credit Loss ⁽¹⁾		Non-Accrual		Loans Past Due Over 89 Days Still Accruing

Commercial and Industrial Loans	$	1,989	$	10,530	$	—
Commercial Real Estate Loans	145		2,243		156
Agricultural Loans	1,041		1,136		—
Leases	—		—		—
Home Equity Loans	1		24		—
Consumer Loans	16		18		—
Credit Cards	64		64		—
Residential Mortgage Loans	587		587		—
Total	$	3,843	$	14,602	$	156


December 31, 2021	Real Estate		Equipment		Accounts Receivable		Other		Total

Commercial and Industrial Loans	$	1,716	$	2,444	$	549	$	5,822	$	10,531
Commercial Real Estate Loans	4,610		—		—		—		4,610
Agricultural Loans	1,522		—		—		—		1,522
Leases	—		—		—		—		—
Home Equity Loans	441		—		—		—		441
Consumer Loans	6		—		—		2		8
Credit Cards	—		—		—		—		—
Residential Mortgage Loans	652		—		—		—		652
Total	$	8,947	$	2,444	$	549	$	5,824	$	17,764



					Loans Past Due 90 Days or More
	Non-Accrual				& Still Accruing
	2018		2017		2018		2017
Commercial and Industrial Loans and Leases	$	2,430	$	4,753	$	—	$	—
Commercial Real Estate Loans	6,833		4,618		368		474
Agricultural Loans	1,449		748		274		268
Home Equity Loans	88		199		—		—
Consumer Loans	162		286		—		—
Residential Mortgage Loans	1,617		487		—		—
Total	$	12,579	$	11,091	$	642	$	742
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)	$	4,162	$	866	$	141	$	—
Loans Acquired in Current Year (Included in the Total Above)	$	4,603	$	—	$	96	$	—


December 31, 2021													December 31, 2021	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total 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, 2018
Commercial and Industrial Loans and Leases	$	545,342	$	5,414	$	183	$	72	$	5,669	$	539,673
Commercial and Industrial Loans													Commercial and Industrial Loans	$	12	$	—	$	6,147	$	6,159	$	486,846	$	493,005
Commercial Real Estate Loans	1,211,882		768		705		3,032		4,505		1,207,377		Commercial Real Estate Loans	—		5		891		896		1,529,781		1,530,677
Agricultural Loans	370,694		563		805		274		1,642		369,052		Agricultural Loans	—		—		—		—		358,150		358,150
Leases													Leases	—		—		—		—		55,345		55,345
Home Equity Loans	209,009		471		125		60		656		208,353		Home Equity Loans	225		229		25		479		222,046		222,525
Consumer Loans	77,761		971		94		149		1,214		76,547		Consumer Loans	158		58		4		220		70,082		70,302
Credit Cards													Credit Cards	61		9		64		134		14,223		14,357
Residential Mortgage Loans	329,354		4,771		1,520		1,387		7,678		321,676		Residential Mortgage Loans	2,726		507		369		3,602		259,963		263,565
Total ⁽¹⁾	$	2,744,042	$	12,958	$	3,432	$	4,974	$	21,364	$	2,722,678
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)	$	11,556	$	448	$	885	$	1,259	$	2,592	$	8,964
Loans Acquired in Current Year (Included in the Total Above)	$	481,901	$	2,571	$	1,620	$	2,191	$	6,382	$	475,519
Total													Total	$	3,182	$	808	$	7,500	$	11,490	$	2,996,436	$	3,007,926



	Total		Performing		Non-Accrual⁽¹⁾
December 31, 2018
Commercial and Industrial Loans and Leases	$	121	$	121	$	—
Commercial Real Estate Loans	—		—		—
Total	$	121	$	121	$	—



	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


	Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and Industrial:
Risk Rating
Pass	$	141,133	$	57,477	$	60,883	$	29,005	$	15,936	$	48,559	$	122,377	$	475,370
Special Mention	115		128		227		649		7		918		1,510		3,554
Substandard	100		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 Mention	2,279		—		710		14,426		17,356		13,916		—		48,687
Substandard	74		—		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 Mention	1,714		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