UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended ~~September 30, 2020~~March 31, 2021

Commission File Number 001-15877

German American Bancorp, Inc.

(Exact name of registrant as specified in its charter)


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

711 Main Street, Jasper, Indiana 47546

(Address of Principal Executive Offices and Zip Code)

Registrant’s telephone number, including area code: (812) 482-1314

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company:

Large accelerated filer

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ☐ No x

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	GABC	Nasdaq Global Select Market

As of ~~November 1, 2020,~~May 5, 2021, the registrant had ~~26,492,256~~26,545,704 outstanding shares of Common Stock, no par value.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

Information included in or incorporated by reference in this Quarterly Report on Form 10-Q, our other filings with the Securities and Exchange Commission (the “SEC”) and our press releases or other public statements contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the discussions of our forward-looking statements and associated risks in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, in Item 1, “Business - Forward-Looking Statements and Associated Risks” and our discussion of risk factors in Item 1A, “Risk Factors” of that Annual Report on Form 10-K, as updated and supplemented from time to time by our subsequent SEC filings, including by the discussion under the heading “Forward-Looking Statements and Associated Risks” at the conclusion of Item 2 of Part I of this Report (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”), and by the additional risk factors set forth in Part II, Item 1A, “Risk Factors” of this Report.

*****

INDEX


Glossary of Terms and Acronyms		4

PART I. FINANCIAL INFORMATION		6

Item 1.	Unaudited Financial Statements	6

	Consolidated Balance Sheets – ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	6

	Consolidated Statements of Income – Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	7

	~~Consolidated Statements of Income – Nine Months Ended September 30, 2020 and 2019~~	8

	Consolidated Statements of Comprehensive Income (Loss) – Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	98

	Consolidated Statements of Changes in Shareholders' Equity - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	109

	Consolidated Statements of Cash Flows – ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	1210

	Notes to Consolidated Financial Statements – ~~September 30, 2020~~March 31, 2021	1311

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4841

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6554

Item 4.	Controls and Procedures	6655

PART II. OTHER INFORMATION		6756

Item 1.	Legal Proceedings	6856

Item 1A.	Risk Factors	6856

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6856

Item 3.	Defaults Upon Senior Securities	6856

Item 4.	Mine Safety Disclosures	6856

Item 5.	Other Information	6856

Item 6.	Exhibits	7057

SIGNATURES		7158

GLOSSARY OF TERMS AND ACRONYMS

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

The terms and acronyms identified below are used throughout this Report, including the Notes to Consolidated Financial Statements. You may find it helpful to refer to this Glossary as you read this Report.

2009 ESPP: German American Bancorp, Inc. 2009 Employee Stock Purchase Plan

2019 ESPP: German American Bancorp, Inc. 2019 Employee Stock Purchase Plan

2019 LTI Plan: German American Bancorp, Inc. 2019 Long-Term Equity Incentive Plan

ASC: Accounting Standards Codification

ASU: Accounting Standards Update

Basel ~~III:~~III Rules: Regulatory capital ~~reforms~~rules agreed to by the Basel Committee on Banking Supervision, as ~~reflected in the final rule~~ issued by the FRB and OCC and published in the Federal Register on October 11, 2013

CAA: 2021 Consolidated Appropriations Act enacted on December 27, 2020, which included a $900 billion COVID-19 relief package

CARES Act: Coronavirus Aid, Relief and Economic Security Act

CBLR: Community bank leverage ratio

CECL: Current expected credit losses

CET1: Common Equity Tier 1

~~Citizens First: Citizens First Corporation~~

CMO: Collateralized mortgage obligations

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

Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act

FASB: Financial Accounting Standards Board

FDIC: Federal Deposit Insurance Corporation

federal banking

regulators: The FRB, the OCC, and the FDIC, collectively

FHLB: Federal Home Loan Bank

FRB: Board of Governors of the Federal Reserve System

GAAP: Generally Accepted Accounting Principles in the United States of America

LIBOR: London Interbank Offered Rate

MBS: Mortgage-backed securities

NPV: Net portfolio value

OCC: Office of the Comptroller of the Currency

PCD: Purchased with credit deterioration

PCI: Purchased credit impaired

PPP: Paycheck Protection Program established under the CARES Act

PPPL Facility: Paycheck Protection Program Liquidity Facility authorized by the FRB pursuant to the Federal Reserve Act

SBA: Small Business Administration

SEC: Securities and Exchange Commission

TDR: Troubled Debt Restructurings

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, dollars in thousands except share and per share data)

September 30,
2020 December 31,
2019
ASSETS
Cash and Due from Banks $ 56,706 $ 59,971
Federal Funds Sold and Other Short-term Investments 192,987 43,913
Cash and Cash Equivalents 249,693 103,884
Interest-bearing Time Deposits with Banks 1,489 1,985
Securities Available-for-Sale, at Fair Value (Amortized Cost $997,074, NaN Allowance for
Credit Losses as of September 30, 2020)
1,036,910 854,825
Other Investments 353 353
Loans Held-for-Sale, at Fair Value 27,993 17,713
Loans 3,225,232 3,081,973
Less: Unearned Income (4,105) (4,882)
Allowance for Credit Losses (46,768) (16,278)
Loans, Net 3,174,359 3,060,813
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost 13,168 13,968
Premises, Furniture and Equipment, Net 96,682 96,651
Other Real Estate 425 425
Goodwill 121,956 121,306
Intangible Assets 9,827 12,656
Company Owned Life Insurance 68,893 68,883
Accrued Interest Receivable and Other Assets 51,082 44,210
TOTAL ASSETS $ 4,852,830 $ 4,397,672
LIABILITIES
Non-interest-bearing Demand Deposits $ 1,185,814 $ 832,985
Interest-bearing Demand, Savings, and Money Market Accounts 2,278,826 1,965,640
Time Deposits 515,034 631,396
Total Deposits 3,979,674 3,430,021
FHLB Advances and Other Borrowings 214,544 349,686
Accrued Interest Payable and Other Liabilities 54,631 44,145
TOTAL LIABILITIES 4,248,849 3,823,852
SHAREHOLDERS’ EQUITY
Common Stock, no par value, $1 stated value; 45,000,000 shares authorized 26,493 26,671
Additional Paid-in Capital 274,166 278,954
Retained Earnings 272,579 253,090
Accumulated Other Comprehensive Income 30,743 15,105
TOTAL SHAREHOLDERS’ EQUITY 603,981 573,820
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 4,852,830 $ 4,397,672
End of period shares issued and outstanding 26,492,866 26,671,368


	March 31, 2021		December 31, 2020
ASSETS
Cash and Due from Banks	$	102,758	$	57,972
Federal Funds Sold and Other Short-term Investments	290,486		287,776
Cash and Cash Equivalents	393,244		345,748

Interest-bearing Time Deposits with Banks	1,241		1,241
Securities Available-for-Sale, at Fair Value (Amortized Cost $1,367,856 for March 31, 2021; Amortized Cost $1,172,175 for December 31 2020; NaN Allowance for Credit Losses)	1,385,873		1,217,852
Other Investments	353		353

Loans Held-for-Sale, at Fair Value	18,493		16,904

Loans	3,120,981		3,091,998
Less: Unearned Income	(3,778)		(3,926)
Allowance for Credit Losses	(45,099)		(46,859)
Loans, Net	3,072,104		3,041,213

Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost	13,048		13,168
Premises, Furniture and Equipment, Net	92,044		96,593
Other Real Estate	325		325
Goodwill	121,956		121,956
Intangible Assets	8,130		8,984
Company Owned Life Insurance	69,606		69,250
Accrued Interest Receivable and Other Assets	43,417		43,990
TOTAL ASSETS	$	5,219,834	$	4,977,577

LIABILITIES
Non-interest-bearing Demand Deposits	$	1,383,888	$	1,183,442
Interest-bearing Demand, Savings, and Money Market Accounts	2,548,015		2,428,636
Time Deposits	446,770		494,452
Total Deposits	4,378,673		4,106,530

FHLB Advances and Other Borrowings	173,547		194,529
Accrued Interest Payable and Other Liabilities	50,401		51,809
TOTAL LIABILITIES	4,602,621		4,352,868

SHAREHOLDERS’ EQUITY
Common Stock, no par value, $1 stated value; 45,000,000 shares authorized	26,546		26,502
Additional Paid-in Capital	274,670		274,385
Retained Earnings	302,450		288,447
Accumulated Other Comprehensive Income	13,547		35,375
TOTAL SHAREHOLDERS’ EQUITY	617,213		624,709
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,219,834	$	4,977,577
End of period shares issued and outstanding	26,546,280		26,502,157

See accompanying notes to consolidated financial statements.

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited, dollars in thousands except per share data)


		Three Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020
INTEREST INCOME	INTEREST INCOME					INTEREST INCOME
Interest and Fees on Loans	Interest and Fees on Loans	$	36,543	$	40,921	Interest and Fees on Loans	$	35,104	$	37,858
Interest on Federal Funds Sold and Other Short-term Investments	Interest on Federal Funds Sold and Other Short-term Investments	45		163		Interest on Federal Funds Sold and Other Short-term Investments	85		158
Interest and Dividends on Securities:	Interest and Dividends on Securities:					Interest and Dividends on Securities:
Taxable	Taxable	2,350		3,400		Taxable	2,607		3,110
Non-taxable	Non-taxable	3,175		2,427		Non-taxable	3,729		2,445
TOTAL INTEREST INCOME	TOTAL INTEREST INCOME	42,113		46,911		TOTAL INTEREST INCOME	41,525		43,571

INTEREST EXPENSE	INTEREST EXPENSE					INTEREST EXPENSE
Interest on Deposits	Interest on Deposits	2,492		6,399		Interest on Deposits	1,442		5,657
Interest on FHLB Advances and Other Borrowings	Interest on FHLB Advances and Other Borrowings	1,233		1,934		Interest on FHLB Advances and Other Borrowings	1,151		1,658
TOTAL INTEREST EXPENSE	TOTAL INTEREST EXPENSE	3,725		8,333		TOTAL INTEREST EXPENSE	2,593		7,315

NET INTEREST INCOME	NET INTEREST INCOME	38,388		38,578		NET INTEREST INCOME	38,932		36,256
Provision for Credit Losses	Provision for Credit Losses	4,500		2,800		Provision for Credit Losses	(1,500)		5,150
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	33,888		35,778		NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	40,432		31,106

NON-INTEREST INCOME	NON-INTEREST INCOME					NON-INTEREST INCOME
Trust and Investment Product Fees	Trust and Investment Product Fees	1,957		1,885		Trust and Investment Product Fees	2,358		2,031
Service Charges on Deposit Accounts	Service Charges on Deposit Accounts	1,773		2,395		Service Charges on Deposit Accounts	1,678		2,237
Insurance Revenues	Insurance Revenues	1,989		1,883		Insurance Revenues	3,292		3,229
Company Owned Life Insurance	Company Owned Life Insurance	355		364		Company Owned Life Insurance	352		1,222
Interchange Fee Income	Interchange Fee Income	2,795		2,538		Interchange Fee Income	2,830		2,482
Other Operating Income	Other Operating Income	942		1,029		Other Operating Income	1,350		427
Net Gains on Sales of Loans	Net Gains on Sales of Loans	2,861		1,649		Net Gains on Sales of Loans	2,202		1,863
Net Gains on Securities	Net Gains on Securities	607		313		Net Gains on Securities	975		590
TOTAL NON-INTEREST INCOME	TOTAL NON-INTEREST INCOME	13,279		12,056		TOTAL NON-INTEREST INCOME	15,037		14,081

NON-INTEREST EXPENSE	NON-INTEREST EXPENSE					NON-INTEREST EXPENSE
Salaries and Employee Benefits	Salaries and Employee Benefits	17,409		17,579		Salaries and Employee Benefits	17,805		17,400
Occupancy Expense	Occupancy Expense	2,418		2,797		Occupancy Expense	3,372		2,570
Furniture and Equipment Expense	Furniture and Equipment Expense	944		954		Furniture and Equipment Expense	976		1,011
FDIC Premiums	FDIC Premiums	326		0		FDIC Premiums	334		0
Data Processing Fees	Data Processing Fees	1,693		2,860		Data Processing Fees	1,743		1,686
Professional Fees	Professional Fees	875		1,324		Professional Fees	1,160		1,084
Advertising and Promotion	Advertising and Promotion	708		1,054		Advertising and Promotion	782		1,071
Intangible Amortization	Intangible Amortization	860		1,064		Intangible Amortization	760		960
Other Operating Expenses	Other Operating Expenses	4,187		4,329		Other Operating Expenses	4,327		4,546
TOTAL NON-INTEREST EXPENSE	TOTAL NON-INTEREST EXPENSE	29,420		31,961		TOTAL NON-INTEREST EXPENSE	31,259		30,328

Income before Income Taxes	Income before Income Taxes	17,747		15,873		Income before Income Taxes	24,210		14,859
Income Tax Expense	Income Tax Expense	3,154		2,809		Income Tax Expense	4,653		2,387
NET INCOME	NET INCOME	$	14,593	$	13,064	NET INCOME	$	19,557	$	12,472

Basic Earnings per Share	Basic Earnings per Share	$	0.55	$	0.49	Basic Earnings per Share	$	0.74	$	0.47
Diluted Earnings per Share	Diluted Earnings per Share	$	0.55	$	0.49	Diluted Earnings per Share	$	0.74	$	0.47

See accompanying notes to consolidated financial statements.

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF ~~INCOME~~

~~(unaudited, dollars in thousands except per share data)~~

Nine Months Ended
September 30,
2020 2019
INTEREST INCOME
Interest and Fees on Loans $ 112,481 $ 111,086
Interest on Federal Funds Sold and Other Short-term Investments 287 389
Interest and Dividends on Securities:
Taxable 8,166 10,554
Non-taxable 8,291 7,107
TOTAL INTEREST INCOME 129,225 129,136
INTEREST EXPENSE
Interest on Deposits 11,892 17,574
Interest on FHLB Advances and Other Borrowings 4,230 5,752
TOTAL INTEREST EXPENSE 16,122 23,326
NET INTEREST INCOME 113,103 105,810
Provision for Credit Losses 15,550 3,725
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 97,553 102,085
NON-INTEREST INCOME
Trust and Investment Product Fees 5,855 5,365
Service Charges on Deposit Accounts 5,375 6,319
Insurance Revenues 7,048 7,017
Company Owned Life Insurance 1,933 1,552
Interchange Fee Income 7,753 6,965
Other Operating Income 2,251 2,361
Net Gains on Sales of Loans 7,378 3,660
Net Gains on Securities 2,190 984
TOTAL NON-INTEREST INCOME 39,783 34,223
NON-INTEREST EXPENSE
Salaries and Employee Benefits 50,691 46,740
Occupancy Expense 7,461 7,367
Furniture and Equipment Expense 2,963 2,815
FDIC Premiums 449 533
Data Processing Fees 5,142 6,246
Professional Fees 3,041 3,825
Advertising and Promotion 2,661 2,860
Intangible Amortization 2,729 2,709
Other Operating Expenses 12,699 11,243
TOTAL NON-INTEREST EXPENSE 87,836 84,338
Income before Income Taxes 49,500 51,970
Income Tax Expense 8,180 8,568
NET INCOME $ 41,320 $ 43,402
Basic Earnings per Share $ 1.56 $ 1.70
Diluted Earnings per Share $ 1.56 $ 1.70

~~See accompanying notes to consolidated financial statements.~~

~~GERMAN AMERICAN BANCORP, INC.~~

~~CONSOLIDATED STATEMENTS OF~~ COMPREHENSIVE INCOME (LOSS)

(unaudited, dollars in thousands)


		Three Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020

NET INCOME	NET INCOME	$	14,593	$	13,064	NET INCOME	$	19,557	$	12,472

Other Comprehensive Income (Loss):	Other Comprehensive Income (Loss):					Other Comprehensive Income (Loss):
Unrealized Gains (Losses) on Securities:	Unrealized Gains (Losses) on Securities:					Unrealized Gains (Losses) on Securities:
Unrealized Holding Gain (Loss) Arising During the Period	Unrealized Holding Gain (Loss) Arising During the Period	63		6,223		Unrealized Holding Gain (Loss) Arising During the Period	(26,685)		17,479
Reclassification Adjustment for Gains Included in Net Income	Reclassification Adjustment for Gains Included in Net Income	(607)		(313)		Reclassification Adjustment for Gains Included in Net Income	(975)		(590)
Tax Effect	Tax Effect	138		(1,261)		Tax Effect	5,832		(3,634)
Net of Tax	Net of Tax	(406)		4,649		Net of Tax	(21,828)		13,255

Total Other Comprehensive Income (Loss)	Total Other Comprehensive Income (Loss)	(406)		4,649		Total Other Comprehensive Income (Loss)	(21,828)		13,255

COMPREHENSIVE INCOME		$	14,187	$	17,713
COMPREHENSIVE INCOME (LOSS)						COMPREHENSIVE INCOME (LOSS)	$	(2,271)	$	25,727

Nine Months Ended
September 30,
2020 2019
NET INCOME $ 41,320 $ 43,402
Other Comprehensive Income:
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gain (Loss) Arising During the Period 22,051 30,262
Reclassification Adjustment for Gains Included in Net Income (2,190) (984)
Tax Effect (4,223) (6,324)
Net of Tax 15,638 22,954
Total Other Comprehensive Income 15,638 22,954
COMPREHENSIVE INCOME $ 56,958 $ 66,356

~~See accompanying notes to consolidated financial statements.~~

~~GERMAN AMERICAN BANCORP, INC.~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY~~

~~(unaudited, dollars in thousands)~~

Common Stock
Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity
Balances, December 31, 2019 26,671,368 $ 26,671 $ 278,954 $ 253,090 $ 15,105 $ 573,820
Cumulative Effect of Change in Accounting Principles (See Note 2 - Recent Accounting Pronouncements) (6,717) (6,717)
Balances, January 1, 2020 26,671,368 26,671 278,954 246,373 15,105 567,103
Net Income 12,472 12,472
Other Comprehensive Income 13,255 13,255
Cash Dividends ($0.19 per share) (5,065) (5,065)
Issuance of Common Stock for:
Restricted Share Grants 41,752 42 228 270
Stock Repurchase (173,089) (173) (4,322) (4,495)
Balances, March 31, 2020 26,540,031 $ 26,540 $ 274,860 $ 253,780 $ 28,360 $ 583,540
Net Income 14,255 14,255
Other Comprehensive Income 2,789 2,789
Cash Dividends ($0.19 per share) (5,024) (5,024)
Issuance of Common Stock for:
Restricted Share Grants 1,426 1 281 282
Stock Repurchase (44,166) (44) (1,124) (1,168)
Balances, June 30, 2020 26,497,291 $ 26,497 $ 274,017 $ 263,011 $ 31,149 $ 594,674
Net Income 14,593 14,593
Other Comprehensive Income (Loss) (406) (406)
Cash Dividends ($0.19 per share) (5,025) (5,025)
Issuance of Common Stock for:
Restricted Share Grants (378) — 254 254
Stock Repurchase (4,047) (4) (105) (109)
Balances, September 30, 2020 26,492,866 $ 26,493 $ 274,166 $ 272,579 $ 30,743 $ 603,981

~~See accompanying notes to consolidated financial statements.~~

~~GERMAN AMERICAN BANCORP, INC.~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY~~

~~(unaudited, dollars in thousands)~~

Common Stock
Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity
Balances, December 31, 2018 24,967,458 $ 24,967 $ 229,347 $ 211,424 $ (7,098) $ 458,640
Net Income 15,067 15,067
Other Comprehensive Income 9,414 9,414
Cash Dividends ($0.17 per share) (4,245) (4,245)
Issuance of Common Stock for:
Restricted Share Grants 24,780 25 286 311
Balances, March 31, 2019 24,992,238 $ 24,992 $ 229,633 $ 222,246 $ 2,316 $ 479,187
Net Income 15,271 15,271
Other Comprehensive Income 8,891 8,891
Cash Dividends ($0.17 per share) (4,248) (4,248)
Issuance of Common Stock for:
Restricted Share Grants 310 310
Balances, June 30, 2019 24,992,238 $ 24,992 $ 229,943 $ 233,269 $ 11,207 $ 499,411
Net Income 13,064 13,064
Other Comprehensive Income 4,649 4,649
Cash Dividends ($0.17 per share) (4,532) (4,532)
Issuance of Common Stock for:
Acquisition of Citizens First Corporation 1,663,954 1,664 48,360 50,024
Restricted Share Grants 5,886 6 305 311
Balances, September 30, 2019 26,662,078 $ 26,662 $ 278,608 $ 241,801 $ 15,856 $ 562,927

See accompanying notes to consolidated financial statements.

118

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited, dollars in thousands)


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balances, December 31, 2020	26,502,157	$	26,502	$	274,385	$	288,447	$	35,375	$	624,709

Net Income						19,557				19,557
Other Comprehensive Income								(21,828)		(21,828)
Cash Dividends ($0.21 per share)						(5,554)				(5,554)
Issuance of Common Stock for:
Restricted Share Grants	44,123	44		285						329

Balances, March 31, 2021	26,546,280	$	26,546	$	274,670	$	302,450	$	13,547	$	617,213


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balances, December 31, 2019	26,671,368	$	26,671	$	278,954	$	253,090	$	15,105	$	573,820
Cumulative Effect of Change in Accounting Principles (See Note 2 - Recent Accounting Pronouncements)						(6,717)				(6,717)
Balance, January 1, 2020	26,671,368	26,671		278,954		246,373		15,105		567,103

Net Income						12,472				12,472
Other Comprehensive Income								13,255		13,255
Cash Dividends ($0.19 per share)						(5,065)				(5,065)
Issuance of Common Stock for:
Restricted Share Grants	41,752	42		228						270
Stock Repurchase	(173,089)	(173)		(4,322)						(4,495)

Balances, March 31, 2020	26,540,031	$	26,540	$	274,860	$	253,780	$	28,360	$	583,540

See accompanying notes to consolidated financial statements.

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, dollars in thousands)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	Net Income	$	41,320	$	43,402	Net Income	$	19,557	$	12,472
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:	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	Net Amortization on Securities	4,097		2,845		Net Amortization on Securities	1,553		1,121
Depreciation and Amortization	Depreciation and Amortization	7,043		6,364		Depreciation and Amortization	2,327		2,341
Loans Originated for Sale	Loans Originated for Sale	(230,399)		(143,041)		Loans Originated for Sale	(70,550)		(54,906)
Proceeds from Sales of Loans Held-for-Sale	Proceeds from Sales of Loans Held-for-Sale	226,237		131,921		Proceeds from Sales of Loans Held-for-Sale	71,465		58,459
Provision for Credit Losses	Provision for Credit Losses	15,550		3,725		Provision for Credit Losses	(1,500)		5,150
Gain on Sale of Loans, net	Gain on Sale of Loans, net	(7,378)		(3,660)		Gain on Sale of Loans, net	(2,202)		(1,863)
Gain on Securities, net	Gain on Securities, net	(2,190)		(984)		Gain on Securities, net	(975)		(590)
Gain on Sales of Other Real Estate and Repossessed Assets		(48)		0

Loss on Disposition and Donation of Premises and Equipment	Loss on Disposition and Donation of Premises and Equipment	127		0		Loss on Disposition and Donation of Premises and Equipment	479		27
Loss (Gain) on Disposition of Land		30		(352)

Increase in Cash Surrender Value of Company Owned Life Insurance	Increase in Cash Surrender Value of Company Owned Life Insurance	(1,092)		(1,034)		Increase in Cash Surrender Value of Company Owned Life Insurance	(356)		(373)
Equity Based Compensation	Equity Based Compensation	813		927		Equity Based Compensation	329		270
Change in Assets and Liabilities:	Change in Assets and Liabilities:					Change in Assets and Liabilities:
Interest Receivable and Other Assets	Interest Receivable and Other Assets	(6,046)		94		Interest Receivable and Other Assets	711		(6,438)
Interest Payable and Other Liabilities	Interest Payable and Other Liabilities	8,114		5,581		Interest Payable and Other Liabilities	5,852		8,271
Net Cash from Operating Activities	Net Cash from Operating Activities	56,178		45,788		Net Cash from Operating Activities	26,690		23,941

CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturity of Other Short-term Investments		496		496

Proceeds from Maturities of Securities Available-for-Sale	Proceeds from Maturities of Securities Available-for-Sale	139,679		78,134		Proceeds from Maturities of Securities Available-for-Sale	57,093		31,698

Proceeds from Sales of Securities Available-for-Sale	Proceeds from Sales of Securities Available-for-Sale	74,693		75,299		Proceeds from Sales of Securities Available-for-Sale	51,370		10,989
Purchase of Securities Available-for-Sale	Purchase of Securities Available-for-Sale	(378,503)		(119,010)		Purchase of Securities Available-for-Sale	(304,722)		(47,292)

Proceeds from Redemption of Federal Home Loan Bank Stock	Proceeds from Redemption of Federal Home Loan Bank Stock	800		1,145		Proceeds from Redemption of Federal Home Loan Bank Stock	120		0
Purchase of Loans		0		(657)

Loans Made to Customers, net of Payments Received	Loans Made to Customers, net of Payments Received	(138,132)		24,832		Loans Made to Customers, net of Payments Received	(29,391)		69,603
Proceeds from Sales of Other Real Estate		316		369

Property and Equipment Expenditures	Property and Equipment Expenditures	(5,162)		(5,619)		Property and Equipment Expenditures	(835)		(1,166)

Proceeds from Sale of Land		612		1,022
Proceeds from Sale of Land and Building						Proceeds from Sale of Land and Building	1,614		85
Proceeds from Life Insurance	Proceeds from Life Insurance	1,082		1,019		Proceeds from Life Insurance	0		1,082

Acquisition of Citizens First Corporation		0		5,545

Net Cash from Investing Activities	Net Cash from Investing Activities	(304,119)		62,575		Net Cash from Investing Activities	(224,751)		64,999

CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits	Change in Deposits	550,003		(11,975)		Change in Deposits	272,173		48,658
Change in Short-term Borrowings	Change in Short-term Borrowings	(94,756)		(123,651)		Change in Short-term Borrowings	(13,041)		(134,214)
Advances in Long-term Debt		0		90,000

Repayments of Long-term Debt	Repayments of Long-term Debt	(40,604)		(57,134)		Repayments of Long-term Debt	(8,021)		(7,568)
Issuance (Repurchase) of Common Stock	Issuance (Repurchase) of Common Stock	(5,779)		6		Issuance (Repurchase) of Common Stock	0		(4,495)
Dividends Paid	Dividends Paid	(15,114)		(13,025)		Dividends Paid	(5,554)		(5,065)
Net Cash from Financing Activities	Net Cash from Financing Activities	393,750		(115,779)		Net Cash from Financing Activities	245,557		(102,684)

Net Change in Cash and Cash Equivalents	Net Change in Cash and Cash Equivalents	145,809		(7,416)		Net Change in Cash and Cash Equivalents	47,496		(13,744)
Cash and Cash Equivalents at Beginning of Year	Cash and Cash Equivalents at Beginning of Year	103,884		96,550		Cash and Cash Equivalents at Beginning of Year	345,748		103,884
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	249,693	$	89,134	Cash and Cash Equivalents at End of Period	$	393,244	$	90,140


Cash Paid During the Period for	Cash Paid During the Period for					Cash Paid During the Period for
Interest	Interest	$	16,796	$	22,450	Interest	$	2,391	$	6,929
Income Taxes	Income Taxes	8,000		7,039		Income Taxes	(246)		(45)

Supplemental Non Cash Disclosures	Supplemental Non Cash Disclosures					Supplemental Non Cash Disclosures
Loans Transferred to Other Real Estate	Loans Transferred to Other Real Estate	$	0	$	708	Loans Transferred to Other Real Estate	$	0	$	200
Reclassification of Land and Buildings to Other Assets	Reclassification of Land and Buildings to Other Assets	0		1,471		Reclassification of Land and Buildings to Other Assets	366		0
Right of Use Asset Obtained in Exchange for Lease Liabilities		0		9,034

See accompanying notes to consolidated financial statements.

1210

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 1 – Basis of Presentation and Market Conditions

German American Bancorp, Inc. operates primarily in the banking industry. The accounting and reporting policies of German American Bancorp, Inc. and its subsidiaries (hereinafter collectively referred to as the "Company") conform to U.S. generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included in the accompanying unaudited consolidated financial statements, and all such adjustments are of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Certain items included in the prior period financial statements were reclassified to conform to the current presentation. There was no effect on net income or total shareholders' equity based on these reclassifications.

Impact of COVID-19

~~On January 30, 2020, the World Health Organization (“WHO”) announced that the outbreak of the~~The novel coronavirus disease 2019 (COVID-19) ~~constituted a public health emergency of international concern. On~~pandemic continued to impact our operations during the quarter ended March ~~11, 2020, WHO declared COVID-19~~31, 2021. While uncertainty remains as to ~~be a global pandemic and, on March 13, 2020,~~ the ~~President~~future effects of the ~~United States declared~~pandemic, an improving business climate, supported by unprecedented fiscal stimulus, an accommodative Federal Reserve, and accelerating COVID-19 vaccination rates, has helped to mitigate the ~~COVID-19 outbreak a national emergency. The health concerns relating to the COVID-19 outbreak and related governmental actions taken to reduce the spread~~negative impacts of the ~~virus have significantly impacted the global economy (including the states~~pandemic on our financial condition and local economies in which we operate), disrupted supply chains, lowered equity market valuations, and created significant volatility and disruption in financial markets. The outbreak has 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 have significantly contributed to rising unemployment and negatively impacted consumer and business spending. While many states have lifted quarantine and lock-down orders on a limited basis and with certain social distancing restrictions, commercial activity has not yet returned to the levels existing prior to the pandemic outbreak. As a result, the demand for the Company’s products and services has been, and will continue to be, significantly impacted.

Furthermore, the outbreak could negatively impact our employees and customers’ ability to engage in banking and other financial transactions. The Company also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of a COVID-19 outbreak in our market areas. The fair value of certain assets could be impacted by the effects of COVID-19. The carrying value of goodwill, right-of-use lease assets, and other real estate owned could decrease resulting in future impairment losses. Management will continue to evaluate current economic conditions to determine if a triggering event would impact the current valuations for these assets. As a result, it is not currently possible to ascertain the continued impact of COVID-19 on the Company’s business. However, if the pandemic continues as a prolonged worldwide health crisis, the disease could have a material adverse effect on the Company’s business, results of operations, ~~financial condition~~despite the challenges presented by very low interest rates, muted loan growth, and ~~cash flows.~~excess liquidity.

NOTE 2 - Recent Accounting Pronouncements

Loan Modifications and Troubled Debt ~~Restructures~~Restructurings due to COVID-19

On April 7, 2020, the Board of Governors of the Federal Reserve System (the "FRB"), the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation (the “FDIC” and, together with the FRB and OCC, the “federal banking regulators”) issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as troubled debt ~~restructures~~restructurings and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt ~~restructures.~~restructurings. Similarly, under the CARES Act, provisions were included that allow for loan modifications to not be classified as TDRs if certain criteria are met. This TDR exemption, which was set to expire on December 31, 2020, was extended under the CAA to the earlier of (i) 60 days after the national emergency concerning the COVID-19 outbreak terminates, and (ii) January 1, 2022.

~~Recently~~ Adopted Accounting Guidance in 2020

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 2 - Recent Accounting Pronouncements (continued)~~

receivables and held-to-maturity debt securities. 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). The new CECL model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions. The standard provides significant flexibility and requires a high degree of judgement with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses.

The Company adopted ASC 326 on January 1, 2020 using the modified restrospective approach. Results for reporting periods after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net reduction of retained earnings of $6,717 upon adoption.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 2 - Recent Accounting Pronouncements (continued)

of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $6,886 of the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2020.

The Company expanded the loan portfolio segments used to determine the allowance for credit losses for loans into 8 loan segments as opposed to 6 loan segments under the incurred loss methodology. The following table illustrates the impact of the segment expansion as of January 1, 2020.


(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	$	0	$	3,081,973

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 2 - Recent Accounting Pronouncements (continued)~~

The following table illustrates the impact of ASC 326:


(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		0		57,257
Home Equity Loans	225,755		35		225,790
Consumer Loans	69,264		0		69,264
Credit Cards	11,953		0		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	$	0	$	(173)	$	(173)

In December 2018, federal banking regulators approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. On March 27, 2020, in an action related to the CARES Act, the federal banking regulators announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule, which was finalized effective September 30, 2020, maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company has elected to adopt the five-year transition option. This election of the transition option is ~~adopting~~applicable only to

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 2 - Recent Accounting Pronouncements (continued)

regulatory capital computations under federal banking regulations and does not otherwise impact the ~~capital transition relief over the permissible five-year period.~~financial statements prepared in accordance with GAAP.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, deferred loan fees and costs. Accrued interest receivable totaled ~~$14,995~~$13,141 at ~~September 30, 2020~~March 31, 2021 and was reported in Accrued Interest Receivable and Other Assets on the Consolidated Balance Sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees and costs are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Purchase Credit Deteriorated (PCD) Loans

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses on loans is determined using the same methodology as other loans held for investment. The initial allowance for credit losses on loans determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses on loans becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses on loans are recorded through provision expense.

Allowance for Credit Losses - Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 2 - Recent Accounting Pronouncements (continued)~~

The Company estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for changes in underwriting standards, portfolio mix, delinquency level, changes in environmental conditions, unemployment rates, risk classifications and collateral values.

The allowance for credit losses is measured on a collective (pooled) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

Commercial and Industrial Loans - The principal risk of commercial and industrial loans is that these loans are primarily based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans. Most commercial loans are secured by accounts receivable, inventory and equipment. If cash flow from business operations is reduced, the borrower's ability to repay the loan may diminish, and over time, it may also be difficult to substantiate current value of inventory and equipment. Repayment of these loans are more sensitive than other types of loans to adverse conditions in the general economy.

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

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

Leases - Leases are primarily for equipment leased to varying types of businesses. If the cash flows from the business operations is reduced, the business's ability to repay the lease is diminished as well.

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 2 - Recent Accounting Pronouncements (continued)

Home Equity Loans - Home equity loans are generally secured by 1-4 family residences that are owner-occupied. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by unemployment levels in the market area due to economic conditions.

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

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

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

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are also not included in the collective evaluation. When the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date adjusted for selling costs.

Troubled Debt Restructurings (“TDR”)

A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR. The allowances for credit losses on loans on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 2 - Recent Accounting Pronouncements (continued)~~

rate specified within the restructuring. See “Loan Modifications and Troubled Debt ~~Restructures~~Restructurings due to COVID-19” at the beginning of this Note 2 for additional information.

Allowance for Credit Losses on Available-For-Sale Securities

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to 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, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recorded in other comprehensive income.

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

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

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

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon transition. The amendments in this update became effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and did not have a material impact on the Company's financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendment removes certain disclosures required by Topic 820 related to transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The update also adds certain disclosure requirements related to changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update became effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019 and did not have a material impact on the Company's financial statements.

1714

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 2 - Recent Accounting Pronouncements (continued)

Accounting Guidance Issued But Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is evaluating the impact of adopting the new guidance on the consolidated financial statements on an ongoing basis with no material expected impact at this time.

NOTE 3 – Per Share Data

The computation of Basic Earnings per Share and Diluted Earnings per Share are as follows:


		Three Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020
Basic Earnings per Share:	Basic Earnings per Share:					Basic Earnings per Share:
Net Income	Net Income	$	14,593	$	13,064	Net Income	$	19,557	$	12,472
Weighted Average Shares Outstanding	Weighted Average Shares Outstanding	26,497,398		26,643,064		Weighted Average Shares Outstanding	26,510,001		26,663,604
Basic Earnings per Share	Basic Earnings per Share	$	0.55	$	0.49	Basic Earnings per Share	$	0.74	$	0.47

Diluted Earnings per Share:	Diluted Earnings per Share:					Diluted Earnings per Share:
Net Income	Net Income	$	14,593	$	13,064	Net Income	$	19,557	$	12,472

Weighted Average Shares Outstanding	Weighted Average Shares Outstanding	26,497,398		26,643,064		Weighted Average Shares Outstanding	26,510,001		26,663,604
Potentially Dilutive Shares, Net	Potentially Dilutive Shares, Net	0		0		Potentially Dilutive Shares, Net	0		0
Diluted Weighted Average Shares Outstanding	Diluted Weighted Average Shares Outstanding	26,497,398		26,643,064		Diluted Weighted Average Shares Outstanding	26,510,001		26,663,604
Diluted Earnings per Share	Diluted Earnings per Share	$	0.55	$	0.49	Diluted Earnings per Share	$	0.74	$	0.47

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ there were 0 anti-dilutive shares.

Nine Months Ended
September 30,
2020 2019
Basic Earnings per Share:
Net Income $ 41,320 $ 43,402
Weighted Average Shares Outstanding 26,554,369 25,541,843
Basic Earnings per Share $ 1.56 $ 1.70
Diluted Earnings per Share:
Net Income $ 41,320 $ 43,402
Weighted Average Shares Outstanding 26,554,369 25,541,843
Potentially Dilutive Shares, Net 0 0
Diluted Weighted Average Shares Outstanding 26,554,369 25,541,843
Diluted Earnings per Share $ 1.56 $ 1.70

~~For the nine months ended September 30, 2020 and 2019, there were 0 anti-dilutive shares.~~

1815

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 4 – Securities

The amortized cost, unrealized gross gains and losses recognized in accumulated other comprehensive income (loss), and fair value of Securities Available-for-Sale were as follows:


Securities Available-for-Sale:	Securities Available-for-Sale:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		Securities Available-for-Sale:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value

September 30, 2020
March 31, 2021												March 31, 2021
Obligations of State and Political Subdivisions	Obligations of State and Political Subdivisions	$	489,070	$	25,928	$	(986)	$	0	$	514,012	Obligations of State and Political Subdivisions	$	601,546	$	24,849	$	(2,547)	$	0	$	623,848
MBS/CMO	MBS/CMO	508,004		14,957		(63)		0		522,898		MBS/CMO	$	654,447	$	7,873	$	(8,871)	$	0	$	653,449
US Gov't Sponsored Entities & Agencies												US Gov't Sponsored Entities & Agencies	111,863		0		(3,287)		0		108,576
Total	Total	$	997,074	$	40,885	$	(1,049)	$	0	$	1,036,910	Total	$	1,367,856	$	32,722	$	(14,705)	$	0	$	1,385,873

December 31, 2019
December 31, 2020												December 31, 2020
Obligations of State and Political Subdivisions	Obligations of State and Political Subdivisions	$	307,943	$	16,366	$	(9)	$	—	$	324,300	Obligations of State and Political Subdivisions	$	548,273	$	33,077	$	(103)	$	0	$	581,247
MBS/CMO	MBS/CMO	526,907		5,414		(1,796)		—		530,525		MBS/CMO	535,526		12,806		(25)		0		$	548,307
US Gov't Sponsored Entities & Agencies												US Gov't Sponsored Entities & Agencies	88,376		120		(198)		0		$	88,298
Total	Total	$	834,850	$	21,780	$	(1,805)	$	—	$	854,825	Total	$	1,172,175	$	46,003	$	(326)	$	0	$	1,217,852

All mortgage-backed securities in the above table (identified above and throughout this Note 4 as "MBS/CMO") are residential and multi-family mortgage-backed securities and guaranteed by government sponsored entities. The US Gov't Sponsored Entities & Agencies in the above table have underlying collateral of equipment, machinery and commercial real estate.

The amortized cost and fair value of Securities at ~~September 30, 2020~~March 31, 2021 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay certain obligations with or without call or prepayment penalties. Mortgage-backed Securities are not due at a single maturity date and are shown separately.


Securities Available-for-Sale:	Securities Available-for-Sale:	Amortized Cost		Fair Value		Securities Available-for-Sale:	Amortized Cost		Fair Value

Due in one year or less	Due in one year or less	$	4,737	$	4,806	Due in one year or less	$	5,739	$	5,770
Due after one year through five years	Due after one year through five years	17,524		18,128		Due after one year through five years	17,354		18,027
Due after five years through ten years	Due after five years through ten years	73,405		78,053		Due after five years through ten years	66,272		70,572
Due after ten years	Due after ten years	393,404		413,025		Due after ten years	512,181		529,479
MBS/CMO	MBS/CMO	508,004		522,898		MBS/CMO	654,447		653,449
US Gov't Sponsored Entities & Agencies						US Gov't Sponsored Entities & Agencies	111,863		108,576
Total	Total	$	997,074	$	1,036,910	Total	$	1,367,856	$	1,385,873

Proceeds from the Sales of Securities are summarized below:

Three Months Ended Three Months Ended
September 30, 2020 September 30, 2019
Proceeds from Sales $ 11,270 $ 53,025
Gross Gains on Sales 607 313
Income Taxes on Gross Gains 127 66


	Three Months Ended		Three Months Ended
	March 31, 2021		March 31, 2020

Proceeds from Sales	$	51,370	$	10,989
Gross Gains on Sales	975		590
Income Taxes on Gross Gains	205		127

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 4 - Securities (continued)~~

Nine Months Ended Nine Months Ended
September 30, 2020 September 30, 2019
Proceeds from Sales $ 74,693 $ 75,299
Gross Gains on Sales 2,190 984
Income Taxes on Gross Gains 464 207

The carrying value of securities pledged to secure repurchase agreements, public and trust deposits, and for other purposes as required by law was ~~$224,379~~$186,885 and ~~$245,664~~$237,506 as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 4 - Securities (continued)

Below is a summary of securities with unrealized losses as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, presented by length of time the securities have been in a continuous unrealized loss position:


		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
September 30, 2020		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
March 31, 2021														March 31, 2021	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Obligations of State and Political Subdivisions	Obligations of State and Political Subdivisions	$	66,378	$	(986)	$	0	$	0	$	66,378	$	(986)	Obligations of State and Political Subdivisions	$	155,320	$	(2,547)	$	0	$	0	$	155,320	$	(2,547)
MBS/CMO	MBS/CMO	32,902		(63)		4		0		32,906		(63)		MBS/CMO	405,387		(8,871)		0		0		405,387		(8,871)
US Gov't Sponsored Entities & Agencies														US Gov't Sponsored Entities & Agencies	108,576		(3,287)		0		0		108,576		(3,287)
Total	Total	$	99,280	$	(1,049)	$	4	$	0	$	99,284	$	(1,049)	Total	$	669,283	$	(14,705)	$	0	$	0	$	669,283	$	(14,705)


		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
December 31, 2019		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2020														December 31, 2020	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Obligations of State and Political Subdivisions	Obligations of State and Political Subdivisions	$	4,631	$	(9)	$	0	$	0	$	4,631	$	(9)	Obligations of State and Political Subdivisions	$	10,652	$	(103)	$	0	$	0	$	10,652	$	(103)
MBS/CMO	MBS/CMO	89,267		(241)		155,989		(1,555)		245,256		(1,796)		MBS/CMO	19,631		(25)		0		0		19,631		(25)
US Gov't Sponsored Entities & Agencies														US Gov't Sponsored Entities & Agencies	59,054		(198)		0		0		59,054		(198)
Total	Total	$	93,898	$	(250)	$	155,989	$	(1,555)	$	249,887	$	(1,805)	Total	$	89,337	$	(326)	$	0	$	0	$	89,337	$	(326)

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale 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, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. NaN allowance for credit losses for available-for-sale debt securities was needed at ~~September 30, 2020.~~March 31, 2021. Accrued interest receivable on available-for-sale debt securities totaled ~~$5,255~~$6,937 at ~~September 30, 2020~~March 31, 2021 and is excluded from the estimate of credit losses.

The Company's equity securities are listed as Other Investments on the Consolidated Balance Sheets and consist of 1 non-controlling investment in a single banking organization at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. The original investment totaled $1,350 and other-than-temporary impairment was previously recorded totaling $997. The Company's equity securities are considered not to have readily determinable fair value and are carried at cost and evaluated for impairment. At ~~September 30, 2020,~~March 31, 2021, there was 0 additional impairment recognized through earnings.

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

NOTE 5 – Derivatives

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of these interest rate swaps and the offsetting counterparty derivative instruments were ~~$109.5 million~~$120,721 at ~~September 30, 2020~~March 31, 2021 and ~~$102.4 million~~$117,621 at December 31, ~~2019.~~2020. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions with approved, reputable, independent counterparties with substantially matching terms. The agreements are considered stand-alone derivatives and changes in the fair value of derivatives are reported in earnings as non-interest income.

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Company’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. There are provisions in the agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, the Company minimizes credit risk through credit approvals, limits, and monitoring procedures.

The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of:


		September 30, 2020				December 31, 2019					March 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:									Included in Other Assets:
Interest Rate Swaps	Interest Rate Swaps	$	109,485	$	9,636	$	102,351	$	2,607	Interest Rate Swaps	$	120,721	$	5,772	$	117,621	$	8,806

Included in Other Liabilities:	Included in Other Liabilities:									Included in Other Liabilities:
Interest Rate Swaps	Interest Rate Swaps	$	109,485	$	10,293	$	102,351	$	2,829	Interest Rate Swaps	$	120,721	$	5,970	$	117,621	$	9,353

The following table presents the effect of derivative instruments on the Consolidated Statements of Income for the periods presented:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Interest Rate Swaps:	Interest Rate Swaps:									Interest Rate Swaps:
Included in Other Operating Income	Included in Other Operating Income	$	64	$	314	$	(169)	$	108	Included in Other Operating Income	$	485	$	(280)

NOTE 6 – Loans

Loans were comprised of the following classifications:


	March 31, 2021		December 31, 2020
Commercial:
Commercial and Industrial Loans	$	672,300	$	638,773
Commercial Real Estate Loans	1,492,617		1,467,397
Agricultural Loans	347,231		376,186
Leases	55,714		55,664
Retail:
Home Equity Loans	212,306		219,348
Consumer Loans	60,570		66,717
Credit Cards	12,609		11,637
Residential Mortgage Loans	267,634		256,276

Subtotal	3,120,981		3,091,998
Less: Unearned Income	(3,778)		(3,926)
Allowance for Credit Losses	(45,099)		(46,859)
Loans, net	$	3,072,104	$	3,041,213

2118

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 6 –- Loans (continued)

~~Loans were comprised of the following classifications at September 30:~~

September 30,
2020 December 31,
2019
Commercial:
Commercial and Industrial Loans $ 781,547 $ 532,501
Commercial Real Estate Loans 1,453,280 1,495,862
Agricultural Loans 376,215 384,526
Leases 57,475 57,257
Retail:
Home Equity Loans 218,640 225,755
Consumer Loans 64,919 69,264
Credit Cards 10,717 11,953
Residential Mortgage Loans 262,439 304,855
Subtotal 3,225,232 3,081,973
Less: Unearned Income (4,105) (4,882)
Allowance for credit losses (46,768) (16,278)
Loans, net $ 3,174,359 $ 3,060,813

~~On March 27, 2020,~~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 ~~includes~~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”), ~~which is~~a lending program administered by the Small Business Administration (“SBA”)~~. On April 24, 2020,~~ 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 was enacted. Among other things, this legislation amends the initial CARES Act program by raising the appropriation level for PPP loans from $349 billion to $670 billion. The PPP was further modified on June 5,in April 2020 ~~with the adoption of~~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 ~~“Flexibility Act”~~“CAA”)~~, which extended the maturity date~~. In addition to direct stimulus payments and other aid, this Act provided for a second round of PPP loans ~~from~~through March 31, 2021, and included the establishment of PPP second draw loans. Certain borrowers that had obtained a PPP loan in 2020 (a “first draw PPP loan”) became eligible in January 2021 to apply for a “second draw PPP loan” on generally the same terms and conditions as their first draw loans. The eligibility requirements for a second draw PPP loan, however, are much narrower than the eligibility requirements for a first draw PPP loan. More recently, the American Rescue Plan Act of 2021 was signed into law on March 11, 2021, providing additional funds for the PPP and expanding certain PPP eligibility requirements. Further, on March 30, 2021, the PPP Extension Act of 2021 (was signed into law, providing applicants two ~~years~~additional months (through May 31, 2021) to ~~five years~~apply for ~~loans disbursed on~~a first draw or ~~after~~second draw PPP loan and giving the ~~date of enactment~~SBA until June 30, 2021 to process loan applications.

Having previously participated in the first round of the ~~Flexibility Act. For~~ PPP during 2020, the Company is also participating in the second round that commenced in January 2021. Under the PPP, the Company has lent and is lending funds primarily to its existing loan and/or deposit customers, based on a pre-determined SBA-developed formula. These loans ~~disbursed prior to such enactment,~~carry a customer interest rate of 1.00% plus a processing fee that varies depending on the ~~Flexibility Act permits the borrower and lender to mutually agree to extend the term~~balance of the loan ~~to five years.~~at origination. The vast majority of the Company's first round PPP loans have two-year maturities. The second round PPP loans ~~earn interest at a fixed rate of 1% and are fully guaranteed by the U.S. government.~~ have five-year maturities.

As of ~~September 30, 2020,~~March 31, 2021, the ~~Bank~~Company had $97,331 in PPP loans outstanding with approximately ~~$351.3 million~~$1,232 of net fees remaining under the first round of this program and had $145,364 in PPP loans outstanding ~~on 3,070 PPP loan relationships~~with approximately $7,234 of net fees remaining under the second round of this program, all of which are included in the above table in the Commercial and Industrial Loan category. As of December 31, 2020, the Company had $186,038 in PPP loans outstanding with approximately $4,054 of net fees remaining. Fees recognized during the first quarter of 2021 totaled $3,008 while 0 fees were recognized during the first quarter of 2020. The Company anticipates that the majority of the PPP loans will ultimately be forgiven by the SBA in accordance with the terms of the program. ~~As of October 31, 2020, 603 of our loans totaling $113 million have been submitted to the SBA for forgiveness.~~

2219

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)

Allowance for Credit Losses for Loans

The following ~~table presents~~tables present the activity in the allowance for credit losses by portfolio segment for the three months ended ~~September 30,~~March 31, 2021 and 2020:


September 30, 2020		Commercial and Industrial Loans		Commercial Real Estate Loans		Agricultural Loans		Leases		Consumer Loans		Home Equity Loans		Credit Cards		Residential Mortgage Loans		Unallocated		Total
March 31, 2021																						March 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:	Allowance for Credit Losses:																					Allowance for Credit Losses:
Beginning balance	Beginning balance	$	8,787	$	22,369	$	7,030	$	202	$	496	$	1,062	$	125	$	2,360	$	0	$	42,431	Beginning balance	$	6,445	$	29,878	$	6,756	$	200	$	490	$	996	$	150	$	1,944	$	0	$	46,859
Provision for credit loss expense	Provision for credit loss expense	(1,017)		5,931		(315)		4		70		0		39		(212)		0		4,500		Provision for credit loss expense	(22)		(1,334)		(294)		1		(18)		(31)		59		139		0		(1,500)
Loans charged-off	Loans charged-off	(73)		(9)		0		0		(138)		(67)		(27)		(8)		0		(322)		Loans charged-off	(190)		(9)		0		0		(125)		0		(47)		(1)		0		(372)
Recoveries collected	Recoveries collected	3		91		0		0		64		0		0		1		0		159		Recoveries collected	15		5		0		0		92		0		0		0		0		112
Total ending allowance balance	Total ending allowance balance	$	7,700	$	28,382	$	6,715	$	206	$	492	$	995	$	137	$	2,141	$	0	$	46,768	Total ending allowance balance	$	6,248	$	28,540	$	6,462	$	201	$	439	$	965	$	162	$	2,082	$	0	$	45,099

~~The following table presents the activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2020:~~

September 30, 2020 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 prior to adoption of ASC 326 $ 4,799 $ 4,692 $ 5,315 $ 0 $ 434 $ 200 $ 0 $ 333 $ 505 $ 16,278
Impact of adopting ASC 326 2,245 3,063 1,438 105 (59) 762 124 1,594 (505) 8,767
Impact of adopting ASC 326 - PCD Loans 2,191 4,385 128 0 0 35 0 147 0 6,886
Provision for credit loss expense (1,182) 16,145 (166) 101 385 65 98 104 0 15,550
Initial allowance on loans purchased with credit deterioration 0 0 0 0 0 0 0 0 0 0
Loans charged-off (369) (9) 0 0 (520) (67) (86) (39) 0 (1,090)
Recoveries collected 16 106 0 0 252 0 1 2 0 377
Total ending allowance balance $ 7,700 $ 28,382 $ 6,715 $ 206 $ 492 $ 995 $ 137 $ 2,141 $ 0 $ 46,768

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date adjusted for selling costs.


March 31, 2020	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 prior to adoption of ASC 326	$	4,799	$	4,692	$	5,315	$	0	$	434	$	200	$	0	$	333	$	505	$	16,278
Impact of adopting ASC 326	2,245		3,063		1,438		105		(59)		762		124		1,594		(505)		8,767
Impact of adopting ASC 326 - PCD Loans	2,191		4,385		128		0		0		35		0		147		0		6,886
Provision for credit loss expense	(137)		5,167		(396)		67		205		(20)		35		229		0		5,150
Initial allowance on loans purchased with credit deterioration	0		0		0		0		0		0		0		0		0		0
Loans charged-off	(296)		0		0		0		(237)		0		(36)		0		0		(569)
Recoveries collected	12		3		0		0		112		0		1		1		0		129
Total ending allowance balance	$	8,814	$	17,310	$	6,485	$	172	$	455	$	977	$	124	$	2,304	$	0	$	36,641

The Company utilizes the Static Pool methodology in determining expected future credit losses. Static pool analysis means segmenting and tracking loans over a period of time based on similar risk characteristics such as loan structure, collateral type, industry of borrower and concentrations, contractual terms and credit risk indicators. Static pool calculates a loss rate on a closed pool of loans that existed on a specified start date based upon the remaining life of each segment.

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 6 - Loans (continued)~~

The Company's expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company's historical look-back period includes January 2014 through the current period, on a monthly basis.

Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration industry and collateral concentrations, acquired loan portfolio characteristics and other credit-related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible.

~~For~~The Company estimates the ~~nine months ended September 30, 2020,~~allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for changes in underwriting standards, portfolio mix, delinquency level, changes in environmental conditions, unemployment rates, risk classifications and collateral values. The allowance for credit losses ~~increased primarily due to macroeconomic factors surrounding the COVID-19 pandemic. While there continues to be great uncertainty related to COVID-19~~is measured on ~~our borrowers~~a collective (pooled) basis when similar risk characteristics

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and ~~communities, we have recognized significant declines in employment and gross domestic product which are key indicators utilized in our forecasting for our allowance calculations.~~ per share data)

NOTE 6 - Loans (continued)

exist. Based on the potential increased losses related to the economic impact of the COVID-19 pandemic, the bank has considered this loss experience may align with loss experience from the recessionary period from 2008-2011 and qualitative adjustments have been made accordingly.

For the three months ended March 31, 2021, the allowance for credit losses decreased primarily due to a decline in the loan portfolio, excluding PPP loans, and a decline in certain adversely criticized assets. While there continues to be great uncertainty related to COVID-19 on our borrowers and communities, we have recognized improvements in employment and gross domestic product which are key indicators utilized in our forecasting for our allowance calculations. The impact of fiscal stimulus, including direct payments to individuals, ongoing increased unemployment benefits, as well as the various government-sponsored loan programs, was also considered in our qualitative adjustments. Since PPP loans are guaranteed by the Small Business Administration (SBA), they have minimal impact on the allowance for credit losses.

All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan. Uncollected accrued interest for each class of loans is reversed against income at the time a loan is placed on non-accrual. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. All classes of loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans are typically charged-off at 180 days past due, or earlier if deemed uncollectible. Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection.

The following ~~table presents~~tables present the amortized cost ~~basis of~~in non-accrual loans ~~on non-accrual status~~ and loans past due over 89 days still accruing by class of loans as of ~~September 30,~~March 31, 2021 and December 31, 2020:


September 30, 2020		Non-Accrual With No Allowance for Credit Loss		Non-Accrual		Loans Past Due Over 89 Days Still Accruing
March 31, 2021								March 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	Commercial and Industrial Loans	$	1,350	$	8,519	$	0	Commercial and Industrial Loans	$	4,061	$	7,312	$	0
Commercial Real Estate Loans	Commercial Real Estate Loans	5,657		10,282		0		Commercial Real Estate Loans	3,144		10,133		0
Agricultural Loans	Agricultural Loans	2,015		2,643		0		Agricultural Loans	1,220		1,841		0
Leases	Leases	0		0		0		Leases	0		0		0
Home Equity Loans	Home Equity Loans	200		200		0		Home Equity Loans	293		293		0
Consumer Loans	Consumer Loans	61		105		0		Consumer Loans	109		112		0
Credit Cards	Credit Cards	66		66		0		Credit Cards	154		154		0
Residential Mortgage Loans	Residential Mortgage Loans	770		1,063		0		Residential Mortgage Loans	480		1,149		0
Total	Total	$	10,119	$	22,878	$	0	Total	$	9,461	$	20,994	$	0

(1) Includes non-accrual loans with no allowance for credit loss and are also included in Non-Accrual loans totaling $20,994.

Interest income on non-accrual loans recognized during the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 totaled ~~$1 and $17, respectively.~~$2.

2421

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30,~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)


December 31, 2020	Non-Accrual With No Allowance for Credit Loss (1)		Non-Accrual		Loans Past Due Over 89 Days Still Accruing

Commercial and Industrial Loans	$	4,571	$	8,133	$	0
Commercial Real Estate Loans	3,152		10,188		0
Agricultural Loans	1,291		1,915		0
Leases	0		0		0
Home Equity Loans	271		271		0
Consumer Loans	77		84		0
Credit Cards	86		86		0
Residential Mortgage Loans	671		830		0
Total	$	10,119	$	21,507	$	0

(1) Includes non-accrual loans with no allowance for credit loss and are also included in Non-Accrual loans totaling $21,507.

Interest income on non-accrual loans recognized during the year ended December 31, 2020 totaled $28.

The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2021 and December 31, 2020:


March 31, 2021	Real Estate		Equipment		Accounts Receivable		Other		Total

Commercial and Industrial Loans	$	4,350	$	2,846	$	639	$	30	$	7,865
Commercial Real Estate Loans	11,629		0		0		1,472		13,101
Agricultural Loans	2,980		0		0		0		2,980
Leases	0		0		0		0		0
Home Equity Loans	406		0		0		0		406
Consumer Loans	4		0		0		3		7
Credit Cards	0		0		0		0		0
Residential Mortgage Loans	1,320		0		0		0		1,320
Total	$	20,689	$	2,846	$	639	$	1,505	$	25,679


December 31, 2020	Real Estate		Equipment		Accounts Receivable		Other		Total

Commercial and Industrial Loans	$	4,943	$	3,014	$	669	$	154	$	8,780
Commercial Real Estate Loans	11,877		0		0		1,530		13,407
Agricultural Loans	3,064		0		0		0		3,064
Leases	0		0		0		0		0
Home Equity Loans	416		0		0		0		416
Consumer Loans	4		4		0		3		11
Credit Cards	0		0		0		0		0
Residential Mortgage Loans	817		0		0		0		817
Total	$	21,121	$	3,018	$	669	$	1,687	$	26,495

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)

The following ~~table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2020:~~

September 30, 2020 Real Estate Equipment Accounts Receivable Other Total
Commercial and Industrial Loans $ 4,973 $ 3,380 $ 699 $ 41 $ 9,093
Commercial Real Estate Loans 13,036 0 0 1,604 14,640
Agricultural Loans 3,069 0 0 1 3,070
Leases 0 0 0 0 0
Home Equity Loans 415 0 0 0 415
Consumer Loans 39 3 0 5 47
Credit Cards 0 0 0 0 0
Residential Mortgage Loans 1,043 0 0 0 1,043
Total $ 22,575 $ 3,383 $ 699 $ 1,651 $ 28,308

~~The following table presents~~tables present the aging of the amortized cost basis in past due loans by class of loans as of ~~September 30,~~March 31, 2021 and December 31, 2020:


September 30, 2020		30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
March 31, 2021														March 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
Commercial and Industrial Loans	Commercial and Industrial Loans	$	35	$	160	$	4,488	$	4,683	$	776,864	$	781,547	Commercial and Industrial Loans	$	729	$	384	$	1,982	$	3,095	$	669,205	$	672,300
Commercial Real Estate Loans	Commercial Real Estate Loans	1,637		0		958		2,595		1,450,685		1,453,280		Commercial Real Estate Loans	158		0		8,526		8,684		1,483,933		1,492,617
Agricultural Loans	Agricultural Loans	0		578		73		651		375,564		376,215		Agricultural Loans	0		0		651		651		346,580		347,231
Leases	Leases	0		0		0		0		57,475		57,475		Leases	0		0		0		0		55,714		55,714
Home Equity Loans	Home Equity Loans	401		113		200		714		217,926		218,640		Home Equity Loans	327		74		293		694		211,612		212,306
Consumer Loans	Consumer Loans	259		61		84		404		64,515		64,919		Consumer Loans	328		38		94		460		60,110		60,570
Credit Cards	Credit Cards	147		29		66		242		10,475		10,717		Credit Cards	26		5		154		185		12,424		12,609
Residential Mortgage Loans	Residential Mortgage Loans	3,281		1,947		812		6,040		256,399		262,439		Residential Mortgage Loans	3,014		35		918		3,967		263,667		267,634
Total	Total	$	5,760	$	2,888	$	6,681	$	15,329	$	3,209,903	$	3,225,232	Total	$	4,582	$	536	$	12,618	$	17,736	$	3,103,245	$	3,120,981


December 31, 2020	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and Industrial Loans	$	477	$	909	$	2,441	$	3,827	$	634,946	$	638,773
Commercial Real Estate Loans	5		4,877		3,682		8,564		1,458,833		1,467,397
Agricultural Loans	0		0		651		651		375,535		376,186
Leases	0		0		0		0		55,664		55,664
Home Equity Loans	672		5		271		948		218,400		219,348
Consumer Loans	233		84		65		382		66,335		66,717
Credit Cards	95		80		86		261		11,376		11,637
Residential Mortgage Loans	3,737		1,590		529		5,856		250,420		256,276
Total	$	5,219	$	7,545	$	7,725	$	20,489	$	3,071,509	$	3,091,998

Troubled Debt Restructurings:

In certain instances, the Company may choose to restructure the contractual terms of loans. A troubled debt restructuring occurs when the Bank grants a concession to the borrower that it would not otherwise consider due to a borrower’s financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the Company’s internal underwriting policy. The Company uses the same methodology for loans acquired with deteriorated credit quality as for all other loans when determining whether the loan is a troubled debt restructuring.

As of ~~September 30, 2020,~~March 31, 2021, the Company had troubled debt restructurings totaling ~~$113.~~$109. The Company had no specific allocation of allowance for these loans at ~~September 30,~~March 31, 2021. As of December 31, 2020, the Company had troubled debt restructurings totaling $111. The Company had no specific allocation of allowance for these loans at December 31, 2020.

The Company had 0t committed to lending any additional amounts as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 to customers with outstanding loans that are classified as troubled debt restructurings.

~~During~~For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company had 0 loans modified as troubled debt restructurings. Additionally, there were 0 loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

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

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)

Loan Modifications and Troubled Debt Restructurings due to COVID-19

On April 7, 2020, the ~~federal~~FRB, the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation (the “FDIC” and, together with the FRB and OCC, the “federal banking ~~regulators~~regulators”) issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as troubled debt restructurings and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings. ~~Accordingly,~~Similarly, under the ~~Company is offering short-term~~CARES Act, provisions were included that allow for loan modifications ~~made in response~~ to not be classified as TDRs if certain criteria are met. This TDR exemption, which was set to expire on December 31, 2020, was extended under the CAA to the earlier of (i) 60 days after the national emergency concerning the COVID-19 ~~to borrowers who are current~~outbreak terminates, and ~~otherwise not past due.~~(ii) January 1, 2022.

~~As of September 30, 2020,~~In response to requests from borrowers who have experienced pandemic-related business or personal cash flow interruptions, and in accordance with regulatory guidance, the ~~following active~~Company has made short-term loan modifications involving both partial and full payment deferrals. The table below shows the payment modifications ~~are~~that were still in ~~effect. These payment modifications are significantly reduced from the level of active modifications~~effect as of ~~June 30, 2020.~~March 31, 2021, with the majority of these credit relationships making full interest payments.


					% of Loan Category (Excludes PPP Loans)								% of Loan Category (Excludes PPP Loans)
Type of Loans (dollars in thousands)	Type of Loans (dollars in thousands)	Number of Loans	Outstanding Balance		As of 9/30/2020		As of 6/30/2020		Type of Loans (dollars in thousands)	Number of Loans	Outstanding Balance		As of 3/31/2021		As of 12/31/2020

Commercial & Industrial Loans	Commercial & Industrial Loans	24	$	6,154	1.2	%	10.8	%	Commercial & Industrial Loans	4	$	4,413	0.9	%	0.8	%
Commercial Real Estate Loans	Commercial Real Estate Loans	44	82,986		5.7	%	15.3	%	Commercial Real Estate Loans	15	36,137		2.4	%	3.0	%
Agricultural Loans	Agricultural Loans	0	0		0	%	0.3	%	Agricultural Loans	0	0		0	%	0	%
Consumer Loans	Consumer Loans	1	3		n/m (1)		0.4	%	Consumer Loans	2	40		n/m (1)		n/m (1)
Residential Mortgage Loans	Residential Mortgage Loans	12	1,275		0.5	%	8.2	%	Residential Mortgage Loans	2	173		0.1	%	0.1	%
Total	Total	81	$	90,418	3.1	%	10.4	%	Total	23	$	40,763	1.4	%	1.7	%

(1) n/m = not meaningful

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company classifies loans as to credit risk by individually analyzing loans. This analysis includes commercial and industrial loans, commercial real estate loans, and agricultural loans with an outstanding balance greater than $250. This analysis is typically performed on at least an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)

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

Based on the analysis performed at March 31, 2021 and December 31, 2020, the risk category of loans by class of loans is as follows:


	Term Loans Amortized Cost Basis by Origination Year
As of March 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and Industrial:
Risk Rating
Pass	$	176,630	$	165,352	$	78,654	$	41,565	$	28,684	$	64,123	$	85,946	$	640,954
Special Mention	0		573		1,011		1,996		1,585		2,070		9,313		16,548
Substandard	0		186		154		1,876		1,493		5,156		5,933		14,798
Doubtful	0		0		0		0		0		0		0		0
Total Commercial & Industrial Loans	$	176,630	$	166,111	$	79,819	$	45,437	$	31,762	$	71,349	$	101,192	$	672,300

Commercial Real Estate:
Risk Rating
Pass	$	89,120	$	301,184	$	210,976	$	168,708	$	167,909	$	436,255	$	29,556	$	1,403,708
Special Mention	0		1,628		1,222		15,387		23,220		20,791		0		62,248
Substandard	0		0		8,365		1,722		1,657		14,817		100		26,661
Doubtful	0		0		0		0		0		0		0		0
Total Commercial Real Estate Loans	$	89,120	$	302,812	$	220,563	$	185,817	$	192,786	$	471,863	$	29,656	$	1,492,617

Agricultural:
Risk Rating
Pass	$	13,084	$	43,509	$	24,244	$	28,419	$	27,630	$	81,385	$	55,256	$	273,527
Special Mention	636		13,445		9,806		3,262		8,765		13,227		12,900		62,041
Substandard	0		578		73		384		1,156		9,472		0		11,663
Doubtful	0		0		0		0		0		0		0		0
Total Agricultural Loans	$	13,720	$	57,532	$	34,123	$	32,065	$	37,551	$	104,084	$	68,156	$	347,231

Leases:
Risk Rating
Pass	$	4,996	$	16,615	$	16,616	$	8,235	$	4,643	$	4,609	$	0	$	55,714
Special Mention	0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0
Total Leases	$	4,996	$	16,615	$	16,616	$	8,235	$	4,643	$	4,609	$	0	$	55,714

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)

~~Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:~~


		Term Loans Amortized Cost Basis by Origination Year																	Term Loans Amortized Cost Basis by Origination Year
As of September 30, 2020		2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
As of December 31, 2020																		As of December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and Industrial:	Commercial and Industrial:																	Commercial and Industrial:
Risk Rating	Risk Rating																	Risk Rating
Pass	Pass	$	387,099	$	95,812	$	54,005	$	37,396	$	24,134	$	55,538	$	100,294	$	754,278	Pass	$	260,027	$	88,273	$	46,681	$	31,612	$	21,025	$	48,508	$	109,228	$	605,354
Special Mention	Special Mention	187		546		1,350		2,073		185		2,137		2,436		8,914		Special Mention	618		1,102		2,756		1,739		206		1,972		9,948		18,341
Substandard	Substandard	1,167		0		1,193		1,405		976		5,836		7,778		18,355		Substandard	143		164		1,283		1,530		607		5,416		5,935		15,078
Doubtful	Doubtful	0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0
Total Commercial & Industrial Loans	Total Commercial & Industrial Loans	$	388,453	$	96,358	$	56,548	$	40,874	$	25,295	$	63,511	$	110,508	$	781,547	Total Commercial & Industrial Loans	$	260,788	$	89,539	$	50,720	$	34,881	$	21,838	$	55,896	$	125,111	$	638,773

Commercial Real Estate:	Commercial Real Estate:																	Commercial Real Estate:
Risk Rating	Risk Rating																	Risk Rating
Pass	Pass	$	195,078	$	241,890	$	204,211	$	214,673	$	186,951	$	328,350	$	35,405	$	1,406,558	Pass	$	296,265	$	215,226	$	179,129	$	183,703	$	171,016	$	295,641	$	29,634	$	1,370,614
Special Mention	Special Mention	527		3,038		1,798		4,511		2,025		15,173		247		27,319		Special Mention	883		9,361		15,232		23,489		7,578		20,294		147		76,984
Substandard	Substandard	0		1,119		1,995		1,777		4,343		10,169		0		19,403		Substandard	0		1,131		1,735		1,692		4,292		10,849		100		19,799
Doubtful	Doubtful	0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0
Total Commercial Real Estate Loans	Total Commercial Real Estate Loans	$	195,605	$	246,047	$	208,004	$	220,961	$	193,319	$	353,692	$	35,652	$	1,453,280	Total Commercial Real Estate Loans	$	297,148	$	225,718	$	196,096	$	208,884	$	182,886	$	326,784	$	29,881	$	1,467,397

Agricultural:	Agricultural:																	Agricultural:
Risk Rating	Risk Rating																	Risk Rating
Pass	Pass	$	36,822	$	28,368	$	33,653	$	34,303	$	24,056	$	70,059	$	77,605	$	304,866	Pass	$	49,242	$	25,449	$	31,285	$	32,368	$	22,702	$	64,890	$	75,871	$	301,807
Special Mention	Special Mention	5,444		7,803		2,974		8,713		2,138		15,763		15,439		58,274		Special Mention	11,503		9,911		3,111		8,767		2,707		10,125		16,318		62,442
Substandard	Substandard	611		73		394		1,255		4,467		6,025		250		13,075		Substandard	578		73		394		1,228		4,466		5,198		0		11,937
Doubtful	Doubtful	0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0
Total Agricultural Loans	Total Agricultural Loans	$	42,877	$	36,244	$	37,021	$	44,271	$	30,661	$	91,847	$	93,294	$	376,215	Total Agricultural Loans	$	61,323	$	35,433	$	34,790	$	42,363	$	29,875	$	80,213	$	92,189	$	376,186

Leases:	Leases:																	Leases:
Risk Rating	Risk Rating																	Risk Rating
Pass	Pass	$	14,950	$	19,334	$	10,342	$	6,297	$	2,194	$	4,358	$	0	$	57,475	Pass	$	18,258	$	17,517	$	9,176	$	5,415	$	1,605	$	3,693	$	0	$	55,664
Special Mention	Special Mention	0		0		0		0		0		0		0		0		Special Mention	0		0		0		0		0		0		0		0
Substandard	Substandard	0		0		0		0		0		0		0		0		Substandard	0		0		0		0		0		0		0		0
Doubtful	Doubtful	0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0
Total Leases	Total Leases	$	14,950	$	19,334	$	10,342	$	6,297	$	2,194	$	4,358	$	0	$	57,475	Total Leases	$	18,258	$	17,517	$	9,176	$	5,415	$	1,605	$	3,693	$	0	$	55,664

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following ~~table presents~~tables present the amortized cost in residential, home equity and consumer loans based on payment activity.


	Term Loans Amortized Cost Basis by Origination Year
As of March 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
Consumer:
Payment performance
Performing	$	8,563	$	28,248	$	9,349	$	7,567	$	1,669	$	2,757	$	2,305	$	60,458
Nonperforming	0		0		32		10		2		33		35		112
Total Consumer Loans	$	8,563	$	28,248	$	9,381	$	7,577	$	1,671	$	2,790	$	2,340	$	60,570

Home Equity:
Payment performance
Performing	$	0	$	0	$	0	$	55	$	46	$	540	$	211,372	$	212,013
Nonperforming	0		0		0		0		0		0		293		293
Total Home Equity Loans	$	0	$	0	$	0	$	55	$	46	$	540	$	211,665	$	212,306

Residential Mortgage:
Payment performance
Performing	$	33,640	$	45,639	$	22,574	$	23,597	$	27,040	$	113,996	$	0	$	266,486
Nonperforming	0		0		0		0		0		1,148		0		1,148
Total Residential Mortgage Loans	$	33,640	$	45,639	$	22,574	$	23,597	$	27,040	$	115,144	$	0	$	267,634

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 6 - Loans (continued)


		Term Loans Amortized Cost Basis by Origination Year																	Term Loans Amortized Cost Basis by Origination Year
As of September 30, 2020		2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
As of December 31, 2020																		As of December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
Consumer:	Consumer:																	Consumer:
Payment performance	Payment performance																	Payment performance
Performing	Performing	$	25,189	$	21,676	$	9,777	$	2,876	$	1,292	$	2,444	$	1,560	$	64,814	Performing	$	33,857	$	16,486	$	8,456	$	2,115	$	910	$	2,245	$	2,563	$	66,632
Nonperforming	Nonperforming	5		3		2		2		0		62		31		105		Nonperforming	0		0		11		2		14		23		35		85
Total Consumer Loans	Total Consumer Loans	$	25,194	$	21,679	$	9,779	$	2,878	$	1,292	$	2,506	$	1,591	$	64,919	Total Consumer Loans	$	33,857	$	16,486	$	8,467	$	2,117	$	924	$	2,268	$	2,598	$	66,717

Home Equity:	Home Equity:																	Home Equity:
Payment performance	Payment performance																	Payment performance
Performing	Performing	$	0	$	0	$	34	$	46	$	68	$	425	$	217,866	$	218,439	Performing	$	0	$	0	$	34	$	46	$	67	$	490	$	218,440	$	219,077
Nonperforming	Nonperforming	0		0		0		0		0		0		201		201		Nonperforming	0		0		0		0		0		0		271		271
Total Home Equity Loans	Total Home Equity Loans	$	0	$	0	$	34	$	46	$	68	$	425	$	218,067	$	218,640	Total Home Equity Loans	$	0	$	0	$	34	$	46	$	67	$	490	$	218,711	$	219,348

Residential Mortgage:	Residential Mortgage:																	Residential Mortgage:
Payment performance	Payment performance																	Payment performance
Performing	Performing	$	27,378	$	28,514	$	33,281	$	32,530	$	29,701	$	109,972	$	0	$	261,376	Performing	$	45,945	$	26,536	$	28,050	$	28,764	$	25,155	$	100,998	$	0	$	255,448
Nonperforming	Nonperforming	0		0		0		0		87		976		0		1,063		Nonperforming	0		0		0		0		0		828		0		828
Total Residential Mortgage Loans	Total Residential Mortgage Loans	$	27,378	$	28,514	$	33,281	$	32,530	$	29,788	$	110,948	$	0	$	262,439	Total Residential Mortgage Loans	$	45,945	$	26,536	$	28,050	$	28,764	$	25,155	$	101,826	$	0	$	256,276

The Company considers the performance of the loan portfolio and its impact on the allowance for credit loan losses. For certain retail loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in ~~retail loans~~credit cards based on payment activity:


~~As of September 30, 2020~~	~~Credit Cards~~

~~Performing~~	$	~~10,651~~
~~Nonperforming~~	66

~~Total~~	$	~~10,717~~


Credit Cards	March 31, 2021		December 31, 2020

Performing	$	12,455	$	11,551
Nonperforming	154		86

Total	$	12,609	$	11,637

The following ~~table presents~~tables present loans purchased and/or sold during the year by portfolio segment:


September 30, 2020		Commercial and Industrial Loans		Commercial Real Estate Loans		Agricultural Loans		Leases		Consumer Loans		Home Equity Loans		Credit Cards		Residential Mortgage Loans		Total
March 31, 2021																				March 31, 2021	Commercial and Industrial Loans		Commercial Real Estate Loans		Agricultural Loans		Leases		Consumer Loans		Home Equity Loans		Credit Cards		Residential Mortgage Loans		Total

Purchases	Purchases	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	Purchases	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Sales	Sales	0		527		0		0		0		0		0		0		527		Sales	0		0		0		0		0		0		0		0		0


December 31, 2020	Commercial and Industrial Loans		Commercial Real Estate Loans		Agricultural Loans		Leases		Consumer Loans		Home Equity Loans		Credit Cards		Residential Mortgage Loans		Total

Purchases	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Sales	0		3,128		0		0		0		0		0		0		3,128

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

~~NOTE 6 - Loans (continued)~~

~~Allowance for Loan Losses~~

Prior to the adoption of ASC 326 on January 1, 2020, the Company calculated the allowance for loan losses using the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.

~~The following table presents the activity in the allowance for loan losses by portfolio class for the three months ended September 30, 2019:~~

September 30, 2019 Commercial and Industrial
Loans and Leases Commercial Real Estate Loans Agricultural
Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Total
Beginning Balance $ 2,992 $ 5,841 $ 5,725 $ 258 $ 422 $ 349 $ 652 $ 16,239
Provision for Loan Losses 4,468 (1,410) (373) (72) 174 25 (12) 2,800
Recoveries 2 5 0 8 99 0 0 114
Loans Charged-off (2,859) (136) 0 0 (277) (12) 0 (3,284)
Ending Balance $ 4,603 $ 4,300 $ 5,352 $ 194 $ 418 $ 362 $ 640 $ 15,869

~~The following table presents the activity in the allowance for loan losses by portfolio class for the nine months ended September 30, 2019:~~

September 30, 2019 Commercial and Industrial
Loans and Leases Commercial Real Estate Loans Agricultural
Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Total
Beginning Balance $ 2,953 $ 5,291 $ 5,776 $ 229 $ 420 $ 472 $ 682 $ 15,823
Provision for Loan Losses 4,512 (741) (424) (33) 507 (54) (42) 3,725
Recoveries 53 24 0 8 313 6 0 404
Loans Charged-off (2,915) (274) 0 (10) (822) (62) 0 (4,083)
Ending Balance $ 4,603 $ 4,300 $ 5,352 $ 194 $ 418 $ 362 $ 640 $ 15,869

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 6 - Loans (continued)~~

~~The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of December 31, 2019:~~

December 31, 2019 Total Commercial
and
Industrial
Loans and Leases Commercial
Real Estate Loans Agricultural Loans Home
Equity Loans Consumer Loans Residential
Mortgage Loans Unallocated
Allowance for Loan Losses:
Ending Allowance Balance Attributable to Loans:
Individually Evaluated for Impairment $ 2,971 $ 2,412 $ 559 $ 0 $ 0 $ 0 $ 0 $ 0
Collectively Evaluated for Impairment 12,902 2,387 3,733 5,315 200 434 328 505
Acquired with Deteriorated Credit Quality 405 0 400 0 0 0 5 0
Total Ending Allowance Balance $ 16,278 $ 4,799 $ 4,692 $ 5,315 $ 200 $ 434 $ 333 $ 505
Loans:
Loans Individually Evaluated for Impairment $ 6,269 $ 4,707 $ 1,562 $ 0 $ 0 $ 0 $ 0 n/m(2)
Loans Collectively Evaluated for Impairment 3,076,835 585,328 1,491,090 387,710 226,406 81,429 304,872 n/m(2)
Loans Acquired with Deteriorated Credit Quality 12,798 1,368 7,212 3,161 369 0 688 n/m(2)
Total Ending Loans Balance (1)
$ 3,095,902 $ 591,403 $ 1,499,864 $ 390,871 $ 226,775 $ 81,429 $ 305,560 n/m(2)

~~(1)~~ ~~Total recorded investment in loans includes $13,929 in accrued interest.~~

~~(2)n/m = not meaningful~~

~~The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2019:~~

December 31, 2019
Unpaid
Principal
Balance(1)
Recorded
Investment Allowance for
Loan Losses
Allocated
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases $ 3,638 $ 524 $ —
Commercial Real Estate Loans 4,738 2,058 —
Agricultural Loans 3,294 2,738 —
Subtotal 11,670 5,320 —
With An Allowance Recorded:
Commercial and Industrial Loans and Leases 5,042 4,521 2,412
Commercial Real Estate Loans 2,187 1,865 959
Agricultural Loans 0 0 0
Subtotal 7,229 6,386 3,371
Total $ 18,899 $ 11,706 $ 3,371
Loans Acquired With Deteriorated Credit Quality With No Related Allowance
Recorded (Included in the Total Above) $ 9,994 $ 4,624 $ —
Loans Acquired With Deteriorated Credit Quality With An Additional
Allowance Recorded (Included in the Total Above) $ 1,134 $ 813 $ 400

~~(1)~~ ~~Unpaid Principal Balance is the remaining contractual payments gross of partial charge-offs and discounts.~~

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 6 - Loans (continued)~~

~~The following table presents the average balance and related interest income of loans individually evaluated for impairment by class of loans for the three month period ended September 30, 2019:~~

September 30, 2019 Average Recorded
Investment Interest Income Recognized Cash Basis
Recognized
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases $ 2,868 $ 8 $ 0
Commercial Real Estate Loans 2,699 45 5
Agricultural Loans 1,539 1 0
Subtotal 7,106 54 5
With An Allowance Recorded:
Commercial and Industrial Loans and Leases 5,708 0 0
Commercial Real Estate Loans 2,010 0 3
Agricultural Loans 0 0 0
Subtotal 7,718 0 3
Total $ 14,824 $ 54 $ 8
Loans Acquired With Deteriorated Credit Quality With No Related Allowance
Recorded (Included in the Total Above) $ 3,381 $ 43 $ 0
Loans Acquired With Deteriorated Credit Quality With An Additional
Allowance Recorded (Included in the Total Above) $ 815 $ 0 $ 0

~~The following table presents the average balance and related interest income of loans individually evaluated for impairment by class of loans for the nine month period ended September 30, 2019:~~

September 30, 2019 Average Recorded
Investment Interest Income Recognized Cash Basis
Recognized
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases $ 1,157 $ 11 $ 2
Commercial Real Estate Loans 3,093 72 5
Agricultural Loans 1,452 1 0
Subtotal 5,702 84 7
With An Allowance Recorded:
Commercial and Industrial Loans and Leases 3,374 0 0
Commercial Real Estate Loans 3,553 0 0
Agricultural Loans 0 0 0
Subtotal 6,927 0 0
Total $ 12,629 $ 84 $ 7
Loans Acquired With Deteriorated Credit Quality With No Related Allowance
Recorded (Included in the Total Above) $ 4,070 $ 58 $ 0
Loans Acquired With Deteriorated Credit Quality With An Additional
Allowance Recorded (Included in the Total Above) $ 2,083 $ 0 $ 0

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 6 - Loans (continued)~~

~~The following table presents the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual by class of loans as of December 31, 2019:~~

Loans Past Due
90 Days or More
Non-Accrual & Still Accruing
2019 2019
Commercial and Industrial Loans and Leases $ 4,940 $ 190
Commercial Real Estate Loans 3,433 0
Agricultural Loans 2,739 0
Home Equity Loans 79 0
Consumer Loans 115 0
Residential Mortgage Loans 2,496 0
Total $ 13,802 $ 190
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)
$ 5,393 $ 0
Loans Acquired in Current Year
(Included in the Total Above)
$ 2,058 $ 0

~~The following table presents the aging of the recorded investment in past due loans by class of loans as of December 31, 2019:~~

December 31, 2019 Total 30-59 Days
Past Due 60-89 Days
Past Due 90 Days
or More
Past Due Total
Past Due Loans Not
Past Due
Commercial and Industrial Loans and Leases $ 591,403 $ 4,689 $ 83 $ 799 $ 5,571 $ 585,832
Commercial Real Estate Loans 1,499,864 209 431 2,106 2,746 1,497,118
Agricultural Loans 390,871 499 0 329 828 390,043
Home Equity Loans 226,775 1,121 253 80 1,454 225,321
Consumer Loans 81,429 347 156 89 592 80,837
Residential Mortgage Loans 305,560 5,014 1,461 2,308 8,783 296,777
Total (1)
$ 3,095,902 $ 11,879 $ 2,384 $ 5,711 $ 19,974 $ 3,075,928
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)
$ 12,798 $ 18 $ 0 $ 1,589 $ 1,607 $ 11,191
Loans Acquired in Current Year
(Included in the Total Above)
$ 321,464 $ 639 $ 1 $ 797 $ 1,437 $ 320,027

~~(1)~~ ~~Total recorded investment in loans includes $13,929 in accrued interest.~~

~~The risk category of loans by class of loans at December 31, 2019 is as follows:~~

December 31, 2019 Pass Special
Mention Substandard Doubtful Total
Commercial and Industrial Loans and Leases $ 556,706 $ 19,671 $ 15,026 $ 0 $ 591,403
Commercial Real Estate Loans 1,453,310 30,504 16,050 0 1,499,864
Agricultural Loans 325,991 49,053 15,827 0 390,871
Total $ 2,336,007 $ 99,228 $ 46,903 $ 0 $ 2,482,138
Loans Acquired With Deteriorated Credit Quality
(Included in the Total Above)
$ 68 $ 613 $ 11,060 $ 0 $ 11,741
Loans Acquired in Current Year
(Included in the Total Above)
$ 254,629 $ 16,535 $ 12,769 $ 0 $ 283,933

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 6 - Loans (continued)~~

~~The following table presents the recorded investment in home equity, consumer and residential mortgage loans based on payment activity as of December 31, 2019:~~

December 31, 2019 Home Equity
Loans Consumer
Loans Residential
Mortgage Loans
Performing $ 226,695 $ 81,314 $ 303,065
Nonperforming 80 115 2,495
Total $ 226,775 $ 81,429 $ 305,560

~~The following table presents financing receivables purchased and/or sold during the year by portfolio segment:~~

December 31, 2019 Commercial and Industrial Loans and Leases Commercial Real Estate Loans Total
Purchases $ 2,051 $ 0 $ 2,051
Sales 0 0 0

NOTE 7 – Repurchase Agreements Accounted for as Secured Borrowings

Repurchase agreements are short-term borrowings included in FHLB Advances and Other Borrowings and mature overnight and continuously. Repurchase agreements, which were secured by mortgage-backed securities, totaled ~~$72,981~~$39,863 and ~~$39,425~~$52,904 as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. Risk could arise when the collateral pledged to a repurchase agreement declines in fair value. The Company minimizes risk by consistently monitoring the value of the collateral pledged. At the point in time where the collateral has declined in fair value, the Company is required to provide additional collateral based on the value of the underlying securities.

NOTE 8 – Segment Information

The Company’s operations include 3 primary segments: core banking, wealth management services, and insurance operations. The core banking segment involves attracting deposits from the general public and using such funds to originate consumer, commercial and agricultural, commercial and agricultural real estate, and residential mortgage loans, primarily in the Company’s local markets. The core banking segment also involves the sale of residential mortgage loans in the secondary market. The wealth management segment involves providing trust, investment advisory, brokerage and ~~brokerage~~retirement planning services to customers. The insurance segment offers a full range of personal and corporate property and casualty insurance products, primarily in the Company’s banking subsidiary’s local markets.

The core banking segment is comprised by the Company’s banking subsidiary, German American Bank, which operated through 73 banking offices at ~~September 30, 2020.~~March 31, 2021. Net interest income from loans and investments funded by deposits and borrowings is the primary revenue for the core-banking segment. The wealth management segment’s revenues are comprised primarily of fees generated by the trust operations of the Company's banking subsidiary and by German American Investment Services, Inc. These fees are derived by providing trust, investment advisory, brokerage and ~~brokerage~~retirement planning services to its customers. The insurance segment primarily consists of German American Insurance, Inc., which provides a full line of personal and corporate insurance products. Commissions derived from the sale of insurance products are the primary source of revenue for the insurance segment.

The following segment financial information has been derived from the internal financial statements of the Company which are used by management to monitor and manage financial performance. The accounting policies of the 3 segments are the same as those of the Company. The evaluation process for segments does not include holding company income and expense. Holding company amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the column labeled “Other” below, along with amounts to eliminate transactions between segments.


	Core Banking		Wealth Management Services		Insurance		Other		Consolidated Totals
Three Months Ended
March 31, 2021
Net Interest Income	$	39,582	$	8	$	2	$	(660)	$	38,932
Net Gains on Sales of Loans	2,202		0		0		0		2,202
Net Gains on Securities	975		0		0		0		975
Trust and Investment Product Fees	1		2,357		0		0		2,358
Insurance Revenues	2		2		3,288		0		3,292
Noncash Items:
Provision for Credit Losses	(1,500)		0		0		0		(1,500)
Depreciation and Amortization	2,217		13		17		80		2,327
Income Tax Expense (Benefit)	4,424		151		395		(317)		4,653
Segment Profit (Loss)	18,628		470		1,248		(789)		19,557
Segment Assets at March 31, 2021	5,210,711		5,000		12,068		(7,945)		5,219,834

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 8 - Segment Information (continued)


		Core Banking		Wealth Management Services		Insurance		Other		Consolidated Totals			Core Banking		Wealth Management Services		Insurance		Other		Consolidated Totals
Three Months Ended	Three Months Ended											Three Months Ended
September 30, 2020
March 31, 2020												March 31, 2020
Net Interest Income	Net Interest Income	$	39,039	$	4	$	2	$	(657)	$	38,388	Net Interest Income	$	36,952	$	4	$	4	$	(704)	$	36,256
Net Gains on Sales of Loans	Net Gains on Sales of Loans	2,861		0		0		0		2,861		Net Gains on Sales of Loans	1,863		0		0		0		1,863
Net Gains on Securities	Net Gains on Securities	607		0		0		0		607		Net Gains on Securities	590		0		0		0		590
Trust and Investment Product Fees	Trust and Investment Product Fees	2		1,955		0		0		1,957		Trust and Investment Product Fees	1		2,030		0		0		2,031
Insurance Revenues	Insurance Revenues	6		1		1,982		0		1,989		Insurance Revenues	3		1		3,225		0		3,229
Noncash Items:	Noncash Items:											Noncash Items:
Provision for Credit Losses	Provision for Credit Losses	4,500		0		0		0		4,500		Provision for Credit Losses	5,150		0		0		0		5,150
Depreciation and Amortization	Depreciation and Amortization	2,237		2		16		80		2,335		Depreciation and Amortization	2,243		1		17		80		2,341
Income Tax Expense (Benefit)	Income Tax Expense (Benefit)	3,268		108		71		(293)		3,154		Income Tax Expense (Benefit)	2,241		117		360		(331)		2,387
Segment Profit (Loss)	Segment Profit (Loss)	14,628		321		216		(572)		14,593		Segment Profit (Loss)	11,847		334		1,094		(803)		12,472
Segment Assets at September 30, 2020		4,837,899		4,283		10,247		401		4,852,830
Segment Assets at December 31, 2020												Segment Assets at December 31, 2020	4,963,655		4,480		10,263		(821)		4,977,577

Core
Banking Wealth Management Services Insurance Other Consolidated Totals
Three Months Ended
September 30, 2019
Net Interest Income $ 39,302 $ 4 $ 5 $ (733) $ 38,578
Net Gains on Sales of Loans 1,649 0 0 0 1,649
Net Gains on Securities 313 0 0 0 313
Trust and Investment Product Fees 1 1,884 0 0 1,885
Insurance Revenues 14 2 1,867 0 1,883
Noncash Items:
Provision for Loan Losses 2,800 0 0 0 2,800
Depreciation and Amortization 2,196 1 14 80 2,291
Income Tax Expense (Benefit) 3,025 137 51 (404) 2,809
Segment Profit (Loss) 13,538 406 145 (1,025) 13,064
Segment Assets at December 31, 2019 4,381,945 3,670 9,080 2,977 4,397,672

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 8 - Segment Information (continued)~~

Core
Banking Wealth Management Services Insurance Other Consolidated Totals
Nine Months Ended
September 30, 2020
Net Interest Income $ 115,148 $ 12 $ 9 $ (2,066) $ 113,103
Net Gains on Sales of Loans 7,378 0 0 0 7,378
Net Gains on Securities 2,190 0 0 0 2,190
Trust and Investment Product Fees 3 5,852 0 0 5,855
Insurance Revenues 11 12 7,025 0 7,048
Noncash Items:
Provision for Loan Losses 15,550 0 0 0 15,550
Depreciation and Amortization 6,748 4 50 241 7,043
Income Tax Expense (Benefit) 8,635 336 471 (1,262) 8,180
Segment Profit (Loss) 40,573 991 1,437 (1,681) 41,320
Segment Assets at September 30, 2020 4,837,899 4,283 10,247 401 4,852,830

Core
Banking Wealth Management Services Insurance Other Consolidated Totals
Nine Months Ended
September 30, 2019
Net Interest Income $ 107,619 $ 10 $ 14 $ (1,833) $ 105,810
Net Gains on Sales of Loans 3,660 0 0 0 3,660
Net Gains on Securities 984 0 0 0 984
Trust and Investment Product Fees 3 5,362 0 0 5,365
Insurance Revenues 21 27 6,969 0 7,017
Noncash Items:
Provision for Loan Losses 3,725 0 0 0 3,725
Depreciation and Amortization 6,099 4 53 208 6,364
Income Tax Expense (Benefit) 9,117 341 458 (1,348) 8,568
Segment Profit (Loss) 43,105 993 1,382 (2,078) 43,402
Segment Assets at December 31, 2019 4,381,945 3,670 9,080 2,977 4,397,672

NOTE 9 – Stock Repurchase Plan

On January ~~27, 2020,~~25, 2021, the Company’s Board of Directors approved a plan to repurchase up to 1000000 shares of the Company’s outstanding common stock. On a share basis, the amount of common stock subject to the repurchase plan represents approximately 4% of the Company’s outstanding shares. The Company is not obligated to purchase 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. At the time it approved the new plan, the Board also terminated a similar ~~program~~plan that had been adopted in ~~2001.~~January 2020. At the time of its termination, the Company had been authorized to purchase up to ~~409,184 shares of common stock under the 2001 program. The Company has repurchased 221,302~~778,088 shares of common stock under the 2020 repurchase plan. The Company has 0t repurchased any shares of common stock under the 2021 repurchase plan.

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

NOTE 10 – Equity Plans and Equity Based Compensation

During the periods presented, the Company maintained 2 equity incentive plans under which stock options, restricted stock, and other equity incentive awards have been or could be granted. Those plans include (i) the Company’s 2009 Long-Term Equity Incentive Plan, under which 0 new grants may be made, and (ii) the Company’s 2019 Long-Term Equity Incentive Plan (the “2019 LTI Plan”). The 2019 LTI Plan, which authorizes a maximum aggregate issuance of 1,000,000 shares of common stock (subject to certain permitted adjustments), became effective on May 16, 2019, following approval of the Company’s shareholders. It will remain in effect until May 16, 2029, or until all shares of common stock subject to the 2019 LTI Plan are distributed, all awards have expired or terminated, or the plan is terminated pursuant to its terms, whichever occurs first.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company granted 0 options. The Company recorded 0 stock compensation expense applicable to options during the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. In addition, there was 0 unrecognized option expense.

During the periods presented, awards of long-term incentives were granted in the form of restricted stock. In 2019 and prior, awards that were granted to management and selected other employees under the Company's management incentive plan were granted in tandem with cash credit entitlements in the form of 60% restricted stock grants and 40% cash credit entitlements. ~~Beginning in~~In 2020, awards granted under the management incentive plan were granted in tandem with cash credit entitlements in the form of 66.67% restricted stock grants and 33.33% cash credit entitlements. In 2019 and prior, the restricted stock grants and tandem

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 10 - Equity Plans and Equity Based Compensation (continued)

cash credit entitlements, generally, vested in 3 annual installments of ~~33.3%~~33.33% each. ~~Beginning in~~In 2020, 100% of the cash portion of an award vests towards the end of the year in which the grant was made, followed by the restricted stock grants vesting 50% in each of the 2nd and 3rd years. Beginning in 2021 for named executive officers, awards are granted in the form of 100% restricted stock grants which will vest in one-third installments on the first, second and third anniversaries of the award date. Awards that are granted to directors as additional retainers for their services do not include any cash credit entitlement. These director restricted stock grants are subject to forfeiture in the event that the recipient of the grant does not continue in service as a director of the Company through December 31 of the year after grant or dodoes not satisfy certain meeting attendance requirements, at which time they generally vest 100 percent. For measuring compensation costs, restricted stock awards are valued based upon the market value of the common shares on the date of grant. During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, the Company awarded grants of ~~1,192 and 44,370~~44,123 shares of restricted ~~stock, respectively.~~stock. During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, the Company granted awards of ~~5,466 and 31,329~~41,752 shares of restricted stock. Total unvested restricted stock awards at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were ~~86,079~~108,524 and ~~43,279,~~64,401, respectively.

The following table presents expense recorded for restricted stock and cash entitlements as well as the related tax information for the periods presented:


		Three Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020

Restricted Stock Expense	Restricted Stock Expense	$	254	$	311	Restricted Stock Expense	$	329	$	270
Cash Entitlement Expense	Cash Entitlement Expense	249		167		Cash Entitlement Expense	83		244
Tax Effect	Tax Effect	(125)		(124)		Tax Effect	(107)		(128)
Net of Tax	Net of Tax	$	378	$	354	Net of Tax	$	305	$	386

Nine Months Ended
September 30,
2020 2019
Restricted Stock Expense $ 806 $ 972
Cash Entitlement Expense 737 509
Tax Effect (384) (386)
Net of Tax $ 1,159 $ 1,095

Unrecognized expense associated with the restricted stock grants and cash entitlements totaled ~~$1,071~~$4,083 and ~~$2,356~~$1,665 as of ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 10 - Equity Plans and Equity Based Compensation (continued)~~

Through August 16, 2019, the company maintained the 2009 Employee Stock Purchase Plan (the "2009 ESPP") whereby eligible employees had the option to purchase the Company’s common stock at a discount. The purchase price of the shares under this plan was set at 95% of the fair market value of the Company’s common stock as of the last day of the plan year. The plan had provided for the purchase of up to 750,000 shares of common stock, which the Company may obtain by purchases on the open market or from private sources, or by issuing authorized but unissued common shares.

The Company’s shareholders approved the Company’s new 2019 Employee Stock Purchase Plan ~~(the “2019 ESPP”)~~ on May 16, ~~2019.~~2019, as well as an Amended and Restated 2019 Employee Stock Purchase Plan on May 21, 2020, which was amended and restated to reflect certain clarifying changes (the "2019 ESPP"). The 2019 ESPP replaces the 2009 ESPP, which expired by its own terms on August 16, 2019. The 2019 ESPP, which became effective as of October 1, 2019, provides for a series of 3-month offering periods, commencing on the first day and ending on the last trading day of each calendar quarter, for the purchase of the Company’s common stock by participating employees. The purchase price of the shares has been set at 95% of the fair market value of the Company’s common stock on the last trading day of the offering period. A total of 750,000 common shares has been reserved for issuance under the 2019 ESPP. The 2019 ESPP will continue until September 30, 2029, or, if earlier, until all of the shares of common stock allocated to the 2019 ESPP have been purchased. Funding for the purchase of common stock is from employee and Company contributions.

For the three months ended ~~September 30, 2020,~~March 31, 2021, the Company recorded ~~$11~~$10 of expense, $8$7 net of tax, for the employee stock purchase plan. For the ~~nine~~three months ended ~~September 30,~~March 31, 2020, the Company recorded ~~$30~~$16 of expense, $23 net of tax, for the employee stock purchase plan. As an annual plan, the expense for the 2009 ESPP was recorded in the third quarter of each year. For the three and nine months ended September 30, 2020, the Company recorded $30 of expense, $22$12 net of tax, for the employee stock purchase plan. There was 0 unrecognized compensation expense as of ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ for the employee stock purchase plan.

3731

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 11 – Fair Value

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

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For investment securities where quoted prices are not available, fair values are calculated based on market prices of similar investment securities (Level 2). For investment securities where quoted prices or market prices of similar investment securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Level 3 pricing is obtained from a third-party based upon similar trades that are not traded frequently without adjustment by the Company. At ~~September 30, 2020,~~March 31, 2021, the Company held ~~$497 thousand in~~0 Level 3 ~~securities which consist of non-rated Obligations of State and Political Subdivisions.~~securities. Absent the credit rating, significant assumptions must be made such that the credit risk input becomes an unobservable input and thus these investment securities are reported by the Company in a Level 3 classification.

Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

Individually Analyzed Loans: Fair values for collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances includes consideration of offers obtained to purchase properties prior to foreclosure. Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach. The cost method bases value in the cost to replace the current property. Value of market comparison approach evaluates the sales price of similar properties in the same market area. The income approach considers net operating income generated by the property and an investor's required return. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell. Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s Risk Management Area reviews the assumptions and approaches utilized in the appraisal. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used which include: physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.

Other Real Estate: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate (ORE) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property utilizing similar techniques as discussed above for Impaired Loans, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, impairment loss is recognized.

3832

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 11 - Fair Value (continued)

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

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:


		Fair Value Measurements at September 30, 2020 Using									Fair Value Measurements at March 31, 2021 Using
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:	Assets:									Assets:
Obligations of State and Political Subdivisions	Obligations of State and Political Subdivisions	$	0	$	513,515	$	497	$	514,012	Obligations of State and Political Subdivisions	$	0	$	623,848	$	0	$	623,848
MBS/CMO	MBS/CMO	0		522,898		0		522,898		MBS/CMO	0		653,449		0		653,449
US Gov't Sponsored Entities & Agencies										US Gov't Sponsored Entities & Agencies	0		108,576		0		108,576
Total Securities	Total Securities	$	0	$	1,036,413	$	497	$	1,036,910	Total Securities	$	0	$	1,385,873	$	0	$	1,385,873

Loans Held-for-Sale	Loans Held-for-Sale	$	0	$	27,993	$	0	$	27,993	Loans Held-for-Sale	$	0	$	18,493	$	0	$	18,493

Derivative Assets	Derivative Assets	$	0	$	9,636	$	0	$	9,636	Derivative Assets	$	0	$	5,772	$	0	$	5,772

Derivative Liabilities	Derivative Liabilities	$	0	$	10,293	$	0	$	10,293	Derivative Liabilities	$	0	$	5,970	$	0	$	5,970


		Fair Value Measurements at December 31, 2019 Using									Fair Value Measurements at December 31, 2020 Using
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:	Assets:									Assets:
Obligations of State and Political Subdivisions	Obligations of State and Political Subdivisions	$	0	$	320,279	$	4,021	$	324,300	Obligations of State and Political Subdivisions	$	0	$	580,750	$	497	$	581,247
MBS/CMO	MBS/CMO	0		530,525		0		530,525		MBS/CMO	0		548,307		0		548,307
US Gov't Sponsored Entities & Agencies										US Gov't Sponsored Entities & Agencies	0		88,298		0		88,298
Total Securities	Total Securities	$	0	$	850,804	$	4,021	$	854,825	Total Securities	$	0	$	1,217,355	$	497	$	1,217,852

Loans Held-for-Sale	Loans Held-for-Sale	$	0	$	17,713	$	0	$	17,713	Loans Held-for-Sale	$	0	$	16,904	$	0	$	16,904

Derivative Assets	Derivative Assets	$	0	$	2,607	$	0	$	2,607	Derivative Assets	$	0	$	8,806	$	0	$	8,806

Derivative Liabilities	Derivative Liabilities	$	0	$	2,829	$	0	$	2,829	Derivative Liabilities	$	0	$	9,353	$	0	$	9,353

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the aggregate fair value, contractual balance (including accrued interest), and gain or loss on Loans Held-for-Sale was as follows:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020

Aggregate Fair Value	Aggregate Fair Value	$	27,993	$	17,713	Aggregate Fair Value	$	18,493	$	16,904
Contractual Balance	Contractual Balance	27,328		17,378		Contractual Balance	18,014		16,378
Gain (Loss)	Gain (Loss)	665		335		Gain (Loss)	479		526

The total amount of gains and losses from changes in fair value included in earnings for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 were ~~$233~~$(47) and ~~$330, respectively. The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2019 were $112 and $339,~~$5, respectively.

3933

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 11 - Fair Value (continued)

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Obligations of State and Political Subdivisions
2020 2019
Balance of Recurring Level 3 Assets at July 1 $ 2,495 $ 4,506
Total Gains or Losses Included in Other Comprehensive Income (3) (1)
Maturities / Calls (1,995) (475)
Purchases 0 0
Balance of Recurring Level 3 Assets at September 30 $ 497 $ 4,030


	Obligations of State and Political Subdivisions
	2021		2020

Balance of Recurring Level 3 Assets at January 1	$	497	$	4,021
Total Losses Included in Other Comprehensive Income	(2)		(16)
Maturities / Calls	(495)		(523)
Purchases	0		0
Balance of Recurring Level 3 Assets at March 31	$	0	$	3,482

Obligations of State and Political Subdivisions
2020 2019
Balance of Recurring Level 3 Assets at January 1 $ 4,021 $ 4,991
Total Gains or Losses Included in Other Comprehensive Income (26) (16)
Maturities / Calls (3,498) (945)
Purchases 0 0
Balance of Recurring Level 3 Assets at September 30 $ 497 $ 4,030

Of the total gain/loss included in earnings for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~($3)~~$(2) and ~~($26) was attributable to other changes in fair value, respectively. Of the total gain/loss included in earnings for the three and nine months ended September 30, 2019, ($1) and ($16)~~$(16) was attributable to other changes in fair value, respectively.

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:


		Fair Value Measurements at September 30, 2020 Using									Fair Value Measurements at March 31, 2021 Using
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:	Assets:									Assets:
Individually Analyzed Loans	Individually Analyzed Loans									Individually Analyzed Loans
Commercial and Industrial Loans	Commercial and Industrial Loans	$	0	$	0	$	4,778	$	4,778	Commercial and Industrial Loans	$	0	$	0	$	4,662	$	4,662
Commercial Real Estate Loans	Commercial Real Estate Loans	$	0	$	0	$	9,372	$	9,372	Commercial Real Estate Loans	$	0	$	0	$	7,548	$	7,548
Agricultural Loans	Agricultural Loans	$	0	$	0	$	550	$	550	Agricultural Loans	$	0	$	0	$	548	$	548
Consumer Loans	Consumer Loans	$	0	$	0	$	18	$	18	Consumer Loans	$	0	$	0	$	0	$	0
Home Equity Loans	Home Equity Loans	$	0	$	0	$	368	$	368	Home Equity Loans	$	0	$	0	$	369	$	369
Residential Mortgage Loans	Residential Mortgage Loans	$	0	$	0	$	191	$	191	Residential Mortgage Loans	$	0	$	0	$	507	$	507

Fair value for collateral dependent loans, had a carrying amount of $22,621 with a valuation allowance of $7,344, resulting in an increase to the provision for credit losses of $136 for the three months ended September 30, 2020 and an increase to the provision for credit losses of $1,822 for the nine months ended September 30, 2020.


	Fair Value Measurements at December 31, 2020 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Individually Analyzed Loans
Commercial and Industrial Loans	$	0	$	0	$	4,985	$	4,985
Commercial Real Estate Loans	$	0	$	0	$	8,893	$	8,893
Agricultural Loans	$	0	$	0	$	551	$	551
Consumer Loans	$	0	$	0	$	0	$	0
Home Equity Loans	$	0	$	0	$	369	$	369
Residential Mortgage Loans	$	0	$	0	$	75	$	75

4034

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 11 - Fair Value (continued)

~~As discussed in Note 2 - Recent Accounting Pronouncements, the Company adopted ASC 326 on January 1, 2020. The table below is based upon previously applicable GAAP.~~

Fair Value Measurements at December 31, 2019 Using
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable
Inputs (Level 3) Total
Assets:
Impaired Loans
Commercial and Industrial Loans $ 0 $ 0 $ 2,109 $ 2,109
Commercial Real Estate Loans 0 0 493 493

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $5,574 with a valuation allowance of $2,971, resulting in a decrease to the provision for loan losses of $1,149 for the year ended December 31, 2019.

There was 0 Other Real Estate carried at fair value less costs to sell at September 30, 2020. NaN charge to earnings was included in the three or nine months ended September 30, 2020 and 2019. There was 0 Other Real Estate carried at fair value less costs to sell at December 31, 2019. NaN charge to earnings was included in the year ended December 31, 2019.

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

~~September 30, 2020~~March 31, 2021

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Range (Weighted Average)

Individual Analyzed Loans -
Commercial and Industrial Loans

~~4,778~~4,662

Sales comparison approach

Adjustment for physical condition of comparable properties sold

~~30%~~26%-100%

(60%)

Individual Analyzed Loans -
Commercial Real Estate Loans

~~9,372~~7,548

Sales comparison approach

Adjustment for physical condition of comparable properties sold

~~30%~~22%-100%

~~(39%~~(40%)

Individual Analyzed Loans -
Agricultural Loans

~~550~~548

Sales comparison approach

Adjustment for physical condition of comparable properties sold

30%~~-100%~~-96%

~~(66%~~(64%)

Individual Analyzed Loans -
Consumer Loans

180

Sales comparison approach

Adjustment for physical condition of comparable properties sold

~~24%-99%~~ 100%

~~(34%~~(100%)

Individual Analyzed Loans -
Home Equity Loans

~~368~~369

Sales comparison approach

Adjustment for physical condition of comparable properties sold

~~9%-9%~~23%-23%

~~(9%~~(23%)

Individual Analyzed Loans -
Residential Mortgage Loans

~~191~~507

Sales comparison approach

Adjustment for physical condition of comparable properties sold

~~19%-93%~~7%-51%

~~(47%~~(31%)

December 31, ~~2019~~2020

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Range (Weighted Average)

~~Impaired~~Individual Analyzed Loans -
Commercial and Industrial Loans

~~2,109~~4,985

Sales comparison approach

Adjustment for physical condition of comparable properties sold

~~29%~~26%-100%

~~(64%~~(61%)

~~Impaired~~Individual Analyzed Loans -
Commercial Real Estate Loans

~~493~~8,893

Sales comparison approach

Adjustment for physical condition of comparable properties sold

~~47%-91%~~30%-100%

~~(64%~~(56%)

Individual Analyzed Loans -
Agricultural Loans

551

Sales comparison approach

Adjustment for physical condition of comparable properties sold

30%-96% (65%)

Individual Analyzed Loans -
Consumer Loans

Sales comparison approach

Adjustment for physical condition of comparable properties sold

100%

(100%)

Individual Analyzed Loans -
Home Equity Loans

369

Sales comparison approach

Adjustment for physical condition of comparable properties sold

9%-9%

(9%)

Individual Analyzed Loans -
Residential Mortgage Loans

Sales comparison approach

Adjustment for physical condition of comparable properties sold

43%-97%

(67%)

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 11 - Fair Value (continued)

The carrying amounts and estimated fair values of the Company’s financial instruments not previously presented are provided in the tables below for the periods ending ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. Not all of the Company’s assets and liabilities are considered financial instruments, and therefore are not included in the tables. Because no active market exists for a significant portion of the Company’s financial instruments, fair value estimates were based on subjective judgments, and therefore cannot be determined with precision. ~~In accordance with the adoption of ASU 2016-01, the tables below for September 30, 2020 and December 31, 2019, present the fair values measured using an exit price notion.~~


				Fair Value Measurements at September 30, 2020 Using											Fair Value Measurements at March 31, 2021 Using
		Carrying Value		Level 1		Level 2		Level 3		Total			Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:	Financial Assets:											Financial Assets:
Cash and Short-term Investments	Cash and Short-term Investments	$	249,693	$	56,706	$	192,987	$	0	$	249,693	Cash and Short-term Investments	$	393,244	$	102,758	$	290,486	$	0	$	393,244
Interest Bearing Time Deposits with Banks	Interest Bearing Time Deposits with Banks	1,489		0		1,489		0		1,489		Interest Bearing Time Deposits with Banks	1,241		0		1,241		0		1,241
Loans, Net	Loans, Net	3,159,082		0		0		3,175,885		3,175,885		Loans, Net	3,058,470		0		0		3,067,070		3,067,070
Accrued Interest Receivable	Accrued Interest Receivable	20,452		0		5,435		15,017		20,452		Accrued Interest Receivable	20,285		0		7,144		13,141		20,285
Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Demand, Savings, and Money Market Deposits	Demand, Savings, and Money Market Deposits	(3,464,640)		(3,464,640)		0		0		(3,464,640)		Demand, Savings, and Money Market Deposits	(3,931,903)		(3,931,903)		0		0		(3,931,903)
Time Deposits	Time Deposits	(515,034)		0		(514,811)		0		(514,811)		Time Deposits	(446,770)		0		(446,842)		0		(446,842)
Short-term Borrowings	Short-term Borrowings	(72,981)		0		(72,891)		0		(72,891)		Short-term Borrowings	(39,863)		0		(39,863)		0		(39,863)
Long-term Debt	Long-term Debt	(141,563)		0		(88,629)		(55,449)		(144,078)		Long-term Debt	(133,684)		0		(79,865)		(51,180)		(131,045)
Accrued Interest Payable	Accrued Interest Payable	(1,768)		0		(1,731)		(37)		(1,768)		Accrued Interest Payable	(1,286)		0		(1,253)		(33)		(1,286)

Fair Value Measurements at
December 31, 2019 Using
Carrying Value Level 1 Level 2 Level 3 Total
Financial Assets:
Cash and Short-term Investments $ 103,884 $ 59,971 $ 43,913 $ 0 $ 103,884
Interest Bearing Time Deposits with Banks 1,985 0 1,985 0 1,985
Loans, Net 3,058,211 0 0 3,056,521 3,056,521
Accrued Interest Receivable 18,425 0 4,400 14,025 18,425
Financial Liabilities:
Demand, Savings, and Money Market Deposits (2,798,625) (2,798,625) 0 0 (2,798,625)
Time Deposits (631,396) 0 (624,666) 0 (624,666)
Short-term Borrowings (167,736) (128,311) (39,425) 0 (167,736)
Long-term Debt (181,950) 0 (127,174) (55,234) (182,408)
Accrued Interest Payable (2,442) 0 (2,376) (66) (2,442)


			Fair Value Measurements at December 31, 2020 Using
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Short-term Investments	$	345,748	$	57,972	$	287,776	$	0	$	345,748
Interest Bearing Time Deposits with Banks	1,241		0		1,241		0		1,241
Loans, Net	3,026,340		0		0		3,032,690		3,032,690
Accrued Interest Receivable	20,278		0		6,137		14,141		20,278
Financial Liabilities:
Demand, Savings, and Money Market Deposits	(3,612,078)		(3,612,078)		0		0		(3,612,078)
Time Deposits	(494,452)		0		(495,171)		0		(495,171)
Short-term Borrowings	(52,905)		0		(52,905)		0		(52,905)
Long-term Debt	(141,624)		0		(88,342)		(54,960)		(143,302)
Accrued Interest Payable	(1,084)		0		(1,049)		(35)		(1,084)

4236

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 12 - Other Comprehensive Income (Loss)

The tables below summarize the changes in accumulated other comprehensive income (loss) by component for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ net of tax:


September 30, 2020		Unrealized Gains and Losses on Available-for-Sale Securities		Postretirement Benefit Items		Total
March 31, 2021								March 31, 2021	Unrealized Gains and Losses on Available-for-Sale Securities		Postretirement Benefit Items		Total

Beginning Balance at July 1, 2020		$	31,717	$	(568)	$	31,149
Beginning Balance at January 1, 2021								Beginning Balance at January 1, 2021	$	35,943	$	(568)	$	35,375
Other Comprehensive Income (Loss) Before Reclassification	Other Comprehensive Income (Loss) Before Reclassification	74		0		74		Other Comprehensive Income (Loss) Before Reclassification	(21,058)		0		(21,058)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	(480)		0		(480)		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	(770)		0		(770)
Net Current Period Other Comprehensive Income (Loss)	Net Current Period Other Comprehensive Income (Loss)	(406)		0		(406)		Net Current Period Other Comprehensive Income (Loss)	(21,828)		0		(21,828)
Ending Balance at September 30, 2020		$	31,311	$	(568)	$	30,743
Ending Balance at March 31, 2021								Ending Balance at March 31, 2021	$	14,115	$	(568)	$	13,547

September 30, 2020 Unrealized Gains and Losses on Available-for-Sale Securities Postretirement Benefit Items Total
Beginning Balance at January 1, 2020 $ 15,673 $ (568) $ 15,105
Other Comprehensive Income (Loss) Before Reclassification 17,364 0 17,364
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) (1,726) 0 (1,726)
Net Current Period Other Comprehensive Income (Loss) 15,638 0 15,638
Ending Balance at September 30, 2020 $ 31,311 $ (568) $ 30,743


September 30, 2019		Unrealized Gains and Losses on Available-for-Sale Securities		Postretirement Benefit Items		Total
March 31, 2020								March 31, 2020	Unrealized Gains and Losses on Available-for-Sale Securities		Postretirement Benefit Items		Total

Beginning Balance at July 1, 2019		$	11,546	$	(339)	$	11,207
Beginning Balance at January 1, 2020								Beginning Balance at January 1, 2020	$	15,673	$	(568)	$	15,105
Other Comprehensive Income (Loss) Before Reclassification	Other Comprehensive Income (Loss) Before Reclassification	4,896		0		4,896		Other Comprehensive Income (Loss) Before Reclassification	13,718		0		13,718
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	(247)		0		(247)		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	(463)		0		(463)
Net Current Period Other Comprehensive Income (Loss)	Net Current Period Other Comprehensive Income (Loss)	4,649		0		4,649		Net Current Period Other Comprehensive Income (Loss)	13,255		0		13,255
Ending Balance at September 30, 2019		$	16,195	$	(339)	$	15,856
Ending Balance at March 31, 2020								Ending Balance at March 31, 2020	$	28,928	$	(568)	$	28,360

September 30, 2019 Unrealized Gains and Losses on Available-for-Sale Securities Postretirement Benefit Items Total
Beginning Balance at January 1, 2019 $ (6,759) $ (339) $ (7,098)
Other Comprehensive Income (Loss) Before Reclassification 23,731 0 23,731
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) (777) 0 (777)
Net Current Period Other Comprehensive Income (Loss) 22,954 0 22,954
Ending Balance at September 30, 2019 $ 16,195 $ (339) $ 15,856

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 12 - Other Comprehensive Income (Loss) (continued)~~

The tables below summarize the classifications out of accumulated other comprehensive income (loss) by component for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~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

~~607~~975

Net Gains on Securities

~~(127)~~(205)

Income Tax Expense

~~480~~770

Net of Tax

Total Reclassifications for the Three
Months Ended ~~September 30, 2020~~March 31, 2021

~~480~~770

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 12 - Other Comprehensive Income (Loss) (continued)

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

~~2,190~~590

Net Gains on Securities

~~(464)~~(127)

Income Tax Expense

~~1,726~~463

Net of Tax

Total Reclassifications for the ~~Nine~~Three
Months Ended ~~September 30,~~March 31, 2020

~~1,726~~463

~~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

~~313~~

~~Net Gains on Securities~~

~~(66)~~

~~Income Tax Expense~~

~~247~~

~~Net of Tax~~

Total Reclassifications for the Three
Months Ended September 30, 2019

~~247~~

~~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

~~984~~

~~Net Gains on Securities~~

~~(207)~~

~~Income Tax Expense~~

~~777~~

~~Net of Tax~~

Total Reclassifications for the Nine
Months Ended September 30, 2019

~~777~~

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

NOTE 13 - Revenue Recognition

The following ~~tables present~~table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. Trust and investment product fees are included in the ~~trust and investment advisory~~wealth management services segment while insurance revenues are included in the insurance segment. All other revenue streams are primarily included in the banking segment.


		Three Months Ended					Three Months Ended
		September 30,					March 31,
Non-interest Income	Non-interest Income	2020		2019		Non-interest Income	2021		2020
In-Scope of Topic 606:	In-Scope of Topic 606:					In-Scope of Topic 606:
Trust and Investment Product Fees	Trust and Investment Product Fees	$	1,957	$	1,885	Trust and Investment Product Fees	$	2,358	$	2,031
Service Charges on Deposit Accounts	Service Charges on Deposit Accounts	1,773		2,395		Service Charges on Deposit Accounts	1,678		2,237
Insurance Revenues	Insurance Revenues	1,989		1,883		Insurance Revenues	3,292		3,229
Interchange Fee Income	Interchange Fee Income	2,795		2,538		Interchange Fee Income	2,830		2,482
Other Operating Income	Other Operating Income	653		590		Other Operating Income	663		520
Non-interest Income (in-scope of Topic 606)	Non-interest Income (in-scope of Topic 606)	9,167		9,291		Non-interest Income (in-scope of Topic 606)	10,821		10,499
Non-interest Income (out-of-scope of Topic 606)	Non-interest Income (out-of-scope of Topic 606)	4,112		2,765		Non-interest Income (out-of-scope of Topic 606)	4,216		3,582
Total Non-interest Income	Total Non-interest Income	$	13,279	$	12,056	Total Non-interest Income	$	15,037	$	14,081

Nine Months Ended
September 30,
Non-interest Income 2020 2019
   In-Scope of Topic 606:
      Trust and Investment Product Fees $ 5,855 $ 5,365
      Service Charges on Deposit Accounts 5,375 6,319
      Insurance Revenues 7,048 7,017
      Interchange Fee Income 7,753 6,965
      Other Operating Income 1,727 1,520
   Non-interest Income (in-scope of Topic 606) 27,758 27,186
   Non-interest Income (out-of-scope of Topic 606) 12,025 7,037
Total Non-interest Income $ 39,783 $ 34,223

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

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

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

Trust and Investment Product Fees: The Company earns trust and investment brokerage fees from its contracts with trust and brokerage customers to manage assets for investment and/or to transact their accounts. These fees are primarily earned over

~~GERMAN AMERICAN BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2020~~

~~(unaudited, dollars in thousands except share and per share data)~~

~~NOTE 13 - Revenue Recognition (continued)~~

time as the Company provides the contracted monthly or quarterly services and are generally assessed based on the market value of assets under management at month-end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed (trade date).

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 13 - Revenue Recognition (continued)

Insurance Revenues: The Company earns insurance revenue from commissions derived from the sale of personal and corporate property and casualty insurance products. These commissions are primarily earned over time as the Company provides the contracted insurance product to customers.

NOTE 14 – Leases

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

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

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

The components of lease expense ~~for the three months ended September 30,~~ were as follows:


		Three Months Ended		Three Months Ended			Three Months Ended		Three Months Ended
		September 30, 2020		September 30, 2019			March 31, 2021		March 31, 2020

Finance Lease Cost:	Finance Lease Cost:					Finance Lease Cost:
Amortization of Right-of -Use Assets	Amortization of Right-of -Use Assets	$	52	$	83	Amortization of Right-of -Use Assets	$	52	$	52
Interest on Lease Liabilities	Interest on Lease Liabilities	91		188		Interest on Lease Liabilities	88		92
Operating Lease Cost	Operating Lease Cost	446		514		Operating Lease Cost	419		453
Short-term Lease Cost	Short-term Lease Cost	0		15		Short-term Lease Cost	0		25
Total Lease Cost	Total Lease Cost	$	589	$	800	Total Lease Cost	$	559	$	622

The ~~components of~~weighted average lease ~~expense for the nine months ended September 30,~~term and discount rates were as follows:

Nine Months Ended Nine Months Ended
September 30, 2020 September 30, 2019
Finance Lease Cost:
Amortization of Right-of -Use Assets $ 157 $ 187
Interest on Lease Liabilities 274 379
Operating Lease Cost 1,352 1,234
Short-term Lease Cost 34 45
Total Lease Cost $ 1,817 $ 1,845


	March 31, 2021		March 31, 2020

Weighted Average Remaining Lease Term:
Finance Leases	11 years		12 years
Operating Leases	8 years		8 years

Weighted Average Discount Rate:
Finance Leases	11.47	%	11.48	%
Operating Leases	3.14	%	3.18	%

4639

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2020~~March 31, 2021

(unaudited, dollars in thousands except share and per share data)

NOTE 14 - Leases (continued)

~~The weighted average lease term and discount rates were as follows:~~

September 30, 2020 September 30, 2019
Weighted Average Remaining Lease Term:
   Finance Leases 11 years 12 years
   Operating Leases 8 years 8 years
Weighted Average Discount Rate:
   Finance Leases 11.48 % 11.49 %
   Operating Leases 3.18 % 3.39 %

Supplemental balance sheet information related to leases ~~was~~were as follows:


		September 30, 2020		September 30, 2019			March 31, 2021		March 31, 2020

Finance Leases	Finance Leases					Finance Leases
Premises, Furniture and Equipment, Net	Premises, Furniture and Equipment, Net	$	2,330	$	2,540	Premises, Furniture and Equipment, Net	$	2,225	$	2,435
Other Borrowings	Other Borrowings	3,265		3,418		Other Borrowings	3,183		3,343

Operating Leases	Operating Leases					Operating Leases
Operating Lease Right-of-Use Assets	Operating Lease Right-of-Use Assets	$	8,579	$	9,802	Operating Lease Right-of-Use Assets	$	6,531	$	9,215
Operating Lease Liabilities	Operating Lease Liabilities	8,675		9,900		Operating Lease Liabilities	6,619		9,289

Supplemental cash flow information related to leases ~~was~~were as follows:


		Nine Months Ended		Nine Months Ended			Three Months Ended		Three Months Ended
		September 30, 2020		September 30, 2019			March 31, 2021		March 31, 2020

Cash paid for amounts in the measurement of lease liabilities:	Cash paid for amounts in the measurement of lease liabilities:					Cash paid for amounts in the measurement of lease liabilities:
Operating Cash Flows from Finance Leases	Operating Cash Flows from Finance Leases	$	274	$	285	Operating Cash Flows from Finance Leases	$	88	$	92
Operating Cash Flows from Operating Leases	Operating Cash Flows from Operating Leases	1,292		1,181		Operating Cash Flows from Operating Leases	1,281		412
Financing Cash Flows from Finance Leases	Financing Cash Flows from Finance Leases	92		81		Financing Cash Flows from Finance Leases	34		30

The following table presents a maturity analysis of Finance and Operating Lease Liabilities:


		September 30, 2020					March 31, 2021
		Finance Leases		Operating Leases			Finance Leases		Operating Leases

Year 1	Year 1	$	519	$	1,594	Year 1	$	519	$	1,230
Year 2	Year 2	519		1,385		Year 2	519		1,100
Year 3	Year 3	519		1,275		Year 3	519		1,008
Year 4	Year 4	519		1,115		Year 4	519		863
Year 5	Year 5	519		964		Year 5	519		728
Thereafter	Thereafter	3,083		3,631		Thereafter	2,823		2,619
Total Lease Payments	Total Lease Payments	5,678		9,964		Total Lease Payments	5,418		7,548
Less Imputed Interest	Less Imputed Interest	(2,413)		(1,289)		Less Imputed Interest	(2,235)		(929)
Total	Total	$	3,265	$	8,675	Total	$	3,183	$	6,619

4740

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

GERMAN AMERICAN BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

German American Bancorp, Inc. is a Nasdaq-traded (symbol: GABC) financial holding company based in Jasper, Indiana. German American, through its banking subsidiary German American Bank, operates 73 banking offices in 20 contiguous southern Indiana counties and eight Kentucky counties. 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 German American Bancorp, Inc. 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.

This section presents an analysis of the consolidated financial condition of the Company as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 and the consolidated results of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

~~SIGNIFICANT~~RECENT DEVELOPMENTS - COVID-19 PANDEMIC BUSINESS ~~DEVELOPMENTS RELATING TO COVID-19~~

~~Impact of COVID-19~~UPDATE

~~On January 30, 2020, the World Health Organization (“WHO”) announced that the outbreak of the~~

The novel coronavirus disease 2019 (COVID-19) ~~constituted a public health emergency of international concern. On~~pandemic continued to impact our operations during the quarter ended 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. The health concerns relating~~31, 2021. While uncertainty remains as to the COVID-19 outbreak and related governmental actions taken to reduce the spread of the virus have significantly impacted the global economy (including the states and local economies in which we operate), disrupted supply chains, lowered equity market valuations, and created significant volatility and disruption in financial markets. The outbreak has 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 have significantly contributed to rising unemployment and negatively impacted consumer and business spending. While many states have lifted quarantine and lock-down orders on a limited basis and with certain social distancing restrictions, commercial activity has not yet returned to the levels existing prior to the pandemic outbreak. A~~s a result, the demand for the Company’s products and services has been, and will continue to be, significantly impacted.~~

~~Interest Rates~~

On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and otherfuture effects of the pandemic, an improving business climate, supported by unprecedented fiscal stimulus, an accommodative Federal Reserve, and accelerating COVID-19 ~~outbreak are likely~~vaccination rates, has helped to ~~negatively impact~~mitigate the ~~Company’s net~~negative impacts of the pandemic on our financial condition and results of operations, despite the challenges presented by very low interest ~~income~~rates, muted loan growth, and ~~noninterest income.~~excess liquidity.

~~The~~

CARES Act and the Paycheck Protection Program

~~On March 27, 2020,~~

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 ~~includes~~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”), ~~which is~~a lending program administered by the Small Business Administration (“SBA”)~~. On April 24, 2020,~~ 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 was enacted. Among other things, this legislation amends the initial CARES Act program by raising the appropriation level for PPP loans from $349 billion to $670 billion. The PPP was further modified on June 5,in April 2020 ~~with the adoption of~~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 ~~“Flexibility Act”~~“CAA”)~~, which extended~~. In addition to direct stimulus payments and other aid, this Act provided for a second round of PPP loans through March 31, 2021, and included the establishment of PPP second draw loans. Certain borrowers that had obtained a PPP loan in 2020 (a “first draw PPP loan”) became eligible in January 2021 to apply for a “second draw PPP loan” on generally the same terms and conditions as their first draw loans. The eligibility requirements for a second draw PPP loan, however, are much narrower than the eligibility requirements for a first draw PPP loan. More recently, the American Rescue Plan Act of 2021 was signed into law on March 11, 2021, providing additional funds for the PPP and expanding certain PPP eligibility requirements. Further, on March 30, 2021, the PPP Extension Act of 2021 (was signed into law, providing applicants two additional months (through May 31, 2021) to apply for a first draw or second draw PPP loan and giving the SBA until June 30, 2021 to process loan applications.

Having previously participated in the first round of the PPP during 2020, the Company is also participating in the second round that commenced in January 2021. Under the PPP, the Company has lent and is lending funds primarily to its existing loan and/or deposit customers, based on a pre-determined SBA-developed formula. These loans carry a customer interest rate of 1.00% plus a processing fee that varies depending on the balance of the loan at origination. The vast majority of the Company's first round PPP loans have two-year maturities. The second round PPP loans have five-year maturities.

4841

~~maturity date for PPP~~

The Company originated loans from two years to five years for loans disbursed on or after the date of enactment of the Flexibility Act. For PPP loans disbursed prior to such enactment, the Flexibility Act permits the borrower and lender to mutually agree to extend the term of the loan to five years. The vast majority of the Company's PPP loans have two-year maturities. PPP loans earn interest at a fixed rate of 1% and are fully guaranteed by the U.S. government. As of September 30, 2020, the Company hadtotaling approximately $351.3 million ~~outstanding,~~in principal amount, on 3,070 PPP loan relationships, under the first round of this program. The net processing fees related to the PPP, ~~which total~~totaled approximately $12.0 million, and are being recognized over the life of the loans. As a result of ~~September 30,~~the forgiveness of the first round PPP loans which began in the fourth quarter of 2020 ~~$9.5~~for the Company, remaining PPP loans outstanding totaled $97.3 million with approximately $1.2 million of ~~such~~net fees ~~remain deferred. The~~remaining deferred as of March 31, 2021.

Through March 31, 2021, the Company ~~anticipates that~~has originated loans totaling approximately $145.4 million in principal amount, on 2,034 PPP loan relationships, under the ~~majority~~second round of this program. Through March 31, 2021 net processing fees related to the second round of PPP, totaled approximately $7.4 million, and are being recognized over the life of the PPP loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of October 31, 2020, 603 of our loans totaling $113 million have been submitted to the SBA for forgiveness.

~~Paycheck Protection Program Liquidity Facility~~

To provide liquidity to small business lenders and the broader credit markets, to help stabilize the financial system, and to provide economic relief to small businesses nationwide, the Board of Governors of the Federal Reserve System (the "FRB") authorized each of the Federal Reserve Banks to participate in the Paycheck Protection Program Liquidity Facility (the “PPPL Facility”), pursuant to the Federal Reserve Act. Under the PPPL Facility, each of the Federal Reserve Banks will extend non-recourse loans to eligible financial institutions such as the Bank to fund loans guaranteed by the SBA under the PPP. The Bank has until December 31, 2020 to access funds under the PPPL Facility, unless otherwise further extended by the FRB and the Department of the Treasury.loans. The Company is continuing to ~~assess the PPPL Facility and whether it will utilize the facility as a source of liquidity for its~~actively originate PPP ~~lending.~~loans.

~~Loan~~

Modifications and Troubled Debt Restructurings

In April 7, 2020, ~~the FRB, the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation (the “FDIC” and, together with the FRB and OCC, the “federal~~federal banking ~~regulators”)~~regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as troubled debt restructurings and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings. Similarly, under the CARES Act, provisions were included that allow for loan modifications to not be classified as TDRs if certain criteria are met. This TDR exemption, which was set to expire on December 31, 2020, was extended under the CAA to the earlier of (i) 60 days after the national emergency concerning the COVID-19 outbreak terminates, and (ii) January 1, 2022.

In response to requests from borrowers who have experienced pandemic-related business or personal cash flow interruptions, and in accordance with ~~the recently issued~~ regulatory guidance, the Company has made short-term loan modifications involving both ~~interest-only~~partial and full payment deferrals. ~~As of September 30, 2020~~The table below shows the ~~following active~~ payment modifications ~~are~~that were still in ~~effect. These payment modifications are significantly reduced from the level of active modifications~~effect as of ~~June 30, 2020.~~March 31, 2021, with the majority of these credit relationships making full interest payments.


					% of Loan Category (Excludes PPP Loans)								% of Loan Category (Excludes PPP Loans)
Type of Loans (dollars in thousands)	Type of Loans (dollars in thousands)	Number of Loans	Outstanding Balance		As of 9/30/2020		As of 6/30/2020		Type of Loans (dollars in thousands)	Number of Loans	Outstanding Balance		As of 03/31/2021		As of 12/31/2020

Commercial & Industrial Loans	Commercial & Industrial Loans	24	$	6,154	1.2	%	10.8	%	Commercial & Industrial Loans	4	$	4,413	0.9	%	0.8	%
Commercial Real Estate Loans	Commercial Real Estate Loans	44	82,986		5.7	%	15.3	%	Commercial Real Estate Loans	15	36,137		2.4	%	3.0	%
Agricultural Loans	Agricultural Loans	—	—		—	%	0.3	%	Agricultural Loans	—	—		—	%	—	%
Consumer Loans	Consumer Loans	1	3		n/m (1)		0.4	%	Consumer Loans	2	40		n/m (1)		n/m (1)
Residential Mortgage Loans	Residential Mortgage Loans	12	1,275		0.5	%	8.2	%	Residential Mortgage Loans	2	173		0.1	%	0.1	%
Total	Total	81	$	90,418	3.1	%	10.4	%	Total	23	$	40,763	1.4	%	1.7	%

(1) n/m = not meaningful

Lending Exposure to Potentially Impacted Industry Segments

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 ~~has~~ initially identified loan segments that could represent a potentially higher level of credit risk, as many of these customers may have incurred a significant negative impact to their businesses as a result of governmental stay-at-home orders and travel restrictions. At ~~September 30, 2020,~~March 31, 2021, the Company had the following exposure to these potentially sensitive COVID-19 identified 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	44	$	130,599	4.5	%	22.8	%
Student Housing	104	86,430		3.0	%	—	%
Retail Shopping / Strip Centers	66	87,928		3.0	%	—	%
Restaurants	169	44,862		1.6	%	12.8	%

Industry Segment
(dollars in thousands) Number of Loans Outstanding Balance % of Total Loans (excludes PPP Loans) % of Industry Segment Under Deferral
Lodging / Hotels 49 $ 133,063 4.6 % 39.1 %
Student Housing 105 92,224 3.2 % — %
Retail Shopping / Strip Centers 64 92,996 3.2 % 17.5 %
Restaurants 189 49,402 1.7 % 8.6 %

~~Regulatory Capital~~

~~Current Expected Credit Loss (CECL) Model. As part of the CARES Act, banking organizations are permitted to temporarily defer implementation of~~ ~~Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326)~~. As discussed under Note 2 (Recent Accounting Pronouncement) in the Notes to the Consolidated Financial Statements in Item 1 of this Report, ASU 2016-13 provides for the replacement of the incurred loss model for recording the allowance for credit losses with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. However, in an action related to the CARES Act, federal banking regulators issued, on March 27, 2020, an interim final rule that allows banking organizations to mitigate the effects of the CECL accounting standard on their regulatory capital. Banking organizations that are required under GAAP to adopt CECL, and do not elect to defer adoption under the CARES Act during 2020, can elect 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 transition period that federal banking regulators had already made available. The Company has elected to adopt the option provided by the interim final rule, which will largely delay the effects of CECL on its regulatory capital through December 31, 2021. Beginning on January 1, 2022, we will be required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by January 1, 2025. Under the interim final rule, the amount of adjustments to regulatory capital that can be deferred until the phase-in period includes 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.

~~Community Bank Leverage Ratio~~. On April 6, 2020, federal banking regulators issued two interim final rules that make changes to the community bank leverage ratio (“CBLR”) framework and implementing certain directives of the CARES Act. Under the existing CBLR framework, 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%, were 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. The first of the April 2020 interim final rules provides that, as of the second quarter 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. It also establishes a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement. It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintains a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement. The federal banking regulators adopted the two interim rules as final, without any changes, on October 9, 2020. Notwithstanding these changes, the Company intends to continue with the existing layered ratio structure. Under either framework, the Company and the Bank would be considered well-capitalized under the applicable guidelines.

~~PPP Loans and PPPL Facility~~. 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. Additionally, in order to facilitate use of the PPPL Facility, the agencies further clarified that, for purposes of determining leverage ratios, a banking organization is permitted to exclude from total average assets PPP loans that have been pledged as collateral for a PPPL Facility.

MANAGEMENT OVERVIEW

This updated discussion should be read in conjunction with the Management Overview that was included in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Net income for the quarter ended ~~September 30, 2020~~March 31, 2021 totaled ~~$14,593,000,~~$19,557,000, or ~~$0.55~~$0.74 per share, an increase of 12% on a per share basis compared with the third quarter 2019 net income of $13,064,000, or $0.49 per share. Net income for the nine months ended September 30, 2020 totaled $41,320,000, or $1.56 per share, a decline of 8%57% on a per share basis compared with the first ~~nine months of 2019~~quarter 2020 net income of ~~$43,402,000,~~$12,472,000, or ~~$1.70~~$0.47 per share.

The ~~Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) ("CECL") on January 1, 2020. As~~net income growth during the first quarter 2021 compared with the same period of 2020 was driven by a ~~result, the Company recognized a one-time cumulative adjustment to the allowance~~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 ~~$15.7 million. The increase was primarily related to the Company's acquired loan portfolio which totaled approximately $851.1 million at the time of adoption.~~non-interest expense.

On ~~July 1, 2019,~~March 12, 2021, the Company ~~completed~~announced an operating optimization plan, pursuant to which the ~~acquisition of Citizens First Corporation (“Citizens First”) through~~Company's banking subsidiary will consolidate seven branch offices and will implement various staff reductions during 2021. In making its decision to consolidate these branches, which are generally expected to be integrated with other nearby bank branches, the ~~merger of Citizens First with and into~~Company considered, among other factors, the ~~Company. Immediately following completion~~operating costs of the ~~Citizens First holding company merger, Citizens First's subsidiary~~branches, certain physical limitations impacting the bank ~~Citizen First Bank, Inc., was merged with~~facilities, and ~~into~~their proximity to other branch locations. In addition, 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. AsCompany's evaluation of the ~~closing~~branch consolidations and the reductions in staff also took into consideration the numbers and types of transactions being conducted by its customers and the ~~transaction, Citizens First had total assets~~increased usage of online and mobile banking. As a result of these optimization actions, the Company recorded pre-tax charges of approximately ~~$456.0~~$2.0 million ~~total loans~~during the first quarter of ~~approximately $364.6 million,~~2021, primarily for valuation adjustments on branch facilities, lease termination costs, and ~~total deposits of approximately $370.8 million.~~severance and related payments. The ~~Company issued approximately 1.7 million shares of its common stock,~~branch consolidations and ~~paid approximately $15.5 million in cash, in exchange for all of the issued and outstanding shares of common stock of Citizens First.~~staff reductions are expected to primarily be completed by year-end 2021.

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

Allowance for Credit Losses

The Company maintains an allowance for credit losses to cover the estimated expected credit losses over the 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 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 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 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 credit losses deemed adequate to cover expected credit losses 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 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.

5143

Specific reserves on 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 individually analyzed but for which the rate of loss is expected to be greater than 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 and special mention, but are not individually analyzed 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.

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 adequacy of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio may result in significant changes in the allowance for credit losses in future periods.

Securities Valuation

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale 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 the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at ~~September 30, 2020.~~March 31, 2021. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of ~~September 30, 2020,~~March 31, 2021, gross unrealized gains on the securities available-for-sale portfolio totaled approximately ~~$40,885,000~~$32,722,000 and gross unrealized losses totaled approximately ~~$1,049,000~~$14,705,000 net of applicable taxes is included in other comprehensive income.

Equity securities that do not have readily determinable fair values are carried at cost, less impairment with observable price changes being recognized in 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.

~~Based on recent economic developments related to the COVID-19 pandemic, the Company tested Goodwill for impairment as of the September 30, 2020 balance sheet date.~~ No impairment to Goodwill was indicated based on ~~this interim period testing.~~year-end testing and no triggering events occurred in 2021 causing reassessment.

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

RESULTS OF OPERATIONS

Net Income:

Net income for the quarter ended ~~September 30, 2020~~March 31, 2021 totaled ~~$14,593,000,~~$19,557,000, or ~~$0.55~~$0.74 per share, an increase of 12% on a per share basis compared with the third quarter 2019 net income of $13,064,000, or $0.49 per share. The improvement in the net income during the third quarter of 2020 was largely attributable to improved non-interest income and lower operating expenses partially mitigated by a higher level of provision for credit losses.

~~Net income for the nine months ended September 30, 2020 totaled $41,320,000, or $1.56 per share, a decline of 8%~~57% on a per share basis compared with the first ~~nine months of 2019~~quarter 2020 net income of ~~$43,402,000,~~$12,472,000, or ~~$1.70~~$0.47 per share. The ~~decline in~~ net income ~~and earnings per share~~growth during the first ~~nine months~~quarter 2021 compared with the same period of 2020 was ~~largely attributable to an increased level~~driven by a number of factors including improved net interest income, lower provision for credit losses ~~related to economic uncertainties~~ and ~~stress related to the COVID-19 pandemic.~~increased non-interest revenue which was partially offset by a modestly higher level of non-interest expense.

Net Interest Income:

Net interest income is the Company’s single largest source of earnings, and represents the difference between interest and fees realized on earning assets, less interest paid on deposits and borrowed funds. Several factors contribute to the determination of net interest income and net interest margin, including the volume and mix of earning assets, interest rates, and income taxes. Many factors affecting net interest income are subject to control by management policies and actions. Factors beyond the control of management include the general level of credit and deposit demand, Federal Reserve Board monetary policy, and changes in tax laws.

5345

The following table summarizes net interest income (on a tax-equivalent basis) for the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. For tax-equivalent adjustments, an effective tax rate of 21% was used for both periods(1).


		Average Balance Sheet (Tax-equivalent basis / dollars in thousands)													Average Balance Sheet (Tax-equivalent basis / dollars in thousands)
		Three Months Ended September 30, 2020						Three Months Ended September 30, 2019							Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
		Principal Balance		Income / Expense		Yield / Rate		Principal Balance		Income / Expense		Yield / Rate			Principal Balance		Income / Expense		Yield / Rate		Principal Balance		Income / Expense		Yield / Rate
ASSETS	ASSETS													ASSETS
Federal Funds Sold and Other Short-term Investments	Federal Funds Sold and Other Short-term Investments	$	197,203	$	45	0.09	%	$	31,230	$	163	2.07	%	Federal Funds Sold and Other Short-term Investments	$	337,981	$	85	0.10	%	$	45,687	$	158	1.39	%
Securities:	Securities:													Securities:
Taxable	Taxable	559,488		2,350		1.68	%	554,901		3,400		2.45	%	Taxable	706,574		2,607		1.48	%	546,193		3,110		2.28	%
Non-taxable	Non-taxable	461,623		4,019		3.48	%	315,468		3,072		3.90	%	Non-taxable	589,056		4,720		3.21	%	323,776		3,095		3.82	%
Total Loans and Leases(2)	Total Loans and Leases(2)	3,260,435		36,612		4.47	%	3,076,931		41,008		5.29	%	Total Loans and Leases(2)	3,107,902		35,164		4.58	%	3,059,398		37,936		4.98	%
TOTAL INTEREST EARNING ASSETS	TOTAL INTEREST EARNING ASSETS	4,478,749		43,026		3.83	%	3,978,530		47,643		4.76	%	TOTAL INTEREST EARNING ASSETS	4,741,513		42,576		3.63	%	3,975,054		44,299		4.48	%
Other Assets	Other Assets	399,138						392,849						Other Assets	396,290						393,143
Less: Allowance for Credit Losses	Less: Allowance for Credit Losses	(42,933)						(16,268)						Less: Allowance for Credit Losses	(47,434)						(32,356)
TOTAL ASSETS	TOTAL ASSETS	$	4,834,954					$	4,355,111					TOTAL ASSETS	$	5,090,369					$	4,335,841

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY													LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing Demand, Savings and Money Market Deposits	Interest-bearing Demand, Savings and Money Market Deposits	$	2,279,517	$	813	0.14	%	$	1,946,219	$	3,189	0.65	%	Interest-bearing Demand, Savings and Money Market Deposits	$	2,490,953	$	637	0.10	%	$	1,993,171	$	2,956	0.60	%
Time Deposits	Time Deposits	540,248		1,679		1.24	%	725,347		3,210		1.75	%	Time Deposits	467,310		805		0.70	%	638,460		2,701		1.70	%
FHLB Advances and Other Borrowings	FHLB Advances and Other Borrowings	212,859		1,233		2.30	%	286,587		1,934		2.68	%	FHLB Advances and Other Borrowings	183,376		1,151		2.55	%	236,148		1,658		2.82	%
TOTAL INTEREST-BEARING LIABILITIES	TOTAL INTEREST-BEARING LIABILITIES	3,032,624		3,725		0.49	%	2,958,153		8,333		1.12	%	TOTAL INTEREST-BEARING LIABILITIES	3,141,639		2,593		0.33	%	2,867,779		7,315		1.03	%
Demand Deposit Accounts	Demand Deposit Accounts	1,144,685						797,337						Demand Deposit Accounts	1,268,409						847,891
Other Liabilities	Other Liabilities	54,490						42,174						Other Liabilities	53,053						44,176
TOTAL LIABILITIES	TOTAL LIABILITIES	4,231,799						3,797,664						TOTAL LIABILITIES	4,463,101						3,759,846
Shareholders’ Equity	Shareholders’ Equity	603,155						557,447						Shareholders’ Equity	627,268						575,995
TOTAL LIBABILITIES AND SHAREHOLDERS' EQUITY	TOTAL LIBABILITIES AND SHAREHOLDERS' EQUITY	$	4,834,954					$	4,355,111					TOTAL LIBABILITIES AND SHAREHOLDERS' EQUITY	$	5,090,369					$	4,335,841

COST OF FUNDS	COST OF FUNDS					0.33	%					0.83	%	COST OF FUNDS					0.22	%					0.74	%
NET INTEREST INCOME	NET INTEREST INCOME			$	39,301					$	39,310			NET INTEREST INCOME			$	39,983					$	36,984
NET INTEREST MARGIN	NET INTEREST MARGIN					3.50	%					3.93	%	NET INTEREST MARGIN					3.41	%					3.74	%

(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.

During the ~~third~~first quarter of 2021, net interest income totaled $38,932,000, an increase of $2,676,000, or 7%, compared to the first quarter of 2020 net interest income ~~totaled $38,388,000, a decline~~ of ~~$190,000, or less than 1%, compared to the third quarter of 2019~~$36,256,000. The increase in net interest income during the first quarter of ~~$38,578,000.~~

2021 compared with the first quarter of 2020 was largely attributable to fee recognition related to PPP loans. Fees recognized on PPP loans through net interest income during the first quarter of 2021 totaled $3,008,000 while no fees were recognized during the first quarter of 2020. The relative stability in net interest income, excluding PPP fee recognition, during the ~~third~~first quarter of 2021 compared with the first quarter of 2020 ~~compared with the third quarter of 2019~~ was largely attributable to an increased level of average earning assets driven by participation in the PPP and a larger investment portfolio driven by significant deposit growth during the ~~second~~past year including the first quarter of ~~2020. The average balance of PPP loans during~~2021, which was offset by a reduction in the ~~third quarter of 2020 was $351 million while net fees recognized through interest income on these loans totaled $1.5 million. Also contributing to the relatively stable~~Company's net interest ~~income was a significantly reduced cost of funds and a corresponding decline in the interest cost of interest bearing liabilities.~~margin.

The net interest margin represents tax-equivalent net interest income expressed as a percentage of average earning assets. The tax equivalent net interest margin was ~~3.50%~~3.41% for the ~~third~~first quarter of ~~2020~~2021 compared to ~~3.93%~~3.74% during the ~~third~~first quarter of ~~2019.~~2020. The tax equivalent yield on earning assets was ~~3.83%~~3.63% during the quarter ended ~~September 30, 2020~~March 31, 2021 compared to ~~4.76%~~4.48% in the same period of ~~2019,~~2020, while the cost of funds (expressed as a percentage of average earning assets) was ~~0.33%~~0.22% during the quarter ended ~~September 30, 2020~~March 31, 2021 compared to ~~0.83%~~0.74% in the same period of ~~2019.~~ 2020.

The ~~decline in the tax equivalent~~Company's net interest margin ~~during the third quarter~~has been impacted by fees recognized as a part of ~~2020 compared with the third quarter of 2019 was attributable to lower market interest rates, excess liquidity on the balance sheet, the 1% interest rate applicable to~~ the PPP ~~loans~~ and ~~a lower level of~~ accretion ~~on acquired loans. Accretion~~ of loan discounts on acquired ~~loans~~loans. The fees recognized related to the PPP contributed approximately 1125 basis points to the net interest margin on an annualized basis in the ~~third~~first quarter of ~~2020 and 20~~2021 while PPP fees recognition had no impact in the first quarter of 2020. Accretion of loan discounts on acquired loans contributed approximately 7 basis points to the net interest margin in the ~~third quarter of 2019.~~first

5446

~~The following table summarizes net interest income (on a tax-equivalent basis) for~~quarter of 2021 and 14 basis points in the ~~nine months ended September 30, 2020 and 2019. For tax-equivalent adjustments, an effective tax rate~~first quarter of ~~21% was used for both periods(1)~~.

Average Balance Sheet
(Tax-equivalent basis / dollars in thousands)
Nine Months Ended
September 30, 2020 Nine Months Ended
September 30, 2019
Principal Balance Income / Expense Yield / Rate Principal Balance Income / Expense Yield / Rate
ASSETS
Federal Funds Sold and Other
Short-term Investments $ 160,818 $ 287 0.24 % $ 25,699 $ 389 2.03 %
Securities:
Taxable 548,229 8,166 1.99 % 546,319 10,554 2.58 %
Non-taxable 381,530 10,495 3.67 % 299,937 8,996 4.00 %
Total Loans and Leases(2)
3,191,254 112,702 4.72 % 2,840,435 111,350 5.24 %
TOTAL INTEREST EARNING ASSETS 4,281,831 131,650 4.10 % 3,712,390 131,289 4.73 %
Other Assets 397,224 355,759
Less: Allowance for Credit Losses (37,492) (16,265)
TOTAL ASSETS $ 4,641,563 $ 4,051,884
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing Demand, Savings
and Money Market Deposits $ 2,164,832 $ 5,303 0.33 % $ 1,825,643 $ 8,829 0.65 %
Time Deposits 588,121 6,589 1.50 % 668,037 8,745 1.75 %
FHLB Advances and Other Borrowings 225,477 4,230 2.51 % 287,599 5,752 2.67 %
TOTAL INTEREST-BEARING LIABILITIES 2,978,430 16,122 0.72 % 2,781,279 23,326 1.12 %
Demand Deposit Accounts 1,022,884 735,097
Other Liabilities 51,324 32,976
TOTAL LIABILITIES 4,052,638 3,549,352
Shareholders’ Equity 588,925 502,532
TOTAL LIBABILITIES AND
SHAREHOLDERS' EQUITY $ 4,641,563 $ 4,051,884
COST OF FUNDS 0.50 % 0.84 %
NET INTEREST INCOME $ 115,528 $ 107,963
NET INTEREST MARGIN 3.60 % 3.89 %

~~(1)Effective tax rates were determined as though interest earned~~2020. Accretion of discounts on ~~the Company’s investments in municipal bonds and~~acquired loans ~~was fully taxable.~~

~~(2)Loans held-for-sale and non-accruing loans have been included in average loans.~~

~~Net interest income increased $7,293,000, or 7%, for the nine months ended September 30, 2020 compared with the same period of 2019. The increased level of net interest income~~totaled $867,000 during the first ~~nine months~~quarter of ~~2020 compared with~~2021 and $1,406,000 during the ~~same period~~first quarter of 2019 was driven primarily by a higher level of average earning assets resulting from the acquisition of Citizens First, participation in the PPP and a larger investment portfolio driven by significant deposit growth during 2020.

~~The tax equivalent~~Historically low market interest rates continue to impact the Company's net interest ~~margin was 3.60% during the first nine months of 2020 compared~~margin. Lower market interest rates continue to ~~3.89% during the first nine months of 2019. The tax equivalent yield on~~negatively impact earning ~~assets was 4.10% during the nine months ended September 30, 2020 compared to 4.73% in the same period of 2019, while the~~asset yields, with these declines being partially mitigated by a lower cost of ~~funds was 0.50% during the first nine months of 2020 compared~~funds. The Company has also continued to ~~0.84% in the same period of 2019.~~

~~The lower net interest margin during the nine months of 2020 compared with the first nine months of 2019 was attributable to lower market interest rates,~~carry excess liquidity on the balance sheet that resulted from significant deposit growth during 2020, which has continued in the ~~second~~first quarter of ~~2020~~2021, and ~~the 1% interest rate applicable to the PPP loans. Accretion of~~continued somewhat muted loan discounts on acquired loans contributed approximately 15 basis points to the net interest margin on an annualized basis in the nine months ended September 30, 2020 and 16 basis points in the same period of 2019.growth.

Provision for Credit Losses:

The Company provides for credit losses through regular provisions to the allowance for credit losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations of the allowance. During the quarter ended ~~September 30, 2020,~~March 31, 2021, the Company recorded a negative provision for credit losses ~~totaled $4,500,000 under the CECL methodology adopted during~~of $1,500,000 compared with the first quarter of 2020 ~~compared with a $2,800,000 provision for loan losses during the third quarter of 2019 under the incurred loss model. The~~ provision for credit losses ~~losses represented approximately 55 basis points~~ of ~~average loans on an annualized basis in the third quarter of 2020 compared to a provision for loan losses of 36 basis points of average loans on an annualized basis in the third quarter of 2019.~~

~~During the nine months ended September 30, 2020, the~~$5,150,000. The negative provision for credit losses ~~totaled $15,550,000 under the CECL methodology compared with a $3,725,000 provision for loan losses during the same period of 2019 under the incurred loss model. The provision for credit losses losses~~ represented approximately 6519 basis points of average loans on an annualized basis in the first ~~nine months~~quarter of ~~2020~~2021 compared to a provision for ~~loan~~credit losses of 1767 basis points of average loans on an annualized basis in the ~~same period~~first quarter of ~~2019.~~2020.

The ~~increase~~decline in the level of provision for credit losses ~~during~~in the ~~three~~first quarter of 2021 was largely impacted by a decline in the loan portfolio, excluding PPP loans, and ~~nine months ended September 30, 2020 compared to the~~a decline in certain adversely criticized assets. The level of provision for ~~loan~~credit losses ~~during~~in the ~~same periods~~first quarter of ~~2019~~2020 was primarily due to the ~~recent~~ developments related to the COVID-19 pandemic and the resulting impact on the economic assumptions used in the ~~Company's~~ CECL model.

Net charge-offs totaled ~~$163,000~~$260,000 or 23 basis points on an annualized basis of average loans outstanding during the three months ended ~~September 30, 2020,~~March 31, 2021, compared with ~~$3,170,000~~$440,000 or 416 basis points on an annualized basis of average loans outstanding during the same period of 2019. Net charge-offs totaled $713,000 or 3 basis points on an annualized basis of average loans outstanding during the first nine months of 2020, compared with $3,679,000 or 17 basis points on an annualized basis of average loans outstanding during the same period of 2019. The higher level of net charge-offs during the three and nine months ended September 30, 2019 was primarily attributable to a partial charge-off on a single adversely classified commercial lending relationship in the third quarter of 2019.2020.

The provision for credit losses losses made during the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 was made at a level deemed necessary by management to absorb ~~estimated~~expected losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine provision for 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.

Non-interest Income:

During the quarter ended ~~September 30, 2020,~~March 31, 2021, non-interest income totaled ~~$13,279,000,~~$15,037,000, an increase of ~~$1,223,000,~~$956,000, or ~~10%~~7%, compared with the ~~third~~first quarter of ~~2019.~~2020.


Non-interest Income (dollars in thousands)	Non-interest Income (dollars in thousands)	Three Months Ended September 30,				Change From Prior Period				Non-interest Income (dollars in thousands)	Three Months Ended March 31,				Change From Prior Period
						Amount		Percent							Amount		Percent
		2020		2019		Change		Change			2021		2020		Change		Change
Trust and Investment Product Fees	Trust and Investment Product Fees	$	1,957	$	1,885	$	72	4	%	Trust and Investment Product Fees	$	2,358	$	2,031	$	327	16	%
Service Charges on Deposit Accounts	Service Charges on Deposit Accounts	1,773		2,395		(622)		(26)		Service Charges on Deposit Accounts	1,678		2,237		(559)		(25)
Insurance Revenues	Insurance Revenues	1,989		1,883		106		6		Insurance Revenues	3,292		3,229		63		2
Company Owned Life Insurance	Company Owned Life Insurance	355		364		(9)		(2)		Company Owned Life Insurance	352		1,222		(870)		(71)
Interchange Fee Income	Interchange Fee Income	2,795		2,538		257		10		Interchange Fee Income	2,830		2,482		348		14
Other Operating Income	Other Operating Income	942		1,029		(87)		(8)		Other Operating Income	1,350		427		923		216
Subtotal	Subtotal	9,811		10,094		(283)		(3)		Subtotal	11,860		11,628		232		2
Net Gains on Sales of Loans	Net Gains on Sales of Loans	2,861		1,649		1,212		73		Net Gains on Sales of Loans	2,202		1,863		339		18
Net Gains on Securities	Net Gains on Securities	607		313		294		94		Net Gains on Securities	975		590		385		65
Total Non-interest Income	Total Non-interest Income	$	13,279	$	12,056	$	1,223	10		Total Non-interest Income	$	15,037	$	14,081	$	956	7

Trust and investment product fees increased $327,000, or 16%, during the first quarter of 2021 compared with the first quarter of 2020. The increase during the first quarter of 2021 was largely attributable to increased assets under management within the Company's wealth management group.

Service charges on deposit accounts declined ~~$622,000,~~$559,000, or ~~26%~~25%, during the ~~third~~first quarter of ~~2020~~2021 compared with the ~~third~~first quarter of ~~2019.~~2020. The decline during the ~~third~~first quarter of ~~2020 compared with the third quarter of 2019~~2021 was largely related to the economic impacts of the COVID-19 pandemic and resulting change in deposit customer activity.

5647

~~Interchange fee income~~

Insurance revenues increased ~~$257,000,~~$63,000, or ~~10%~~2%, during the quarter ended ~~September 30, 2020~~March 31, 2021, compared with the ~~third~~first quarter of ~~2019.~~2020. The increase during the first quarter of 2021 compared with the first quarter of 2020 was primarily due to increased contingency revenue. Contingency revenue during the first quarter of 2021 totaled $1,445,000 compared to $1,319,000 during the first quarter of 2020. Contingency revenue is reflective of claims and loss experience with insurance carriers that the Company represents through its property and casualty insurance agency. Typically, the majority of contingency revenue is recognized during the first quarter of the year.

Company owned life insurance revenue declined $870,000, or 71%, compared with the first quarter of 2020. The higher level of revenue in the first quarter of 2020 was largely related to death benefits of $838,000 received from life insurance policies during the first quarter of 2020.

Interchange fee income increased $348,000, or 14%, during the quarter ended March 31, 2021 compared with the first quarter of 2020. The increased level of fees during the ~~third~~first quarter of ~~2020 compared with the third quarter of 2019~~2021 was due to increased card utilization by customers.

Other operating income increased $923,000, or 216%, during the first quarter of 2021 compared with the first quarter of 2020. The increase during the first quarter of 2021 was largely attributable to fair value adjustments associated with interest rate swap transactions with loan customers.

Net gains on sales of loans increased ~~$1,212,000,~~$339,000, or ~~73%~~18%, during the ~~third~~first quarter of ~~2020~~2021 compared with the ~~third~~first quarter of ~~2019.~~2020. The increase during the ~~third~~first quarter of ~~2020~~2021 compared with the ~~third~~first quarter of ~~2019~~2020 was generally attributable to a higher sales volume and higher pricing levels on loans sold. Loan sales totaled ~~$83.5~~$68.5 million during the ~~third~~first quarter of ~~2020,~~2021 compared with ~~$60.4~~$56.2 million during the ~~third~~first quarter of ~~2019.~~2020.

The Company realized ~~$607,000~~$975,000 in gains on sales of securities during the ~~third~~first quarter of ~~2020~~2021 compared with ~~$313,000~~$590,000 during the ~~third~~first quarter of ~~2019.~~2020. The sales of securities in ~~all~~both periods ~~were~~was done as part of modest shifts in the allocations within the securities portfolio.

~~During the nine months ended September 30, 2020, non-interest income totaled $39,783,000, an increase of $5,560,000, or 16%, compared with the first nine months of 2019.~~

Non-interest Income
(dollars in thousands) Nine Months
Ended September 30, Change From
Prior Period
Amount Percent
2020 2019 Change Change
Trust and Investment Product Fees $ 5,855 $ 5,365 $ 490 9 %
Service Charges on Deposit Accounts 5,375 6,319 (944) (15)
Insurance Revenues 7,048 7,017 31 —
Company Owned Life Insurance 1,933 1,552 381 25
Interchange Fee Income 7,753 6,965 788 11
Other Operating Income 2,251 2,361 (110) (5)
Subtotal 30,215 29,579 636 2
Net Gains on Sales of Loans 7,378 3,660 3,718 102
Net Gains on Securities 2,190 984 1,206 123
Total Non-interest Income $ 39,783 $ 34,223 $ 5,560 16

Trust and investment product fees increased $490,000, or 9%, during the first nine months of 2020 compared with the first nine months of 2019. The increase was primarily attributable to fees generated from increased assets under management in the Company's wealth management group.

Service charges on deposit accounts declined $944,000, or 15%, during the nine months ended September 30, 2020 compared with the same period of 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.

Company owned life insurance revenue increased $381,000, or 25%, during the nine months ended September 30, 2020, compared with the first nine months of 2019. The increase was largely related to death benefits received from life insurance policies.

Interchange fees increased $788,000, or 11%, during the nine months ended September 30, 2020 compared with the first nine months of 2019. The increase during 2020 compared with 2019 was largely attributable to the acquisition of Citizens First and increased card utilization by customers.

Net gains on sales of loans increased $3,718,000, or 102%, during the first nine months of 2020 compared with the same period of 2019. The increase in the net gains on 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 $219.4 million during the first nine months of 2020 and $128.8 million during the same period of 2019.

The Company realized $2,190,000 in gains on sales of securities during first nine months of 2020 compared with $984,000 during the same period of 2019. The sales of securities in both periods were done as part of modest shifts in the allocations within the securities portfolio.

Non-interest Expense:

During the quarter ended ~~September 30, 2020,~~March 31, 2021, non-interest expense totaled ~~$29,420,000, a decline~~$31,259,000, an increase of ~~$2,541,000,~~$931,000, or 8%3%, compared with the ~~third~~first quarter of ~~2019.~~2020. The ~~third~~first quarter of ~~2019 non-interest expense~~2021 included ~~$2,258,000 in acquisition related~~non-recurring expenses totaling $2,012,000 related to the ~~acquisition of Citizens First Corporation on July 1, 2019.~~Company's previously discussed operating optimization plan (see "Management Overview" for additional information).


Non-interest Expense (dollars in thousands)	Non-interest Expense (dollars in thousands)	Three Months Ended September 30,				Change From Prior Period				Non-interest Expense (dollars in thousands)	Three Months Ended March 31,				Change From Prior Period
						Amount		Percent							Amount		Percent
		2020		2019		Change		Change			2021		2020		Change		Change
Salaries and Employee Benefits	Salaries and Employee Benefits	$	17,409	$	17,579	$	(170)	(1)	%	Salaries and Employee Benefits	$	17,805	$	17,400	$	405	2	%
Occupancy, Furniture and Equipment Expense	Occupancy, Furniture and Equipment Expense	3,362		3,751		(389)		(10)		Occupancy, Furniture and Equipment Expense	4,348		3,581		767		21
FDIC Premiums	FDIC Premiums	326		—		326		n/m (1)		FDIC Premiums	334		—		334		n/m (1)
Data Processing Fees	Data Processing Fees	1,693		2,860		(1,167)		(41)		Data Processing Fees	1,743		1,686		57		3
Professional Fees	Professional Fees	875		1,324		(449)		(34)		Professional Fees	1,160		1,084		76		7
Advertising and Promotion	Advertising and Promotion	708		1,054		(346)		(33)		Advertising and Promotion	782		1,071		(289)		(27)
Intangible Amortization	Intangible Amortization	860		1,064		(204)		(19)		Intangible Amortization	760		960		(200)		(21)
Other Operating Expenses	Other Operating Expenses	4,187		4,329		(142)		(3)		Other Operating Expenses	4,327		4,546		(219)		(5)
Total Non-interest Expense	Total Non-interest Expense	$	29,420	$	31,961	$	(2,541)	(8)		Total Non-interest Expense	$	31,259	$	30,328	$	931	3

(1) n/m = not meaningful

Salaries and benefits ~~declined $170,000,~~increased $405,000, or 1%2%, during the quarter ended ~~September 30, 2020~~March 31, 2021 compared with the ~~third~~first quarter of ~~2019.~~2020. The ~~decline~~increase in salaries and benefits during the ~~third~~first quarter of ~~2020 compared~~2021 was largely impacted by the employee severance and related costs associated with the ~~third~~Company's operating optimization plan that totaled approximately $594,000 during the first quarter of ~~2019~~2021. Partially mitigating the increase from the costs of the operating optimization plan was ~~primarily attributable~~the deferral of salary costs related to ~~acquisition related expenses~~the origination of ~~$695,000~~PPP loans during the ~~third~~first quarter of ~~2019.~~2021.

Occupancy, furniture and equipment expense ~~declined $389,000,~~increased $767,000, or ~~10%~~21%, during the ~~third~~first quarter of ~~2020~~2021 compared with the ~~third~~first quarter of ~~2019.~~2020. The ~~decline~~increase during the ~~third~~first quarter of ~~2020 compared with the third quarter of 2019~~2021 was primarily due to ~~the consolidation of three branch office facilities during 2020 and the timing of expenses for normal repairs and maintenance across~~lease termination costs associated with the Company's ~~branch office network.~~operating optimization plan that totaled approximately $875,000 during the first quarter of 2021.

FDIC premiums increased ~~$326,000, or 100%,~~$334,000 during the ~~third~~first quarter of ~~2020~~2021 compared with the ~~third~~the first quarter of ~~2019.~~2020. The increase during the ~~third~~first quarter of ~~2020~~2021 compared to the ~~third~~first quarter of ~~2019~~2020 was related to credits received from the FDIC during the ~~third~~first quarter of ~~2019.~~2020. There were no credits received during the ~~third~~first quarter of ~~2020.~~2021. The credits received in 2020 were due to the reserve ratio of the deposit insurance fund exceeding the FDIC targeted levels.

Data processing fees declined $1,167,000, or 41%, in the third quarter of 2020 compared with the the third quarter of 2019. The decline in the third quarter of 2020 compared with the third quarter of 2019 was primarily attributable to acquisition related expenses of $999,000 during the third quarter of 2019.

Professional fees declined $449,000, or 34%, in the third quarter of 2020 compared with the third quarter of 2019. The decline in the third quarter of 2020 compared with the third quarter of 2019 was primarily attributable to acquisition related expenses of $401,000 during the third quarter of 2019.

Advertising and promotion expense declined ~~$346,000,~~$289,000, or ~~33%~~27%, in the ~~third~~first quarter of ~~2020~~2021 compared with the ~~third~~first quarter of ~~2019.~~2020. The decline in the ~~third~~first quarter of ~~2020~~2021 compared with the ~~third~~first quarter of ~~2019~~2020 was largely attributable to a decline in advertising expense due in part to the COVID-19 pandemic.

~~During~~Other operating expenses declined $219,000, or 5%, during the ~~nine months ended September 30, 2020, non-interest expense totaled $87,836,000, an increase~~first quarter of ~~$3,498,000, or 4%,~~2021 compared with the first ~~nine months~~quarter of ~~2019. The increase in~~2020. While the first ~~nine months~~quarter of ~~2020 was largely impacted by~~2021 included the ~~inclusion~~write-down of ~~operating expenses~~leasehold improvements and furniture and equipment of approximately $543,000 related to the ~~acquisition~~Company's operating optimization plan, those charges were more than offset by generally lower levels of ~~Citizens First.~~other expenses across several categories.

Non-interest Expense
(dollars in thousands) Nine Months
Ended September 30, Change From
Prior Period
Amount Percent
2020 2019 Change Change
Salaries and Employee Benefits $ 50,691 $ 46,740 $ 3,951 8 %
Occupancy, Furniture and Equipment Expense 10,424 10,182 242 2
FDIC Premiums 449 533 (84) (16)
Data Processing Fees 5,142 6,246 (1,104) (18)
Professional Fees 3,041 3,825 (784) (20)
Advertising and Promotion 2,661 2,860 (199) (7)
Intangible Amortization 2,729 2,709 20 1
Other Operating Expenses 12,699 11,243 1,456 13
Total Non-interest Expense $ 87,836 $ 84,338 $ 3,498 4

Salaries and benefits increased $3,951,000, or 8%, during the nine months ended September 30, 2020 compared with the same period of 2019. The increase in salaries and benefits during the first nine months of 2020 compared with the first nine months of 2019 was largely attributable to an increased number of full-time equivalent employees due in part to the acquisition of Citizens First.

Occupancy, furniture and equipment expense increased $242,000, or 2%, during the first nine months of 2020 compared with the same period of 2019. The increase during 2020 compared with 2019 was primarily due to operating costs related to the Citizens First acquisition.

Data processing fees declined $1,104,000, or 18%, during the nine months ended September 30, 2020 compared with the same period of 2019. The decline in data processing fees during the first nine months of 2020 compared with 2019 was largely due to acquisition related costs during 2019 which totaled $1,233,000.

Professional fees declined $784,000, or 20%, during the first nine moths of 2020 compared with the first nine months of 2019. The first nine months of 2019 included $1,115,000 of professional fees related to the Citizens First acquisition which resulted in the overall decline in professional fees when comparing the nine months ended September 30, 2020 with the same period of 2019.

Other operating expenses increased $1,456,000, or 13%, during the nine months ended September 30, 2020 compared with the same period of 2019. The increase during 2020 compared with 2019 was largely impacted by the recent acquisition activity.

Income Taxes:

The Company’s effective income tax rate was ~~17.8%~~19.2% and ~~17.7%~~16.1%, respectively, during the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019. The Company’s effective income tax rate was 16.5% during the nine months ended September 30, 2020 and 2019.~~2020. The effective tax rate in all periods presented was lower than the blended statutory rate resulting primarily from the Company’s tax-exempt investment income on securities, loans and company-owned life insurance, income tax credits generated from affordable housing projects, and income generated by subsidiaries domiciled in a state with no state or local income tax.

FINANCIAL CONDITION

Total assets for the Company totaled ~~$4.853~~$5.220 billion at ~~September 30, 2020,~~March 31, 2021, representing an increase of ~~$455.2~~$242.3 million, or ~~14%~~19% on an annualized basis, compared with December 31, ~~2019.~~2020. The increase in total assets during the first ~~nine months~~quarter of 2021 compared with December 31, 2020 ~~has been impacted by the Company's participation in the PPP and~~was primarily driven by significant growth of deposits. ~~As of September 30, 2020 compared with December 31, 2019, federal funds sold and other short-term investments increased by $149.1 million and the Company's securities~~

Securities available for sale ~~portfolio~~ increased ~~by $182.1 million. These increases were largely driven by the increased level of deposits. In addition, loans increased $143.3~~$168.0 million as of ~~the end of September 30, 2020~~March 31, 2021 compared with ~~December 31, 2019 impacted primarily by the Company's participation~~year-end 2020. The increase in the ~~PPP.~~securities portfolio in the first quarter of 2021 was the result of increased levels of deposits.

~~September 30, 2020~~March 31, 2021 total loans increased ~~$143.3~~$29.0 million, or 6%4% on an annualized basis, compared with December 31, ~~2019.~~2020. The increase in total loans ~~during the first nine months of 2020~~at March 31, 2021 compared with year-end ~~2019~~2020 was ~~primarily the result in the Company's participation in the PPP. Excluding the $351.3 million~~due to an increase in PPP loans. PPP loans totaled $242.7 million ($~~341.8~~234.2 million net of deferred fees) at ~~September 30, 2020,~~March 31, 2021 compared with $186.0 million in PPP loans ($182.0 million net of deferred fees) at December 31, 2020.

Excluding PPP loans, total loans declined ~~by $198.5~~$23.3 million, or 6%3% on an annualized basis, at March 31, 2021 compared with year-end 2020. Commercial real estate loans increased approximately $25.2 million during the first ~~nine months~~quarter of ~~2020~~2021 compared with year-end ~~2019. The decline in total~~2020 while commercial and industrial loans ~~excluding~~declined $18.7 million (excluding PPP loans) largely due to reduced utilization of lines of credit. During the ~~PPP~~first quarter of 2021 compared with year-end 2020, agricultural loans was impacted by continued elevated pay-offs within the commercial real estate loan portfolio, reduced line utilization within the commercial loan portfolio partially attributable to the PPP loan originations during 2020, and continued pay-downsdeclined $29.0 million largely as a result of a reduction in the ~~Company's residential~~utilization of lines of credit.

As previously discussed, lower levels of commercial, agricultural and home equity lines of credit balances resulting from lower line utilization rates during the first quarter of 2021 compared to year-end 2020 was the primary driver to overall loan ~~portfolios related~~portfolio declines excluding PPP loans. Outstanding commercial lines of credit balances totaled $137.9 million, or 27% utilization, at March 31, 2021 compared to ~~the current interest rate environment.~~$161.0 million, or 32% utilization, at year-end 2020. Outstanding agricultural lines of credit balances and utilization totaled $68.2 million, or 44% utilization, at March 31, 2021 compared to $92.2 million, or 59% utilization, at year-end 2020. Outstanding home equity lines of credit balances totaled $212.3 million, or 42% utilization, at March 31, 2021 compared to $219.3 million, or 44% utilization, at year-end 2020.

End of Period Loan Balances:
(dollars in thousands) September 30,
2020 December 31,
2019 Current Period Change
Commercial and Industrial Loans and Leases $ 839,022 $ 589,758 $ 249,264
Commercial Real Estate Loans 1,453,280 1,495,862 (42,582)
Agricultural Loans 376,215 384,526 (8,311)
Home Equity and Consumer Loans 294,276 306,972 (12,696)
Residential Mortgage Loans 262,439 304,855 (42,416)
Total Loans $ 3,225,232 $ 3,081,973 $ 143,259


End of Period Loan Balances: (dollars in thousands)	March 31, 2021		December 31, 2020		Current Period Change
Commercial and Industrial Loans and Leases	$	728,014	$	694,437	$	33,577
Commercial Real Estate Loans	1,492,617		1,467,397		25,220
Agricultural Loans	347,231		376,186		(28,955)
Home Equity and Consumer Loans	285,485		297,702		(12,217)
Residential Mortgage Loans	267,634		256,276		11,358
Total Loans	$	3,120,981	$	3,091,998	$	28,983

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


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Commercial and Industrial Loans and Leases	Commercial and Industrial Loans and Leases	$	7,906	$	4,799	Commercial and Industrial Loans and Leases	$	6,449	$	6,645
Commercial Real Estate Loans	Commercial Real Estate Loans	28,382		4,692		Commercial Real Estate Loans	28,540		29,878
Agricultural Loans	Agricultural Loans	6,715		5,315		Agricultural Loans	6,462		6,756
Home Equity and Consumer Loans	Home Equity and Consumer Loans	1,624		634		Home Equity and Consumer Loans	1,566		1,636
Residential Mortgage Loans	Residential Mortgage Loans	2,141		333		Residential Mortgage Loans	2,082		1,944
Unallocated	Unallocated	—		505		Unallocated	—		—

Total Allowance for Credit Losses	Total Allowance for Credit Losses	$	46,768	$	16,278	Total Allowance for Credit Losses	$	45,099	$	46,859

The Company’s allowance for credit losses totaled ~~$46.8~~$45.1 million at ~~September 30, 2020~~March 31, 2021 compared to ~~$16.3~~$46.9 million at ~~December 31, 2019.~~year-end 2020. The allowance for credit losses represented 1.45% of period-end loans at ~~September 30, 2020~~March 31, 2021 compared with ~~0.53%~~1.52% of period-end loans at December 31, ~~2019. Total PPP loans included in the Commercial and Industrial Loan category totaled $351.3 million at September 30,~~ 2020. ~~These loans are guaranteed by the SBA and have minimal impact on the allowance for credit losses.~~

The Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) ("CECL") on January 1, 2020. As a result, the Company recognized a one-time cumulative adjustment to the allowance for credit losses of $15.7 million. The increase was primarily related to the Company's acquired loan portfolio which totaled approximately $851.1 million at the time of adoption. The increase included $6.9 million in non-accretable credit marks allocated to purchased credit deteriorated loans which were grossed up between loans and the allowance for credit losses. Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses. As of ~~September 30, 2020,~~March 31, 2021, the Company held net discounts on acquired loans of ~~$8.6~~$6.7 million.

~~In addition, the~~The allowance for credit losses ~~increased~~declined during the ~~nine months~~quarter ended ~~September 30, 2020,~~March 31, 2021, as a result of the Company recording a ~~$15.6~~negative $1.5 million provision for credit losses while recording modest net ~~charge-offs of approximately $713,000. The~~charge-offs. During 2020, the allowance for credit losses increased through elevated provision for credit losses ~~was elevated in the first nine months of 2020~~ primarily due to the ~~recent~~ developments during 2020 related to the COVID-19 pandemic and the resulting impact on the economic assumptions used in the CECL model.

The following is an analysis of the Company’s non-performing assets at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


Non-performing Assets: (dollars in thousands)	Non-performing Assets: (dollars in thousands)	September 30, 2020			December 31, 2019			Non-performing Assets: (dollars in thousands)	March 31, 2021			December 31, 2020
Non-accrual Loans	Non-accrual Loans	$	22,878		$	13,802		Non-accrual Loans	$	20,994		$	21,507
Past Due Loans (90 days or more)	Past Due Loans (90 days or more)	—			190			Past Due Loans (90 days or more)	—			—
Total Non-performing Loans	Total Non-performing Loans	22,878			13,992			Total Non-performing Loans	20,994			21,507
Other Real Estate	Other Real Estate	425			425			Other Real Estate	325			325
Total Non-performing Assets	Total Non-performing Assets	$	23,303		$	14,417		Total Non-performing Assets	$	21,319		$	21,832

Restructured Loans	Restructured Loans	$	113		$	116		Restructured Loans	$	109		$	111

Non-performing Loans to Total Loans	Non-performing Loans to Total Loans	0.71		%	0.45		%	Non-performing Loans to Total Loans	0.67		%	0.70		%
Allowance for Loan Loss to Non-performing Loans	Allowance for Loan Loss to Non-performing Loans	204.42		%	116.34		%	Allowance for Loan Loss to Non-performing Loans	214.82		%	217.88		%

The following table presents non-accrual loans and loans past due 90 days or more still on accrual by class of loans:


		Non-Accrual Loans				Loans Past Due 90 Days or More & Still Accruing					Non-Accrual Loans				Loans Past Due 90 Days or More & Still Accruing
		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Commercial and Industrial Loans and Leases	Commercial and Industrial Loans and Leases	$	8,519	$	4,940	$	—	$	190	Commercial and Industrial Loans and Leases	$	7,312	$	8,133	$	—	$	—
Commercial Real Estate Loans	Commercial Real Estate Loans	10,282		3,433		—		—		Commercial Real Estate Loans	10,133		10,188		—		—
Agricultural Loans	Agricultural Loans	2,643		2,739		—		—		Agricultural Loans	1,841		1,915		—		—
Home Equity Loans	Home Equity Loans	200		79		—		—		Home Equity Loans	293		271		—		—
Consumer Loans	Consumer Loans	171		115		—		—		Consumer Loans	266		170		—		—
Residential Mortgage Loans	Residential Mortgage Loans	1,063		2,496		—		—		Residential Mortgage Loans	1,149		830		—		—
Total	Total	$	22,878	$	13,802	$	—	$	190	Total	$	20,994	$	21,507	$	—	$	—

Non-performing assets totaled ~~$23.3~~$21.3 million at ~~September 30, 2020~~March 31, 2021 compared to ~~$14.4~~$21.8 million at December 31, ~~2019.~~2020. Non-performing assets represented ~~0.48%~~0.41% of total assets at ~~September 30, 2020~~March 31, 2021 and ~~0.33%~~0.44% at December 31, ~~2019.~~2020. Non-performing loans totaled ~~$22.9~~$21.0 million at ~~September 30, 2020~~March 31, 2021 compared to ~~$14.0~~$21.5 million at December 31, ~~2019.~~2020. Non-performing loans represented ~~0.71%~~0.67% of total loans at ~~September 30, 2020~~March 31, 2021 compared to ~~0.45%~~0.70% at December 31, 2019. The increase in the level of non-performing assets and non-performing loans at September 30, 2020 compared with year-end 2019 was largely attributable to the $6.9 million gross-up of purchase credit deteriorated loans upon the adoption of the CECL standard. Also contributing to the increase in the level of non-performing assets and non-performing loans at September 30, 2020 compared with year-end 2019 was the movement of a single commercial real estate credit relationship in the lodging industry to non-accrual status during the third quarter of 2020.

~~September 30, 2020~~March 31, 2021 total deposits increased ~~$549.7~~$272.1 million, or ~~21%~~27% on an annualized basis, compared to December 31, ~~2019.~~2020. The increase in total deposits at ~~September 30, 2020~~March 31, 2021 compared with year-end ~~2019~~2020 was ~~partially attributable to the Company's~~impacted by participation in the PPP, ~~as well as an overall inflow~~continued stimulus payments provided by the federal government and general inflows of customer ~~deposits since the start of the COVID-19 pandemic.~~deposits.

End of Period Deposit Balances:
(dollars in thousands) September 30,
2020 December 31,
2019 Current Period Change
Non-interest-bearing Demand Deposits $ 1,185,814 $ 832,985 $ 352,829
Interest-bearing Demand, Savings, & Money Market Accounts 2,278,826 1,965,640 313,186
Time Deposits < $100,000 272,530 314,789 (42,259)
Time Deposits of $100,000 or more 242,504 316,607 (74,103)
Total Deposits $ 3,979,674 $ 3,430,021 $ 549,653


End of Period Deposit Balances: (dollars in thousands)	March 31, 2021		December 31, 2020		Current Period Change
Non-interest-bearing Demand Deposits	$	1,383,888	$	1,183,442	$	200,446
Interest-bearing Demand, Savings, & Money Market Accounts	2,548,015		2,428,636		119,379
Time Deposits < $100,000	239,911		255,941		(16,030)
Time Deposits of $100,000 or more	206,859		238,511		(31,652)
Total Deposits	$	4,378,673	$	4,106,530	$	272,143

Capital Resources:

As of March 31, 2021, shareholders’ equity declined by $7.5 million to $617.2 million compared with $624.7 million at year-end 2020. The decline in shareholders' equity was primarily attributable to a decline in accumulated other comprehensive income of $21.8 million related to the decrease in value of the Company's available-for-sale securities portfolio. Partially mitigating the decline in accumulated other comprehensive income was increased retained earnings of $14.0 million due to first quarter 2021 net income of $19.6 million which was partially offset by the payment of $5.6 million in shareholder dividends.

Shareholders’ equity represented 11.8% of total assets at March 31, 2021 and 12.6% of total assets at December 31, 2020. Shareholders’ equity included $130.1 million of goodwill and other intangible assets at March 31, 2021 compared to $130.9 million of goodwill and other intangible assets at December 31, 2020.

On January ~~27, 2020,~~25, 2021, the Company’s Board of Directors approved a plan to repurchase up to one million shares of the Company’s outstanding common stock. On a share basis, the amount of common stock subject to the repurchase plan ~~represents~~represented approximately 4% of the Company’s outstanding ~~shares.~~shares on the date it was approved. The Company is not obligated to purchase any shares under the plan,

and the plan may be discontinued at any time. The actual timing, number and share price of 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. At the time it approved the new plan, the Board also terminated a similar ~~program~~plan that had been adopted in ~~2001.~~January 2020. At the time of its termination, the Company had been authorized to purchase up to ~~409,184 shares of common stock under the 2001 program. The Company repurchased 4,047~~778,088 shares of common stock under the 2020 repurchase ~~plan during the third quarter of 2020 at an average price of $26.93 per share.~~plan. The Company has not repurchased ~~221,302~~any shares of common stock under the ~~2020~~2021 repurchase ~~plan during the first nine months of 2020 at an average price of $26.09 per share.~~

As of September 30, 2020, shareholders’ equity increased by $30.2 million to $604.0 million compared with $573.8 million at year-end 2019. The increase in shareholders' equity was in part attributable to an increase of $15.6 million in accumulated other comprehensive income primarily related to the increase in value of the Company's available-for-sale securities portfolio. In addition, retained earnings increased $19.5 million due to the first nine months of 2020 net income of $41.3 million which was partially offset by the payment of $15.1 million in shareholder dividends and a $6.7 million charge relating to the implementation of CECL on January 1, 2020. Also impacting total shareholders' equity was the repurchase of common stock under the Company's share repurchase plan which totaled $5.8 million during the first nine months of 2020.

Shareholders’ equity represented 12.4% of total assets at September 30, 2020 and 13.0% of total assets at December 31, 2019. Shareholders’ equity included $131.8 million of goodwill and other intangible assets at September 30, 2020 compared to $134.0 million of goodwill and other intangible assets at December 31, 2019.plan.

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% in 2019. For both September 30, 2020 and December~~At March 31, ~~2019, the capital conservation buffer was 2.50%. At September 30, 2020,~~2021, the capital levels for the Company and its subsidiary bank remained well in excess of the minimum amounts needed for capital adequacy purposes and the 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:


		9/30/2020 Ratio		12/31/2019 Ratio		Minimum for Capital Adequacy Purposes (1)		Well-Capitalized Guidelines			3/31/2021 Ratio		12/31/2020 Ratio		Minimum for Capital Adequacy Purposes (1)		Well-Capitalized Guidelines
Total Capital (to Risk Weighted Assets)	Total Capital (to Risk Weighted Assets)									Total Capital (to Risk Weighted Assets)
Consolidated	Consolidated	15.62	%	14.28	%	8.00	%	N/A		Consolidated	16.04	%	15.86	%	8.00	%	N/A
Bank	Bank	13.60	%	12.82	%	8.00	%	10.00	%	Bank	13.67	%	14.00	%	8.00	%	10.00	%
Tier 1 (Core) Capital (to Risk Weighted Assets)	Tier 1 (Core) Capital (to Risk Weighted Assets)									Tier 1 (Core) Capital (to Risk Weighted Assets)
Consolidated	Consolidated	13.66	%	12.67	%	6.00	%	N/A		Consolidated	14.17	%	13.93	%	6.00	%	N/A
Bank	Bank	12.80	%	12.35	%	6.00	%	8.00	%	Bank	12.93	%	13.21	%	6.00	%	8.00	%
Common Tier 1, (CET 1) Capital Ratio (to Risk Weighted Assets)	Common Tier 1, (CET 1) Capital Ratio (to Risk Weighted Assets)									Common Tier 1, (CET 1) Capital Ratio (to Risk Weighted Assets)
Consolidated	Consolidated	13.21	%	12.23	%	4.50	%	N/A		Consolidated	13.73	%	13.48	%	4.50	%	N/A
Bank	Bank	12.80	%	12.35	%	4.50	%	6.50	%	Bank	12.93	%	13.21	%	4.50	%	6.50	%
Tier 1 Capital (to Average Assets)	Tier 1 Capital (to Average Assets)									Tier 1 Capital (to Average Assets)
Consolidated	Consolidated	10.05	%	10.53	%	4.00	%	N/A		Consolidated	10.16	%	10.07	%	4.00	%	N/A
Bank	Bank	9.42	%	10.27	%	4.00	%	5.00	%	Bank	9.28	%	9.56	%	4.00	%	5.00	%

(1) Excludes capital conservation buffer.

In December 2018, the federal banking regulators approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. On March 27, 2020, in an action related to the CARES Act, the federal banking regulators announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule, which was finalized effective September 30, 2020, maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company ~~is adopting~~has elected to adopt the ~~capital~~five-year transition ~~relief over the permissible five-year period.~~option.

On April 6, 2020, federal banking regulators issued two interim final rules that make changes to the community bank leverage ratio (“CBLR”) framework and implementing certain directives of the CARES Act. Under the existing CBLR framework, 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%, were eligible to opt-in to the CBLR framework. The first of the April 2020 interim final rules provides that, as of the second quarter 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. It also establishes a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement. It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintains a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement. The federal banking regulators adopted the two interim rules as final, without any changes, on October 9, 2020. Notwithstanding these changes, the Company intends to continue with the existing layered ratio structure. Under either framework, the Company and the Bank would be considered well-capitalized under the applicable guidelines.

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. Additionally, in order to facilitate use of the ~~PPPL~~Paycheck Protection Program Liquidity Facility (the “PPPL Facility”), the agencies further clarified that, for purposes of determining leverage ratios, a banking organization is permitted to exclude from total average assets PPP loans that have been pledged as collateral for a PPPL Facility.

Liquidity:

The Consolidated Statement of Cash Flows details the elements of changes in the Company’s consolidated cash and cash equivalents. Total cash and cash equivalents increased ~~$145.8~~$47.5 million during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 ending at ~~$249.7~~$393.2 million. During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, operating activities resulted in net cash inflows of ~~$56.2~~$26.7 million. Investing activities resulted in net cash outflows of ~~$304.1~~$224.8 million during the ~~nine~~three months months ended ~~September 30, 2020~~March 31, 2021 primarily resulting from the investment of excess liquidity into the available for sale securities ~~portfolio and loan portfolio growth resulting from the Company's participation in the PPP.~~portfolio. Financing activities resulted in net cash inflows for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 of ~~$393.7~~$245.6 million primarily related to growth in the Company's deposit portfolio.

The parent company is a corporation separate and distinct from its bank and other subsidiaries. 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 including debt service. The parent company does not have access at the parent-company level 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. The parent company has in recent years

supplemented the dividends received from its subsidiaries with borrowings. As of ~~September 30, 2020,~~March 31, 2021, the parent company had approximately ~~$57.9~~$66.6 million of cash and cash equivalents available to meet its cash flow needs.

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. The Company may include forward-looking statements in filings with the Securities and Exchange Commission (“SEC”), such as this Form 10-Q, in other written materials, and in oral statements made by senior management to analysts, investors, representatives of the media, and others. Such forward looking statements can include statements about the Company’s net interest income or net interest margin; its adequacy of allowance for ~~loan~~credit losses, levels of provisions for ~~loan~~credit losses, and the quality of the Company’s loans, investment securities and other assets; simulations of changes in interest rates; expected results from mergers with or acquisitions of other businesses; litigation results; tax estimates and recognition; dividend policy; parent company cash resources and cash requirements, and parent company capital resources; 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. They often can be identified by the use of words like “plan,” “expect,” “can,” “might,” “may,” “will,” “would,” “could,” “should,” “intend,” “project,” “estimate,” “believe” or “anticipate,” or similar expressions.

Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the forward-looking statement is made.

Readers are cautioned that, by their nature, all forward-looking statements are based on assumptions 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 this Item 2 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 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; 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; our participation as a lender in the PPP; 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 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 Federal Reserve Board; changes in accounting principles and 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 Wall Street Reform and Consumer Protection Act (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 Consumer Financial Protection Bureau rules and regulations; and the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends. 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.

Investors should consider these risks, uncertainties, and other factors, in addition to those mentioned by the Company in its Annual Report on Form 10-K for its fiscal year ended December 31, ~~2019,~~2020, this Quarterly Report on Form 10-Q, and other SEC filings from time to time, when considering any forward-looking statement.

6453

Item 3. 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 ~~September 30, 2020~~March 31, 2021 - Net Interest Income


		Net Interest Income					Net Interest Income

Changes in Rates	Changes in Rates	Amount		% Change		Changes in Rates	Amount		% Change
+2%	+2%	$	161,473	1.90	%	+2%	$	159,619	(0.76)	%
+1%	+1%	159,746		0.81	%	+1%	159,755		(0.67)	%
Base	Base	158,469		—		Base	160,839		—
-1%	-1%	156,284		(1.38)	%	-1%	157,576		(2.03)	%
-2%	-2%	155,749		(1.72)	%	-2%	155,900		(3.07)	%

The above table is a measurement of the Company’s net interest income at risk, assuming a static balance sheet as of ~~September 30,~~March 31, 2020 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.

6554

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 ~~September 30, 2020~~March 31, 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	Changes in Rates	Amount		% Change		NPV Ratio		Change	Changes in Rates	Amount		% Change		NPV Ratio		Change

+2%	+2%	$	495,769	7.40	%	10.90	%	115 b.p.	+2%	$	566,311	(3.50)	%	11.68	%	19 b.p.
+1%	+1%	485,320		5.14	%	10.45	%	70 b.p.	+1%	579,126		(1.31)	%	11.64	%	15 b.p.
Base	Base	461,603		—		9.75	%	—	Base	586,831		—		11.49	%	—
-1%	-1%	376,646		(18.40)	%	7.89	%	(186) b.p.	-1%	545,018		(7.13)	%	10.41	%	(108) b.p.
-2%	-2%	380,907		(17.48)	%	7.93	%	(182) b.p.	-2%	458,157		(21.93)	%	8.74	%	(275) b.p.

This Item 3 includes forward-looking statements. See “Forward-looking Statements and Associated Risks” included in Part I, Item 2 of this Report for a discussion of certain factors that could cause the Company’s actual exposure to market risk to vary materially from that expressed or implied above. These factors include possible changes in economic conditions; interest rate fluctuations, competitive product and pricing pressures within the Company’s markets; and equity and fixed income market fluctuations. Actual experience may also vary materially to the extent that the Company’s assumptions described above prove to be inaccurate.

Item 4. Controls and Procedures

As of ~~September 30, 2020,~~March 31, 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 were, as of that date, 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.

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s ~~third~~first fiscal quarter of ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

6655

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~There have been no material developments~~In July 2020, the Company was named in ~~any pending legal proceedings previously reported~~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 ~~Company. In addition, there~~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 intends to defend against them. As such, the Company has filed a motion to dismiss the complaint. Before any ruling on the motion to dismiss, the plaintiff amended her complaint to include different account documents, but continues to maintain her claim. On May 3, 2021, the Company filed a motion to dismiss the plaintiff’s amended complaint. All discovery has been stayed by the Court pending a ruling on any motion to dismiss. At this stage of the litigation, it is not possible for the Company’s management to determine the probability of a material adverse outcome or reasonably estimate the amount of any potential loss.

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

Item 1A. Risk Factors

~~Except for the additional risk factors set forth below, there~~There have been no material changes to the risk factors previously disclosed in German American Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

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.

In March 2020, the World Health Organization declared novel coronavirus disease 2019 (COVID-19) as a global pandemic. Also in March 2020, the President of the United States declared the COVID-19 outbreak a national emergency. The health concerns relating to the COVID-19 outbreak and related governmental actions taken to reduce the spread of the virus have significantly impacted the global economy (including the state and local economies in which we operate), disrupted supply chains, lowered equity market valuations, and created significant volatility and disruption in financial markets. The outbreak has 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 have 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 will continue to be, significantly impacted. Furthermore, the pandemic has caused, and could continue to influence, the recognition of credit losses in the Company’s loan portfolios and increases in the Company’s allowance for credit losses as our customers are negatively impacted by the economic downturn. In addition, governmental actions have resulted in decreased interest rates and yields, which may lead to decreases in the Company’s net interest income and noninterest income.

As our banking regulators have 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 has 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, these qualified loan modifications are currently exempt by law from classification as troubled debt restructures as defined by GAAP. 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 be muted by these loan modifications, which could have the effect of delaying loss recognition until after any applicable deferral period.

The spread of COVID-19 has caused the Company to modify is 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 the coronavirus outbreak impacts 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 spread of the outbreak, its severity, 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 the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K. While we do not yet know the full extent of the COVID-19 impact, the negative effects on the Company’s business, results of operations and financial condition 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 was enacted, which included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses, eligible nonprofits and certain others can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. Under the terms of the PPP, loans are to be fully guaranteed by the SBA. The Bank is participating as a lender in the PPP. Because of the short timeframe between the passing of the CARES Act and the April 3, 2020 opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress has approved additional funding for the PPP and the related new legislation was enacted on April 24, 2020. 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table sets forth information regarding the Company’s purchases of its common shares during each of the three months ended ~~September 30, 2020.~~March 31, 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)
July 2020 — — — 782,745
August 2020 — — — 782,745
September 2020 4,047 $26.93 4,047 778,698
Total 4,047 $26.93 4,047


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)
January 2021	—	—	—	1,000,000
February 2021	—	—	—	1,000,000
March 2021	—	—	—	1,000,000
Total	—	—	—

(1) On January ~~27, 2020,~~25, 2021, the ~~Company announced that its~~Company’s Board of Directors ~~had~~ approved a ~~stock~~plan to repurchase ~~program for~~ up to 1.0 million shares of ~~its~~the Company’s outstanding common ~~shares.~~stock. On a share basis, the amount of common stock subject to the repurchase plan represented approximately 4% of the Company’s outstanding shares on the date it was approved. The Company is not obligated to purchase any shares under the plan, and the plan may be discontinued at any time. The actual timing, number and share price of 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 ~~4,047~~any shares of common stock under the 2021 repurchase ~~plan during the quarter ended September 30, 2020.~~

plan.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

6956

Item 6. Exhibits

The following exhibits are included with this Report or incorporated herein by reference.


Exhibit No.						Description
~~2.1~~						Agreement and Plan of Reorganization by and among German American Bancorp, Inc., German American Bank, Citizens First Corporation and Citizens First Bank, Inc., dated as of February 21, 2019, is incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed February 22, 2019 (SEC File No. 001-15877).
3.1						Amended and Restated Articles of Incorporation of German American Bancorp, Inc., are incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed May 26, 2020 (SEC File No. 001-15877).
3.2						Amended and Restated Bylaws of German American Bancorp, Inc. are incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed July 1, 2020 (SEC File No. 001-15877).
4.1						Terms of Common Shares and Preferred Shares of the Registrant (included in Restatement of Articles of Incorporation) are incorporated by reference to Exhibit 3.1 to the Registrant's ~~Quarterly~~Curr ent Report on Form ~~10-Q for the quarter ended March 31, 2017~~8 -K filed on May ~~9, 2017~~26 , 20 20 (SEC File No. 001-15877).
4.2						Specimen stock certificate for Common Shares of the Registrant is incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed October 21, 2010 (SEC File No. 001-15877).
4.3						Indenture, dated as of 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 of the Registrant’s Current Report on Form 8-K filed June 25, 2019 (SEC File No. 001-15877).
4.4						Form of 4.50% Fixed-to-Floating Subordinated Note due 2029 of German American Bancorp, Inc. is incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed June 25, 2019 (SEC File No. 001-15877).
10.1*						Description of Executive Management Incentive Plan for 2021 (awards payable in 2022) is incorporated by reference from the description contained in Item 5.02 of the Registrant’s Current Report on Form 8-K filed March 12, 2021 (SEC File No. 001-15877).
10.2*						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).
31.1+						Sarbanes-Oxley Act of 2002, Section 302 Certification for Chairman of the Board and Chief Executive Officer.
31.2+						Sarbanes-Oxley Act of 2002, Section 302 Certification for Executive Vice President and Chief Financial Officer.
32.1++						Sarbanes-Oxley Act of 2002, Section 906 Certification for Chairman of the Board and Chief Executive Officer.
32.2++						Sarbanes-Oxley Act of 2002, Section 906 Certification for Executive Vice President and Chief Financial Officer.
101.INS+						Inline XBRL Instance Document (The instance document does not appear in the 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 Exhibit 101).

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-K, the Registrant will furnish the Securities and Exchange Commission copies of long-term debt instruments and related agreements upon request.

*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.

+Filed with this Report (other than through incorporation by reference to other disclosures or exhibits).

++Furnished with this Report.

7057

SIGNATURES

Pursuant to the requirements 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.

Date: ~~November 6, 2020~~May 7, 2021			By: /s/Mark A. Schroeder
			Mark A. Schroeder
			Chairman and Chief Executive Officer
			(Principal Executive Officer)

Date: ~~November 6, 2020~~May 7, 2021			By: /s/Bradley M. Rust
			Bradley M. Rust
			Senior Executive Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

7158


September 30, 2019	Commercial and Industrial Loans and Leases		Commercial Real Estate Loans		Agricultural Loans		Home Equity Loans		Consumer Loans		Residential Mortgage Loans		Unallocated		Total
Beginning Balance	$	2,992	$	5,841	$	5,725	$	258	$	422	$	349	$	652	$	16,239
Provision for Loan Losses	4,468		(1,410)		(373)		(72)		174		25		(12)		2,800
Recoveries	2		5		0		8		99		0		0		114
Loans Charged-off	(2,859)		(136)		0		0		(277)		(12)		0		(3,284)
Ending Balance	$	4,603	$	4,300	$	5,352	$	194	$	418	$	362	$	640	$	15,869


December 31, 2019	Total		Commercial and Industrial Loans and Leases		Commercial Real Estate Loans		Agricultural Loans		Home Equity Loans		Consumer Loans		Residential Mortgage Loans		Unallocated
Allowance for Loan Losses:
Ending Allowance Balance Attributable to Loans:
Individually Evaluated for Impairment	$	2,971	$	2,412	$	559	$	0	$	0	$	0	$	0	$	0
Collectively Evaluated for Impairment	12,902		2,387		3,733		5,315		200		434		328		505
Acquired with Deteriorated Credit Quality	405		0		400		0		0		0		5		0
Total Ending Allowance Balance	$	16,278	$	4,799	$	4,692	$	5,315	$	200	$	434	$	333	$	505

Loans:
Loans Individually Evaluated for Impairment	$	6,269	$	4,707	$	1,562	$	0	$	0	$	0	$	0	n/m(2)
Loans Collectively Evaluated for Impairment	3,076,835		585,328		1,491,090		387,710		226,406		81,429		304,872		n/m(2)
Loans Acquired with Deteriorated Credit Quality	12,798		1,368		7,212		3,161		369		0		688		n/m(2)
Total Ending Loans Balance (1)	$	3,095,902	$	591,403	$	1,499,864	$	390,871	$	226,775	$	81,429	$	305,560	n/m(2)


December 31, 2019	Unpaid Principal Balance(1)		Recorded Investment		Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	3,638	$	524	$	—
Commercial Real Estate Loans	4,738		2,058		—
Agricultural Loans	3,294		2,738		—
Subtotal	11,670		5,320		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases	5,042		4,521		2,412
Commercial Real Estate Loans	2,187		1,865		959
Agricultural Loans	0		0		0
Subtotal	7,229		6,386		3,371
Total	$	18,899	$	11,706	$	3,371

Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)	$	9,994	$	4,624	$	—
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)	$	1,134	$	813	$	400


September 30, 2019	Average Recorded Investment		Interest Income Recognized		Cash Basis Recognized
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	2,868	$	8	$	0
Commercial Real Estate Loans	2,699		45		5
Agricultural Loans	1,539		1		0
Subtotal	7,106		54		5
With An Allowance Recorded:
Commercial and Industrial Loans and Leases	5,708		0		0
Commercial Real Estate Loans	2,010		0		3
Agricultural Loans	0		0		0
Subtotal	7,718		0		3
Total	$	14,824	$	54	$	8

Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above)	$	3,381	$	43	$	0
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above)	$	815	$	0	$	0


			Loans Past Due 90 Days or More
	Non-Accrual		& Still Accruing
	2019		2019
Commercial and Industrial Loans and Leases	$	4,940	$	190
Commercial Real Estate Loans	3,433		0
Agricultural Loans	2,739		0
Home Equity Loans	79		0
Consumer Loans	115		0
Residential Mortgage Loans	2,496		0
Total	$	13,802	$	190
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)	$	5,393	$	0
Loans Acquired in Current Year (Included in the Total Above)	$	2,058	$	0


December 31, 2019	Total		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due

Commercial and Industrial Loans and Leases	$	591,403	$	4,689	$	83	$	799	$	5,571	$	585,832
Commercial Real Estate Loans	1,499,864		209		431		2,106		2,746		1,497,118
Agricultural Loans	390,871		499		0		329		828		390,043
Home Equity Loans	226,775		1,121		253		80		1,454		225,321
Consumer Loans	81,429		347		156		89		592		80,837
Residential Mortgage Loans	305,560		5,014		1,461		2,308		8,783		296,777
Total (1)	$	3,095,902	$	11,879	$	2,384	$	5,711	$	19,974	$	3,075,928
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)	$	12,798	$	18	$	0	$	1,589	$	1,607	$	11,191
Loans Acquired in Current Year (Included in the Total Above)	$	321,464	$	639	$	1	$	797	$	1,437	$	320,027


December 31, 2019	Pass		Special Mention		Substandard		Doubtful		Total

Commercial and Industrial Loans and Leases	$	556,706	$	19,671	$	15,026	$	0	$	591,403
Commercial Real Estate Loans	1,453,310		30,504		16,050		0		1,499,864
Agricultural Loans	325,991		49,053		15,827		0		390,871
Total	$	2,336,007	$	99,228	$	46,903	$	0	$	2,482,138
Loans Acquired With Deteriorated Credit Quality (Included in the Total Above)	$	68	$	613	$	11,060	$	0	$	11,741
Loans Acquired in Current Year (Included in the Total Above)	$	254,629	$	16,535	$	12,769	$	0	$	283,933


December 31, 2019	Home Equity Loans		Consumer Loans		Residential Mortgage Loans

Performing	$	226,695	$	81,314	$	303,065
Nonperforming	80		115		2,495
Total	$	226,775	$	81,429	$	305,560


	Average Balance Sheet (Tax-equivalent basis / dollars in thousands)
	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
	Principal Balance		Income / Expense		Yield / Rate		Principal Balance		Income / Expense		Yield / Rate
ASSETS
Federal Funds Sold and Other Short-term Investments	$	160,818	$	287	0.24	%	$	25,699	$	389	2.03	%
Securities:
Taxable	548,229		8,166		1.99	%	546,319		10,554		2.58	%
Non-taxable	381,530		10,495		3.67	%	299,937		8,996		4.00	%
Total Loans and Leases(2)	3,191,254		112,702		4.72	%	2,840,435		111,350		5.24	%
TOTAL INTEREST EARNING ASSETS	4,281,831		131,650		4.10	%	3,712,390		131,289		4.73	%
Other Assets	397,224						355,759
Less: Allowance for Credit Losses	(37,492)						(16,265)
TOTAL ASSETS	$	4,641,563					$	4,051,884

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing Demand, Savings and Money Market Deposits	$	2,164,832	$	5,303	0.33	%	$	1,825,643	$	8,829	0.65	%
Time Deposits	588,121		6,589		1.50	%	668,037		8,745		1.75	%
FHLB Advances and Other Borrowings	225,477		4,230		2.51	%	287,599		5,752		2.67	%
TOTAL INTEREST-BEARING LIABILITIES	2,978,430		16,122		0.72	%	2,781,279		23,326		1.12	%
Demand Deposit Accounts	1,022,884						735,097
Other Liabilities	51,324						32,976
TOTAL LIABILITIES	4,052,638						3,549,352
Shareholders’ Equity	588,925						502,532
TOTAL LIBABILITIES AND SHAREHOLDERS' EQUITY	$	4,641,563					$	4,051,884

COST OF FUNDS					0.50	%					0.84	%
NET INTEREST INCOME			$	115,528					$	107,963
NET INTEREST MARGIN					3.60	%					3.89	%


Non-interest Income (dollars in thousands)	Nine Months Ended September 30,				Change From Prior Period
					Amount		Percent
	2020		2019		Change		Change
Trust and Investment Product Fees	$	5,855	$	5,365	$	490	9	%
Service Charges on Deposit Accounts	5,375		6,319		(944)		(15)
Insurance Revenues	7,048		7,017		31		—
Company Owned Life Insurance	1,933		1,552		381		25
Interchange Fee Income	7,753		6,965		788		11
Other Operating Income	2,251		2,361		(110)		(5)
Subtotal	30,215		29,579		636		2
Net Gains on Sales of Loans	7,378		3,660		3,718		102
Net Gains on Securities	2,190		984		1,206		123
Total Non-interest Income	$	39,783	$	34,223	$	5,560	16