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What changed in GERMAN AMERICAN BANCORP, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of GERMAN AMERICAN BANCORP, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+287 added−296 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-01)

Top changes in GERMAN AMERICAN BANCORP, INC.'s 2023 10-K

287 paragraphs added · 296 removed · 197 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

41 edited+31 added−25 removed91 unchanged
Biggest changeThose risks, and other risks, uncertainties, and factors that could cause the Company’s actual results to vary materially from those expressed or implied by any forward-looking statement, include but are not limited to : • changes in interest rates and the timing and magnitude of any such changes; • unfavorable economic conditions, including a prolonged period of inflation, and the resulting adverse impact on, among other things, credit quality; • the impacts of epidemics, pandemics or other infectious disease outbreaks, including the continuation of the COVID-19 pandemic; • changes in competitive conditions; • the introduction, withdrawal, success and timing of asset/liability management strategies or of mergers and acquisitions and other business initiatives and strategies; • changes in customer borrowing, repayment, investment and deposit practices; • changes in fiscal, monetary and tax policies; • changes in financial and capital markets; • capital management activities, including possible future sales of new securities, or possible repurchases or redemptions by the Company of outstanding debt or equity securities; • risks of expansion through acquisitions and mergers, such as unexpected credit quality problems of the acquired loans or other assets, unexpected attrition of the customer base or employee base of the acquired institution or branches, and difficulties in integration of the acquired operations; • factors driving impairment charges on investments; • the impact, extent and timing of technological changes; • potential cyber-attacks, information security breaches and other criminal activities; • litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future; • actions of the FRB; • the possible effects of the replacement of the London Interbank Offering Rate (LIBOR); • the potential for increases to, and volatility in, the balance of our allowance for credit losses and related provision expense due to the current expected credit loss (CECL) standard; • changes in accounting principles and interpretations; • potential increases of federal deposit insurance premium expense, and possible future special assessments of FDIC premiums, either industry wide or specific to the Company’s banking subsidiary; • actions of the regulatory authorities under the Dodd-Frank Act and the Federal Deposit Insurance Act and other possible legislative and regulatory actions and reforms; • impacts resulting from possible amendments or revisions to the Dodd-Frank Act and the regulations promulgated thereunder, or to CFPB rules and regulations; • the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends; and • with respect to the merger with CUB, the possibility that the benefits of the transaction, including cost savings and strategic gains, do not continue as anticipated, including as a result of the impact of, or problems arising from, the continued integration of the two companies, unexpected credit quality problems of the acquired loans or other assets, or unexpected attrition of the customer base of the acquired institution or branches.
Biggest changeThose risks, and other risks, uncertainties, and factors that could cause the Company’s actual results to vary materially from those expressed or implied by any forward-looking statement, include but are not limited to : • changes in interest rates and the timing and magnitude of any such changes; • unfavorable economic conditions, including a prolonged period of inflation, and the resulting adverse impact on, among other things, credit quality; • the soundness of other financial institutions and general investor sentiment regarding the stability of financial institutions; • changes in our liquidity position; • the impacts of epidemics, pandemics or other infectious disease outbreaks; • 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; • capital management activities, including possible future sales of new securities, or possible repurchases or redemptions by the Company of outstanding debt or equity securities; 15 • risks of expansion through acquisitions and mergers, such as unexpected credit quality problems of the acquired loans or other assets, unexpected attrition of the customer base or employee base of the acquired institution or branches, and difficulties in integration of the acquired operations; • factors driving impairment charges on investments; • the impact, extent and timing of technological changes; • potential cyber-attacks, information security breaches and other criminal activities; • litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future; • actions of the FRB; • the potential for increases to, and volatility in, the balance of our allowance for credit losses and related provision expense due to the current expected credit loss (CECL) standard; • changes in accounting principles and interpretations; • potential increases of federal deposit insurance premium expense, and possible future special assessments of FDIC premiums, either industry wide or specific to the Company’s banking subsidiary; • actions of the regulatory authorities under the Dodd-Frank Act and the Federal Deposit Insurance Act and other possible legislative and regulatory actions and reforms; • impacts resulting from possible amendments or revisions to the Dodd-Frank Act and the regulations promulgated thereunder, or to CFPB rules and regulations; and • the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends.
An additional 25% was phased in on January 1, 2023 and another 25% will be phased in on each of January 1, 2024 and January 1, 2025 (at which time the adverse cumulative effects of adopting CECL will have been fully phased into our regulatory capital).
An additional 25% was phased in on each of January 1, 2023 and January 1, 2024, and another 25% will be phased in on January 1, 2025 (at which time the adverse cumulative effects of adopting CECL will have been fully phased into our regulatory capital).
For instance, the Dodd-Frank Act (or agency regulations adopted and implemented (or to be adopted and implemented) under the Dodd-Frank Act) altered the authority and duties of the federal banking and securities regulatory agencies, implemented certain corporate governance requirements for all public companies including financial institutions with regard to executive compensation, proxy access by shareholders, and certain whistleblower provisions; restricted certain proprietary trading and hedge fund and private equity activities of banks and their affiliates; eliminated the former statutory prohibition against the payment of interest on business checking accounts; limited interchange fees on debit card transactions by certain large processors; and established the Consumer Financial Protection Bureau (“CFPB”).
For instance, the Dodd-Frank Act (or agency regulations adopted and implemented (or to be adopted and implemented) under the Dodd-Frank Act) altered the authority and duties of the federal banking and securities regulatory agencies, implemented certain corporate governance requirements for all public companies 11 including financial institutions with regard to executive compensation, proxy access by shareholders, and certain whistleblower provisions; restricted certain proprietary trading and hedge fund and private equity activities of banks and their affiliates; eliminated the former statutory prohibition against the payment of interest on business checking accounts; limited interchange fees on debit card transactions by certain large processors; and established the Consumer Financial Protection Bureau (“CFPB”).
Although banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the conservation buffer will technically comply with minimum capital requirements under the new rules, such institutions will face limitations on the payment of dividends, common stock repurchases and discretionary cash payments to executive officers based on the amount of the shortfall.
Although banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the conservation buffer will technically comply with minimum capital requirements under the new rules, such institutions will face limitations on 9 the payment of dividends, common stock repurchases and discretionary cash payments to executive officers based on the amount of the shortfall.
When used in this Report, words such as “anticipate”, “believe”, “estimate”, 15 “expect”, “plan”, “intend”, “should”, “would”, “could”, “can”, “may”, “will”, “might” and similar expressions, as they relate to us or our management, identify forward-looking statements.
When used in this Report, words such as “anticipate”, “believe”, “estimate”, “expect”, “plan”, “intend”, “should”, “would”, “could”, “can”, “may”, “will”, “might” and similar expressions, as they relate to us or our management, identify forward-looking statements.
It is intended that these forward-looking statements speak only as of the date they are made. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events . 16
It is intended that these forward-looking statements speak only as of the date they are made. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events .
Under FDICIA, a depository institution that is not well-capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. Since the Bank was well-capitalized throughout 2022, the FDICIA brokered deposit rule did not adversely affect its ability to accept brokered deposits.
Under FDICIA, a depository institution that is not well-capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. Since the Bank was well-capitalized throughout 2023, the FDICIA brokered deposit rule did not adversely affect its ability to accept brokered deposits.
Item 1. Business. General 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 77 banking offices in 20 contiguous southern Indiana counties and 14 counties in Kentucky.
Item 1. Business. General 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 75 banking offices in 20 contiguous southern Indiana counties and 14 counties in Kentucky.
The Company expects to continue to evaluate opportunities to expand its business through opening of new banking, insurance or trust, brokerage and financial planning offices, and through acquisitions of other banks, bank branches, portfolios of loans or other assets, and other financial-service-related businesses and assets in the future. 6 Office Locations The map below illustrates the locations of the Company’s 78 retail and commercial banking, insurance and investment offices. 7 Competition The industries in which the Company operates are highly competitive.
The Company expects to continue to evaluate opportunities to expand its business through opening of new banking, insurance or trust, brokerage and financial planning offices, and through acquisitions of other banks, bank branches, portfolios of loans or other assets, and other financial-service-related businesses and assets in the future. 5 Office Locations The map below illustrates the locations of the Company’s 76 retail and commercial banking, insurance and investment offices. 6 Competition The industries in which the Company operates are highly competitive.
Under this 2020 rule, the amount of adjustments to regulatory capital that could be deferred until the phase-in period included both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021.
Under these rules, the amount of adjustments to regulatory capital that could be deferred until the phase-in period included both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021.
The laws and regulations to which we are subject are constantly under review by Congress, the federal regulatory agencies, and the state authorities. Federal Deposit Insurance Premiums and Assessments The Bank’s deposit accounts are currently insured by the Deposit Insurance Fund (the “DIF”) of the FDIC.
The laws and regulations to which we are subject are constantly under review by the U.S. Congress, the federal regulatory agencies, and the state authorities. 13 Federal Deposit Insurance Premiums and Assessments The Bank’s deposit accounts are currently insured by the Deposit Insurance Fund (the “DIF”) of the FDIC.
In addition, financial technology, or “FinTech,” companies continue their rapid growth into key areas of banking. Many of these competitors have substantially greater resources than the Company. Human Capital At February 23, 2023, the Company and its subsidiaries employed approximately 866 full-time equivalent employees. There are no collective bargaining agreements, and we consider employee relations to be good.
In addition, financial technology, or “FinTech,” companies continue their rapid growth into key areas of banking. Many of these competitors have substantially greater resources than the Company. Human Capital At February 20, 2024, the Company and its subsidiaries employed approximately 840 full-time equivalent employees. There are no collective bargaining agreements, and we consider employee relations to be good.
As of December 31, 2022, the Bank exceeded the requirements contained in the applicable regulations, policies and directives pertaining to capital adequacy to be classified as “well-capitalized”, and is unaware of any material violation or alleged violation of these regulations, policies or directives.
As of December 31, 2023, the Bank exceeded the requirements contained in the applicable regulations, policies and directives pertaining to capital adequacy to be classified as “well-capitalized”, and is unaware of any material violation or alleged violation of these regulations, policies or direct ives.
Upon becoming a financial holding company, we began operating GABC Risk Management, Inc., a wholly-owned subsidiary, as a pooled captive insurance company subsidiary to provide additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible.
As a financial holding company, we operated GABC Risk Management, Inc., a wholly-owned subsidiary (the “Captive”), as a pooled captive insurance company subsidiary to provide additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible.
Full-time and part-time employees are eligible for our education assistance program which covers tuition and textbooks for work-related courses taken through a community college or university. Employees are also able to participate in on-the-job learning, classroom learning, mentoring and other internal and external career development programs.
Full-time and part-time employees are eligible for our education assistance program which covers tuition and textbooks for work-related courses taken through a community college or university. Employees are also able to participate in on-the-job learning, classroom learning, mentoring and other internal and external career development programs 7 in order to advance or diversify their career paths throughout the organization.
The Bank and the subsidiaries of the Bank may generally engage in activities that are permissible activities for state chartered banks under Indiana banking law, without regard to the limitations that might apply to such activities under the BHC Act if the Company were to engage directly in such activities at the parent company level or through parent company subsidiaries that were not also bank subsidiaries.
The Bank and the subsidiaries of the Bank may generally engage in activities that are permissible activities for state chartered banks under Indiana banking law, without regard to the limitations that might apply to such activities under the BHC Act if the Company were to engage directly in such activities at the parent company level or through parent company subsidiaries that were not also bank subsidiaries. 8 Indiana law and the BHC Act restrict certain types of expansion by the Company and its bank subsidiary.
The Bank had no brokered deposits at December 31, 2022.
The Bank had no brokered deposits at December 31, 2023.
The Bank Secrecy Act (the “BSA”) requires financial institutions to develop policies, procedures, and practices to prevent and deter money laundering, and mandates that every bank have a written, board-approved program that is reasonably designed to assure and monitor compliance with the BSA.
A major focus of governmental policy on financial institutions is combating money laundering and terrorist financing. The Bank Secrecy Act (the “BSA”) requires financial institutions to develop policies, procedures, and practices to prevent and deter money laundering, and mandates that every bank have a written, board-approved program that is reasonably designed to assure and monitor compliance with the BSA.
At December 31, 2022, the Bank was eligible for payment of dividends under the exemptive criteria established by DFI policy for this purpose, and could have declared and paid to the holding company approximately $125 million of its undivided profits without approval by the DFI in accordance with such criteria.
At December 31, 2023, the Bank was eligible for payment of dividends under the exemptive criteria established by DFI policy for this purpose, and could have declared and paid to the holding company approxi mately $175 million of its u ndivided profits without approval by the DFI in accordance with such criteria.
Furthering our philosophy to attract and retain talented and motivated employees who will continue to advance our purpose and contribute to our overall success, our compensation and benefits programs include: medical (including telemedicine and behavioral health care services), dental and vision plans; a 401(k) deferred compensation plan, with matching contribution, which covers substantially all employees; flexible spending and health savings accounts, competitive paid time off (PTO) programs, life insurance and a robust employee assistance program that covers an array of work-life benefits that supports employee well-being.
Furthering our philosophy to attract and retain talented and motivated employees who will continue to advance our purpose and contribute to our overall success, our compensation and benefits programs include: referral incentive programs, quarterly performance incentives, medical (including a digital clinic for joint and muscle care, telemedicine and behavioral health care services), dental and vision plans; a 401(k) deferred compensation plan, with matching contribution, which covers substantially all employees; flexible spending and health savings accounts; competitive paid time off “PTO” programs, including the opportunity to purchase additional PTO; and life insurance and a robust employee assistance program that supports employee well-being through personal and work-life issues.
We have a long history of community involvement, from both a contributory standpoint and a dedication to hands-on volunteer efforts. German American strives to attract, develop, and retain talented individuals in every community we serve.
We have a long history of community involvement, from both a contributory standpoint and a dedication to hands-on volunteer efforts. We believe that service to our communities, customers and each other is fun, rewarding and powerful. German American strives to attract, develop, and retain talented individuals in every community we serve.
In addition, we offer supplemental benefits such as accident, critical illness and hospital indemnity policies, quarterly performance incentives, discounted bank services and an Employee Stock Purchase Plan. We also invest in our employees’ future by sponsoring and prioritizing continued education throughout the Company’s employee ranks.
In addition, we offer supplemental benefits such as accident, critical illness and hospital indemnity policies, discounted bank services and an Employee Stock Purchase Plan. We also invest in our employees’ future by sponsoring and prioritizing continued education throughout the Company’s employee ranks, including support of many bank-related certification programs and any required continuing education to support those certifications.
These programs focus on enhancing current skills as well as developing our next generation of leaders, bankers, commercial lenders and other financial professional roles. We are committed to employee care and helping our employees improve their quality of life and place.
These programs focus on enhancing current skills, engaging and empowering our team members in their own career development and building our pipeline of leaders, bankers, commercial lenders and other financial professional roles. We are committed to employee care and helping our employees improve their quality of life and place.
FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and this is expected to continue in the future.
FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and this is expected to continue in the future. The general effect, if any, of such policies upon the future business and earnings of the Company cannot accurately be predicted.
In addition, all covered transactions and other affiliate transactions must be conducted on terms and under circumstances that are substantially the same as such transactions with unaffiliated entities. 12 Other Aspects of the Dodd-Frank Act The Dodd-Frank Act (in addition to the regulatory changes discussed elsewhere in this “Regulation and Supervision” discussion and below under “Federal Deposit Insurance Premiums and Assessments”) made a variety of changes that affect the business and affairs of the Company and the Bank in other ways.
Other Aspects of the Dodd-Frank Act The Dodd-Frank Act (in addition to the regulatory changes discussed elsewhere in this “Regulation and Supervision” discussion and below under “Federal Deposit Insurance Premiums and Assessments”) made a variety of changes that affect the business and affairs of the Company and the Bank in other ways.
In order to continue as a financial holding company, we must continue to be well-capitalized, well-managed and maintain compliance with the Community Reinvestment Act.
Banks may also engage through financial subsidiaries in certain of the activities permitted for financial holding companies, subject to certain conditions. In order to continue as a financial holding company, we must continue to be well-capitalized, well-managed and maintain compliance with the Community Reinvestment Act.
CUB, headquartered in Shelbyville, Kentucky, operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through Citizens Union Bank of Shelbyville, Inc. in Kentucky.
CUB, headquartered in Shelbyville, Kentucky, operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through Citizens Union Bank of Shelbyville, Inc. As of the closing of the transaction, CUB had total assets of approximately $1.109 billion, total loans of approximately $683.8 million, and total deposits of approximately $930.5 million.
We believe that the well-being of our employees and their personal and professional development is furthered by our outreach to the communities we serve.
In order to develop and engage a workforce that aligns with our purpose, we regularly sponsor local community events. We believe that the well-being of our employees and their personal and professional development is furthered by our outreach to the communities we serve.
The general effect, if any, of such policies upon the future business and earnings of the Company cannot accurately be predicted. 9 Capital Requirements We are subject to various regulatory capital requirements both at the parent company and at the Bank level administered by the FRB and by the FDIC and DFI, respectively.
Capital Requirements We are subject to various regulatory capital requirements both at the parent company and at the Bank level administered by the FRB and by the FDIC and DFI, respectively.
These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.
These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
In September 2019, we elected to become a “financial holding company.” As a financial holding company, we are permitted to engage in a broader range of activities that are “financial in nature” and in activities that are determined to be incidental or complementary to activities that are financial in nature.
We are also a “financial holding company” under the BHC Act, which permits us to engage in a broader range of activities that are “financial in nature” and in activities that are determined to be incidental or complementary to activities that are financial in nature.
As a result, we remain focused on continuous improvement throughout all departments in order to create positive outcomes and experiences for all. Most recently, we implemented a paid family bonding leave program, a paid-time off (PTO) donation program, and flexible work guidelines. In order to develop a workforce that aligns with our purpose, we regularly sponsor local community events.
As a result, we remain focused on continuous improvement throughout all departments in order to create positive outcomes and experiences for all. To support our focus on employee care, we have a paid family bonding leave program, a PTO donation program, flexible work guidelines, and career opportunities promoted throughout our footprint.
The Company adopted the CECL standard on January 1, 2020. In an action related to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), in September 2020, federal banking regulators adopted a final rule that allowed banking organizations to mitigate the estimated cumulative regulatory capital effects of CECL for up to two years.
In addition, as a result of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), banking organizations were further permitted to mitigate the estimated cumulative regulatory capital effects of CECL for up to an additional two years.
Our employees’ desire for active community involvement enables us to sponsor many local community events and initiatives, including leading financial literacy classes in community schools and volunteering to enhance the arts, education, economic development, and overall community enrichment in our footprint. 8 Regulation and Supervision Overview The Company is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (“FRB”) under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and is required to file with the FRB annual reports and such additional information as the FRB may require.
Regulation and Supervision Overview The Company is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (“FRB”) under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and is required to file with the FRB annual reports and such additional information as the FRB may require.
The assessment rate, which ranges from 1.5 to 30.0 basis points (such basis points representing a per annum rate) for Established Small Institutions, is determined based upon each applicable institution’s most recent supervisory and capital evaluations. 14 In addition, each FDIC insured institution has been required to pay to the FDIC an assessment on the institution’s total assets less tangible capital in order to fund interest payments on bonds issued by the Financing Corporation, an agency of the federal government established to recapitalize the predecessor to the Savings Association Insurance Fund.
The assessment rate, which ranges from 1.5 to 30.0 basis points (such basis points representing a per annum rate) for Established Small Institutions, is determined based upon each applicable institution’s most recent supervisory and capital evaluations.
Retention of skilled and highly trained employees is critical to our strategy of being a trusted resource to our communities and customers.
We have long been committed to comprehensive and competitive compensation and benefits programs as we recognize that we operate in an intensely competitive environment for employees. Retention of skilled and highly trained employees is critical to our strategy of being a trusted resource to our communities and customers.
Furthermore, covered transactions that are loans and extensions of credit must be secured within specified amounts.
Furthermore, covered transactions that are loans and extensions of credit must be secured within specified amounts. In addition, all covered transactions and other affiliate transactions must be conducted on terms and under circumstances that are substantially the same as such transactions with unaffiliated entities.
Under the final rule, which became effective as of January 1, 2020, community banks and holding companies (which would include the Bank and the Company) that satisfy certain qualifying criteria, including having less than $10 billion in average total consolidated assets and a leverage ratio (referred to as the “community bank leverage ratio”) of greater than 9%, would be eligible to opt-in to the CBLR framework.
For a tabular presentation of our regulatory capital ratios and those of the Bank as of December 31, 2023, see Note 8 (Shareholders’ Equity) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note 8 is incorporated herein by reference. 10 Section 201 of the Economic Growth, Relief and Consumer Protection Act of 2018 (the “Economic Growth Act”) simplified the regulatory capital requirements for eligible 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%, by permitting those entities to opt-in to the community bank leverage ratio framework (the “CBLR framework”).
For information about the one-time cumulative adjustment to our allowance for credit losses on January 1, 2020 and changes in the allowance during the subsequent two-year period, please see Note 1 (Summary of Significant Accounting Policies) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report.
As discussed in Note 1 (Summary of Significant Accounting Policies) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, the Company adopted the “current expected credit losses” (“CECL”) accounting standard under GAAP effective January 1, 2020.
In December 2018, federal banking agencies issued a joint final rule to revise their regulatory capital rules to, among other things: (i) address implementation of the “current expected credit losses” (“CECL”) accounting standard under GAAP; and (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects of adopting CECL.
The regulatory capital rules applicable to the Company provided an optional three-year phase-in period for the day-one adverse regulatory capital effects of adopting CECL.
We value honesty, transparency, and diverse perspectives with high ethical standards in all we do. We have long been committed to comprehensive and competitive compensation and benefits programs as we recognize that we operate in an intensely competitive environment for employees.
We value honesty, transparency, and diverse perspectives with high ethical standards in all we do. For many years, we have annually collected feedback on employee engagement. Most recently, we have partnered with Quantum Workplace to measure employee engagement.
Removed
As of the closing of the transaction, CUB had total assets of approximately $1.109 billion, total loans of approximately $683.8 million, and total deposits of approximately $930.5 million.
Added
The feedback focuses on several key metrics. including employee engagement, team dynamics, customer service, manager effectiveness, trust in leadership, future outlook, diversity and inclusion, individual needs, career growth and development and communication. During 2023, we had 76% employee participation in the survey.
Removed
During 2021, the Company executed an operating optimization plan, pursuant to which its banking subsidiary, German American Bank, consolidated seven branch offices and implemented various staff reductions.
Added
Once the feedback is analyzed, our Human Capital team shares the survey results with the managers and employees throughout the Company and works collaboratively to develop and implement action plans to address areas that were identified for improvement based on the feedback received.
Removed
In making its decision to 5 consolidate these branches, which were generally integrated with other nearby bank branches, the Company considered, among other factors, the operating costs of the branches, certain physical limitations impacting the bank facilities, and their proximity to other branch locations.
Added
This ability to target areas for improvement has resulted in an overall engagement score of greater than 73% in 2023, which is a score demonstrating a healthy organization in employee care and compares favorably to the banking industry.
Removed
In addition, the Company’s evaluation of the branch consolidations and the reductions in staff also took into consideration the numbers and types of transactions being conducted by its customers and the increased usage of online and mobile banking.
Added
To help ensure we remain competitive in our compensation programs, we participate annually in market and banking compensation studies and model compensation with an external vendor for comparison.
Removed
Also as part of the operating optimization plan, in September 2021, German American Bank sold its two branches located in Lexington, Kentucky to The Home Savings and Loan Company of Kenton, Ohio (“HSLC”). HSLC assumed approximately $17.6 million in total deposits and purchased approximately $17.8 million in total loans as part of the sale.
Added
Our employees’ desire for active community involvement enables us to sponsor many local community events and initiatives, including leading financial literacy classes in community schools and volunteering to enhance the arts, education, economic development, and overall community enrichment in our footprint.
Removed
Banks may also engage through financial subsidiaries in certain of the activities permitted for financial holding companies, subject to certain conditions.
Added
On April 10, 2023, the Internal Revenue Service issued a proposed regulation impacting taxes on insurance companies under Section 831(b) of the Internal Revenue Code, both prospectively and retroactively, for a period of three years.
Removed
Indiana law and the BHC Act restrict certain types of expansion by the Company and its bank subsidiary.
Added
As a result of the proposed regulation, the Company elected to decommission the Captive as an insurance company in December 2023 and subsequently dissolved the Captive as a corporation in the State of Nevada.
Removed
As discussed in Note 1 (Summary of Significant Accounting Policies) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, the FASB issued the CECL accounting standard in 2016 to address concerns relating to the ability to record credit losses that are expected, but do not yet meet the “probable” threshold by replacing the current “incurred loss” model for recognizing credit losses with an “expected life of loan loss” model referred to as the CECL model.
Added
In October 2023, the CFPB proposed a new rule that would require a provider of payment accounts or products, such as a bank, to make data available to consumers upon request regarding the products or services they obtain from the provider.
Removed
This two-year delay is in addition to the three-year phase-in period discussed above. By adopting this option, the Company was able to largely delay the effects of CECL on its regulatory capital through 10 December 31, 2021.
Added
Any such data provider would also have to make the data available to third parties, with the consumer’s express authorization, and through an interface that satisfies formatting, performance and security standards, for the purpose of the third parties providing the consumer with financial products or services requested by the consumer.
Removed
In April 2020, federal banking regulators modified the Basel III regulatory capital rules applicable to banking organizations to allow those organizations participating in the Paycheck Protection Program (“PPP”) established under the CARES Act to neutralize the regulatory capital effects of participating in the program by allowing PPP loans to receive a zero percent risk weight for purposes of determining risk-weighted assets and the CET1, Tier 1 and Total Risk-Based capital ratios.
Added
Data that would be required to be made available under the rule would include transaction information, account balance, account and routing numbers, terms and conditions, upcoming bill information, and certain account verification data.
Removed
While there were no outstanding PPP loans at December 31, 2022, at December 31, 2021, risk-weighted assets included $19.5 million of PPP loans (net of deferred fees) at a zero risk weight. See “COVID-19 and Related Legislative and Regulatory Actions” below for additional information on the PPP.
Added
The proposed rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products or services.
Removed
For a tabular presentation of our regulatory capital ratios and those of the Bank as of December 31, 2022, see Note 8 (Shareholders’ 11 Equity) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which Note 8 is incorporated herein by reference.
Added
For banks that hold at least $850 million but less than $50 billion in total assets (which includes the Bank), compliance would be required approximately two and a half years after adoption of the final rule.
Removed
In October 2019, the FRB, the FDIC and the Office of the Comptroller of the Currency (the “OCC”) adopted a final rule to simplify the regulatory capital requirements for eligible community banks and holding companies that opt-in to the community bank leverage ratio framework (“CBLR framework”), as required by Section 201 of the Economic Growth, Relief and Consumer Protection Act of 2018 (the “Economic Growth Act”).
Added
In October 2023, the federal banking regulators issued a joint final rule to modernize the CRA regulatory framework. The final rule is intended, among other things, to adapt to changes in the banking industry, including the expanded role of mobile and 12 online banking, and to tailor performance standards to account for differences in bank size and business models.
Removed
The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. 13 A major focus of governmental policy on financial institutions is combating money laundering and terrorist financing.
Added
The final rule introduces new tests under which the performance of banks with over $2 billion in assets will be assessed. The new rule also includes data collection and reporting requirements, some of which are applicable to banks with less than $10 billion in assets, such as the Bank.
Removed
With the Financing Corporation having made its final bond payment in September 2019, the Bank made its last assessment payment, which was equal to a per annum rate of 0.12 basis points, in March 2019.
Added
Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027.
Removed
COVID-19 and Related Legislative and Regulatory Actions On January 30, 2020, the World Health Organization (“WHO”) announced that the outbreak of the novel coronavirus disease 2019 (COVID-19) constituted a public health emergency of international concern.
Added
In October 2022, the FDIC adopted a final rule that increased the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023.
Removed
On March 11, 2020, WHO declared COVID-19 to be a global pandemic and, on March 13, 2020, the President of the United States declared the COVID-19 outbreak a national emergency.
Added
The increased assessment was expected to improve the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the statutory deadline prescribed under the FDIC’s amended restoration plan. Cybersecurity The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions.
Removed
In the two years since then, the pandemic has dramatically impacted global health and the economy, including millions of confirmed cases and deaths, business slowdowns or shutdowns, labor shortfalls, supply chain challenges, regulatory challenges, and market volatility. In response, the U.S.
Added
Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes. If we fail to observe such regulatory guidance or standards, we could be subject to various regulatory sanctions, including financial penalties.
Removed
Congress, through the enactment of the CARES Act in March 2020, and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide emergency economic relief measures including, among others, the following: Paycheck Protection Program .
Added
In 2023, the SEC issued a final rule that requires disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance.
Removed
The CARES Act established the PPP, which is administered by the Small Business Administration (“SBA”), to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during the pandemic. The Company actively participated in assisting its customers with PPP funding during all phases of the program.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

26 edited+19 added−34 removed85 unchanged
Biggest changeIn addition, an epidemic, a pandemic or another infectious disease outbreak, or the continuation of the COVID-19 pandemic, could again significantly impact households and businesses, or cause limitations on commercial activity, increased unemployment and general economic and financial instability.
Biggest changeIn addition, epidemics, pandemics or other infectious disease outbreaks could significantly impact households and businesses, or cause limitations on commercial activity, increased unemployment and general economic and financial instability. An economic slow-down, or the reversal of an economic recovery, in the regions in which we conduct our business could result in declines in loan demand and collateral values.
There can be no assurance that declines in market value associated with these disruptions will not result in other than 20 temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels. The soundness of other financial institutions could adversely affect us.
There can be no assurance that declines in market value associated with these disruptions will not result in other than temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels. The soundness of other financial institutions could adversely affect us.
Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Replacing these third party vendors could also entail significant delay and expense.
Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, 22 could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Replacing these third party vendors could also entail significant delay and expense.
The occurrence of any of these events could cause us to suffer financial loss, face regulatory action and suffer damage to our reputation. Unauthorized disclosure of sensitive or confidential client or customer information, whether through a cyber-attack, other breach of our computer systems or otherwise, could harm our business.
The 21 occurrence of any of these events could cause us to suffer financial loss, face regulatory action and suffer damage to our reputation. Unauthorized disclosure of sensitive or confidential client or customer information, whether through a cyber-attack, other breach of our computer systems or otherwise, could harm our business.
Our information systems may experience an interruption or breach in security. We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in our customer relationship 23 management, general ledger, deposit, loan, and other systems.
Our information systems may experience an interruption or breach in security. We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan, and other systems.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, cash flows and financial condition . Our methods of reducing risk exposure may not be effective.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, cash flows and financial condition . 19 Our methods of reducing risk exposure may not be effective.
The lack of empirical data surrounding the credit and other financial risks posed by climate change make it impossible to predict how 21 specifically climate change may impact our financial condition and results of operations.
The lack of empirical data surrounding the credit and other financial risks posed by climate change make it impossible to predict how specifically climate change may impact our financial condition and results of operations.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to the Company’s environmental, social and governance practices may impose additional costs on the Company or expose it to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to the Company’s environmental, social and governance practices may impose additional costs on the Company or expose it to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their ESG practices and disclosure.
However, a failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a negative impact on our ability to lend, grow deposit balances, make acquisitions or make capital distributions in the form of dividends.
However, a failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a negative impact on our ability to lend, grow deposit balances, make acquisitions or make capital distributions in the form of dividends. Higher capital levels could also lower our return on equity.
The extent to which a widespread health crisis, including the continuation of COVID-19, may impact the Company’s business, results of operations and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and severity of the crisis, the potential for seasonal or other resurgences, actions taken by governmental authorities and other third parties to contain and treat such an epidemic, a pandemic or another infectious disease outbreak, and how quickly and to what extent normal economic and operating conditions can resume.
The extent to which a widespread health crisis may impact the Company’s business, results of operations and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and severity of the crisis, the potential for seasonal or other resurgences, actions taken by governmental authorities and other third parties to contain and treat such epidemics, pandemics or other infectious disease outbreaks, and how quickly and to what extent normal economic and operating conditions can resume.
Factors impacting the price of our common stock include, among others: • actual or anticipated variations in our quarterly results of operations; • recommendations or research reports about us or the financial services industry in general published by securities analysts; • the failure of securities analysts to cover, or continue to cover, us; • operating and stock price performance of other companies that investors believe are comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding us, or our reputation, competitors or other financial institutions; • actual or anticipated sales of our equity or equity-related securities; • our past and future dividend practice; • departure of our management team or other key personnel; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • existing or increased regulatory and compliance requirements, changes or proposed changes in laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations; and • litigation and governmental investigations.
Factors impacting the price of our common stock include, among others: • actual or anticipated variations in our quarterly results of operations; • recommendations or research reports about us or the financial services industry in general published by securities analysts; • the failure of securities analysts to cover, or continue to cover, us; • operating and stock price performance of other companies that investors believe are comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding us, or our reputation, competitors or other financial institutions; • actual or anticipated sales of our equity or equity-related securities; • our past and future dividend practice; • departure of our management team or other key personnel; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • existing or increased regulatory and compliance requirements, changes or proposed changes in laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations; and • litigation and governmental investigations. 23 General market fluctuations, industry factors and general economic and political conditions and events (including elevated inflation, interest rate changes, credit loss trends, or economic slowdowns or recessions) could also cause our stock price to decrease regardless of operating results.
Higher capital levels could also lower our return on equity. 22 Our FDIC insurance premiums may increase, and special assessments could be made, which might negatively impact our results of operations. High levels of insured institution failures, as a result of the recent recession, significantly increased losses to the Deposit Insurance Fund of the FDIC.
Our FDIC insurance premiums may increase, and special assessments could be made, which might negatively impact our results of operations. High levels of insured institution failures, as a result of the recent recession, significantly increased losses to the Deposit Insurance Fund of the FDIC.
The underwriting and credit monitoring policies and procedures that we have adopted cannot eliminate the risk that we might incur losses on account of factors relating to the economy like those identified above, and those losses could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The underwriting and credit monitoring policies and procedures that we have adopted cannot eliminate the risk that we might incur losses on account of factors relating to the economy like those identified above, and those losses could have a material adverse effect on our business, financial condition, results of operations and cash flows. 16 If our actual loan losses exceed our estimates, our earnings and financial condition will be impacted.
We compete with much larger regional, national, and international competitors, including competitors that have no (or only a limited number of) offices physically located within our markets, many of which compete with us via Internet and other electronic product and service offerings.
The banking and financial services business in our markets is highly competitive. We compete with much larger regional, national, and international competitors, including competitors that have no (or only a limited number of) offices physically located within our markets, many of which compete with us via Internet and other electronic product and service offerings.
The value of securities in our investment securities portfolio may be negatively affected by disruptions in securities markets. Prices and volumes of transactions in the nation’s securities markets can be affected suddenly by economic crises, or by other national or international crises, such as national disasters, acts of war or terrorism, changes in commodities markets, or instability in foreign governments.
In addition, prices and volumes of transactions in the nation’s securities markets can be affected suddenly by economic crises, or by other national or international crises, such as national disasters, acts of war or terrorism, changes in commodities markets, or instability in foreign governments.
Risks Related to the Financial Services Industry We operate in a highly regulated environment and changes in laws and regulations to which we are subject may adversely affect our results of operations. The banking industry in which we operate is subject to extensive regulation and supervision under federal and state laws and regulations.
Risks Related to the Financial Services Industry We operate in a highly regulated environment and changes in laws and regulations to which we are subject may adversely affect our results of operations.
Historical loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for changes in underwriting standards, portfolio mix, delinquency levels, changes in environmental conditions, unemployment rates, risk classifications and collateral values.
Adjustments to historical loss information are made for changes in underwriting standards, portfolio mix, delinquency levels, changes in environmental conditions, unemployment rates, risk classifications and collateral values.
Moreover, governmental and regulatory actions taken in response to an epidemic, a pandemic or another infectious disease outbreak may include decreased interest rates, which could adversely impact the Company’s interest margins and may lead to decreases in the Company’s net interest income.
Moreover, governmental and regulatory actions taken in response to epidemics, pandemics or other infectious disease outbreaks may include decreased 17 interest rates, which could adversely impact the Company’s interest margins and may lead to decreases in the Company’s net interest income.
The continuation of the COVID-19 pandemic, or a new epidemic, pandemic or infectious disease outbreak, may result in the Company closing certain offices and may require us to limit how customers conduct business through our branch network.
Epidemics, pandemics or other infectious disease outbreaks may result in the Company closing certain offices and may require us to limit how customers conduct business through our branch network.
Any substantial, unexpected, or prolonged change in market interest rates could have a material adverse effect on our financial condition, results of operations, and cash flows. The replacement of the LIBOR benchmark interest rate may have an impact on our business, financial condition or results of operations .
Any substantial, unexpected, or prolonged change in market interest rates could have a material adverse effect on our financial condition, results of operations, and cash flows. The Company’s business, results of operations and financial condition may be adversely affected by epidemics, pandemics or other infectious disease outbreaks.
We maintain an allowance for credit losses for the expected credit losses over the contractual life of the loan portfolio as well as unfunded loan commitments. The Company estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
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.
An economic slow-down, or the reversal of the economic recovery, in the regions in which we conduct our business could result in declines in loan demand and collateral values. Furthermore, negative impacts on our customers caused by such a health crisis, including the continuation of COVID-19, could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
Furthermore, negative impacts on our customers caused by such a health crisis could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
Integration efforts for any future acquisitions may not be successful and following any future acquisition, after giving it effect, we may not achieve financial results comparable to or better than our historical experience. 24 Risks Related to Our Common Stock Our common stock price may fluctuate significantly, and this may make it difficult for you to resell our common stock at times or at prices acceptable to you.
Risks Related to Our Common Stock Our common stock price may fluctuate significantly, and this may make it difficult for you to resell our common stock at times or at prices acceptable to you.
We may incur substantial costs to expand by acquisition, and such acquisitions may not result in the levels of profits we seek.
We may incur substantial costs to expand by acquisition, and such acquisitions may not result in the levels of profits we seek. Integration efforts for any future acquisitions may not be successful and following any future acquisition, after giving it effect, we may not achieve financial results comparable to or better than our historical experience.
Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions, and any unfavorable change in these conditions could have a material adverse effect on our business, financial condition, results of operations or liquidity.
Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
As a result, the negative effects on the Company’s business, results of operations and financial condition from an epidemic, a pandemic or another infectious disease outbreak, including the continuation or resurgence of the COVID-19 pandemic, could be material.
Moreover, the effects of a widespread health crisis may heighten many of the other risks described in this “Risk Factors” section. As a result, the negative effects on the Company’s business, results of operations and financial condition from epidemics, a pandemics or other infectious disease outbreaks could be material.
Removed
If our actual loan losses exceed our estimates, our earnings and financial condition will be impacted.
Added
Our allowance for credit losses may not be adequate to cover actual losses. We maintain an allowance for credit losses for the expected credit losses over the contractual life of the loan portfolio as well as unfunded loan commitments.
Removed
We may experience increases to, and volatility in, the balance of our allowance for credit losses and related provision expense due to the adoption of the current expected credit loss (“CECL”) methodology.
Added
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of the Bank, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Removed
Effective January 1, 2020, the Company adopted the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model.
Added
Furthermore, as we and other banks experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers (i) spread deposits among several different banks so as to maximize their amount of FDIC insurance, (ii) move deposits to larger banks (who may be considered “too big to fail”), or (iii) remove deposits from the banking system entirely.
Removed
The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables.
Added
As of December 31, 2023, approximately 21% of our deposits were uninsured and 18 uncollateralized. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
Removed
It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor.
Added
The value of securities in our investment securities portfolio may be negatively affected by market interest rates or disruptions in securities markets, and could affect our liquidity. As market interest rates have increased, we have experienced significant unrealized losses on our available-for-sale securities portfolio.
Removed
The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, and requires significant use of management judgments. This differs significantly from the incurred loss model, which delayed recognition until it was probable a loss had been incurred.
Added
Unrealized losses related to available-for-sale securities are reflected in accumulated other comprehensive income in our consolidated balance sheets and reduce the level of our book capital and tangible common equity. However, such unrealized losses do not affect our regulatory capital ratios.
Removed
Any failure of these judgments or forecasts to be correct could create more volatility in the level of our allowance for credit losses, and negatively affect our results of operations and financial condition. 17 Our allowance for credit losses may not be adequate to cover actual losses.
Added
We actively monitor our available-for-securities portfolio and we do not currently anticipate the need to realize material losses from the sale of securities for liquidity purposes. Furthermore, we believe it is unlikely that we would be required to sell any such securities before recovery of their amortized cost bases, which may be at maturity.
Removed
Certain loans made by us and financing extended to us are made at variable rates that, historically, have used LIBOR as a benchmark for establishing the interest rate. In addition, we also have interest rate derivatives that reference LIBOR.
Added
Nonetheless, significant unrealized losses could negatively impact market and/or customer perceptions of the Bank, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Removed
After first announcing its intention to do so in July 2017, the United Kingdom’s Financial Conduct Authority, the authority regulating LIBOR, announced in March 2021 that, among other things: (i) a majority of the current LIBOR rate settings would cease to exist immediately after December 31, 2021 (including the 1-week and 2-month U.S. dollar LIBOR settings); and (ii) the 1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR settings would cease to exist after June 30, 2023.
Added
The bank failures that occurred in 2023 highlighted the potential results of an insured depository institution unexpectedly having to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors.
Removed
To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (the “ARRC”), a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR.
Added
Uncertainty related to the stability and liquidity of banks has impacted the competitive landscape for deposits in the banking industry and may continue to impact competition for deposits in the future in an unpredictable manner. These possible impacts could adversely affect our future operating results, including net income, and negatively impact capital.
Removed
SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. As such, it is different from LIBOR in that it is a backward looking secured rate rather than a forward looking unsecured rate.
Added
The banking industry in which we operate is subject to extensive federal and state regulation and supervision, which vests a significant amount of discretion in the various regulatory authorities. Banking regulations are primarily intended to protect the funds of depositors, federal deposit insurance funds and the banking system as a whole, not shareholders.
Removed
On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law. The LIBOR Act establishes a uniform national approach for replacing LIBOR in legacy contracts that do not provide for the use of a clearly defined replacement benchmark rate.
Added
These regulations and supervisory guidance affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. The U.S. Congress and federal regulatory agencies continually review banking laws, regulations and policies for 20 possible changes.
Removed
As directed by the LIBOR Act, on December 16, 2022, the Federal Reserve issued a final rule setting forth regulations to implement the LIBOR Act, including establishing benchmark replacements for contracts governed by U.S. law that reference certain tenors of U.S. dollar LIBOR (the overnight and one-, three-, six-, and 12-month tenors) and that do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate (“fallback provisions”) following the first London banking day after June 30, 2023.
Added
Changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect us in substantial and unpredictable ways.
Removed
The LIBOR Act also contains “safe harbor” provisions protecting lenders (as well as “determining” and “calculating” persons) for (i) the selection or use of a Board- 18 selected SOFR-based benchmark replacement, (ii) the implementation of benchmark replacement conforming changes, or (iii) the determination of benchmark replacement conforming changes for contracts other than consumer loans.
Added
Such changes could subject us to additional costs, limit the types of financial services and products we may offer, limit our ability to return capital to shareholders or conduct certain activities, and/or increase the ability of non-banks to offer competing financial services and products, among other things.
Removed
As federal banking regulators required banks to stop originating new products using LIBOR by December 31, 2021, the Bank began primarily using SOFR in originating its indexed-based loans, that were formerly indexed to LIBOR, and other products following such date.
Added
Failure to comply with laws, regulations, policies or supervisory guidance could result in enforcement and other legal actions by federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, the revocation of a banking charter, enforcement actions or sanctions by regulatory agencies, significant fines and civil money penalties and/or reputational damage.
Removed
The Bank is also continuing the transition of its existing LIBOR-based exposures to an appropriate alternative reference rate on or before June 30, 2023.
Added
In this regard, government authorities, including the bank regulatory agencies, are pursuing aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which heightens the risks associated with actual and perceived compliance failures. Directives issued to enforce such actions may be confidential and thus, in some instances, we are not permitted to publicly disclose these actions.
Removed
Existing contracts without fallback provisions are expected to either be amended prior to June 30, 2023 to include such provisions or to transition to an alternative reference rate pursuant to the terms of the LIBOR Act and the related regulations.
Added
In addition, we anticipate increased regulatory scrutiny, in the course of routine examinations and otherwise, and new regulations in response to negative developments in the banking industry over the course of 2023, which may increase our cost of doing business and reduce our profitability.
Removed
While the regulatory framework for the continued transition away from LIBOR to an alternative reference rate has been established, that transition could have a range of adverse effects on our business, financial condition and results of operations, which effects are unknown at this time.
Added
Among other things, there may be increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, brokered deposits, unrealized losses in securities portfolios, liquidity, commercial real estate loan composition and concentrations, and capital as well as general oversight and control of the foregoing.
Removed
The Company’s business, results of operations and financial condition may be adversely affected by epidemics and pandemics, such as the COVID-19 outbreak, or other infectious disease outbreaks.
Added
We could face increased scrutiny or be viewed as higher risk by regulators and/or the investor community, which could have a material adverse effect on our business, financial condition and results of operations. See “Business - Regulation and Supervision” of Item 1 above for additional information .
Removed
For example, the spread of COVID-19, which has been identified as a pandemic by the World Health Organization and declared a national emergency in the United States, created a global public-health crisis that resulted in significant economic uncertainty, and has impacted household, business, economic, and market conditions, including in the states and local economies in which we conduct nearly all of our business.
Removed
Moreover, the effects of a widespread health crisis, including the continuation of the COVID-19 pandemic, may heighten many of the other risks described in this “Risk Factors” section.
Removed
As a participating lender in the SBA Paycheck Protection Program (“PPP”), the Company and the Bank are subject to additional risks of litigation from the Bank’s clients or other parties in connection with the Bank’s processing, funding, and servicing of loans for the PPP.
Removed
On March 27, 2020, the CARES Act established the PPP, which is administered by the SBA, to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during the pandemic. The Bank actively participated in assisting its customers with PPP funding during all phases of the program.
Removed
Because of the short timeframe between the passing of the CARES Act and the April 3, 2020 opening of the PPP, there was some ambiguity in the laws, rules and guidance regarding the operation of the program, which exposes the Company to risks relating to noncompliance with the PPP. 19 Following commencement of the PPP, several larger banks have been subject to litigation relating to the policies and procedures that they used in processing applications for the program.
Removed
The Company and the Bank may be exposed to the risk of similar litigation. If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation.
Removed
In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations. The Bank may also be exposed to the risk that the SBA or U.S.
Removed
Department of Justice determines there was a deficiency in the manner in which a PPP loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP.
Removed
In the event of such determination, the SBA or U.S. Department of Justice may seek recovery from the Bank of any loss related to the deficiency. The banking and financial services business in our markets is highly competitive.
Removed
The restrictions imposed by such laws and regulations limit the manner in which we conduct our business, undertake new investments and activities and obtain financing. These regulations are designed primarily for the protection of the deposit insurance funds and consumers and not to benefit our shareholders.
Removed
Since its passage in 2010, the Dodd-Frank Act (discussed in “Business - Regulation and Supervision” of Item 1 above) has resulted in sweeping changes in the regulation of financial institutions. The Dodd-Frank Act contains numerous provisions that affect all banks and bank holding companies. While many of these provisions have been implemented, others are still being drafted.
Removed
As a result, the impact of the future regulatory requirements continues to be uncertain.
Removed
However, we expect the way we conduct business to continue to be affected by these regulatory requirements, including through limitations on our ability to pursue certain lines of business, enhanced reporting obligations, increased costs (which adversely affect our profitability) and increased risk that we might not comply in all respects with the new requirements.
Removed
In addition, significant new laws or changes in, or repeals of, existing laws (including changes in federal or state laws affecting corporate taxpayers generally or financial institutions specifically) could have a material adverse effect on our business, financial condition, results of operations or liquidity.
Removed
General market fluctuations, industry factors and general economic and political conditions and events (including any continuing effects of the COVID-19 pandemic, elevated inflation, interest rate changes, credit loss trends, or economic slowdowns or recessions) could also cause our stock price to decrease regardless of operating results. Item 1B. Unresolved Staff Comments . None.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed1 unchanged
Biggest changeThe Bank and the Company’s other subsidiaries also conduct their operations from 50 other locations in Southern Indiana and 28 in Kentucky. Of the 78 total locations, 60 are owned by the Company and 18 are leased from third parties.
Biggest changeThe Bank and the Company’s other subsidiaries also conduct their operations from 50 other locations in Southern Indiana and 27 in Kentucky. Of the 77 total locations, 59 are owned by the Company and 18 are leased from third parties.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+0 added−0 removed6 unchanged
Biggest changeThe companies comprising the Indiana Bank Peer Group for purposes of the December 2022 comparison were: 1st Source Corp., First Financial Corp., First Merchants Corp., Lakeland Financial Corp., Old National Bancorp, Horizon Bancorp, First Internet Bancorp, and First Savings Financial Corp.
Biggest changeThe companies comprising the Indiana Bank Peer Group for purposes of the December 2023 comparison were: 1st Source Corp., First Financial Corp., First Merchants Corp., Lakeland Financial Corp., Old National Bancorp, Horizon Bancorp, First Internet Bancorp, First Savings Financial Corp., and First Capital, Inc.
Period Total Number of Shares (or Units) Purchased Average Price Paid Per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) October 2022 — $ — — 1,000,000 November 2022 — — — 1,000,000 December 2022 — — — 1,000,000 Totals — $ — — (1) On January 31, 2022, the Company’s Board of Directors approved a plan to repurchase up to 1.0 million shares of the Company’s outstanding common stock.
Period Total Number of Shares (or Units) Purchased Average Price Paid Per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) October 2023 — $ — — 1,000,000 November 2023 — — — 1,000,000 December 2023 — — — 1,000,000 Totals — $ — — (1) On January 31, 2022, the Company’s Board of Directors approved a plan to repurchase up to 1.0 million shares of the Company’s outstanding common stock.
Transfer Agent: Computershare Priority Processing 150 Royall St., Suite 101 Canton, MA 02021 (800) 884-4225 Shareholder Information and Corporate Office: Terri A. Eckerle German American Bancorp, Inc. P.O.
Transfer Agent: Computershare Priority Processing 150 Royall St., Suite 101 Canton, MA 02021 (800) 884-4225 Shareholder Information and Corporate Office: Terri Eckerle German American Bancorp, Inc. P.O.
The Indiana Bank Peer Group (which is a custom peer group identified by Company management) includes all Indiana-based commercial bank holding companies (excluding companies owning thrift institutions that are not regulated as bank holding companies) that have been in existence as commercial bank holding companies throughout the five-year period ended December 31, 2022, the stocks of which have been traded on an established securities market (NYSE, NYSE American or Nasdaq) throughout that five-year period.
The Indiana Bank Peer Group (which is a custom peer group identified by Company management) includes all Indiana-based commercial bank holding companies (excluding companies owning thrift institutions that are not regulated as bank holding companies) that have been in existence as commercial bank holding companies throughout the five-year period ended December 31, 2023, the stocks of which have been traded on an established securities market (NYSE, NYSE American or Nasdaq) throughout that five-year period.
The actual timing, number and share price of shares purchased under the repurchase plan will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements. The Company has not repurchased any shares under the 2022 repurchase plan.
The actual timing, number and share price of shares purchased under the repurchase plan will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements. The Company has not repurchased any shares under this repurchase plan.
The Company’s stock is currently included in the Russell 2000 Index and Russell Microcap Index. 26 Stock Repurchase Program Information The following table sets forth information regarding the Company’s purchases of its common shares during each of the three months ended December 31, 2022.
The Company’s stock is currently included in the Russell 2000 Index and Russell Microcap Index. 26 Stock Repurchase Program Information The following table sets forth information regarding the Company’s purchases of its common shares during each of the three months ended December 31, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for Common Stock German American Bancorp, Inc.’s stock is traded on the Nasdaq Global Select Market under the symbol GABC. The Common Stock was held of record by approximately 3,164 shareholders at February 23, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for Common Stock German American Bancorp, Inc.’s stock is traded on the Nasdaq Global Select Market under the symbol GABC. The Common Stock was held of record by approximately 3,058 shareholders at February 20, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

118 edited+39 added−39 removed79 unchanged
Biggest changeAllowance for Credit Losses (dollars in thousands) Years Ended December 31, 2022 2021 2020 2019 2018 Balance of Allowance for Possible Losses at Beginning of Period $ 37,017 $ 46,859 $ 16,278 $ 15,823 $ 15,694 Impact of adopting ASC 326 — — 8,767 — — Impact of adopting ASC 326 - PCD loans — — 6,886 — — Loans Charged-off: Commercial and Industrial Loans and Leases 1,149 2,777 2,119 3,810 1,500 Commercial Real Estate Loans 79 10 36 320 49 Agricultural Loans — — — — — Home Equity and Consumer Loans 1,598 1,003 942 1,155 922 Residential Mortgage Loans 24 45 39 117 75 Total Loans Charged-off 2,850 3,835 3,136 5,402 2,546 Recoveries of Previously Charged-off Loans: Commercial and Industrial Loans and Leases 26 61 23 56 141 Commercial Real Estate Loans 24 40 129 29 20 Agricultural Loans — — — — 20 Home Equity and Consumer Loans 479 359 358 440 387 Residential Mortgage Loans 5 33 4 7 37 Total Recoveries 534 493 514 532 605 Net Loans Recovered (Charged-off) (2,316) (3,342) (2,622) (4,870) (1,941) Acquisition of Citizens Union Bank of Shelbyville, KY - PCD Loans 3,117 — — — — Additions to Allowance Charged to Expense 6,350 (6,500) 17,550 5,325 2,070 Balance at End of Period $ 44,168 $ 37,017 $ 46,859 $ 16,278 $ 15,823 Net Charge-offs (Recoveries) to Average Loans Outstanding 0.06 % 0.11 % 0.08 % 0.17 % 0.08 % Provision for Credit Losses to Average Loans Outstanding 0.17 % (0.21) % 0.55 % 0.18 % 0.09 % Allowance for Credit Losses to Total Loans at Year-end 1.17 % 1.23 % 1.52 % 0.53 % 0.58 % The following table indicates the breakdown of the allowance for credit losses for the periods indicated (dollars in thousands): Years Ended December 31, 2022 2021 2020 2019 2018 Commercial and Industrial Loans and Leases $ 13,958 $ 9,754 $ 6,645 $ 4,799 $ 2,953 Commercial Real Estate Loans 21,598 19,245 29,878 4,692 5,291 Agricultural Loans 4,188 4,505 6,756 5,315 5,776 Home Equity and Consumer Loans 2,196 1,808 1,636 634 649 Residential Mortgage Loans 2,228 1,705 1,944 333 472 Unallocated — — — 505 682 Total Allowance for Credit Losses $ 44,168 $ 37,017 $ 46,859 $ 16,278 $ 15,823 44 The Company’s allowance for credit losses totaled $44.2 million at December 31, 2022 compared to $37.0 million at December 31, 2021.
Biggest changeThe need for specific reserves are considered for credits when: (a) the customer’s cash flow or net worth appears insufficient to repay the loan; (b) the loan has been criticized in a regulatory examination; (c) the loan is on non-accrual; or, (d) other reasons where the ultimate collectability of the loan is in question, or the loan characteristics require special monitoring. 44 Allowance for Credit Losses (dollars in thousands) Years Ended December 31, 2023 2022 2021 2020 2019 Balance of Allowance for Expected Credit Losses at Beginning of Period $ 44,168 $ 37,017 $ 46,859 $ 16,278 $ 15,823 Impact of adopting ASC 326 — — — 8,767 — Impact of adopting ASC 326 - PCD loans — — — 6,886 — Loans Charged-off: Commercial and Industrial Loans and Leases 1,792 1,149 2,777 2,119 3,810 Commercial Real Estate Loans 56 79 10 36 320 Agricultural Loans 27 — — — — Home Equity and Consumer Loans 1,858 1,598 1,003 942 1,155 Residential Mortgage Loans 58 24 45 39 117 Total Loans Charged-off 3,791 2,850 3,835 3,136 5,402 Recoveries of Previously Charged-off Loans: Commercial and Industrial Loans and Leases 154 26 61 23 56 Commercial Real Estate Loans 76 24 40 129 29 Agricultural Loans — — — — — Home Equity and Consumer Loans 605 479 359 358 440 Residential Mortgage Loans 3 5 33 4 7 Total Recoveries 838 534 493 514 532 Net Loans Recovered (Charged-off) (2,953) (2,316) (3,342) (2,622) (4,870) Acquisition of Citizens Union Bank of Shelbyville, KY - PCD Loans — 3,117 — — — Additions to Allowance Charged to Expense 2,550 6,350 (6,500) 17,550 5,325 Balance at End of Period $ 43,765 $ 44,168 $ 37,017 $ 46,859 $ 16,278 Net Charge-offs (Recoveries) to Average Loans Outstanding 0.08 % 0.06 % 0.11 % 0.08 % 0.17 % Provision for Credit Losses to Average Loans Outstanding 0.07 % 0.17 % (0.21) % 0.55 % 0.18 % Allowance for Credit Losses to Total Loans at Year-end 1.10 % 1.17 % 1.23 % 1.52 % 0.53 % The following table indicates the breakdown of the allowance for credit losses for the periods indicated (dollars in thousands): Years Ended December 31, 2023 2022 2021 2020 2019 Commercial and Industrial Loans and Leases $ 8,267 $ 13,958 $ 9,754 $ 6,645 $ 4,799 Commercial Real Estate Loans 25,923 21,598 19,245 29,878 4,692 Agricultural Loans 3,837 4,188 4,505 6,756 5,315 Home Equity and Consumer Loans 2,976 2,196 1,808 1,636 634 Residential Mortgage Loans 2,762 2,228 1,705 1,944 333 Unallocated — — — — 505 Total Allowance for Credit Losses $ 43,765 $ 44,168 $ 37,017 $ 46,859 $ 16,278 The Company’s allowance for credit losses totaled $43.8 million at December 31, 2023 compared to $44.2 million at December 31, 2022.
Actual results may differ materially from the expectations of the Company that is expressed or implied by any forward-looking statement.
Actual results may differ materially from the expectations of the Company that is expressed or implied by any forward-looking statement.
This Item 7, as well as the discussions in Item 1 (“Business”) entitled “Forward-Looking Statements and Associated Risks” and in Item 1A (“Risk Factors”) (which discussions are incorporated in this Item 7 by reference) list some of the factors that could cause the Company’s actual results to vary materially from those expressed or implied by any such forward-looking statements.
This Item 7, as well as the discussions in Item 1 (“Business”) entitled “Forward-Looking Statements and Associated Risks” and in Item 1A (“Risk Factors”) (which discussions are incorporated in this Item 7 by reference) list some of the factors that could cause the Company’s actual results to vary materially from those expressed or implied by any such forward-looking statements.
The change in net income during 2022, compared with 2021, was largely impacted by acquisition-related expenses for the CUB transaction that closed on January 1, 2022.
The change in net income during 2022, compared with 2021, was largely impacted by acquisition-related expenses for the CUB transaction that closed on January 1, 2022.
The 2022 results of operations included acquisition-related expenses of $12,323,000 ($9,372,000 or $0.32 per share, on an after tax basis) and also included Day 1 provision for credit losses under the CECL model of $6,300,000 ($4,725,000 or $1.16 per share, on an after tax basis).
The 2022 results of operations included acquisition-related expenses of $12,323,000 ($9,372,000 or $0.32 per share, on an after tax basis) and also included Day 1 provision for credit losses under the CECL model of $6,300,000 ($4,725,000 or $1.16 per share, on an after tax basis).
The decline in per share net income for the year ended December 31, 2022, as compared to 2021, was also impacted by the Company's January 1, 2022 issuance of approximately 2.9 million shares of common stock as part of the merger consideration in the CUB transaction.
The decline in per share net income for the year ended December 31, 2022, as compared to 2021, was also impacted by the Company’s January 1, 2022 issuance of approximately 2.9 million shares of common stock as part of the merger consideration in the CUB transaction.
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.
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 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. 29 Commercial and agricultural loans are subject to a standardized grading process administered by an internal loan review function.
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 actual timing, number and share price of shares purchased under the repurchase plan will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements. The Company has not repurchased any shares of common stock under the 2022 repurchase plan.
The actual timing, number and share price of shares purchased under the repurchase plan will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements. The Company has not repurchased any shares of common stock under the repurchase plan.
For further information about such commitments, see Note 14 (Commitments and Off-balance Sheet Items) in Notes to the Consolidated Financial Statements included in Item 8 of this Report. SOURCES OF FUNDS The Company’s primary source of funding is its base of core customer deposits.
For further information about such commitments, see Note 14 (Commitments and Off-balance Sheet Items) in Notes to the Consolidated Financial Statements included in Item 8 of this Report. 41 SOURCES OF FUNDS The Company’s primary source of funding is its base of core customer deposits.
Management estimates the required level of allowance for credit losses using past loan loss experience, information about specific borrower situations and estimated collateral values, along with reasonable and supportable forecasts, judgmentally adjusted for economic, external and internal quantitative and qualitative factors and 43 portfolio trends.
Management estimates the required level of allowance for credit losses using past loan loss experience, information about specific borrower situations and estimated collateral values, along with reasonable and supportable forecasts, judgmentally adjusted for economic, external and internal quantitative and qualitative factors and portfolio trends.
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.
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 34 qualitative and quantitative factors.
Interest is payable quarterly at a floating rate based upon term SOFR rate plus a margin payable in respect of any principal amounts advanced under the revolving line of credit. There was no outstanding balance as of December 31, 2022. RISK MANAGEMENT The Company is exposed to various types of business risk on an on-going basis.
Interest is payable quarterly at a floating rate based upon term SOFR rate plus a margin payable in respect of any principal amounts advanced under the revolving line of credit. There was no outstanding balance as of December 31, 2023. RISK MANAGEMENT The Company is exposed to various types of business risk on an on-going basis.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. INTRODUCTION 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 77 banking offices in 20 contiguous southern Indiana counties and 14 counties in Kentucky.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. INTRODUCTION 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 76 banking offices in 20 contiguous southern Indiana counties and 14 counties in Kentucky.
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 December 31, 2022. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.
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 December 31, 2023. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.
Deferred taxes arise from temporary differences, which are items recorded for financial statement purposes in a different period than for income tax returns. The Company’s effective tax rate was 17.5%, 18.1%, and 17.1%, respectively, in 2022, 2021, and 2020. The effective tax rate in all periods is lower than the blended statutory rate.
Deferred taxes arise from temporary differences, which are items recorded for financial statement purposes in a different period than for income tax returns. The Company’s effective tax rate was 17.1%, 17.5%, and 18.1%, respectively, in 2023, 2022, and 2021. The effective tax rate in all periods is lower than the blended statutory rate.
The sensitivity and related range of impact is a hypothetical analysis and is not intended to represent management's judgements or assumptions of qualitative loss factors that were utilized at December 31, 2022 in estimation of the allowance for credit losses on loans recognized on the Consolidated Balance Sheets.
The sensitivity and related range of impact is a hypothetical analysis and is not intended to represent management’s judgements or assumptions of qualitative loss factors that were utilized at December 31, 2023 in estimation of the allowance for credit losses on loans recognized on the Consolidated Balance Sheets.
The following table indicates the amounts of loans (excluding residential mortgages on 1-4 family residences and consumer loans) outstanding as of December 31, 2022, which, based on remaining scheduled repayments of principal, are due in the periods indicated (dollars in thousands).
The following table indicates the amounts of loans (excluding residential mortgages on 1-4 family residences and consumer loans) outstanding as of December 31, 2023, which, based on remaining scheduled repayments of principal, are due in the periods indicated (dollars in thousands).
Financial Overview Net income for the year ended December 31, 2022 totaled $81,825,000, or $2.78 per share, a decline of $2,312,000, or approximately 12% on a per share basis, from the year ended December 31, 2021 net income of $84,137,000, or $3.17 per share.
Net income for the year ended December 31, 2022 totaled $81,825,000, or $2.78 per share, a decline of $2,312,000, or approximately 12% on a per share basis, from the year ended December 31, 2021 net income of $84,137,000, or $3.17 per share.
RESULTS OF OPERATIONS NET INCOME Net income for the year ended December 31, 2022 totaled $81,825,000, or $2.78 per share, a decline of $2,312,000, or approximately 12% on a per share basis, from the year ended December 31, 2021 net income of $84,137,000, or $3.17 per share.
Net income for the year ended December 31, 2022 totaled $81,825,000, or $2.78 per share, a decline of $2,312,000, or approximately 12% on a per share basis, from the year ended December 31, 2021 net income of $84,137,000, or $3.17 per share.
The Company’s Asset/Liability Committee monitors compliance within established guidelines of the Funds Management Policy. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk section for further discussion regarding interest rate risk. 46
The Company’s Asset/Liability Committee monitors compliance within established guidelines of the Funds Management Policy. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk section for further discussion regarding interest rate risk. 47
This Management’s Discussion and Analysis includes an analysis of the major components of the Company’s operations for the years 2020 through 2022 and its financial condition as of December 31, 2021 and 2022.
This Management’s Discussion and Analysis includes an analysis of the major components of the Company’s operations for the years 2021 through 2023 and its financial condition as of December 31, 2022 and 2023.
The net interest margin represents tax-equivalent net interest income expressed as a percentage of average earning assets. The net interest margin for the year ended December 31, 2022 was 3.45% compared to 3.31% in 2021 and 3.63% in 2020.
The net interest margin represents tax-equivalent net interest income expressed as a percentage of average earning assets. The net interest margin for the year ended December 31, 2023 was 3.58% compared to 3.45% in 2022 and 3.31% in 2021.
Accretion of discounts on acquired loans totaled $4,341,000 during 2022, $3,476,000 during 2021, and $5,769,000 during 2020. 32 The following table summarizes net interest income (on a tax-equivalent basis) for each of the past three years. For tax-equivalent adjustments, an effective tax rate of 21% was used for all periods presented (1) .
Accretion of discounts on acquired loans totaled $2,814,000 during 2023, $4,341,000 during 2022, and $3,476,000 during 2021. 32 The following table summarizes net interest income (on a tax-equivalent basis) for each of the past three years. For tax-equivalent adjustments, an effective tax rate of 21% was used for all periods presented (1) .
The fees recognized related to the PPP contributed approximately 1 basis point to the net interest margin in 2022 and 24 basis points to the net interest margin in 2021. Accretion of discounts on acquired loans contributed approximately 7 basis points to the net interest margin during both 2022 and 2021, and 13 basis points during 2020.
The fees recognized related to the PPP contributed approximately 1 basis point to the net interest margin in 2022 and 24 basis points to the net interest margin in 2021. Accretion of discounts on acquired loans contributed approximately 5 basis points to the net interest margin in 2023 and 7 basis points during both 2022 and 2021.
The composition of the year-end balances in the investment portfolio is presented in Note 2 (Securities) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report and in the table below: Investment Portfolio, at Amortized Cost December 31, (dollars in thousands) 2022 % 2021 % 2020 % Federal Funds Sold and Other Short-term Investments $ 41,905 2 % $ 349,717 16 % $ 287,776 20 % U.S.
The composition of the year-end balances in the investment portfolio is presented in Note 2 (Securities) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report and in the table below: Investment Portfolio, at Amortized Cost December 31, (dollars in thousands) 2023 % 2022 % 2021 % Federal Funds Sold and Other Short-term Investments $ 36,525 2 % $ 41,905 2 % $ 349,717 16 % U.S.
The increase in salaries and benefits during 2022 compared with 2021 was largely attributable to the CUB acquisition, including approximately $1,480,000 of acquisition-related salary and benefit costs of a non-recurring nature, with the remainder of the increase due primarily to the salaries and benefits costs for the CUB employee base.
The increase in salaries and benefits during 2022 compared with 2021 was largely attributable to the CUB acquisition, including the aforementioned acquisition-related salary and benefit costs of a non-recurring nature, with the remainder of the increase due primarily to the salaries and benefits costs for the CUB employee base.
The increase in net interest income during 2022 compared with 2021 was primarily attributable to a higher level of earning assets, driven in large part by the CUB acquisition, and an expansion of the Company’s net interest margin. The increase in net interest income was partially offset by a lower level of PPP loan fee recognition.
The increase in net interest income 31 during 2022 compared with 2021 was primarily attributable to a higher level of earning assets, driven in large part by the CUB acquisition, and an expansion of the Company’s net interest margin. The increase in net interest income was partially offset by a lower level of Paycheck Protection Program (“PPP”) loan fee recognition.
The impact of the changes in the unemployment and gross domestic product forecast range between December 31, 2022, and December 31, 2021, resulted in a decrease in the allowance for credit losses of approximately $600,000.
The impact of the changes in the unemployment and gross domestic product forecast range between December 31, 2023, and December 31, 2022, resulted in a decrease in the allowance for credit losses of approximately $400,000.
The increase in total loans at December 31, 2022 compared with year-end 2021 was largely due to the acquisition of CUB and organic loan growth from throughout the Company’s existing market areas, partially offset by a decrease in PPP loans.
December 31, 2022 total loans increased $780.7 million, or 26%, compared with December 31, 2021. The increase in total loans at December 31, 2022 compared with year-end 2021 was largely due to the acquisition of CUB and organic loan growth from throughout the Company’s existing market areas, partially offset by a decrease in PPP loans.
During 2022, the Company recorded a provision for credit losses of $6,350,000 compared with a negative provision for credit losses of $6,500,000 during 2021 and a provision for credit losses of $17,550,000 during 2020. During 2022, the provision for credit losses represented approximately 17 basis points of average loans.
During 2023, the Company recorded a provision for credit losses of $2,550,000 compared with $6,350,000 during 2022 and a negative provision for credit losses of $6,500,000 during 2021. During 2023, the provision for credit losses represented approximately 7 basis points of average loans.
The allowance for credit losses represented 1.17% of period-end loans at December 31, 2022 compared with 1.23% of period-end loans year-end 2021. The Company adopted ASU No. 2016-13, Financial instruments - Credit Losses (Topic 326) (“CECL”) on January 1, 2020.
The allowance for credit losses represented 1.10% of period-end loans at December 31, 2023 compared with 1.17% of period-end loans at December 31, 2022. The Company adopted ASU No. 2016-13, Financial instruments - Credit Losses (Topic 326) on January 1, 2020.
During 2021, the negative provision for credit losses represented approximately 21 basis points of average loans. The negative provision for credit losses in 2021 was largely due to declines in certain adversely criticized assets and improvement in certain pandemic-related stressed sectors for which the Company had provided significant levels of allowance for credit losses during 2020.
The negative provision for credit losses in 2021 was largely due to declines in certain adversely criticized assets and improvement in certain pandemic-related stressed sectors for which the Company had provided significant levels of allowance for credit losses during 2020.
Refer also to the sections entitled “CRITICAL ACCOUNTING POLICIES AND ESTIMATES” and “RISK MANAGEMENT - Lending and Loan Administration” for further discussion of the provision and allowance for credit losses. 34 NON-INTEREST INCOME During the year ended December 31, 2022, non-interest income declined $329,000 or 1% from the year ended December 31, 2021.
Refer also to the sections entitled “CRITICAL ACCOUNTING POLICIES AND ESTIMATES” and “RISK MANAGEMENT - Lending and Loan Administration” for further discussion of the provision and allowance for credit losses. NON-INTEREST INCOME During the year ended December 31, 2023, non-interest income increased $1,128,000 or 2% from the year ended December 31, 2022.
The Company’s banking subsidiary is subject to statutory restrictions on its ability to pay dividends to the parent company. See Note 8 (Shareholders’ Equity) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which is incorporated herein by reference. The parent company has, from time-to-time, supplemented the dividends received from its subsidiaries with borrowings.
The Company’s banking subsidiary is subject to statutory restrictions on its ability to pay dividends to the parent company. See Note 8 (Shareholders’ Equity) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report, which is incorporated herein by reference.
Interest income recognized on non-performing loans for 2022 was $141,000. The gross interest income that would have been recognized in 2022 on non-performing loans if the loans had been current in accordance with their original terms was $1,227,000.
Interest income recognized on non-performing loans for 2023 was $231,000. The gross interest income that would have been recognized in 2023 on non-performing loans if the loans had been current in accordance with their original terms was $1,313,000.
In addition, the Company, as a separate and distinct corporation from its bank and other subsidiaries, also has the ability to borrow funds from other financial institutions and to raise debt or equity capital from the capital markets and other sources.
In addition, the Company, as a separate and distinct corporation from its bank and other subsidiaries, also has the ability to borrow funds from other financial institutions and to raise debt or equity capital from the capital markets and other sources. The following pages contain a discussion of changes in funding sources.
In 2021 and 2020, the Company's net interest margin was also impacted by fees recognized as a part of the PPP. Fees recognized on PPP loans through net interest income totaled $873,000 during 2022 and $12,196,000 during 2021.
The Company’s net interest margin for all periods presented was impacted by the accretion of discounts on acquired loans. In 2022 and 2021, the Company’s net interest margin was also impacted by fees recognized as a part of the PPP. Fees recognized on PPP loans through net interest income totaled $873,000 during 2022 and $12,196,000 during 2021.
Although management has the ability to sell these securities if the need arises, their designation as available-for-sale should not necessarily be interpreted as an indication that management anticipates such sales. 40 The amortized cost of available-for-sale debt securities at December 31, 2022 is shown in the following table by contractual maturity.
Although management has the ability to sell these securities if the need arises, their designation as available-for-sale should not necessarily be interpreted as an indication that management anticipates such sales. The amortized cost of available-for-sale debt securities at December 31, 2023 is shown in the following table by contractual maturity. MBS/CMO - Residential securities are based on estimated average lives.
Loan Portfolio December 31, (dollars in thousands) 2022 2021 2020 2019 2018 Commercial and Industrial Loans and Leases $ 676,502 $ 548,350 $ 694,437 $ 589,758 $ 543,761 Commercial Real Estate Loans 1,966,884 1,530,677 1,467,397 1,495,862 1,208,646 Agricultural Loans 417,413 358,150 376,186 384,526 365,208 Home Equity and Consumer Loans 377,164 307,184 297,702 306,972 285,534 Residential Mortgage Loans 350,682 263,565 256,276 304,855 328,592 Total Loans 3,788,645 3,007,926 3,091,998 3,081,973 2,731,741 Less: Unearned Income (3,711) (3,662) (3,926) (4,882) (3,682) Subtotal 3,784,934 3,004,264 3,088,072 3,077,091 2,728,059 Less: Allowance for Loan Losses (44,168) (37,017) (46,859) (16,278) (15,823) Loans, Net $ 3,740,766 $ 2,967,247 $ 3,041,213 $ 3,060,813 $ 2,712,236 Net PPP Loans (Included in Commercial and Industrial above) — 19,450 181,984 — — Ratio of Loans to Total Loans Commercial and Industrial Loans and Leases 18 % 18 % 23 % 19 % 20 % Commercial Real Estate Loans 52 % 51 % 47 % 49 % 44 % Agricultural Loans 11 % 12 % 12 % 12 % 13 % Home Equity and Consumer Loans 10 % 10 % 10 % 10 % 11 % Residential Mortgage Loans 9 % 9 % 8 % 10 % 12 % Total Loans 100 % 100 % 100 % 100 % 100 % The Company’s policy is generally to extend credit to consumer and commercial borrowers in its primary geographic market area in southern Indiana and central and western Kentucky.
Loan Portfolio December 31, (dollars in thousands) 2023 2022 2021 2020 2019 Commercial and Industrial Loans and Leases $ 661,529 $ 676,502 $ 548,350 $ 694,437 $ 589,758 Commercial Real Estate Loans 2,121,835 1,966,884 1,530,677 1,467,397 1,495,862 Agricultural Loans 423,803 417,413 358,150 376,186 384,526 Home Equity and Consumer Loans 407,889 377,164 307,184 297,702 306,972 Residential Mortgage Loans 362,844 350,682 263,565 256,276 304,855 Total Loans 3,977,900 3,788,645 3,007,926 3,091,998 3,081,973 Less: Unearned Income (6,818) (3,711) (3,662) (3,926) (4,882) Subtotal 3,971,082 3,784,934 3,004,264 3,088,072 3,077,091 Less: Allowance for Credit Losses (43,765) (44,168) (37,017) (46,859) (16,278) Loans, Net $ 3,927,317 $ 3,740,766 $ 2,967,247 $ 3,041,213 $ 3,060,813 Net PPP Loans (Included in Commercial and Industrial Loans above) — — 19,450 181,984 — Ratio of Loans to Total Loans Commercial and Industrial Loans and Leases 17 % 18 % 18 % 23 % 19 % Commercial Real Estate Loans 53 % 52 % 51 % 47 % 49 % Agricultural Loans 11 % 11 % 12 % 12 % 12 % Home Equity and Consumer Loans 10 % 10 % 10 % 10 % 10 % Residential Mortgage Loans 9 % 9 % 9 % 8 % 10 % Total Loans 100 % 100 % 100 % 100 % 100 % The Company’s policy is generally to extend credit to consumer and commercial borrowers in its primary geographic market area in southern Indiana and central and western Kentucky.
Average demand, savings, and money market deposits totaled $5.226 billion or 95% of core deposits (89% of total funding sources) in 2022 compared with $4.080 billion or 95% of core deposits (87% of total funding sources) in 2021 and $3.292 billion or 92% of core deposits (81% of total funding sources) in 2020.
Average demand, savings, and money market deposits totaled $4.608 billion or 95% of core deposits (85% of total funding sources) in 2023 compared with $5.226 billion or 95% of core deposits (89% of total funding sources) in 2022 and $4.080 billion or 95% of core deposits (87% of total funding sources) in 2021.
See Note 10 to the Company’s consolidated financial statements included in Item 8 of this Report for additional details relative to the Company’s income tax provision. CAPITAL RESOURCES As of December 31, 2022, shareholders’ equity declined by $110.1 million to $558.4 million compared with $668.5 million at year-end 2021.
See Note 10 to the Company’s consolidated financial statements included in Item 8 of this Report for additional details relative to the Company’s income tax provision. CAPITAL RESOURCES As of December 31, 2023, shareholders’ equity increased by $105.2 million to $663.6 million compared with $558.4 million at year-end 2022.
The Company elected to adopt the five-year transition option and, as a result, began the required three-year phase-in by reflecting 25% of the previously deferred estimated capital impact of CECL in its regulatory capital effective January 1, 2022.
As a result, on January 1, 2022, the Company began the required three-year phase-in by reflecting 25% of the previously deferred estimated capital impact of CECL in its regulatory capital.
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.
Such allocations are based on past loss experience, reasonable and supportable forecasts and information about specific borrower situations and estimated collateral values. 29 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.
Treasury 64,097 3 — — — — Obligations of State and Political Subdivisions 939,193 44 896,048 40 548,273 37 MBS/CMO - Residential 846,519 40 797,693 36 535,526 37 US Gov't Sponsored Entities & Agencies 245,017 11 175,457 8 88,376 6 Equity Securities 353 n/m ⁽¹⁾ 353 n/m ⁽¹⁾ 353 n/m ⁽¹⁾ Total Securities Portfolio $ 2,137,084 100 % $ 2,219,268 100 % $ 1,460,304 100 % (1) n/m = not meaningful The amortized cost of investment securities, including federal funds sold and short-term investments, decreased $82.2 million, or 4%, at year-end 2022 compared to year-end 2021 and increased $759.0 million, or 52%, at year-end 2021 compared with year-end 2020.
Treasury — — 64,097 3 — — Obligations of State and Political Subdivisions 889,940 47 939,193 44 896,048 40 MBS/CMO 761,025 40 846,519 40 797,693 36 US Gov’t Sponsored Entities & Agencies 220,295 11 245,017 11 175,457 8 Equity Securities 353 n/m ⁽¹⁾ 353 n/m ⁽¹⁾ 353 n/m ⁽¹⁾ Total Securities Portfolio $ 1,908,138 100 % $ 2,137,084 100 % $ 2,219,268 100 % (1) n/m = not meaningful The amortized cost of investment securities, including federal funds sold and short-term investments, decreased $229.0 million, or 11%, at year-end 2023 compared to year-end 2022 and decreased $82.2 million, or 4%, at year-end 2022 compared to year-end 2021.
Non-interest Expense (dollars in thousands) Years Ended December 31, % Change From Prior Year 2022 2021 2020 2021 2020 Salaries and Employee Benefits $ 84,145 $ 68,570 $ 68,112 23 % 1 % Occupancy, Furniture and Equipment Expense 14,921 14,831 14,024 1 6 FDIC Premiums 1,860 1,419 740 31 92 Data Processing Fees 15,406 7,611 6,889 102 10 Professional Fees 6,295 5,009 3,998 26 25 Advertising and Promotion 4,416 4,197 3,589 5 17 Intangible Amortization 3,711 2,731 3,539 36 (23) Other Operating Expenses 23,437 19,639 16,232 19 21 TOTAL NON-INTEREST EXPENSE $ 154,191 $ 124,007 $ 117,123 24 6 Salaries and benefits increased $15,575,000, or 23%, during 2022 compared with 2021.
Non-interest Expense (dollars in thousands) Years Ended December 31, % Change From Prior Year 2023 2022 2021 2022 2021 Salaries and Employee Benefits $ 83,244 $ 84,145 $ 68,570 (1) % 23 % Occupancy, Furniture and Equipment Expense 14,467 14,921 14,831 (3) 1 FDIC Premiums 2,829 1,860 1,419 52 31 Data Processing Fees 11,112 15,406 7,611 (28) 102 Professional Fees 5,575 6,295 5,009 (11) 26 Advertising and Promotion 4,857 4,416 4,197 10 5 Intangible Amortization 2,840 3,711 2,731 (23) 36 Other Operating Expenses 19,573 23,437 19,639 (16) 19 TOTAL NON-INTEREST EXPENSE $ 144,497 $ 154,191 $ 124,007 (6) 24 Salaries and benefits declined $901,000, or 1%, during the year ended December 31, 2023 compared with 2022.
Data processing fees increased $7,795,000, or 102%, during the year ended December 31, 2022 compared with 2021. The increase during 2022 compared with 2021 was largely driven by acquisition-related costs, which totaled approximately $4,982,000 during 2022, along with the CUB operating costs and costs related to continued data system enhancements.
The decline during 2023 compared with 2022 was largely driven by acquisition-related costs associated with the CUB transaction, which totaled approximately $4,982,000 during 2022. Data processing fees increased $7,795,000, or 102%, during the year ended December 31, 2022 compared with 2021.
The decline in 2022 compared with 2021 was generally attributable to a lower volume of loans sold and lower pricing levels. Net gains on sales of loans declined $1,641,000, or 17%, during 2021 compared with the 2020.
Net gains on sales of loans declined $4,449,000, or 54%, during the year ended December 31, 2022 compared with 2021. The decline in 2022 compared with 2021 was generally attributable to a lower volume of loans sold and lower pricing levels.
These sources consist of overnight federal funds purchased from other financial institutions, secured repurchase agreements that generally mature within one day of the transaction date, and secured overnight variable rate borrowings from the FHLB. These borrowings represent an important source of short-term liquidity for the Company’s bank subsidiary.
The bank subsidiary of the Company also utilizes short-term funding sources from time to time. These sources consist of overnight federal funds purchased from other financial institutions, secured repurchase agreements that generally mature within one day of the transaction date, and secured overnight variable rate borrowings from the FHLB.
This decline was primarily attributable to the net gain of $1.4 million related to the sale of the two branch office locations in Lexington, Kentucky during the third quarter of 2021 and to a lower level of interest rate swap transaction fees with loan customers. Other operating income increased $3,603,000, or 106%, during 2021 compared with 2020.
This decline was primarily attributable to the net gain of $1.4 million related to the sale of the two branch office locations during the third quarter of 2021 and to a lower level of interest rate swap transaction fees with loan customers.
Non-interest Income (dollars in thousands) Years Ended December 31, % Change From Prior Year 2022 2021 2020 2021 2020 Wealth Management Fees $ 10,076 $ 10,321 $ 8,005 (2) % 29 % Service Charges on Deposit Accounts 11,457 7,723 7,334 48 5 Insurance Revenues 10,020 9,268 8,922 8 4 Company Owned Life Insurance 2,264 1,529 2,307 48 (34) Interchange Fee Income 15,820 13,116 10,529 21 25 Other Operating Income 5,116 6,991 3,388 (27) 106 Subtotal 54,753 48,948 40,485 12 21 Net Gains on Sales of Loans 3,818 8,267 9,908 (54) (17) Net Gains on Securities 562 2,247 4,081 (75) (45) TOTAL NON-INTEREST INCOME $ 59,133 $ 59,462 $ 54,474 (1) 9 Wealth management fees declined $245,000, or 2%, during 2022 compared with 2021.
Non-interest Income (dollars in thousands) Years Ended December 31, % Change From Prior Year 2023 2022 2021 2022 2021 Wealth Management Fees $ 11,711 $ 10,076 $ 10,321 16 % (2) % Service Charges on Deposit Accounts 11,538 11,457 7,723 1 48 Insurance Revenues 9,596 10,020 9,268 (4) 8 Company Owned Life Insurance 1,731 2,264 1,529 (24) 48 Interchange Fee Income 17,452 15,820 13,116 10 21 Other Operating Income 5,830 5,116 6,991 14 (27) Subtotal 57,858 54,753 48,948 6 12 Net Gains on Sales of Loans 2,363 3,818 8,267 (38) (54) Net Gains on Securities 40 562 2,247 (93) (75) TOTAL NON-INTEREST INCOME $ 60,261 $ 59,133 $ 59,462 2 (1) Wealth management fees increased $1,635,000, or 16%, during 2023 compared with 2022.
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.
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 30 planning strategies.
Non-performing Assets December 31, (dollars in thousands) 2022 2021 2020 2019 2018 Non-accrual Loans $ 12,888 $ 14,602 $ 21,507 $ 13,802 $ 12,579 Past Due Loans (90 days or more and accruing) 1,427 156 — 190 633 Total Non-performing Loans 14,315 14,758 21,507 13,992 13,212 Other Real Estate — — 325 425 286 Total Non-performing Assets $ 14,315 $ 14,758 $ 21,832 $ 14,417 $ 13,498 Restructured Loans $ — $ 104 $ 111 $ 116 $ 121 Non-performing Loans to Total Loans 0.38 % 0.49 % 0.70 % 0.45 % 0.48 % Allowance for Credit Losses to Non-performing Loans 308.54 % 250.83 % 217.88 % 116.34 % 119.76 % Non-performing assets totaled $14.3 million, or 0.23% of total assets at December 31, 2022 compared to $14.8 million, or 0.26% of total assets at December 31, 2021 and compared to $21.8 million, or 0.44% of total assets at December 31, 2020.
Non-performing Assets December 31, (dollars in thousands) 2023 2022 2021 2020 2019 Non-accrual Loans $ 9,136 $ 12,888 $ 14,602 $ 21,507 $ 13,802 Past Due Loans (90 days or more and accruing) 55 1,427 156 — 190 Total Non-performing Loans 9,191 14,315 14,758 21,507 13,992 Other Real Estate — — — 325 425 Total Non-performing Assets $ 9,191 $ 14,315 $ 14,758 $ 21,832 $ 14,417 Restructured Loans $ — $ — $ 104 $ 111 $ 116 Non-performing Loans to Total Loans 0.23 % 0.38 % 0.49 % 0.70 % 0.45 % Allowance for Credit Losses to Non-performing Loans 476.17 % 308.54 % 250.83 % 217.88 % 116.34 % The following tables present an analysis of the Company’s non-accrual loans and loans past due 90 days or more and still accruing.
Long-term debt at the Company’s bank subsidiary is in the form of FHLB advances, which are secured by the pledge of certain investment securities, residential and housing-related mortgage loans, and certain other commercial real estate loans.
The Company’s Asset/Liability Committee closely monitors the availability of these sources as part of its overall oversight and management of the bank subsidiary’s liquidity. Long-term debt at the Company’s bank subsidiary is in the form of FHLB advances, which are secured by the pledge of certain investment securities, residential and housing-related mortgage loans, and certain other commercial real estate loans.
The Company also acquired $29.9 million in PCD loans (at time of acquisition) for which the company recorded a credit adjustment of $3.1 million which was included in the allowance for credit losses. Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses.
The Company also acquired $29.9 million in PCD loans (at time of acquisition) for which the company recorded a credit adjustment of $3.1 million which was included in the allowance for credit losses.
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.
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.
The increase in 2022 compared to 2021 was primarily attributable to acquisition-related costs that totaled approximately $3,862,000 during 2022 and operating costs associated with CUB. The acquisition-related costs were primarily vendor contract termination costs. Other operating expenses increased $3,407,000, or 21%, during 2021 compared with 2020.
The decline during 2023 compared with 2022 was attributable to acquisition-related costs that totaled approximately $3,862,000 in 2022. The acquisition-related costs were primarily vendor contract termination costs. Other operating expenses increased $3,798,000, or 19%, during the year ended December 31, 2022 compared with 2021.
The table below presents the Company’s consolidated and the subsidiary bank’s capital ratios under regulatory guidelines: 12/31/2022 Ratio 12/31/2021 Ratio Minimum for Capital Adequacy Purposes ⁽¹⁾ Well-Capitalized Guidelines Total Capital (to Risk Weighted Assets) Consolidated 15.45 % 16.20 % 8.00 % N/A Bank 14.07 13.36 8.00 10.00 % Tier 1 (Core) Capital (to Risk Weighted Assets) Consolidated 13.97 % 14.61 % 6.00 % N/A Bank 13.42 12.83 6.00 8.00 % Common Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets) Consolidated 13.26 % 14.18 % 4.50 % N/A Bank 13.42 12.83 4.50 6.50 % Tier 1 Capital (to Average Assets) Consolidated 10.50 % 10.10 % 4.00 % N/A Bank 10.09 8.88 4.00 5.00 % (1) Excludes capital conservation buffer.
At December 31, 2023, 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. 37 The table below presents the Company’s consolidated and the subsidiary bank’s capital ratios under regulatory guidelines: 12/31/2023 Ratio 12/31/2022 Ratio Minimum for Capital Adequacy Purposes ⁽¹⁾ Well-Capitalized Guidelines Total Capital (to Risk Weighted Assets) Consolidated 16.50 % 15.45 % 8.00 % N/A Bank 14.76 14.07 8.00 10.00 % Tier 1 (Core) Capital (to Risk Weighted Assets) Consolidated 14.97 % 13.97 % 6.00 % N/A Bank 14.04 13.42 6.00 8.00 % Common Tier 1 (CET 1) Capital Ratio (to Risk Weighted Assets) Consolidated 14.26 % 13.26 % 4.50 % N/A Bank 14.04 13.42 4.50 6.50 % Tier 1 Capital (to Average Assets) Consolidated 11.75 % 10.50 % 4.00 % N/A Bank 11.03 10.09 4.00 5.00 % (1) Excludes capital conservation buffer.
Wealth management fees increased $2,316,000, or 29%, during 2021 compared with 2020. The increase in 2021 compared to 2020 was largely attributable to increased assets under management in the Company’s wealth management group. Service charges on deposit accounts increased $3,734,000, or 48%, during 2022 compared to 2021.
The increase during 2023 was largely attributable to increased assets under management within the Company’s wealth management group as compared with 2022. Wealth management fees declined $245,000, or 2%, during 2022 compared with 2021. Service charges on deposit accounts increased $81,000, or 1%, during 2023 compared to 2022.
Average Balance Sheet (Tax-equivalent basis, dollars in thousands) Twelve Months Ended December 31, 2022 Twelve Months Ended December 31, 2021 Twelve Months Ended December 31, 2020 Principal Balance Income / Expense Yield / Rate Principal Balance Income / Expense Yield / Rate Principal Balance Income / Expense Yield / Rate ASSETS Federal Funds Sold and Other Short-term Investments $ 458,230 $ 5,765 1.26 % $ 390,362 $ 488 0.12 % $ 209,012 $ 382 0.18 % Securities: Taxable 1,015,958 20,453 2.01 % 824,204 12,962 1.57 % 555,961 10,447 1.88 % Non-taxable 844,772 29,810 3.53 % 728,765 22,504 3.09 % 420,294 15,040 3.58 % Total Loans and Leases ⁽²⁾ 3,680,708 169,593 4.61 % 3,072,302 139,378 4.54 % 3,185,542 151,946 4.77 % TOTAL INTEREST EARNING ASSETS 5,999,668 225,621 3.76 % 5,015,633 175,332 3.50 % 4,370,809 177,815 4.07 % Other Assets 559,949 397,147 398,102 Less: Allowance for Credit Losses (45,587) (43,073) (39,905) TOTAL ASSETS $ 6,514,030 $ 5,369,707 $ 4,729,006 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing Demand Deposits $ 2,013,969 $ 8,583 0.43 % $ 1,595,579 $ 1,789 0.11 % $ 1,309,998 $ 4,089 0.31 % Savings Deposits and Money Market Accounts 1,473,772 2,879 0.20 % 1,106,692 885 0.08 % 912,183 1,885 0.21 % Time Deposits 474,409 2,052 0.43 % 412,935 2,281 0.55 % 567,932 7,722 1.36 % FHLB Advances and Other Borrowings 159,029 4,828 3.04 % 186,750 4,594 2.46 % 221,832 5,430 2.45 % TOTAL INTEREST-BEARING LIABILITIES 4,121,179 18,342 0.45 % 3,301,956 9,549 0.29 % 3,011,945 19,126 0.63 % Demand Deposit Accounts 1,738,349 1,378,647 1,070,284 Other Liabilities 44,436 46,170 51,996 TOTAL LIABILITIES 5,903,964 4,726,773 4,134,225 Shareholders’ Equity 610,066 642,934 594,781 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 6,514,030 $ 5,369,707 $ 4,729,006 COST OF FUNDS 0.31 % 0.19 % 0.44 % NET INTEREST INCOME $ 207,279 $ 165,783 $ 158,689 NET INTEREST MARGIN 3.45 % 3.31 % 3.63 % (1) Effective tax rates were determined as though interest earned on the Company's investments in municipal bonds and loans was fully taxable.
Average Balance Sheet (Tax-equivalent basis, dollars in thousands) Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022 Twelve Months Ended December 31, 2021 Principal Balance Income / Expense Yield / Rate Principal Balance Income / Expense Yield / Rate Principal Balance Income / Expense Yield / Rate ASSETS Federal Funds Sold and Other Short-term Investments $ 39,452 $ 1,677 4.25 % $ 458,230 $ 5,765 1.26 % $ 390,362 $ 488 0.12 % Securities: Taxable 890,841 20,614 2.31 % 1,015,958 20,453 2.01 % 824,204 12,962 1.57 % Non-taxable 738,769 27,656 3.74 % 844,772 29,810 3.53 % 728,765 22,504 3.09 % Total Loans and Leases ⁽²⁾ 3,835,157 213,195 5.56 % 3,680,708 169,593 4.61 % 3,072,302 139,378 4.54 % TOTAL INTEREST EARNING ASSETS 5,504,219 263,142 4.78 % 5,999,668 225,621 3.76 % 5,015,633 175,332 3.50 % Other Assets 578,399 559,949 397,147 Less: Allowance for Credit Losses (44,744) (45,587) (43,073) TOTAL ASSETS $ 6,037,874 $ 6,514,030 $ 5,369,707 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing Demand Deposits $ 1,826,232 $ 28,378 1.55 % $ 2,013,969 $ 8,583 0.43 % $ 1,595,579 $ 1,789 0.11 % Savings Deposits and Money Market Accounts 1,229,019 12,106 0.99 % 1,473,772 2,879 0.20 % 1,106,692 885 0.08 % Time Deposits 588,142 16,432 2.79 % 474,409 2,052 0.43 % 412,935 2,281 0.55 % FHLB Advances and Other Borrowings 210,837 9,307 4.41 % 159,029 4,828 3.04 % 186,750 4,594 2.46 % TOTAL INTEREST-BEARING LIABILITIES 3,854,230 66,223 1.72 % 4,121,179 18,342 0.45 % 3,301,956 9,549 0.29 % Demand Deposit Accounts 1,553,082 1,738,349 1,378,647 Other Liabilities 46,456 44,436 46,170 TOTAL LIABILITIES 5,453,768 5,903,964 4,726,773 Shareholders’ Equity 584,106 610,066 642,934 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 6,037,874 $ 6,514,030 $ 5,369,707 COST OF FUNDS 1.20 % 0.31 % 0.19 % NET INTEREST INCOME $ 196,919 $ 207,279 $ 165,783 NET INTEREST MARGIN 3.58 % 3.45 % 3.31 % (1) Effective tax rates were determined as though interest earned on the Company’s investments in municipal bonds and loans was fully taxable.
The Company is required to maintain minimum levels of capital in proportion to total risk-weighted assets and off-balance sheet exposures. 37 The current risk-based capital rules, as adopted by federal banking regulators, are based upon guidelines developed by the Basel Committee on Banking Supervision and reflect various requirements of the Dodd-Frank Act (the “Basel III Rules”).
The current risk-based capital rules, as adopted by federal banking regulators, are based upon guidelines developed by the Basel Committee on Banking Supervision and reflect various requirements of the Dodd-Frank Act (the “Basel III Rules”).
Interchange fees increased $2,704,000, or 21%, during 2022 compared with 2021. The increased level of fees during 2022 compared with 2021 was related to the CUB acquisition as well as increased card utilization by customers. Interchange fees increased $2,587,000, or 25%, during 2021 compared to 2020.
The increased level of fees during 2022 compared with 2021 was related to the CUB acquisition as well as increased card utilization by customers. Other operating income increased by $714,000, or 14%, during 2023 compared with 2022.
The provision for credit losses in 2022 included $6,300,000 for the Day 1 CECL addition to the allocation for credit loss related to the CUB acquisition for the non-PCD loans. The Company realized net charge-offs of $2,316,000 or 6 basis points of average loans during 2022.
During 2022, the provision for credit losses represented approximately 17 basis points of average loans. The provision for credit losses in 2022 included $6,300,000 for the Day 1 CECL addition to the allocation for credit loss related to the CUB acquisition for the non-purchased with credit deterioration (“PCD”) loans.
Interest income on loans includes loan fees of $6,972, $15,761, and $15,003 for 2022, 2021 and 2020, respectively . 33 The following table sets forth for the periods indicated a summary of the changes in interest income and interest expense resulting from changes in volume and changes in rates: Net Interest Income – Rate / Volume Analysis (Tax-Equivalent basis, dollars in thousands) 2022 compared to 2021 Increase / (Decrease) Due to ⁽¹⁾ 2021 compared to 2020 Increase / (Decrease) Due to ⁽¹⁾ Volume Rate Net Volume Rate Net Interest Income: Federal Funds Sold and Other Short-term Investments $ 99 $ 5,178 $ 5,277 $ 254 $ (148) $ 106 Taxable Securities 3,399 4,093 7,492 4,426 (1,911) 2,515 Non-taxable Securities 3,852 3,453 7,305 9,764 (2,300) 7,464 Loans and Leases 28,001 2,214 30,215 (5,290) (7,278) (12,568) Total Interest Income 35,351 14,938 50,289 9,154 (11,637) (2,483) Interest Expense: Savings and Interest-bearing Demand 978 7,810 8,788 1,083 (4,383) (3,300) Time Deposits 310 (539) (229) (1,714) (3,727) (5,441) FHLB Advances and Other Borrowings (744) 978 234 (863) 27 (836) Total Interest Expense 544 8,249 8,793 (1,494) (8,083) (9,577) Net Interest Income $ 34,807 $ 6,689 $ 41,496 $ 10,648 $ (3,554) $ 7,094 (1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Interest income on loans includes loan fees of $4,316, $6,972, and $15,761 for 2023, 2022 and 2021, respectively. 33 The following table sets forth for the periods indicated a summary of the changes in interest income and interest expense resulting from changes in volume and changes in rates: Net Interest Income – Rate / Volume Analysis (Tax-Equivalent basis, dollars in thousands) 2023 compared to 2022 Increase / (Decrease) Due to ⁽¹⁾ 2022 compared to 2021 Increase / (Decrease) Due to ⁽¹⁾ Volume Rate Net Volume Rate Net Interest Income: Federal Funds Sold and Other Short-term Investments $ (8,748) $ 4,660 $ (4,088) $ 99 $ 5,178 $ 5,277 Taxable Securities (2,689) 2,849 160 3,399 4,093 7,492 Non-taxable Securities (3,894) 1,741 (2,153) 3,852 3,453 7,305 Loans and Leases 7,365 36,237 43,602 28,001 2,214 30,215 Total Interest Income (7,966) 45,487 37,521 35,351 14,938 50,289 Interest Expense: Savings and Interest-bearing Demand (1,590) 30,612 29,022 978 7,810 8,788 Time Deposits 605 13,775 14,380 310 (539) (229) FHLB Advances and Other Borrowings 1,871 2,608 4,479 (744) 978 234 Total Interest Expense 886 46,995 47,881 544 8,249 8,793 Net Interest Income $ (8,852) $ (1,508) $ (10,360) $ 34,807 $ 6,689 $ 41,496 (1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
The membership of the Company’s affiliate bank in the Federal Home Loan Bank System provides a significant additional source for both long and short-term collateralized borrowings.
Other funding sources include overnight borrowings from other financial institutions and securities sold under agreement to repurchase. The membership of the Company’s affiliate bank in the Federal Home Loan Bank System provides a significant additional source for both long and short-term collateralized borrowings.
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.
The provision for credit losses made during 2023 was made at a level deemed necessary by management to absorb 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.
The increase during 2022 compared with 2021 was largely related to death benefits received from life insurance policies during 2022 and to the CUB acquisition. Company owned life insurance revenue declined $778,000, or 34%, during 2021 compared with 2020. The decline during 2021 compared with 2020 was largely related to death benefits received from life insurance policies during 2020.
The decline in 2023 was primarily the result of a decrease in the death benefit claims received compared with 2022. Company owned life insurance revenue increased $735,000, or 48%, during 2022 compared with 2021. The increase during 2022 compared with 2021 was largely related to death benefits received from life insurance policies during 2022 and to the CUB acquisition.
Contractual and Other Obligations Payments Due In (dollars in thousands) One Year or Less Over One Year Total Deposits without Stated Maturities $ 4,921,582 $ — $ 4,921,582 Time Deposits 317,454 111,015 428,469 Federal Home Loan Bank Advances 25,000 25,000 50,000 Other Borrowings (Subordinated Notes and Debentures) — 74,788 74,788 Federal Funds Purchased 11,200 — 11,200 Securities Sold under Repurchase Agreements 64,961 — 64,961 Lease Obligations 1,895 9,857 11,752 Total Contractual and Other Obligations $ 5,342,092 $ 220,660 $ 5,562,752 In the normal course of business, the Company makes commitments to extend credit and commitments to sell loans, which are not reflected in its consolidated financial statements.
Contractual and Other Obligations Payments Due In (dollars in thousands) One Year or Less Over One Year Total Deposits without Stated Maturities $ 4,485,921 $ — $ 4,485,921 Time Deposits 707,978 59,064 767,042 Federal Home Loan Bank Advances 25,000 25,000 50,000 Other Borrowings (Subordinated Notes and Debentures) — 81,220 81,220 Federal Funds Purchased 25,000 — 25,000 Securities Sold under Repurchase Agreements 40,968 — 40,968 Lease Obligations 1,775 8,133 9,908 Total Contractual and Other Obligations $ 5,286,642 $ 173,417 $ 5,460,059 In the normal course of business, the Company makes commitments to extend credit and commitments to sell loans, which are not reflected in its consolidated financial statements.
During the year ended December 31, 2021, net interest income totaled $160,830,000, representing an increase of $5,587,000, or 4%, from the year ended December 31, 2020 net interest income of $155,243,000.
During the year ended December 31, 2022, net interest income totaled $200,584,000, representing an increase of $39,754,000, or 25%, from the year ended December 31, 2021 net interest income of $160,830,000.
The decline in the level of non-performing commercial and industrial loans and leases during 2022 was primarily attributable to certain credits that were either charged-off or paid off, which were in non-accrual status.
The decline in the level of non-performing commercial and industrial loans and leases during 2022 was primarily attributable to certain credits that were either charged-off or paid off, which were in non-accrual status. For additional detail on individually analyzed loans, see Note 4 (Loans) of the Notes to the Consolidated Financial Statements included in Item 8 of this Report.
The increase during 2022 was primarily due to professional fees associated with the CUB acquisition. Merger and acquisition-related professional fees totaled approximately $1,802,000 during 2022 compared with $678,000 during 2021. Professional fees increased $1,011,000, or 25%, during 2021 compared with 2020.
The increase during 2022 was primarily due to professional fees associated with the CUB acquisition. Merger and acquisition-related professional fees totaled approximately $1,802,000 during 2022 compared with $678,000 during 2021. Other operating expenses declined $3,864,000, or 16%, during the year ended December 31, 2023 compared to the year ended December 31, 2022.
Non-Accrual Loans December 31, (dollars in thousands) 2022 2021 2020 2019 2018 Commercial and Industrial Loans and Leases $ 7,936 $ 10,530 $ 8,133 $ 4,940 $ 2,430 Commercial Real Estate Loans 1,950 2,243 10,188 3,433 6,833 Agricultural Loans 1,062 1,136 1,915 2,739 1,449 Home Equity Loans 310 24 271 79 88 Consumer Loans 400 82 170 115 162 Residential Mortgage Loans 1,230 587 830 2,496 1,617 Total $ 12,888 $ 14,602 $ 21,507 $ 13,802 $ 12,579 Loans Past Due 90 Days or More & Still Accruing December 31, (dollars in thousands) 2022 2021 2020 2019 2018 Commercial and Industrial Loans and Leases $ 1,427 $ — $ — $ 190 $ — Commercial Real Estate Loans — 156 — — 364 Agricultural Loans — — — — 269 Home Equity Loans — — — — — Consumer Loans — — — — — Residential Mortgage Loans — — — — — Total $ 1,427 $ 156 $ — $ 190 $ 633 For additional detail on individually analyzed loans, see Note 4 in the Notes to the Consolidated Financial Statements included in Item 8 of this Report.
Non-Accrual Loans December 31, (dollars in thousands) 2023 2022 2021 2020 2019 Commercial and Industrial Loans and Leases $ 3,707 $ 7,936 $ 10,530 $ 8,133 $ 4,940 Commercial Real Estate Loans 1,889 1,950 2,243 10,188 3,433 Agricultural Loans 879 1,062 1,136 1,915 2,739 Home Equity Loans 1,033 310 24 271 79 Consumer Loans 253 400 82 170 115 Residential Mortgage Loans 1,375 1,230 587 830 2,496 Total $ 9,136 $ 12,888 $ 14,602 $ 21,507 $ 13,802 Loans Past Due 90 Days or More & Still Accruing December 31, (dollars in thousands) 2023 2022 2021 2020 2019 Commercial and Industrial Loans and Leases $ — $ 1,427 $ — $ — $ 190 Commercial Real Estate Loans 55 — 156 — — Agricultural Loans — — — — — Home Equity Loans — — — — — Consumer Loans — — — — — Residential Mortgage Loans — — — — — Total $ 55 $ 1,427 $ 156 $ — $ 190 Non-performing assets totaled $9.2 million, or 0.15% of total assets, at December 31, 2023 compared to $14.3 million, or 0.23% of total assets, at December 31, 2022 and compared to $14.8 million, or 0.26% of total assets, at December 31, 2021.
The investment portfolio continues to be relatively balanced with agency issued mortgage related securities and collateralized and uncollateralized federal agency securities, totaling $1.092 billion, or 51% of the total securities portfolio at December 31, 2022. The Company’s level of obligations of state and political subdivisions increased to $939.2 million or 44% of the portfolio at December 31, 2022.
The investment portfolio continues to be relatively balanced with agency issued mortgage related securities and collateralized and uncollateralized federal agency securities totaling $981.3 million, or 51% of the total securities portfolio at December 31, 2023.
Within One Year One to Five Years After Five Years Total Commercial and Agricultural $ 849,395 $ 1,540,495 $ 668,472 $ 3,058,362 Interest Sensitivity Fixed Rate Variable Rate Loans Maturing After One Year $ 717,107 $ 1,491,860 39 INVESTMENTS The investment portfolio is a principal source for funding the Company’s loan growth and other liquidity needs of its subsidiaries.
Within One Year One to Five Years After Five Years Total Commercial and Agricultural $ 845,677 $ 1,601,441 $ 771,576 $ 3,218,694 Interest Sensitivity Fixed Rate Variable Rate Loans Maturing After One Year $ 824,511 $ 1,548,506 INVESTMENTS The investment portfolio is a principal source for funding the Company’s loan growth and other liquidity needs of its subsidiaries.
The following pages contain a discussion of changes in these areas. 41 The table below illustrates changes between years in the average balances of all funding sources: Funding Sources - Average Balances (dollars in thousands) December 31, % Change From Prior Year 2022 2021 2020 2022 2021 Demand Deposits Non-interest-bearing $ 1,738,349 $ 1,378,647 $ 1,070,284 26 % 29 % Interest-bearing 2,013,969 1,595,579 1,309,998 26 22 Savings Deposits 640,653 460,945 358,389 39 29 Money Market Accounts 833,119 645,747 553,794 29 17 Other Time Deposits 262,764 226,419 288,762 16 (22) Total Core Deposits 5,488,854 4,307,337 3,581,227 27 20 Certificates of Deposits of $100,000 or more and Brokered Deposits 211,645 186,516 279,170 13 (33) FHLB Advances and Other Borrowings 159,029 186,750 221,832 (15) (16) Total Funding Sources $ 5,859,528 $ 4,680,603 $ 4,082,229 25 15 Maturities of certificates of deposit of $100,000 or more and brokered deposits are summarized as follows: (dollars in thousands) 3 Months Or Less 3 - 6 Months 6 - 12 Months Over 12 Months Total December 31, 2022 $ 44,420 $ 31,600 $ 77,286 $ 39,944 $ 193,250 CORE DEPOSITS The Company’s overall level of average core deposits increased approximately $1.2 billion, or 27%, during 2022 compared with 2021, largely as a result of the CUB acquisition.
The table below illustrates changes between years in the average balances of all funding sources: Funding Sources - Average Balances (dollars in thousands) December 31, % Change From Prior Year 2023 2022 2021 2023 2022 Demand Deposits Non-interest-bearing $ 1,553,082 $ 1,738,349 $ 1,378,647 (11) % 26 % Interest-bearing 1,826,232 2,013,969 1,595,579 (9) 26 Savings Deposits 572,623 640,653 460,945 (11) 39 Money Market Accounts 656,396 833,119 645,747 (21) 29 Other Time Deposits 257,736 262,764 226,419 (2) 16 Total Core Deposits 4,866,069 5,488,854 4,307,337 (11) 27 Certificates of Deposits of $100,000 or more 330,406 211,645 186,516 56 13 FHLB Advances and Other Borrowings 210,837 159,029 186,750 33 (15) Total Funding Sources $ 5,407,312 $ 5,859,528 $ 4,680,603 (8) 25 Maturities of certificates of deposit of $100,000 or more are summarized as follows: (dollars in thousands) 3 Months Or Less 3 - 6 Months 6 - 12 Months Over 12 Months Total December 31, 2023 $ 119,055 $ 117,165 $ 222,396 $ 19,349 $ 477,965 CORE DEPOSITS The Company’s overall level of average core deposits declined approximately $622.8 million, or 11%, during 2023 compared with 2022.
CUB, headquartered in Shelbyville, Kentucky operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through Citizens Union Bank of Shelbyville, Inc. in Kentucky.
CUB, headquartered in Shelbyville, Kentucky, operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through Citizens Union Bank of Shelbyville, Inc. As of the closing of the transaction, CUB had total assets of approximately $1.109 billion, total loans of approximately $683.8 million, and total deposits of approximately $930.5 million.
The improvement in the Company’s net interest margin during 2022 compared to 2021 was largely attributable to improved yields on earning assets driven by increased market rates. Historically low market interest rates impacted the Company’s net interest margin in both 2021 and 2020 by reducing earning asset yields, with those declines being partially mitigated by a lower cost of funds.
The improvement in the Company’s net interest margin during 2022 compared to 2021 was largely attributable to improved yields on earning assets driven by increased market rates, which were partially mitigated by an increase in the overall cost of funds of the Company.
During the year ended December 31, 2021, non-interest income increased $4,988,000, or 9%, from the year ended December 31, 2020.
During the year ended December 31, 2022, non-interest income declined $329,000, or 1%, from the year ended December 31, 2021.
These guidelines provide for a more narrow definition of core capital and assign a measure of risk to the various categories of assets.
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.
Other time deposits consist of certificates of deposits in denominations of less than $100,000. These average deposits increased by 16% during 2022 following a decline of 22% during 2021. Other time deposits comprised 5% of core deposits in 2022, 5% in 2021 and 8% in 2020.
Other time deposits consist of certificates of deposits in denominations of less than $100,000. These average deposits declined by 2% during 2023 following an increase of 16% during 2022. Other time deposits comprised 5% of core deposits in all periods presented.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+1 added−1 removed13 unchanged
Biggest changeInterest Rate Sensitivity as of December 31, 2022 - Net Interest Income Net Interest Income Changes in Rates Amount % Change +2% $ 223,005 2.27 % +1% 220,788 1.25 Base 218,060 — -1% 213,585 (2.05) -2% 205,675 (5.68) The above table is a measurement of the Company’s net interest income at risk, assuming a static balance sheet as of December 31, 2022 and instantaneous parallel changes in interest rates.
Biggest changeInterest Rate Sensitivity as of December 31, 2023 - Net Interest Income Net Interest Income Changes in Rates Amount % Change +2% $ 201,181 (0.34) % +1% 202,136 0.14 Base 201,862 — -1% 199,444 (1.20) -2% 196,374 (2.72) The above table is a measurement of the Company’s net interest income at risk, assuming a static balance sheet as of December 31, 2023 and instantaneous parallel changes in interest rates.
Actual results may differ materially from those expressed or implied therein as a result of certain risks and uncertainties, including those risks and uncertainties expressed above, those that are described in MANAGEMENT’S DISCUSSION AND ANALYSIS in Item 7 of this Report, and those that are described in Item 1 of this Report, “Business,” under the caption “Forward-Looking Statements and Associated Risks,” which discussions are incorporated herein by reference. 48
Actual results may differ materially from those expressed or implied therein as a result of certain risks and uncertainties, including those risks and uncertainties expressed above, those that are described in MANAGEMENT’S DISCUSSION AND ANALYSIS in Item 7 of this Report, and those that are described in Item 1 of this Report, “Business,” under the caption “Forward-Looking Statements and Associated Risks,” which discussions are incorporated herein by reference. 49
This type of scenario can at times produce different modeling results in measuring interest rate risk sensitivity. 47 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).
This type of scenario can at times produce different modeling results in measuring interest rate risk sensitivity. 48 The table below provides an assessment of the risk to NPV in the event of a sudden and sustained 1% and 2% increase and decrease in prevailing interest rates (dollars in thousands).
Interest Rate Sensitivity as of December 31, 2022 - Net Portfolio Value Net Portfolio Value Net Portfolio Value as a % of Present Value of Assets Changes in Rates Amount % Change NPV Ratio Change +2% $ 809,819 (8.71) % 14.81 % (36) b.p. +1% 848,905 (4.31) 15.02 (15) b.p.
Interest Rate Sensitivity as of December 31, 2023 - Net Portfolio Value Net Portfolio Value Net Portfolio Value as a % of Present Value of Assets Changes in Rates Amount % Change NPV Ratio Change +2% $ 575,830 (17.25) % 10.72 % (140) b.p. +1% 637,347 (8.41) 11.48 (64) b.p.
Removed
Base 887,112 — 15.17 — -1% 914,987 3.14 15.14 (3) b.p. -2% 925,626 4.34 14.84 (33) b.p.
Added
Base 695,888 — 12.12 — -1% 743,599 6.86 12.54 42 b.p. -2% 770,311 10.69 12.60 48 b.p.

Other GABC 10-K year-over-year comparisons