What changed in this filing

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Item 1. Financial Statements

2021-10-27 compared with 2021-08-04 · 121 added, 125 removed, 1101 unchanged (18% of the section changed)

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

September 30,

2021 December 31,

25 unchanged sentences

90,000,000 shares authorized, no par value

25,762,538 shares issued and 25,289,966 outstanding as of June 30, 2021

25,775,133 shares issued and 25,299,178 outstanding as of September 30, 2021

25,713,408 shares issued and 25,239,748 outstanding as of December 31, 2020

2 unchanged sentences

Accumulated other comprehensive income 10,932 27,744

Treasury stock at cost ( 472,572 shares as of June 30, 2021, 473,660 shares as of December 31, 2020)

Treasury stock at cost ( 475,955 shares as of September 30, 2021, 473,660 shares as of December 31, 2020)

( 14,962 ) ( 14,581 )

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

24 unchanged sentences

Interest rate swap fee income 180 2,143 934 4,105

Mortgage banking income 415 1,354 1,788 1,940

Mortgage banking income (loss) ( 32 ) 1,005 1,756 2,945

Net securities gains 0 314 797 363

22 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited - in thousands)

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

23 unchanged sentences

Interest Total

Balance at April 1, 2020

Balance at July 1, 2020

25,233,280 $ 113,424 $ 496,891 $ 24,802 $ ( 14,314 ) $ 620,803 $ 89 $ 620,892

7 unchanged sentences

Stock based compensation expense 375 375 375

Balance at June 30, 2020 25,233,280 $ 113,424 $ 496,891 $ 24,802 $ ( 14,314 ) $ 620,803 $ 89 $ 620,892

Balance at April 1, 2021

Balance at September 30, 2020 25,236,371 $ 114,011 $ 512,041 $ 25,224 $ ( 14,526 ) $ 636,750 $ 89 $ 636,839

Balance at July 1, 2021

25,289,966 $ 117,796 $ 552,063 $ 22,271 $ ( 14,748 ) $ 677,382 $ 89 $ 677,471

8 unchanged sentences

Stock based compensation expense 1,785 1,785 1,785

Balance at June 30, 2021 25,289,966 $ 117,796 $ 552,063 $ 22,271 $ ( 14,748 ) $ 677,382 $ 89 $ 677,471

Six Months Ended

Balance at September 30, 2021 25,299,178 $ 119,625 $ 567,518 $ 10,932 $ ( 14,962 ) $ 683,113 $ 89 $ 683,202

Nine Months Ended

Common Stock Retained

15 unchanged sentences

Stock based compensation expense 822 822 822

Balance at June 30, 2020 25,233,280 $ 113,424 $ 496,891 $ 24,802 $ ( 14,314 ) $ 620,803 $ 89 $ 620,892

Balance at September 30, 2020 25,236,371 $ 114,011 $ 512,041 $ 25,224 $ ( 14,526 ) $ 636,750 $ 89 $ 636,839

Balance at January 1, 2021 25,239,748 $ 114,927 $ 529,005 $ 27,744 $ ( 14,581 ) $ 657,095 $ 89 $ 657,184

9 unchanged sentences

Stock based compensation expense 6,135 6,135 6,135

Balance at June 30, 2021 25,289,966 $ 117,796 $ 552,063 $ 22,271 $ ( 14,748 ) $ 677,382 $ 89 $ 677,471

Balance at September 30, 2021 25,299,178 $ 119,625 $ 567,518 $ 10,932 $ ( 14,962 ) $ 683,113 $ 89 $ 683,202

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)

Six Months Ended June 30, 2021 2020

Nine Months Ended September 30, 2021 2020

Cash flows from operating activities:

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In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2021.

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2021.

The Company’s 2020 Annual Report on Form 10-K should be read in conjunction with these statements.

2 unchanged sentences

Measurement of Credit Losses on Financial Instruments.

This update, commonly referred to as the current expected credit losses methodology (“CECL”), will change the accounting for credit losses on loans and debt securities.

Under the new guidance, the Company’s measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

For loans, this measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter.

This update, commonly referred to as the current expected credit losses methodology (“CECL”), changes the accounting for credit losses on loans and debt securities.

Under the new guidance, the Company’s 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.

For loans, this measurement takes place at the time the financial asset is first added to the balance sheet and periodically thereafter.

This differs significantly from the “incurred loss” model previously required, but still permitted, under GAAP, which delays recognition until it is probable a loss has been incurred.

In addition, the guidance will modify the other-than-temporary impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which will allow for reversal of credit impairments in future periods.

In addition, the guidance modifies the other-than-temporary impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods.

This guidance was effective, subject to optional delay discussed below, for the Company for fiscal years beginning after December 15, 2019, including interim periods in those fiscal years.

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Under a provision provided by the CARES Act, the Company elected to delay the adoption of FASB’s new rule covering the CECL standard.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021.

On December 27, 2020, then-President Trump signed into law the Consolidated Appropriations Act, 2021.

This law extended relief for troubled debt restructurings and provided for further delay of the current expected credit losses adoption under the CARES Act to January 1, 2022, with early adoption permitted.

2 unchanged sentences

Upon adoption, the Company recognized a $ 9.1 million increase in the allowance for credit losses.

This resulted in a one-time cumulative effect adjustment decreasing beginning retained earnings as of January 1, 2021 by $ 7.0 million, net of deferred taxes of $ 2.1 million.

This resulted in a one-time cumulative effect adjustment decreasing retained earnings as of January 1, 2021 by $ 7.0 million, net of deferred taxes of $ 2.1 million.

The Company did not recognize an allowance for credit impairment for available-for-sale securities.

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separate financial statements of legal entities that are not subject to tax.

and enacts changes in tax laws in interim periods.

It also enacts changes in tax laws in interim periods.

The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

13 unchanged sentences

On March 12, 2020, the FASB issued Accounting Standards Update (ASU) 2020-4, "Reference Rate Reform (“ASC 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

ASC 848 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

The Company has formed a cross-functional project team to lead the transition from LIBOR to a planned adoption of reference rates which could include Secured Overnight Financing Rate (“SOFR”), amongst other indexes.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASC 848 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

The Company has identified loans that renewed prior to 2021 and obtained updated reference rate language at the time of renewal.

Additionally, management is utilizing the timeline guidance published by the Alternative Reference Rates Committee to develop internal milestones during this transitional period.

Additionally, management is utilizing the timeline guidance published by the Alternative Reference Rates Committee to develop and achieve internal milestones during this transitional period.

The Company has adhered to the International Swaps and Derivatives Association 2020 IBOR Fallbacks Protocol that was released on October 23, 2020.

The Company will discontinue the use of new LIBOR-based loans no later than December 31, 2021, according to regulatory guidelines.

The Company will discontinue the use of new LIBOR-based loans no later than December 31, 2021, according to regulatory guidelines, and is operationally preparing for this change during the fourth quarter of 2021.

The guidance under ASC-848 will be available for a limited time, generally through December 31, 2022.

The Company expects to adopt the LIBOR transition relief allowed under this standard.

In August 2021, the FASB issued ASU 2021-6, "Presentation of Financial Statements (Topic 205), Financial Services - Depository and Lending (Topic 942) and Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants ." The guidance is effective upon its addition to the FASB codification.

The Company is currently assessing the impact of ASU 2021-6 on its disclosures.

Reclassifications

4 unchanged sentences

Cost Gross Unrealized Gain Gross Unrealized Losses Allowance for Credit Losses Fair Value

June 30, 2021

September 30, 2021

Treasury securities $ 900 $ 0 $ 0 $ 0 $ 900

14 unchanged sentences

Total $ 697,906 $ 37,045 $ ( 106 ) $ 0 $ 734,845

Information regarding the fair value and amortized cost of available-for-sale debt securities by maturity as of June 30, 2021 is presented below.

Information regarding the fair value and amortized cost of available-for-sale debt securities by maturity as of September 30, 2021 is presented below.

Maturity information is based on contractual maturity for all securities other than mortgage-backed securities.

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Securities proceeds, gross gains and gross losses are presented below.

Three months ended June 30, Six Months Ended June 30,

Three months ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2021 2020 2021 2020

7 unchanged sentences

Gains and losses on sales are based on the amortized cost of the security sold and recorded on the trade date.

Securities with carrying values of $ 335.1 million and $ 382.7 million million were pledged as of June 30, 2021 and December 31, 2020, respectively, as collateral for borrowings from the Federal Home Loan Bank and Federal Reserve Bank and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of June 30, 2021 and December 31, 2020 is presented below.

Securities with carrying values of $ 314.7 million and $ 382.7 million were pledged as of September 30, 2021 and December 31, 2020, respectively, as collateral for borrowings from the Federal Home Loan Bank and Federal Reserve Bank and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of September 30, 2021 and December 31, 2020 is presented below.

The tables divide the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.

4 unchanged sentences

Value Unrealized

June 30, 2021

September 30, 2021

government sponsored agencies $ 106,441 $ 2,237 $ 0 $ 0 $ 106,441 $ 2,237

13 unchanged sentences

Total temporarily impaired $ 26,724 $ 89 $ 3,112 $ 17 $ 29,836 $ 106

The total number of securities with unrealized losses as of June 30, 2021 and December 31, 2020 is presented below.

The total number of securities with unrealized losses as of September 30, 2021 and December 31, 2020 is presented below.

12 months 12 months

or more Total

June 30, 2021

September 30, 2021

government sponsored agencies 12 0 12

14 unchanged sentences

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly.

For available-for sale debt securities in an unrealized loss position, management first assess whether it intends to sell, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis.

For available-for sale debt securities in an unrealized loss position, management first assesses whether it intends to sell, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through the consolidated income statement.

1 unchanged sentence

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.

If this assessment indicates that a credit loss exists, management compares the present value of cash flows expected to be collected

from the security with the amortized cost basis of the security.

assessment indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.

No allowance for credit losses for available-for-sale debt securities was needed at June 30, 2021.

Accrued interest receivable on available-for-sale debt securities totaled $ 5.0 million at June 30, 2021 and is excluded from the estimate of credit losses.

No allowance for credit losses for available-for-sale debt securities was needed at September 30, 2021.

Accrued interest receivable on available-for-sale debt securities totaled $ 6.3 million at September 30, 2021 and is excluded from the estimate of credit losses.

government sponsored agencies and mortgage-backed securities are either explicitly or implicitly guaranteed by the U.S.

1 unchanged sentence

Therefore, for those securities, we do not record expected credit losses.

Prior to the adoption of ASC 326, there was no OTTI recorded during the six months ended June 30, 2020.

(dollars in thousands) June 30,

Prior to the adoption of ASC 326, there was no other-than-temporary impairment ("OTTI") recorded during the nine months ended September 30, 2020.

(dollars in thousands) September 30,

2021 December 31,

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Loans, net $ 4,166,405 $ 4,587,748

The recorded investment in loans does not include accrued interest, which totaled $ 11.7 million at June 30, 2021.

The Company had $ 605,000 in residential real estate loans in the process of foreclosure as of June 30, 2021, compared to $ 19,000 as of December 31, 2020.

The recorded investment in loans does not include accrued interest, which totaled $ 11.1 million at September 30, 2021.

The Company h ad $ 295,000 in residential real estate loans in the process of foreclosure as of September 30, 2021, com pared to $ 19,000 as of December 31, 2020.

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

12 unchanged sentences

The determination of the appropriate allowance is inherently subjective, as it requires significant estimates by management.

The Company has an established process to determine the adequacy of the allowance for credit losses that generally includes consideration of changes in the nature and volume of the loan portfolio, overall portfolio quality, along with current and forecasted economic conditions that may affect borrowers’ ability to repay.

The Company has an established process to determine the adequacy of the allowance for credit losses that generally includes consideration of changes in the nature and volume of the loan portfolio and overall portfolio quality, along with current and forecasted economic conditions that may affect borrowers’ ability to repay.

Consideration is not limited to these factors although they represent the most commonly cited factors.

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and consumer 1-4 family mortgage and other consumer loans.

General allocations of the allowance are determined by a historical loss rate based on the calculation of each pool’s probability of

default-loss given default, subject to a floor.

allocations of the allowance are determined by a historical loss rate based on the calculation of each pool’s probability of default-loss given default, subject to a floor.

The length of the historical period for each pool is based on the average life of the pool.

5 unchanged sentences

For off balance sheet credit exposures outlined in the ASU at 326-20-30-11, it is the Company’s position that nearly all of the unfunded amounts on lines of credit are unconditionally cancellable, and therefore not subject to having a liability set up, which matches the current accounting conclusion in the incurred loss environment.

The following tables present the activity in the allowance for credit losses by portfolio segment for the three-month period ended June 30, 2021:

The following tables present the activity in the allowance for credit losses by portfolio segment for the three-month period ended September 30, 2021:

(dollars in thousands) Commercial and Industrial Commercial Real Estate and Multifamily Residential Agri-business and Agricultural Other Commercial Consumer 1-4 Family Mortgage Other Consumer Unallocated Total

Three Months Ended June 30, 2021

Beginning balance, April 1 $ 32,052 $ 29,445 $ 3,901 $ 1,172 $ 3,384 $ 1,293 $ 597 $ 71,844

Three Months Ended September 30, 2021

Beginning balance, July 1 $ 33,130 $ 28,291 $ 3,930 $ 1,298 $ 3,165 $ 1,393 $ 506 $ 71,713

Provision for credit losses 3,507 ( 1,545 ) ( 244 ) 89 ( 265 ) ( 116 ) ( 126 ) 1,300

1 unchanged sentence

Recoveries 44 0 0 0 14 67 0 125

Net loans charged-off 1,265 6 320 0 2 ( 24 ) 0 1,569

Net loans (charged-off) recovered 39 0 0 0 1 ( 5 ) 0 35

Ending balance $ 36,676 $ 26,746 $ 3,686 $ 1,387 $ 2,901 $ 1,272 $ 380 $ 73,048

The following tables present the activity in the allowance for credit losses by portfolio segment for the six-month period ended June 30, 2021:

The following tables present the activity in the allowance for credit losses by portfolio segment for the nine-month period ended September 30, 2021:

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Beginning balance, January 1 $ 28,333 $ 22,907 $ 3,043 $ 416 $ 2,619 $ 951 $ 3,139 $ 61,408

3 unchanged sentences

Recoveries 1,505 14 320 0 99 168 0 2,106

Net loans charged-off 1,212 ( 57 ) 320 0 47 ( 44 ) 0 1,478

Net loans (charged-off) recovered 1,251 ( 57 ) 320 0 48 ( 49 ) 0 1,513

Ending balance $ 36,676 $ 26,746 $ 3,686 $ 1,387 $ 2,901 $ 1,272 $ 380 $ 73,048

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

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be “Pass” rated loans with the exception of consumer troubled debt restructurings which are evaluated and listed with Substandard commercial grade loans and consumer nonaccrual loans which are evaluated individually and listed with “Not Rated” loans.

Loans are considered to be "Pass" rated when they are reviewed as part of the previously described process and do not meet the criteria above with the exception of consumer troubled debt restructurings, which are evaluated and listed with Substandard commercial grade loans and consumer nonaccrual loans which are evaluated individually and listed with “Not Rated” loans.

Loans listed as Not Rated are consumer loans or commercial loans with consumer characteristics included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status.

The following table summarizes the risk category of loans by loan segment and origination date as of June 30, 2021:

The following table summarizes the risk category of loans by loan segment and origination date as of September 30, 2021:

(dollars in thousands) 2021 2020 2019 2018 2017 Prior Term Total Revolving Total

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TOTAL $ 655,420 $ 800,955 $ 456,315 $ 302,775 $ 241,581 $ 323,468 $ 2,780,514 $ 1,458,939 $ 4,239,453

As of June 30, 2021, $ 194.2 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

As of September 30, 2021, $ 91.9 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

These loans were included in this risk rating category because they are fully guaranteed by the Small Business Administration (“SBA”).

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Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current, remain current for a prescribed period, and future payments are reasonably assured.

The following table presents the aging of the amortized cost basis in past due loans as of June 30, 2021 by class of loans and loans past due 90 days or more and still accruing by class of loan:

The following table presents the aging of the amortized cost basis in past due loans as of September 30, 2021 by class of loans and loans past due 90 days or more and still accruing by class of loan:

(dollars in thousands) Loans Not Past Due 30-89 Days Past Due Greater than 89 Days Past Due and Accruing Total Accruing Total Nonaccrual Nonaccrual With No Allowance For Credit Loss Total

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Total $ 4,238,195 $ 1,240 $ 18 $ 4,208,475 $ 30,978 $ 1,373 $ 4,239,453

As of June 30, 2021 there were no loans 30-89 days past due or greater than 89 days past due on nonaccrual.

Additionally, interest income recognized on nonaccrual loans was insignificant during the six month period ended June 30, 2021.

As of September 30, 2021 there were no loans 30-89 days past due or greater than 89 days past due on nonaccrual.

Additionally, interest income recognized on nonaccrual loans was insignificant during the nine month period ended September 30, 2021.

When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

2 unchanged sentences

Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.

The following table presents the amortized cost basis of collateral dependent loans by class of loan as of June 30, 2021:

The following table presents the amortized cost basis of collateral dependent loans by class of loan as of September 30, 2021:

(dollars in thousands) Real Estate General

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Owner occupied loans 1,456 1,675 1,161 4,292

Nonowner occupied loans 3,358 0 0 3,358

Agri-business and agricultural loans:

2 unchanged sentences

Closed end first mortgage loans 3,056 0 0 3,056

Other consumer loans 0 0 51 51

Total 9,502 29,758 1,441 40,701

1 unchanged sentence

Troubled debt restructured loans are included in the totals for individually analyzed loans.

The Company has allocated $ 5.8 million and $ 5.5 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2021 and December 31, 2020, respectively.

The Company has allocated $ 6.1 million and $ 5.5 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2021 and December 31, 2020, respectively.

The Company is not committed to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring.

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2021 December 31,

2 unchanged sentences

Total troubled debt restructured loans $ 11,066 $ 11,713

During the three and six months ended June 30, 2021, no loans were modified as troubled debt restructurings.

During the three and six months ended June 30, 2020, certain loans were modified as troubled debt restructurings.

During the three and nine months ended September 30, 2021, no loans were modified as troubled debt restructurings.

During the three months ended September 30, 2020, no loans were modified as troubled debt restructurings.

During the nine months ended September 30, 2020, certain loans were modified as troubled debt restructurings.

The modified terms of these loans include one or a combination of the following:

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or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the three months ended June 30, 2020:

Modified Repayment Terms

(dollars in thousands) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Extension Period or Range (in months)

Troubled Debt Restructurings

Commercial and industrial loans:

Working capital lines of credit loans 1 250 315 1 0

Non-working capital loans 1 3,500 3,569 1 0

Commercial real estate and multi-family residential loans:

Owner occupied loans 1 1,528 1,527 1 0

Total 3 $ 5,278 $ 5,411 3 0

For the three month period ended June 30, 2020, the troubled debt restructurings described above increased the allowance for loan losses by $ 2.3 million, and no charge-offs were recorded.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the six months ended June 30, 2020:

The following table presents loans by class modified as new troubled debt restructurings that occurred during the nine months ended September 30, 2020:

Modified Repayment Terms

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Total 4 $ 6,066 $ 5,533 4 0

For the six month period ended June 30, 2020, the troubled debt restructurings described above increased the allowance for credit losses by $ 2.4 million, and charge-offs of $ 666,000 were recorded.

As of June 30, 2021, total deferrals attributed to COVID-19 were $ 36.9 million representing eight borrowers.

For the nine month period ended September 30, 2020, the troubled debt restructurings described above increased the allowance for credit losses by $ 2.4 million, and charge-offs of $ 666,000 were recorded.

As of September 30, 2021, total deferrals attributed to COVID-19 were $ 22.3 million representing three borrowers.

This represented 0.5 % of the total loan portfolio.

All eight were commercial loan borrowers and there were no retail borrowers with COVID-19 deferrals.

The majority of all loan deferrals were for a period of 90 days.

Of the total commercial deferrals attributed to COVID-19, $ 14.2 million represented a first deferral action, $ 253,000 represented a second deferral action, $ 20.0 million represented a third deferral action and $ 2.5 million represented a fourth deferral action.

One borrower represented 64 % of the third and fourth deferral population and was a commercial real estate nonowner occupied loan supported by adequate collateral and personal guarantors and consists of a loan to the hotel and accommodation industry.

Two were commercial loan borrowers and there was one retail borrower with COVID-19 deferrals.

Of the total commercial deferrals attributed to COVID-19, $ 8.0 million represented a second deferral action and $ 14.3 million represented a third deferral action.

All COVID-19 related loan deferrals remain on accrual status, as each deferral is evaluated individually, and management has determined that all contractual cashflows are collectable at this time.

In accordance with Section 4013 of the CARES Act, loan deferrals granted to customers that resulted from the impact of COVID-19 and who were not past due at December 31, 2019 were not considered troubled debt restructurings as of June 30, 2021.

This provision was extended to January 1, 2022 under the Consolidated Appropriations Act, 2021.

Management continues to monitor these deferrals and has adequately considered these credits in the June 30, 2021 allowance for credit losses balance.

Management continues to monitor these deferrals and has adequately considered these credits in the September 30, 2021 allowance for credit losses balance.

Allowance for Loan Losses (Prior to January 1, 2021):

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The following tables are disclosures related to the allowance for loan losses in prior periods.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three-month period ended June 30, 2020:

The following tables present the activity in the allowance for loan losses by portfolio segment for the three-month period ended September 30, 2020:

(dollars in thousands) Commercial and Industrial Commercial Real Estate and Multfamily Residential Agri-business and Agricultural Other Commercial Consumer 1-4 Family Mortgage Other Consumer Unallocated Total

Three Months Ended June 30, 2020

Beginning balance, January 1 $ 24,739 $ 18,658 $ 3,704 $ 521 $ 2,475 $ 447 $ 3,065 $ 53,609

Three Months Ended September 30, 2020

Beginning balance, July 1 $ 26,744 $ 21,063 $ 3,408 $ 542 $ 3,434 $ 774 $ 3,054 $ 59,019

Provision for credit losses 1,574 175 ( 314 ) 30 ( 50 ) 237 98 1,750

3 unchanged sentences

Ending balance $ 28,363 $ 21,415 $ 3,097 $ 572 $ 3,318 $ 830 $ 3,152 $ 60,747

The following tables present the activity in the allowance for loan losses by portfolio segment for the six-month period ended June 30, 2020:

The following tables present the activity in the allowance for loan losses by portfolio segment for the nine-month period ended September 30, 2020:

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Beginning balance, January 1 $ 25,789 $ 15,796 $ 3,869 $ 447 $ 2,086 $ 345 $ 2,320 $ 50,652

39 unchanged sentences

Total $ 22,939 $ 20,179 $ 8,041

The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended June 30, 2020:

The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended September 30, 2020:

(dollars in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Interest Income Recognized

10 unchanged sentences

Open end and junior lien loans 54 0 0

Residential construction loans 8 0 0

With an allowance recorded:

11 unchanged sentences

Total $ 23,701 $ 81 $ 81

The following table presents loans individually evaluated for impairment by class of loans as of and for the six-month period ended June 30, 2020:

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine-month period ended September 30, 2020:

(dollars in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Interest Income Recognized

10 unchanged sentences

Open end and junior lien loans 63 0 0

Residential construction loans 3 0 0

With an allowance recorded:

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Past Due 30‑89

Days Past Due Greater than

Days Past Due Greater than 90 Days Past Due Nonaccrual Total Past Due and Nonaccrual Total

38 unchanged sentences

Total $ 3,997,245 $ 251,891 $ 34,264 $ 0 $ 365,756 $ 4,649,156

For the periods ended June 30, 2021 and December 31, 2020, the Company had an advance outstanding from the Federal Home Loan Bank (“FHLB”) in the amount of $ 75.0 million.

For the periods ended September 30, 2021 and December 31, 2020, the Company had an advance outstanding from the Federal Home Loan Bank (“FHLB”) in the amount of $ 75.0 million.

The outstanding FHLB advance is a ten-year fixed-rate putable advance with a rate of 0.39 % and is due on March 4, 2030.

6 unchanged sentences

The credit agreement has a one year term which may be amended, extended, modified or renewed.

Outstanding borrowings on the credit agreement were $ 0 and $ 10.5 million at June 30, 2021 and December 31, 2020, respectively.

Outstanding borrowings on the credit agreement were $ 0 and $ 10.5 million at September 30, 2021 and December 31, 2020, respectively.

FAIR VALUE DISCLOSURES

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For certain municipal securities that are not rated and observable inputs about the specific issuer are not available, fair values are estimated using observable data from other municipal securities presumed to be similar or other market data on other non-rated municipal securities (Level 3 inputs).

The Company’s Finance Department, which is responsible for all accounting and SEC compliance, and the Company’s Treasury Department, which is responsible for investment portfolio management and asset/liability modeling, are the two areas that determine the Company’s valuation policies and procedures.

The Company’s Finance Department, which is responsible for all accounting and SEC disclosure compliance, and the Company’s Treasury Department, which is responsible for investment portfolio management and asset/liability modeling, are the two areas that determine the Company’s valuation policies and procedures.

Both of these areas report directly to the Executive Vice President and Chief Financial Officer of the Company.

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Any security that would have a material threshold difference would be further investigated to determine why the variance exists and if any action is needed concerning the security pricing for that individual security.

Changes in market value are reviewed monthly in aggregate by security type and any material differences are reviewed to determine why they exist.

Changes in market value are reviewed monthly in aggregate by security type and any material changes are reviewed to determine why they exist.

At least annually, the pricing methodology of the pricing service is received and reviewed to support the fair value levels used by the Company.

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The deductions to the appraisals take into account changing business factors and market conditions, as well as value impairment in cases where the appraisal date predates a likely change in market conditions.

Commercial real estate is generally discounted from its appraised

value by 0 - 50 % with the higher discounts applied to real estate that is determined to have a thin trading market or to be specialized collateral.

Commercial real estate is generally discounted from its appraised value by 0 - 50 % with the higher discounts applied to real estate that is determined to have a thin trading market or to be specialized collateral.

In addition to real estate, the Company’s management evaluates other types of collateral as follows:

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Mortgage servicing rights:

As of June 30, 2021, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 3.7 million, carried at amortized cost of $ 4.2 million less a $ 518,000 valuation reserve.

As of September 30, 2021, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 2.9 million, carried at amortized cost of $ 3.4 million less a $ 518,000 valuation reserve.

These residential mortgage loans have a weighted average interest rate of 3.49 %, a weighted average maturity of 20 years and are secured by homes generally within the Company’s market area of Northern Indiana and Indianapolis.

A third-party valuation model is used to estimate fair value by stratifying the portfolios on the basis of certain risk characteristics, including loan type and interest rate.

A third-party valuation is used to estimate fair value by stratifying the portfolios on the basis of certain risk characteristics, including loan type and interest rate.

Impairment is estimated based on an income approach.

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The most significant unobservable assumption is the discount rate.

At June 30, 2021, the constant prepayment speed (“PSA”) used was 2.20 and discount rate used was 10.5 %.

At September 30, 2021, the constant prepayment speed (“PSA”) used was 2.67 and discount rate used was 9.5 %.

At December 31, 2020, the PSA used was 2.04 and the discount rate used was 9.4 %.

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The tables below presents the balances of assets measured at fair value on a recurring basis:

June 30, 2021

September 30, 2021

Fair Value Measurements Using Assets

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The tables below presents the balances of assets measured at fair value on a nonrecurring basis:

June 30, 2021

September 30, 2021

Fair Value Measurements Using Assets

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Owner occupied loans 0 0 652 652

Nonowner occupied loans 0 0 3,131 3,131

Agri-business and agricultural loans:

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Total assets $ 0 $ 0 $ 6,765 $ 6,765

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at June 30, 2021:

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2021:

(dollars in thousands) Fair Value Valuation Methodology Unobservable Inputs Average Range of Inputs

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Items which are not financial instruments are not included.

June 30, 2021

September 30, 2021

Value Estimated Fair Value

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OFFSETTING ASSETS AND LIABILITIES

The following tables summarize gross and net information about financial instruments and derivative instruments that are offset in the statement of financial position or that are subject to an enforceable master netting arrangement at June 30, 2021 and December 31, 2020.

June 30, 2021

September 30, 2021

Gross Amounts of Recognized Assets/Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position Net Amount

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Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock based awards and warrants, none of which were antidilutive.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables summarize the changes within each classification of accumulated other comprehensive income for the three months ended June 30, 2021 and 2020, all shown net of tax:

The following tables summarize the changes within each classification of accumulated other comprehensive income for the three months ended September 30, 2021 and 2020, all shown net of tax:

(dollars in thousands) Unrealized Gains and Losses on Available-

for-Sales Securities Defined Benefit Pension Items Total

Balance at April 1, 2021

Balance at July 1, 2021

$ 23,619 $ ( 1,348 ) $ 22,271

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Amounts reclassified from accumulated other comprehensive income 0 46 46

Net current period other comprehensive income 7,116 45 7,161

Balance at June 30, 2021 $ 23,619 $ ( 1,348 ) $ 22,271

Net current period other comprehensive income (loss) ( 11,385 ) 46 ( 11,339 )

Balance at September 30, 2021 $ 12,234 $ ( 1,302 ) $ 10,932

(dollars in thousands) Unrealized Gains and Losses on Available-

for-Sales Securities Defined Benefit Pension Items Total

Balance at April 1, 2020

Balance at July 1, 2020

$ 26,256 $ ( 1,454 ) $ 24,802

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Net current period other comprehensive income 374 48 422

Balance at June 30, 2020 $ 26,256 $ ( 1,454 ) $ 24,802

The following tables summarize the changes within each classification of accumulated other comprehensive income for the six months ended June 30, 2021 and 2020, all shown net of tax:

Balance at September 30, 2020 $ 26,630 $ ( 1,406 ) $ 25,224

The following tables summarize the changes within each classification of accumulated other comprehensive income for the nine months ended September 30, 2021 and 2020, all shown net of tax:

(dollars in thousands) Unrealized Gains and Losses on Available-

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Amounts reclassified from accumulated other comprehensive income ( 630 ) 136 ( 494 )

Net current period other comprehensive loss ( 5,563 ) 90 ( 5,473 )

Balance at June 30, 2021 $ 23,619 $ ( 1,348 ) $ 22,271

Net current period other comprehensive income (loss) ( 16,948 ) 136 ( 16,812 )

Balance at September 30, 2021 $ 12,234 $ ( 1,302 ) $ 10,932

(dollars in thousands) Unrealized Gains and Losses on Available-

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Net current period other comprehensive income 13,023 142 13,165

Balance at June 30, 2020 $ 26,256 $ ( 1,454 ) $ 24,802

Reclassifications out of accumulated comprehensive income for the three months ended June 30, 2021 are as follows:

Balance at September 30, 2020 $ 26,630 $ ( 1,406 ) $ 25,224

Reclassifications out of accumulated comprehensive income for the three months ended September 30, 2021 are as follows:

Details about

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Tax effect 0 Income tax expense

35 Net of tax

Amortization of defined benefit pension items ( 61 ) Other expense

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Total reclassifications for the period $ ( 46 ) Net income

Reclassifications out of accumulated comprehensive income for the three months ended June 30, 2020 are as follows:

Reclassifications out of accumulated comprehensive income for the three months ended September 30, 2020 are as follows:

Details about

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Total reclassifications for the period $ 200 Net income

Reclassifications out of accumulated comprehensive income for the six months ended June 30, 2021 are as follows:

Reclassifications out of accumulated comprehensive income for the nine months ended September 30, 2021 are as follows:

Details about

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Total reclassifications for the period $ 494 Net income

Reclassifications out of accumulated comprehensive income for the six months ended June 30, 2020 are as follows:

Reclassifications out of accumulated comprehensive income for the nine months ended September 30, 2020 are as follows:

Details about

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The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases, as allowed as practical expedient of the standard.

The following is a maturity analysis of the operating lease liabilities as of June 30, 2021:

The following is a maturity analysis of the operating lease liabilities as of September 30, 2021:

Years ending December 31, (in thousands) Operating lease Obligation

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Right-of-use asset $ 4,335

Three months ended June 30, Six Months Ended June 30,

Three months ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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Weighted average discount rate - operating leases 2.8 % 2.8 % 2.8 % 2.8 %

CONTINGENCIES

Lakeland Financial Corporation and its subsidiaries are defendants in various legal proceedings arising in the normal course of business.

In the opinion of management, based on present information including advice of legal counsel, the ultimate resolution of these proceedings is not expected to have a material effect on the Company's consolidated financial position or results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements