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Item 1. Financial Statements

2022-08-03 compared with 2022-04-27 · 261 added, 117 removed, 894 unchanged (30% of the section changed)

FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data)

2022 December 31,

2 unchanged sentences

Total cash and cash equivalents 169,515 683,240

Securities available-for-sale (carried at fair value) 1,522,535 1,398,558

Securities available-for-sale, at fair value 1,300,580 1,398,558

Securities held-to-maturity, at amortized cost (fair value of $ 113,350 and $ 0 , respectively)

Real estate mortgage loans held-for-sale 2,646 7,470

18 unchanged sentences

90,000,000 shares authorized, no par value

25,816,997 shares issued and 25,346,149 outstanding as of March 31, 2022

25,816,997 shares issued and 25,345,162 outstanding as of June 30, 2022

25,777,609 shares issued and 25,300,793 outstanding as of December 31, 2021

2 unchanged sentences

Accumulated other comprehensive income (loss) ( 158,534 ) 16,093

Treasury stock at cost ( 470,848 shares as of March 31, 2022, 476,816 shares as of December 31, 2021)

Treasury stock at cost ( 471,835 shares as of June 30, 2022, 476,816 shares as of December 31, 2021)

( 15,089 ) ( 15,025 )

4 unchanged sentences

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

CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except share and per share data)

CONSOLIDATED STATEMENTS OF INCOME (unaudited - dollars in thousands, except share and per share data)

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

NET INTEREST INCOME

13 unchanged sentences

NET INTEREST INCOME 48,678 43,661 93,558 87,340

Provision for credit losses 417 1,477

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 44,463 42,202

Provision (Reversal) for credit losses 0 ( 1,700 ) 417 ( 223 )

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 48,678 45,361 93,141 87,563

NONINTEREST INCOME

28 unchanged sentences

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited - in thousands)

Three months ended March 31,

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited - dollars in thousands)

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

2022 2021 2022 2021

Net income $ 25,673 $ 24,348 $ 49,315 $ 47,331

Other comprehensive income (loss)

Change in securities available-for-sale:

Change in available-for-sale and transferred securities:

Unrealized holding gain (loss) on securities available-for-sale arising during the period ( 82,609 ) 9,052 ( 221,605 ) ( 6,245 )

Reclassification adjust for amortization of unrealized losses on securities transferred to held-to-maturity 386 0 386 0

Reclassification adjustment for gains included in net income 0 ( 44 ) 0 ( 797 )

10 unchanged sentences

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited - in thousands, except share and per share data)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited - dollars in thousands, except share and per share data)

Three Months Ended

5 unchanged sentences

Interest Total

Balance at April 1, 2021

25,290,908 $ 114,764 $ 536,390 $ 15,110 $ ( 14,685 ) $ 651,579 $ 89 $ 651,668

Comprehensive income:

Net income 24,348 24,348 24,348

Other comprehensive income (loss), net of tax 7,161 7,161 7,161

Cash dividends declared and paid, $ 0.34 per share

( 8,675 ) ( 8,675 ) ( 8,675 )

Treasury shares purchased under deferred directors' plan ( 942 ) 63 ( 63 ) 0 0

Treasury shares sold and distributed under deferred directors' plan 0 0

Stock activity under equity compensation plans 0 0

Stock based compensation expense 2,969 2,969 2,969

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

Balance at April 1, 2022

25,346,149 $ 121,138 $ 596,578 $ ( 93,687 ) $ ( 15,016 ) $ 609,013 $ 89 $ 609,102

Comprehensive loss:

Net income 25,673 25,673 25,673

Other comprehensive income (loss), net of tax ( 64,847 ) ( 64,847 ) ( 64,847 )

Cash dividends declared and paid, $ 0.40 per share

( 10,225 ) ( 10,225 ) ( 10,225 )

Treasury shares purchased under deferred directors' plan ( 987 ) 73 ( 73 ) 0 0

Treasury shares sold and distributed under deferred directors' plan 0 0

Stock activity under equity compensation plans 0 0

Stock based compensation expense 2,360 2,360 2,360

Balance at June 30, 2022 25,345,162 $ 123,571 $ 612,026 $ ( 158,534 ) $ ( 15,089 ) $ 561,974 $ 89 $ 562,063

Six Months Ended

Common Stock Retained

Earnings Accumulated Other Comprehensive

Income (Loss) Treasury

Stock Total Stockholders’

Equity Noncontrolling

Interest Total

Balance at January 1, 2021

10 unchanged sentences

Stock based compensation expense 4,350 4,350 4,350

Balance at March 31, 2021 25,290,908 $ 114,764 $ 536,390 $ 15,110 $ ( 14,685 ) $ 651,579 $ 89 $ 651,668

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

Balance at January 1, 2022

9 unchanged sentences

Stock based compensation expense 4,620 4,620 4,620

Balance at March 31, 2022 25,346,149 $ 121,138 $ 596,578 $ ( 93,687 ) $ ( 15,016 ) $ 609,013 $ 89 $ 609,102

Balance at June 30, 2022 25,345,162 $ 123,571 $ 612,026 $ ( 158,534 ) $ ( 15,089 ) $ 561,974 $ 89 $ 562,063

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)

Three Months Ended March 31, 2022 2021

Six Months Ended June 30, 2022 2021

Cash flows from operating activities:

2 unchanged sentences

Depreciation 3,020 3,053

Provision for credit losses 417 1,477

Provision (Reversal) for credit losses 417 ( 223 )

Gain on sale and write down of other real estate owned 0 ( 37 )

Amortization of loan servicing rights 385 705

17 unchanged sentences

Proceeds from maturities, calls and principal paydowns of securities available-for-sale 59,617 66,576

Proceeds from maturities, calls and principal paydowns of securities held-to-maturity 5 0

Purchases of securities available-for-sale ( 313,905 ) ( 437,680 )

4 unchanged sentences

Proceeds from redemption of Federal Home Loan Bank stock 932 0

Proceeds from sales of other real estate 0 167

Proceeds from life insurance 0 531

3 unchanged sentences

Net increase (decrease) in short-term borrowings 0 ( 10,500 )

Payments on long-term FHLB borrowings ( 75,000 ) 0

Common dividends paid ( 20,410 ) ( 17,309 )

Preferred dividends paid ( 13 ) ( 13 )

Payments related to equity incentive plans ( 1,728 ) ( 1,648 )

7 unchanged sentences

Interest $ 8,768 $ 10,350

Income taxes 7,065 14,262

Supplemental non-cash disclosures:

6 unchanged sentences

Also included in this report are results for the Bank’s wholly owned subsidiary, LCB Investments II, Inc.

("LCB Investments"), which manages the Bank’s investment portfolio.

("LCB Investments"), which manages the Bank’s investment securities portfolio.

LCB Investments owns LCB Funding, Inc.

5 unchanged sentences

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 months ended March 31, 2022 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2022.

Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2022.

The Company’s 2021 Annual Report on Form 10-K should be read in conjunction with these statements.

4 unchanged sentences

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 others.

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

The Company has identified certain 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 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's policy is to adhere to the International Swaps and Derivatives Association 2020 IBOR Fallbacks Protocol that was released on October 23, 2020.

The Company discontinued the use of new LIBOR-based loans by December 31, 2021, according to regulatory guidelines.

Legacy LIBOR-based loans will be transitioned to an alternative reference rate on or before June 30, 2023.

The Company plans to transition LIBOR-based loans to an alternative reference rate on or before June 30, 2023.

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, and does note expect such adoption to have a material impact on the consolidated financial statements.

The Company expects to adopt the LIBOR transition relief allowed under this standard, and does not expect such adoption to have a material impact on the consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, " Derivatives and Hedging (ASC 815):

10 unchanged sentences

These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year.

The Company is currently assessing the impact of ASU 2022-02 on its disclosures and control structure;

however, the Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year, is permitted.

The Company elected to early adopt the provisions of the ASU related to modifications during the second quarter of 2022, with retrospective application to January 1, 2022.

Adoption of this portion of the standard did not have

a material impact on the consolidated financial statements.

The Company is currently assessing the impact of vintage disclosure provisions of ASU 2022-02 on its disclosures;

however, the Company does not expect the adoption of this portion of the standard to have a material impact on the consolidated financial statements.

Reclassification

1 unchanged sentence

The reclassifications had no effect on net income or stockholders' equity as previously reported.

Information related to the amortized cost, fair value and allowance for credit losses of securities available-for-sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income is provided in the tables below.

Debt securities purchased with the intent and ability to hold to their maturity are classified as held-to-maturity securities.

All other investment securities are classified as available-for-sale securities.

Available-for-Sale Securities

(dollars in thousands) Amortized

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

March 31, 2022

June 30, 2022

Treasury securities $ 2,249 $ 0 $ ( 15 ) $ 0 $ 2,234

2 unchanged sentences

residential 619,651 261 ( 61,790 ) 0 558,122

Mortgage-backed securities:

commercial 96 0 0 0 96

State and municipal securities 692,698 622 ( 95,357 ) 0 597,963

9 unchanged sentences

Total $ 1,376,969 $ 30,244 $ ( 8,655 ) $ 0 $ 1,398,558

Information regarding the fair value and amortized cost of available-for-sale debt securities by maturity as of March 31, 2022 is presented below.

Held-to-Maturity Securities

Information related to the amortized cost, fair value and allowance for credit losses of securities held-to-maturity and the related gross unrealized gains and losses is presented in the table below.

(dollars in thousands) Amortized

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

June 30, 2022

State and municipal securities $ 127,411 $ 0 $ ( 14,061 ) $ 0 $ 113,350

On April 1, 2022, the Company elected to transfer securities from available-for-sale to held-to-maturity due to overall balance sheet management strategies.

The fair value of securities transferred was $ 127.0 million from available-for-sale to held-to-maturity.

The unrealized loss on the securities transferred from available-for-sale to held-to-maturity was $ 24.4 million ($ 19.3 million, net of tax) at the date of the transfer based on the fair value of the securities on the transfer date.

The Company has the current intent and ability to hold the transferred securities until maturity.

Any net unrealized gain or loss on the transferred securities included in accumulated other comprehensive income (loss) at the time of the transfer will be amortized over the remaining life of the underlying security as an adjustment to the yield on those securities.

There were no securities transferred from available-for-sale to held-to-maturity during the six months ended June 30, 2021 and there were no securities classified as held-to-maturity at December 31, 2021.

Information regarding the fair value and amortized cost of available-for-sale and held-to-maturity debt securities by maturity as of June 30, 2022 is presented below.

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

Actual maturities of securities may differ from contractual maturities because borrowers may have the right to prepay the obligation without a prepayment penalty.

Available-for-Sale Held-to-Maturity

(dollars in thousands) Amortized Cost Fair

Value Amortized Cost Fair

Due in one year or less $ 3,403 $ 3,394 $ 0 $ 0

5 unchanged sentences

Total debt securities $ 1,476,185 $ 1,300,580 $ 127,411 $ 113,350

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

Three Months Ended March 31,

Available-for-sale securities proceeds, gross gains and gross losses are presented below.

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

(dollars in thousands) 2022 2021 2022 2021

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 $ 272.6 million and $ 300.8 million were pledged as of March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021 is presented below.

Securities with fair values of $ 253.3 million and $ 300.8 million were pledged as of June 30, 2022 and December 31, 2021, 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.

Unrealized Loss Analysis on Available-for-Sale and Held-to-Maturity Securities

Information regarding available-for-sale securities with unrealized losses as of June 30, 2022 and December 31, 2021 is presented on the following page.

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

March 31, 2022

June 30, 2022

Treasury securities $ 2,234 $ 15 $ 0 $ 0 $ 2,234 $ 15

2 unchanged sentences

residential 447,418 43,772 100,785 18,018 548,203 61,790

Mortgage-backed securities:

commercial 96 0 0 0 96 0

State and municipal securities 510,360 91,660 10,848 3,697 521,208 95,357

Total temporarily impaired $ 1,130,257 $ 106,993 $ 139,382 $ 15,701 $ 1,269,639 $ 122,694

Total available-for-sale $ 1,066,966 $ 149,243 $ 146,940 $ 27,245 $ 1,213,906 $ 176,488

December 31, 2021

3 unchanged sentences

State and municipal securities 138,659 1,274 0 0 138,659 1,274

Total temporarily impaired $ 496,891 $ 6,714 $ 51,468 $ 1,941 $ 548,359 $ 8,655

The total number of securities with unrealized losses as of March 31, 2022 and December 31, 2021 is presented below.

Total available-for-sale $ 496,891 $ 6,714 $ 51,468 $ 1,941 $ 548,359 $ 8,655

Information regarding held-to-maturity securities with unrealized losses as of June 30, 2022 is presented below.

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

No investment securities were designated as held-to-maturity at December 31, 2021.

Less than 12 months 12 months or more Total

(dollars in thousands) Fair

Value Unrealized

June 30, 2022

State and municipal securities $ 113,350 $ 14,061 $ 0 $ 0 $ 113,350 $ 14,061

The total number of securities with unrealized losses as of June 30, 2022 and December 31, 2021 is presented below.

Available-for-sale Held-to-maturity

12 months 12 months

or more Total Less than

12 months 12 months

or more Total

March 31, 2022

June 30, 2022

Treasury securities 6 0 6 0 0 0

15 unchanged sentences

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.

For available-for sale debt securities that do not meet the criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this

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

For available-for sale debt securities that do not meet the above criteria and for held-to-maturity securities, management evaluates whether the decline in fair value has resulted from credit losses or other factors.

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

related to the security and the issuer, among other factors.

If this assessment indicates that a credit loss exists, 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 (loss), net of applicable taxes.

No allowance for credit losses for available-for-sale debt securities was needed at March 31, 2022.

Accrued interest receivable on available-for-sale debt securities totaled $ 8.8 million and $ 7.4 million at March 31, 2022 and December 31, 2021, respectively, and is excluded from the estimate of credit losses.

For available-for-sale debt securities, any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss), net of applicable taxes.

No allowance for credit losses for available-for-sale debt securities was recorded at June 30, 2022 or December 31, 2021.

No allowance for credit losses for held-to-maturity debt securities was recorded at June 30, 2022.

Accrued interest receivable on securities totaled $ 9.5 million and $ 7.4 million at June 30, 2022 and December 31, 2021, respectively, 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.

(dollars in thousands) March 31,

State and municipal securities credit losses are benchmarked against highly rated municipal securities of similar duration, as published by Moody's, resulting in an immaterial allowance for credit losses.

(dollars in thousands) June 30,

2022 December 31,

14 unchanged sentences

Other commercial loans:

93,157 2.1 73,490 1.7

Total commercial loans 3,965,018 89.6 3,863,630 90.1

10 unchanged sentences

Loans, net $ 4,357,176 $ 4,220,068

The recorded investment in loans does not include accrued interest, which totaled $ 10.3 million and $ 10.0 million at March 31, 2022 and December 31, 2021, respectively.

The Company h ad $ 239,000 and $ 350,000 in residential real estate loans in the process of foreclosure as of March 31, 2022 and December 31, 2021, respectively.

The recorded investment in loans does not include accrued interest, which totaled $ 11.0 million and $ 10.0 million at June 30, 2022 and December 31, 2021, respectively.

The Company h ad $ 320,000 and $ 350,000 in residential real estate loans in the process of foreclosure as of June 30, 2022 and December 31, 2021, respectively.

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

7 unchanged sentences

The level of credit loss provision is influenced by growth in the overall loan portfolio, emerging market risk, emerging concentration risk, commercial loan focus and large credit concentration, new industry lending activity, general economic conditions and historical loss analysis.

In addition, management gives consideration to changes in the facts and circumstances of watch list credits, which includes the security position of the borrower, in determining the appropriate level of the credit loss provision.

In addition, management gives consideration to changes in the facts and circumstances

of watch list credits, which includes the security position of the borrower, in determining the appropriate level of the credit loss provision.

Furthermore, management’s overall view on credit quality is a factor in the determination of the provision.

5 unchanged sentences

With respect to pools of similar loans, an appropriate level of general allowance is determined by portfolio segment using a probability of default-loss given default (“PD/LGD”) model, subject to a floor.

A default can be triggered by one of several different asset quality factors, including past due status, nonaccrual status, TDR status or if the loan has had a charge-off.

A default can be triggered by one of several different asset quality factors, including past due status, nonaccrual status, material modification status or if the loan has had a charge-off.

This PD is then combined with a LGD derived from historical charge-off data to construct a default rate.

40 unchanged sentences

(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 March 31, 2022

Three Months Ended June 30, 2022

Beginning balance, April 1 $ 31,322 $ 26,257 $ 4,761 $ 1,058 $ 2,606 $ 1,040 $ 482 $ 67,526

Provision for credit losses ( 139 ) 191 ( 8 ) ( 345 ) 34 102 165 0

Loans charged-off ( 13 ) 0 0 0 0 ( 85 ) 0 ( 98 )

Recoveries 25 0 0 0 34 36 0 95

Net loans (charged-off) recovered 12 0 0 0 34 ( 49 ) 0 ( 3 )

Ending balance $ 31,195 $ 26,448 $ 4,753 $ 713 $ 2,674 $ 1,093 $ 647 $ 67,523

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

Provision for credit losses ( 187 ) ( 1,160 ) ( 291 ) 126 ( 221 ) 124 ( 91 ) ( 1,700 )

Loans charged-off ( 162 ) 0 0 0 ( 32 ) ( 73 ) 0 ( 267 )

Recoveries 1,427 6 320 0 34 49 0 1,836

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

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

Six Months Ended June 30, 2022

Beginning balance, January 1 $ 30,595 $ 26,535 $ 5,034 $ 1,146 $ 2,866 $ 1,147 $ 450 $ 67,773

5 unchanged sentences

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

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

18 unchanged sentences

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 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 are considered to be "Pass" rated when they are reviewed as part of the previously described process and do not meet the criteria above, 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 March 31, 2022:

The following table summarizes the risk category of loans by loan segment and origination date as of June 30, 2022:

(dollars in thousands) 2022 2021 2020 2019 2018 Prior Term Total Revolving Total

63 unchanged sentences

TOTAL $ 436,566 $ 731,164 $ 629,387 $ 358,960 $ 166,578 $ 342,169 $ 2,664,824 $ 1,759,875 $ 4,424,699

As of March 31, 2022, $ 12.5 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

As of June 30, 2022, $ 5.2 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 SBA.

72 unchanged sentences

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 March 31, 2022 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 June 30, 2022 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

17 unchanged sentences

Total $ 4,423,813 $ 782 $ 104 $ 4,412,206 $ 12,493 $ 5,493 $ 4,424,699

As of March 31, 2022 there were an insignificant number of 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 three month period ended March 31, 2022.

As of June 30, 2022 there were an insignificant number of 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, 2022.

The following table presents the aging of the amortized cost basis in past due loans as of December 31, 2021 by class of loans and loans past due 90 days or more and still accruing by class of loan:

25 unchanged sentences

The following tables present the amortized cost basis of collateral dependent loans by class of loan as of:

March 31, 2022

June 30, 2022

(dollars in thousands) Real Estate General

27 unchanged sentences

Total $ 6,312 $ 17,091 $ 1,449 $ 24,950

Troubled Debt Restructurings:

Modifications:

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination.

The starting point for the estimate of the allowance for credit losses is historical loss information, which includes loses from modifications of receivables to borrowers experiencing financial difficulty.

The Company uses a probability of default/loss given default model to determine the allowance for credit losses.

An assessment of whether a borrower is experiencing financial difficulty is made at the time of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.

Occasionally, the Company modifies loans by providing principal forgiveness that is deemed to be uncollectible;

therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

Additionally, the Company may allow a loan to go interest only for a specified period of time.

During the three and six months ended June 30, 2022, no loans received a material modification based on borrower financial difficulty.

Troubled Debt Restructurings (Prior to January 1, 2022):

Prior to the partial adoption of ASU 2022-02 on January 1, 2022, which had an immaterial impact on the Company's allowance for credit losses, troubled debt restructured loans were included in the totals for individually analyzed loans.

The following are disclosures related to troubled debt restructured loans in prior periods.

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

The Company has allocated $ 6.0 million and $ 5.8 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2022 and December 31, 2021, 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) March 31,

2022 December 31,

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

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

(dollars in thousands) December 31,

Accruing troubled debt restructured loans $ 5,121

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Total troubled debt restructured loans $ 11,339

During the three months ended March 31, 2022, one loan was identified as a troubled debt restructuring.

This loan was an over line of credit extended to an existing borrower with other previously modified loans as a result of financial difficulty to assist with cash flow needs.

No additional credit enhancements were obtained in conjunction with the extension of this over line of credit.

(dollars in thousands) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment

Troubled Debt Restructurings

Commercial and industrial loans:

Working capital lines of credit loans 1 $ 226 $ 226

Total 1 $ 226 $ 226

For the three month period ended March 31, 2022, the troubled debt restructuring described above did not increase the allowance for credit losses, and no charge-offs were recorded.

During the three months ended March 31, 2021, no loans were modified as troubled debt restructurings.

For the periods ended March 31, 2022 and December 31, 2021, 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.

The advance may not be prepaid by the Company without penalty.

The note requires monthly interest payments and is secured by residential real estate loans and securities.

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

No advances were outstanding with the Federal Home Loan Bank ("FHLB") as of June 30, 2022.

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

The advance was a ten-year fixed-rate putable advance with an interest rate of 0.39 % and a maturity date of March 4, 2030.

The note required monthly interest payments and was secured by residential real estate loans and securities.

The FHLB exercised the putable option on the advance during the second quarter of 2022 and the note was repaid by the Company.

On August 2, 2019 the Company entered into an unsecured revolving credit agreement with another financial institution allowing the Company to borrow up to $ 30.0 million;

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

There were no outstanding borrowings on the credit agreement at March 31, 2022 and December 31, 2021.

There were no outstanding borrowings on the credit agreement at June 30, 2022 and December 31, 2021.

FAIR VALUE DISCLOSURES

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

Securities available-for-sale are valued primarily by a third party pricing service.

The fair values of securities available-for-sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or pricing models which utilize significant observable inputs such as matrix pricing.

Securities available-for-sale and held-to-maturity are valued primarily by a third party pricing service.

The fair values of securities available-for-sale and held-to-maturity are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or pricing models which utilize significant observable inputs such as matrix pricing.

This is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

These models utilize the market approach with standard inputs that include, but are not limited to benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.

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).

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 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.

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

(a) raw and finished inventory is discounted from its cost or book value by 35 - 65 %, depending on the marketability of the goods (b) finished goods are generally discounted by 30 - 60 %, depending on the ease of marketability, cost of transportation or scope of use of the finished good (c) work in process inventory is typically discounted by 50 %- 100 %, depending on the length of manufacturing time, types of components used in the completion process, and the breadth of the user base (d) equipment is valued at a percentage of depreciated book value or recent appraised value, if available, and is typically discounted at 30 - 70 % after various considerations including age and condition of the equipment, marketability, breadth of use, and whether the equipment includes unique components or add-ons;

scope of use of the finished good (c) work in process inventory is typically discounted by 50 %- 100 %, depending on the length of manufacturing time, types of components used in the completion process, and the breadth of the user base (d) equipment is valued at a percentage of depreciated book value or recent appraised value, if available, and is typically discounted at 30 - 70 % after various considerations including age and condition of the equipment, marketability, breadth of use, and whether the equipment includes unique components or add-ons;

and (e) marketable securities are discounted by 10 %- 30 %, depending on the type of investment, age of valuation report and general market conditions.

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Mortgage servicing rights:

As of March 31, 2022, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 2.7 million, carried at amortized cost of $ 3.0 million less a $ 355,000 valuation reserve.

These residential mortgage loans have a weighted average interest rate of 3.39 %, a weighted average maturity of 21 years and are

secured by homes generally within the Company’s market area of Northern Indiana and Indianapolis.

As of June 30, 2022, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 3.0 million, carried at amortized cost of $ 3.0 million less a $ 14,000 valuation reserve.

These residential mortgage loans have a weighted average interest rate of 3.40 %, a weighted average maturity of 21 years and are secured by homes generally within the Company’s market area of Northern Indiana and Indianapolis.

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.

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The most significant unobservable assumption is the discount rate.

At March 31, 2022, the constant prepayment speed (“PSA”) used was 228 and discount rate used was 9.5 %.

At June 30, 2022, the constant prepayment speed (“PSA”) used was 178 and discount rate used was 9.0 %.

At December 31, 2021, the PSA used was 249 and the discount rate used was 9.5 %.

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

March 31, 2022

June 30, 2022

Fair Value Measurements Using Assets

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residential 0 558,122 0 558,122

Mortgage-backed securities:

commercial 0 96 0 96

State and municipal securities 0 594,363 3,600 597,963

Total Securities 2,246 1,517,972 2,317 1,522,535

Total securities available-for-sale 2,234 1,294,746 3,600 1,300,580

Mortgage banking derivative 0 168 0 168

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State and municipal securities 0 764,964 2,043 767,007

Total Securities 900 1,395,615 2,043 1,398,558

Total securities available-for-sale 900 1,395,615 2,043 1,398,558

Mortgage banking derivative 0 398 0 398

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

March 31, 2022

June 30, 2022

Fair Value Measurements Using Assets

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Total assets $ 0 $ 0 $ 6,560 $ 6,560

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at March 31, 2022:

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, 2022:

(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.

March 31, 2022

June 30, 2022

Value Estimated Fair Value

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Securities available-for-sale 1,300,580 2,234 1,294,746 3,600 1,300,580

Securities held-to-maturity 127,411 0 113,350 0 113,350

Real estate mortgages held-for-sale 2,646 0 2,704 0 2,704

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All other deposits 4,859,670 4,859,670 0 0 4,859,670

Federal Home Loan Bank advances ( 75,000 ) 0 ( 61,200 ) 0 ( 61,200 )

Mortgage banking derivative 5 0 5 0 5

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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 March 31, 2022 and December 31, 2021.

March 31, 2022

June 30, 2022

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 March 31,

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

2022 2021 2022 2021

Weighted average shares outstanding for basic earnings per common share 25,527,896 25,473,497 25,521,618 25,465,621

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ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the three months ended March 31, 2022 and 2021, all shown net of tax:

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the three months ended June 30, 2022 and 2021, 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, 2022

$ ( 92,751 ) $ ( 936 ) $ ( 93,687 )

Other comprehensive income (loss) before reclassification ( 65,179 ) 0 ( 65,179 )

Amounts reclassified from accumulated other comprehensive income (loss) 305 27 332

Net current period other comprehensive income (loss) ( 64,874 ) 27 ( 64,847 )

Balance at June 30, 2022 $ ( 157,625 ) $ ( 909 ) $ ( 158,534 )

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

for-Sales Securities Defined Benefit Pension Items Total

Balance at April 1, 2021

$ 16,503 $ ( 1,393 ) $ 15,110

Other comprehensive income (loss) before reclassification 7,151 0 7,151

Amounts reclassified from accumulated other comprehensive income (loss) ( 35 ) 45 10

Net current period other comprehensive income (loss) 7,116 45 7,161

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

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the six months ended June 30, 2022 and 2021, all shown net of tax:

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

for-Sales Securities Defined Benefit Pension Items Total

Balance at January 1, 2022

$ 17,056 $ ( 963 ) $ 16,093

Other comprehensive loss before reclassification ( 109,807 ) 0 ( 109,807 )

Amounts reclassified from accumulated other comprehensive loss 0 27 27

Other comprehensive income (loss) before reclassification ( 174,986 ) 0 ( 174,986 )

Amounts reclassified from accumulated other comprehensive income (loss) 305 54 359

Net current period other comprehensive income (loss) ( 174,681 ) 54 ( 174,627 )

Balance at March 31, 2022 $ ( 92,751 ) $ ( 936 ) $ ( 93,687 )

Balance at June 30, 2022 $ ( 157,625 ) $ ( 909 ) $ ( 158,534 )

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

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$ 29,182 $ ( 1,438 ) $ 27,744

Other comprehensive loss before reclassification ( 12,084 ) 0 ( 12,084 )

Amounts reclassified from accumulated other comprehensive income ( 595 ) 45 ( 550 )

Other comprehensive income (loss) before reclassification ( 4,933 ) 0 ( 4,933 )

Amounts reclassified from accumulated other comprehensive income (loss) ( 630 ) 90 ( 540 )

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

Balance at March 31, 2021 $ 16,503 $ ( 1,393 ) $ 15,110

Reclassifications out of other accumulated comprehensive loss for the three months ended March 31, 2022 are as follows:

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

Reclassifications out of other accumulated comprehensive loss for the three months ended June 30, 2022 are as follows:

Details about

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Comprehensive

Income Components Amount

Income (Loss) Components Amount

Reclassified From Accumulated Other Comprehensive Income Affected Line Item

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(dollars in thousands)

Amortization of unrealized losses on held-to-maturity securities ( 386 ) Interest income

Tax effect 81 Income tax expense

( 305 ) Net of tax

Amortization of defined benefit pension items ( 36 ) Other expense

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Total reclassifications for the period $ ( 332 ) Net income

Reclassifications out of other accumulated comprehensive income for the three months ended March 31, 2021 are as follows:

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

Details about

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Comprehensive

Income Components Amount

Income (Loss) Components Amount

Reclassified From Accumulated Other Comprehensive Income Affected Line Item

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Total reclassifications for the period $ ( 10 ) Net income

Reclassifications out of other accumulated comprehensive loss for the six months ended June 30, 2022 are as follows:

Details about

Accumulated Other

Comprehensive

Income (Loss) Components Amount

Reclassified From Accumulated Other Comprehensive Income Affected Line Item

in the Statement Where Net Income is Presented

(dollars in thousands)

Amortization of unrealized losses on held-to-maturity securities ( 386 ) Interest income

Tax effect 81 Income tax expense

( 305 ) Net of tax

Amortization of defined benefit pension items ( 72 ) Other expense

Tax effect 18 Income tax expense

( 54 ) Net of tax

Total reclassifications for the period $ ( 359 ) Net income

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

Details about

Accumulated Other

Comprehensive

Income (Loss) Components Amount

Reclassified From Accumulated Other Comprehensive Income Affected Line Item

in the Statement Where Net Income is Presented

(dollars in thousands)

Realized gains and losses on available-for-sale securities $ 797 Net securities gains

Tax effect ( 167 ) Income tax expense

630 Net of tax

Amortization of defined benefit pension items ( 120 ) Other expense

Tax effect 30 Income tax expense

( 90 ) Net of tax

Total reclassifications for the period $ 540 Net income

The Company leases certain office facilities under long-term operating lease agreements.

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Short-term leases are leases having a term of twelve months or less.

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 March 31, 2022:

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 a practical expedient of the standard.

The following is a maturity analysis of the operating lease liabilities as of June 30, 2022:

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

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Right-of-use asset $ 5,559

Three months ended March 31,

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

(dollars in thousands) 2022 2021 2022 2021

Operating lease cost $ 163 $ 135 $ 333 $ 270

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Operating cash outflows from operating leases $ 163 $ 135 $ 333 $ 270

Weighted-average remaining lease term - operating leases 8.9 years 8.6 years

Weighted-average remaining lease term - operating leases 8.5 years 8.3 years 8.5 years 8.3 years

Weighted average discount rate - operating leases 2.5 % 2.8 % 2.5 % 2.8 %

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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