What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-23 · 377 added, 461 removed, 1730 unchanged (33% of the section changed)

4 unchanged sentences

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Lakeland Financial Corporation (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of Lakeland Financial Corporation (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022 and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework:

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with

generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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Total cash and cash equivalents 130,282 683,240

Securities available-for-sale (carried at fair value) 1,398,558 734,845

Securities available-for-sale, at fair value 1,185,528 1,398,558

Securities held-to-maturity, at amortized cost (fair value of $ 111,029 and $ 0 respectively)

Real estate mortgage loans held-for-sale 357 7,470

12 unchanged sentences

Total deposits 5,460,620 5,735,407

Federal Funds purchased 22,000 0

Federal Home Loan Bank advances 275,000 75,000

Miscellaneous borrowings 0 10,500

Total borrowings 297,000 75,000

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Retained earnings 646,100 583,134

Accumulated other comprehensive income 16,093 27,744

Accumulated other comprehensive income (loss) ( 188,923 ) 16,093

Treasury stock, at cost ( 475,902 shares and 476,816 shares as of December 31, 2022 and 2021, respectively)

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Tax exempt 19,553 13,033 8,577

Interest on short-term investments 549 368 1,490

Other interest income 2,214 549 368

Total interest income 239,567 193,219 193,103

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)

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

Years Ended December 31 2022 2021 2020

1 unchanged sentence

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 ( 261,256 ) ( 14,553 ) 20,148

Reclassification adjustment for (gains) losses included in net income ( 797 ) ( 433 ) ( 142 )

Reclassification adjustment for amortization of unrealized losses on securities transferred to held-to-maturity 1,518 0 0

Reclassification adjustment for gains included in net income ( 21 ) ( 797 ) ( 433 )

Net securities gain (loss) activity during the period ( 259,759 ) ( 15,350 ) 19,715

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Total other comprehensive income (loss), net of tax ( 205,016 ) ( 11,651 ) 15,685

Comprehensive income $ 84,082 $ 100,022 $ 105,297

Comprehensive income (loss) $ ( 101,199 ) $ 84,082 $ 100,022

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

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Balance at January 1, 2020 25,444,275 $ 114,858 $ 475,247 $ 12,059 $ ( 4,153 ) $ 598,011 $ 89 $ 598,100

Adoption of ASU 2017-08 ( 1,327 ) ( 1,327 ) ( 1,327 )

Net income 84,337 84,337 84,337

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( 30,579 ) ( 30,579 ) ( 30,579 )

Cashless exercise of warrants 224,066 0 0 0

Treasury shares purchased under deferred

directors’ plan ( 11,481 ) 515 ( 515 ) 0 0

Treasury shares sold and distributed under deferred

directors’ plan 5,699 ( 118 ) 118 0 0

Treasury shares purchased under share repurchase plan ( 289,101 ) 0 ( 10,012 ) ( 10,012 ) ( 10,012 )

Treasury shares purchased under deferred directors' plan ( 11,566 ) 535 ( 535 ) 0 0

Treasury shares sold and distributed under deferred directors’ plan 5,748 ( 119 ) 119 0 0

Stock activity under equity incentive plans 90,392 ( 2,137 ) ( 2,137 ) ( 2,137 )

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Balance at December 31, 2020 25,239,748 $ 114,927 $ 529,005 $ 27,744 $ ( 14,581 ) $ 657,095 $ 89 $ 657,184

Impact of adopting ASC 326, net of tax ( 6,951 ) ( 6,951 ) ( 6,951 )

Net income 95,733 95,733 95,733

Other comprehensive income, net of tax 15,685 15,685 15,685

Other comprehensive loss, net of tax ( 11,651 ) ( 11,651 ) ( 11,651 )

Cash dividends declared, $ 1.36 per share

( 34,653 ) ( 34,653 ) ( 34,653 )

Treasury shares purchased under share repurchase plan ( 289,101 ) 0 ( 10,012 ) ( 10,012 ) ( 10,012 )

Treasury shares purchased under deferred

directors’ plan ( 11,566 ) 535 ( 535 ) 0 0

Treasury shares sold and distributed under deferred

directors’ plan 5,748 ( 119 ) 119 0 0

Treasury shares purchased under deferred directors’ plan ( 8,820 ) 559 ( 559 ) 0 0

Treasury shares sold and distributed under deferred directors’ plan 5,664 ( 115 ) 115 0 0

Stock activity under equity incentive plans 64,201 ( 1,914 ) ( 1,914 ) ( 1,914 )

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Balance at December 31, 2021 25,300,793 $ 120,615 $ 583,134 $ 16,093 $ ( 15,025 ) $ 704,817 $ 89 $ 704,906

Impact of adopting ASC 326, net of tax ( 6,951 ) ( 6,951 ) ( 6,951 )

Net income 103,817 103,817 103,817

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( 40,851 ) ( 40,851 ) ( 40,851 )

Treasury shares purchased under deferred

directors’ plan ( 8,820 ) 559 ( 559 ) 0 0

Treasury shares sold and distributed under deferred

directors’ plan 5,664 ( 115 ) 115 0 0

Treasury shares purchased under deferred directors’ plan ( 7,641 ) 579 ( 579 ) 0 0

Treasury shares sold and distributed under deferred directors’ plan 8,555 ( 221 ) 221 0 0

Stock activity under equity incentive plans 47,518 ( 1,780 ) ( 1,780 ) ( 1,780 )

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Net change in loan servicing rights valuation allowance ( 715 ) 0 715

Loans originated for sale ( 119,439 ) ( 117,600 ) ( 66,008 )

Loans originated for sale, including participations ( 28,666 ) ( 119,439 ) ( 117,600 )

Net gain on sales of loans ( 1,028 ) ( 4,376 ) ( 4,510 )

Proceeds from sale of loans 126,391 114,244 64,820

Proceeds from sale of loans, including participations 36,454 126,391 114,244

Net (gain) loss on sale of premises and equipment 7 43 86

Net (gain) loss on sales and calls of securities available-for-sale ( 21 ) ( 797 ) ( 433 )

Net amortization of available -for-sale securities 4,959 3,998 3,947

Net securities amortization 6,342 4,959 3,998

Stock based compensation expense 7,811 7,158 1,790

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Proceeds from maturities, calls and principal paydowns of securities available-for-sale 108,129 137,812 97,998

Proceeds from maturities, calls and principal paydowns of securities held-to-maturity 30 0 0

Purchases of securities available-for-sale ( 315,272 ) ( 835,001 ) ( 216,478 )

Purchase of life insurance ( 10,808 ) ( 711 ) ( 10,409 )

Net increase in total loans 356,660 ( 587,377 ) ( 152,119 )

Net (increase) decrease in total loans ( 427,097 ) 356,660 ( 587,377 )

Proceeds from sales of land, premises and equipment 6 8 658

Purchases of land, premises and equipment ( 4,821 ) ( 6,167 ) ( 5,719 )

Proceeds from redemption of Federal Home Loan Bank stock 932 0 0

Purchases of Federal Home Loan Bank stock ( 2,955 ) 0 0

Proceeds from sales of other real estate owned 0 946 0

2 unchanged sentences

Cash flows from financing activities:

Net increase in total deposits 698,602 902,986 89,754

Net increase (decrease) in total deposits ( 274,787 ) 698,602 902,986

Net increase (decrease) in short-term borrowings 22,000 ( 10,500 ) 10,500

Payments on short-term FHLB borrowings 0 0 ( 170,000 )

Proceeds from short-term FHLB borrowings 275,000 0 0

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

Proceeds from long-term FHLB borrowings 0 0 75,000

Payments on subordinated debentures 0 0 ( 30,928 )

Common dividends paid ( 40,838 ) ( 34,640 ) ( 30,566 )

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If this assessment indicates a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

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

Any impairment that has not been recorded through an allowance for available-for-sale securities losses is recognized in other comprehensive income (loss).

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

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Changes in the allowance for available-for-sale securities are recorded as a component of credit loss expense.

Losses are charged against the allowance for available-for-sale securities losses when management believes the uncollectibility of available-for-sale security is confirmed or when either criteria regarding intent or requirement to sell is met.

amortized cost basis.

Any impairment that has not been recorded through a valuation allowance for securities losses is recognized in other comprehensive income (loss).

Changes in the valuation allowance for securities losses are recorded as a component of credit loss expense.

Losses are charged against the valuation allowance for securities losses when management believes the uncollectibility of the security is confirmed or when either criteria regarding intent or requirement to sell is met.

A portion of the municipal bond portfolio is classified as held-to-maturity.

The Company measures expected credit losses on investment securities held-to-maturity on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The Company considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities.

Historical loss rates associated with securities having similar grades as those in the Company's portfolio have been insignificant.

After completing this assessment, the Company determined any credit losses as of December 31, 2022 were not material to the consolidated financial statements.

Real Estate Mortgage Loans Held-for-Sale:

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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 and overall portfolio quality, along with current and forecasted economic conditions that may affect borrowers' ability to repay.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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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Management also considers trends in adversely classified loans based upon an ongoing review of those credits.

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.

With respect to pools of similar loans, an appropriate level of general allowance is determined by portfolio segment using a pr obability 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, material modification to a borrower experiencing financial difficulty 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 loss rate.

This loss rate is then supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, particularly the unemployment rate forecast from the Federal Open Market Committee's Summary of Economic Projections, as well as portfolio trends based on the risks present for each portfolio segment.

These environmental factors include consideration

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

of portfolio trends and conditions;

These environmental factors include consideration of portfolio trends and conditions;

industry conditions;

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Commercial loans are subject to a dual standardized grading process administered by the credit administration function.

These grade assignments are performed independent of each other and a consensus is reached by credit administration and the loan review officer.

These grade assignments are performed independent of each other, and a consensus is reached by credit administration and the loan officer.

Specific allowances are established in cases where management has identified significant conditions or circumstances related to an individual credit that indicate it should be evaluated on an individual basis.

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or any other factors that may impact the completion or success of the project.

Agri-business and Agricultural - Borrower may be subject to adverse market or weather conditions including changes in local or foreign demand;

Agri-business and Agricultural - Borrowers may be subject to adverse market or weather conditions including changes in local or foreign demand;

lower yields than anticipated;

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and exposure to increasing commodity prices which result in higher production, distribution or exporting costs.

Other Commercial - Borrowers may be subject to the uninterrupted flow of funds to states and other political subdivisions for the purpose of debt repayments on loans held by the Bank.

Other Commercial - Borrowers may be subject to an interruption in the flow of funds to states and other political subdivisions for the purpose of debt repayments on loans held by the Bank.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Consumer 1-4 Family Mortgage - Borrowers may be subject to adverse employment conditions in the local economy leading to increased default rates;

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A loan is individually analyzed for specific allocation when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Loans, for which the terms have been modified and a concession has been granted for borrowers experiencing financial difficulties, are considered troubled debt restructurings and classified as individually evaluated and may be either accruing or non-accruing.

Nonaccrual troubled debt restructurings follow the same policy as described above for other loans.

Individual evaluation for

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

troubled debt restructurings is measured at the present value of estimated future cash flows using the loan’s effective rate at inception or at discounted collateral value for collateral dependent loans.

Allocations are analyzed individually or in total for smaller-balance loans of similar nature such as all classes of consumer 1-4 family and other consumer loans, and individually for all classes of commercial and industrial, commercial real estate and multi-family, agribusiness and agricultural and other commercial loans.

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If a loan is individually evaluated, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral less anticipated costs to sell.

All classes of commercial and industrial, commercial real estate and multifamily residential, agribusiness and agricultural, other commercial and consumer 1-4 family mortgage loans that become delinquent beyond 90 days are analyzed and a charge-off is taken when it is determined that the underlying collateral, if any, is not sufficient to offset the indebtedness.

Troubled debt restructured loans are considered for removal from troubled debt restructuring status in the year following modification or at time of subsequent restructuring for loans with cumulative principal forgiveness if the interest rate is considered a market rate at the time of modification and it has been performing according to the terms of the modification for a reasonable period of time long enough to observe an ability to repay under the modified terms.

If removed from troubled debt restructuring status, the loan continues to be individually evaluated for specific allocation with either the present value of estimated future cash flows using the loan’s effective rate at inception or at discounted collateral value for collateral dependent loans.

In addition, troubled debt restructured loans with subsequent modifications that do not have cumulative principal forgiveness are considered for removal from troubled debt restructuring status at the time of the subsequent modification if the following circumstances exist:

(1) at the time of the subsequent restructuring, the borrower is not experiencing financial difficulties;

(2) under the terms of the subsequent restructuring agreement no concession has been granted to the borrower;

and (3)the subsequent restructuring agreement includes market terms that are no less favorable than those that would be offered for comparable new debt.

Upon meeting these criteria, the loan is no longer individually evaluated and is no longer disclosed as a troubled debt restructuring.

Due to the imprecise nature of estimating the allowance for credit losses, the Company's allowance for credit losses includes an unallocated component.

The unallocated component of the allowance for credit losses incorporates the Company's judgmental determination of potential expected losses that may not be fully reflected in other allocations, including factors such as the level of classified credits, economic uncertainties, industry trends impacting specific portfolio segments, broad portfolio quality trends, and trends in the composition of the Company's large commercial loan portfolio and related large dollar exposures to individual borrowers.

All classes of commercial and industrial, commercial real estate and multifamily residential, agribusiness and agricultural, other commercial, consumer 1-4 family mortgage loans and other consumer loans that become delinquent beyond 90 days are analyzed and a charge-off is taken when it is determined that the underlying collateral, if any, is not sufficient to offset the indebtedness.

Loans, for which the terms have been modified for borrowers experiencing financial difficulties and a concession has been granted that could materially change the Company's expected future cash flows, are classified as individually evaluated and may be either accruing or non-accruing.

Modifications to borrowers experiencing financial difficulties on nonaccrual status follow the same policy as described above for other loans.

Individual evaluation for modifications to borrowers experiencing financial difficulty is measured at the present value of estimated future cash flows using the loan’s effective rate at inception or at discounted collateral value for collateral dependent loans.

Due to the imprecise nature of estimating the allowance for credit losses, the Company's allowance for credit losses includes an immaterial unallocated component.

The unallocated component of the allowance for credit losses incorporates the Company's judgmental determination of potential expected losses that may not be fully reflected in other allocations.

As a practical expedient, the Company has elected to disclose accrued interest separately from loan principal balances on the consolidated balance sheet.

Additionally, when a loan is placed on non-accrual, interest payments are reversed through interest income.

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.

For off balance sheet credit exposures outlined in the ASC 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 recorded.

Investments in Limited Partnerships:

The Company enters into and invests in limited partnerships in order to invest in affordable housing projects to support Community Reinvestment Act activities and secondarily to obtain available tax benefits.

The Company also invests in Small Business Investment Company Program funds.

The Company is a limited partner in these investments and, as such, the Company is not involved in the management or operation of such investments.

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The investments recorded at December 31, 2022 and 2021 were $ 12.2 million and $ 9.4 million, respectively and are included with other assets in the consolidated balance sheet.

The Company also has a commitment to fund an additional $ 2.2 million at December 31, 2021 in four of the limited partnerships compared to $ 2.6 million at December 31, 2020, which is included with other liabilities in the consolidated balance sheet.

The Company also has a commitment to fund an additional $ 3.9 million at December 31, 2022 in six of the limited partnerships compared to $ 2.2 million in five of the limited partnerships at December 31, 2021, which is included with other liabilities in the consolidated balance sheet.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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The amortization of servicing rights is netted against mortgage banking income.

Servicing fees totaled $ 1.2 million, $ 1.2 million and $ 1.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Servicing fees were $ 1.2 million for the years ended 2022, 2021 and 2020.

Late fees and ancillary fees related to loan servicing are not material.

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Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Mortgage Banking Derivatives:

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Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans.

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The fair value of the interest rate swap asset was $ 36.9 million and $ 14.3 million and the fair value of the interest rate swap liability was $ 36.9 million and $ 14.3 million at December 31, 2022 and 2021, respectively.

The Company is a party in risk participation transactions of interest rate swaps, which had a total notional amount of $ 4.6 million and 5.0 million at December 31, 2021 and 2020, respectively.

The Company was a party in risk participation transactions of interest rate swaps.

There were no total notional swaps at December 31, 2022 compared to $ 4.6 million at December 31, 2021.

Bank Owned Life Insurance:

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All goodwill on the Company’s consolidated balance sheet resulted from business combinations prior to January 1, 2009 and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets.

Goodwill is not amortized, but assessed at least annually for impairment and any such impairment will be recognized in the period identified.

Goodwill is not amortized, but assessed at least annually for impairment and any such impairment would be recognized in the period identified.

FHLB and Federal Reserve Bank Stock:

1 unchanged sentence

Both cash and stock dividends are reported as income.

Repurchase Agreements:

Substantially all repurchase agreement liabilities represent amounts advanced by various customers.

Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance.

This product was discontinued during 2019.

Long-term Assets:

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If impaired, the assets are recorded at fair value.

There was no such impairment identified for the years ended December 31, 2022, 2021 and 2020.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Gain on sale of other real estate (OREO) owned financed by seller

Gain on sale of other real estate owned ("OREO") financed by seller

On occasion, the Company underwrites a loan to purchase property owned by the Company.

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Performance obligations are met on a transactional basis and income is recognized monthly based on transaction volume.

Under the accounting standards in effect in the prior period, revenue was previously recognized in other income under noninterest income.

Under ASC 606, these rebates related to debit card transaction volume are reported as a contra expense in data processing fees and supplies under noninterest expense.

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Treasury stock is carried at cost.

Comprehensive Income:

Comprehensive income consists of net income and other comprehensive income (loss).

Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale and changes in the funded status of the pension plan, which are also recognized as separate components of equity.

Comprehensive Income (Loss):

Comprehensive income (loss) consists of net income and other comprehensive income (loss).

Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale, reclassification adjustments for securities transferred to held-to-maturity, reclassification adjustments for gains on the sale of available-for-sale securities and changes in the funded status of the pension plan, which are also recognized as separate components of equity.

Loss Contingencies:

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On April 27, 2021, the bankruptcy court entered an order approving an amended plan of liquidation, which was filed by the former client, other debtors and bankruptcy plan proponents, and approving the consolidation of the assets in the aforementioned cases under the Khan IOI Consolidated Estate Trust.

On August 9, 2021, the liquidating trustee for the bankruptcy estates filed a complaint against the Bank and the Company, and has agreed to stay prosecution of the action through March 31, 2022.

The action is focused on a series of business transactions among the client, related entities, and the Bank, which the liquidating trustee alleges are voidable under applicable federal bankruptcy and state law.

The complaint also addresses treatment of the Bank’s claims filed in the bankruptcy cases.

Based on current information, we have determined that a material loss is neither probable nor estimable at this time, and the Bank and the Company intend to vigorously defend themselves against all allegations asserted in the complaint.

Management does not believe there currently are matters that will have a material effect on the financial statements.

On August 9, 2021, the liquidating trustee for the bankruptcy estates filed a complaint against the Bank and the Company, and agreed to stay prosecution of the action through August 31, 2022.

The original complaint focused on a series of business transactions among the client, related entities and the Bank, which the liquidating trustee alleged are voidable under applicable federal bankruptcy and state law.

The complaint also addressed treatment of the Bank's claims filed in the bankruptcy cases.

On August 31, 2022, the trustee filed his amended complaint against the former client, the Bank, the Company, four officers of the Bank and one independent director of the Bank.

The amended complaint alleges that the former client engaged in a check kiting scheme involving multiple banks.

The amended complaint alleges that a series of business transactions among the client, his related entities and the Bank are voidable under applicable bankruptcy and state laws.

The amended complaint also alleges that the Bank, the Company and the five individual bank representatives who are named as defendants violated various federal and state laws in assisting the former client in his check kiting scheme.

On October 26, 2022, the trustee filed his second amended complaint which was virtually identical to his amended complaint.

On January 5, 2023, the Bank, the Company and the five individual bank representatives filed motions to dismiss the second amended complaint.

The motions are being briefed and will then be considered by the court.

Based on current information, we have determined that a material loss is neither probable nor estimable at this time, and the Bank, the Company and the five individual Bank representatives who are named as defendants intend to vigorously defend themselves against all allegations asserted in this amended complaint.

Restrictions on Cash:

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Changes in assumptions or in market conditions could significantly affect the estimates.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Operating Segments:

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While the Company has assigned certain management responsibilities by region and business-line, the Company’s chief decision-makers monitor and evaluate financial performance on a Company-wide basis.

The majority of the Company’s revenue is from the business of banking and the Company’s assigned regions have similar economic characteristics,

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

products, services and customers.

The majority of the Company’s revenue is from the business of banking and the Company’s assigned regions have similar economic characteristics, products, services and customers.

Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable operating segment.

Adoption of New Accounting Standards:

In June 2016, the FASB issued ASU 2016-13 " Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ." 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 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.

As previously disclosed, the Company implemented the CECL methodology and ran it concurrently with the historical incurred method.

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, 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.

The Company elected to remain on the incurred loan loss methodology for 2020.

The Company adopted ASU 2016-13 during the first quarter of 2021, effective January 1, 2021.

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 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.

The following table illustrates the impact of adoption of the ASU:

January 1, 2021

(dollars in thousands) As Reported Under

ASC 326 Pre-ASC 326

Adoption Impact of

Commercial and industrial loans $ 32,645 $ 28,333 $ 4,312

Commercial real estate and multi-family residential loans 27,223 22,907 4,316

Agri-business and agricultural loans 4,103 3,043 1,060

Other commercial loans 1,357 416 941

Consumer 1-4 family loans 3,572 2,619 953

Other consumer loans 1,300 951 349

Unallocated 258 3,139 ( 2,881 )

Allowance for credit losses $ 70,458 $ 61,408 $ 9,050

The Company’s loan segmentation, as disclosed in “Note 3 – Loans”, did not change as a result of adopting this ASU.

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL.

The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.

In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL.

The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

The Company did not adopt the capital transition relief over the permissible three-year or five-year periods.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In August 2018, the FASB issued ASU 2018-14 “ Compensation — Retirement Benefits — Defined Benefit Plans— General (Topic 715-20):

Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans .” The ASU updated the annual disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans by adding, clarifying and removing certain disclosures.

These amendments are effective for fiscal years ending after December 15, 2020, for public business entities, and are to be applied on a retrospective basis to all periods presented.

The Company adopted this new accounting standard on January 1, 2021, and the adoption did not have a material impact on its financial statements.

In December 2019, the FASB issued ASU 2019-12 “ Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .” These amendments remove specific exceptions to the general principles in Topic 740 in GAAP.

It eliminates the need for an organization to analyze whether the following apply in a given period:

exception to the incremental approach for intraperiod tax allocation;

exceptions to accounting for basis differences where there are ownership changes in foreign investments;

and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

It also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for:

franchise taxes that are partially based on income;

transactions with a government that result in a step up in the tax basis of goodwill;

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

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.

The Company adopted this new accounting standard on January 1, 2021, and the adoption did not have a material impact on its financial statements.

In January 2020, the FASB issued ASU No.

2020-1 “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” These amendments, among other things, clarify that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments-Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

The amendments also clarify that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.

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

Early application is permitted, including early adoption in an interim period.

An entity should apply ASU 2020-1 prospectively at the beginning of the interim period that includes the adoption date.

The Company adopted ASU 2020-1 on January 1, 2021 and it did not have a material impact on its financial statements.

In October 2020, the FASB issued ASU No.

2020-8, " Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs ," to clarify that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period.

The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and early application is not permitted.

The Company adopted this new accounting standard on January 1, 2021, and the adoption did not have a material impact on its financial statements.

Newly Issued But Not Yet Effective Accounting Standards:

Newly Issued Accounting Standards:

On March 12, 2020, the FASB issued Accounting Standards Update (ASU) 2020-04, "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 adoption of alternative reference rates which include Secured Overnight Financing Rate (“SOFR”), American Interbank Offered Rate ("Ameribor"), and Bloomberg Short-Term Bank Yield Index ("BSBY").

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

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 certain loans that renewed prior to 2021 and obtained updated reference rate language at the time of the 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.

Additionally, 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 is working to transition LIBOR-based loans to an alternative reference rate before June 30, 2023.

On December 22, 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (ASC 848):

Deferral of the Sunset Date of Topic 848", which definitively provided a sunset date of December 31, 2024 for the relief guidance allowed under Topic 848.

The ASU was effective immediately upon issuance.

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

On March 28, 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (ASC 815):

Fair Value Hedging - Portfolio Layer Method." ASC 815 currently permits only prepayable financial assets and one or more beneficial interests secured by a portfolio of prepayable financial instruments to be included in a last-of-layer closed portfolio.

The amendment in this update allows nonrepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method.

That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and nonprepayable financial assets, thereby allowing consistent accounting for similar hedges.

The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

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

On March 31, 2022, the FASB issued ASU 2022-02, "Financial Instruments - Credit Losses (ASC 326):

Troubled Debt Restructurings (TDRs) and Vintage Disclosures." The guidance amends ASC 326 to eliminate the accounting guidance for TDR's by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty.

Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of an existing loan.

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 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 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, is permitted.

The Company elected to early adopt the provisions of the ASU related to modifications made to borrowers experiencing financial difficulty 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 the 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.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 and will not have a material impact on the consolidated financial statements.

Newly Proposed Accounting Standards

On August 22, 2022, the FASB released a proposed ASU, "Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)." The amendments in this proposed update would permit reporting entities to account for their tax equity investments, regardless of the program from which the tax credits are received, using the proportional amortization method if certain conditions are met.

Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit).

A reporting entity would make an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than to apply the proportional amortization method at the reporting entity level or to individual investments.

The proposal would require specific disclosures for all tax equity investments in a program to which an entity has elected to apply the proportional amortization method.

The proposed amendments call for application on a modified prospective or a retrospective basis.

The proposed ASU includes an effective date for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2023.

The Company plans to assess the impact of the proposed amendments on the consolidated financial statements once the final ASU is issued.

On October 6, 2022, the FASB released a proposed ASU, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures." The amendments in this proposed update would improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an interim and annual basis.

Significant expense categories and amounts subject to disclosure would be derived from expenses that are (1) regularly reported to an entity's chief operating decision-maker (CODM) and (2) included in a segment's reported measure of profit or loss.

Public entities would also be required to disclose an amount for other segment items by reportable segment and a description of composition.

The other segment items category is the difference between segment revenue less the significant expenses disclosed under the significant expense principle and each reported measure of segment profit or loss.

The amendment would also require all annual disclosures about a reportable segment's profit or loss and assets currently required by Topic 280 to be disclosed for interim periods.

Additionally, the proposed amendments would also require the disclosure of the name and title of the CODM.

The proposed amendments call for retrospective application.

The proposed ASU does not yet include an effective date.

The Company plans to assess the impact of the proposed amendments on the consolidated financial statements once the final ASU is issued.

Reclassifications:

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NOTE 2 – SECURITIES

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 at December 31, 2021 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

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 (loss) at December 31, 2022 and 2021 is provided in the tables on the next page.

NOTE 2 – SECURITIES (continued)

(dollars in thousands) Amortized

Losses Allowance for Credit Losses Fair

Treasury securities $ 3,057 $ 0 $ ( 23 ) $ 0 $ 3,034

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Total $ 1,400,783 $ 224 $ ( 215,479 ) $ 0 $ 1,185,528

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

government sponsored agencies 145,858 39 ( 2,445 ) 0 143,452

5 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 December 31, 2021 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 gains and unrealized gains and losses at December 31, 2022 is presented in the table below.

(dollars in thousands) Amortized

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

State and municipal securities $ 128,242 $ 0 $ ( 17,213 ) $ 0 $ 111,029

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

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) based on the fair value of the securities on the transfer date and was $ 22.9 million ($ 18.1 million, net of tax) at December 31, 2022.

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 year ended December 31, 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 December 31, 2022 is presented on the next page.

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

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NOTE 2 – SECURITIES (continued)

Available-for-Sale Held-to-Maturity

(dollars in thousands) Amortized

Value Amortized

Due in one year or less $ 3,073 $ 3,059 $ 0 $ 0

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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 $ 300.8 million and $ 382.7 million were pledged as of December 31, 2021 and 2020, respectively, as collateral for borrowings from the FHLB and Federal Reserve Bank and for other purposes as permitted or required by law.

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

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

Securities with fair values of $ 298.2 million and $ 300.8 million were pledged as of December 31, 2022 and 2021, respectively, as collateral for borrowings from the FHLB 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 securities with unrealized losses as of December 31, 2022 and 2021 is prese nted below.

Th e tables distribute the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.

Less than 12 months 12 months or more Total

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Value Unrealized Losses

Treasury securities $ 3,034 $ 23 $ 0 $ 0 $ 3,034 $ 23

government sponsored agencies 8,420 1,350 118,541 27,873 126,961 29,223

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NOTE 2 – SECURITIES (continued)

Information regarding held-to-maturity securities with unrealized losses as of December 31, 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

December 31, 2022

State and municipal securities $ 0 $ 0 $ 111,029 $ 17,213 $ 111,029 $ 17,213

The number of securities with unrealized losses as of December 31, 2022 and 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

Treasury securities 7 0 7 0 0 0

government sponsored agencies 1 16 17 0 0 0

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Total temporarily impaired 117 8 125 0 0 0

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

Available-for-sale and held-to-maturity 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 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.

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.

For available-for sale debt securities that do not meet the 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.

1 unchanged sentence

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 December 31, 2021.

Accrued interest receivable on available-for-sale debt securities totaled $ 7.4 million at December 31, 2021 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 securities was recorded at December 31, 2022 or 2021.

No allowance for credit losses for held-to-maturity debt securities was recorded at December 31, 2022.

Accrued interest receivable on available-for-sale and held-to-maturity debt securities totaled $ 8.9 million and $ 7.4 million at December 31, 2022 and 2021, respectively, and is excluded from the estimate of credit losses.

Ninety-nine percent of the securities are backed by the U.S.

government, government agencies, government sponsored agencies or are rated above investment grade, except for certain non-local or local municipal securities, which are not rated.

The Company does not have a history of actively trading securities, but keeps the securities available-for-sale should liquidity for interest rate risk management or other needs develop that would warrant the sale of securities.

While these securities are held in the available-for-sale portfolio, it is management’s current intent and ability to hold them until a recovery in fair value or maturity.

government, government agencies, government sponsored agencies or are rated above investment grade with a long history of no credit losses, except for certain non-local or local municipal securities, which are not rated.

Prior to the adoption of ASC 326, there was no other-than-tempoarary impairment ("OTTI") recorded during the year ended December 31, 2020.

NOTE 3 – LOANS

28 unchanged sentences

Loans, net $ 4,637,790 $ 4,220,068

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

The recorded investment in loans does not include accrued interest, which totaled $ 18.4 million and $ 10.0 million at December 31, 2022 and 2021, respectively.

The Company had $ 306,000 and $ 350,000 in residential real estate loans in process of foreclosure as of December 31, 2022 and 2021, respectively.

2 unchanged sentences

Results for reporting periods after January 1, 2021 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2021:

The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2022 and 2021:

(dollars in thousands) Commercial

5 unchanged sentences

Consumer Unallocated Total

December 31, 2021

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

Provision for credit losses 8,646 1,179 ( 605 ) ( 229 ) 125 155 104 9,375

Loans charged-off ( 4,022 ) ( 597 ) 0 0 ( 42 ) ( 473 ) 0 ( 5,134 )

Recoveries 71 277 0 0 52 192 0 592

Net loans (charged-off) recovered ( 3,951 ) ( 320 ) 0 0 10 ( 281 ) 0 ( 4,542 )

Ending balance $ 35,290 $ 27,394 $ 4,429 $ 917 $ 3,001 $ 1,021 $ 554 $ 72,606

(dollars in thousands) Commercial

Industrial Commercial

Residential Agri-business

Agricultural Other

Commercial Consumer

Mortgage Other

Consumer Unallocated Total

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

Impact of adopting ASC 326 4,312 4,316 1,060 941 953 349 ( 2,881 ) 9,050

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They are characterized as the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

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.

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NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

The following table summarizes the risk category of loans by loan segment and origination date as of December 31, 2021:

The following tables summarize the risk category of loans by loan segment and origination date as of December 31, 2022 and 2021.

Balances presented are at the amortized cost basis by origination year.

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

45 unchanged sentences

Pass 8,768 12,809 12,289 4,805 4,045 3,860 46,576 5,634 52,210

Special Mention 0 0 552 0 0 0 552 0 552

Substandard 0 0 0 0 83 1,944 2,027 0 2,027

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NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

As of December 31, 2021, $ 26.2 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

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

Commercial and industrial loans:

Working capital lines of credit loans:

Pass $ 3,699 $ 830 $ 3,360 $ 0 $ 0 $ 0 $ 7,889 $ 558,634 $ 566,523

Special Mention 0 0 0 0 0 0 0 60,441 60,441

Substandard 0 0 35 0 0 0 35 25,928 25,963

Total 3,699 830 3,395 0 0 0 7,924 645,003 652,927

Non-working capital loans:

Pass 185,374 139,157 79,477 38,899 19,415 18,489 480,811 203,794 684,605

Special Mention 17,728 0 225 979 2,350 1,426 22,708 0 22,708

Substandard 2,996 6,948 1,091 2,534 5,465 426 19,460 3,321 22,781

Not Rated 2,265 1,758 837 563 128 14 5,565 0 5,565

Total 208,363 147,863 81,630 42,975 27,358 20,355 528,544 207,115 735,659

Commercial real estate and multi-family residential loans:

Construction and land development loans:

Pass 35,136 30,224 1,276 998 0 0 67,634 310,396 378,030

Total 35,136 30,224 1,276 998 0 0 67,634 310,396 378,030

Owner occupied loans:

Pass 135,861 169,404 124,117 85,070 78,155 93,925 686,532 29,611 716,143

Special Mention 6,555 0 880 933 7,387 1,235 16,990 0 16,990

Substandard 489 1,570 909 1,758 694 238 5,658 0 5,658

Total 142,905 170,974 125,906 87,761 86,236 95,398 709,180 29,611 738,791

Nonowner occupied loans:

Pass 146,342 154,433 107,262 19,054 31,023 59,154 517,268 44,362 561,630

Special Mention 11,825 331 0 0 0 14,253 26,409 0 26,409

Total 158,167 154,764 107,262 19,054 31,023 73,407 543,677 44,362 588,039

Multi-family loans:

Pass 84,678 53,195 36,575 12,286 14,574 9,793 211,101 13,434 224,535

Special Mention 0 0 0 0 22,252 0 22,252 0 22,252

Total 84,678 53,195 36,575 12,286 36,826 9,793 233,353 13,434 246,787

Agri-business and agricultural loans:

Loans secured by farmland:

Pass 47,532 37,035 16,249 10,469 10,454 17,021 138,760 61,774 200,534

Special Mention 0 1,985 2,303 0 180 30 4,498 918 5,416

Substandard 207 0 0 0 0 145 352 0 352

Total 47,739 39,020 18,552 10,469 10,634 17,196 143,610 62,692 206,302

Loans for agricultural production:

Pass 36,238 25,855 4,224 11,072 1,331 4,178 82,898 138,142 221,040

Special Mention 448 8,642 1,171 0 0 0 10,261 8,272 18,533

Total 36,686 34,497 5,395 11,072 1,331 4,178 93,159 146,414 239,573

Other commercial loans:

Pass 6,556 21,111 3,243 1,273 8,592 7,460 48,235 21,145 69,380

Special Mention 0 0 0 0 0 3,798 3,798 0 3,798

Total 6,556 21,111 3,243 1,273 8,592 11,258 52,033 21,145 73,178

Consumer 1-4 family mortgage loans:

Closed end first mortgage loans

Pass 14,635 16,173 5,312 5,903 3,049 3,221 48,293 5,005 53,298

Substandard 0 0 0 0 0 1,274 1,274 0 1,274

Not Rated 45,089 27,738 9,248 5,217 7,628 26,321 121,241 482 121,723

Total 59,724 43,911 14,560 11,120 10,677 30,816 170,808 5,487 176,295

Open end and junior lien loans

Pass 679 379 159 313 0 0 1,530 5,074 6,604

Substandard 0 0 0 0 0 0 0 98 98

Not Rated 21,945 5,624 5,987 3,899 1,653 1,526 40,634 110,523 151,157

Total 22,624 6,003 6,146 4,212 1,653 1,526 42,164 115,695 157,859

Residential construction loans

Not Rated 7,926 1,537 960 138 171 1,125 11,857 0 11,857

Total 7,926 1,537 960 138 171 1,125 11,857 0 11,857

Other consumer loans

Pass 3,401 957 1,523 0 1,155 0 7,036 12,998 20,034

Substandard 36 23 230 0 0 0 289 0 289

Not Rated 21,652 14,931 7,474 5,844 1,890 1,203 52,994 9,227 62,221

Total 25,089 15,911 9,227 5,844 3,045 1,203 60,319 22,225 82,544

TOTAL $ 839,292 $ 719,840 $ 414,127 $ 207,202 $ 217,546 $ 266,255 $ 2,664,262 $ 1,623,579 $ 4,287,841

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

As of December 31, 2022 and 2021, $ 1.5 million and $ 26.2 million, respectively, 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").

Nonaccrual and Past Due Loans:

The Company does not record interest on nonaccrual loans until principal is recovered.

For all loan classes, a loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due unless it is well secured and in process of collection, or earlier when concern exists as to the ultimate collectability of principal or interest.

2 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 the payments are reasonably assured.

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:

The following table presents the aging of the amortized cost basis in past due loans as of December 31, 2022 and 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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NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

(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

Commercial and industrial loans:

Working capital lines of credit loans $ 652,903 $ 24 $ 0 $ 646,961 $ 5,966 $ 5,200 $ 652,927

Non-working capital loans 735,658 1 0 731,063 4,596 229 735,659

Commercial real estate and multi-family residential loans:

Construction and land development loans 378,030 0 0 378,030 0 0 378,030

Owner occupied loans 738,791 0 0 735,157 3,634 2,129 738,791

Nonowner occupied loans 588,039 0 0 588,039 0 0 588,039

Multi-family loans 246,787 0 0 246,787 0 0 246,787

Agri-business and agricultural loans:

Loans secured by farmland 206,302 0 0 205,967 335 0 206,302

Loans for agricultural production 239,573 0 0 239,573 0 0 239,573

Other commercial loans 73,178 0 0 73,178 0 0 73,178

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans 175,678 500 117 176,240 55 55 176,295

Open end and junior lien loans 157,729 130 0 157,761 98 98 157,859

Residential construction loans 11,857 0 0 11,857 0 0 11,857

Other consumer loans 82,472 72 0 82,255 289 0 82,544

Total $ 4,286,997 $ 727 $ 117 $ 4,272,868 $ 14,973 $ 7,711 $ 4,287,841

As of December 31, 2021, 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 year ended December 31, 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 year over year 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 December 31, 2021:

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

The following tables present the amortized cost basis of collateral dependent loans by class of loan as of December 31, 2022 and 2021:

(dollars in thousands) Real Estate General

13 unchanged sentences

Total $ 3,225 $ 25,147 $ 1,397 $ 29,769

Troubled Debt Restructurings:

(dollars in thousands) Real Estate General

Assets Other Total

Commercial and industrial loans:

Working capital lines of credit loans $ 0 $ 5,966 $ 0 $ 5,966

Non-working capital loans 1,606 9,475 229 11,310

Commercial real estate and multi-family residential loans:

Owner occupied loans 1,435 1,505 1,161 4,101

Nonowner occupied loans 0 0 0 0

Agri-business and agricultural loans:

Loans secured by farmland 190 145 0 335

Consumer 1-4 family mortgage loans:

Closed end first mortgage loans 3,081 0 0 3,081

Open end and junior lien loans 98 0 0 98

Other consumer loans 0 0 59 59

Total $ 6,410 $ 17,091 $ 1,449 $ 24,950

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

Modifications Made to Borrowers Experiencing Financial Difficulty

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 losses 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 borrower to to make interest only payments for a specified period of time.

During the year ended December 31, 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 total 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 analyz ed loans.

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

The Company has allocated $ 5.8 million of specific allocations 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 troubled debt restructuring .

(dollars in thousands) December 31,

2021 December 31,

Accruing troubled debt restructured loans $ 5,121

9 unchanged sentences

These troubled debt restructured loans with additional concessions decreased the allowance by $ 423,000 and resulted in no charge-offs for the year ending December 31, 2021.

These concessions are not included in the table below.

These concessions are not included in the table on the next page.

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

9 unchanged sentences

In accordance with Section 4013 of the CARES Act, this deferral was not considered to be a troubled debt restructuring.

This provision was effective through January 1, 2022 under the Consolidated Appropriations Act, 2021.

This provision was effective until its expiration on January 1, 2022 under the Consolidated Appropriations Act, 2021.

During the year ended December 31, 2020, certain loans were modified as troubled debt restructurings.

20 unchanged sentences

Two borrowers represented 90 % of the fourth deferral population and were commercial real estate nonowner occupied loans supported by adequate collateral and personal guarantors and consist of loans to the hotel and accommodation industry.

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

All COVID-19 related loan deferrals were on accrual status, as each deferral was individually analyzed, and management determined that all contractual cashflows were collectable at that

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

In accordance with Section 4013 of the CARES Act, these were not considered to be troubled debt restructurings and were excluded from the table above.

During the year ending December 31, 2019, certain loans were modified as troubled debt restructurings.

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

inadequate compensation for the terms of the restructure or renewal;

a modification of the repayment terms which delays principal repayment for some period;

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

Additional concessions were granted to borrowers during 2019 with previously identified troubled debt restructured loans.

There were three commercial real estate loans with recorded investments totaling $ 1.9 million and five commercial and industrial loans with recorded investments totaling $ 2.4 million where the collateral values or cash flows were insufficient to support the loans.

These troubled debt restructured loans with additional concessions decreased the allowance by $ 484,000 and resulted in no charge-offs for year ending December 31, 2019.

These concessions are not included in the table below.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the year ending December 31, 2019:

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 $ 35 $ 35 1 1

Total 1 $ 35 $ 35 1 1

For the period ending December 31, 2019, the working capital line of credit troubled debt restructuring described above had no impact to the allowance and no charge-offs were recorded.

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

The following table presents loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the period ending December 31, 2021, 2020 and 2019.

2021 2020 2019

(dollars in thousands) Number of

Loans Recorded

Investment Number of

Loans Recorded

Investment Number of

Loans Recorded

Troubled Debt Restructurings that Subsequently Defaulted Commercial and industrial loans:

Non-working capital loans 0 $ 0 0 $ 0 1 $ 601

Total 0 $ 0 0 $ 0 1 $ 601

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

There were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the period ending December 31, 2021 and 2020.

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

1 unchanged sentence

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

The following tables present the activity and balance in the allowance for loan losses by portfolio segment for the year ended December 31, 2020 and 2019.

The following tables present the activity and balance in the allowance for loan losses by portfolio segment for the year ended December 31, 2020.

PPP loans are fully guaranteed by the SBA and have not been allocated for within the allowance for loan losses.

6 unchanged sentences

Consumer Unallocated Total

December 31, 2020

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

4 unchanged sentences

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

(dollars in thousands) Commercial

Industrial Commercial

Residential Agri-business

Agricultural Other

Commercial Consumer

Mortgage Other

Consumer Unallocated Total

December 31, 2019

Beginning balance $ 22,518 $ 15,393 $ 4,305 $ 368 $ 2,292 $ 283 $ 3,294 $ 48,453

Provision for loan losses 4,259 259 ( 444 ) 79 ( 219 ) 275 ( 974 ) 3,235

Loans charged-off ( 1,447 ) ( 17 ) 0 0 ( 110 ) ( 336 ) 0 ( 1,910 )

Recoveries 459 161 8 0 123 123 0 874

Net loans (charged-off) recovered ( 988 ) 144 8 0 13 ( 213 ) 0 ( 1,036 )

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

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

The following tables present balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2020:

(dollars in thousands) Commercial

Industrial Commercial

Residential Agri-business

Agricultural Other

Commercial Consumer

Mortgage Other

Consumer Unallocated Total

December 31, 2020

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment $ 6,310 $ 1,377 $ 84 $ 0 $ 270 $ 0 $ 0 $ 8,041

Collectively evaluated for impairment 22,023 21,530 2,959 416 2,349 951 3,139 53,367

Total ending allowance balance $ 28,333 $ 22,907 $ 3,043 $ 416 $ 2,619 $ 951 $ 3,139 $ 61,408

Loans individually evaluated for impairment $ 12,533 $ 5,518 $ 428 $ 0 $ 1,700 $ 0 $ 0 $ 20,179

Loans collectively evaluated for impairment 1,772,393 1,887,054 429,234 93,912 342,999 103,385 0 4,628,977

Total ending loans balance $ 1,784,926 $ 1,892,572 $ 429,662 $ 93,912 $ 344,699 $ 103,385 $ 0 $ 4,649,156

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2020:

(dollars in thousands) Unpaid

Balance Recorded

Investment Allowance for

With no related allowance recorded:

Commercial and industrial loans:

Working capital lines of credit loans $ 346 $ 173 $ 0

Non-working capital loans 2,399 968 0

Commercial real estate and multi-family residential loans:

Owner occupied loans 3,002 2,930 0

Agri-business and agricultural loans:

Loans secured by farmland 603 283 0

Consumer 1‑4 family loans:

Closed end first mortgage loans 316 236 0

Open end and junior lien loans 5 5 0

With an allowance recorded:

Commercial and industrial loans:

Working capital lines of credit loans 433 433 255

Non-working capital loans 11,644 10,959 6,055

Commercial real estate and multi-family residential loans:

Owner occupied loans 2,589 2,588 1,377

Agri-business and agricultural loans:

Loans secured by farmland 145 145 84

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans 1,457 1,459 270

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

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

The following table presents loans individually evaluated for impairment by class of loans for the year ended December 31, 2020:

29 unchanged sentences

Total $ 23,362 $ 390 $ 385

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

The following table presents loans individually evaluated for impairment by class of loans for the year ended December 31, 2019:

(dollars in thousands) Average

Investment Interest

Recognized Cash Basis

With no related allowance recorded:

Commercial and industrial loans:

Working capital lines of credit loans $ 176 $ 9 $ 9

Non-working capital loans 1,170 40 30

Commercial real estate and multi-family residential loans:

Owner occupied loans 2,354 34 34

Loans for ag production 4 0 0

Agri-business and agricultural loans:

Loans secured by farmland 283 0 0

Consumer 1‑4 family loans:

Closed end first mortgage loans 272 3 3

Open end and junior lien loans 133 0 0

With an allowance recorded:

Commercial and industrial loans:

Working capital lines of credit loans 6,335 143 81

Non-working capital loans 11,800 448 410

Commercial real estate and multi-family residential loans:

Construction and land development loans

Owner occupied loans 1,849 43 39

Agri-business and agricultural loans:

Loans secured by farmland 147 3 1

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans 1,643 45 43

Open end and junior lien loans 268 0 0

Residential constructions loans 9 0 0

Other consumer loans 21 2 1

Total $ 26,464 $ 770 $ 651

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

The following table presents the aging of the recorded investment in past due loans as of December 31, 2020 by class of loans:

(dollars in thousands) Loans Not

Past Due 30-89

Past Due Greater than

Due and Still

Accruing Nonaccrual Total Past

Nonaccrual Total

Commercial and industrial loans:

Working capital lines of credit loans $ 625,493 $ 0 $ 0 $ 606 $ 606 $ 626,099

Non-working capital loans 1,153,540 0 0 5,287 5,287 1,158,827

Commercial real estate and multi-family residential loans:

Construction and land development loans 361,664 0 0 0 0 361,664

Owner occupied loans 642,527 0 0 5,047 5,047 647,574

Nonowner occupied loans 579,050 0 0 0 0 579,050

Multi-family loans 304,284 0 0 0 0 304,284

Agri-business and agricultural loans:

Loans secured by farmland 194,935 0 0 428 428 195,363

Loans for agricultural production 234,191 108 0 0 108 234,299

Other commercial loans 93,912 0 0 0 0 93,912

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans 165,895 877 116 613 1,606 167,501

Open end and junior lien loans 165,094 137 0 5 142 165,236

Residential construction loans 11,962 0 0 0 0 11,962

Other consumer loans 103,240 145 0 0 145 103,385

Total $ 4,635,787 $ 1,267 $ 116 $ 11,986 $ 13,369 $ 4,649,156

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY (continued)

As of December 31, 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(dollars in thousands) Pass Special

Mention Substandard Doubtful Not

Commercial and industrial loans:

Working capital lines of credit loans $ 535,071 $ 81,095 $ 9,718 $ 0 $ 215 $ 626,099

Non-working capital loans 1,111,989 26,523 14,820 0 5,495 1,158,827

Commercial real estate and multi-family residential loans:

Construction and land development loans 361,664 0 0 0 0 361,664

Owner occupied loans 608,845 31,355 7,374 0 0 647,574

Nonowner occupied loans 547,790 31,260 0 0 0 579,050

Multi-family loans 282,031 22,253 0 0 0 304,284

Agri-business and agricultural loans:

Loans secured by farmland 183,983 10,728 652 0 0 195,363

Loans for agricultural production 185,875 48,424 0 0 0 234,299

Other commercial loans 93,912 0 0 0 0 93,912

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans 40,682 0 1,695 0 125,124 167,501

Open end and junior lien loans 8,424 0 5 0 156,807 165,236

Residential construction loans 0 0 0 0 11,962 11,962

Other consumer loans 36,979 253 0 0 66,153 103,385

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

NOTE 5 – FAIR VALUE

44 unchanged sentences

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;

(a) raw materials inventory is discounted from its cost or book value by 40 %- 60 %, depending on the marketability of the goods (b) finished goods are generally discounted by 40 %- 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 60 %- 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 20 %- 50 % 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.

1 unchanged sentence

Mortgage servicing rights:

As of December 31, 2021, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 3.1 million, carried at amortized cost less $ 715,000 in a valuation reserve, or $ 2.4 million.

As of December 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 and no valuation reserve.

These residential mortgage loans have a weighted average interest rate of 3.5 %, a weighted average maturity of 21 years and are secured by homes generally within the Company’s market area of Northern Indiana and Indianapolis.

17 unchanged sentences

NOTE 5 – FAIR VALUE (continued)

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

December 31, 2021

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021:

Fair Value Measurements Using Assets

4 unchanged sentences

residential 0 492,308 0 492,308

Mortgage-backed securities:

commercial 0 523 0 523

State and municipal securities 0 561,150 2,075 563,225

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

Total Available-for-Sale Securities 3,034 1,180,419 2,075 1,185,528

Mortgage banking derivative 0 43 0 43

1 unchanged sentence

Total assets $ 3,034 $ 1,217,382 $ 2,075 $ 1,222,491

Mortgage banking derivative $ 0 $ 2 $ 0 $ 2

Interest rate swap derivative $ 0 $ 36,921 $ 0 $ 36,921

Total liabilities $ 0 $ 36,921 $ 0 $ 36,921

December 31, 2020

Fair Value Measurements Using Assets

(dollars in thousands) Level 1 Level 2 Level 3 at Fair Value

Treasury securities $ 900 $ 0 $ 0 $ 900

government sponsored agency securities 0 143,452 0 143,452

4 unchanged sentences

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

Total Securities 0 734,705 140 734,845

Total Available-for-Sale Securities 900 1,395,615 2,043 1,398,558

Mortgage banking derivative 0 398 0 398

6 unchanged sentences

NOTE 5 – FAIR VALUE (continued)

The tables below present the amount of assets measured at fair value on a nonrecurring basis:

December 31, 2021

The tables below present the amount of assets measured at fair value on a nonrecurring basis as of December 31, 2022 and 2021:

Fair Value Measurements Using Assets

11 unchanged sentences

Total assets $ 0 $ 0 $ 12,092 $ 12,092

December 31, 2020

Fair Value Measurements Using Assets

8 unchanged sentences

Loans secured by farmland 0 0 231 231

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans 0 0 411 411

Total collateral dependent loans $ 0 $ 0 $ 6,364 $ 6,364

7 unchanged sentences

Collateral dependent loans:

Commercial real estate and multi-family residential loans 791 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 51 %

Commercial real estate and multi-family residential 425 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 57 %

Collateral dependent loans:

10 unchanged sentences

Agri-business and agricultural 231 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 35 %

Collateral dependent loans:

Consumer 1-4 family mortgage 411 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 11 %

Other real estate owned 196 Appraisals Discount to reflect current market conditions and ultimate collectability 38 %

NOTE 5 – FAIR VALUE (continued)

The following table contains the estimated fair values and the related carrying values of the Company’s financial instruments at December 31, 2021.

The following tables contain the estimated fair values and the related carrying values of the Company’s financial instruments at December 31, 2022 and 2021.

Items which are not financial instruments are not included.

December 31, 2021

Carrying Estimated Fair Value

3 unchanged sentences

Securities available-for-sale 1,185,528 3,034 1,180,419 2,075 1,185,528

Securities held-to-maturity 128,242 0 111,029 0 111,029

Real estate mortgages held-for-sale 357 0 372 0 372

7 unchanged sentences

All other deposits 4,834,434 4,834,434 0 0 4,834,434

Federal Funds purchased 22,000 22,000 0 0 22,000

Federal Home Loan Bank advances 275,000 275,000 0 0 275,000

Mortgage banking derivative ( 2 ) 0 ( 2 ) 0 ( 2 )

Interest rate swap derivative 36,921 0 36,921 0 36,921

2 unchanged sentences

NOTE 5 – FAIR VALUE (continued)

The following table contains the estimated fair values and the related carrying values of the Company’s financial instruments at December 31, 2020.

Items which are not financial instruments are not included.

December 31, 2020

Carrying Estimated Fair Value

12 unchanged sentences

All other deposits 4,905,889 4,905,889 0 0 4,905,889

Miscellaneous borrowings ( 10,500 ) 0 ( 10,500 ) 0 ( 10,500 )

Federal Home Loan Bank advances 75,000 0 66,118 0 66,118

12 unchanged sentences

Land, premises and equipment, net $ 58,097 $ 59,309

The Company had land, premises and equipment of $ 0 and $ 100,000 held for sale and included in other assets as of December 31, 2021 and 2020.

The Company had no land, premises and equipment held for sale and included in other assets as of December 31, 2022 and 2021.

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

4 unchanged sentences

The Company’s annual impairment analysis was performed as of May 31, 2022.

Circumstances did not substantially change during the second half of the year such that the Company did not believe it was necessary to do an additional impairment analysis.

Circumstances did not substantially change during the second half of the year such that the Company believed it was necessary to perform an additional impairment analysis.

NOTE 8 – DEPOSITS

21 unchanged sentences

During 2022 and 2021 the Bank entered into agreements with IntraFi Network relative to their Insured Cash Sweep One-Way Buy program.

As of December 31, 2021, the total amount available to the Bank via this program was $ 100.0 million, of which, $ 10.0 million was drawn compared to availability of $ 100.0 million and $ 10.0 million usage as of December 31, 2020.

As of December 31, 2022 and 2021 the total amount available to the Bank via this program was $ 100.0 million, of which, $ 10.0 million was drawn.

NOTE 9 – BORROWINGS

For the years ending December 31, there was one outstanding advance from the FHLB as follows:

The following table details outstanding advances with the Federal Home Loan Bank ("FHLB") of Indianapolis for the years ended December 31, 2022 and 2021:

(dollars in thousands) 2022 2021

Federal Home Loan Bank of Indianapolis Putable Advance, 0.39 %, Due March 4, 2030

FHLB of Indianapolis Bullet Advance, 4.21 %, Due January 5, 2023

$ 275,000 $ 0

The outstanding advance is a fixed-rate putable advance and 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 with a carrying value of $ 478.4 million and $ 611.2 million at December 31, 2021 and 2020, respectively.

At December 31, 2021 and 2020, the Company owned $ 10.4 million of FHLB stock, which also secures debts owed to the FHLB.

FHLB of Indianapolis Putable Advance, 0.39 %, Due March 4, 2030, Called June 6, 2022

Total FHLB advances $ 275,000 75,000

The advance outstanding at December 31, 2022 was a fixed-rate bullet advance and could not be prepaid by the Company without a penalty.

The note required payment at maturity and was secured by residential real estate loans and securities with a carrying value of $ 549.0 million at December 31, 2022.

The advance outstanding at December 31, 2021 was a ten-year fixed-rate putable advance and could not be prepaid by the Company without penalty.

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

The note was secured by residential real estate loans and securities with a carrying value of $ 478.4 million at December 31, 2021.

At December 31, 2022 and 2021, the Company owned $ 12.4 million and $ 10.4 million, respectively, of FHLB stock which also secures debts owed to the FHLB.

The Company is authorized by the Board to borrow up to $ 800.0 million at the FHLB, but availability is limited to $ 66.5 million based on collateral and outstanding borrowings.

3 unchanged sentences

The Company had $ 350.0 million of availability in federal funds lines with eleven correspondent banks as of December 31, 2022 and 2021;

no amounts were drawn on as of either year end.

$ 22.0 million and $ 0 were drawn upon as of December 31, 2022 and 2021, respectively.

The Bank is also a member of the American Financial Exchange (AFX) where overnight fed funds purchased can be obtained from other banks on the Exchange that have approved the Bank for an unsecured, overnight line.

These funds are only available if the approving banks have an ‘offer’ out to sell that day.

As of December 31, 2021 and 2020, the total amount approved for the Bank via AFX banks was $ 319.0 million and $ 394.0 million, respectively.

The total amount approved for the Bank via AFX banks was $ 319.0 million at December 31, 2022 and 2021.

There were no amounts drawn as of December 31, 2022 and 2021.

NOTE 9 – BORROWINGS (continued)

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;

this credit agreement was subsequently amended and renewed on July 30, 2022.

Funds provided under the agreement may be used to repurchase shares of the Company’s common stock under the share repurchase program, which was reauthorized by the Company’s board of directors on April 13, 2021.

The credit agreement includes a negative pledge agreement whereby the Company agrees not to pledge or otherwise encumber the stock of the Bank.

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

Outstanding borrowings on the credit agreement were $ 0.00 million and $ 10.5 million at December 31, 2021 and 2020, respectively.

NOTE 10 – SUBORDINATED DEBENTURES

Lakeland Statutory Trust II, a trust formed by the Company (the “Trust”), issued $ 30.0 million of floating rate trust preferred securities on October 1, 2003 as part of a privately placed offering of such securities.

The Company issued $ 30.9 million of subordinated debentures to the Trust in exchange for the proceeds of the Trust.

The Company held a controlling interest in the Trust, but did not have a majority of voting rights;

therefore the Trust was considered a variable interest entity.

The Company was not considered the primary beneficiary of this Trust;

therefore, the Trust was not consolidated in the Company’s financial statements, but rather the subordinated debentures was shown as a liability prior to being redeemed.

Subject to the Company having received prior approval of the Federal Reserve, the Company was able to redeem the subordinated debentures, in whole or in part, but in all cases in a principal amount with integral multiples of $ 1,000 , on any interest payment date on or after October 1, 2008 at 100 % of the principal amount, plus accrued and unpaid interest.

The subordinated debentures were required to be redeemed no later than 2033.

These securities were considered Tier I capital (with certain limitations applicable) under current regulatory guidelines and, subject to certain limitations, were also considered Tier 1 capital under Basel III.

On December 31, 2019, the Company redeemed $ 30.0 million of trust preferred securities of the Trust.

The trust preferred securities were redeemed, along with $ 928,000 in common securities issued by the Trust and held by the Company, as a result of the concurrent redemption of 100 % of the Company’s junior subordinated debentures due 2033 and held by the Trust, which underlie the trust preferred securities.

The redemption price for the junior subordinated debentures was equal to 100 % of the principal amount plus accrued interest up to, but not including, the redemption date.

The proceeds from the redemption of the junior subordinated debentures were simultaneously applied to redeem all of the outstanding common securities and the outstanding trust preferred securities at a price of 100 % of the aggregate liquidation amount of the trust preferred securities plus accumulated but unpaid distributions up to, but not including, the redemption date.

The redemption was pursuant to the optional redemption provisions of the underlying indenture.

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

NOTE 10 – PENSION AND OTHER POSTRETIREMENT PLANS

28 unchanged sentences

The accumulated benefit obligation for the pension plan was $ 1.5 million and $ 2.3 million for December 31, 2022 and 2021, respectively.

The accumulated benefit obligation for the SERP was $ 0.9 million and $ 1.0 million for December 31, 2021 and 2020, respectively.

The accumulated benefit obligation for the SERP was $ 700,000 and $ 867,000 for December 31, 2022 and 2021, respectively.

NOTE 10 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

17 unchanged sentences

The lump sum assumed interest rates, below, for December 31, 2022, 2021 and 2020 reflect the mortality table in effect for 2022, 2021 and 2020, respectively.

For 2021, the mortality assumption was changed to the PRI-2012 White Collar Mortality Table, with full generational Projection Scale MP-2021 as of December 31, 2021, to reflect improved mortality expectations.

For 2022, the mortality assumption was the PRI-2012 White Collar Mortality Table, with full generational Projection Scale MP-2021 as of December 31, 2022.

For 2020, the mortality assumption was the PRI-2012 White Collar Mortality Table, with full generational Projection Scale MP-2020 as of December 31, 2020.

26 unchanged sentences

Certain asset types and investment strategies are prohibited including, the investment in commodities, options, futures, short sales, margin transactions and non-marketable securities.

The Company’s pension plan asset allocation at year end 2021 and 2020, target allocation for 2021, and expected long-term rate of return by asset category are as follows:

NOTE 10 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

The Company’s pension plan asset allocation at year end 2022 and 2021, target allocation for 2023, and expected long-term rate of return by asset category are as follows:

Allocation Percentage of Plan

55 unchanged sentences

Total $ 2,303 $ 2,303 $ 0 $ 0

Total pension plan assets available for benefits also include $ 3,000 in accrued interest and dividend income.

There were no Level 2 or 3 securities during either year.

33 unchanged sentences

Contributions

The Company does not expect to contribute to its pension or SERP plans in 2021.

The Company did not contribute to its pension or SERP plans in 2022.

NOTE 10 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

8 unchanged sentences

The Company maintains a 401(k) profit sharing plan for all employees meeting certain age and service requirements.

The 401(k) plan allows employees to contribute up to the maximum amount allowable under the Internal Revenue Code, which are matched based upon the percentage of budgeted net income earned during the year on the first 6 % of the compensation contributed.

The 401(k) plan allows employee contributions up to the maximum amount allowable under the Internal Revenue Code, which are matched based upon the percentage of budgeted net income earned during the year on the first 6 % of the compensation contributed.

The expense recognized from matching was $ 2.4 million, $ 2.3 million and $ 1.9 million in 2022, 2021 and 2020, respectively.

3 unchanged sentences

A liability is accrued by the Company for its obligation under this plan.

The expense recognized was $ 1.2 million, $ 1.0 million and $ 461,000 during the years ended December 31, 2021, 2020 and 2019, respectively.

The expense recognized was ($ 1.0 million), $ 1.2 million and $ 1.0 million during the years ended December 31, 2022, 2021 and 2020, respectively.

This resulted in a deferred compensation liability of $ 6.1 million and $ 7.0 million as of year end 2022 and 2021, respectively.

25 unchanged sentences

Bank owned life insurance ( 78 ) ( 596 ) ( 595 )

Long-term incentive plan ( 274 ) ( 58 ) ( 421 )

Long-term incentive plan and deferred compensation ( 530 ) ( 274 ) ( 58 )

Nondeductible compensation expense 181 156 0

11 unchanged sentences

Deferred loan fees 572 771

Accrued legal reserve 819 0

Other 1,130 191

12 unchanged sentences

Net deferred tax asset $ 16,634 $ 13,859

In addition to the net deferred tax assets included above, the deferred income tax liability allocated to the unrealized net gain on securities available-for-sale included in equity was ($ 4.5 million) and ($ 7.8 million) for 2021 and 2020, respectively.

In addition to the net deferred tax assets included above, the deferred income tax asset (liability) allocated to the unrealized net gain (loss) on securities available-for-sale included in equity was $ 50.0 million and ($ 4.5 million) for 2022 and 2021, respectively.

The deferred income tax asset allocated to the pension plan and SERP included in equity was $ 255,000 and $ 319,000 for 2022 and 2021, respectively.

19 unchanged sentences

Deposits from principal officers, directors, and their affiliates at year end 2022 and 2021 were $ 16.2 million and $ 30.2 million, respectively.

The Company and Bank are an investor in certain funds managed by Centerfield Capital (“Centerfield”), a private equity investment firm.

Faraz Abbasi, a director of the Company, is a Managing Partner and an owner of Centerfield.

As of December 31, 2022 and 2021, the Company had an aggregate investment balance of approximately $ 2.3 million in such funds, which are included in other assets on the consolidated balance sheet, and had remaining commitments to invest up to approximately $ 2.8 million and $ 3.2 million, respectively.

Under the terms of the applicable funds, Centerfield is entitled to customary management fees with respect to the amounts under management and investment gains, and it is estimated that Mr.

Abbasi’s interest in such fees was less than $ 25,000 annually for the years ended December 31, 2022 and 2021.

NOTE 14 – STOCK BASED COMPENSATION

16 unchanged sentences

The expected stock option life used is the historical option life of the similar employee base or Board.

The turnover rate is based on historical data of the similar employee base as a group and the Board as a group.

The turnover rate is based on historical data of the similar employee base as a group

NOTE 14 – STOCK BASED COMPENSATION (continued)

and the Board as a group.

The risk-free interest rate is the Treasury rate on the date of grant corresponding to the expected life period of the stock option.

2 unchanged sentences

There were no options exercised during the years ended December 31, 2022, 2021 or 2020.

NOTE 15 – STOCK BASED COMPENSATION (continued)

Restricted Stock Awards and Units

6 unchanged sentences

Vested ( 15,876 ) 72.84

Forfeited ( 516 ) 76.33

Nonvested at December 31, 2022 23,065 $ 76.13

As of December 31, 2021, there was no unrecognized compensation cost related to non-vested shares granted under the plan.

As of December 31, 2022, there was $ 1.2 million unrecognized compensation cost related to non-vested shares granted under the plan.

The cost is expected to be recognized over a weighted period of 2 years.

The total fair value of shares vested during the years ended December 31, 2022, 2021 and 2020 was $ 1.2 million, $ 1.1 million and $ 0.7 million, respectively.

75 unchanged sentences

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 December 31, 2022 and 2021.

December 31, 2021

Recognized Assets/

12 unchanged sentences

Total Liabilities $ 36,921 $ 0 $ 36,921 $ 0 $ ( 90 ) $ 36,831

December 31, 2020

Liabilities Gross

61 unchanged sentences

Dividends payable and other liabilities $ 237 $ 261

Borrowings 0 10,500

STOCKHOLDERS’ EQUITY 568,798 704,817

Total liabilities and stockholders’ equity $ 569,035 $ 705,078

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,

10 unchanged sentences

NET INCOME $ 103,817 $ 95,733 $ 84,337

COMPREHENSIVE INCOME $ 84,082 $ 100,022 $ 105,297

COMPREHENSIVE INCOME (LOSS) $ ( 101,199 ) $ 84,082 $ 100,022

NOTE 18 – PARENT COMPANY STATEMENTS (continued)

9 unchanged sentences

Cash flows from financing activities

Repayment of long-term debt 0 0 ( 30,928 )

Proceeds from (payments on) short-term borrowings 0 ( 10,500 ) 10,500

40 unchanged sentences

NOTE 20 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (continued)

Reclassifications out of accumulated comprehensive income for the years ended December 31, 2021, 2020 and 2019 are as follows:

Reclassifications out of accumulated other comprehensive income for the years ended December 31, 2022, 2021 and 2020 are as follows:

Details about

4 unchanged sentences

Accumulated Other

Comprehensive Income Affected Line Item

Comprehensive

Income (Loss) Affected Line Item

in the Statement

1 unchanged sentence

(dollars in thousands)

Amortization of unrealized losses on held-to-maturity securities $ ( 1,518 ) Interest income

Realized gains and (losses) on available-for-sale securities 21 Net securities gains

48 unchanged sentences

Diluted earnings per common share $ 0.95 $ 0.94 $ 0.95 $ 0.90

NOTE 23 – WARRANT

On February 27, 2009, the Company entered into a Letter Agreement with the Treasury, pursuant to which the Company issued (i) 56,044 shares of the Company’s Series A Preferred Stock and (ii) the Warrant to purchase 396,538 shares of the Company’s common stock, no par value, for an aggregate purchase price of $ 56,044,000 in cash.

This transaction was conducted in accordance with the CPP.

On June 9, 2010, the Company redeemed the Series A Preferred Stock and accreted the remaining unamortized discount on these shares.

The Company did not repurchase the Warrant, and the Warrant was sold by Treasury to an independent, third party.

The Warrant had a 10 -year term and was immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $ 21.20 per share of the common stock (trailing 20-day Lakeland average closing price as of December 17, 2008, which was the last trading day prior to date of receipt of Treasury’s preliminary approval for our participation in the CPP).

The Warrant was valued using the Black-Scholes model with the following assumptions:

market price of $ 17.45 ;

exercise price of $ 21.20 ;

risk-free interest rate of 3.02 %;

expected life of 10 years;

expected dividend rate on common stock of 4.5759 % and volatility of common stock price of 41.8046 %.

This resulted in a value of $ 4.4433 per share of common stock underlying the Warrant.

NOTE 23 – WARRANT (continued)

On December 3, 2009, the Company was notified by Treasury that, as a result of the Company’s completion of our November 18, 2009 Qualified Equity Offering, the amount of the Warrant was reduced by 50% to 198,269 shares.

In accordance with the terms of the Warrant, the number of shares issuable upon exercise and the exercise price were adjusted each time the Company paid a dividend to its stockholders in excess of the dividend paid at the time the warrant was issued.

Based on the formula set forth in the warrant, at December 31, 2018, the number of shares issuable upon exercise of the Warrant were 314,846 and the exercise price was $ 13.3503 .

On February 4, 2019, the Company was notified that the holder of the Warrant was initiating the exercise on a cashless basis.

At the time of exercise, the holder was entitled to 315,961 shares of common stock.

The cost to exercise the Warrant was approximately $ 4.2 million, which was the equivalent of 91,894 shares of common stock with a fair value of $ 45.74 per share.

On February 8, 2019, the Company issued 224,066 shares to the Warrant holder as a cashless exercise and the Warrant was retired.

The issuance of the shares was exempt from registration pursuant to Section 3(a)(9) under the Securities Act of 1933.

NOTE 22 – LEASES

12 unchanged sentences

The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

NOTE 22 - LEASES (continued)

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

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 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 lease standard.

The following is a maturity analysis of the operating lease liabilities as of December 31, 2022:

5 unchanged sentences

Right-of-use asset $ 5,296

NOTE 24 – LEASES (continued)

Year Ended Year Ended Year Ended

7 unchanged sentences

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

NOTE 25 – COVID-19 and CURRENT ECONOMIC CONDITIONS

On March 11, 2020, the World Health Organization announced that the COVID-19 outbreak was deemed a pandemic, and on March 13, 2020, the President declared the ongoing COVID-19 pandemic of sufficient magnitude to warrant an emergency declaration.

The extent of COVID-19’s effect on the Company’s operational and financial performance will depend on future developments.

As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business.

However, if the pandemic continues to evolve into a prolonged worldwide health crisis, the disease could have a material adverse effect on the Company’s business, results of operations, financial condition, liquidity and cash flows.

The fair value of certain assets could be impacted by the effects of COVID-19.

The carrying value of loans, goodwill, right-of-use lease assets, other real estate owned and mortgage servicing rights could decrease resulting in future impairment losses.

Management will continue to evaluate current economic conditions to determine if a triggering event would impact the current valuations for these assets.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data