What changed in this filing

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Item 1. Financial Statements

2023-04-26 compared with 2022-10-26 · 180 added, 253 removed, 920 unchanged (32% of the section changed)

1 unchanged sentence

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

September 30,

2023 December 31,

4 unchanged sentences

Securities held-to-maturity, at amortized cost (fair value of $ 115,533 and $ 111,029 , respectively)

128,651 128,242

Real estate mortgage loans held-for-sale 508 357

11 unchanged sentences

Total deposits 5,517,728 5,460,620

Borrowings - Federal Home Loan Bank advances 0 75,000

Federal Funds purchased 0 22,000

Federal Home Loan Bank advances 200,000 275,000

Total borrowings 200,000 297,000

Accrued interest payable 5,425 3,186

4 unchanged sentences

90,000,000 shares authorized, no par value

25,825,127 shares issued and 25,350,134 outstanding as of September 30, 2022

25,896,764 shares issued and 25,430,917 outstanding as of March 31, 2023

25,825,127 shares issued and 25,349,225 outstanding as of December 31, 2022

2 unchanged sentences

Accumulated other comprehensive income (loss) ( 167,370 ) ( 188,923 )

Treasury stock at cost ( 474,993 shares as of September 30, 2022, 476,816 shares as of December 31, 2021)

Treasury stock at cost ( 465,847 shares as of March 31, 2023, 475,902 shares as of December 31, 2022)

( 15,182 ) ( 15,383 )

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

NET INTEREST INCOME

46 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Net income $ 24,278 $ 23,642

23 unchanged sentences

Interest Total

Balance at July 1, 2021

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

Comprehensive income:

Net income 24,119 24,119 24,119

Other comprehensive income (loss), net of tax ( 11,339 ) ( 11,339 ) ( 11,339 )

Cash dividends declared and paid, $ 0.34 per share

( 8,664 ) ( 8,664 ) ( 8,664 )

Treasury shares purchased under deferred directors' plan ( 3,383 ) 214 ( 214 ) 0 0

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

Stock activity under equity compensation plans 12,595 ( 170 ) ( 170 ) ( 170 )

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

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

Balance at July 1, 2022

Balance at January 1, 2022

25,300,793 $ 120,615 $ 583,134 $ 16,093 $ ( 15,025 ) $ 704,817 $ 89 $ 704,906

8 unchanged sentences

Stock based compensation expense 2,260 2,260 2,260

Balance at September 30, 2022 25,350,134 $ 125,832 $ 630,337 $ ( 221,729 ) $ ( 15,309 ) $ 519,131 $ 89 $ 519,220

Nine Months Ended

Common Stock Retained

Earnings Accumulated Other Comprehensive

Income (Loss) Treasury

Stock Total Stockholders’

Equity Noncontrolling

Interest Total

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

Balance at January 1, 2023

25,349,225 $ 127,004 $ 646,100 $ ( 188,923 ) $ ( 15,383 ) $ 568,798 $ 89 $ 568,887

Adoption of ASU 2016-13 ( 6,951 ) ( 6,951 ) ( 6,951 )

Comprehensive income:

7 unchanged sentences

Stock based compensation expense 2,161 2,161 2,161

Balance at September 30, 2021

25,299,178 $ 119,625 $ 567,518 $ 10,932 $ ( 14,962 ) $ 683,113 $ 89 $ 683,202

Balance at January 1, 2022

25,300,793 120,615 583,134 16,093 ( 15,025 ) $ 704,817 $ 89 $ 704,906

Comprehensive loss:

Net income 77,840 77,840 77,840

Other comprehensive income (loss), net of tax ( 237,822 ) ( 237,822 ) ( 237,822 )

Cash dividends declared and paid, $ 1.20 per share

( 30,637 ) ( 30,637 ) ( 30,637 )

Treasury shares purchased under deferred directors' plan ( 6,732 ) 505 ( 505 ) 0 0

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

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

Stock based compensation expense 6,713 6,713 6,713

Balance at September 30, 2022

25,350,134 $ 125,832 $ 630,337 $ ( 221,729 ) $ ( 15,309 ) $ 519,131 $ 89 $ 519,220

Balance at March 31, 2023 25,430,917 $ 125,840 $ 658,629 $ ( 167,370 ) $ ( 15,182 ) $ 601,917 $ 89 $ 602,006

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)

Nine Months Ended September 30, 2022 2021

Three Months Ended March 31, 2023 2022

Cash flows from operating activities:

3 unchanged sentences

Provision for credit losses 4,350 417

Gain on sale and write down of other real estate owned 0 ( 53 )

Amortization of loan servicing rights 133 223

3 unchanged sentences

Proceeds from sale of loans, including participations 672 18,058

Net loss on sales of premises and equipment 3 4

Net (gain) loss on sales of premises and equipment ( 4 ) 1

Net gain on sales and calls of securities available-for-sale ( 16 ) 0

2 unchanged sentences

Losses (earnings) on life insurance ( 691 ) 83

Gain on life insurance 0 ( 404 )

Tax benefit of stock award issuances ( 720 ) ( 500 )

13 unchanged sentences

Proceeds from redemption of Federal Home Loan Bank stock 0 932

Proceeds from sales of other real estate 0 946

Proceeds from life insurance 0 931

Net cash from investing activities 50,360 ( 329,219 )

2 unchanged sentences

Net increase (decrease) in short-term borrowings ( 22,000 ) 0

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

Proceeds from short-term FHLB borrowings ( 75,000 ) 0

Common dividends paid ( 11,749 ) ( 10,198 )

Preferred dividends paid ( 13 ) ( 13 )

Payments related to equity incentive plans ( 3,124 ) ( 1,728 )

7 unchanged sentences

Interest $ 25,462 $ 3,470

Income taxes 13,780 20,637

Supplemental non-cash disclosures:

Loans transferred to other real estate owned 0 893

Securities purchases payable 0 2,146

12 unchanged sentences

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

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

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2023.

The Company’s 2022 Annual Report on Form 10-K should be read in conjunction with these statements.

Newly Issued Accounting Standards

Adoption of New Accounting Standards

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 TDRs 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.

The Company elected to early adopt the provisions of the ASU related to the discontinuance of TDR reporting, with retrospective application of modification reporting effective starting January 1, 2022.

The Company adopted the provisions related to reporting of current-period gross write-offs within the vintage disclosures effective January 1, 2023.

The adoption of the provisions contained within ASU 2022-02 did not 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 previously permitted 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 allows 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 became effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

The Company adopted ASU 2022-01 on January 1, 2023, which did not have a material impact on the consolidated financial statements.

Newly Issued But Not Yet Effective 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.

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

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

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

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

1 unchanged sentence

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

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

The guidance under ASC 848 will be available for a limited time, generally through December 31, 2024.

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 amendments in this update allow nonprepayable 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 nonpreapayble 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 TDRs 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 existing loan.

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

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

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

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

Adoption of this portion of the standard did not have

a material impact on the consolidated financial statements.

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

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

Newly Proposed Accounting Standards

On August 22, 2022, the FASB issued 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 amendments in the proposed update are proposed to be applied on either a modified prospective or a retrospective basis.

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 final guidance is issued.

On October 6, 2022, the FASB issued 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 in interim periods.

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

The amendments in the proposed update are proposed to be applied retrospectively.

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 final guidance is issued.

On March 28, 2023, the FASB issued ASU 2023-02, " Investments-Equity Method and Joint Ventures (ASC 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ." ASU 2014-01, " Investments-Equity Method and Joint Ventures (ASC 323):

Accounting for Investments in Qualified Affordable Housing Projects ", previously introduced the option to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and other income tax benefits when certain requirements are met;

however, this guidance limited the proportional amortization method to investments in low-income-housing tax credit (LIHTC) structures.

The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the income statement as a component of net income tax expense (benefit).

Equity investments in other tax credit structures are typically accounted for using the equity method, which results in investment income, gains and losses, and tax credits being presented gross on the income statement in their respective line items.

The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income 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 benefits in the income statement as a component of income tax expense (benefit).

To qualify for the proportional amortization method, all of the following conditions must be met:

(1) It is probable that the income tax credits allocated to the tax equity investor will be available;

(2) The tax equity investor does not have the ability to exercise significant influence over the operating and financial policies of the underlying project;

(3) Substantially all of the projected benefits are from income tax credits and other income tax benefits.

Projected benefits included income tax credits, other income tax benefits, and other non-income tax -related benefits.

The projected benefits are determined on a discounted basis, using a discount rate that is consistent with the cash flow assumptions used by the tax equity investor in making its decision to invest in the project;

(4) The tax equity investor's projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive;

and (5) The tax equity investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the tax equity investor's liability is limited to its capital investment.

An accounting policy election is allowed to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments.

The amendments in this update require specific disclosures that must be applied to all investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method.

The amendments require that a reporting entity disclose certain information in annual and interim reporting periods that enable investors to understanding the following information about its investments that generate income tax credits and other income tax benefits from a tax credit program including:

(1) The nature of its tax equity investments;

and (2) The effect of its tax equity investments and related income tax credits and other income tax benefits on its financial position and results of operations.

For public business entities, the amendments in this update are effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years.

Early adoption is permitted in any interim period.

If early adoption is elected, it shall adopt them as of the beginning of the fiscal year that includes the interim period of adoption.

The amendments in this update must be applied on either a modified retrospective or a retrospective basis.

The Company is currently evaluating the impact of this standard for its LIHTC investments and the impact to noninterest income and income tax expense within the consolidated financial statements.

Reclassification

7 unchanged sentences

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

September 30, 2022

March 31, 2023

Treasury securities $ 3,363 $ 2 $ ( 13 ) $ 0 $ 3,352

9 unchanged sentences

residential 578,175 67 ( 85,934 ) 0 492,308

Mortgage-backed securities:

commercial 522 1 0 0 523

State and municipal securities 663,367 157 ( 100,299 ) 0 563,225

4 unchanged sentences

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

September 30, 2022

March 31, 2023

State and municipal securities $ 128,651 $ 0 $ ( 13,118 ) $ 0 $ 115,533

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

December 31, 2022

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.

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 nine months ended September 30, 2021 and there were no securities classified as held-to-maturity at December 31, 2021.

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

There were no securities transferred from available-for-sale to held-to-maturity during the three months ended March 31, 2023 or March 31, 2022.

Information regarding the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by maturity as of March 31, 2023 is presented below.

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

11 unchanged sentences

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

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

Three Months Ended March 31, Three Months Ended March 31,

(dollars in thousands) 2023 2022

7 unchanged sentences

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

Securities with fair values of $ 239.5 million and $ 300.8 million were pledged as of September 30, 2022 and December 31, 2021, respectively, as collateral for borrowings from the Federal Home Loan Bank ("FHLB") and Federal Reserve Bank and for other purposes as permitted or required by law.

Securities with fair values of $ 855.0 million and $ 298.2 million were pledged as of March 31, 2023 and December 31, 2022, respectively, as collateral for borrowings from the Federal Home Loan Bank ("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 with unrealized losses as of September 30, 2022 and December 31, 2021 is presented on the following page.

Information regarding available-for-sale securities with unrealized losses as of March 31, 2023 and December 31, 2022 is presented on the following page.

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

4 unchanged sentences

Value Unrealized

September 30, 2022

March 31, 2023

Treasury securities $ 1,373 $ 6 $ 791 $ 7 $ 2,164 $ 13

5 unchanged sentences

December 31, 2022

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

3 unchanged sentences

Total available-for-sale $ 455,318 $ 53,415 $ 686,704 $ 162,064 $ 1,142,022 $ 215,479

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

Information regarding held-to-maturity securities with unrealized losses as of March 31, 2023 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

3 unchanged sentences

Value Unrealized

September 30, 2022

March 31, 2023

State and municipal securities $ 0 $ 0 $ 115,533 $ 13,118 $ 115,533 $ 13,118

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

December 31, 2022

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

The total number of securities with unrealized losses as of March 31, 2023 and December 31, 2022 is presented below.

Available-for-sale Held-to-maturity

3 unchanged sentences

or more Total

September 30, 2022

March 31, 2023

Treasury securities 3 2 5 0 0 0

5 unchanged sentences

December 31, 2022

Treasury securities 7 0 7 0 0 0

government sponsored agencies 1 16 17 0 0 0

7 unchanged sentences

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

In making this assessment, management considers the extent to which fair value is

less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.

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

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

1 unchanged sentence

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

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

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

Accrued interest receivable on securities totaled $ 8.8 million and $ 7.4 million at September 30, 2022 and December 31, 2021, respectively, and is excluded from the estimate of credit losses.

No allowance for credit losses for available-for-sale or held-to-maturity debt securities was recorded at March 31, 2023 or December 31, 2022.

Accrued interest receivable on securities totaled $ 7.6 million and $ 8.9 million at March 31, 2023 and December 31, 2022, respectively, and is excluded from the estimate of credit losses.

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

2 unchanged sentences

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

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2023 December 31,

27 unchanged sentences

Loans, net $ 4,683,713 $ 4,637,790

The recorded investment in loans does not include accrued interest, which totaled $ 13.6 million and $ 10.0 million at September 30, 2022 and December 31, 2021, respectively.

The Company h ad $ 180,000 and $ 350,000 in residential real estate loans in the process of foreclosure as of September 30, 2022 and December 31, 2021, respectively.

The recorded investment in loans does not include accrued interest, which totaled $ 18.4 million at both March 31, 2023 and December 31, 2022.

The Company h ad $ 558,000 and $ 306,000 in residential real estate loans in the process of foreclosure as of March 31, 2023 and December 31, 2022, respectively.

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

52 unchanged sentences

The historical loss rates are supplemented with consideration of economic conditions and portfolio trends.

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

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.

4 unchanged sentences

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

Three Months Ended September 30, 2022

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

Provision for credit losses 1,357 ( 678 ) ( 547 ) 16 ( 197 ) 71 ( 22 ) 0

Loans charged-off ( 222 ) 0 0 0 ( 20 ) ( 131 ) 0 ( 373 )

Recoveries 18 25 0 0 3 43 0 89

Net loans (charged-off) recovered ( 204 ) 25 0 0 ( 17 ) ( 88 ) 0 ( 284 )

Ending balance $ 32,348 $ 25,795 $ 4,206 $ 729 $ 2,460 $ 1,076 $ 625 $ 67,239

Three Months Ended September 30, 2021

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

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

Loans charged-off ( 5 ) 0 0 0 ( 13 ) ( 72 ) 0 ( 90 )

Recoveries 44 0 0 0 14 67 0 125

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

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

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

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

5 unchanged sentences

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

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

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

Provision for credit losses 730 319 ( 273 ) ( 88 ) ( 248 ) ( 55 ) 32 417

18 unchanged sentences

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

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

The following table summarizes the risk category of loans by loan segment and origination date as of March 31, 2023:

(dollars in thousands) 2023 2022 2021 2020 2019 Prior Term Total Revolving Total

5 unchanged sentences

Total 0 2,324 2,668 1,481 294 0 6,767 629,495 636,262

Working capital lines of credit loans:

Current period gross write offs 0 0 0 0 0 0 0 115 115

Non-working capital loans:

4 unchanged sentences

Total 43,867 289,311 119,601 87,013 44,974 27,112 611,878 211,174 823,052

Non-working capital loans:

Current period gross write offs 0 5,400 0 0 118 0 5,518 11 5,529

Commercial real estate and multi-family residential loans:

1 unchanged sentence

Pass 11,178 21,680 10,108 13,394 307 0 56,667 532,319 588,986

Total 11,178 21,680 10,108 13,394 307 0 56,667 532,319 588,986

Construction and land development loans:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Owner occupied loans:

3 unchanged sentences

Total 41,563 134,263 170,544 135,081 71,974 159,021 712,446 37,815 750,261

Owner occupied loans:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Nonowner occupied loans:

2 unchanged sentences

Total 18,947 183,211 129,205 135,383 90,727 77,127 634,600 70,798 705,398

Nonowner occupied loans:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Multifamily loans:

2 unchanged sentences

Total 24,397 58,271 25,633 36,606 34,018 30,589 209,514 7,484 216,998

Multifamily loans:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Agri-business and agricultural loans:

4 unchanged sentences

Total 10,479 36,609 26,692 30,146 10,863 25,101 139,890 38,774 178,664

Loans secured by farmland:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Loans for agricultural production:

2 unchanged sentences

Total 4,692 7,384 29,568 28,659 4,233 12,161 86,697 127,701 214,398

Loans for agricultural production:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Other commercial loans:

2 unchanged sentences

Total 14,621 26,709 39,515 17,279 133 14,055 112,312 19,727 132,039

Other commercial loans:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Consumer 1-4 family mortgage loans:

5 unchanged sentences

Total 17,962 67,458 55,087 30,791 9,831 35,770 216,899 4,404 221,303

Closed end first mortgage loans:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Open end and junior lien loans:

Pass 0 137 529 351 0 74 1,091 6,903 7,994

Substandard 0 0 0 0 29 48 77 138 215

Not Rated 4,234 40,983 12,227 2,560 3,303 3,183 66,490 103,040 169,530

Total 4,234 41,120 12,756 2,911 3,332 3,305 67,658 110,081 177,739

Open end and junior lien loans:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Residential construction loans:

1 unchanged sentence

Total 965 15,099 1,739 884 283 1,337 20,307 0 20,307

Residential construction loans:

Current period gross write offs 0 0 0 0 0 0 0 0 0

Other consumer loans:

3 unchanged sentences

Total 8,124 23,766 14,990 8,553 3,159 3,326 61,918 27,603 89,521

TOTAL $ 680,463 $ 692,971 $ 587,343 $ 321,196 $ 148,135 $ 323,289 $ 2,753,397 $ 1,736,438 $ 4,489,835

As of September 30, 2022, $ 1.6 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

These loans were included in this risk rating category because they are fully guaranteed by the SBA.

Other consumer loans:

Current period gross write offs 0 106 62 6 7 1 182 70 252

Total period gross write offs 0 5,506 62 6 125 1 5,700 196 5,896

Total Loans $ 201,029 $ 907,205 $ 638,106 $ 528,181 $ 274,128 $ 388,904 $ 2,937,553 $ 1,817,375 $ 4,754,928

As of March 31, 2023, $ 1.5 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

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

The following table summarizes the risk category of loans by loan segment and origination date as of December 31, 2022:

47 unchanged sentences

Special Mention 0 0 552 0 0 0 552 0 552

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

Not Rated 57,404 44,331 20,023 5,936 2,970 27,004 157,668 0 157,668

22 unchanged sentences

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

The following table presents the aging of the amortized cost basis in past due loans as of September 30, 2022 by class of loans and loans past due 90 days or more and still accruing by class of loan:

The following table presents the aging of the amortized cost basis in past due loans as of March 31, 2023 by class of loans and loans past due 90 days or more and still accruing by class of loan:

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

17 unchanged sentences

Total $ 4,734,786 $ 2,403 $ 25 $ 4,719,500 $ 17,714 $ 2,746 $ 4,754,928

As of September 30, 2022 there were an insignificant number of loans 30-89 days past due or greater than 89 days past due on nonaccrual.

Additionally, interest income recognized on nonaccrual loans was insignificant during the nine month period ended September 30, 2022.

As of March 31, 2023 there were an insignificant number of loans 30-89 days past due or greater than 89 days past due on nonaccrual.

Additionally, interest income recognized on nonaccrual loans was insignificant during the three month period ended March 31, 2023.

The following table presents the aging of the amortized cost basis in past due loans as of December 31, 2022 by class of loans and loans past due 90 days or more and still accruing by class of loan:

25 unchanged sentences

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

September 30, 2022

March 31, 2023

(dollars in thousands) Real Estate General

27 unchanged sentences

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

Modifications:

Loan 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.

6 unchanged sentences

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

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

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

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

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

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

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

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

(dollars in thousands) December 31,

Accruing troubled debt restructured loans $ 5,121

Nonaccrual troubled debt restructured loans 6,218

Total troubled debt restructured loans $ 11,339

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

No advances were outstanding with the FHLB as of September 30, 2022.

For the period ended December 31, 2021, the Company had an advance of $ 75.0 million outstanding from the FHLB.

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

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

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

During the three months ended March 31, 2023 and March 31, 2022, no loans received a material modification based on borrower financial difficulty.

For the period ended March 31, 2023, the Company had an advance outstanding from the Federal Home Loan Bank ("FHLB") in the amount of $ 200.0 million.

The outstanding advance was a fixed rate bullet advance with an interest rate of 4.86 % and matured April 4, 2023.

For the period ended December 31, 2022, the Company had a fixed rate bullet advance from the FHLB with an interest rate of 4.21 % of $ 275.0 million that matured on January 5, 2023.

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;

3 unchanged sentences

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

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

There were no outstanding borrowings on the credit agreement at March 31, 2023 and December 31, 2022.

FAIR VALUE DISCLOSURES

7 unchanged sentences

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

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

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

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

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

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

32 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 and finished 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 September 30, 2022, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 2.8 million, carried at amortized cost of $ 2.8 million less a $ 7,000 valuation reserve.

As of March 31, 2023, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 2.5 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 20 years and are secured by homes generally within the Company’s market area of Northern Indiana and Indianapolis.

5 unchanged sentences

The most significant unobservable assumption is the discount rate.

At September 30, 2022, the constant prepayment speed (“PSA”) used was 172 and discount rate used was 9.0 %.

At March 31, 2023, the constant prepayment speed (“PSA”) used was 157 and discount rate used was 9.5 %.

At December 31, 2022, the PSA used was 159 and the discount rate used was 9.5 %.

9 unchanged sentences

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

September 30, 2022

March 31, 2023

Fair Value Measurements Using Assets

6 unchanged sentences

State and municipal securities 0 490,437 2,035 492,472

Total securities 1,968 1,186,899 3,319 1,192,186

Total securities available-for-sale 3,352 1,102,894 2,035 1,108,281

Mortgage banking derivative 0 47 0 47

12 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

8 unchanged sentences

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

September 30, 2022

March 31, 2023

Fair Value Measurements Using Assets

27 unchanged sentences

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

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2022:

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at March 31, 2023:

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

4 unchanged sentences

Collateral dependent loans:

Agribusiness and agricultural 42 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 71 % 71 %

Agri-business and agricultural 33 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 76 %

Other real estate owned 100 Appraisals Discount to reflect current market conditions and ultimate collectability 68 %

6 unchanged sentences

Collateral dependent loans:

Agribusiness and agricultural 231 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 35 % 3 %- 68 %

Agri-business and agricultural 35 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 76 %

Other real estate owned 100 Appraisals Discount to reflect current market conditions and ultimate collectability 68 %

1 unchanged sentence

Items that are not financial instruments are not included.

September 30, 2022

March 31, 2023

Value Estimated Fair Value

23 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

OFFSETTING ASSETS AND LIABILITIES

The following tables summarize gross and net information about financial instruments and derivative instruments that are offset in the statement of financial position or that are subject to an enforceable master netting arrangement at September 30, 2022 and December 31, 2021.

September 30, 2022

March 31, 2023

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

16 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Weighted average shares outstanding for basic earnings per common share 25,583,026 25,515,271

4 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

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

for-Sales Securities Defined Benefit Pension Items Total

Balance at July 1, 2022

$ ( 157,625 ) $ ( 909 ) $ ( 158,534 )

Other comprehensive income (loss) before reclassification ( 63,620 ) 0 ( 63,620 )

Amounts reclassified from accumulated other comprehensive income (loss) 398 27 425

Net current period other comprehensive income (loss) ( 63,222 ) 27 ( 63,195 )

Balance at September 30, 2022 $ ( 220,847 ) $ ( 882 ) $ ( 221,729 )

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

for-Sales Securities Defined Benefit Pension Items Total

Balance at July 1, 2021

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

Other comprehensive income (loss) before reclassification ( 11,385 ) 0 ( 11,385 )

Amounts reclassified from accumulated other comprehensive income (loss) 0 46 46

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

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

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

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, all shown net of tax:

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

5 unchanged sentences

Net current period other comprehensive income (loss) 21,542 11 21,553

Balance at September 30, 2022 $ ( 220,847 ) $ ( 882 ) $ ( 221,729 )

Balance at March 31, 2023 $ ( 166,612 ) $ ( 758 ) $ ( 167,370 )

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

5 unchanged sentences

Net current period other comprehensive income (loss) ( 109,807 ) 27 ( 109,780 )

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

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

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

Reclassifications out of other accumulated comprehensive loss for the three months ended March 31, 2023 are as follows:

Details about

6 unchanged sentences

Amortization of unrealized losses on held-to-maturity securities $ ( 491 ) Interest income

Tax effect 106 Income tax expense

( 398 ) Net of tax

Amortization of defined benefit pension items ( 36 ) Other expense

Tax effect 9 Income tax expense

( 27 ) Net of tax

Total reclassifications for the period $ ( 425 ) Net income

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

Details about

Accumulated Other

Comprehensive

Income (Loss) Components Amount

Reclassified From Accumulated Other Comprehensive Income Affected Line Item

in the Statement Where Net Income is Presented

(dollars in thousands)

Realized gains and (losses) on available-for-sale securities 16 Net securities gains

Tax effect 100 Income tax expense

Amortization of defined benefit pension items ( 61 ) Other expense

Tax effect 15 Income tax expense

( 375 ) Net of tax

Total reclassifications for the period $ ( 46 ) Net income

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

Details about

Accumulated Other

Comprehensive

Income (Loss) Components Amount

Reclassified From Accumulated Other Comprehensive Income Affected Line Item

in the Statement Where Net Income is Presented

(dollars in thousands)

Amortization of unrealized losses on held-to-maturity securities ( 995 ) Interest income

Tax effect 209 Income tax expense

( 786 ) Net of tax

Amortization of defined benefit pension items ( 15 ) Other expense

2 unchanged sentences

Total reclassifications for the period $ ( 386 ) Net income

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

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

Details about

5 unchanged sentences

(dollars in thousands)

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

Tax effect ( 167 ) Income tax expense

630 Net of tax

Amortization of defined benefit pension items $ ( 36 ) Other expense

18 unchanged sentences

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

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

The following is a maturity analysis of the operating lease liabilities as of March 31, 2023:

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

4 unchanged sentences

Right-of-use asset $ 5,149

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

Three Months Ended March 31,

(dollars in thousands) 2023 2022

4 unchanged sentences

Operating cash outflows from operating leases $ 178 $ 170

Weighted-average remaining lease term - operating leases 7.5 years 8.1 years 7.5 years 8.1 years

Weighted-average remaining lease term - operating leases 7.0 years 8.9 years

Weighted average discount rate - operating leases 2.5 % 2.5 %

CONTINGENCIES

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

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

LOSS CONTINGENCIES

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

The Bank discovered potentially fraudulent activity by a former treasury management client involving multiple banks.

The former client subsequently filed several related bankruptcy cases, captioned In re Interlogic Outsourcing, Inc., et al.

, which are pending in the United States Bankruptcy Court for the Western District of Michigan.

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 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.

The hearing for the parties to argue the Company's motion to dismiss the Trustee's second amended complaint was held on April 17, 2023.

The judge took the matter under advisement and a ruling is expected within 30 days of the hearing.

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.

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

What changed 10-Q

Item 1. Financial Statements