What changed in this filing

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Item 1A. Risk Factors

2024-02-21 compared with 2023-02-22 · 72 added, 53 removed, 238 unchanged (34% of the section changed)

7 unchanged sentences

In the current environment, economic and business conditions are significantly affected by U.S.

monetary policy, particularly the actions of the Federal Reserve to raise short-term interest rates in an effort to fight elevated levels of inflation.

The Federal Reserve is mandated to pursue the goals of maximum employment and price stability, and beginning in March 2022 it made a series of significant increases to the target Federal Funds rate as part of an effort to combat elevated levels of inflation affecting the U.S.

economy, which is expected to continue in the near term.

The significant increases to short-term interest rates has benefited our net interest income during 2022 due to loans repricing faster than deposits.

However, the rising interest rate environment has negatively impacted the fair value of our investment securities portfolio, which had $215.3 million in net unrealized losses from available-for-sale investment securities at December 31, 2022.

The investment securities net unrealized losses are recorded as a reduction of tangible equity and tangible book value per share.

Higher interest rates can also negatively affect our customers’ businesses and financial condition, and the value of collateral securing loans in our portfolio.

monetary policy, particularly the anticipated actions of the Federal Reserve to pivot from its campaign to raise short-term interest rates in an effort to fight elevated levels of inflation impacting the U.S.

Beginning in March of 2022, the Federal Reserve substantially increased the target Federal Funds rate in pursuit of its policy mandate to maintain maximum employment and achieve price stability and subsequently paused further rate raises starting in September 2023 as the rate of inflation had significantly subsided from levels experienced in 2022.

In December 2023, the Federal Reserve indicated the possibility it would pivot from the current rate tightening cycle, forecasting a series of cuts to the Federal Funds rate in 2024.

Rate increases benefited our net interest income during 2022, due to the asset sensitive nature of the Company’s balance sheet.

In 2023, funding costs rose substantially as the cost to retain deposits and borrow increased due to market competition and a series of bank failures in the first quarter of 2023.

The Company's increase in cost of funds negatively affected net interest income in 2023.

A pivot in policy by the Federal Reserve to lower the target Federal Funds rate could further erode the Company’s net interest income due to lags in deposits repricing.

However, a reduction in rates would positively impact the fair value of our investment securities portfolio, which had $174.6 million in unrealized losses in available-for-sale investment securities at December 31, 2023.

Lower interest rates can also positively affect our customers’ businesses and financial condition, and increase the value of collateral securing loans in our portfolio.

Given the complex factors affecting the strength of the U.S.

economy, including uncertainties regarding the persistence of inflation, geopolitical developments such as the war in Ukraine and resulting disruptions in the global energy market, the effects of the pandemic in China, tight labor market conditions and supply chain issues, there is a meaningful risk that the Federal Reserve and other central banks may raise interest rates too much.

economy, including uncertainties regarding the persistence of inflation, international geopolitical developments, strength of the banking system, disruptions in the global energy market, labor market conditions and the impact of higher rates on consumers and businesses, there is a meaningful risk that the Federal Reserve and other central banks may underestimate the impact of their tightening policies and potentially cause an economic recession.

Restrictive monetary policies could limit economic growth and potentially cause an economic recession.

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Continued elevated levels of inflation could adversely impact our business and results of operations.

The United States has recently experienced elevated levels of inflation, with the consumer price index climbing 6.5% in 2022.

The United States has recently experienced elevated levels of inflation, with the rate peaking in 2022 and remaining elevated in 2023.

Inflation pressures are currently expected to remain elevated as the inflation rate remains above the Federal Reserve’s target rate of 2%, which is intended to help accomplish its policy.

Continued high levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse.

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The duration and severity of the current inflationary period cannot be estimated with precision.

The COVID-19 pandemic could continue to have adverse effects on our business.

The COVID-19 pandemic has had a significant economic impact on the communities in which we operate, our borrowers and depositors, and the national economy generally.

These effects have diminished in the past year, but future developments and uncertainties will be difficult to predict, such as the potential emergence of a new variant, the course of the pandemic in China and other major economies, the persistence of pandemic-related work and lifestyle changes, changes in consumer preferences associated with the emergence of the pandemic, and other market disruptions.

Any such developments could have a complex and negative effect on our business, including with respect to the prevailing economic environment, our lending and investment activities, and our business operations.

Adverse developments or concerns affecting the financial services industry or specific financial institutions could adversely affect our financial condition and results of operations.

The 2023 United States banking crisis could continue to have adverse effects on our business.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar events, have in the past and may in the future lead to erosion of customer confidence in the banking system, deposit volatility, liquidity issues, stock price volatility and other adverse developments.

For example, the failures of Silicon Valley Bank and Signature Bank in March 2023 and First Republic Bank in May 2023 led to disruption and volatility, including deposit outflows and increased need for liquidity, at certain banks.

Although depositors of these banks were largely protected, it is not certain that the Federal Reserve or FDIC will treat future bank failures similarly.

Inflation and the rapid increases in interest rates have led to a decline in the trading value of previously issued debt securities with interest rates below current market interest rates.

Any sale of investment securities that are held in an unrealized loss position by a financial institution for liquidity or other purposes will cause actual losses to be realized.

There can be no assurance that there will not be additional bank failures or issues such as liquidity concerns in the broader financial services industry or in the U.S.

financial system as a whole.

Adverse financial market and economic conditions can exert downward pressure on stock prices, security prices and credit availability for financial institutions without regard to their underlying financial strength.

The volatility and economic disruption resulting from the failures of Silicon Valley Bank and Signature Bank particularly impacted the market valuation of securities issued by financial institutions.

While we did not experience any abnormal changes in our total outstanding deposit balances following these bank closure events, we experienced changes in deposit balances resulting from typical seasonal fluctuations due to the nature of our business.

While our deposit base primarily consists of a stable mix of retail, commercial and public fund deposits, we cannot be assured that unusual deposit withdrawal activity will not affect banks generally or the Company specifically in the future.

Continued uncertainty regarding or worsening of the severity or duration of volatility in the banking industry could also adversely impact our estimate of our allowance for credit losses and related provision for credit losses.

Additionally, the cost of resolving recent bank failures may prompt the FDIC to charge higher deposit insurance premiums and/or impose special assessments on insured depository institutions, regardless of asset size.

These events and any future similar events may also result in changes to laws or regulations governing bank holding companies and banks, including higher capital requirements, or the imposition of restrictions through supervisory or enforcement activities, any of which could have a material adverse effect.

Any of these impacts, or any other impacts resulting from the events described above, could have a material adverse effect on our liquidity and capital levels, and our current and/or projected business operations and financial condition and results of operations.

Labor shortages and failure to attract and retain qualified employees could negatively impact our business, results of operations and financial condition .

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When interest rates rise, the rate of interest we pay on our liabilities may rise more quickly than the rate of interest that we receive on our interest bearing assets, which may cause our profits to decrease.

Conversely, when interest rates fall our interest bearing assets generally reprice more quickly than our interest bearing liabilities, given our asset-sensitive balance sheet, which may cause our net interest income to decrease.

when interest rates fall, our interest bearing assets generally reprice more quickly than our interest bearing liabilities, given our asset-sensitive balance sheet, which may cause our net interest income to decrease.

The impact on earnings is more adverse when the slope of the yield curve flattens, i.e.

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Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income.

A resurgence of the COVID-19 pandemic, or a similar health crisis, could adversely affect our business.

The COVID-19 pandemic had a significant economic impact on the communities in which we operate, our borrowers and depositors, and the national economy generally.

While these effects have diminished, future developments and uncertainties are difficult to predict, such as the potential emergence of new variants, the course of the pandemic in other major economies, the persistence of pandemic-related work and lifestyle changes, changes in consumer preferences associated with the emergence of the pandemic, the emergence of a new health crisis and other market disruptions.

Risks Relating to Our Business

If we do not effectively manage our credit risk, we may experience increased levels of nonperforming loans, charge offs and delinquencies, which could require further increases in our provision for credit losses.

There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions.

There are risks inherent in making any loan, including risks inherent in working with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions.

In general, these risks have increased as a result of the recent increases in prevailing interest rates and uncertainties associated with inflation, which have potentially increased the risk of a near-term decline in growth or an economic downturn.

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Because of the nature of our loan portfolio and our concentration in commercial and industrial loans, which tend to be larger loans, the movement of a small number of loans to nonperforming status can have a significant impact on these ratios.

Although a formal evaluation of the adequacy of the credit loss allowance is conducted monthly, we cannot predict credit losses with certainty and we cannot provide assurance that our allowance for credit losses will prove sufficient to cover actual credit losses in the future.

Although a formal evaluation of the adequacy of the credit loss allowance is conducted

monthly, we cannot predict credit losses with certainty and we cannot provide assurance that our allowance for credit losses will prove sufficient to cover actual credit losses in the future.

Credit losses in excess of our reserves may adversely affect our business, results of operations and financial condition.

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Most often, this collateral is accounts receivable, inventory, machinery or real estate.

As a result of the recent increase in interest rates and other factors, we have observed a corresponding decline in the value of commercial real estate securing these loans.

As a result of the recent increase in interest rates and other factors, we have observed a corresponding decline in the value of commercial real estate securing these loans, substantially all of which are located within our Indiana markets.

In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers, which could decline in the case of an economic recession.

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Commercial real estate loans were $2.438 billion, or approximately 50% of our total loan portfolio, as of December 31, 2023.

The market value of real estate can fluctuate significantly in a short period of time as a result of interest rates and market conditions in the geographic area in which the real estate is located, and, as a general matter, some of these values have been significantly and negatively affected by the recent rise in prevailing interest rates.

The market value of real estate can fluctuate significantly in a short period of time as a result of interest rates and market conditions in our Indiana markets, where substantially all of our commercial real estate collateral is located, and, as a general matter, some of these values have been significantly and negatively affected by the recent rise in prevailing interest rates.

Although a significant portion of such loans are secured by real estate as a secondary form of collateral, these developments and any future adverse developments affecting real estate values in one or more of our markets could increase the credit risk associated with our loan portfolio.

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Our primary sources of funds consist of deposits, cash from operations and investment security maturities and sales.

Additional liquidity is provided by brokered deposits, CD Option of IntraFi Network Deposits (“CD Option”, formerly known as CDARS), American Financial Exchange overnight borrowings, IntraFi Network’s insured cash sweep program.

We are able to borrow from several federal funds lines at correspondent banks and are eligible borrowers from the Federal Reserve and the Federal Home Loan Bank (the “FHLB”) subject to collateral availability.

At December 31, 2022, $995.3 million of unpledged investment securities were eligible to serve as collateral for liquidity availability at FHLB and Federal Reserve Bank.

Additional liquidity is provided by brokered deposits, Certificate of Deposit Account Registry Service ("CDARS") deposits, American Financial Exchange overnight borrowings and IntraFi Network’s insured cash sweep program.

We are able to borrow from several federal funds lines at correspondent banks and are eligible to borrow from the Federal Reserve and the Federal Home Loan Bank (the “FHLB”) subject to collateral availability.

At December 31, 2023, $379.0 million of unpledged investment securities were eligible to serve as collateral for liquidity availability at the FHLB and the Federal Reserve Bank.

Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.

In addition, increased competition with banks and credit unions in our fooprint, brokerage firms and online deposit gatherers for retail deposits may impact our ability to raise funds through deposits and could have a negative effect on our liquidity.

For example, as customer deposit levels have decreased over the past year, we have observed that our sensitivity to rising deposits costs has increased as competition for deposits has risen.

For example, as customer deposit levels have increased over the past year, we have observed that our sensitivity to rising deposits costs has increased as competition for deposits has risen.

Any decline in available funding could adversely impact our ability to originate loans, purchase investment securities, meet our expense obligations, pay dividends to our stockholders, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, results of operations and financial condition.

Any action or steps to change coverages or eliminate Indiana’s Public Deposit Insurance Fund could require us to find alternative, higher-cost funding sources to replace public fund deposits or to provide for collateralization of these deposits.

At December 31, 2022 , appro ximately 26% of our deposits are concentrated in public funds from a small number of municipalities and government agencies located in the Bank’s geographic footprint.

At December 31, 2023 , appro ximately 27% of our deposits are concentrated in public funds from municipalities and government agencies located in the Bank’s geographic footprint.

These accounts represent less than 1% of total customer deposit accounts at December 31, 2023.

A shift in funding away from public fund deposits would impact liquidity availability and could increase our cost of funds, as the alternate funding sources, such as brokered certificates of deposit, can be higher-cost, are less favorable deposits and could require additional collateral to be pledged.

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We maintain an investment securities portfolio that includes, but is not limited to, mortgage-backed securities and municipal securities.

The market value of these investment securities may be affected by factors other than the underlying performance of the servicer of the securities or the mortgages underlying the securities, such as changes in the interest rate environment, negative trends in the residential and commercial real estate markets, ratings downgrades, adverse changes in the business climate and a lack of liquidity in the secondary market for certain investment securities.

The market value of these investment securities has been, and may continue to be, affected by factors other than the underlying performance of the servicer of the securities or the mortgages underlying the securities, such as changes in the interest rate environment, negative trends in the residential and commercial real estate markets, ratings downgrades, adverse changes in the business climate and a lack of liquidity in the secondary market for certain investment securities.

On a quarterly basis, we evaluate investment securities and other assets for credit and other impairment indicators.

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In addition, we may determine to sell securities in our available-for-sale investment securities portfolio, and any such sale could cause us to realize currently unrealized losses that resulted from the recent increases in the prevailing interest rates.

We may be adversely impacted by the discontinuance of LIBOR as a short-term interest rate utilized for loans and other financing agreements.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

In March 2021, the ICE Benchmark Administration, which administers LIBOR, announced that it would stop publishing all LIBOR tenors by June 30, 2023.

The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR.

ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are continuing to work on industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR.

The Company has material contracts that are indexed to USD-LIBOR and is monitoring this activity and evaluating the related risks.

This includes identifying outstanding USD-LIBOR-based loans without ARRC recommended fallback language, internal training and education, and working with our core provider to ensure proper integration once an alternative reference is implemented.

At December 31, 2022, the Bank had 95 commercial loans with an outstanding balance of $460.6 million to transition from a USD-LIBOR index.

The Company has formed a cross-functional project team to lead the transition from LIBOR to adoption of alternative reference rates which include SOFR, CME Term SOFR, American Interbank Offered Rate , and Bloomberg Short-Term Bank Yield Index.

Management is monitoring ARRC publications for best practices as the Company transitions legacy LIBOR loans by the June 30, 2023 deadline.

Risks Relating to Our Corporate Strategy

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We may experience difficulties in managing our growth, and our growth strategy involves risks that may negatively impact our net income.

In addition to our continuing expansion in Indianapolis and larger cities in Northern Indiana, we may expand into additional communities or attempt to strengthen our position in our current markets through opportunistic acquisitions of all or part of other financial institutions, or by opening new branches in or within two hours of our contiguous geographic footprint.

To the extent that we undertake acquisitions or new branch openings, we are likely to experience the effects of higher operating expenses relative to operating income from the new operations, which may have an adverse effect on our levels of reported net income, return on average equity and return on average assets.

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• the possible loss of key employees and customers of the banks and businesses we acquire.

We face intense competition in all phases of our business from other banks, financial institutions and nonbank financial service providers.

We face intense competition in all phases of our business from other banks, financial institutions, private credit funds and nonbank financial service providers.

The banking and financial services business in our market is highly competitive.

Our competitors include large national, regional and local community banks, credit unions, Fintech and nonbank financial service providers, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds and farm credit services.

credit services.

Many of these competitors are not subject to the same operating costs or regulatory restrictions as we are and are able to provide customers with a feasible alternative to traditional banking services.

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We are subject to extensive federal and state regulation, supervision and examination.

A more detailed description of the primary federal and state banking laws and regulations that affect us is contained in the section of this Annual Report on Form 10-K captioned “Supervision and Regulation”.

Banking regulations are primarily intended to protect depositors’ funds, FDIC funds, customers and the banking system as a whole, rather than our shareholders.

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Any enforcement actions or other rule-making in these areas could negatively affect our business and our ability to maintain or grow levels of noninterest income.

The recent failures of Silicon Valley Bank and Signature Bank are expected to result in modifications to existing laws or the passage of additional laws and regulations governing banks and bank holding companies, including increasing capital

requirements, modifications to regulatory requirements with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, safe and sound banking practices and enhanced supervisory or enforcement activities.

Other legislative initiatives could detrimentally impact our operations in the future.

Regulatory bodies may enact new laws or promulgate new regulations or view matters or interpret existing laws and regulations differently than they have in the past or commence investigations or inquiries into our business practices.

For example, the Biden Administration announced a government-wide effort to eliminate “junk fees” which could subject our business practices to further scrutiny.

The CFBP’s action on junk fees thus far has largely focused on fees associated with deposit products, such as “surprise” overdraft fees and non-sufficient funds fees.

However, what constitutes a “junk fee” remains undefined.

The CFPB is actively soliciting consumer input on fee practices associated with other consumer financial products or services, signaling that the “junk fee” initiative is likely to continue to broaden in scope.

As a result of this regulatory focus, we have changed how we assess overdraft and non-sufficient funds fees and may be required to implement additional changes based on regulatory directives or guidance.

Such changes have led to and may continue to cause a reduction in our noninterest income and thus impact our overall net income.

These provisions, as well as any other aspects of current or proposed regulatory or legislative changes to laws applicable to the financial industry, may impact the profitability of our business activities and may change certain of our business practices, including our ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose us to additional costs, including increased compliance costs.

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The Company, on a consolidated basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity.

We face significant capital and other regulatory requirements as a financial institution, which were heightened with the implementation of the Basel III Rule and the phase-in of capital conservation buffer requirement.

Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities and on our financial condition and performance.

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If LCB Funding, Inc.

fails to meet any of the required provisions for real estate investment trusts, it could no longer qualify as a real estate investment trust and the resulting tax consequences would increase our effective tax rate or cause us to have a tax liability for prior years.

Additionally, changes to the State of Indiana's current tax laws and regulations for real estate investment trust income disallowance could increase our effective tax rate or cause us to have a tax liability for prior years.

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In addition, our business depends on earning and maintaining the trust of our customers and communities.

Harm to our reputation could arise from numerous sources, including employee misconduct, compliance failures, litigation or our failure to deliver appropriate levels of service.

Harm to our reputation could arise from numerous sources, including employee misconduct, compliance failures, internal control deficiencies, litigation or our failure to deliver appropriate levels of service.

If any events or circumstances occur which could undermine our reputation, there can be no assurance that the additional costs and expenses we may incur as a result would not have an adverse impact on our business.

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Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow and expand our market areas.

Many of our larger competitors have substantially greater resources to invest in technological improvements.

Many of our larger competitors have substantially greater resources to invest in technological improvements, such as articifical intelligence.

As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage.

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These risks have increased for all financial institutions as new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others have increased.

In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks against financial institutions, particularly denial of service attacks, which are designed to disrupt key business services, such as customer-facing web sites and social engineering attacks that could influence an employee of the Company to click on a link that downloads malware or ransomware to the Company’s system.

In addition to cyber-attacks, business e-mail compromise campaigns or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks against financial institutions, particularly denial of service attacks, which are designed to disrupt key business services, such as customer-facing web sites and social engineering attacks that could influence an employee of the Company to click on a link that downloads malware or ransomware to the Company’s system or prompts the employee to enter system credentials.

The Company is not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.

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The Company also faces risks related to cyber-attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding the Company’s customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and its processors.

Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that the Company does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact the Company through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks relating to them.

Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the

transactions involve third parties and environments such as the point of sale that the Company does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact the Company through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks relating to them.

In addition, the Company offers its customers protection against fraud and certain losses for unauthorized use of debit cards in order to stay competitive with other financial institutions.

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Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts.

For example, as previously disclosed, in the third quarter of 2019, the Bank discovered potentially fraudulent activity by a former treasury management client involving multiple banks.

In the context of resulting bankruptcy proceedings involving the former client, the liquidating trustee has filed a complaint against the Bank, focused on a series of business transactions among the former client, related entities and the Bank.

For example, as previously disclosed in the second quarter of 2023, the Bank was the victim of international wire fraud resulting in an estimated loss of $18.1 million, prior to additional insurance and loss recoveries of $6.3 million in the fourth quarter of 2023.

We maintain a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors, cyber-attacks, and customer or employee fraud.

Should our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, results of operations and financial condition.

The Company is or may become involved from time to time in suits, legal proceedings, information-gathering requests, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences.

The Company is and may become involved from time to time in suits, legal proceedings, information-gathering requests, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences.

Many aspects of our business and operations involve the risk of legal liability, and in some cases we or our subsidiaries have been named or threatened to be named as defendants in various lawsuits arising from our business activities.

For example, as previously disclosed in the third quarter of 2019, the Bank discovered potentially fraudulent activity by a former treasury management client involving multiple banks.

In addition, companies in our industry are frequently the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings.

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Accordingly, our ultimate losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies, which could adversely affect our financial condition and results of operations.

UNRESOLVED STAFF COMMENTS

We have no unresolved SEC staff comments.

The Company is headquartered in the main office building of the Bank at 202 E.

Center Street, Warsaw, Indiana 46580.

The Company operates in 59 locations, 51 of which are owned by the Bank and eight of which are leased from third parties.

None of the Company’s real property assets are the subject of any material encumbrances.

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 1A. Risk Factors