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Item 8. Financial Statements and Supplementary Data

2024-02-21 compared with 2023-02-22 · 271 added, 250 removed, 1857 unchanged (22% of the section changed)

35 unchanged sentences

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses (ACL) – Qualitative Adjustments

27 unchanged sentences

Securities held-to-maturity, at amortized cost (fair value of $ 119,215 and $ 111,029 respectively)

129,918 128,242

Real estate mortgage loans held-for-sale 1,158 357

62 unchanged sentences

Interest rate swap fee income 794 579 1,035

Mortgage banking income 633 1,418 3,911

Net securities gains 21 797 433

Mortgage banking income (loss) ( 254 ) 633 1,418

Net securities gains (losses) ( 25 ) 21 797

Other income 9,141 1,874 2,725

8 unchanged sentences

Professional fees 8,583 6,483 7,064

Wire fraud loss 18,058 0 0

Other expense 10,757 13,124 8,905

15 unchanged sentences

Reclassification adjustment for amortization of unrealized losses on securities transferred to held-to-maturity 1,987 1,518 0

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

Reclassification adjustment for (gains) losses included in net income 25 ( 21 ) ( 797 )

Net securities gain (loss) activity during the period 42,651 ( 259,759 ) ( 15,350 )

4 unchanged sentences

Amortization of net actuarial loss 59 144 242

Net gain (loss) on activity during the period 259 632 146

Net gain on activity during the period 46 259 632

Tax effect ( 12 ) ( 65 ) ( 157 )

7 unchanged sentences

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

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

Net income 95,733 95,733 95,733

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

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

Cash dividends declared, $ 1.36 per share

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

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

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

3 unchanged sentences

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

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

Net income 103,817 103,817 103,817

8 unchanged sentences

Net income 93,767 93,767 93,767

Other comprehensive loss, net of tax ( 205,016 ) ( 205,016 ) ( 205,016 )

Other comprehensive income, net of tax 33,728 33,728 33,728

Cash dividends declared, $ 1.84 per share

70 unchanged sentences

Nature of Operations and Principles of Consolidation:

The consolidated financial statements include Lakeland Financial Corporation (the “Holding Company”) and its wholly owned subsidiaries, Lake City Bank (the “Bank”) and LCB Risk Management, Inc., together referred to as (the “Company”).

The consolidated financial statements include Lakeland Financial Corporation (the “Holding Company”) and its wholly owned subsidiary, Lake City Bank (the “Bank”), referred to as (the "Company").

On December 18, 2006, LCB Investments II, Inc.

2 unchanged sentences

On December 28, 2012, LCB Risk Management, Inc., a captive insurance company incorporated in Nevada, was formed as a wholly owned subsidiary of the Holding Company.

LCB Risk Management, Inc.

was dissolved as a corporate entity on December 18, 2023.

All assets of the subsidiary were distributed to the Holding Company upon decommissioning.

All intercompany transactions and balances are eliminated in consolidation.

4 unchanged sentences

Retail lending programs are focused on mortgage loans, home equity lines of credit and traditional retail installment loans.

Retail customers utilize the Lake City Bank Digital application to access and transact banking transactions.

The Company provides credit card services to retail and commercial customers through its retail card program and merchant processing activity.

19 unchanged sentences

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

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

If the present

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

amortized cost basis.

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

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

5 unchanged sentences

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

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

After completing this assessment, the Company determined any credit losses as of December 31, 2023 and 2022 were not material to the consolidated financial statements.

Real Estate Mortgage Loans Held-for-Sale:

13 unchanged sentences

The recorded investment in loans is the loan balance net of unamortized deferred loan fees and costs.

The total amount of accrued interest on loans as of December 31, 2022 and 2021 was $ 18.4 million and $ 10.0 million.

The total amount of loans accrued interest as of December 31, 2023 and 2022 was $ 21.5 million and $ 18.4 million.

Allowance for Credit Losses:

6 unchanged sentences

The ultimate recovery of all loans is susceptible to future market factors beyond the Company's control.

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

The Company has an established process to determine the adequacy of the allowance for credit losses that generally includes consideration of changes in the nature and volume of the loan portfolio and overall portfolio quality, along

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

with current and forecasted economic conditions that may affect borrowers' ability to repay.

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

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

54 unchanged sentences

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

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

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

22 unchanged sentences

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

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

The Company also invests in Small Business Investment Company Program funds and a technology consortium fund.

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

3 unchanged sentences

The investments recorded at December 31, 2023 and 2022 were $ 13.0 million and $ 12.2 million, respectively and are included with other assets in the consolidated balance sheet.

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

The Company also has a commitment to fund an additional

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

$ 2.8 million at December 31, 2023 in six of the limited partnerships compared to $ 3.9 million in six of the limited partnerships at December 31, 2022, which is included with other liabilities in the consolidated balance sheet.

Foreclosed Assets:

27 unchanged sentences

The unpaid principal balances of these loans were $ 333.1 million and $ 364.3 million at December 31, 2023 and 2022, respectively.

Custodial escrow balances maintained in connection with serviced loans were $ 1.7 million at year end 2022 and 2021.

Custodial escrow balances maintained in connection with serviced loans were $ 1.5 million and $ 1.7 million at year end 2023 and 2022, respectively.

Servicing fee income (loss), which is included in loan and service fees on the income statement, is recorded for fees earned for servicing loans.

19 unchanged sentences

The fair value of the derivative instruments incorporates a consideration of credit risk (in accordance with ASC 820), resulting in some potential volatility in earnings each period.

Cash flow activity is recorded through other assets and other liabilities.

The notional amount of the combined interest rate swaps with customers and counterparties at December 31, 2023 and 2022 was $ 826.4 million and $ 760.5 million, respectively.

The fair value of the interest rate swap asset was $ 27.2 million and $ 36.9 million and the fair value of the interest rate swap liability was $ 27.2 million and $ 36.9 million at December 31, 2023 and 2022, respectively.

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

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

Bank Owned Life Insurance:

88 unchanged sentences

they are treated as outstanding when computing the weighted-average common shares outstanding for the calculation of both basic and diluted earnings per share.

During the year ended December 31, 2020, the Company repurchased 289,101 of its common shares at a weighted average price of $ 34.63 per share.

Treasury stock is carried at cost.

Treasury stock is carried at cost using the treasury stock method.

Comprehensive Income (Loss):

15 unchanged sentences

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

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

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

On May 30, 2023, the court issued its decision granting the defendants' motion to dismiss in part and denying it in part.

The court dismissed all claims against the Company and the Bank's independent director.

The court dismissed several of the claims against the defendants but granted the trustee the right to file an amended complaint.

On June 20, 2023, the trustee filed his third amended complaint.

The trustee alleges many of the same claims that were alleged in the second amended complaint.

The defendants filed a motion to dismiss the third amended complaint on July 25, 2023.

The trustee subsequently filed a response to this motion.

On November 26, 2023, the court issued its decision granting the defendants' motion to dismiss in part and denying it in part, with pre-trial discovery scheduled to start in early 2024 for all claims not dismissed by the court in its November ruling.

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

Restrictions on Cash:

4 unchanged sentences

These restrictions currently pose no practical limit on the ability of the Bank or Company to pay dividends at historical levels.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments:

2 unchanged sentences

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

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Operating Segments:

4 unchanged sentences

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

Newly Issued Accounting Standards:

Adoption of New Accounting Standards:

On March 12, 2020, the FASB issued Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (ASC 848):

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

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

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

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

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

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

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

Facilitation of the Effects of Reference Rate Reform of 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 to be discontinued.

On December 22, 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (ASC848):

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.

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

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

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

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

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

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

The Company transitioned LIBOR-based loans to an alternative reference rate before June 30, 2023.

The Company adopted the LIBOR transition relief allowed under this standard, and it 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 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.

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

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

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

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 update become 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.

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

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

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

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

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

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

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

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

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

Adoption of this portion of the standard did not have a material impact on the consolidated financial statements.

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

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

These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications or 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 class of financing receivable by year of origination.

The update is available for entities that have adopted the amendments in update

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Newly Proposed Accounting Standards

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The proposed amendments call for retrospective application.

The proposed ASU does not yet include an effective date.

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

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 2022-20 did not have a material impact on the consolidated financial statements.

On March 28, 2023, the FASB issued ASU 2023-02, "Investments - Equity Method and Join 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 certain 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, the provisions shall be adopted 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 chose the modified retrospective approach and recorded a day one adjustment of less than $ 1.0 million to beginning retained earnings upon adoption of ASU 2023-02 on January 1, 2024, which did not have a material impact on the consolidated financial statements.

Newly Issued But Not Yet Effective Accounting Standards:

On October 9, 2023, the FASB issued ASU 2023-06, "Disclosure Improvements:

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative" , which modified the disclosure or presentation requirements of a variety of Topics in the Codification and was intended to both clarify or improve such requirements and align the requirements with the SEC's regulations.

The amendments to Topics of Codification provided in this update apply to all reporting entities within the scope of the affected Topics unless otherwise indicated by the update.

Given the variety of Topics

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

amended, a broad range of entities may be affected by one or more of the amendments provided in the update.

The Company evaluated the amendments provided in the update and believes certain of the disclosure improvements are applicable to the

Company's interim or annual disclosures.

Subtopic 230-10, as amended, requires disclosure within the accounting policy in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented within the statement of cash flows.

Subtopic 260-10, as amended, requires disclosure of the methods used in the diluted earnings-per-share computation for each dilutive security and clarifies that certain disclosures should be made during interim

Subtopic 470-10, as amended, requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on short-term borrowings outstanding as of the date of each balance sheet presented.

The effective date for each amendment for entities subject to the SEC's existing disclosure requirements is the effective date of the removal of the related disclosure from Regulation S-X or Regulation S-K, with early adoption prohibited.

The amendments in the update are to be applied prospectively.

The Company will apply prospectively the provisions provided in the amendments as such provisions become effective, and does not believe the application of these modified disclosure requirements will have a material impact on the consolidated financial statements.

If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment in the Update will be removed from the Codification and will not become effective.

On November 27, 2023, the FASB issued ASU 2023-07, "Segment Reporting (ASC 280):

Improvements to Reportable Segment Disclosures" , intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment segment expenses.

Provisions in the amendment include:

(1) Requirement that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss (collectively referred to as the "significant expense principle");

(2) Requirement that a public entity disclose, on an an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition.

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

(3) Requirement that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by ASC 280 in interim periods;

(4) Clarification that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit.

However, at lease one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity's consolidated financial statements;

(5) Requirement that a public entity disclose the title and position of the CODM and explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources;

and (6) Requirement that a public entity that has a single reportable segment provide all the disclosures by the amendments in the update and all existing segment disclosures in ASC 280.

The amendments in the update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

For public business entities, amendments in the update should be applied retrospectively to all periods presented in the financial statements, and upon transition the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption.

The Company is currently evaluating the impact of this standard on its disclosures, however does not expect adoption of the Update to have a material impact on the consolidated financial statements.

On December 14, 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures" , to address investor requests for greater transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

The amendments are designed to enhance transparency surrounding income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by taxing jurisdiction, which will allow investors to better assess, in their capital allocation decisions, how an entity's operations and related tax risks and tax planning and operational opportunities affect its income tax rate and prospects for future cash flows.

Other amendments in this Update improve the effectiveness and comparability of disclosures by (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with the SEC's Regulation S-X 210.4-08(h), Rules of General Application-General Notes to Financial Statements:

Income Tax Expense , and (2) removing disclosures that are no longer considered cost beneficial or relevant.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The amendments in the Update are effective for public business entities for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

The amendments in this Update should be applied on a prospective basis, however retrospective application is permitted.

The Company is currently evaluating the impact of this Update on its disclosures, however does not expect adoption of the Update to have a material impact on the consolidated financial statements.

Reclassifications:

5 unchanged sentences

Available-for-Sale Securities

Information related to the amortized cost, fair value and allowance for credit losses of securities available-for-sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at December 31, 2022 and 2021 is provided in the tables on the next page.

NOTE 2 – SECURITIES (continued)

(dollars in thousands) Amortized

Losses Allowance for Credit Losses Fair

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

government sponsored agencies $ 146,692 $ 0 $ ( 27,213 ) $ 0 $ 119,479

1 unchanged sentence

residential 522,275 118 ( 74,551 ) 0 447,842

Mortgage-backed securities:

commercial 0 0 0 0 0

State and municipal securities 557,352 65 ( 73,010 ) 0 484,407

4 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

1 unchanged sentence

Held-to-Maturity Securities

Information related to the amortized cost, fair value and allowance for credit losses of securities held-to-maturity and the related gross gains and unrealized gains and losses at December 31, 2022 is presented in the table below.

(dollars in thousands) Amortized

1 unchanged sentence

State and municipal securities $ 129,918 $ 0 $ ( 10,703 ) $ 0 $ 119,215

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

NOTE 2 – SECURITIES (continued)

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.

3 unchanged sentences

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

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

No securities were transferred from available-for-sale to held-to-maturity during the year ended December 31, 2023.

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

1 unchanged sentence

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

NOTE 2 – SECURITIES (continued)

Available-for-Sale Held-to-Maturity

19 unchanged sentences

Securities with fair values of $ 792.0 million and $ 298.2 million were pledged as of December 31, 2023 and 2022, respectively, as collateral for borrowings from the FHLB and Federal Reserve Bank and for other purposes as permitted or required by law.

NOTE 2 – SECURITIES (continued)

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

6 unchanged sentences

Value Unrealized Losses

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

government sponsored agencies $ 0 $ 0 $ 119,479 $ 27,213 $ 119,479 $ 27,213

3 unchanged sentences

Total temporarily impaired $ 31,397 $ 440 $ 1,002,690 $ 174,334 $ 1,034,087 $ 174,774

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 temporarily impaired $ 455,318 $ 53,415 $ 686,704 $ 162,064 $ 1,142,022 $ 215,479

NOTE 2 – SECURITIES (continued)

Information regarding held-to-maturity securities with unrealized losses as of December 31, 2022 is presented below.

Information regarding held-to-maturity securities with unrealized losses as of December 31, 2023 and 2022 is presented below.

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

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

Less than 12 months 12 months or more Total

3 unchanged sentences

Value Unrealized

December 31, 2022

State and municipal securities $ 0 $ 0 $ 119,215 $ 10,703 $ 119,215 $ 10,703

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

NOTE 2 – SECURITIES (continued)

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

4 unchanged sentences

or more Total

Treasury securities 7 0 7 0 0 0

government sponsored agencies 0 17 17 0 0 0

3 unchanged sentences

Total temporarily impaired 41 513 554 0 41 41

Treasury securities 7 0 7 0 0 0

government sponsored agencies 1 16 17 0 0 0

11 unchanged sentences

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

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

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

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

Accrued interest receivable on available-for-sale and held-to-maturity debt securities totaled $ 7.6 million and $ 8.9 million at December 31, 2023 and 2022, respectively, and is excluded from the estimate of credit losses.

1 unchanged sentence

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

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

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

government, are highly rated by major credit rating agencies, and have a long history of no credit losses.

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

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.

NOTE 3 – LOANS

55 unchanged sentences

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

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

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

Recoveries 71 277 0 0 52 192 0 592

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

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

(dollars in thousands) Commercial

Industrial Commercial

Residential Agri-business

Agricultural Other

Commercial Consumer

Mortgage Other

Consumer Unallocated Total

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

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

4 unchanged sentences

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

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

Credit Quality Indicators:

10 unchanged sentences

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

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

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

11 unchanged sentences

Total 193 2,076 2,214 1,132 125 50 5,790 599,100 604,890

Working capital lines of credit loans:

Current period gross write offs 0 0 75 0 139 0 214 327 541

Non-working capital loans:

4 unchanged sentences

Total 209,448 237,521 87,888 57,096 31,292 15,035 638,280 177,138 815,418

Non-working capital loans:

Current period gross write offs 0 5,445 0 178 129 0 5,752 48 5,800

Commercial real estate and multi-family residential loans:

2 unchanged sentences

Total 50,693 15,558 17,655 0 177 0 84,083 547,570 631,653

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 152,370 133,786 164,918 133,881 63,154 121,812 769,921 55,027 824,948

Owner occupied loans:

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

Nonowner occupied loans:

2 unchanged sentences

Total 128,136 158,415 118,839 134,050 87,288 69,001 695,729 27,860 723,589

Nonowner occupied loans:

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

Multi-family loans:

2 unchanged sentences

Total 110,625 23,315 9,042 35,648 13,971 14,609 207,210 45,987 253,197

Multi-family loans:

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

Agri-business and agricultural loans:

1 unchanged sentence

Pass 24,503 32,060 25,308 27,924 9,104 19,160 138,059 24,724 162,783

Special Mention 260 0 1,676 1,780 0 15 3,731 0 3,731

Substandard 0 0 0 0 0 100 100 0 100

Total 24,503 32,060 25,308 27,924 9,104 19,260 138,159 24,724 162,883

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 28,657 13,589 27,362 25,504 3,533 10,429 109,074 116,906 225,980

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 7,058 26,918 33,247 13,684 90 9,751 90,748 29,819 120,567

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 74,230 61,559 50,596 26,688 8,238 28,103 249,414 8,330 257,744

Closed end first mortgage loans

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

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

Open end and junior lien loans

3 unchanged sentences

Total 25,457 29,785 8,985 1,889 2,312 2,016 70,444 121,128 191,572

Open end and junior lien loans

Current period gross write offs 0 50 14 0 0 0 64 99 163

Residential construction loans

1 unchanged sentence

Total 1,525 2,982 1,515 839 263 1,220 8,344 0 8,344

Residential construction loans

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

Other consumer loans

3 unchanged sentences

Total 33,603 18,408 11,420 6,309 1,613 1,957 73,310 22,439 95,749

TOTAL $ 911,943 $ 653,839 $ 552,202 $ 310,151 $ 126,843 $ 297,056 $ 2,852,034 $ 1,858,362 $ 4,710,396

Other consumer loans

Current period gross write offs 16 258 90 8 212 1 585 243 828

Total Loans $ 846,498 $ 755,972 $ 558,989 $ 464,644 $ 221,160 $ 293,243 $ 3,140,506 $ 1,776,028 $ 4,916,534

Total current period gross write offs $ 16 $ 5,753 $ 179 $ 186 $ 480 $ 1 $ 6,615 $ 717 $ 7,332

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

46 unchanged sentences

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

Special Mention 0 0 552 0 0 0 552 0 552

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

106 unchanged sentences

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

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

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

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

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

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

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

Additionally, the Company may allow a borrower to to make interest only payments for a specified period of time.

During the year ended December 31, 2022, no loans received a material modification based on borrower financial difficulty.

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

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

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

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

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

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

(dollars in thousands) December 31,

Accruing troubled debt restructured loans $ 5,121

Nonaccrual troubled debt restructured loans 6,218

Total troubled debt restructured loans $ 11,339

During the year ending December 31, 2021, certain loans were modified as troubled debt restructurings.

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

inadequate compensation for the terms of the restructure or renewal;

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

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

Additional concessions were granted to borrowers during 2021 with previously identified troubled debt restructured loans.

There were 8 loans with recorded investments totaling $ 2.2 million where collateral values or cash flows were insufficient to support the loans.

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

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

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

The following table presents loans by class modified as new troubled debt restructurings that occurred during the year ending December 31, 2021:

Modified Repayment Terms

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

Troubled Debt Restructurings

Consumer 1-4 family loans:

Closed end first mortgage loans 2 $ 217 $ 217 2 172 - 204

Total 2 $ 217 $ 217 2 172 - 204

For the period ending December 31, 2021, the troubled debt restructurings described above had no impact to the allowance and no charge-offs were recorded.

As of December 31, 2021, one retail loan in the amount of $ 11,000 had a COVID-19 related deferral.

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

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

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

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

inadequate compensation for the terms of the restructure or renewal;

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

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

The following table presents loans by class modified as new troubled debt restructurings that occurred during the year ending December 31, 2020:

Modified Repayment Terms

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

Troubled Debt Restructurings

Commercial and industrial loans:

Working capital lines of credit loans 1 $ 250 $ 315 1 0

Non-working capital lines of credit loans 2 4,288 3,691 2 0

Commercial real estate and multi-family residential loans:

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

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

For the period ending December 31, 2020, the troubled debt restructurings described above had no impact to the allowance and no charge-offs were recorded.

As of December 31, 2020, total deferrals attributed to COVID-19 were $ 100.7 million representing 49 borrowers.

This represented 2.2 % of the total loan portfolio.

Of that 22 were commercial loan borrowers representing $ 98.2 million in loans, or 2.3 % of commercial loans, and 27 were retail loan borrowers representing $ 2.5 million, or 0.7 % of total retail loans.

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

Of the total commercial deferrals attributed to COVID-19, $ 11.9 million represented a first deferral action, $ 22.8 million represented a second deferral action, $ 41.9 million represented a third deferral action and $ 24.1 million represented a fourth deferral action.

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

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

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

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

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

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

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

Prior to the adoption of ASC 326 on January 1, 2021 the Company calculated the allowance for loan losses using the incurred losses methodology.

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

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

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

(dollars in thousands) Commercial

Industrial Commercial

Residential Agri-business

Agricultural Other

Commercial Consumer

Mortgage Other

Consumer Unallocated Total

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

Provision for loan losses 6,640 6,868 ( 826 ) ( 31 ) 341 959 819 14,770

Loans charged-off ( 4,524 ) ( 72 ) 0 0 ( 141 ) ( 516 ) 0 ( 5,253 )

Recoveries 428 315 0 0 333 163 0 1,239

Net loans (charged-off) recovered ( 4,096 ) 243 0 0 192 ( 353 ) 0 ( 4,014 )

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

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

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

(dollars in thousands) Average

Investment Interest

Recognized Cash Basis

With no related allowance recorded:

The starting point to estimate such credit losses is historical loss information.

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

Occasionally, the Company subsequently modifies loans for borrowers experiencing financial distress by providing the following forms of relief:

forgiveness of loan principal, extension of repayment terms, reduction of interest rate or an other than insignificant payment delay.

In some instances, the Company provides multiple types of concessions for such modifications.

Because the effect of most modifications to borrowers experiencing financial difficulty is already included in the allowance for credit losses, no change to the allowance for credit losses is generally recorded for these modifications.

The following tables present the amortized cost basis at the end of the reporting period of loans that were experiencing financial difficulty and received a modification of terms during the twelve months ended December 31, 2023, by class and type of modification.

The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables at the end of the reporting period is also presented below:

(dollars in thousands) Interest Rate Reduction Combination Interest Rate Reduction and Term Extension Combination Principal Forgiveness, Interest Rate Reduction, Term Extension and Payment Delay Total Modifications Total Class of Financing Receivable

Twelve Months Ended December 31, 2023

Commercial and industrial loans:

1 unchanged sentence

Non-working capital loans 0 0 1,572 1,572 0.19

Commercial real estate and multi-family residential loans:

Owner occupied loans 2,156 13 12

Agri-business and agricultural loans:

Loans secured by farmland 283 0 0

Loans for agricultural production 4 0 0

Consumer 1-4 family loans:

Closed end first mortgage loans 291 3 2

Open end and junior lien loans 49 0 0

With an allowance recorded:

Total commercial and industrial loans 1,912 944 1,572 4,428 0.31

Total loan modifications made to borrowers experiencing financial difficulty $ 1,912 $ 944 $ 1,572 $ 4,428 0.09 %

The Company has no material commitments to lend additional funds to borrowers included in the previous table.

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

The following table presents the financial effect of the loan modifications presented above for borrowers experiencing financial difficulty for the twelve months ended December 31, 2023:

(dollars in thousands) Principal Forgiveness Interest Rate Reduction Term Extension Payment Delay Total Class of Financing Receivable

Twelve Months Ended December 31, 2023

Commercial and industrial loans:

Working capital lines of credit loans 2,433 0 0

Non-working capital loans 11,579 287 287

Commercial real estate and multi-family residential loans:

Construction and land development loans

Owner occupied loans 3,156 30 30

Agri-business and agricultural loans:

Loans secured by farmland 147 0 0

Consumer 1-4 family mortgage loans:

Closed end first mortgage loans 1,557 36 33

Open end and junior lien loans 481 0 0

Residential construction loans 35 0 0

Other consumer loans 0 0 0

Total $ 23,362 $ 390 $ 385

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

Working capital lines of credit loans $ 0 Reduction of two variable Prime Rate lines of credit to 1.00 % Fixed

Reduction of one variable line of credit from Prime plus 1.00 % to 1.00 % Fixed

Term extension for one variable rate line of credit from 12 months to 120 months

Non-working capital loans (1) 9,380 Reduction of one term loan from Prime plus 0.75 % to 1.00 % Fixed

Term extension from 40 months to 60 months

Extension of amortization period from 40 months to 480 months with excess cash flow recapture provisions for earlier repayment

(1) Represents one $ 11.0 million non-working capital loan that received principal forgiveness of $ 9.4 million, of which $ 3.7 million and $ 5.6 million was charged off during the twelve months ended December 31, 2023 and 2022, respectively.

During the twelve months ended December 31, 2022, no modifications were made to loans for borrowers experiencing financial difficulty.

The company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

At December 31, 2023, no loans receiving such a modification within the last twelve months were 30 days or greater past due.

At December 31, 2023, no loans receiving a modification due to borrower financial difficulty within the last twelve months has experienced a payment default.

Upon the Company's determination that a modified loan (or portion thereof) has subsequently been deemed uncollectible, the loan (or a portion thereof) is written off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

NOTE 5 – FAIR VALUE

71 unchanged sentences

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

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

government sponsored agency securities $ 0 $ 119,479 $ 0 $ 119,479

6 unchanged sentences

Total assets $ 0 $ 1,076,684 $ 2,280 $ 1,078,964

Mortgage banking derivative $ 0 $ 11 $ 0 $ 11

Interest rate swap derivative 0 27,190 0 27,190

6 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

43 unchanged sentences

Collateral dependent loans:

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

Loans secured by farmland 31 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 69 %

Other real estate owned 384 Appraisals Discount to reflect current market conditions and ultimate collectability 36 %

7 unchanged sentences

Collateral dependent loans:

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

Loans secured by farmland 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 %

17 unchanged sentences

All other deposits 4,703,704 4,703,704 0 0 4,703,704

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

Federal Home Loan Bank advances 50,000 50,000 0 0 50,000

Mortgage banking derivative 11 0 11 0 11

Interest rate swap derivative 27,190 0 27,190 0 27,190

7 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

43 unchanged sentences

NOTE 9 – BORROWINGS

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

The following table details outstanding fixed rate bullet advances with the Federal Home Loan Bank ("FHLB") of Indianapolis for the years ended December 31, 2023 and 2022:

(dollars in thousands) 2023 2022

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

$ 275,000 $ 0

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

Total FHLB advances $ 275,000 75,000

Federal Home Loan Bank of Indianapolis $ 50,000 $ 275,000

The advance outstanding at December 31, 2023 was a fixed-rate bullet advance and could not be prepaid by the Company without a penalty.

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

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

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

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

The advance had an interest rate of 5.55 % and matured on January 5, 2024.

The note required payment at maturity and was secured by residential real estate loans and securities with a carrying value of approximately $ 824.0 million at December 31, 2023.

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

The advance had an interest rate of 4.21 % and matured on January 5, 2023.

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

At December 31, 2023 and 2022, the Company owned $ 18.0 million and $ 12.4 million, respectively, of FHLB stock which also secures debts owed to the FHLB.

The Company is authorized by the Board to borrow up to $ 800.0 million at the FHLB, but availability is limited to $ 574.9 million based on collateral and outstanding borrowings.

Federal Reserve Discount Window borrowings were secured by commercial loans and investment securities with a carrying value of $ 928.6 million and $ 804.4 million as of December 31, 2022 and 2021.

The Company had a borrowing capacity of $ 758.3 million and $ 616.5 million at the Federal Reserve Bank as of December 31, 2022 and 2021, respectively.

There were no borrowings outstanding at the Federal Reserve Bank at December 31, 2022 and 2021.

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

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

Federal Reserve Discount Window borrowings were secured by commercial loans and investment securities with a carrying value of $ 1.59 billion and $ 928.6 million as of December 31, 2023 and 2022.

The Company had a borrowing capacity of $ 1.26 billion and $ 758.3 million at the Federal Reserve Bank as of December 31, 2023 and 2022, respectively.

The Company enrolled in the Federal Reserve Bank Term Funding Program, initiated in March 2023, and had borrowings secured by investment securities with a collateral value of $ 150.5 million as of December 31, 2023.

There were no borrowings outstanding under either program at the Federal Reserve Bank at December 31, 2023 and 2022.

The Company had $ 325.0 million and $ 350.0 million of availability in federal funds lines with eleven correspondent banks as of December 31, 2023 and 2022, respectively;

$ 0 and $ 22.0 million were drawn upon as of December 31, 2023 and 2022, respectively.

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

3 unchanged sentences

NOTE 9 – BORROWINGS (continued)

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

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

Funds provided under the agreement may be used to repurchase shares of the Company’s common stock under the share repurchase program, which was reauthorized by the Company’s board of directors on April 13, 2021 and expires on April 30, 2023, and for general operations.

On October 11, 2023, the Company entered into an unsecured revolving credit agreement with another financial institution allowing the Company to borrow up to $ 30.0 million.

This credit agreement replaced an existing agreement of $ 12.5 million in place with a different financial institution that the Company terminated on October 11, 2023.

There were no borrowings outstanding on either credit agreement at December 31, 2023 or December 31, 2022.

Funds provided under the current agreement may be used to repurchase shares of the Company's common stock under the share repurchase program, which was reauthorized by the Company's board of directors on April 11, 2023 and expires on April 30, 2025, and for general operations.

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

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

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

NOTE 10 – PENSION AND OTHER POSTRETIREMENT PLANS

27 unchanged sentences

Net actuarial loss $ 478 $ 538 $ 502 $ 487

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

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

NOTE 10 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

The accumulated benefit obligation for the pension plan was $ 1.5 million for both December 31, 2023 and 2022.

The accumulated benefit obligation for the SERP was $ 693,000 and $ 700,000 for December 31, 2023 and 2022, respectively.

Net period benefit cost and other amounts recognized in other comprehensive income (loss) include the following:

12 unchanged sentences

Total recognized in net pension expense and other comprehensive income (loss) $ ( 63 ) $ ( 269 ) $ ( 366 ) $ 51 $ 75 $ ( 69 )

The estimated net loss (gain) for the defined benefit pension plan and SERP that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is ($ 31,000 ) for the pension plan and $ 37,000 for the SERP.

The estimated net loss (gain) for the defined benefit pension plan and SERP that will be amortized (accreted) from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is ($ 34,000 ) for the pension plan and $ 42,000 for the SERP.

The settlement costs in 2023, 2022 and 2021 were related to participants taking lump sum distributions from the pension plan during those years.

For 2023, 2022 and 2021, the assumed form of payment elected by active participants upon retirement was a lump sum to reflect participant trends.

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

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

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

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

The lump sum assumed interest rates, on the next page, for December 31, 2023, 2022 and 2021 reflect the mortality table in effect for 2023, 2022 and 2021, respectively.

For 2023, 2022, and 2021, the mortality assumption was the PRI-2012 White Collar Mortality Table, with full generational Projection Scale MP-2021 at year-end.

NOTE 10 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

67 unchanged sentences

Debt securities - short term bond mutual funds 153 153 0 0

Debt securities - high yield bond mutual funds 18 18 0 0

Debt securities - nontraditional bond mutual funds 12 12 0 0

Debt securities - bank loan mutual funds 35 35 0 0

Debt securities - preferred stock mutual funds 36 36 0 0

Cash - money market account 55 55 0 0

30 unchanged sentences

Debt securities - short term bond mutual funds 44 44 0 0

Debt securities - high yield bond mutual funds 5 5 0 0

Debt securities - nontraditional bond mutual funds 4 4 0 0

Debt securities - bank loan mutual funds 10 10 0 0

Debt securities - preferred stock mutual funds 10 10 0 0

Cash - money market account 10 10 0 0

15 unchanged sentences

Total $ 606 $ 606 $ 0 $ 0

Total SERP plan assets available for benefits also include $ 1,000 in accrued interest and dividend income.

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

17 unchanged sentences

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

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

The expense (benefit) recognized was $ 425,000 , ($ 1.0 ) million and $ 1.2 million during the years ended December 31, 2023, 2022 and 2021, respectively.

This resulted in a deferred compensation liability of $ 4.1 million and $ 6.1 million as of year end 2023 and 2022, respectively.

40 unchanged sentences

Accrued legal reserve 635 819

Net operating loss carryforward 913 0

Other 591 1,130

12 unchanged sentences

Net deferred tax asset $ 16,108 $ 16,634

At December 31, 2023, the Company has Indiana net operating loss carryforwards of approximately $ 20.0 million that will expire in 2038 if not used.

Management has concluded that the state net operating losses will be fully utilized and therefore no valuation allowance is necessary on the state net operating loss.

In addition to the net deferred tax assets included above, the deferred income tax asset (liability) allocated to the unrealized net gain (loss) on securities available-for-sale included in equity was $ 41.1 million and $ 50.0 million for 2023 and 2022, respectively.

22 unchanged sentences

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

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

As of December 31, 2023 and 2022, the Company had an aggregate investment balance of approximately $ 3.0 million and $ 2.3 million, respectively, in such funds, which are included in other assets on the consolidated balance sheet, and had remaining commitments to invest up to approximately $ 2.3 million and $ 2.8 million, respectively.

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

11 unchanged sentences

The Company has a policy of issuing new shares to satisfy exercises of stock awards.

Included in net income for the years ended December 31, 2022, 2021 and 2020 was employee stock compensation expense of $ 7.8 million, $ 7.2 million and $ 1.8 million, and a related tax benefit of $ 2.0 million, $ 1.8 million and $ 0.5 million, respectively.

Included in net income for the years ended December 31, 2023, 2022 and 2021 was employee stock compensation expense of $ 3.7 million, $ 7.8 million and $ 7.2 million, and a related tax benefit of $ 908,000 , $ 2.0 million and $ 1.8 million, respectively.

Stock Options

21 unchanged sentences

Nonvested at December 31, 2023 47,340 $ 69.65

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

As of December 31, 2023, there was $ 862,000 unrecognized compensation cost related to non-vested shares granted under the plan.

The cost is expected to be recognized over a weighted period of 1.7 years.

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

The total fair value of shares vested during the years ended December 31, 2023, 2022 and 2021 was $ 862,000 , $ 1.2 million and $ 1.1 million, respectively.

Performance Stock Units

177 unchanged sentences

Net cash from operating activities 61,583 42,023 47,790

Cash flows from investing activities:

Return of capital from subsidiary 3,602 0 0

Cash flows from investing activities 3,602 0 0

Cash flows from financing activities:

23 unchanged sentences

NOTE 20 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

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

(dollars in thousands) Unrealized

15 unchanged sentences

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

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

Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021 are as follows:

Details about

10 unchanged sentences

Amortization of unrealized losses on held-to-maturity securities $ ( 1,987 ) Interest income

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

Realized gains and (losses) on available-for-sale securities ( 25 ) Net securities gains (losses)

Tax effect 423 Income tax expense

6 unchanged sentences

(dollars in thousands)

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

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

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

Tax effect 315 Income tax expense

6 unchanged sentences

(dollars in thousands)

Realized gains and (losses) on available-for-sale securities $ 433 Net securities gains

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

Tax effect ( 167 ) Income tax expense

66 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data