What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-01 compared with 2023-11-01 · 168 added, 296 removed, 977 unchanged (32% of the section changed)

1 unchanged sentence

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

September 30,

2024 December 31,

18 unchanged sentences

Total deposits 5,618,085 5,720,525

Federal Funds purchased 0 22,000

Federal Home Loan Bank advances 200,000 50,000

Total borrowings 90,000 297,000

Accrued interest payable 14,524 20,893

4 unchanged sentences

90,000,000 shares authorized, no par value

25,903,264 shares issued and 25,431,724 outstanding as of September 30, 2023

25,966,500 shares issued and 25,503,425 outstanding as of March 31, 2024

25,903,686 shares issued and 25,430,566 outstanding as of December 31, 2023

2 unchanged sentences

Accumulated other comprehensive income (loss) ( 166,913 ) ( 155,195 )

Treasury stock at cost ( 471,540 shares as of September 30, 2023, 475,902 shares as of December 31, 2022)

Treasury stock at cost ( 463,075 shares as of March 31, 2024, 473,120 shares as of December 31, 2023)

( 15,370 ) ( 15,553 )

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

NET INTEREST INCOME

8 unchanged sentences

Interest on deposits 41,164 24,918

Interest on borrowings

Short-term 3,122 0 8,252 0

Long-term 0 0 0 127

Interest on short-term borrowings 2,454 2,783

Total interest expense 43,618 27,701

7 unchanged sentences

Loan and service fees 2,852 2,846

Merchant card fee income 938 941 2,744 2,660

Merchant and interchange fee income 863 877

Bank owned life insurance income (loss) 1,036 691

Interest rate swap fee income 0 88 794 492

Mortgage banking income (loss) 52 ( 99 )

10 unchanged sentences

Professional fees 2,463 2,121

Wire fraud loss 0 0 18,058 0

Other expense 2,248 2,562

8 unchanged sentences

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

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

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

2023 2022 2023 2022

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

Three Months Ended March 31,

Net income $ 23,401 $ 24,278

3 unchanged sentences

Reclassification adjust for amortization of unrealized losses on securities transferred to held-to-maturity 496 491

Reclassification adjustment for losses included in net income 35 0 16 0

Reclassification adjustment for (gains) losses included in net income 46 ( 16 )

Net securities gain (loss) activity during the period ( 14,847 ) 27,268

7 unchanged sentences

Total other comprehensive income (loss), net of tax ( 11,718 ) 21,553

Comprehensive income (loss) $ ( 25,214 ) $ ( 34,670 ) $ 24,953 $ ( 159,982 )

Comprehensive income $ 11,683 $ 45,831

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

7 unchanged sentences

Interest Total

Balance at July 1, 2022

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

Comprehensive loss:

Net income 28,525 28,525 28,525

Other comprehensive income (loss), net of tax ( 63,195 ) ( 63,195 ) ( 63,195 )

Cash dividends declared and paid, $ 0.40 per share

( 10,214 ) ( 10,214 ) ( 10,214 )

Treasury shares purchased under deferred directors' plan ( 3,158 ) 220 ( 220 ) 0 0

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

Stock activity under equity compensation plans 8,130 ( 52 ) ( 52 ) ( 52 )

Stock based compensation expense 2,093 2,093 2,093

Balance at September 30, 2022

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

Balance at July 1, 2023

25,429,216 $ 123,367 $ 661,447 $ ( 177,645 ) $ ( 15,263 ) $ 591,906 $ 89 $ 591,995

Comprehensive loss:

Net income 25,252 25,252 25,252

Other comprehensive income (loss), net of tax ( 50,466 ) ( 50,466 ) ( 50,466 )

Cash dividends declared and paid, $ 0.46 per share

( 11,782 ) ( 11,782 ) ( 11,782 )

Treasury shares purchased under deferred directors' plan ( 3,992 ) 206 ( 206 ) 0 0

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

Stock activity under equity compensation plans 6,500 0 0

Stock based compensation expense 2,185 2,185 2,185

Balance at September 30, 2023

25,431,724 $ 125,758 $ 674,917 $ ( 228,111 ) $ ( 15,469 ) $ 557,095 $ 89 $ 557,184

Nine Months Ended

Common Stock Retained

Earnings Accumulated Other Comprehensive

Income (Loss) Treasury

Stock Total Stockholders’

Equity Noncontrolling

Interest Total

Balance at January 1, 2023

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

Comprehensive loss:

Comprehensive income:

Net income 24,278 24,278 24,278

6 unchanged sentences

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

Balance at September 30, 2022

Balance at March 31, 2023

25,430,917 $ 125,840 $ 658,629 $ ( 167,370 ) $ ( 15,182 ) $ 601,917 $ 89 $ 602,006

1 unchanged sentence

25,430,566 $ 127,692 $ 692,760 $ ( 155,195 ) $ ( 15,553 ) $ 649,704 $ 89 $ 649,793

Impact of adoption ASU 2023-02, net of tax ( 532 ) ( 532 ) ( 532 )

Adjusted Balance at January 1, 2024 25,430,566 127,692 692,228 ( 155,195 ) ( 15,553 ) 649,172 89 649,261

Comprehensive income:

7 unchanged sentences

Stock based compensation expense 880 880 880

Balance at September 30, 2023

Balance at March 31, 2024

25,503,425 $ 125,873 $ 703,330 $ ( 166,913 ) $ ( 15,370 ) $ 646,920 $ 89 $ 647,009

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)

Nine Months Ended September 30, 2023 2022

Three Months Ended March 31, 2024 2023

Cash flows from operating activities:

4 unchanged sentences

Amortization of loan servicing rights 109 133

Net change in loan servicing rights valuation allowance 0 ( 708 )

Loans originated for sale, including participations ( 4,535 ) ( 795 )

2 unchanged sentences

Net (gain) loss on sales of premises and equipment 13 ( 4 )

Net loss on sales and calls of securities available-for-sale 16 0

Net (gain) loss on sales and calls of securities available-for-sale 46 ( 16 )

Net securities amortization 1,264 1,192

1 unchanged sentence

Losses (earnings) on life insurance ( 1,036 ) ( 691 )

Gain on life insurance ( 243 ) 0

Tax benefit of stock award issuances ( 201 ) ( 720 )

14 unchanged sentences

Proceeds from redemption of Federal Home Loan Bank stock 0 0

Proceeds from sales of other real estate 0 0

Proceeds from life insurance 536 0

Net cash from investing activities ( 61,859 ) 50,360

2 unchanged sentences

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

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

Net payments on short-term FHLB borrowings ( 185,000 ) 0

Proceeds from (payments on) short-term FHLB borrowings 150,000 ( 75,000 )

Common dividends paid ( 12,299 ) ( 11,749 )

Preferred dividends paid ( 13 ) ( 13 )

Payments related to equity incentive plans ( 2,516 ) ( 3,124 )

8 unchanged sentences

Income taxes 0 0

Supplemental non-cash disclosures:

Loans transferred to other real estate owned 284 0

Right-of-use assets obtained in exchange for lease liabilities 0 1,612

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

BASIS OF PRESENTATION

This report is filed for Lakeland Financial Corporation (the "Company"), which has two wholly owned subsidiaries, Lake City Bank (the "Bank") and LCB Risk Management, a captive insurance company.

This report is filed for Lakeland Financial Corporation (the "Company"), which has one wholly owned subsidiary, Lake City Bank (the "Bank").

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

7 unchanged sentences

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

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2023.

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2024.

The Company’s 2023 Annual Report on Form 10-K should be read in conjunction with these statements.

Adoption of New Accounting Standards

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

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

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

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

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

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

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

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

The adoption of the provisions contained within ASU 2022-02 did not have a material impact on the consolidated financial statements.

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

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

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

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

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

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

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

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

Deferral of the Sunset Date of Topic 848 ",

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

The ASU was effective immediately upon issuance.

The Company adopted the LIBOR transition relief allowed under this standard, and it did not have a material impact on the consolidated financial statements.

Newly Issued But Not Yet Effective Accounting Standards

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

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):

18 unchanged sentences

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.

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

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

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

The Company chose the modified retrospective approach and recorded a day one adjustment of ($ 532,000 ), net of tax, to beginning retained earnings 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:

4 unchanged sentences

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.

2 unchanged sentences

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 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 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 allocation resources, a public entity may report one or more of those additional measures of segment profit.

However, at least 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 the 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 to 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 of 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 in regards to 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 disaggregation 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 are designed to improve the effectiveness and comparability of disclosures by (1) adding disclosures of pretax income (loss) and income tax expense (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.

The amendments in this Update are effective for public business entities for annual periods beginning after December 31, 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 the adoption of this update to have a material impact on the consolidated financial statements.

Reclassification

7 unchanged sentences

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

September 30, 2023

Treasury securities $ 2,873 $ 0 $ ( 12 ) $ 0 $ 2,861

March 31, 2024

government sponsored agencies $ 144,693 $ 0 $ ( 28,241 ) $ 0 $ 116,452

4 unchanged sentences

December 31, 2023

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

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

7 unchanged sentences

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

September 30, 2023

March 31, 2024

State and municipal securities $ 130,335 $ 0 $ ( 14,868 ) $ 0 $ 115,467

1 unchanged sentence

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

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

The fair value of securities transferred was $ 127.0 million.

The unrealized loss on the securities transferred from available-for-sale to held-to-maturity was $ 24.4 million ($ 19.3 million, net of tax) based on the fair value of the securities on the transfer date and was $ 21.4 million ($ 16.9 million, net of tax) at September 30, 2023.

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

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

There have been no subsequent transfers of securities from available-for-sale to held-to-maturity.

Information regarding the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by maturity as of September 30, 2023 is presented below.

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

All of the Company's securities designated as held-to-maturity were transferred from the available-for-sale classification.

The net unrealized gain or loss on the transferred securities was recorded as a component of accumulated other comprehensive income (loss) at the time of the transfer and is amortized over the remaining life of the underlying securities as an adjustment to the yield on those securities.

The net amount of the unamortized unrealized loss on the transferred securities included in accumulated other comprehensive income (loss) was $ 20.4 million ($ 16.1 million, net of tax) at March 31, 2024.

Information regarding the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by maturity as of March 31, 2024 is presented below.

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

11 unchanged sentences

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

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

Three Months Ended March 31,

(dollars in thousands) 2024 2023

7 unchanged sentences

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

Securities with fair values of $ 740.8 million and $ 298.2 million were pledged as of September 30, 2023 and December 31, 2022, respectively, as collateral for borrowings from the Federal Home Loan Bank ("FHLB") and Federal Reserve Bank and for other purposes as permitted or required by law.

Securities with fair values of $ 642.0 million and $ 792.0 million were pledged as of March 31, 2024 and December 31, 2023, respectively, as collateral for borrowings from the Federal Home Loan Bank ("FHLB") and Federal Reserve Bank and for other purposes as permitted or required by law.

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

Information regarding available-for-sale securities with unrealized losses as of September 30, 2023 and December 31, 2022 is presented on the following page.

Information regarding available-for-sale securities with unrealized losses as of March 31, 2024 and December 31, 2023 is presented on the following page.

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

4 unchanged sentences

Value Unrealized

September 30, 2023

Treasury securities $ 2,466 $ 8 $ 395 $ 4 $ 2,861 $ 12

March 31, 2024

government sponsored agencies $ 0 $ 0 $ 116,452 $ 28,241 $ 116,452 $ 28,241

4 unchanged sentences

December 31, 2023

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 available-for-sale $ 31,397 $ 440 $ 1,002,690 $ 174,334 $ 1,034,087 $ 174,774

Information regarding held-to-maturity securities with unrealized losses as of September 30, 2023 and December 31, 2022 is presented below.

Information regarding held-to-maturity securities with unrealized losses as of March 31, 2024 and December 31, 2023 is presented below.

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

4 unchanged sentences

Value Unrealized

September 30, 2023

March 31, 2024

State and municipal securities $ 0 $ 0 $ 115,467 $ 14,868 $ 115,467 $ 14,868

1 unchanged sentence

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

The total number of securities with unrealized losses as of September 30, 2023 and December 31, 2022 is presented below.

The total number of securities with unrealized losses as of March 31, 2024 and December 31, 2023 is presented below.

Available-for-Sale Held-to-Maturity

3 unchanged sentences

or more Total

September 30, 2023

Treasury securities 7 1 8 0 0 0

March 31, 2024

government sponsored agencies 0 17 17 0 0 0

4 unchanged sentences

December 31, 2023

Treasury securities 7 0 7 0 0 0

government sponsored agencies 0 17 17 0 0 0

7 unchanged sentences

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

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

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

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

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

1 unchanged sentence

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

No allowance for credit losses for available-for-sale or held-to-maturity debt securities was recorded at September 30, 2023 or December 31, 2022.

Accrued interest receivable on securities totaled $ 7.1 million and $ 8.9 million at September 30, 2023 and December 31, 2022, respectively, and is excluded from the estimate of credit losses.

No allowance for credit losses for available-for-sale or held-to-maturity debt securities was recorded at March 31, 2024 or December 31, 2023.

Accrued interest receivable on securities totaled $ 7.0 million and $ 7.6 million at March 31, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses.

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

2 unchanged sentences

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

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2024 December 31,

27 unchanged sentences

Loans, net $ 4,924,379 $ 4,844,562

The recorded investment in loans does not include accrued interest, which totaled $ 20.7 million and $ 18.4 million as of September 30, 2023 and December 31, 2022, respectively.

The Company h ad $ 470,000 and $ 306,000 in residential real estate loans in the process of foreclosure as of September 30, 2023 and December 31, 2022, respectively.

The recorded investment in loans does not include accrued interest, which totaled $ 22.7 million and $ 21.5 million as of March 31, 2024 and December 31, 2023, respectively.

The Company h ad $ 417,000 and $ 238,000 in residential real estate loans in the process of foreclosure as of March 31, 2024 and December 31, 2023, respectively.

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

59 unchanged sentences

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

Three Months Ended September 30, 2023

Beginning balance, July 1 $ 30,978 $ 30,913 $ 4,402 $ 1,120 $ 3,448 $ 846 $ 351 $ 72,058

Provision for credit losses ( 167 ) 230 ( 139 ) ( 102 ) 197 283 98 400

Loans charged-off ( 193 ) 0 0 0 ( 149 ) ( 138 ) 0 ( 480 )

Recoveries 21 12 0 0 3 91 0 127

Net loans (charged-off) recovered ( 172 ) 12 0 0 ( 146 ) ( 47 ) 0 ( 353 )

Ending balance $ 30,639 $ 31,155 $ 4,263 $ 1,018 $ 3,499 $ 1,082 $ 449 $ 72,105

Three Months Ended September 30, 2022

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

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

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

Recoveries 18 25 0 0 3 43 0 89

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

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

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Beginning balance, January 1 $ 30,338 $ 31,335 $ 4,150 $ 1,129 $ 3,474 $ 1,174 $ 372 $ 71,972

5 unchanged sentences

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

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

19 unchanged sentences

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

The following table summarizes the risk category of loans by loan segment and year of origination as of September 30, 2023:

The following table summarizes the risk category of loans by loan segment and year of origination as of March 31, 2024:

(dollars in thousands) 2024 2023 2022 2021 2020 Prior Term Total Revolving Total

18 unchanged sentences

Pass 19,348 43,392 12,546 47,129 0 175 122,590 534,622 657,212

Special Mention 0 0 0 0 0 0 0 0 0

Total 19,348 43,392 12,546 47,129 0 175 122,590 534,622 657,212

23 unchanged sentences

Pass 3,516 23,636 31,737 24,413 27,560 25,108 135,970 31,201 167,171

Special Mention 0 0 0 0 8 0 8 0 8

Substandard 0 0 0 0 0 96 96 0 96

5 unchanged sentences

Special Mention 0 0 0 182 0 0 182 500 682

Substandard 0 0 0 0 0 0 0 0 0

Doubtful 0 0 0 0 0 0 0 0 0

Not Rated 0 0 0 0 0 0 0 0 0

Total 1,142 28,938 19,910 26,596 24,782 12,545 113,913 86,770 200,683

35 unchanged sentences

Current period gross write offs 1 73 136 20 0 26 256 54 310

Total period gross write offs 1 5,705 105 6 455 1 6,273 493 6,766

Total Loans $ 198,443 $ 828,644 $ 740,454 $ 573,009 $ 443,812 $ 448,282 $ 3,232,644 $ 1,764,915 $ 4,997,559

As of September 30, 2023, $ 1.5 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

Total period gross write offs $ 1 $ 73 $ 230 $ 20 $ 0 $ 26 $ 350 $ 154 $ 504

As of March 31, 2024, $ 1.2 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

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

7 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

Multifamily loans:

2 unchanged sentences

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

Multifamily 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

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

As of December 31, 2023, $ 1.3 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

6 unchanged sentences

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

The following table presents the aging of the amortized cost basis in past due loans as of September 30, 2023 by class of loans and loans past due 90 days or more and still accruing by class of loan:

The following table presents the aging of the amortized cost basis in past due loans as of March 31, 2024 by class of loans and loans past due 90 days or more and still accruing by class of loan:

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

17 unchanged sentences

Total $ 4,979,616 $ 3,177 $ 7 $ 4,982,800 $ 14,759 $ 2,066 $ 4,997,559

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

Additionally, interest income recognized on nonaccrual loans was insignificant during the three and nine month periods ended September 30, 2023.

An insignificant amount of interest income was recognized on nonaccrual loans during the three month period ended March 31, 2024.

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

18 unchanged sentences

Total $ 4,897,462 $ 3,360 $ 27 $ 4,900,849 $ 15,685 $ 1,901 $ 4,916,534

As of December 31, 2022 there were an insignificant number of loans 30-89 days past due or greater than 89 days past due on nonaccrual.

Additionally, interest income recognized on nonaccrual loans was insignificant during the year ended December 31, 2022.

An insignificant amount of interest income was recognized on nonaccrual loans was insignificant during the year ended December 31, 2023.

When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

3 unchanged sentences

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

September 30, 2023

March 31, 2024

(dollars in thousands) Real Estate General

28 unchanged sentences

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

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

The starting point to determine 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, or an interest rate reduction, among other possible concessions.

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 three and nine months ended September 30, 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 and Term Extension Total Modifications Total Class of Financing Receivable

Three Months Ended September 30, 2023

Commercial and industrial loans:

Working capital lines of credit loans $ 2,000 $ 931 $ 0 $ 2,931 0.50 %

Non-working capital loans 0 0 0 0 0.00

Total commercial and industrial loans 2,000 931 0 2,931 0.21

Total loan modifications made to borrowers experiencing financial difficulty $ 2,000 $ 931 $ 0 $ 2,931 0.06 %

Nine Months Ended September 30, 2023

The allowance for credit losses incorporates an estimate of lifetime expected credit losses using historical loss information.

The Company uses a probability of default/loss given default model to determine an estimate which is recorded for each asset upon origination.

Occasionally, the Company has reason to modify certain terms of loans for borrowers experiencing financial distress by providing the following forms of relief:

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

The Company can make any or all of these types of concessions as part of such modifications.

Since an estimate for historical losses is already included as a component of the allowance for credit losses, a change to the allowance for credit losses is generally not recorded at the time of such modifications.

In the event forgiveness of principal is provided, the amount of the forgiveness is charged off against the allowance for credit losses.

During the three months ended March 31, 2024 and 2023, there were no material modifications made to 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.

The following table presents the performance of such loans that have been modified in the last 12 months at March 31, 2024:

(dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due

Commercial and industrial loans:

Working capital lines of credit loans $ 941 $ 0 $ 0 $ 941

Non-working capital loans 0 0 1,596 1,596 0.20

Total commercial and industrial loans 941 0 0 941

Total loan modifications made to borrowers experiencing financial difficulty $ 2,000 $ 931 $ 1,596 $ 4,527 0.09 %

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

The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2023:

(dollars in thousands) Principal Forgiveness Interest Rate Reduction

Financial Effect Term Extension

Financial Effect Total Class of Financing Receivable

Three Months Ended September 30, 2023

Commercial and industrial 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

Extension of terms for one variable rate line of credit from 12 months to 120 months

Non-working capital loans 0 No modifications No modifications 0.00 %

(dollars in thousands) Principal Forgiveness Interest Rate Reduction

Financial Effect Term Extension

Financial Effect Total Class of Financing Receivable

Nine Months Ended September 30, 2023

Commercial and industrial 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 9,380 Reduction of one term loan from Prime plus 0.75 % to 1.00 % Fixed

Term extension from 40 months to 300 months

During the three and nine months ended September 30, 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 September 30, 2023, no loans receiving such a modification within the last twelve months were 30 days or greater past due.

At September 30, 2023, no loans receiving a modification due to borrower financial difficulty within the last twelve months experienced a payment default.

Total $ 941 $ 0 $ 0 $ 941

One working capital line of credit loan receiving a modification due to borrower financial difficulty within the past 12 months was 30-59 days past due at March 31, 2024.

The delinquency for this line of credit was due to ongoing negotiations with the borrower for an additional restructuring of the outstanding debt for the admission of new partners into the borrower's business.

At March 31, 2024, no loans receiving a modification due to borrower financial difficulty within the last twelve months 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.

For the period ended September 30, 2023, the Company had an advance outstanding from the FHLB in the amount of $ 90.0 million.

The outstanding advance was a fixed rate bullet advance with an interest rate of 5.55 % and matured October 6, 2023.

For the period ended March 31, 2024, the Company had an advance outstanding from the FHLB in the amount of $ 200.0 million.

The outstanding advance was a fixed rate bullet advance with an interest rate of 5.49 % and matured April 10, 2024.

For the period ended December 31, 2023, the Company had a fixed rate bullet advance from the FHLB with an interest rate of 5.55 % in the amount of $ 50.0 million that matured on January 5, 2024.

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 29, 2023 for $ 12.5 million.

Funds provided under the agreement could 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 included a negative pledge agreement whereby the Company agreed not to pledge or otherwise encumber the stock of the Bank.

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

There were no outstanding borrowings on the credit agreement at September 30, 2023 and December 31, 2022.

This unsecured revolving credit agreement was terminated on October 11, 2023 and replaced by a new revolving credit agreement with a different financial institution.

The new unsecured revolving credit agreement was effective October 11, 2023, for $ 30.0 million.

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

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

Funds provided under the agreement can 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.

There were no outstanding borrowings on the credit agreement at March 31, 2024 and December 31, 2023.

FAIR VALUE DISCLOSURES

38 unchanged sentences

Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available.

Such adjustments are usually significant and result in a Level 3

classification of the inputs for determining fair value.

Such adjustments are usually significant and result in a Level 3 classification of the inputs for determining fair value.

In addition, the Company’s management routinely applies internal discount factors to the value of appraisals used in the fair value evaluation of collateral dependent loans.

2 unchanged sentences

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

(a) raw and finished inventory is discounted from its cost or book value by 40 - 60 %, depending on the marketability of the goods (b) finished goods are generally discounted by 40 - 60 %, depending on the ease of marketability, cost of transportation or scope of use of the finished good (c) work in process inventory is typically discounted by 60 %- 100 %, depending on the length of manufacturing time, types of components used in the completion process, and the breadth of the user base (d) equipment is valued at a percentage of depreciated book value or recent appraised value, if available, and is typically discounted at 20 - 50 % after various considerations including age and condition of the equipment, marketability, breadth of use, and whether the equipment includes unique components or add-ons;

scope of use of the finished good (c) work in process inventory is typically discounted by 60 %- 100 %, depending on the length of manufacturing time, types of components used in the completion process, and the breadth of the user base (d) equipment is valued at a percentage of depreciated book value or recent appraised value, if available, and is typically discounted at 20 - 50 % after various considerations including age and condition of the equipment, marketability, breadth of use, and whether the equipment includes unique components or add-ons;

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

1 unchanged sentence

Mortgage servicing rights:

As of September 30, 2023, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 2.3 million, carried at amortized cost and no valuation reserve.

As of March 31, 2024, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $ 2.1 million, carried at amortized cost and no valuation reserve.

These residential mortgage loans have a weighted average interest rate of 3.6 %, a weighted average maturity of 20 years and are secured by homes generally within the Company’s market area of Northern Indiana and Indianapolis.

5 unchanged sentences

The most significant unobservable assumption is the discount rate.

At September 30, 2023, the constant prepayment speed (“PSA”) used was 148 and used a discount rate range of 9.5 %- 11.5 %.

At March 31, 2024, the constant prepayment speed (“PSA”) used was 154 and used a discount rate range of 10.0 %- 12.0 %.

At December 31, 2023, the PSA used was 148 and the discount rate used was 10.5 %.

9 unchanged sentences

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

September 30, 2023

March 31, 2024

Fair Value Measurements Using Assets

1 unchanged sentence

(dollars in thousands) Level 1 Level 2 Level 3

Treasury securities $ 2,861 $ 0 $ 0 $ 2,861

government sponsored agency securities 0 116,452 0 116,452

6 unchanged sentences

Total assets $ 0 $ 1,042,705 $ 2,238 $ 1,044,943

Mortgage banking derivative $ 0 $ 9 $ 0 $ 9

Interest rate swap derivative 0 30,365 0 30,365

4 unchanged sentences

(dollars in thousands) Level 1 Level 2 Level 3

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

2 unchanged sentences

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

September 30, 2023

March 31, 2024

Fair Value Measurements Using Assets

27 unchanged sentences

Total assets $ 0 $ 0 $ 5,734 $ 5,734

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2023:

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at March 31, 2024:

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

17 unchanged sentences

Items that are not financial instruments are not included.

September 30, 2023

March 31, 2024

Value Estimated Fair Value

33 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

2 unchanged sentences

OFFSETTING ASSETS AND LIABILITIES

The following tables summarize gross and net information about financial instruments and derivative instruments that are offset in the statement of financial position or that are subject to an enforceable master netting arrangement at September 30, 2023 and December 31, 2022.

September 30, 2023

March 31, 2024

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

16 unchanged sentences

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Weighted average shares outstanding for basic earnings per common share 25,657,063 25,583,026

4 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the three months ended September 30, 2023 and 2022, all shown net of tax:

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

for-Sales Securities Defined Benefit Pension Items Total

Balance at July 1, 2023

$ ( 176,898 ) $ ( 747 ) $ ( 177,645 )

Other comprehensive income (loss) before reclassification ( 50,900 ) 0 ( 50,900 )

Amounts reclassified from accumulated other comprehensive income (loss) 423 11 434

Net current period other comprehensive income (loss) ( 50,477 ) 11 ( 50,466 )

Balance at September 30, 2023 $ ( 227,375 ) $ ( 736 ) $ ( 228,111 )

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

for-Sales Securities Defined Benefit Pension Items Total

Balance at July 1, 2022

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

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

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

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

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

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 and 2022, all shown net of tax:

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the three months ended March 31, 2024 and 2023, all shown net of tax:

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

4 unchanged sentences

Net current period other comprehensive income (loss) ( 11,729 ) 11 ( 11,718 )

Balance at September 30, 2023

Balance at March 31, 2024

$ ( 166,189 ) $ ( 724 ) $ ( 166,913 )

5 unchanged sentences

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

Balance at September 30, 2022

Balance at March 31, 2023

$ ( 166,612 ) $ ( 758 ) $ ( 167,370 )

Reclassifications out of other accumulated other comprehensive income (loss) for the three months ended September 30, 2023 are as follows:

Details about

Accumulated Other

Comprehensive

Income (Loss) Components Amount

Reclassified From Accumulated Other Comprehensive Income (Loss) Affected Line Item

in the Statement Where Net Income is Presented

(dollars in thousands)

Amortization of unrealized losses on held-to-maturity securities $ ( 501 ) Interest income

Realized gains and (losses) on available-for-sale securities ( 35 ) Net securities gains (losses)

Tax effect 113 Income tax expense

( 423 ) Net of tax

Amortization of defined benefit pension items ( 15 ) Other expense

Tax effect 4 Income tax expense

( 11 ) Net of tax

Total reclassifications for the period $ ( 434 ) Net income

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

Details about

Accumulated Other

Comprehensive

Income (Loss) Components Amount

Reclassified From Accumulated Other Comprehensive Income (Loss) Affected Line Item

in the Statement Where Net Income is Presented

(dollars in thousands)

Amortization of unrealized losses on held-to-maturity securities $ ( 504 ) Interest income

Tax effect 106 Income tax expense

( 398 ) Net of tax

Amortization of defined benefit pension items ( 36 ) Other expense

Tax effect 9 Income tax expense

( 27 ) Net of tax

Total reclassifications for the period $ ( 425 ) Net income

Reclassifications out of accumulated comprehensive income (loss) for the nine months ended September 30, 2023 are as follows:

Reclassifications out of accumulated comprehensive income (loss) for the three months ended March 31, 2024 are as follows:

Details about

13 unchanged sentences

Total reclassifications for the period $ ( 439 ) Net income

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

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

Details about

28 unchanged sentences

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

The following is a maturity analysis of the operating lease liabilities as of September 30, 2023:

The following is a maturity analysis of the operating lease liabilities as of March 31, 2024:

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

4 unchanged sentences

Right-of-use asset $ 4,542

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

Three Months Ended March 31,

(dollars in thousands) 2024 2023

4 unchanged sentences

Operating cash outflows from operating leases $ 185 $ 169

Weighted-average remaining lease term - operating leases 6.5 years 7.5 years 6.5 years 7.5 years

Weighted-average remaining lease term - operating leases 6.0 years 7.0 years

Weighted average discount rate - operating leases 2.5 % 2.5 %

1 unchanged sentence

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

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

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

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

In July 2019, the Bank discovered potentially fraudulent activity by a former treasury management client involving multiple banks.

The former client subsequently filed several related bankruptcy cases, captioned In re Interlogic Outsourcing, Inc., et al ., which were filed in the United States Bankruptcy Court for the Western District of Michigan.

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

12 unchanged sentences

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

The trustee alleges many of the same claims that were alleged in his 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 and the parties are currently awaiting a decision from the court to rule on the motion and response as filed or to schedule a hearing for the parties to present arguments on the motion.

This activity is expected to occur in the fourth quarter of 2023.

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 are named as defendants in the third amended complaint, intend to vigorously defend themselves against all allegations asserted in the 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.

The court scheduled a pre-trial conference for January 11, 2024, to among other things, set the scope, timing and parameters of the pre-trial discovery process with the parties as the litigation of all claims not dismissed by the court in its ruling has ensued.

Both parties commenced the steps in their respective pre-trial discovery plans in the first quarter and have agreed to another round of mediation, which is scheduled for May 2, 2024, in Grand Rapids, Michigan, at which time the trustee, the bank, its insurers and the parties’ respective counsel will attempt to settle the remaining claims.

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.

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

What changed 10-Q

Item 1. Financial Statements