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Item 7. Management’s Discussion and Analysis

2025-02-19 compared with 2024-02-21 · 214 added, 251 removed, 638 unchanged (42% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net income in 2023 was $93.8 million, down 9.7%, from $103.8 million in 2022.

Net income for 2022 was 8.4% higher than $95.7 million in 2021.

Net income in 2024 was $93.5 million, a decrease of 0.3%, from $93.8 million in 2023.

Net income for 2023 was 9.7% lower than $103.8 million in 2022.

Diluted net income per common share was $3.63 in 2024, $3.65 in 2023 and $4.04 in 2022.

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The average equity to average assets ratio was 9.94% in 2024, compared to 9.11% in 2023 and 9.28% in 2022.

Net income in 2023 was negatively impacted by a $20.5 million increase in noninterest expense and a $5.9 million decrease in net interest income.

Offsetting these decreases were an $8.0 million increase in noninterest income and a $3.5 million decrease in provision for credit losses.

On June 30, 2023, the Company discovered that it had been the victim of an international wire fraud resulting in a loss of $18.1 million.

During the fourth quarter of 2023, the Company recognized $6.3 million in insurance and loss recoveries associated with the wire fraud loss.

During 2023, the total impact of the wire fraud loss to income before income tax expense was $10.4 million, net of recoveries and adjustments to salaries and benefits expense, or $7.8 million net of tax, and $0.30 diluted earnings per common share.

Core operational profitability, a non-GAAP financial measure that excludes the impact of the wire fraud loss and related insurance and loss recoveries as well as adjustments to the Company's salaries and employee benefits expense, was $101.6 million for the twelve months ended December 31, 2023, a decrease of $2.2 million, or 2.2%, from the full year 2022.

Core operational diluted earnings per common share, a non-GAAP financial measure, for the twelve months ended December 31, 2023, was $3.95, also a decrease of 2.2%, from the full year 2022.

Net income in 2022 was positively impacted by a $24.8 million increase in net interest income.

Offsetting the positive impact of net interest income were an $8.3 million increase in provision for credit losses, a $5.9 million increase in noninterest expense and a $2.9 million decrease in noninterest income.

Net income in 2024 as compared to 2023 was positively impacted by a $7.0 million increase in noninterest income and a $5.6 million decrease in noninterest expense.

Offsetting these positive contributions to net income were an increase to the provision for credit losses of $10.9 million, an increase to income tax expense of $1.6 million, and a decrease to net interest income of $356,000.

Pretax pre-provision earnings, which is a non-GAAP measure, were $128.4 million for the year ended December 31, 2024, an increase of $12.3 million, or 10.5%, compared to $116.2 million for the year ended December 31, 2023.

Net income in 2023 as compared to 2022 was negatively impacted by a $20.5 million increase in noninterest expense and a $5.9 million decrease in net interest income.

Offsetting these negative effects on net income were an $8.0 million increase in noninterest income and a $3.5 million decrease in provision for credit losses.

Total assets were $6.678 billion as of December 31, 2024, versus $6.524 billion as of December 31, 2023, an increase of $154.3 million or 2.4%.

Balance sheet expansion in 2024 was driven by loan growth of $201.4 million, or 4.1%.

Offsetting the increase in loan growth was a decrease in investments securities of $132.1 million, or 10.1%.

Balance sheet expansion in 2023 was funded by an increase in deposits of $259.9 million, or 4.8%, and was offset by a decrease in borrowings of $247.0 million.

Offsetting the loan growth was a decrease in investments securities of $58.7 million, or 5.0%.

Deposits increased by $180.4 million, or 3.2%, during 2024 to fund the balance sheet expansion.

CRITICAL ACCOUNTING POLICIES

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

The level of credit loss provision is influenced by growth in the overall loan portfolio, emerging market risk, emerging concentration risk, commercial loan focus and large credit concentration, new industry lending activity, general economic

conditions and historical loss analysis.

In addition, management gives consideration to changes in the facts and circumstances of watch list credits, which includes the security position of the borrower, in determining the appropriate level of the credit loss provision.

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

To determine the specific allocation levels for individual credits, management considers the current valuation of collateral and the amounts and timing of expected future cash flows as the primary measures.

To determine the specific allocation levels for individual credits, management considers the current valuation of collateral and the amounts and timing of expected future cash flows as

the primary measures.

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

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These two components represent the total allowance for credit losses deemed adequate to cover expected losses inherent in the loan portfolio.

The Company's allowance for credit losses balance was comprised of 32% specific reserves and 68% general reserves at December 31, 2024, compared to 11% specific reserves and 89% general reserves at December 31, 2023.

The increase in specific reserves was driven by a large commercial credit with a balance of $43.3 million being placed on nonaccrual during 2024.

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

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

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

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

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actual collections may be greater than or less than expectations.

Actual collections may be impacted by wider economic conditions such as changes in the competitive environment or in the levels of business investment or consumer

spending, or by the quality of borrowers’ management teams and the success of their strategy execution.

Borrowers’ ability to repay may also change due to the effects of government monetary or fiscal policy, which could affect the level of demand for borrowers’ products or services.

Actual collections may be impacted by wider economic conditions such as changes in the competitive environment or in the levels of business investment or consumer spending, or by the quality of borrowers’ management teams and the success of their strategy execution.

Borrowers’ ability to repay may also change due to the effects of government monetary or fiscal policy, which could affect the level of demand for borrowers’ products or services or the borrowers' ability to service their debt payments in the future.

The Company’s allowance for credit losses is subject to changes in the inputs to the model, including the following:

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projected unemployment rates and other economic indicators;

the Company’s collateral position on adversely classified loans;

Company’s collateral position on adversely classified loans;

or management’s qualitative judgment of the implication of trends in its loan portfolio or in the broader economy.

RESULTS OF OPERATIONS

The Company's net income in 2023 decreased $10.1 million, or 9.7%, as a result of an increase in noninterest expense of $20.5 million, or 18.6%, and a decrease in net interest income of $5.9 million, or 2.9%.

Noninterest income increased $8.0 million, or 19.1%.

Provision for credit losses decreased $3.5 million, or 37.6%.

The increases to noninterest expense and noninterest income were primarily driven by the wire fraud loss that occurred during the second quarter of 2023 and related insurance and loss recoveries and adjustments to salaries and benefits expense recorded by the Company as a result of the loss.

The wire fraud loss of $18.1 million was the primary driver of the increase to noninterest expense.

Insurance and loss recoveries associated with the event of $6.3 million were recorded as noninterest income during the fourth quarter of 2023.

Salaries and employee benefits expense was reduced by $1.4 million as a result of adjustments to the Company's long term incentive accrual due to the negative impact of the loss on the Company's net income for the year.

Core operational profitability, a non-GAAP financial measure which excludes the impact of the wire fraud loss and related insurance and loss recoveries and adjustments to the Company's salaries and employee benefits expense, was $101.6 million for the twelve months ended December 31, 2023, a decrease of $2.2 million, or 2.2%, from the full year 2022.

Core operational diluted earnings per common share, a non-GAAP financial measure, for the twelve months ended December 31, 2023, was $3.95, also a decrease of 2.2%, from the full year 2022.

The Company's net interest income was negatively impacted in 2023 by increased funding costs, primarily driven by deposit repricing as deposit rates adjusted to the higher interest rate environment as a result of tightened monetary policy by the Federal Reserve.

The rise in deposit costs combined with a shift in deposit mix from noninterest bearing deposits to interest bearing deposits were the primary drivers behind the 2.9% decrease in net interest income during 2023.

Asset quality metrics remained stable with watch list loans as a percentage of total loans remaining near historic lows at 3.72% at December 31, 2023, as compared to 3.42% at December 31, 2022.

The provision for credit losses decreased $3.5 million, or 37.6%.

The near-term outlook includes plans for continued loan growth, disciplined credit philosophy, continued investments in human capital and technological innovations and enhancements, and targeted expansion of our branch network in the Indianapolis market with two new offices planned in the next 24 months.

In 2024, the Company continued to expand its balance sheet organically, achieving average loan growth of 4.7% and average deposit growth of 4.1% in its geographic footprint of northern Indiana and in central Indiana in the Indianapolis market.

The Company had 54 branches as of December 31, 2024.

The Company’s net interest income remained stable during the year, declining by less than 1%.

However, net interest margin declined from 3.31% in 2023 to 3.18% in 2024.

The combined effects of the 2022-2023 monetary policy tightening cycle, increased market competition for deposits and a deposit mix shift from noninterest bearing demand accounts to interest bearing deposit products drove funding costs higher and net interest margin compression in 2023.

The rise in deposit costs peaked in the second quarter of 2024 and began to decline in the second half of 2024 as the Federal Reserve Bank started to ease rates.

An increase to noninterest income of 14.0% and a decrease in noninterest expense of 4.3% contributed positively to net income.

An increase in nonperforming loans of $40.7 million drove provision expense higher in 2024.

Provision expense increased by $10.9 million, or 186.3%, primarily related to the downgrade of one commercial borrower to nonperforming status in the second quarter of 2024.

The allowance coverage ratio increased to 1.68% from 1.46% at December 31, 2024 and 2023, respectively, primarily as a result of the elevated provision.

Individually analyzed and watch list loans as a percentage of total loans increased to 4.13% at December 31, 2024 from 3.72% at December 31, 2023, remaining near the historic low of 3.42%.

Fee based lines of business including wealth advisory fees and brokerage fees anchored growth in adjusted core noninterest income, a non-GAAP financial measure that excludes the impact of certain non-routine operating events, increasing by 7.6% and 4.1%, respectively.

The growth in adjusted core noninterest expense, a non-GAAP financial measure that excludes the impact of certain non-routine operating events, reflects the Company's continued investment in its people, technology, and physical infrastructure.

The outlook for 2025 includes plans for continued organic balance sheet growth, disciplined credit philosophy with proactive management of loan portfolio challenges, continued investments in human and technological capital, a significant investment in the downtown Warsaw campus headquarters to establish the Lake City Bank Innovation and Technology Center, and continued expansion of our branch network with a new office scheduled to open in the Indianapolis market in 2025.

Selecte d income statement information for the years ended December 31, 2024, 2023 and 2022 is presented in the following table.

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Net interest margin 3.18 3.31 3.40

Net interest margin excluding Paycheck Protection Program ("PPP") loans (5) 3.31 3.40 2.95

Noninterest income to total revenue 22.42 20.19 17.10

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(1) Non-GAAP financial measure.

Calculated by excluding the wire fraud loss and related insurance and loss recoveries and adjustments to salary and benefits.

Management believes this is an important measure because meaningful to understanding the company’s core business performance for these periods.

Calculated by excluding the effects of the 2024 net gain on Visa shares, legal accrual, and additional wire fraud loss recovery and the 2023 wire fraud loss and related recoveries and adjustments to salary and benefits.

Management believes this is an important measure that helps management and investors understand the Company’s core business performance for these periods.

See reconciliation on the following pages.

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(4) Non-GAAP financial measure.

Calculated by removing the fair market value adjustment impact of the available-for-sale investment securities portfolio included in accumulated other comprehensive income ("AOCI") from tangible equity and tangible assets.

Management believes this is an important measure because it provides better comparability to periods preceding the recent significant rise in prevailing interest rates.

See reconciliation on the following pages.

(5) Non-GAAP financial measure.

Calculated by subtracting the impact PPP loans had on average earnings assets, loan interest income, average interest bearing liabilities, and interest expense.

Management believes this is an important measure because it provides for better comparability to subsequent periods, given the expectation that PPP represented a limited governmental intervention in the lending market, designed to support small businesses through the pandemic, its low fixed interest rate of 1.0% and because the accretion of net loan fee income can be accelerated upon borrower forgiveness and repayment by the SBA.

Calculated by removing the fair market value adjustment impact of the available-for-sale investment securities portfolio included in accumulated other comprehensive income/loss ("AOCI") from tangible equity and tangible assets.

Management believes this is an important measure because it provides better comparability to periods preceding the significant rise in prevailing interest rates.

See reconciliation on the following pages.

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Reconciliations of these non-GAAP financial measures is provided below.

The impact of the wire fraud loss, insurance and loss recoveries and adjustments to salaries and benefits is presented below.

Management considers these measures of core financial performance to be meaningful to understanding the Company’s business performance for these periods.

31, 2023 Dec.

31, 2022 Dec.

Noninterest Income $ 49,858 $ 41,862 $ 44,720

Recoveries (6,300) 0 0

Adjusted Core Noninterest Income $ 43,558 $ 41,862 $ 44,720

Noninterest Expense $ 130,710 $ 110,210 $ 104,287

Wire Fraud Loss (18,058) 0 0

Salaries and Employee Benefits 1,397 0 0

Adjusted Core Noninterest Expense $ 114,049 $ 110,210 $ 104,287

Earnings Before Income Taxes $ 110,333 $ 125,164 $ 117,444

Adjusted Core Impact:

Noninterest Income (6,300) 0 0

Noninterest Expense 16,661 0 0

Total Adjusted Core Impact 10,361 0 0

Adjusted Earnings Before Income Taxes 120,694 125,164 117,444

Tax Effect (19,119) (21,347) (21,711)

Core Operational Profitability $ 101,575 $ 103,817 $ 95,733

Diluted Earnings Per Share $ 3.65 $ 4.04 $ 3.74

Impact of Wire Fraud Loss, Net of Recoveries 0.30 0.00 0.00

Core Operational Diluted Earnings Per Common Share $ 3.95 $ 4.04 $ 3.74

Adjusted Core Efficiency Ratio 47.40 % 45.03 % 46.81 %

(dollars in thousands, except per share data) Dec.

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Pretax Pre-Provision Earnings $ 128,439 $ 116,183 $ 134,539

The impact of the Paycheck Protection Program on Net Interest Margin FTE for the years ended December 31, 2022 and 2021 is presented below (dollars in thousands).

The impact of the Paycheck Protection Program on Net Interest Margin FTE for the year ended December 31, 2023 is excluded as the Program had an immaterial impact on average earning assets, interest income and cost of funds during the period.

The impact of the net gain on Visa shares, legal accrual, wire fraud loss and associated insurance and loss recoveries and adjustments to salaries and benefits is presented below.

Management considers these measures of core financial performance to be meaningful to understanding the Company’s business performance for these periods.

(dollars in thousands, except per share data) Dec.

31, 2024 Dec.

Total Average Earnings Assets $ 6,123,163 $ 5,906,640

Average Balance of PPP Loans (7,942) (237,951)

Total Adjusted Earning Assets 6,115,221 5,668,689

Total Interest Income FTE $ 245,194 $ 196,806

PPP Loan Income (772) (14,945)

Total Adjusted Interest Income FTE 244,422 181,861

Adjusted Earning Asset Yield, net of PPP Impact 4.00 % 3.21 %

Total Average Interest Bearing Liabilities $ 3,913,195 $ 3,761,520

Average Balance of PPP Loans (7,942) (237,951)

Total Adjusted Interest Bearing Liabilities 3,905,253 3,523,569

Total Interest Expense FTE $ 36,680 $ 15,131

PPP Cost of Funds (20) (595)

Total Adjusted Interest Expense FTE 36,660 14,536

Adjusted Cost of Funds, net of PPP Impact 0.60 % 0.26 %

Net Interest Margin FTE, net of PPP Impact 3.40 % 2.95 %

31, 2023 Dec.

Noninterest Income $ 56,844 $ 49,858 $ 41,862

Net (Gain) on Visa Shares (8,996) 0 0

Insurance and Loss Recoveries (1,000) (6,300) 0

Adjusted Core Noninterest Income $ 46,848 $ 43,558 $ 41,862

Noninterest Expense $ 125,084 $ 130,710 $ 110,210

Legal Accrual (4,537) 0 0

Wire Fraud Loss 0 (18,058) 0

Salaries and Employee Benefits (1) 0 1,397 0

Adjusted Core Noninterest Expense $ 120,547 $ 114,049 $ 110,210

Earnings Before Income Taxes $ 111,689 $ 110,333 $ 125,164

Adjusted Core Impact:

Noninterest Income (9,996) (6,300) 0

Noninterest Expense 4,537 16,661 0

Total Adjusted Core Impact (5,459) 10,361 0

Adjusted Earnings Before Income Taxes 106,230 120,694 125,164

Tax Effect (16,853) (19,119) (21,347)

Core Operational Profitability (2) $ 89,377 $ 101,575 $ 103,817

Diluted Earnings Per Share $ 3.63 $ 3.65 $ 4.04

Impact of Wire Fraud Loss, Net of Recoveries (0.16) 0.30 0.00

Core Operational Diluted Earnings Per Common Share $ 3.47 $ 3.95 $ 4.04

Adjusted Core Efficiency Ratio 49.49 % 47.40 % 45.03 %

(1) In 2023, long-term, incentive-based compensation accruals were reduced as a result of the wire fraud loss and associated insurance and loss recoveries.

(2) Core operational profitability was $4.1 million lower and $7.8 million higher than reported net income for the years ended December 31, 2024 and 2023, respectively.

Net income was $93.5 million in 2024, a decrease of $289,000, versus net income of $93.8 million in 2023.

The decrease in net income from 2023 to 2024 was driven by an increase in provision expense of $10.9 million, or 186.3%, an increase in income tax expense of $1.6 million, or 9.9%, and a decrease in net interest income of $356,000.

Offsetting these items were an increase in noninterest income of $7.0 million, or 14.0%, and a decrease to noninterest expense of $5.6 million, or 4.3%.

Pretax pre-provision earnings were $128.4 million for the year ended December 31, 2024, an increase of $12.3 million, or 10.5%, compared to $116.2 million for the year ended December 31, 2023.

The increase to noninterest income in 2024 was primarily driven by the net gains on the exchange and sale of Visa shares previously held at a cost basis of $0 since 2008.

In the second quarter of 2024, Visa Inc.

announced the commencement of an exchange offer for Visa Class B-1 common stock.

The Company accepted the exchange offer and tendered its Visa Class B-1 common stock in exchange for a combination of Visa Class C and Visa Class B-2 common stock.

After entering the exchange, the Company redeemed its Visa Class C common shares and sold its Visa Class B-2 shares in the secondary market.

The Company recognized $9.0 million in net gains from these transactions.

Other items contributing to the increase in noninterest income were a $1.0 million insurance recovery, a $1.4 million, or 15.3% increase, in wealth advisory fees, a $1.1 million, or 34.4% increase, in bank owned life insurance income, and a $370,000 increase in mortgage banking income.

The decrease to noninterest expense in 2024 was driven by lower miscellaneous expenses for losses incurred in 2023 and was partially offset by a $4.5 million legal accrual recorded in the second quarter of 2024 related to resolution of a previously disclosed legal matter.

Net income was $93.8 million in 2023, a decrease of $10.1 million, or 9.7%, versus net income of $103.8 million in 2022.

The decrease in net income from 2022 to 2023 was driven by an increase in noninterest expense of $20.5 million, or 18.6%, and a decrease in net interest income of $5.9 million, or 2.9%.

Offsetting these decreases was an increase in noninterest expense of $8.0 million, or 19.1%, and a decrease in the provision for credit losses of $3.5 million, or 37.6%.

The increases to noninterest expense and noninterest income were a result of the wire fraud loss and related insurance and loss recoveries and adjustments to salaries and employee benefits expense recorded by the Company during 2023.

The wire fraud loss, which occurred during the second quarter of 2023, was $18.1 million and was the primary driver of the increase to noninterest expense.

Insurance and loss recoveries associated with the event of $6.3 million were recorded as noninterest income during the fourth quarter of 2023.

Core operational profitability, a non-GAAP financial measure which excludes the impact of the wire fraud loss and related insurance and loss recoveries as well as adjustments to the Company's salaries and employee benefits expense, was $101.6 million for the twelve months ended December 31, 2023, a decrease of $2.2 million, or 2.2%, from the comparable period of 2022.

Core operational diluted earnings per common share, a non-GAAP financial measure, for the twelve months ended December 31, 2023, was $3.95, also a decrease of 2.2%, from the comparable period of 2022.

Net income was $103.8 million in 2022, an increase of $8.1 million, or 8.4%, versus net income of $95.7 million in 2021.

The increase in net income from 2021 to 2022 was primarily due to an increase in net interest income of $24.8 million, or 13.9%, and an increase in the provision for credit losses of $8.3 million, or 770.5%.

Noninterest expense increased $5.9 million, or 5.7%, and noninterest income decreased $2.9 million, or 6.4%.

Net interest income for 2022 included $772,000 in PPP interest and fee income, compared to $14.9 million for 2021.

The increase in provision expense for 2022 was driven primarily by the downgrade of a single commercial relationship, with the remaining increase attributable to loan growth.

Offsetting these decreases were an increase in noninterest income of $8.0 million, or 19.1%, and a decrease in the provision for credit losses of $3.5 million, or 37.6%.

Core operational profitability, a non-GAAP financial measure that excludes the impact of certain non-routine operating events, was $89.4 million for the year ended December 31, 2024, a decrease of 12.0%, or $12.2 million, compared to $101.6 million for the year ended December 31, 2023.

Core operational diluted earnings per common share, a non-GAAP financial measure, were $3.47 for the year ended December 31, 2024, a decrease of 12.2% from $3.95 for the prior year.

Net Interest Income

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Net interest income and margin $ 201,363 3.18 % $ 202,347 3.31 % $ 208,514 3.40 %

(1) Loan fees are included as taxable loan interest income.

Net loan fees attributable to PPP loans were $10,000 , $692,000 and $12.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

(1) Nonaccrual loans are included in the average balance of taxable loans.

(2) Tax exempt income was converted to a fully taxable equivalent basis at a 21 percent tax rate.

The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) adjustment applicable to nondeductible interest expenses.

The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the Tax Equity and Fiscal Responsibility

Act of 1982 ("TEFRA") adjustment applicable to nondeductible interest expenses.

Taxable equivalent basis adjustments were $4.7 million, $5.3 million and $5.6 million for the years ended December 31, 2024, 2023 and 2022, respectively.

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The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the TEFRA adjustment applicable to nondeductible interest expense.

Net interest income decreased by $5.9 million to $197.0 million in 2023 compared to $202.9 million in 2022, primarily as a result of increased funding costs.

Net interest income decreased by $356,000 to $196.7 million in 2024 compared to $197.0 million in 2023, primarily as a result of increased funding costs.

Total interest expense increased $30.2 million, or 20.7%.

Of this increase, deposit interest expense increased $101.5 million, or 279.8%, as a result of increased rates paid for customer deposits and a shift in deposit mix from noninterest bearing deposits to interest bearing deposits.

Funding costs for deposits increased 183 basis points to 2.46% during 2023, a 290.5% increase compared to 0.63% during 2022.

Of this increase, deposit interest expense increased $35.0 million, or 25.4%, from increased rates paid for customer deposits and a shift in deposit mix from noninterest bearing deposits to interest bearing deposits.

Funding costs for deposits increased 50 basis points to 2.96% during 2024, compared to 2.46% during 2023.

Noninterest bearing deposits to total deposits were 22.0% at 2024 compared to 23.7% at 2023.

Average noninterest bearing deposits decreased $217.5 million, or 14.7%, to $1.258 billion for 2024 as compared to $1.475 billion for 2023.

Average interest bearing deposits increased $449.3 million, or 10.9%, to $4.578 billion for 2024 as compared, to $4.129 billion for 2023.

Contributing further to the increased funding costs was an increase in borrowings expense of $8.0 million, as a result of increased average short-term borrowings to meet the Company's funding needs.

Average wholesale funding reliance remained low at 2.90% as of December 31, 2023 compared to 0.70% at December 31, 2022.

Wholesale funding reliance remained low at 0.70% as of December 31, 2024 compared to 3.21% at December 31, 2023.

Investment securities interest income decreased $1.8 million, or 6.0%, and contributed to the decline in net interest income during 2024.

The decrease in investment securities income was driven by a decrease in average securities balances of $247.6 million, or 17.3%, during 2023 as a result of available-for-sale investment securities sales of $105.2 million, maturities, calls and paydowns of $71.8 million, and offset by purchases of CRA securities of $7.2 million.

Realized losses of $25,000

were recognized on the securities sales during 2023.

The yield on average investment securities increased 15 basis points to 2.86% for 2023, as compared to 2.71% for 2022, partially offsetting the impact of the decrease in securities average balances.

An increase in loans interest income offset the negative impacts to net interest income, increasing $104.3 million, or 51.2%, to $308.0 million during 2023 compared to $203.7 million during 2022.

The decrease in investment securities income was driven by a decrease in average securities balances of

$49.7 million, or 4.2%, during 2024 as a result of available-for-sale investment securities sales of $7.1 million, maturities, calls and paydowns of $59.7 million, and offset by purchases of securities of $27.5 million.

Realized losses of $46,000 were recognized on the securities sales during 2024.

The yield on average investment securities decreased 5 basis points to 2.81% for 2024, as compared to 2.86% for 2023.

Investment securities cash flows were primarily used to fund loan growth during 2024.

An increase in loans interest income partially offset the negative impacts to net interest income, increasing $29.8 million, or 9.7%, to $337.8 million during 2024 compared to $308.0 million during 2023.

The increase in average loans was driven by loan growth during the period as average loan balances increased $225.7 million, or 4.7%, from $4.814 billion during 2023 to $5.039 billion during 2024.

An increase in loan yields of 181 basis points, or 39.3%, from 4.61% for 2022 to 6.42% for 2023 as a result of continued Federal Reserve tightening during 2023 and loan repricing opportunities.

As a result of these effects, net interest margin decreased 9 basis points to 3.31% in 2023 versus 3.40% in 2022.

Net interest margin increased to 3.40% in 2022 from 3.07% in 2021, driven by the dramatic tightening of monetary policy by the Federal Reserve during 2022 and 2023 and deposit repricing to reflect the increased rate environment that lagged into 2023.

Additionally, net interest margin during the year ended December 31, 2022 was positively impacted by the recognition of nonaccrual interest resulting from the interest recovery of two nonaccrual commercial borrowers during the fourth quarter of 2022.

The interest recovery was from two loans placed on nonaccrual status in 2009 and 2021.

The $1.9 million of nonaccrual interest income was recognized into loan interest income and contributed 3 basis points to the Company's net interest margin during 2022.

The utilization of commercial and retail lines of credit decreased to 39% at December 31, 2023, down from 42% at December 31, 2022 and 2021.

However, available lines of credit have increased by $124.0 million to $4.786 billion at December 31, 2023 compared to $4.662 billion at December 31, 2022, or 2.7% growth.

The decrease in line usage is attributable to the conservative approach commercial and industrial borrowers continue to take since the pandemic, due to continued elevated levels of average commercial demand deposits relative to pre-pandemic levels.

Loan yields increased 29 basis points, or 4.6%, from 6.42% for 2023 to 6.71% for 2024 as a result of the higher rate environment and loan repricing opportunities.

Net interest margin decreased 13 basis points to 3.18% in 2024 versus 3.31% in 2023.

Net interest margin decreased to 3.31% in 2023 from 3.40% in 2022.

The decrease in net interest margin between the periods was primarily driven by the effects of the dramatic tightening of monetary policy by the Federal Reserve during 2022 and 2023.

The rate increases quickly bolstered loan yields due to the asset sensitive nature of the balance sheet, which drove net interest margin expansion in 2022.

Net interest margin contracted in 2023 and 2024 due to the lag in deposit repricing by the Company and a shift in deposit mix from noninterest bearing demand accounts to interest bearing deposit products, as customers became more rate sensitive during the increased rate environment.

The utilization of commercial and retail lines of credit increased to 41% at December 31, 2024, as compared to 39% at December 31, 2023, and down from 42% at December 31, 2022.

Available lines of credit have decreased by $238.0 million to $4.548 billion at December 31, 2024, compared to $4.786 billion at December 31, 2023, or a 5.0% reduction.

The increase in line usage is attributable to more normalized cash balances for our business customers as the elevated levels of commercial demand deposits have been utilized post-pandemic.

Provision for Credit Losses

The Company recorded a provision for credit losses of $16.8 million in 2024 compared to $5.9 million in 2023 and $9.4 million in 2022.

Provision expense during 2023 was driven primarily by increases in the qualitative and environmental risk factors for certain segments of the Company's loan portfolio that could be impacted by higher borrowing costs and potential economic weakness in the Company's markets.

Provision expense during 2024 was driven primarily by an increase in specific allocations from the downgrade of a $43.3 million credit to an industrial company in Northern Indiana.

The relationship was placed on nonperforming status in conjunction with the downgrade, which occurred during the second quarter of 2024.

The remainder of expense was driven by growth in the loan portfolio during the year.

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The allowance for credit losses represented 1.68% of total loans as of December 31, 2024, versus 1.46% at December 31, 2023 and 1.54% at December 31, 2022.

The company’s credit loss reserve to total loans, excluding PPP loans, which are guaranteed by the United States SBA and have not been allocated for within the allowance for credit losses, was 1.59% at December 31, 2021.

The impact of PPP loans had an immaterial impact on the allowance coverage ratio at December 31, 2023 and 2022.

Net charge offs of $6.5 million, or 0.13%, and $4.5 million, or 0.10% of average loans, were recorded in 2023 and 2022, respectively.

The charge offs for 2023 and 2022 resulted primarily from the deterioration of a single commercial credit.

Management believes the charge offs related to this credit were an isolated instance as a result of negative impacts caused by unique circumstances from the pandemic and are not reflective of deteriorating trends in the loan portfolio.

Net charge offs of $2.8 million, or 0.05% of average loans, and $6.5 million, or 0.13% of average loans, were recorded in 2024 and 2023, respectively.

Net charge offs for 2023 resulted primarily from the deterioration of a single commercial credit.

Management believes the charge off related to this credit was an isolated instance as a result of negative impacts caused by unique circumstances from the pandemic and are not reflective of deteriorating trends in the loan portfolio.

The Company’s management continues to monitor the adequacy of the provision based on loan levels, asset quality, economic conditions including the impact of the increased interest rate environment, inflation levels, and other factors that may influence the assessment of the collectability of loans.

The Company adopted CECL on January 1, 2021.

Adoption of the standard resulted in a day one impact to the allowance for credit losses of $9.1 million, with an offset, net of taxes, to stockholders' equity.

Noninterest Income

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Net securities gains (losses) (46) (25) 21 (84.0) (219.0)

Net gain on Visa Shares 8,996 0 0 100.0 0.0

Other income 4,674 9,141 1,874 (48.9) 387.8

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Noninterest income to total revenue 22.4 % 20.2 % 17.1 %

Noninterest income increased by $7.0 million, or 14.0%, to $56.8 million for the year ended December 31, 2024, compared to $49.9 million for the prior year.

The increase in noninterest income for the year ended December 31, 2024 was primarily driven by the net gain on sale of Visa shares of $9.0 million.

Contributing further to the increase in noninterest income was an increase to wealth and advisory fees of $1.4 million, or 15.3%, driven by growth in customers and favorable market performance.

Bank owned life insurance income increased $1.1 million, or 34.4%, due to favorable market performance of the Company's variable bank owned life insurance policies.

Offsetting these increases was a $4.5 million, or 48.9%, decrease to other income.

Other income was elevated during the year ended December 31, 2023 from insurance and loss recoveries of $6.3 million that were related to the 2023 wire fraud loss.

Offsetting the impact of these recoveries was increased investment income from the Company's limited partnership investments and the receipt of an additional $1.0 million in insurance recoveries.

Adjusted core noninterest income was $46.8 million for the year ended December 31, 2024, an increase of $3.3 million, or 7.6%, compared to $43.6 million for year ended December 31, 2023.

Noninterest income was $49.9 million in 2023 versus $41.9 million in 2022, an increase of $8.0 million, or 19.1%.

Adjusted core noninterest income, which excludes the net wire fraud loss, was $43.6 million in 2023, an increase of $1.7 million, or 4.1% compared to 2022.

Adjusted core noninterest income was $43.6 million in 2023, an increase of $1.7 million, or 4.1% compared to 2022.

Wealth advisory fees increased by 5.1%, or $444,000, during 2023, from $8.6 million to $9.1 million reflecting continued growth in the business and improving equity market valuations.

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Merchant fee income improved by 2.6%, or $91,000, during 2023.

Other income increased $7.3 million, or 387.8%, due primarily to insurance and loss recoveries of $6.3 million that were recognized during the fourth quarter of 2023.

Bank owned life insurance increased $2.7 million, or 625.2%, from improved performance for the Company's variable life insurance policies, which track with the performance of the equity markets.

The purchase of traditional bank owned life policies in December 2022 contributed further to the increase in bank owned life insurance income.

These increases were offset by decreases to mortgage banking income of $887,000, or 140.1%, and a decrease in investment brokerage fees of $503,000, or 21.7%.

Noninterest income was $41.9 million in 2022 versus $44.7 million in 2021, a decrease of $2.9 million, or 6.4%.

Market value declines impacted the overall decrease in noninterest income.

Bank owned life insurance income for the year ended December 31, 2022 decreased by $2.0 million, primarily due to declines in the market value of variable life insurance policies that are tied to the equity markets.

A reduction of market value of $950,000 was recorded during 2022 compared to market value gains of $1.1 million for 2021.

The valuation changes to the variable life insurance policies are offset by similar changes to the deferred compensation expense that is recognized in salary and employee benefits.

Excluding the impact of the variable life insurance policy market value changes, noninterest income was $42.8 million for the year ended December 31, 2022, compared to $43.7 million for the year ended December 31, 2021, a decline of $840,000, or 2.1%.

In addition, other income decreased $851,000, mortgage banking income decreased by $785,000, gains on securities sales decreased by $776,000 and interest rate swap fee income decreased by $456,000.

Notably, fee-based noninterest income increased by a cumulative $2.0 million primarily due to volume, including improvements in service charges on deposit accounts of $987,000, or 9.3%, merchant and interchange fee income of $537,000, or 17.8%, investment brokerage fees of $343,000, or 17.4%, and loan and service fees of $292,000, or 2.4%.

Wealth advisory fees declined by $114,000, or 1.3%, and were negatively impacted by market value declines of 8.0% in trust assets from $2.5 billion at December 31, 2021 to $2.3 billion at December 31, 2022.

Noninterest Expense

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Total noninterest expense $ 125,084 $ 130,710 $ 110,210 (4.3) % 18.6 %

Noninterest expense decreased by $5.6 million, or 4.3%, from $130.7 million to $125.1 million for the year ended December 31, 2023 and 2024, respectively.

Noninterest expense during 2023 was elevated as compared to 2024 due to the wire fraud loss, which added a net $16.7 million to noninterest expense.

Offsetting this impact on noninterest expense was a $7.6 million, or 12.8%, increase in salaries and employees benefits during 2024.

The increase to salaries and benefits expense resulted primarily from increases to salaries and wages of $3.2 million, performance-based incentive compensation of $2.3 million , health insurance expense of $918,000, and variable deferred compensation of $950,000, which relates to the Company's variable bank owned life insurance.

Other expense increased $2.6 m illion, or 24.0%, primarily due to an accrued legal accrual expense of $4.5 million.

Data processing fees and supplies increased by $1.2 million, or 8.3%, from the continued investment in customer-facing and operational technology solutions.

Adjusted core noninterest expense was $120.5 million for the year ended December 31, 2024, an increase of $6.5 million, or 5.7%, compared to $114.0 million for the year ended December 31, 2023.

Noninterest expense increased by $20.5 million, or 18.6%, for 2023 from $110.2 million to $130.7 million.

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Offsetting these increases was a decrease in other expense of $2.4 million, or 18.0%, driven by reduced accruals related to ongoing litigation matters.

Adjusted core noninterest expense, a non-GAAP measure, which excludes the impact of the wire fraud loss and corresponding adjustments to salaries and employee benefits, was $114.0 million during 2023, an increase of $3.8 million, or 3.5%, compared to 2022.

Noninterest expense increased by $5.9 million, or 5.7%, for 2022, to $110.2 million compared to $104.3 million for 2021.

The increase was due primarily to an increase of $4.2 million in other expense caused by accruals for ongoing legal matters of $3.5 million.

See "Note 1 – Summary of Significant Accounting Policies" for additional details regarding loss contingencies.

Corporate and business development expense increased $936,000, or 22.0%, driven by increased corporate development spending, advertising expense and charitable and foundation contributions, including contributions associated with the Company's sesquicentennial celebration.

Salaries and benefits expense increased $648,000, or 1.1%.

Offsetting these increases was a decrease in professional fees of $581,000, or 8.2%, due to a decrease in legal expense incurred during the year.

FDIC insurance and other regulatory fee expense decreased by $243,000, or 10.8%, due to declining deposits and reduced total assets of the Company.

The Company recognized income tax expense in 2024 of $18.2 million, compared to $16.6 million in 2023 and $21.3 million in 2022.

The effective tax rate was 16.3% in 2024, compared to 15.0% in 2023 and 17.1% in 2022.

The effective tax rate declined due to negative impact of the wire fraud loss and related effects on net income, which lowered income tax expense by $2.6 million for 2023.

Additionally, changes to the Indiana Financial Institution Tax rate to 4.9% in 2023, 5.0% in 2022 and 5.5% in 2021, as well as tax-free interest income from municipal securities and loans during 2023 contributed to the decreased effective tax rate.

The effective tax rate increased due to the adoption of ASU 2023-02, which changed how the Company's investment in low-income housing tax credit structures are accounted for by moving the investment write-down impact from operating revenues to income tax expense within the consolidated statements of income, as well as a reduction in the tax benefit recognized from stock-based compensation vesting of shares for plan participants.

For a detailed analysis of the Company’s income taxes see "Note 12 – Income Taxes".

CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES

We are required to provide certain statistical disclosures as a bank holding company under the SEC's Industry Guide 3.

We are required to provide certain statistical disclosures as a bank holding company.

The following table provides certain of those disclosures.

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Return on average assets 1.40 % 1.45 % 1.62 %

Return on equity 15.93 17.40 14.19

Return on average equity 14.12 15.93 17.40

Average equity to average assets 9.94 9.11 9.28

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Dividend payout ratio is computed by dividing dividends declared per common share by earnings per diluted common share for each indicated fiscal year.

The dividend payout ratio increased to 50.4% for 2023 as compared to prior periods due to the wire fraud loss and its negative impact to net income.

Refer to the "Financial Condition - Loan Portfolio", "Financial Condition - Sources of Funds" and "Risk Management - Loan Portfolio" sections of this MD&A and to the Notes to Consolidated Financial Statements of this Form 10-K for the other required statistical disclosures.

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Total loans outstanding increased by $201.4 million, or 4.1%, to $5.118 billion at December 31, 2024, from $4.917 billion at December 31, 2023.

Total deposits increased $259.9 million, from $5.461 billion at December 31, 2022, to $5.721 billion at December 31, 2023, driven by increased commercial and public funds deposits and offset by net retail outflows.

Total deposits increased $180.4 million, or 3.2%, from $5.721 billion at December 31, 2023, to $5.901 billion at December 31, 2024, driven by increased public funds deposits due to the addition of new customers and offset by net brokered and retail outflows.

Total cash and equivalents increased $16.4 million, to $168.2 million at December 31, 2024, from $151.8 million at December 31, 2023.

Total investment securities decreased by $58.7 million, to $1.123 billion at December 31, 2024, from $1.182 billion at December 31, 2023.

The decrease was attributable to a decrease in available-for-sale securities, which decreased by $133.8 million, primarily as a result of investment sales of $105.2 million and maturities, calls and paydowns of $71.8 million, and offset by purchases of $7.2 million and improvement in fair market valuations of $40.7 million.

The decrease was attributable to a decrease in available-for-sale securities, which decreased by $60.3 million, primarily as a result of calls and paydowns of $59.7 million, a decline in fair market valuations of $16.5 million, and investment securities sales of $7.1 million, and offset by purchases of $27.5 million.

Losses of $46,000 were realized from the sale of available-for-sale securities in 2024.

Total borrowings decreased at December 31, 2023, as a result of the liquidity provided by increased levels of deposits at period end and cash inflows from the investment securities portfolio.

Total borrowings decreased by $247.0 million to $50.0 million at December 31, 2023 compared to $297.0 million at December 31, 2022.

The Company was not in a borrowed position at December 31, 2024, compared to borrowings of $50.0 million at December 31, 2023, as a result of the liquidity provided by increased deposits at period end.

Uses of Funds

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Purchases of securities available-for-sale totaled $27.5 million in 2024, $7.2 million in 2023 and $315.3 million in 2022.

Growth of the investment portfolio during 2021 and 2022 served to provide an earning asset alternative for excess balance sheet liquidity stemming from increased levels of liquidity provided by government stimulus programs in response to the COVID-19 pandemic.

Prior to the recent Federal Reserve monetary tightening cycle starting in March of 2022, the Company deployed $250 million of excess liquidity to the investment securities portfolio during 2022 and $652 million in 2021 to preserve net interest margin.

Growth of the investment portfolio during 2022 served to provide an earning asset alternative for excess balance sheet liquidity stemming from increased levels of liquidity provided by government stimulus programs in response to the COVID-19 pandemic.

Prior to the Federal Reserve monetary tightening cycle starting in March of 2022, the Company deployed $250.0 million of excess liquidity to the investment securities portfolio during 2022 to preserve net interest margin.

Investment securities represented 16.8% of total assets on December 31, 2024 compared to 18.1% on December 31, 2023 and 20.4% on December 31, 2022.

Management expects the investment securities portfolio as a percentage of assets to decrease over time and return to historical levels of approximately 12%-14% during 2014 to 2020 as the proceeds from paydowns and maturities of these investment securities provide liquidity to fund future loan growth.

On April 1, 2022, the Company elected to transfer $151.4 million in net book value of municipal bonds from the available-for-sale securities portfolio to held-to-maturity as an overall balance sheet management strategy.

The fair value of these securities transferred was $127.0 million.

Securities sales totaled $7.1 million in 2024, $105.2 million in 2023 and $25.3 million in 2022.

Paydowns from prepayments and scheduled payments of $59.0 million, $56.2 million and $98.8 million were received in 2024, 2023 and 2022, and the amortization of premiums, net of the accretion of discounts, was $4.8 million, $4.9 million and $6.3 million, respectively.

Maturities and calls of securities totaled $13.6 million , $9.3 million and $24.7 million in 2023, 2022 and 2021, respectively.

Maturities and calls of securities totaled $695,000 , $13.6 million and $9.3 million in 2024, 2023 and 2022, respectively.

No provision for allowance for credit loss was recorded in connection with the investment securities portfolio in 2024 , 2023 or 2022.

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The longer duration of the investment security portfolio serves to balance the shorter duration of the loan portfolio.

The fair value of these securities transferred was $127.0 million at the time of transfer, and the unrealized loss on securities transferred from available-for-sale to held-to-maturity was $19.0 million at December 31, 2024 and will be amortized over the remaining life of the underlying security as an adjustment to yield on those securities.

The weighted average yields and maturity distribution for the securities portfolio at December 31, 2024, were as follows:

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Real Estate Mortgage Loans Held-For-Sale

Real estate mortgages held-for-sale increased by $801,000 to $1.2 million at December 31, 2023 from $357,000 at December 31, 2022 as a result of fluctuations in secondary market sales activity.

Real estate mortgages held-for-sale increased by $542,000 to $1.7 million at December 31, 2024 from $1.2 million at December 31, 2023 as a result of fluctuations in secondary market sales activity.

This asset category is subject to a high degree of variability depending on, among other things, recent mortgage loan rates and the quantity and timing of loan sales into the secondary market.

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Total Loans 100.00 % 100.00 % 100.00 %

In 2023, net loan balances increased by $206.8 million to $4.845 billion, and excludes approximately $8.6 million in loans originated for sale.

In 2022, net loan balances increased by $417.7 million to $4.638 billion, and excluded approximately $28.7 million in loans originated for sale.

In 2021, net loan balances decreased by $367.7 million to $4.220 billion, and excluded approximately $119.4 million in loans originated for sale.

The mix of the Company's loan portfolio consists primarily of commercial loans, and the Bank's lending focus is on the commercial sector of the Lake City Bank footprint.

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The residential construction and land development loans class included construction loans totaling $7.6 million and $1.0 million as of December 31, 2024 and 2023.

Increases in consumer loans during 2023 resulted from an increased focus on indirect lending to consumers and the introduction of a new adjustable rate mortgage product.

Increases in consumer loans during 2024 resulted from an increased focus on indirect lending to consumers and adjustable rate mortgages.

The Bank generally sells conforming mortgage loans, which it originates locally, into the secondary market.

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Bank Owned Life Insurance

Bank owned life insurance increased by $707,000 to $109.1 million at December 31, 2023 and by $10.8 million to $108.4 million at December 31, 2022 from $97.7 million at December 31, 2021.

The increase during 2023 was primarily due to increased income from traditional policies purchased in December 2022 and from improved market performance of the Bank's variable bank owned life insurance policies which track with the performance of the equity markets.

The increase during 2022 was primarily due to the purchase of life insurance policies on officers of the Bank.

Bank owned life insurance increased by $4.2 million to $113.3 million at December 31, 2024 and by $707,000 to $109.1 million at December 31, 2023 from $108.4 million at December 31, 2022.

The increases during 2023 and 2024 were primarily due to income from traditional policies and from improved market performance of the Bank's variable bank owned life insurance policies, which track with the performance of the equity markets.

Bank owned life insurance investment income is used as an offset to the cost of life insurance purchased by the Bank as a benefit for bank officers.

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(dollars in thousands) $100,000

or more $100,000 or less Total % of

or more $100,000

or less Total % of

Within three months $ 201,959 $ 79,439 $ 281,398 32.9 %

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Deposits by portfolio segment for December 31, 2024, 2023 and 2022 are presented below:

December 31, 2023 December 31, 2022 December 31, 2021

(dollars in thousands) December 31, 2024 December 31, 2023 December 31, 2022

Commercial $ 2,269,049 38.4 % $ 2,227,147 38.9 % $ 2,085,934 38.2 %

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Total $ 5,900,966 100.0 % $ 5,720,525 100.0 % $ 5,460,620 100.0 %

Total deposits increased by $259.9 million to $5.721 billion, at December 31, 2023 compared to $5.461 billion at December 31, 2022.

Total deposits increased by $180.4 million, or 3.2%, to $5.901 billion, at December 31, 2024 compared to $5.721 billion at December 31, 2023.

The increase in deposits was attributable to increases in commercial and public fund deposits.

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Public fund deposits increased $246.6 million, or 15.8% and represented 30.7% and 27.3% of total deposits at December 31, 2024 and 2023, respectively.

Additionally, brokered deposits increased $125.4 million, and represented 2.4% and 0.3% of total deposits at December 31, 2023 and 2022, respectively.

Additionally, brokered deposits decreased $93.8 million, and represented 0.7% and 2.4% of total deposits at December 31, 2024 and 2023, respectively.

Retail deposits decreased $14.2 million, or 0.8%, and represented 30.2% and 31.4% of deposits at December 31, 2024 and 2023, respectively.

The decline in retail deposits represents a continued utilization of retail deposits from peak savings levels during 2021.

Total deposits decreased by $274.8 million to $5.461 billion, at December 31, 2022 compared to December 31, 2021.

The decrease in deposits was attributable to a decrease in core deposits.

Total deposit contraction was led by a decrease of $243.7 million, or 11.2%, in retail deposits.

In addition, commercial deposits decreased $176.3 million, or 7.8%, while public funds deposits increased by $145.2 million, or 11.3%.

The decrease in deposits during 2022 reflects the normalization of excess

liquidity in our customer's deposit accounts and occurred primarily during the fourth quarter of 2022.

Rising inflation is considered a contributor to the decline in deposits during 2022 after the surge in deposits experienced during 2020 and 2021 from PPP funding and COVID-related stimulus programs.

The growth in public funds was positively impacted by the addition of new public funds customers in the Lake City Bank footprint, which included the addition of their operating accounts.

Total deposits increased by $259.9 million, or 4.8%, to $5.721 billion, at December 31, 2023 compared to $5.461 billion December 31, 2022.

The increase in deposits was attributable to increases in commercial and public fund deposits.

Commercial deposits increased $141.2 million, or 6.8% and represented 38.9% and 38.2% of total deposits at December 31,

2023 and 2022, respectively.

Public fund deposits increased by $133.1 million, or 9.3% and represented 27.3% and 26.1% of total deposits at December 31, 2023 and 2022, respectively.

Additionally, brokered deposits increased $125.4 million and represented 2.4% and 0.3% of total deposits at December 31, 2023 and 2022, respectively.

Retail deposits decreased $139.8 million, or 7.2% and represented 31.4% and 35.4% of total deposits at December 31, 2023 and 2022, respectively.

As previously noted, 30.7% of the Company’s deposit base is attributable to public fund entities which consist primarily of customers in the Company’s geographic footprint.

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FHLB Advances and Other Borrowings

During 2024, average total short-term borrowings decreased by $100.5 million to $66.3 million.

Ending balances of short-term and miscellaneous borrowings decreased to zero at December 31, 2024 compared to $50.0 million at December 31, 2023.

There were no long-term borrowings outstanding during 2024 and 2023.

During 2023, average total short-term borrowings increased by $160.3 million to $166.8 million.

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Average total long-term borrowings decreased by $32.1 million to zero, as no long-term FHLB advances were outstanding during 2023.

During 2022, average total short-term borrowings increased by $6.2 million to $6.6 million, as the Company's excess liquidity position normalized after experiencing a reduction in cash and short-term investments.

Ending balances of short-term and miscellaneous borrowings increased to $297.0 million at December 31, 2022, from zero at December 31, 2021.

Average total long-term borrowings decreased by $42.9 million to $32.1 million, due to the repayment of an outstanding long-term advance during the second quarter of 2022.

The Company believes that a strong, appropriately managed capital position is critical to support continued growth of loans and earnings.

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Unrealized losses from the available-for-sale investment securities portfolio are recorded, net of tax, in accumulated other comprehensive income (loss) in the statement of stockholders' equity.

Improvements in the fair value of available-for-sale securities and net defined pension plan gains positively impacted equity by $33.7 million in 2023 compared to a decrease of $205.0 million in 2022.

Changes in the fair value of securities and net defined pension plan gains negatively impacted equity by $11.3 million in 2024 compared to an increase of $33.7 million in 2023.

The impact to equity due to other comprehensive income (loss) is not included in regulatory capital.

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Investment Portfolio

The Company’s investment portfolio consists of U.S.

treasuries, government agencies and municipal bonds subject to an investment security policy that is approved annually by the board of directors.

As of December 31, 2023, the Company’s investment in U.S government sponsored mortgage-backed securities represented approximately 38% of total investment securities fair value consisting of mortgage pools issued by Ginnie Mae, Fannie Mae and Freddie Mac.

The Company’s investment portfolio consists of government or government-sponsored entity securities and municipal bonds subject to an investment security policy that is approved annually by the board of directors.

As of December 31, 2024, the Company’s investment in U.S government sponsored mortgage-backed securities represented approximately 38% of total investment securities fair value consisting of mortgage bonds issued by Ginnie Mae, Fannie Mae and Freddie Mac.

Ginnie Mae, Fannie Mae and Freddie Mac securities are each guaranteed by their respective agencies as to principal and interest.

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As of December 31, 2024, all mortgage-backed securities were performing in a manner consistent with management’s expectations at time of purchase.

Municipal securities represent 52% of total investment securities fair value as of December 31, 2023 and were rated investment grade at the time of purchase and continue to be rated investment grade.

Municipal securities represented 52% of total investment securities fair value as of December 31, 2024 and were rated investment grade at the time of purchase and continue to be rated investment grade.

The Company uses analytics provided by its third party portfolio advisor to evaluate and monitor credit risk for all investments on a quarterly basis.

Based upon these analytics as of December 31, 2024, the securities in the combined available-for-sale and held-to-maturity portfolios had an effective duration of approximately 5.96 years.

The analysis indicated a negative 18.1% change in market value in the event of a 300 basis point upward, instantaneous rate shock and an approximate positive 6.5% change in market value in the event of a 100 basis point downward, instantaneous rate shock.

The analysis indicated a negative 7.6% change in market value in the event of a 100 basis point upward, instantaneous rate shock and a positive 7.8% change in market value in the event of a 100 basis point downward, instantaneous rate shock.

Loan Portfolio

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The Company manages this risk by utilizing conservative credit structures, adjusting its pricing to the perceived risk of each individual credit, diversifying the portfolio by customer, product, industry and market area and by obtaining personal loan guarantees.

There were no loan concentrations within industries, which exceeded ten percent of total loans, except commercial real estate.

There were no loan concentrations within industries that exceeded ten percent of total loans, except commercial real estate.

Commercial real estate was $2.593 billion, or 50.6% , of total loans at December 31, 2024.

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M anufacturing loans are included in the commercial and industrial loans total and are well diversified by industry.

Agri-business and agricultural loans represent 7.9% of total loans as of December 31, 2023 and are not concentrated to any agricultural sector.

Agri-business and agricultural loans represented 7.6% of total loans as of December 31, 2024 and are not concentrated to any agricultural sector.

Substantially all of the Bank’s commercial, industrial, agricultural real estate mortgage, real estate construction mortgage and consumer loans are made within its geographic market areas and to diverse industries.

When segmenting the Bank's loan portfolio by North American Industry Classification System code as of December 31, 2023, the largest segments are multifamily housing, agriculture, industrial warehouses and the recreational vehicle industry which represented 11%, 9%, 4% and 4% of total loans, respectively.

When segmenting the Bank's loan portfolio as of December 31, 2024, the largest segments are multifamily housing, agriculture, industrial commercial real estate and the recreational vehicle industry which represented 13.1%, 8.7%, 4.9% and 4.2% of total loans, respectively.

The following is a summary of nonperforming loans on an amortized cost basis as of December 31, 2024 and 2023.

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Nonperforming assets of the Company include nonperforming loans (as indicated above), nonaccrual investments, other real estate owned and repossessions, the total of which amounted to $56.9 million and $16.1 million at December 31, 2024 and 2023, respectively.

Nonperforming loans remained stable at 0.3% of total loans at December 31, 2023 compared to 0.4% at December 31, 2022.

Nonperforming loans decreased by $1.4 million during 2023, due to the net activity of charge offs, paydowns and upgrades.

One commercial relationship placed on nonaccrual during 2023 subsequently received a modification to loan terms due to financial difficulty experienced by the borrower.

Loans for which the borrower appears to be unable or unwilling to repay its debt in full or on time, and the collateral is insufficient to cover all principal and accrued interest, will be reclassified as nonperforming to the extent they are unsecured, on or before the date when the loan becomes 90 days delinquent, with the exception of small dollar other consumer loans which are not placed on nonaccrual status since these loans are charged-off when they have been delinquent from 90 to 180 days, and when the related collateral, if any, is not sufficient to offset the indebtedness.

Nonperforming loans increased to 1.1% of total loans at December 31, 2024 compared to 0.3% at December 31, 2023.

Nonperforming loans increased by $40.7 million during 2024, due primarily to the downgrade of a $43.3 million credit to an industrial company in Northern Indiana that occurred during the second quarter of 2024.

Management remains vigilant in overseeing this credit exposure and is proactively working with the borrower.

Loans for which the borrower appears to be unable or unwilling to repay its debt in full or on time, and the collateral is insufficient to cover all principal and accrued interest, will be reclassified as nonperforming to the extent they are unsecured, on or before the date when the loan becomes 90 days delinquent, with the exception of small dollar other consumer loans which are not placed on nonaccrual status since these loans are typically charged-off when they have been delinquent from 90 to 180 days, and when the related collateral, if any, is not sufficient to offset the indebtedness.

When a loan is classified as a nonaccrual loan, interest on the loan is no longer accrued, all unpaid accrued interest is reversed and interest income is subsequently recorded only to the extent cash payments are received.

Accrual status is resumed when all contractually due payments are brought current and future payments are reasonably assured.

A loan is individually analyzed when full payment under the original loan terms is not expected.

A loan is individually analyzed when full payment under the original loan terms is not expected or when the amount collected is expected to differ materially from the estimate that would be arrived at under the pooled method.

Reserves are evaluated in total for smaller-balance loans of similar nature not in nonaccrual status such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans including material modifications made to borrowers experiencing financial difficulty.

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There were 43 relationships totaling $78.6 million classified as individually analyzed as of December 31, 2024 versus 33 relationships totaling $16.1 million at the end of 2023.

The decrease in individually analyzed loans during 2023 resulted primarily from the payoff of two large commercial relationships and the partial charge off of another commercial relationship.

Paydowns and upgrades of other individually analyzed loans further contributed to the decrease for individually analyzed loans for the year ended December 31, 2023.

The increase in individually analyzed loans during 2024 resulted primarily from the downgrade of two large commercial relationships to individually analyzed status for the year ended December 31, 2024.

Loans renegotiated as modifications to borrowers experiencing financial difficulty are those loans for which the Company modifies the terms of 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.

For the twelve months ended December 31, 2023, there were three loans to three financially distressed commercial borrowers with balances totaling $4.4 million at December 31, 2023 that received such modifications.

The Company has no material commitments to lend additional funds to these borrowers.

For the twelve months ended December 31, 2022, no loan modifications were made to borrowers experiencing financial difficulty.

For the year ended December 31, 2024, no loan modifications were made to borrowers experiencing financial difficulty.

For the year ended December 31, 2023, loans to three financially distressed commercial borrowers with balances totaling $4.4 million at December 31, 2023 received such modifications.

The following is a summary of the credit loss experience for the years ended December 31, 2024, 2023 and 2022.

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Allowance for credit losses, January 1, $ 71,972 $ 72,606 $ 67,773

Impact of adopting ASC 326 0 0 9,050

Loans charged-off:

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Special Mention is defined as loans that do not currently expose an insured institution to a sufficient degree of risk to warrant classification as Substandard, Doubtful or Loss but do possess credit deficiencies or potential weaknesses deserving management’s close attention.

The Company’s policy is to establish a specific allowance for credit losses for any assets where management has identified conditions or circumstances that indicate an asset is nonperforming.

The Company’s practice is to establish a specific allowance for credit losses for any assets where management has identified conditions or circumstances that indicate an asset is nonperforming.

If an asset or portion thereof is classified as loss, the Company’s policy is to either establish specific allocations for credit losses in the amount of 100% of the portion of the asset classified loss or charge off such amount.

At December 31, 2023, on the basis of management’s review of the loan portfolio, the Company had 68 credits totaling $183.1 million on the classified loan list versus 58 credits totaling $161.0 million on December 31, 2022.

At December 31, 2024, on the basis of management’s review of the loan portfolio, the Company had 81 credits totaling $211.1 million on the classified loan list, which includes Special Mention credits, versus 68 credits totaling $183.1 million on December 31, 2023.

These amounts represent outstanding balances, excluding deferred fees and costs.

While the increase in classified loans during 2023 raises concern for the potential for an economic slowdown in the Company's Indiana footprint, it has not translated to broader loan quality issues in the portfolio as the ratio of watch list loans as a percentage of total loans remains near historic lows and was accompanied by a reduction in nonperforming loans during 2023.

As of December 31, 2023, the Company had $143.6 million of assets classified as Special Mention , $39.4 million classified as Substandard, $0 classified as Doubtful and $0 classified as Loss as compared to $115.7 million, $45.3 million, $0 and $0, respectively, at December 31, 2022.

While the increase in classified loans during 2024 could raise concerns regarding the deterioration of credit in the Company's Indiana footprint, it has not translated to broader loan quality issues in the portfolio as net charges offs for the year and watch list loans as a percentage of total loans remained near historic lows.

The Company remains cautiously optimistic in regards to the credit quality of the loan portfolio given stable economic conditions within the Company's operating footprint and will continue to actively manage loan portfolio challenges.

As of December 31, 2024, the Company had $123.6 million of assets classified as Special Mention , $44.0 million classified as Substandard, $43.5 million classified as Doubtful and $0 classified as Loss as compared to $143.6 million, $39.4 million, $0 and $0, respectively, at December 31, 2023.

The balances reported in "Note 4 – Allowance for Credit Losses and Credit Quality" include deferred fees and costs.

Included in the classified loan amounts above for December 31, 2023 were loans receiving modifications due to financial difficulty experienced by the borrower during the twelve months ended December 31, 2023 for three commercial loans to three commercial borrowers totaling $4.4 million million with total allocations of $2.3 million.

There were no loan modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2022.

Included in the classified loan amounts above were loans receiving modifications due to financial difficulty experienced by the borrower.

No borrowers in financial distress received a modification for the year ended December 31, 2024.

For the year ended December 31, 2023, loans to three commercial borrowers totaling $4.4 million with total allocations of $2.3 million received such modifications.

Allowance estimates are developed by management taking into account actual loss experience, subject to a floor, adjusted for current economic conditions and a reasonably supportable forecast period.

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For a more thorough discussion of the allowance for credit losses methodology see the "Critical Accounting Policies" section of this Item 2.

The allowance for credit losses decreased 0.9%, or $634,000, from $72.6 million at December 31, 2022 to $72.0 million at December 31, 2023 due primarily to net charge offs of $6.5 million and offset by provision expense of $5.9 million recorded during 2023.

Pooled loan allocations increased $5.6 million from $58.2 million at December 31, 2022 to $63.8 million at December 31, 2023.

The unallocated component of the allowance for credit losses was $372,000 at December 31, 2023, which decreased from $554,000 reported at December 31, 2022 .

The allowance for credit losses increased $14.0 million, or 19.4%, from $72.0 million at December 31, 2023 to $86.0 million at December 31, 2024 due primarily to provision expense of $16.8 million and offset by net charge offs of $2.8 million during 2024.

Pooled loan allocations decreased $5.4 million from $63.8 million at December 31, 2023 to $58.4 million at December 31, 2024.

The unallocated component of the allowance for credit losses was $383,000 at December 31, 2024, which increased nominally from $372,000 reported at December 31, 2023 .

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

The Company has experienced organic growth in total loans over the last several years with an increase in gross loans of $201.4 million , or 4.1% , from December 31, 2023 to December 31, 2024.

This growth is primarily concentrated in the commercial loan portfolio, which can result in overall asset quality being influenced by a small number of credits.

This growth is largely concentrated in the commercial loan portfolio, which can result in overall asset quality being influenced by a small number of credits.

Management has historically considered growth and portfolio composition when determining credit loss allocations.

Management believes that it is prudent to continue to provide for credit losses in a manner consistent with its historical approach due to the loan growth described above and current economic conditions.

Watch list loans increased $22.1 million to $183.1 million as of December 31, 2023, compared to $161.0 million at December 31, 2022, or an increase of 13.7%.

Watch list loans represent 3.7 % of total loans at December 31, 2023 compared to a historical low of 3.4% at December 31, 2022.

PPP loans outstanding of $1.3 million and $1.5 million at December 31, 2023 and 2022, respectively, had an immaterial impact on these asset quality ratios.

The increase in watch list loans resulted primarily from downgraded credits of approximately $112.4 million and offset by upgrades of approximately $55.8 million in addition to paydowns to watch list credits .

The Company's continued growth strategy promotes diversification among industries as well as continued focus on the enforcement of a disciplined credit culture and a conservative posture in loan work-out situations.

Watch list loans increased $28.1 million, or 15.3% , to $211.1 million as of December 31, 2024, compared to $183.1 million at December 31, 2023.

Watch list loans represented 4.1% of total loans at December 31, 2024 compared to 3.7% at December 31, 2023.

The increase in watch list loans resulted primarily from additions to the watch list from downgraded credits of approximately $107.8 million and offset by removals from upgrades and pay offs of approximately $77.6 million in addition to pay downs or charge offs of other watch list credits.

The Company's continued growth strategy promotes diversification among industries as well as continued focus on the en forcement of a disciplined credit culture and a conservative posture in loan work-out situations.

Liquidity Risk

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The Company has approval of $3.723 billion in secondary funding sources available as of December 31, 2024, of which $41.6 million was utilized.

The Company had $325.0 million of availability in federal funds lines with eleven correspondent banks, of which none was drawn on as of December 31, 2023.

The Company had $395.0 million of availability in federal funds lines with thirteen correspondent banks, of which none was drawn on as of December 31, 2024.

The Company has board of directors approval to borrow up to $800.0 million at the FHLB, but given the Company’s current collateral structure and outstanding borrowings as of December 31, 2024, the Company could have only borrowed up to $555.9 million under this authority.

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Further, the Company had available capacity at the Federal Reserve Bank of Chicago of up to $1.364 billion given its current collateral structure at the Federal Reserve Bank discount window program and the terms of that facility at December 31, 2024, with no balances outstanding at December 31, 2024.

During 2023 the Company also became eligible to borrow funds under the Federal Reserve Bank's Bank Term Funding Program (BTFP);

available capacity secured by pledged eligible investment securities was $150.5 million with no outstanding balance at December 31, 2023.

The BTFP is scheduled to expire in March 2024.

The Company also has established relationships in the brokered time deposit and brokered money market sectors, as well as the IntraFi Network CDARS One-Way Buy program, to access these funds when desired with settlement of funds in one to two weeks’ time.

Additionally, the Bank has entered agreements with IntraFi Network relative to their Insured

Cash Sweep One-Way Buy program.

As of December 31, 2023, the total amount available to the Bank via this program was $100.0 million, of which $10.0 million was drawn.

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.

The Federal Reserve Bank's Bank Term Funding Program ("BTFP") expired in March 2024, and any previously pledged collateral to this program was released.

The Company also has established relationships in the brokered time deposit and brokered money market sectors, as well as the IntraFi Network CDARS One-Way Buy and Insured Cash Sweep One-Way Buy programs, to access these funds when desired with settlement of funds in one to two weeks’ time.

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

unsecured, overnight line.

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

As of December 31, 2024, the total amount approved for the Bank via AFX banks was $304.0 million and none was outstanding at year end.

The Company had 90% of its securities in the available-for-sale portfolio at December 31, 2023, allowing the Company extensive flexibility to sell securities to meet funding demands.

The Company h ad 90% of its securities, based upon fair market value, in the available-for-sale portfolio at December 31, 2024, allowing the Company extensive flexibility to sell securities to meet funding demands.

The remaining portion of investments securities were designated as held-to-maturity.

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The CFP specifically considers liquidity at the Bank and the Company level.

The CFP identifies the potential funding sources at the Bank level, which includes the FHLB, the Federal Reserve Bank, brokered deposits, one-way buy products via the IntraFi Network (CDARS and ICS) and Federal Funds.

The CFP also addresses the Bank’s ability to liquidate its securities portfolio or other liquid assets.

The CFP funding sources at the holding company level include a holding company committed line of credit, as well as the ability to transfer securities from the investment subsidiary of the Bank to the Company.

The CFP funding sources at the holding company level include a holding company committed line of credit that renews annually, as well as the ability to transfer securities from the investment subsidiary of the Bank to the Company.

The Company’s committed line of credit has availability up to $30.0 million, of which $0 was drawn upon as of December 31, 2024.

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Generally, the Bank is asset sensitive due to the impact of the variable rate commercial loan portfolio on the Bank's sensitivity to market rates.

During 2023, asset sensitivity declined due to a shift to short-term interest bearing deposit accounts such as money market accounts.

As a result, the Company expects net interest margin to remain stable in the first 25-50 basis points potential declines in the federal funds rate due to a more neutral posture for balance sheet sensitivity.

Deposit re-pricing in a declining interest rate environment is expected to exceed past easing cylces.

During 2024, asset sensitivity declined due to a shift to shorter-term interest bearing deposit accounts, such as money market accounts and due to fixed rate loans that repriced in 2024.

As a result, the Company expects net interest margin to remain relatively stable in the first 100 basis points potential declines in the federal funds rate due to a more neutral posture for balance sheet sensitivity.

Deposit re-pricing in a declining interest rate environment is expected to exceed past easing cycles.

Earnings can also be affected by the monetary and fiscal policies of the U.S.

Government and its agencies, particularly the Federal Reserve Board.

During 2023 the Federal Reserve Board’s Federal Open Market Committee (“FOMC”) increased the target federal funds rate a total of 100 basis points, following an increase of 425 basis points in 2022.

Rate increases were implemented during the first half of 2023 at the January, March, May and July FOMC meetings.

The combined effect of these actions increased the target federal funds rate to a range of 5.25% to 5.50%.

The FOMC statement released for the meeting in December 2023 recognized that inflation has eased over the past year but remains elevated and confirmed that the FOMC remains highly attentive to inflation risks.

During 2024 the Federal Reserve Board’s Federal Open Market Committee ("FOMC") decreased the target federal funds rate a total of 100 basis points, following a combined increase of 525 basis points in 2022 and 2023.

Rate decreases were implemented during late 2024 at the September, November and December FOMC meetings.

The combined effect of these actions decreased the target federal funds rate to a range of 4.25% to 4.50%.

The FOMC statement released for the meeting in December 2024 recognized that inflation has made progress towards the Committee’s two percent objective but remains somewhat elevated.

The statement also indicated that since earlier in 2024, labor market conditions have generally eased, and the unemployment rate has moved up but remains low.

The Committee reaffirmed its dual objective relative to maximum employment and inflation targets.

The updated economic projections released at the December meeting project the median federal funds rate decreasing to 3.9% in 2025 (lowering of the target federal funds rate by 50 basis points), with continued easing to 3.4% in 2026.

Additionally, the longer run median forecast for the federal funds rate was left unchanged at 2.50%.

The combined result of the increase in the yield on earning assets, which was more than offset by an increase in the cost of funds due to increased competition for deposits experienced during 2023, led to a decrease in net interest margin from 3.40% for 2022 to 3.31% for 2023.

The Company’s yield on earning assets increased 170 basis points during 2023 as assets repriced at higher rates primarily due to the FOMC rate increases during both 2022 and 2023 and a higher yield curve for the majority of 2023 as when compared to 2022.

The commercial loan portfolio represents 89% of the total loan portfolio.

Approximately 64% of the commercial loan portfolio are variable rate loans which are primarily indexed to Prime, One Month Term SOFR and FHLB indices.

The increase in earning asset yields was offset by an increase in the Company's funding costs, as depositors sought higher interest bearing deposit products and competition for deposits increased throughout the industry.

The rate paid on deposit accounts and purchased funds increased 179 basis points for 2023.

Additionally, the longer run median forecast for the federal funds rate was increased to 3.0% as compared to 2.5% projected by the FOMC in December 2023.

The combined result of the increase in the yield on earning assets, which was more than offset by an increase in the cost of funds due to continued increased competition for deposits experienced during 2024, led to a decrease in net interest margin from 3.31% for 2023 to 3.18% for 2024.

The Company’s yield on earning assets increased 27 basis points during 2024 as assets repriced at higher rates primarily due to the FOMC rate increases during both 2022 and 2023 and a higher yield curve (for the middle-to-long end where the Company's earning assets would reprice) for the majority of 2024 as compared to year-end 2023.

The commercial loan portfolio represents 88% of the total loan portfolio as of December 31, 2024.

Approximately 66% of the commercial loan portfolio are variable rate loans which are primarily indexed to One Month Term SOFR, Prime and FHLB indices.

The increase in earning asset yields was offset by an increase in the Company's funding costs, as depositors continued to seek higher interest bearing deposit products and competition for deposits remained strong throughout the industry.

The rate paid on deposit accounts and purchased funds increased 40 basis points for 2024, following an increase of 179 basis points in 2023.

The realized increase in the rate paid on deposit accounts and purchased funds was magnified by a decrease in the average balance of non-interest bearing demand deposit accounts for 2024 verses 2023, primarily in commercial deposit accounts.

The Company anticipates that cost of funds could continue to rise in 2024 if market competition for deposits continues and if noninterest bearing deposits continue to shift to interest-bearing deposit products.

Future changes in the net interest margin will be dependent upon multiple factors including further actions by the FOMC during 2024 in response to inflation, economic conditions and geopolitical concerns, the results of any of the administration’s changes to economic policy and laws, competitive pressures in the various markets served, and changes in the structure of the balance sheet as a result of changes in customer demands for products and services.

In general, we expect loans to reprice quicker than deposits in a rising and falling rate environment as quantified in the sensitivity to market rates table in Item 7A.

The Company anticipates that cost of funds may continue to decline if the FOMC continues to ease and that the deposit repricing may be more accelerated than variable loan repricing.

Future changes in the net interest margin will be dependent upon multiple factors including further actions by the FOMC during 2025 in response to inflation, economic conditions and geopolitical concerns, the results of any of the administration’s changes to economic policy and laws, competitive pressures in the various markets served, and changes in the

structure of the balance sheet as a result of changes in customer demands for products and services.

In general, we expect loans to reprice quicker than deposits in a rising and falling rate environment as quantified in the sensitivity to market rates table in Item 7A, although to a lesser degree than historically projected due to a shift from a more asset sensitive balance sheet to neutral.

The effects of price changes and inflation can vary substantially for most financial institutions.

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In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds.

In other years, the reverse situation may occur.

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 7. Management’s Discussion and Analysis