What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-19 compared with 2024-02-21 · 266 added, 209 removed, 1919 unchanged (20% of the section changed)

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(2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 4 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2021 due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No.

326, Financial Instruments - Credit Losses (“ASC 326”).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal control over Financial Reporting.

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or

disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Allowance for Credit Losses (ACL) – Qualitative Adjustments

As described in Notes 1 and 4 to the consolidated financial statements and referred to in the change in accounting principle explanatory paragraph above, the Company adopted ASC 326 as of January 1, 2021, which among other things, required the Company to recognize expected credit losses over the contractual lives of financial asset carried at amortized costs, including loans receivables, utilizing the Current Expected Credit Losses (“CECL”) methodology.

The Company adopted ASC 326 as of January 1, 2021, which among other things, required the Company to recognize expected credit losses over the contractual lives of financial asset carried at amortized costs, including loans receivables, utilizing the Current Expected Credit Losses (“CECL”) methodology.

As of December 31, 2024, the ACL balance was $85,960,000.

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Total deposits 5,900,966 5,720,525

Federal Funds purchased 0 22,000

Federal Home Loan Bank advances 50,000 275,000

Total borrowings 50,000 297,000

Borrowings - Federal Home Loan Bank advances 0 50,000

Accrued interest payable 15,117 20,893

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

Net gain on Visa shares 8,996 0 0

Other income 4,674 9,141 1,874

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Balance at January 1, 2022 25,300,793 $ 120,615 $ 583,134 $ 16,093 $ ( 15,025 ) $ 704,817 $ 89 $ 704,906

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

Net income 103,817 103,817 103,817

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Net income 93,767 93,767 93,767

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

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

Cash dividends declared, $ 1.84 per share

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Balance at December 31, 2023 25,430,566 $ 127,692 $ 692,760 $ ( 155,195 ) $ ( 15,553 ) $ 649,704 $ 89 $ 649,793

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

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

Net income 93,478 93,478 93,478

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

Other comprehensive loss, net of tax ( 11,305 ) ( 11,305 ) ( 11,305 )

Cash dividends declared, $ 1.92 per share

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Proceeds from sale of loans, including participations 20,836 8,022 36,454

Net (gain) loss on Visa shares ( 8,996 ) 0 0

Net (gain) loss on sale of premises and equipment 81 3 7

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Proceeds from sale of securities available-for-sale 7,136 105,175 25,332

Proceeds from sales of Visa shares 8,996 0 0

Proceeds from maturities, calls and principal paydowns of securities available-for-sale 59,669 71,833 108,129

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

Proceeds from long-term FHLB borrowings 0 0 0

Common dividends paid ( 49,281 ) ( 47,094 ) ( 40,838 )

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Loans transferred to other real estate owned 0 284 0

Property transferred to held-for-sale 0 0 0

Right-of-use assets obtained in exchange for lease liabilities 2,699 0 1,612

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

was formed as a wholly owned subsidiary of the Bank incorporated in Nevada to manage a portion of the Bank’s investment portfolio beginning in 2007.

was formed as a wholly owned subsidiary of the Bank incorporated in Nevada to manage the Bank’s investment portfolio beginning in 2007.

On December 21, 2006, LCB Funding, Inc., a real estate investment trust incorporated in Maryland, was formed as a wholly owned subsidiary of LCB Investments II, Inc.

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

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

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

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

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With respect to pools of similar loans, an appropriate level of general allowance is determined by portfolio segment using a pr obability of default-loss given default ("PD/LGD") model, subject to a floor.

A default can be triggered by one of several different asset quality factors, including past due status, nonaccrual status, material modification to a borrower experiencing financial difficulty or if the loan has had a charge off.

A default can be triggered by one of several asset quality factors, including past due status, nonaccrual status, material modification to a borrower experiencing financial difficulty or if the loan has had a charge off.

This PD is then combined with a LGD derived from historical charge off data to construct a loss rate.

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foreign trade policies including tariffs;

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

exposure to increasing commodity prices which result in higher production, distribution or exporting costs, or falling commodity prices which result in revenues that may be insufficient to cover costs.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

Not-for-profit borrowers may be subject to changes in tax law that adversely impact revenues.

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

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A loan is individually analyzed for specific allocation when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Allocations are analyzed individually or in total for smaller-balance loans of similar nature such as all classes of consumer 1-4 family and other consumer loans, and individually for all classes of commercial and industrial, commercial real estate and multi-family, agribusiness and agricultural and other commercial loans.

Allocations are analyzed individually or in total for smaller-balance loans of similar nature such as all classes of consumer 1-4 family and other consumer loans, and individually for all classes of commercial and industrial, commercial real estate and multi-family, agri-business and agricultural and other commercial loans.

The Company analyzes commercial loans individually by classifying the loans as to credit risk.

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Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is individually evaluated, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral less anticipated costs to sell.

All classes of commercial and industrial, commercial real estate and multifamily residential, agribusiness and agricultural, other commercial, consumer 1-4 family mortgage loans and other consumer loans that become delinquent beyond 90 days are analyzed and a charge off is taken when it is determined that the underlying collateral, if any, is not sufficient to offset the indebtedness.

If a loan is individually evaluated, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s original rate or at the fair value of collateral less anticipated costs to sell.

All classes of commercial and industrial, commercial real estate and multifamily residential, agri-business and agricultural, other commercial, consumer 1-4 family mortgage loans and other consumer loans that become delinquent beyond 90 days are analyzed and a charge off is taken when it is determined that the underlying collateral, if any, is not sufficient to offset the indebtedness.

Loans, for which the terms have been modified for borrowers experiencing financial difficulties and a concession has been granted that could materially change the Company's expected future cash flows, are classified as individually evaluated and may be either accruing or non-accruing.

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Investments in Limited Partnerships:

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

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

The Company enters into and invests in limited partnerships in order to support Community Reinvestment Act activities.

The Company invests in Small Business Investment Company Program funds, a mission-driven financial institutions fund, and a technology consortium fund.

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

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These investments are evaluated for impairment when events indicate the carrying amount may not be recoverable.

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

The Company also has a commitment to fund an additional

The investments recorded at

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

December 31, 2024 and 2023 were $ 7.6 million and $ 6.2 million, respectively and are included with other assets in the consolidated balance sheet.

Investments in Tax Credit Structures:

The Company invests in tax credit structures.

At December 31, 2024 and 2023, the balance of investments in tax credit structures was $ 7.2 million and $ 6.8 million respectively.

These balances are reflected in the other assets line on the consolidated balance sheets.

Total unfunded commitments related to these investments in tax credit structures totaled $ 3.8 million and $ 2.8 million at December 31, 2024 and 2023, respectively.

The Company expects to fulfill these commitments during the next 15 years.

The Company adopted the proportional amortization method for accounting for investments in tax credit structures effective January 1, 2024.

Prior to this, these investments were accounted for using the equity method.

During the year ended December 31, 2024, the Company recognized amortization expense of $ 794,000 , which was included within income tax expense on the consolidated statements of income.

During the year ended December 31, 2023, the Company recognized amortization expense (investment loss) of $ 592,000 , which was included within other noninterest income on the consolidated statements of income.

Additionally, during the years ended December 31, 2024 and 2023, the Company recognized tax credits and other benefits from its investment in tax credit structures of $ 807,000 and $ 713,000 , respectively, which was included within income tax expense on the consolidated statements of income and in cash flows from operations on our consolidated statements of cash flows.

Foreclosed Assets:

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The amortization of servicing rights is netted against mortgage banking income.

Servicing fees were $ 1.2 million for the years ended 2023, 2022 and 2021.

Servicing fees were $ 1.1 million for the year ended 2024 and $ 1.2 million for the years ended 2023 and 2022.

Late fees and ancillary fees related to loan servicing are not material.

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The carrying value of mortgage servicing rights, which is included with other assets in the consolidated balance sheet, was $ 1.9 million and $ 2.2 million as of December 31, 2024 and 2023, respectively.

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets.

Mortgage loans serviced for others are not

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

included in the accompanying consolidated balance sheets.

The unpaid principal balances of these loans were $ 313.0 million and $ 333.1 million at December 31, 2024 and 2023, respectively.

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Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Mortgage Banking Derivatives:

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The fair value of the interest rate swap asset was $ 25.4 million and $ 27.2 million and the fair value of the interest rate swap liability was $ 25.4 million and $ 27.2 million at December 31, 2024 and 2023, respectively.

The Company is a party in a risk participation transaction of an interest rate swap, which had a total notional amount of $ 4.9 million at December 31, 2024.

The Company was not a party to such transactions at December 31, 2023.

Bank Owned Life Insurance:

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Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, i.e., the cash surrender value adjusted for other changes or other amounts due that are probable at settlement.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Goodwill and Other Intangible Assets:

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There was no such impairment identified for the years ended December 31, 2024, 2023 and 2022.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Benefit Plans:

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The Company provides wealth advisory services to its customers and earns fees from its contracts with trust customers to manage assets for investment and/or to transact on their accounts.

These fees are primarily earned over time as the Company provides the contracted monthly, quarterly, or annual services and are generally assessed based on a tiered scale of the market value of assets under management (AUM) at month-end.

Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed.

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The fees are recognized monthly and a receivable is recorded until commissions are generally paid by the 5th business day of the following month.

Because the Company (i) acts as an agent in arranging the relationship between the customer and the Cetera and (ii) does not control the services to the customers, investment brokerage service fees are presented net of Cetera’s related costs.

Because the Company (i) acts as an agent in arranging the

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

relationship between the customer and Cetera and (ii) does not control the services to the customers, investment brokerage service fees are presented net of Cetera’s related costs.

Service charges on deposit accounts

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Performance obligations are met on a transactional basis and income is recognized monthly based on transaction type and volume.

Under the accounting standards in effect in the prior period, revenue was previously recognized net of the third party’s costs.

Under ASC 606, fees from interchange income related to its customers use of debit cards will be reported gross in loan and service fees under noninterest income.

The cost of using third party providers for these interchange services are reported in data processing fees and supplies under noninterest expense.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Gain on sale of other real estate owned ("OREO") financed by seller

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For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

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Common stock that has been purchased under the directors’ deferred compensation plan, described above, is included in the treasury stock total and represented 180,138 and 184,019 shares of treasury stock as of December 31, 2024 and 2023, respectively.

Because these shares are held in trust for the participants,

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

Because these shares are held in trust for the participants, they are treated as outstanding when computing the weighted-average common shares outstanding for the calculation of both basic and diluted earnings per share.

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

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

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

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

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

On August 9, 2021, the liquidating trustee for the bankruptcy estates filed a complaint against the Bank and the Company, and agreed to stay prosecution of the action through August 31, 2022.

The original complaint focused on a series of business transactions among the client, related entities and the Bank, which the liquidating trustee alleged are voidable under applicable federal bankruptcy and state law.

The complaint also addressed treatment of the Bank's claims filed in the bankruptcy cases.

On August 31, 2022, the trustee filed his amended complaint against the former client, the Bank, the Company, four officers of the Bank and one independent director of the Bank.

The amended complaint alleges that the former client engaged in a check kiting scheme involving multiple banks.

The amended complaint alleges that a series of business transactions among the client, his related entities and the Bank are voidable under applicable bankruptcy and state laws.

The amended complaint also alleges that the Bank, the Company and the five individual bank representatives who are named as defendants violated various federal and state laws in assisting the former client in his check kiting scheme.

On October 26, 2022, the trustee filed his second amended complaint which was virtually identical to his amended complaint.

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

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

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

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

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

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

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

The trustee subsequently filed a response to this motion.

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

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

As previously disclosed, in July 2019, the Bank discovered potentially fraudulent activity by a former treasury management client involving multiple banks.

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

, which were filed in the United States Bankruptcy Court for the Western District of Michigan.

The Bank and other remaining individual defendants have settled the matter with the liquidating trustee and the case was dismissed with prejudice on June 21, 2024.

A $ 4.5 million accrual was recognized during the second quarter of 2024 related to the resolution of this matter and the expense was recorded within other expense on the consolidated statements of income.

Restrictions on Cash:

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Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Company or by the Company to its stockholders.

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

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

Fair Value of Financial Instruments:

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disc losed in Note 5 - Fair Value.

Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items.

Fair value estimates involve uncertainties and matters of significant judgment regarding

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items.

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

Operating Segments:

The Company’s chief decision-makers monitor and evaluate financial performance on a Company-wide basis.

All of the Company’s financial service operations are similar and considered by management to be aggregated into one reportable operating segment.

While the Company has assigned certain management responsibilities by region and business-line, the Company’s chief decision-makers monitor and evaluate financial performance on a Company-wide basis.

The Company's revenue is primarily derived from the business of banking.

The Company's financial performance is monitored on consolidated basis by Management Committee, which is considered to be the Company's Chief Operating Decision Maker ("CODM").

Management Committee includes the following officers of the Company:

Chairman of the Board and Chief Executive Officer;

Executive Vice President, Chief Financial Officer;

Executive Vice President, Chief Commercial Banking Officer;

Executive Vice President, Chief Retail Banking Officer;

Senior Vice President, Chief Credit Officer;

Senior Vice President, Chief Wealth Advisory Officer;

Senior Vice President, Chief Human Resources Officer;

and Senior Vice President, General Counsel.

Financial performance is reported to the CODM monthly, and the primary measure of performance is consolidated net income.

The allocation of resources throughout the Company is determined annually based upon consolidated net income performance.

The presentation of financial performance to the CODM is consistent with amounts and financial statement lines items shown in the Company's consolidated balance sheets and consolidated statements of income.

Additionally, the Company's significant expenses are adequately segmented by category and amount in the consolidated statements of income to include all significant items when considering both qualitative and quantitative factors.

Significant expenses of the Company include salaries and employee benefits, net occupancy expense, equipment costs, data processing fees and supplies, and professional fees.

All of the Company’s financial results are similar and considered by management to be aggregated into one reportable operating segment.

While the Company has assigned certain management responsibilities by region and business-line, the Company’s CODM evaluates financial performance on a Company-wide basis.

The majority of the Company’s revenue is from the business of banking and the Company’s assigned regions have similar economic characteristics, products, services and customers.

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Adoption of New Accounting Standards:

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

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

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

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

The ASU was effective immediately upon issuance.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

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

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

The adoption of the provisions contained within ASU 2022-20 did not have a material impact on the consolidated financial statements.

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

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

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

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

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

The amendments in this update require specific disclosures that must be applied to all investments that generate income tax credits

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method.

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

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

The Company chose the modified retrospective approach and recorded a day one adjustment of less than $ 1.0 million to beginning retained earnings upon adoption of ASU 2023-02 on January 1, 2024, which did not have a material impact on the consolidated financial statements.

The Company chose the modified retrospective approach and recorded a day one adjustment of ($ 532,000 ) to beginning retained earnings upon adoption of ASU 2023-02 on January 1, 2024, which did not have a material impact on the consolidated financial statements.

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

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

Provisions in the amendment include:

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

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

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

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

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

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

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

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

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

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

The Company adopted this standard effective January 1, 2024, and did not have a material impact on the consolidated financial statements.

Newly Issued But Not Yet Effective Accounting Standards:

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Given the variety of Topics

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

4 unchanged sentences

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

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

The effective date for each amendment for entities subject to the SEC's existing disclosure requirements is the

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

effective date of the removal of the related disclosure from Regulation S-X or Regulation S-K, with early adoption prohibited.

The amendments in the update are to be applied prospectively.

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

The Company will apply prospectively the provisions provided

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

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

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

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

Provisions in the amendment include:

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

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

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

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

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

On December 13, 2023, the FASB issued ASU 2023-08, "Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60):

Accounting for and Disclosure of Crypto Assets" , to provide improved accounting and disclosure guidance for crypto assets.

Stakeholders stated that current accounting guidance, except as provided in GAAP for certain specialized industries, surrounding crypto asset holdings as indefinite-lived intangible assets fails to provide financial statement users with decision-useful information.

To remedy these shortcomings, the amendments in this update require an entity present (1) crypto assets measured at fair value separately from other intangible assets reported in the balance sheet and (2) changes from the remeasurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement.

While the amendments in the update do not otherwise change the presentation requirements for the statement of cash flows, they do require specific presentation of cash receipts arising from crypto assets that are received as noncash consideration in the ordinary course of business and are converted nearly immediately into cash.

The amendments in the update also provide for several enhancements related to disclosure of an entity's crypto asset holdings.

For annual and interim reporting periods, the amendments in the update require an entity disclose the following information:

(1) the name, cost basis, fair value, and number of units for each significant crypto asset holding and aggregate fair values and costs bases of the crypto asset holdings that are not individually significant;

and (2) for crypto assets that are subject to contractual sale restrictions, the fair value of those crypto assets, the nature and remaining duration of the restriction(s), and the circumstances that could cause the restriction(s) to lapse.

For annual reporting periods, the amendments in the update require an entity disclose the following information:

(1) a rollforward, in the aggregate, of activity in the reporting period for crypto asset holdings, including additions (with a description of the activities that resulted in the additions), dispositions, gains, and losses;

(2) for any dispositions for crypto assets in the reporting period, the difference between the disposal price and the cost basis and a description of the activities that resulted in the dispositions;

(3) if gains and losses are not presented separately, the income statement line item in which those gains and losses are recognized;

and (4) the method for determining the cost basis of crypto assets.

The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2024, including interim periods within those fiscal years.

Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance).

If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period.

The amendments in this update require a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets) as of the beginning of the annual reporting period in which an entity adopts the amendments.

The Company is currently evaluating the impact of this update on its disclosures, however does not expect the adoption of this update to have a material impact on the consolidated financial statements based upon the nature of the Company's current operations.

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

3 unchanged sentences

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

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

The amendments in this update are effective for public business entities for annual periods beginning after December 31, 2024.

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

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

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

Reclassifications:

Certain amounts appearing in the financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation.

The reclassifications had no effect on net income or stockholders’ equity as previously reported.

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

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

On November 8, 2024, the FASB issued ASU 2024-03, "Income Statement—Reporting Comprehensive Income— Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses" , to improve the disclosures surrounding a public business entity's expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development).

The amendments in this update require disclosure, in the notes to the financial statements, of specified information about certain costs and expenses.

The amendments require that at each interim and annual reporting period an entity (1) Disclose the amounts of (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization and (e) depreciation, depletion and amortization recognized as part of oil- and gas-producing activities (DD&A) (or other amounts of depletion expense) included in each relevant expense caption.

A relevant expense caption is an expense caption presented on the face of the income statement within continuing operations that contains any of the following expense categories listed in (a)-(e);

(2) Include certain amounts that are already required to be disclosed under current GAAP in the same disclosure as other disaggregation requirements;

(3) Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively;

and (4) Disclose the total amount of selling expenses, and in annual reporting periods, an entity's definition of selling expenses.

An entity is not precluded from providing additional voluntary disclosures that may provide investors with additional decision-useful information.

The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods after December 15, 2027.

Early adoption is permitted.

On January 6, 2025, the FASB issued ASU 2025-01, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date", to clarify the effective date of the ASU 2024-03.

The update amends the effective date of Update 2024-03 to annual reporting periods beginning after December 15, 2026, and interim periods within annual periods beginning after December 15, 2027.

The Company is currently evaluating the impact of this update on its disclosures.

NOTE 2 – SECURITIES

10 unchanged sentences

Total $ 1,182,501 $ 100 $ ( 191,175 ) $ 0 $ 991,426

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

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

9 unchanged sentences

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

NOTE 2 – SECURITIES (continued)

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

The fair value of securities transferred was $ 127.0 million from available-for-sale to held-to-maturity.

The unrealized loss on the securities transferred from available-for-sale to held-to-maturity was $ 24.4 million ($ 19.3 million, net of tax) based on the fair value of the securities on the transfer date and was $ 20.9 million ($ 16.5 million, net of tax) at December 31, 2023.

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

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

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

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

The unrealized loss on the securities transferred from available-for-sale to held-to-maturity was $ 24.4 million ($ 19.3 million, net of tax) based on the fair value of the securities on the transfer date and has amortized down to $ 19.0 million ($ 15.0 million, net of tax) at December 31, 2024.

NOTE 2 – SECURITIES (continued)

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

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

17 unchanged sentences

Number of securities 15 115 30

In accordance with ASU No.

2017-8, purchase premiums for callable securities are amortized to the earliest call date and premiums on non-callable securities as well as discounts are recognized in interest income using the interest method over the terms of the securities or over the estimated lives of mortgage-backed securities.

In accordance with ASU 2017-8, purchase premiums for callable securities are amortized to the earliest call date and premiums on non-callable securities as well as discounts are recognized in interest income using the interest method over the terms of the securities or over the estimated lives of mortgage-backed securities.

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

14 unchanged sentences

Total temporarily impaired $ 36,132 $ 688 $ 943,487 $ 190,487 $ 979,619 $ 191,175

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

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

24 unchanged sentences

Total temporarily impaired 32 533 565 0 41 41

Treasury securities 7 0 7 0 0 0

government sponsored agencies 0 17 17 0 0 0

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

On April 8, 2024, Visa Inc.

announced the commencement of an exchange offer for Visa Class B-1 common stock, which was being carried at a historical cost basis of zero on the Company's balance sheet.

On May 7, 2024, the Bank received notice that Visa had accepted the Bank's tender of its 23,804 shares of Visa Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock, which are carried at fair value.

Subsequent to the exchange and during the second quarter of 2024, the Bank sold its Visa Class B-2 common stock, which resulted in a realized gain of $ 3.9 million.

During the second and third quarters of 2024, the Bank liquidated its Visa Class C common stock, which resulted in a net realized gain of $ 5.1 million.

The Bank remains a party of a makewhole agreement with Visa as a requirement of entering the exchange.

The Bank did not record a liability as of December 31, 2024 under the terms of this agreement as a loss was neither probable nor estimable at this time.

NOTE 3 – LOANS

31 unchanged sentences

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

The Company adopted ASC 326 using the modified retrospective for all financial assets measured at amortized cost.

Results for reporting periods after January 1, 2021 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2024, 2023 and 2022:

33 unchanged sentences

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

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

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

3 unchanged sentences

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

Table of Content s

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

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

Table of Content s

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

7 unchanged sentences

Substandard 0 0 933 0 195 219 1,347 25,878 27,225

Doubtful 0 3,090 39,994 0 0 0 43,084 0 43,084

Total 1,599 3,204 42,567 1,647 846 219 50,082 599,358 649,440

5 unchanged sentences

Substandard 0 2,986 1,598 107 4,142 584 9,417 406 9,823

Doubtful 0 0 0 21 386 0 407 0 407

Not Rated 1,297 1,657 1,149 395 395 23 4,916 0 4,916

5 unchanged sentences

Pass 23,264 69,737 43,228 2,566 0 0 138,795 426,577 565,372

Special Mention 603 0 0 0 0 0 603 0 603

Total 23,867 69,737 43,228 2,566 0 0 139,398 426,577 565,975

12 unchanged sentences

Total 152,963 134,167 168,495 106,932 119,612 77,497 759,666 112,336 872,002

Nonowner occupied loans:

Table of Content s

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

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

Nonowner occupied loans (continued):

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

8 unchanged sentences

Pass 14,574 21,241 29,601 23,043 25,192 18,312 131,963 24,249 156,212

Special Mention 122 209 0 0 0 0 331 0 331

Substandard 0 0 0 0 0 71 71 0 71

23 unchanged sentences

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

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

Open end and junior lien loans:

Pass 574 738 0 438 0 5 1,755 10,090 11,845

Special Mention 0 0 0 0 309 0 309 0 309

Table of Content s

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

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

Open end and junior lien loans (continued):

Substandard 0 104 0 15 0 81 200 118 318

10 unchanged sentences

Pass 79 971 234 109 0 0 1,393 20,742 22,135

Special Mention 0 0 475 0 157 0 632 0 632

Substandard 0 128 54 76 17 0 275 0 275

5 unchanged sentences

Total current period gross write offs $ 49 $ 686 $ 409 $ 575 $ 179 $ 910 $ 2,808 $ 660 $ 3,468

Table of Content s

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

6 unchanged sentences

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

Working capital lines of credit loans:

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

Non-working capital loans:

4 unchanged sentences

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

Non-working capital loans:

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

Commercial real estate and multi-family residential loans:

2 unchanged sentences

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

Construction and land development loans:

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

Owner occupied loans:

3 unchanged sentences

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

Owner occupied loans:

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

Nonowner occupied loans:

2 unchanged sentences

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

Nonowner occupied loans:

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

Multi-family loans:

2 unchanged sentences

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

Table of Content s

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

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

Multi-family loans (continued):

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

Agri-business and agricultural loans:

1 unchanged sentence

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

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

Substandard 0 0 0 0 0 100 100 0 100

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

Loans secured by farmland:

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

Loans for agricultural production:

2 unchanged sentences

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

Loans for agricultural production:

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

Other commercial loans:

2 unchanged sentences

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

Other commercial loans:

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

Consumer 1-4 family mortgage loans:

5 unchanged sentences

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

Closed end first mortgage loans:

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

Open end and junior lien loans:

3 unchanged sentences

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

Open end and junior lien loans:

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

Residential construction loans:

1 unchanged sentence

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

Table of Content s

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

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

Residential construction loans (continued):

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

Other consumer loans:

3 unchanged sentences

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

Other consumer loans:

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

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

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

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

As of December 31, 2024 and 2023, $ 1.2 million and $ 1.3 million, respectively, in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans.

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

Table of Content s

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

Nonaccrual and Past Due Loans:

23 unchanged sentences

Total $ 5,057,232 $ 4,270 $ 29 $ 5,061,531 $ 56,417 $ 1,949 $ 5,117,948

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

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

An insignificant amount of interest income was recognized on nonaccrual loans during the twelve months ended December 31, 2024.

Table of Content s

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

18 unchanged sentences

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

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

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

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

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

2 unchanged sentences

Significant year over year changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.

Table of Content s

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

30 unchanged sentences

Total $ 1,408 $ 12,230 $ 1,673 $ 15,311

Table of Content s

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

7 unchanged sentences

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

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

During the twelve months ended December 31, 2024, there were an insignificant amount of modifications to borrowers experiencing financial difficulty.

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

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

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

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

Twelve Months Ended December 31, 2023

4 unchanged sentences

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

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

The Company had no material commitments to lend additional funds to borrowers included in the previous table at December 31, 2023.

Table of Content s

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

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

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

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

(dollars in thousands) Principal Forgiveness Weighted Average Interest Rate Reduction Weighted Average Term Extension Payment Delay

Twelve Months Ended December 31, 2023

Commercial and industrial loans:

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

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

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

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

Term extension from 40 months to 60 months

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

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

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

Working capital lines of credit loans $ 0 7.50 % None None

Non-working capital loans (1) 9,380 7.87 % 58 months Extension of payment terms from fully amortizing variable rate 40 month term to 60 month fixed rate term with 480 month amortization schedule, monthly interest and semiannual principal payments, and excess cash flow recapture provisions

Extension of payment terms from monthly variable rate interest only payments with balloon payment at end of term to fully amortizing ten year fixed rate principal and interest payment schedule

Total commercial and industrial loans 9,380 7.84 % 44 months

Total modifications $ 9,380 7.84 % 44 months

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

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

49 unchanged sentences

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

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

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

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

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

This methodology is based on a market approach and typically results in a Level 3 classification of the inputs for determining fair value.

31 unchanged sentences

Total assets $ 0 $ 1,012,263 $ 4,660 $ 1,016,923

Mortgage banking derivative $ 0 $ 11 $ 0 $ 11

Interest rate swap derivative 0 25,403 0 25,403

2 unchanged sentences

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

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

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

23 unchanged sentences

Total collateral dependent loans $ 0 $ 0 $ 27,151 $ 27,151

Other real estate owned 0 0 384 384

Total assets $ 0 $ 0 $ 27,151 $ 27,151

21 unchanged sentences

Loans secured by farmland 32 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 54 %

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

NOTE 5 – FAIR VALUE (continued)

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

3 unchanged sentences

Collateral dependent loans:

Commercial real estate 425 Collateral based measurements Discount to reflect current market conditions and ultimate collectability

Commercial real estate and multi-family residential 682 Collateral based measurements Discount to reflect current market conditions and ultimate collectability

Collateral dependent loans:

19 unchanged sentences

All other deposits 5,045,090 5,045,090 0 0 5,045,090

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

Mortgage banking derivative 11 0 11 0 11

Interest rate swap derivative 25,403 0 25,403 0 25,403

1 unchanged sentence

Accrued interest payable 15,117 425 14,692 0 15,117

NOTE 5 – FAIR VALUE (continued)

Carrying Estimated Fair Value

13 unchanged sentences

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

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

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

Mortgage banking derivative 11 0 11 0 11

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

40 unchanged sentences

Total time deposits $ 855,876

During 2023 and 2022 the Bank entered into agreements with IntraFi Network relative to their Insured Cash Sweep One-Way Buy program.

As of December 31, 2023 and 2022 the total amount available to the Bank via this program was $ 100.0 million, of which, $ 10.0 million was drawn.

During 2023 the Bank entered into 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.

During 2024 the agreement was terminated, and no amounts were outstanding or available as of December 31, 2024.

NOTE 9 – BORROWINGS

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

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

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

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

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

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

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

At December 31, 2024 and 2023, the Company owned $ 18.0 million of FHLB stock, which also secures debts owed to the FHLB.

The Company is authorized by the Board to borrow up to $ 800.0 million at the FHLB, but availability is limited to $ 555.9 million based on collateral and outstanding borrowings.

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

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

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

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

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

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

Federal Reserve Discount Window borrowings were secured by commercial loans and investment securities with a carrying value of $ 1.71 billion and $ 1.59 billion as of December 31, 2024 and 2023, respectively.

The Company had a borrowing capacity of $ 1.36 billion and $ 1.26 billion at the Federal Reserve Bank as of December 31, 2024 and 2023, respectively.

There were no borrowings outstanding at the Federal Reserve Bank at December 31, 2024 and 2023.

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

There were no borrowings outstanding under the Bank Term Funding Program as of December 31, 2023.

The Bank Term Funding Program was officially closed in March of 2024 whereupon the investment securities pledged as collateral by the Company were released by the Federal Reserve Bank.

The Company had $ 395.0 million and $ 325.0 million of availability in federal funds lines with thirteen and eleven correspondent banks as of December 31, 2024 and 2023, respectively;

no amounts were drawn upon as of either year-end.

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.

The total amount approved for the Bank via AFX banks was $ 319.0 million at December 31, 2023 and 2022.

The total amount approved for the Bank via AFX banks was $ 304.0 million and $ 319.0 million at December 31, 2024 and 2023, respectively.

There were no amounts drawn as of December 31, 2024 and 2023.

1 unchanged sentence

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

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

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

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

this credit agreement was subsequently amended and renewed on October 2, 2024 and renews annually thereafter.

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

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

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

3 unchanged sentences

The Company also maintains a Supplemental Executive Retirement Plan ("SERP") for select officers that was established as a funded, non-qualified deferred compensation plan.

Currently, six retired officers are the only participants in the SERP.

Currently, four retired officers are the only participants in the SERP.

The measurement date for both the pension plan and SERP is December 31, 2024 and 2023.

18 unchanged sentences

(dollars in thousands) 2024 2023 2024 2023

Funded status included in other assets $ 531 $ 0 $ 0 $ 0

Funded status included in other liabilities 0 ( 338 ) 150 147

Amounts recognized in accumulated other comprehensive income consist of:

Amounts recognized in accumulated other comprehensive income (loss) consist of:

Pension Benefits SERP Benefits

2 unchanged sentences

NOTE 10 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

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

The accumulated benefit obligation for the pension plan was $ 1.2 million and $ 1.5 million for December 31, 2024 and 2023, respectively.

The accumulated benefit obligation for the SERP was $ 620,000 and $ 693,000 for December 31, 2024 and 2023, respectively.

35 unchanged sentences

Risk is controlled through diversification of asset types and investments in domestic and international equities and fixed income securities.

The target allocations for plan assets are shown in the tables below.

The target allocations for plan assets are shown in the tables on the next page.

Equity securities primarily include investments in common stocks.

49 unchanged sentences

Debt securities - short term bond mutual funds 172 172 0 0

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

Debt securities - nontraditional bond mutual funds 12 12 0 0

Debt securities - bank loan mutual funds 35 35 0 0

Debt securities - preferred stock mutual funds 34 34 0 0

14 unchanged sentences

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

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

Debt securities - nontraditional bond mutual funds 12 12 0 0

Debt securities - bank loan mutual funds 35 35 0 0

Debt securities - preferred stock mutual funds 36 36 0 0

Cash - money market account 55 55 0 0

8 unchanged sentences

(dollars in thousands)

Equity securities - US large cap common stocks $ 236 $ 236 $ 0 $ 0

Equity securities - US large cap stock mutual funds $ 82 $ 82 $ 0 $ 0

Equity securities - US mid cap stock mutual funds 28 28 0 0

Equity securities - US small cap stock mutual funds 15 15 0 0

Equity securities - US large cap exchange traded funds 105 105 0 0

Equity securities - emerging markets stock mutual funds 14 14 0 0

2 unchanged sentences

Debt securities - short term bond mutual funds 36 36 0 0

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

Debt securities - nontraditional bond mutual funds 4 4 0 0

Debt securities - bank loan mutual funds 10 10 0 0

Debt securities - preferred stock mutual funds 10 10 0 0

14 unchanged sentences

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

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

Debt securities - nontraditional bond mutual funds 4 4 0 0

Debt securities - bank loan mutual funds 10 10 0 0

Debt securities - preferred stock mutual funds 10 10 0 0

Cash - money market account 10 10 0 0

45 unchanged sentences

Captive insurance premium income 0 ( 261 ) ( 417 )

Tax credits ( 713 ) ( 586 ) ( 578 )

Tax credit investments ( 150 ) ( 713 ) ( 586 )

Bank owned life insurance ( 903 ) ( 658 ) ( 78 )

57 unchanged sentences

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

Abbasi’s interest in such fees was less than $ 25,000 annually for the years ended December 31, 2023 and 2022.

Abbasi’s interest in such fees was approximately $ 25,000 annually for the years ended December 31, 2024 and 2023.

NOTE 14 – STOCK BASED COMPENSATION

14 unchanged sentences

The fair value of each stock option is estimated with the Black-Scholes pricing model, using the following weighted-average assumptions as of the grant date for stock options granted during the years presented.

Expected volatilities are based on historical volatility of the Company’s stock over the immediately preceding expected life period, as well as other factors known on the grant date that would have a significant effect on the stock price during the expected life period.

Expected volatility is based on historical volatility of the Company’s stock over the immediately preceding expected life period, as well as other factors known on the grant date that would have a significant effect on the stock price during the expected life period.

The expected stock option life used is the historical option life of the similar employee base or Board.

5 unchanged sentences

As of December 31, 2024, there was no unrecognized compensation cost related to non-vested stock options granted under the plan.

There were no options exercised during the years ended December 31, 2023, 2022 or 2021.

There were no options outstanding, issued or exercised during the years ended December 31, 2024, 2023 or 2022.

Restricted Stock Awards and Units

8 unchanged sentences

Nonvested at December 31, 2024 70,255 $ 66.01

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

As of December 31, 2024, there was $ 1.7 million unrecognized compensation cost related to non-vested shares granted under the plan.

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

18 unchanged sentences

NOTE 15 – CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

The Company became a financial holding company effective May 30, 2012 and is now required to be well capitalized under the applicable regulatory guidelines.

The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies.

11 unchanged sentences

As of December 31, 2024, the most recent notification from the federal regulators categorized the Company and the Bank as well capitalized under the regulatory framework for prompt corrective action.

To be categorized as well capitalized, the Company and the Bank must maintain minimum Total risk-based capital ratios, Tier I risk-based capital ratios and Tier I leverage capital ratios as set forth in the table.

To be categorized as well capitalized, the Bank must maintain minimum Total risk-based capital ratios, Tier I risk-based capital ratios and Tier I leverage capital ratios as set forth in the table.

There have been no conditions or events since that notification that management believes have changed the Company and the Bank’s category.

95 unchanged sentences

4.63 - 13.50 %

3.13 - 12.50 %

Consumer loan open-ended revolving line 15.00 %

16 unchanged sentences

Investments in banking subsidiary 675,315 631,774

Investments in other subsidiaries 0 3,845

Other assets 2,824 3,578

9 unchanged sentences

Other income 2 5 1

Interest expense 0 0 ( 7 )

Miscellaneous expense ( 5,642 ) ( 4,768 ) ( 8,795 )

19 unchanged sentences

Cash flows from financing activities:

Proceeds from (payments on) short-term borrowings 0 0 ( 10,500 )

Payments related to equity incentive plans ( 2,815 ) ( 3,135 ) ( 1,780 )

23 unchanged sentences

(dollars in thousands) Unrealized

Available-for-Sales

Available-for-Sale

Securities Defined

5 unchanged sentences

(dollars in thousands) Unrealized

Available-for-Sales

Available-for-Sale

Securities Defined

37 unchanged sentences

(dollars in thousands)

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

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

56 unchanged sentences

Year Ended Year Ended Year Ended

(dollars in thousands)

December 31, 2024 December 31, 2023 December 31, 2022

4 unchanged sentences

Operating cash outflows from operating leases $ 742 $ 724 $ 667

Weighted-average remaining lease term - operating leases 6.3 7.3 7.9

Weighted-average remaining lease term - operating leases 7.6 years 6.3 years 7.3 years

Weighted average discount rate - operating leases 3.7 % 2.5 % 2.5 %

2 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data