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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-04-30 · 297 added, 147 removed, 321 unchanged (58% of the section changed)

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net income in the first three months of 2025 was $20.1 million, which decreased $3.3 million , or 14.2%, from $23.4 million for the comparable period of 2024 .

Diluted income per common share was $0.78 in the first three months of 2025 , a decrease of 14.3% from $0.91 in the comparable period of 2024 .

The decrease in net income for 2025 was primarily due to an increase in the provision for credit losses of $5.3 million, or 347.4%, an increase in noninterest expense of $2.1 million, or 6.7%, and a decrease in noninterest income of $1.7 million, or 13.4%.

Offsetting these effects was an increase to net interest income of $5.5 million, or 11.5%.

Pretax pre-provision earnings, a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $31.0 million in the first three months of 2025 , an increase of $1.7 million , or 5.9%, compared to $29.3 million for the comparable period of 2024 .

Annualized return on average total equity was 11.70% in the first three months of 2025 versus 14.59% in the comparable period of 2024 .

Annualized return on average total assets was 1.20% in the first three months of 2025 versus 1.44% for the comparable period of 2024 .

The Company's average equity to average assets ratio was 10.29% in the first three months of 2025 versus 9.84% in the comparable period of 2024 .

The Company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 10.09% at March 31, 2025, compared to 9.80% at March 31, 2024 and 10.19% at December 31, 2024.

Unrealized losses from available-for-sale investment securities were $188.3 million at March 31, 2025, compared to $189.9 million at March 31, 2024 and $191.1 million at December 31, 2024.

When excluding the impact of accumulated other comprehensive income (loss) ("AOCI") on tangible common equity and tangible assets, the Company's adjusted tangible common equity to adjusted tangible assets ratio, which is a non-GAAP financial measure, was 12.19% at March 31, 2025, compared to 12.03% at March 31, 2024 and 12.37% at December 31, 2024.

Total assets were $6.851 billion as of March 31, 2025 versus $6.678 billion as of December 31, 2024, an increase of $172.8 million, or 2.6% .

Net income in the first six months of 2025 was $47.1 million, which increased $1.1 million , or 2.4%, from $46.0 million for the comparable period of 2024 .

Diluted income per common share was $1.82 in the first six months of 2025 , an increase of 2.2% from $1.78 in the comparable period of 2024 .

The increase in net income for 2025 was primarily due to an increase to net interest income of $12.0 million, or 12.6%, a decrease in noninterest expense of $843,000, or 1.3%, and a decrease in the provision for credit losses of $0.2 million, or 2.0%.

Offsetting these positive contributions to net income was a decrease in noninterest income of $10.6 million, or 32.2%.

Pretax pre-provision earnings, a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $67.0 million in the first six months of 2025 , an increase of $2.2 million , or 3.5%, compared to $64.7 million for the comparable period of 2024 .

Core operational profitability, a non-GAAP measure that excludes the impact of certain non-routine operating events that occurred during 2024, improved by $5.2 million , or 12.5%, from $41.8 million to $47.1 million for the six months ended June 30, 2024 and 2025, respectively.

Annualized return on average total equity was 13.62% in the first six months of 2025 versus 14.39% in the comparable period of 2024 .

Annualized return on average total assets was 1.39% in the first six months of 2025 versus 1.40% for the comparable period of 2024 .

The Company's average equity to average assets ratio was 10.19% in the first six months of 2025 versus 9.73% in the comparable period of 2024 .

Net income in the second quarter of 2025 was $27.0 million, an increase of $4.4 million, or 19.6%, from $22.5 million for the comparable period of 2024.

Diluted earnings per common share was $1.04 in the second quarter of 2025, an increase of 19.5% from $0.87 in the comparable period of 2024.

The increase was driven primarily by an increase in net interest income of $6.6 million, or 13.6%, a decrease in provision for credit losses of $5.5 million and a decrease in noninterest expense of $2.9 million, or 8.7%.

Offsetting these effects was a decrease in noninterest income of $9.0 million, or 43.8%.

Pretax pre-provision earnings in the second quarter of 2025 were $35.9 million, an increase of $528,000, or 1.5%, compared to $35.4 million for the comparable period of 2024.

Core operational profitability improved $7.8 million, or 40.5%, to $27.0 million for the second quarter of 2025, compared to $19.2 million for the second quarter of 2024 .

Annualized return on average total equity was 15.52% in the second quarter of 2025 versus 14.19% in the comparable period of 2024.

Annualized return on average total assets was 1.57% in the second quarter of 2025 versus 1.37% in the comparable period of 2024.

The average equity to average assets ratio was 10.09% in the second quarter of 2025 versus 9.62% in the comparable period of 2024.

The Company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 10.15% at June 30, 2025, compared to 9.91% at June 30, 2024 and 10.19% at December 31, 2024.

Unrealized losses from available-for-sale investment securities were $185.3 million at June 30, 2025, compared to $194.9 million at June 30, 2024 and $191.1 million at December 31, 2024.

When excluding the impact of accumulated other comprehensive income (loss) ("AOCI") on tangible common equity and tangible assets, the Company's adjusted tangible common equity to adjusted tangible assets ratio, which is a non-GAAP financial measure, was 12.17% at June 30, 2025, compared to 12.18% at June 30, 2024 and 12.37% at December 31, 2024.

Total assets were $6.964 billion as of June 30, 2025 versus $6.678 billion as of December 31, 2024, an increase of $285.9 million, or 4.3% .

Balance sheet expansion was driven by increases to t otal loans, net of the allowance for credit losses, which increased $128.3 million, or 2.5%, cash and cash equivalents, which increased $142.0 million, or 84.4%, and available-for-sale securities, which increased $5.5 million, or 0.6%.

Funding the balance sheet expansion between December 31, 2024 and March 31, 2025 were total deposits, which increased $59.2 million, or 1.0%, and total borrowings, which increased $108.2 million.

Total equity increased $10.6 million, or 1.5%, from $683.9 million at December 31, 2024 to $694.5 million at March 31, 2025.

The balance sheet expansion from December 31, 2024 to June 30, 2025 was funded by an increase in total deposits of $275.9 million, or 4.7%.

Total equity increased $26.1 million, or 3.8%, from $683.9 million at December 31, 2024 to $710.0 million at June 30, 2025.

Retained earnings increased $21.3 million, or 2.9%, primarily as a result of net income of $47.1 million and reduced by dividends declared and paid of $25.7 million.

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The Company’s accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.

Certain of the Company’s accounting policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.

are inherently uncertain.

Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances.

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RESULTS OF OPERATIONS

Selected income statement information for the three months ended March 31, 2025 and 2024 is presented in the following table:

Three Months Ended March 31,

Selected income statement information for the three and six months ended June 30, 2025 and 2024 is presented in the following table:

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2025 2024 2025 2024

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A reconciliation of these non-GAAP financial measures is provided below.

As of and For The

Three Months Ended March 31,

As of and For The As of and For The

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands, except per share data) 2025 2024 2025 2024

19 unchanged sentences

Pretax Pre-Provision Earnings $ 35,930 $ 35,402 $ 66,970 $ 64,725

Adjusted core noninterest income, adjusted earnings before income taxes, core operational profitability, core operational diluted earnings per common share and adjusted core efficiency ratio are non-GAAP financial measures calculated based on GAAP amounts.

These adjusted amounts are calculated by excluding the impact of insurance recoveries related to the 2023 wire fraud loss for the periods presented below.

Adjusted core noninterest income, adjusted core noninterest expense, adjusted earnings before income taxes, core operational profitability, core operational diluted earnings per common share and adjusted core efficiency ratio are non-GAAP financial measures calculated based on GAAP amounts.

These adjusted amounts are calculated by excluding the impact of the net gain on Visa shares, legal accrual and insurance recovery for the periods presented below.

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

A reconciliation of these non-GAAP financial measures is provided below.

Three Months Ended

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

31, 2025 Mar.

Three Months Ended Six Months Ended

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

30, 2025 Jun.

30, 2024 Jun.

30, 2025 Jun.

Noninterest Income $ 11,486 $ 20,439 $ 22,414 $ 33,051

Net Gain on Visa Shares 0 (9,011) 0 (9,011)

Insurance Recovery 0 0 0 (1,000)

Adjusted Core Noninterest Income $ 11,486 $ 11,428 $ 22,414 $ 23,040

Noninterest Expense $ 30,432 $ 33,333 $ 63,195 $ 64,038

Legal Accrual 0 4,537 0 4,537

Adjusted Core Noninterest Expense $ 30,432 $ 28,796 $ 63,195 $ 59,501

Earnings Before Income Taxes $ 32,930 $ 26,922 $ 57,170 $ 54,725

1 unchanged sentence

Noninterest Income 0 (9,011) 0 (10,011)

Noninterest Expense 0 4,537 0 4,537

Total Adjusted Core Impact 0 (4,474) 0 (5,474)

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Adjusted Core Efficiency Ratio 45.86 % 48.22 % 48.55 % 50.11 %

(1) Core operational profitability was $751,000 lower than reported net income for the three months ended March 31, 2024.

Net income was $20.1 million in the first three months of 2025, which decreased $3.3 million , or 14.2%, from $23.4 million for the comparable period of 2024 .

Diluted income per common share was $0.78 in the first three months of 2025 , a decrease of 14.3% from $0.91 in the comparable period of 2024 .

The decrease in net income for the first three months of 2025 was primarily due to an increase in the provision for credit losses of $5.3 million, or 347.4%, an increase in noninterest expense of $2.1 million, or 6.7%, and a decrease to noninterest income of $1.7 million, or 13.4%.

Offsetting these effects was an increase to net interest income of $5.5 million, or 11.5%.

(1) Core operational profitability was $3.4 million lower than reported net income for the three months ended June 30, 2024 and $4.1 million lower for the six months ended June 30, 2024.

Net income was $47.1 million in the first six months of 2025, which increased $1.1 million , or 2.4%, from $46.0 million for the comparable period of 2024 .

Diluted income per common share was $1.82 in the first six months of 2025 , an increase of 2.2% from $1.78 in the comparable period of 2024 .

The increase in net income for the first six months of 2025 was primarily due to an increase to net interest income of $12.0 million, or 12.6%, a decrease in noninterest expense of $843,000, or 1.3%, and a decrease in the provision for credit losses of $200,000, or 2.0%.

Offsetting these positive contributions to net income was a decrease to noninterest income of $10.6 million, or 32.2%.

Net income during the second quarter of 2025 was $27.0 million, an improvement of 19.6% from $22.5 million for the comparable period of 2024.

Diluted earnings per common share was $1.04 in the second quarter of 2025, an increase of 19.5% from $0.87 in the comparable period of 2024.

The increase was driven primarily by an increase in net interest income of $6.6 million, or 13.6%.

Contributing further to the increase was a decrease in noninterest expense of $2.9 million, or 8.7%, and a decrease in the provision for credit losses of $5.5 million.

Offsetting these positive contributions to net income was a decrease

in noninterest income of $9.0 million, or 43.8%.

Core operational profitability improved $7.8 million, or 40.5%, to $27.0 million for the second quarter of 2025, compared to $19.2 million for the second quarter of 2024.

N et Interest Income

The following tables set forth consolidated information regarding average balances and rates:

Three Months Ended March 31,

Six Months Ended June 30,

(fully tax equivalent basis, dollars in thousands) Average Balance Interest Yield (1)/

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In denominations over $100,000 611,351 12,333 4.07 798,442 17,954 4.52

Miscellaneous short-term borrowings 99,830 1,122 4.56 175,809 2,454 5.61

Long-term borrowings and subordinated debentures 254 0 0.00 — — 0.00

Other short-term borrowings 66,380 1,520 4.62 126,443 3,531 5.62

Long-term borrowings 729 0 0.00 0 0 0.00

Total interest bearing liabilities $ 4,802,175 $ 77,089 3.24 % $ 4,599,136 $ 89,058 3.89 %

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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 $1.1 million and $1.3 million for the three-month periods ended March 31, 2025 and March 31, 2024, respectively.

(2) Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended March 31, 2025 and 2024 , are included as taxable loan interest income.

Taxable equivalent basis adjustments were $2.2 million and $2.5 million for the six-month periods ended June 30, 2025 and June 30, 2024, respectively.

(2) Loan fees, which are immaterial in relation to total taxable loan interest income for the six months ended June 30, 2025 and 2024, are included as taxable loan interest income.

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

Net interest income, on a fully tax equivalent basis, increased $5.3 million, or 10.9%, to $54.0 million for the three months ended March 31, 2025, compared to $48.7 million for the first three months of 2024 .

Three Months Ended June 30,

(fully tax equivalent basis, dollars in thousands) Average Balance Interest Yield (1)/

Rate Average Balance Interest Yield (1)/

Earning Assets

Taxable (2)(3) $ 5,204,006 $ 84,418 6.51 % $ 4,993,270 $ 84,226 6.78 %

Tax exempt (1) 25,640 359 5.62 41,581 783 7.57

Securities (1) 1,125,597 8,416 3.00 1,118,776 8,082 2.91

Short-term investments 2,832 28 3.97 2,836 35 4.96

Interest bearing deposits 212,532 2,274 4.29 138,818 1,807 5.24

Total earning assets $ 6,570,607 $ 95,495 5.83 % $ 6,295,281 $ 94,933 6.07 %

Allowance for credit losses (93,644) (74,166)

Nonearning Assets

Cash and due from banks 66,713 64,518

Premises and equipment 61,280 58,702

Other nonearning assets 299,725 298,619

Total assets $ 6,904,681 $ 6,642,954

Interest Bearing Liabilities

Savings deposits $ 285,944 $ 43 0.06 % $ 289,107 $ 48 0.07 %

Interest bearing checking accounts 3,767,903 31,499 3.35 3,275,502 33,323 4.09

Time deposits:

In denominations under $100,000 208,770 1,745 3.35 217,146 1,871 3.47

In denominations over $100,000 589,829 5,824 3.96 807,304 9,121 4.54

Other short-term borrowings 33,297 398 4.79 77,077 1,077 5.62

Long-term borrowings 1,200 0 0.00 0 0 0.00

Total interest bearing liabilities $ 4,886,943 $ 39,509 3.24 % $ 4,666,136 $ 45,440 3.92 %

Noninterest Bearing Liabilities

Demand deposits 1,244,058 1,230,903

Other liabilities 76,704 106,916

Stockholders' Equity 696,976 638,999

Total liabilities and stockholders' equity $ 6,904,681 $ 6,642,954

Interest Margin Recap

Interest income/average earning assets 95,495 5.83 % 94,933 6.07 %

Interest expense/average earning assets 39,509 2.41 45,440 2.90

Net interest income and margin $ 55,986 3.42 % $ 49,493 3.17 %

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

Taxable equivalent basis adjustments were $1.1 million and $1.2 million in the three-month periods ended June 30, 2025 and June 30, 2024, respectively.

(2) Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended June 30, 2025 and 2024, are included as taxable loan interest income .

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

Net interest income, on a fully tax equivalent basis, increased $11.8 million, or 12.0%, to $110.0 million for the six months ended June 30, 2025, compared to $98.2 million for the first six months of 2024 .

The increase in net interest income on a fully tax equivalent basis was driven by a decrease in deposit interest expense of $10.0 million , or 11.6% , from $85.5 million to $75.6 million .

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Securities interest income contributed further to the increase in fully tax equivalent net interest income, increasing by $638,000 , or 4.0% .

A decline in loan interest income negatively impacted fully tax equivalent net interest income, decreasing $1.1 million, or 1.3%, from $83.2 million to $82.1 million between the two periods.

Total average earning assets were $6.431 billion for the three months ended March 31, 2025, an increase of $213.9 million, or 3.4%, compared to $6.217 billion for the three months ended March 31, 2024 .

Average loans outstanding drove the increase to total average earning assets, increasing $214.9 million, or 4.3%, to $5.186 billion from $4.971 billion for the three months ended March 31, 2025 and 2024, respectively .

A decline in loan interest income negatively impacted fully tax equivalent net interest income, decreasing $1.3 million, or 0.8%, from $168.2 million to $166.9 million between the two periods, due primarily to the decline in interest income from variable rate loans that resulted from the decline in interest rates.

Total average earning assets were $6.501 billion for the six months ended June 30, 2025, an increase of $245.0 million, or 3.9%, compared to $6.256 billion for the six months ended June 30, 2024 .

Average loans outstanding drove the increase to total average earning assets, increasing $205.0 million, or 4.1%, to $5.208 billion from $5.003 billion for the six months ended June 30, 2025 and 2024, respectively .

Offsetting this increase was a decrease to average investment securities of $7.7 million, or 0.7%, to $1.131 billion from $1.139 billion between the respective periods .

Total average interest bearing liabilities were $4.716 billion for the three months ended March 31, 2025, an increase of $184.3 million, or 4.1%, from $4.532 billion for the three months ended March 31, 2024.

This increase was driven by increased interest bearing deposits of $260.1 million, or 6.0%, from $4.356 billion for the three months ended March 31, 2024 to $4.616 billion for the three months ended March 31, 2025.

Offsetting the increase to average interest bearing deposits was a decrease in total average borrowings of $75.7 million, or 43.1%, to $100.1 million from $175.8 million for the three months ended March 31, 2025 and 2024 , respectively.

Total average interest bearing liabilities were $4.802 billion for the six months ended June 30, 2025, an increase of $203.0 million, or 4.4%, from $4.599 billion for the six months ended June 30, 2024.

This increase was driven by increased interest bearing deposits of $262.4 million, or 5.9%, from $4.473 billion for the six months ended June 30, 2024 to $4.735 billion for the six months ended June 30, 2025.

Offsetting the increase to average interest bearing deposits was a decrease in total average borrowings of $59.3 million, or 46.9%, to $67.1 million from $126.4 million for the six months ended June 30, 2025 and 2024 , respectively.

Noninterest bearing demand deposits decreased $1.3 million, or 0.1%, to $1.251 billion from $1.253 billion between the two periods.

The tax equivalent net interest margin was 3.40% for the three months ended March 31, 2025, compared to 3.15% during the first three months of 2024, representing a 25 basis point expansion between the two periods.

The net interest margin increase was primarily driven by a decrease to interest expense as a percentage of average earning assets, which decreased to 2.37% for the three months ended March 31, 2025 , down from 2.82% for the comparable period of 2024, for a decrease of 45 basis points.

The tax equivalent net interest margin was 3.41% for the six months ended June 30, 2025, compared to 3.16% during the first six months of 2024, representing a 25 basis point expansion between the two periods.

The net interest margin increase was primarily driven by a decrease to interest expense as a percentage of average earning assets, which decreased to 2.39% for the six months ended June 30, 2025 , down from 2.86% for the comparable period of 2024, or a decrease of 47 basis points.

This decline was attributable to a decrease in the rate for total interest bearing liabilities of 65 basis points from 3.89% to 3.24% between the respective periods.

This decrease was driven by reduced costs associated with the repricing of the Company's interest bearing deposits as a result of monetary policy easing from the Federal Reserve Bank.

The decrease in interest expense for interest bearing deposits was a result of a decrease in the average rate for interest bearing deposits of 60 basis points, from 3.80% to 3.20%.

Offsetting the decrease in average rate was an increase in average interest bearing deposits of $260.1 million , or 6.0% , from $4.356 billion for the three months ended March 31, 2024 to $4.616 billion for the three months ended March 31, 2025.

The decline provided by the reduction in interest expense as a percentage of average earning assets was amplified further by reduced borrowings expense as compared to the prior year.

These decreases were driven by reduced costs associated with the repricing of the Company's interest bearing deposits as a result of monetary policy easing from the Federal Reserve Bank.

The decrease in the rate for interest bearing liabilities was driven by a decrease in the average rate for interest bearing deposits of 63 basis points, from 3.85% to 3.22%.

Contributing further to the reduction in the rate for interest bearing liabilities was a reduction in the average borrowings rate, which declined 105 basis points from 5.62% to 4.57%.

The Company anticipates the cost of funds would continue to respond favorably to any further monetary policy easing by the Federal Reserve Bank.

The improvement in interest expense as a percentage of average earning assets was offset by a 20 basis point decrease in interest income as a percentage of average earning assets, which declined fro m 5.97% to 5.77%.

This decrease was attributable to a decline in average loan yields, which decreased 31 basis to 6.42% for the three months ended March 31, 2025, down from 6.73% for the comparable period of 2024.

Offsetting the impact the decline in average yield had on interest income as a percentage of average earning assets was an increase in average loans of $214.9 million , or 4.3% , to $5.186 billion from $4.971 billion between the respective periods.

The improvement in interest expense as a percentage of average earning assets was offset by a 22 basis point reduction in interest income as a percentage of average earning assets, which declined fro m 6.02% to 5.80%.

This decrease was primarily attributable to a decline in average loan yields, which decreased 30 basis points to 6.46% for the six months ended June 30, 2025, down from 6.76% for the comparable period of 2024.

This decrease was offset by an increase to investment securities yields, which increased 14 basis points from 2.85% to 2.99%.

The Company expects that any continued easing of monetary policy by the Federal Reserve Bank, which commenced in September 2024, would exert downward pressure on loan yields as variable rate commercial loans reprice lower;

however, this decline may be countered by further reductions in deposit pricing.

During the six months ended June 30, 2025, the Company recorded a prepayment fee of $541,000 from the early payment of a fixed rate commercial loan, which was recorded as part of interest income.

The prepayment fee benefited net interest margin by 1 basis point during the six months ended June 30, 2025.

Excluding the impact of the prepayment fee, net interest margin increased by 24 basis points to 3.40%.

Net interest income, on a fully tax equivalent basis, increased by $6.5 million, or 13.1% , for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024.

The increase in net interest income on a fully tax equivalent basis was driven by a decrease in deposit interest expense of $5.3 million , or 11.8% , from $44.4 million to $39.1 million, and a decrease to borrowings expense of $679,000, or 63.0%.

A decline in loan interest income negatively impacted fully tax equivalent net interest income, decreasing $232,000, or 0.3%, from $85.0 million to $84.8 million and a decrease to securities interest income of $334,000 , or 4.1% .

Total average earning assets were $6.571 billion for the second quarter of 2025, an increase of $275.3 million, or 4.4%, compared to $6.295 billion for the second quarter of 2024.

The increase in average earning assets was driven by an increase in average loans of $194.8 million, or 3.9%, from $5.035 billion for the second quarter of 2024 to $5.230 billion for the second quarter of 2025.

Average investment securities increased $6.8 million, or 0.6%, from $1.119 billion for the second quarter of 2024 to $1.126 billion for the second quarter of 2025.

Total average interest bearing liabilities were $4.887 billion for the second quarter of 2025, an increase of $220.8 million, or 4.7%, from $4.666 billion for the second quarter of 2024.

This increase was driven by growth in interest bearing deposits of $263.4 million, or 5.7%, from $4.589 billion for the second quarter of 2024 to $4.852 billion for the second quarter of 2025.

Noninterest bearing demand deposits increased $13.2 million, or 1.1%, from $1.231 billion for the second quarter of 2024 to $1.244 billion for the second quarter of 2025 and average

borrowings decreased $42.6 million, or 55.2%, from $77.1 million for the second quarter of 2024 to $34.5 million for the second quarter of 2025.

The tax equivalent net interest margin expanded by 25 basis points, or 7.9%, to 3.42% for the second quarter of 2025 , compared to 3.17% for the second quarter of 2024 .

The net interest margin expansion was primarily driven by a decrease in interest expense as a percentage of average earning assets, which decreased to 2.41% for the three months ended June 30, 2025 , down from 2.90% for the comparable period of 2024 , for a decrease of 49 basis points.

This decrease was attributable to a decrease in the rate for total interest bearing liabilities of 68 basis points from 3.92% to 3.24% between the respective periods.

This decrease was driven by reduced costs associated with the repricing of the Company's interest bearing deposits as a result of monetary policy easing from the Federal Reserve Bank.

The average rate for interest bearing deposits declined 66 basis points from 3.89% to 3.23%.

Contributing further to the reduction in the rate for interest bearing liabilities was a reduction in the average borrowings rate, which declined 99 basis points from 5.62% to 4.63%.

The improvement in interest expense as a percentage of average earning assets was offset by a 24 basis point reduction in interest income as a percentage of average earning assets, which declined from 6.07% for the second quarter of 2024 to 5.83% for the second quarter of 2025.

This decrease was primarily attributable to a decrease in loan yields, which decreased 29 basis points from 6.79% to 6.50% between the two periods.

This decrease was offset by an increase to investment securities yields, which increased 9 basis points from 2.91% to 3.00% between the two periods.

During the second quarter of 2025, the Company recorded a prepayment fee of $541,000 from the early payment of a fixed rate commercial loan, which was recorded as part of interest income.

The prepayment fee benefited net interest margin by 3 basis points for the second quarter of 2025.

Provision for Credit Losses

The Company recorded provision for credit losses expense of $6.8 million for the three months ended March 31, 2025, compared to provision expense of $1.5 million during the comparable period of 2024, an increase of $5.3 million, or 347.4%.

Net charge-offs were $327,000 during the three month period ended March 31, 2025, compared to $312,000 during the comparable period of 2024, an increase of $15,000, or 4.8%.

The increase in provision expense between the respective periods was primarily attributable to an increase in the specific reserve allocation for the previously disclosed $43.4 million nonperforming credit to an industrial company in Northern Indiana.

Additional factors considered by management included key loan quality metrics, reserve coverage of nonperforming loans, economic conditions in the Company’s markets, and changes in the facts and circumstances of watch list credits, which includes the security position of the borrower.

The Company recorded provision for credit losses expense of $9.8 million for the six months ended June 30, 2025, compared to provision expense of $10.0 million during the comparable period of 2024, a decrease of $200,000, or 2.0%.

Net charge-offs were $29.2 million during the six month period ended June 30, 2025, compared to $1.3 million during the comparable period of 2024, an increase of $27.9 million.

The increase in net charge offs between the respective periods was attributable to a partial charge off related to a previously disclosed $43.3 million nonperforming credit for an industrial company in Northern Indiana.

During the six months ended June 30, 2025, the nonperforming borrower reached an agreement to sell and liquidate the business to two unrelated entities.

The transactions are expected to close in the third quarter of 2025.

As a result of the pending sale and liquidation, the Company recognized a charge off of $28.6 million during the second quarter, which was fully allocated at the time of the charge off.

The Company expects to collect the remainder of the outstanding principal balance from sale and liquidation proceeds and proceeds from the personal guarantee from the borrower.

The Company recorded provision expense of $3.0 million during the second quarter of 2025, compared to $8.5 million during the second quarter of 2024.

Provision expense during the quarter was primarily driven by an increase in the specific reserve allocation from the aforementioned nonperforming credit as well as loan growth during the period.

Net charge-offs were $28.9 million during the second quarter of 2025 compared to $949,000 during the second quarter of 2024.

Additional factors considered by management in determining provision expense included key loan quality metrics, reserve coverage of nonperforming loans, economic conditions in the Company’s markets, and changes in the facts and circumstances of watch list credits, which includes the security position of the borrower.

Management’s overall view on current credit quality was also a factor in the determination of the provision for credit losses.

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Noninterest Income

Noninterest income categories for the three months ended March 31, 2025 and 2024 are shown in the following tables:

Three Months Ended

Noninterest income categories for the three and six months ended June 30, 2025 and 2024 are shown in the following tables:

Six Months Ended

(dollars in thousands) 2025 2024 Dollar Change Percent Change

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Bank owned life insurance income 1,362 1,926 (564) (29.3)

Interest rate swap fee income 20 0 20 100.0

Mortgage banking income (loss) 73 75 (2) (2.7)

Net securities gains (losses) 0 (46) 46 100.0

Net gain on Visa shares 0 9,011 (9,011) (100.0)

Other income 1,256 2,881 (1,625) (56.4)

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Noninterest income to total revenue 17.22 % 25.67 %

Noninterest income decreased $1.7 million, or 13.4%, to $10.9 million for the first quarter of 2025, compared to $12.6 million for the first quarter of 2024.

Adjusted core noninterest income, a non-GAAP financial measure that excludes the effect of the insurance recovery recorded during the first quarter of 2024, was $11.6 million for the first quarter of 2024, a decrease of $684,000, or 5.9%, compared to $10.9 million for the first quarter of 2025.

Wealth advisory fees increased $412,000, or 16.8%, driven by growth in customers and assets under management.

Deposit fees increased $83,000, or 3.1%, driven primarily by growth in our treasury management services.

Other income decreased $1.3 million, or 60.8%.

Other income during the first quarter of 2024 benefited from a $1.0 million insurance recovery related to the wire fraud loss from 2023 and death benefits received from the Company's bank owned life insurance program.

Bank owned life insurance income decreased $714,000, or 68.9%, primarily due to a reduction in the market performance of the Company's variable bank owned life insurance policies, which are tied to the equity markets.

Three Months Ended

(dollars in thousands) 2025 2024 Dollar Change Percent Change

Wealth advisory fees $ 2,667 $ 2,597 $ 70 2.7 %

Investment brokerage fees 550 478 72 15.1

Service charges on deposit accounts 2,827 2,806 21 0.7

Loan and service fees 3,006 3,048 (42) (1.4)

Merchant card fee income 854 892 (38) (4.3)

Bank owned life insurance income 1,040 890 150 16.9

Interest rate swap fee income 20 0 20 100.0

Mortgage banking income (loss) 124 23 101 439.1

Net gain on Visa shares 0 9,011 (9,011) (100.0)

Other income 398 694 (296) (42.7)

Total noninterest income $ 11,486 $ 20,439 $ (8,953) (43.8) %

Noninterest income to total revenue 17.31 % 29.74 %

Noninterest income decreased by $10.6 million, or 32.2%, to $22.4 million for the six months ended June 30, 2025, compared to $33.1 million for the prior year six-month period.

Noninterest income was elevated during the first six months of 2024 as compared to the comparable period of 2025 primarily as a result of the net gain on Visa shares of $9.0 million and a $1.0 million insurance recovery.

Adjusted core noninterest income, a non-GAAP financial measure that excludes the impact of these non-routine events, declined $626,000, or 2.7%, from $23.0 million for the six months ended June 30, 2024.

Other income decreased $1.6 million, or 56.4%, as other income during the first six months of 2024 benefited from the $1.0 million insurance recovery.

Reduced limited partnership investment income further contributed to the decline between the periods.

Bank owned life insurance income decreased $564,000, or 29.3%, primarily as a result of reduced market performance from the Bank's variable bank owned life insurance policies, which correlate to returns in the equities markets.

Offsetting these decreases were increases to wealth advisory fees of $482,000, or 9.5%, and service charges on deposit accounts of $104,000, or 1.9%.

The increase in wealth advisory fees was primarily driven by continued growth in customers and assets under management.

The Company’s noninterest income decreased $9.0 million, or 43.8%, to $11.5 million for the second quarter of 2025, compared to $20.4 million for the second quarter of 2024.

Noninterest income was elevated during the second quarter of 2024 as compared to the second quarter of 2025 as a result of the net gain on Visa shares of $9.0 million that was recorded in the second quarter of 2024.

Adjusted core noninterest income, a non-GAAP financial measure that excludes the effect of the net gain on Visa shares, increased $58,000, or less than 1%, from $11.4 million during the second quarter of 2024.

Bank owned life insurance income increased $150,000, or 16.9%, primarily as a result of increased general account bank owned life insurance income from the purchase of insurance policies during the second quarter of 2025.

Mortgage banking income increased $101,000 due to growth in the Company's mortgage pipeline, which favorably impacted secondary market loan sale gains and mortgage rate lock income.

Wealth advisory fees increased $70,000, or 2.7%, driven by continued growth in customers and assets under management.

Investment brokerage fees increased $72,000, or 15.1%, due to increased volume and product mix.

Offsetting these increases was a decrease to other income of $296,000, or 42.7%, primarily driven by reduced limited partnership investment income.

Noninterest Expense

Noninterest expense categories for the three months ended March 31, 2025 and 2024 are shown in the following tables:

Noninterest expense categories for the three and six months ended June 30, 2025 and 2024 are shown in the following tables:

Six Months Ended

(dollars in thousands) 2025 2024 Dollar Change Percent Change

Salaries and employee benefits $ 34,998 $ 32,991 $ 2,007 6.1 %

Net occupancy expense 3,727 3,438 289 8.4

Equipment costs 2,819 2,755 64 2.3

Data processing fees and supplies 8,417 7,651 766 10.0

Corporate and business development 2,566 2,646 (80) (3.0)

FDIC insurance and other regulatory fees 1,639 1,605 34 2.1

Professional fees 4,086 4,586 (500) (10.9)

Other expense 4,943 8,366 (3,423) (40.9)

Total noninterest expense $ 63,195 $ 64,038 $ (843) (1.3) %

Efficiency ratio 48.55 % 49.73 %

Three Months Ended

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Efficiency ratio 45.86 % 48.49 %

Noninterest expense increased $2.1 million, or 6.7%, to $32.8 million for the first quarter of 2025, compared to $30.7 million during the first quarter of 2024.

Salaries and benefits expense increased by $1.1 million, or 6.4%, driven by performance-based incentive compensation expense of $1.3 million and salary expense of $524,000.

These increases were offset by reduced deferred compensation expense of $687,000, which moves in tandem with the market performance of the Company's variable bank owned life insurance.

Data processing fees and supplies expense increased $426,000, or 11.1%, from continued investment in customer-facing and operational technology solutions.

The Company's income tax expense decreased $247,000, or 5.6%, to $4.2 million in the three months ended March 31, 2025, compared to $4.4 million for the same period in 2024.

The effective tax rate was 17.1% in the three months ended March 31, 2025, compared to 15.8% for the comparable period of 2024, driven by a reduction in the tax benefit recognized from stock-based compensation vesting of shares for plan participants.

Noninterest expense decreased by $843,000, or 1.3%, for the six months ended June 30, 2025 to $63.2 million compared to $64.0 million for the six months ended June 30, 2024.

Noninterest expense was elevated during the first six months of 2024 as compared to 2025 due to a $4.5 million accrual that was recorded from the resolution of a legal matter.

Adjusted core noninterest expense, which excludes the impact of the $4.5 million legal accrual, increased $3.7 million, or 6.2%, from $59.5 million for the six months ended June 30, 2024.

Salaries and benefits expense increased by $2.0 million, or 6.1%, due primarily to increased performance-based compensation accruals of $1.3 million, increased salaries of $1.3 million and offset by decreased deferred compensation expense of $763,000.

Data processing fees and supplies and expense increased $766,000, or 10.0%.

Net occupancy expense increased $289,000, or 8.4%, as a result of increased occupancy expense from the continued expansion of the Company's branch network and improvements to existing facilities.

Offsetting these increases were decreases to other expense of $3.4 million, or 40.9%, and professional fees of $500,000, or 10.9%.

Noninterest expense decreased $2.9 million, or 8.7%, to $30.4 million for the second quarter of 2025, compared to $33.3 million during the second quarter of 2024.

Noninterest expense was elevated during the second quarter of 2024 as compared to 2025 due to a $4.5 million accrual that was recorded from the resolution of a legal matter.

Adjusted core noninterest expense, which excludes the impact of the legal accrual, increased $1.6 million, or 5.7%, from $28.8 million for the second quarter of 2024.

Salaries and benefits expense increased by $938,000, or 5.8%.

The primary drivers for the increase to salaries and benefits expense were increased salaries expense of $756,000 and increased health insurance expense of $127,000.

Additionally, data processing fees and supplies expense increased $340,000, or 8.9%, from continued investment in customer-facing and operational technology solutions.

Offsetting these increases were decreases to other expense of $3.8 million, or 62.5%, professional fees of $417,000, or 19.6%, and corporate and business development expense of $105,000, or 8.3%.

The decrease to other expense was driven by the legal accrual recorded during the second quarter of 2024.

The decrease to professional fees was primarily driven by reduced technology implementation consulting fees and swap collateral fees.

Corporate and business development expense decreased primarily as a result of lower advertising expense.

The Company's income tax expense increased $1.3 million, or 15.3%, to $10.1 million in the six months ended June 30, 2025, compared to $8.8 million for the same period in 2024.

The effective tax rate was 17.7% in the six months ended June 30, 2025, compared to 16.0% for the comparable period of 2024, driven by a reduction in the tax benefit recognized from stock-based compensation vesting of shares for plan participants.

On July 4, 2025, the United States enacted tax reform legislation through the One Big Beautiful Bill Act, which changes existing U.S.

tax laws, including extending or making permanent certain provisions of the Tax Cuts and Jobs Act and repealing certain clean energy initiatives, in addition to other changes.

The Company anticipates an insignificant impact to deferred tax assets and liabilities and to income taxes payable in the period of enactment.

The Company continues to evaluate the impact the new legislation will have on the consolidated financial statements.

FINANCIAL CONDITION

Total assets were $6.851 billion as of March 31, 2025 versus $6.678 billion as of December 31, 2024, an increase of $172.8 million, or 2.6% .

Total assets were $6.964 billion as of June 30, 2025 versus $6.678 billion as of December 31, 2024, an increase of $285.9 million, or 4.3% .

Funding the balance sheet expansion between December 31, 2024 and March 31, 2025 were increases to total deposits, which increased $59.2 million, or 1.0%, and total borrowings, which increased $108.2 million.

The increase in total deposits was driven by an increase in interest bearing deposits of $59.8 million, or 1.3%, and was offset by a decrease in noninterest bearing deposits of $549,000.

Total equity increased $10.6 million, or 1.5%, from $683.9 million at December 31, 2024 to $694.5 million at March 31, 2025.

Retained earnings increased $7.2 million, or 1.0%, as a result of net income of $20.1 million but was reduced by dividends declared and paid of $12.8 million.

The balance sheet expansion from December 31, 2024 to June 30, 2025 was funded by an increase in total deposits of $275.9 million, or 4.7%.

The increase in total deposits was driven by an increase in interest bearing deposits of $311.6 million, or 6.8%, and was offset by a decrease in noninterest bearing deposits of $35.7 million, or 2.8%.

Total equity increased $26.1 million, or 3.8%, from $683.9 million at December 31, 2024 to $710.0 million at June 30, 2025.

Retained earnings increased $21.3 million, or 2.9%, as a result of net income of $47.1 million offset by dividends declared and paid of $25.7 million.

Uses of Funds

Total Cash and Cash Equivalents

Total cash and cash equivalents increased by $67.0 million, or 39.8%, to $235.2 million at March 31, 2025, from $168.2 million at December 31, 2024.

Total cash and cash equivalents increased by $142.0 million, or 84.4%, to $310.2 million at June 30, 2025, from $168.2 million at December 31, 2024.

Cash and cash equivalents include short-term investments.

The fluctuation in cash and cash equivalents at March 31, 2025 was driven by an increase in cash and due from banks of $17.6 million, or 24.5%, and an increase in interest bearing short-term investment accounts of $49.4 million, or 51.2%.

The fluctuation in cash and cash equivalents at June 30, 2025 was driven by an increase in cash and due from banks of $25.7 million, or 35.8%, and an increase in interest bearing short-term investment accounts of $116.3 million, or 120.5%, which were deposited primarily at the Federal Reserve Bank of Chicago.

Investment Portfolio

The amortized cost and the fair value of securities as of March 31, 2025 and December 31, 2024 were as follows:

March 31, 2025 December 31, 2024

The amortized cost and the fair value of securities as of June 30, 2025 and December 31, 2024 were as follows:

June 30, 2025 December 31, 2024

(dollars in thousands) Amortized

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Total Investment Portfolio $ 1,314,617 $ 1,104,936 $ 1,314,069 $ 1,104,533

At March 31, 2025 and December 31, 2024, there were no holdings of securities of any one issuer, other than the U.S.

At June 30, 2025 and December 31, 2024, there were no holdings of securities of any one issuer, other than the U.S.

government agencies and government sponsored entities, in an amount greater than 10% of stockholders’ equity.

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This is taken into consideration when evaluating the gain or loss of investment securities in the portfolio and the potential for an allowance for credit losses.

Purchases of available-for-sale securities were $22.2 million in the first three months of 2025.

Investment securities represented 16.5% of total assets on March 31, 2025, compared to 16.8% of total assets on December 31, 2024.

The Company anticipates receiving principal and interest cash flows of approximately $82.3 million during the remainder of 2025 from the

investment securities portfolio and plans to use that liquidity to fund loan growth and to reinvest cash flows into the investment securities portfolio.

Tax equivalent adjusted effective duration for the investment securities portfolio was 5.9 years at March 31, 2025 and 6.0 years at December 31, 2024.

Tax equivalent adjusted effective duration of the portfolio remains elevated as compared to 4.0 years at December 31, 2019.

Paydowns from prepayments and scheduled payments of $14.7 million were received in the first three months of 2025, and the amortization of premiums, net of the accretion of discounts, was $1.0 million.

There were no sales of available-for-sale investment securities in the first three months of 2025.

No allowance for credit losses was recognized for available-for-sale or held-to-maturity securities as of March 31, 2025 and December 31, 2024.

The fair value of the available-for-sale investment securities portfolio as of March 31, 2025 included net unrealized losses of $188.3 million, compared to net unrealized losses of $191.1 million as of December 31, 2024.

Purchases of available-for-sale securities were $32.8 million in the first six months of 2025.

Investment securities represented 16.2% of total assets on June 30, 2025, compared to 16.8% of total assets on December 31, 2024.

The Company anticipates receiving principal and interest cash flows of approximately $54.5 million during the remainder of 2025 from the investment securities portfolio and plans to use that liquidity to fund loan growth as well as to fund reinvestments to the investment securities portfolio.

Tax equivalent adjusted effective duration for the investment securities portfolio was 5.9 years at June 30, 2025 and 6.0 years at December 31, 2024.

Paydowns from prepayments and scheduled payments of $31.3 million were received in the first six months of 2025, and the amortization of premiums, net of the accretion of discounts, was $2.0 million.

There were no sales of available-for-sale investment securities in the first six months of 2025.

No allowance for credit losses was recognized for available-for-sale or held-to-maturity securities as of June 30, 2025 and December 31, 2024.

The fair value of the available-for-sale investment securities portfolio as of June 30, 2025 included net unrealized losses of $185.3 million, compared to net unrealized losses of $191.1 million as of December 31, 2024.

Unrealized losses in the available-for-sale investment securities portfolio resulted from the declines in market values of the investment securities resulting from the rise in interest rates.

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Real Estate Mortgage Loans Held-for-Sale

Real estate mortgage loans held-for-sale decreased by $405,000, or 23.8%, to $1.3 million at March 31, 2025, from $1.7 million at December 31, 2024.

Real estate mortgage loans held-for-sale decreased by $63,000, or 3.7%, to $1.6 million at June 30, 2025, from $1.7 million at December 31, 2024.

The balance of this asset category is subject to a high degree of variability depending on, among other factors, recent mortgage loan rates and the timing of loan sales into the secondary market.

The Company generally sells conforming qualifying mortgage loans it originates on the secondary market.

Proceeds from sales of residential mortgages totaled $3.0 million in the first three months of 2025, compared to $4.1 million in the first three months of 2024.

Proceeds from sales of residential mortgages totaled $8.7 million in the first six months of 2025, compared to $9.1 million in the first six months of 2024.

Management expects the volume of loans originated for sale in the secondary market to increase if long-term interest rates decline from current levels.

Demand for mortgage loans has been impacted by limited housing inventory and existing home owners locked in at historically low rates.

Demand for mortgage loans has been impacted by elevated interest rates, limited housing inventory and existing home owners locked in at historically low rates.

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

The unpaid principal balances of loans serviced for others were $307.6 million and $313.0 million, as of March 31, 2025 and December 31, 2024, respectively.

The unpaid principal balances of loans serviced for others were $302.6 million and $313.0 million, as of June 30, 2025 and December 31, 2024, respectively.

Loan Portfolio

The loan portfolio by portfolio segment as of March 31, 2025 and December 31, 2024 is summarized as follows:

(dollars in thousands) March 31,

The loan portfolio by portfolio segment as of June 30, 2025 and December 31, 2024 is summarized as follows:

(dollars in thousands) June 30,

2025 December 31,

10 unchanged sentences

Loans, net $ 5,160,275 $ 5,031,988 $ 128,287

Total loans, excluding real estate mortgage loans held-for-sale and deferred fees, increased by $98.8 million, or 2.0%, to $5.131 billion at March 31, 2025 from $5.032 billion at December 31, 2024.

Total net loans, excluding real estate mortgage loans held-for-sale, increased by $128.3 million, or 2.5%, to $5.160 billion at June 30, 2025 from $5.032 billion at December 31, 2024.

The increase was primarily driven by originations of loans concentrated in the commercial and industrial loans, commercial real estate and multi-family residential loans and consumer 1-4 family mortgage loans categories and was offset by paydowns in the agri-business and agricultural loans segment which traditionally experiences seasonal fluctuations in activity.

The following table summarizes the Company’s non-performing assets as of March 31, 2025 and December 31, 2024:

(dollars in thousands) March 31,

The following table summarizes the Company’s non-performing assets as of June 30, 2025 and December 31, 2024:

(dollars in thousands) June 30,

2025 December 31,

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Nonperforming assets to total assets 0.45 % 0.85 %

Total nonperforming assets increased by $1.0 million, or 1.7%, to $57.9 million during the three month period ended March 31, 2025.

The ratio of nonperforming assets to total assets decreased 1 basis point from 0.85% at December 31, 2024 to 0.84% at March 31, 2025.

Total nonperforming assets decreased by $25.8 million, or 45.3%, to $31.1 million during the six month period ended June 30, 2025.

The ratio of nonperforming assets to total assets decreased 40 basis points from 0.85% at December 31, 2024 to

0.45% at June 30, 2025.

The decrease in nonperforming assets was driven by the $28.6 million partial charge off related to the previously disclosed $43.3 million nonperforming loan.

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

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If a loan is individually analyzed, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows or at the fair value of collateral if repayment is expected solely from the collateral.

Total individually analyzed loans increased by $2.7 million, or 3.4%, to $81.3 million at March 31, 2025 from $78.6 million at December 31, 2024.

The increase to individually analyzed loans was primarily related to the downgrade of one commercial relationship to nonperforming status, and a working capital credit line increase for an unrelated relationship currently on performing status.

Total individually analyzed loans decreased by $26.6 million, or 33.8%, to $52.1 million at June 30, 2025 from $78.6 million at December 31, 2024.

The decrease to individually analyzed loans was primarily related to the previously disclosed $28.6 million partial loan charge off, which was fully allocated for.

Loans are charged against the allowance for credit losses when management believes that the principal is uncollectible.

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

At March 31, 2025, the allowance for credit losses was 1.77% of total loans, an increase of 9 basis points from 1.68% at December 31, 2024.

At March 31, 2025, management believed the allowance for credit losses was at a level commensurate with the overall risk exposure of the loan portfolio.

At June 30, 2025, the allowance for credit losses was 1.27% of total loans, a decrease of 41 basis points from 1.68% at December 31, 2024.

At June 30, 2025, management believed the allowance for credit losses was at a level commensurate with the overall risk exposure of the loan portfolio.

However, if economic conditions deteriorate, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require increases in the allowance for credit losses.

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Traditionally, this type of lending may have more credit risk than other types of lending because of the size and diversity of the credits.

The Company manages this risk by utilizing relatively conservative credit structures, by adjusting its pricing to the perceived risk of each individual credit and by

diversifying the portfolio by customer, product, industry and market area.

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

The Company has limited exposure to commercial office space borrowers, all of which are located in the Bank's Indiana markets.

Loans totaling $100.6 million for this sector represented 1.9% of total loans at March 31, 2025.

Additionally, commercial real estate loans secured by multi-family residential properties and secured by non-farm non-residential properties were approximately 214.0% of the Bank's risk-based capital at March 31, 2025.

As of March 31, 2025, based on management’s review of the loan portfolio, the Company had 82 credit relationships with principal balances totaling $215.6 million on the classified loan list versus 81 credit relationships with principal balances totaling $211.1 million as of December 31, 2024.

As of March 31, 2025, the Company had $124.5 million of assets classified as Special Mention, $47.7 million classified as Substandard, $43.4 million classified as Doubtful and $0 classified as Loss as compared to $123.6 million, $44.0 million, $43.5 million and $0, respectively, at December 31, 2024.

Watch list loans as a percentage of total loans were 4.13% as of March 31, 2025 and December 31, 2024.

Loans totaling $106.9 million for this sector represented 2.1% of total loans at June 30, 2025.

Additionally, commercial real estate loans secured by multi-family residential properties and secured by non-farm non-residential properties were approximately 221.0% of the Bank's risk-based capital at June 30, 2025.

The Company continues to monitor the impact of tariffs on its borrowers.

As of June 30, 2025, based on management’s review of the loan portfolio, the Company had 89 credit relationships with principal balances totaling $191.6 million on the classified loan list versus 81 credit relationships with principal balances totaling $211.1 million as of December 31, 2024.

As of June 30, 2025, the Company had $132.5 million of assets classified as Special Mention, $44.3 million classified as Substandard, $14.8 million classified as Doubtful and $0 classified as Loss as compared to $123.6 million, $44.0 million, $43.5 million and $0, respectively, at December 31, 2024.

Watch list loans as a percentage of total loans were 3.67% as of June 30, 2025, down 46 basis points from 4.13% at December 31, 2024.

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

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Allowance estimates are considered a prudent measurement of the risk in the Company’s loan portfolio based upon loan segment.

In accordance with applicable accounting guidance, the allowance is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

that affect the collectability of the reported amounts.

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 increased $6.5 million, or 7.5%, from $86.0 million at December 31, 2024 to $92.4 million at March 31, 2025.

The increase was a result of provision expense of $6.8 million which was offset by net charge-offs of $327,000.

Provision expense recorded during the three months ended March 31, 2025 was primarily attributable an increase in the specific allocation for the previously disclosed $43.3 million nonperforming credit to an industrial company in Northern Indiana.

The remainder of the increase was attributable to the downgrade of an unrelated $1.0 million unsecured credit to nonperforming status and to loan growth between the two periods.

The allowance for credit losses decreased $19.4 million, or 22.6%, from $86.0 million at December 31, 2024 to $66.6 million at June 30, 2025.

The decrease was primarily driven by net charge offs of $29.2 million.

Net charge offs for the six months ended June 30, 2025 primarily consisted of one $28.6 million partial loan charge off previously discussed.

As the bulk of the Company’s lending activity is 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.

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In addition, the Company has access to unsecured borrowing capacity through long established relationships within the brokered deposit markets, Federal Funds lines from correspondent bank partners and Insured Cash Sweep (ICS) one-way buy funds available from the Intrafi network.

As of March 31, 2025, the Company had access to $3.519 billion in unused liquidity available from these aggregate sources as compared to $3.681 billion at December 31, 2024.

The average daily deposits and borrowings together with average rates paid on those deposits and borrowings for the three months ended March 31, 2025 and 2024 are summarized in the following table:

Three months ended March 31,

As of June 30, 2025, the Company had access to $3.678 billion in unused liquidity available from these aggregate sources as compared to $3.681 billion at December 31, 2024.

The average daily deposits and borrowings together with average rates paid on those deposits and borrowings for the six months ended June 30, 2025 and 2024 are summarized in the following table:

Six months ended June 30,

(dollars in thousands) Balance Rate Balance Rate

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Total funding sources $ 6,053,336 2.57 % $ 5,851,639 3.06 %

Average total deposits were $5.875 billion for the three months ended March 31, 2025, an increase of $244.3 million, or 4.3%, from the comparable period in 2024.

Average total borrowings were $100.1 million for the three months ended March 31, 2025, a decrease of $75.7 million, or 43.1%, from the comparable period in 2024.

Total average deposit costs decreased 42 basis points from 2.94% for the three months ended March 31, 2024, to 2.52% for the three months ended March 31, 2025.

Total average borrowing costs decreased 107 basis points from 5.61% for the three months ended March 31, 2024 to 4.54% for the three months ended March 31, 2025.

As a result, total funding costs decreased by 47 basis points from 3.02% for the three months ended March 31, 2024, to 2.55% for the three months ended March 31, 2025.

Average total deposits were $5.986 billion for the six months ended June 30, 2025, an increase of $261.0 million, or 4.6%, from the comparable period in 2024.

Average total borrowings were $67.1 million for the six months ended June 30, 2025, a decrease of $59.3.

million, or 46.9%, from the comparable period in 2024.

Total average deposit costs decreased 45 basis points from 3.00% for the six months ended June 30, 2024, to 2.55% for the six months ended June 30, 2025.

Total average borrowing costs decreased 105 basis points from 5.62% for the six months ended June 30, 2024 to 4.57% for the six months ended June 30, 2025.

As a result, total funding costs decreased by 49 basis points from 3.06% for the six months ended June 30, 2024, to 2.57% for the six months ended June 30, 2025.

The decrease in funding costs between the two periods was attributable to easing of monetary policy by the Federal Reserve Bank which allowed deposit costs to reprice to lower levels and reduced the borrowings average rates.

Deposits and Borrowings

As of March 31, 2025, total deposits increased by $59.2 million, or 1.0%, from December 31, 2024.

Core deposits, which excludes brokered deposits, decreased by $24.6 million, or 0.4%, to $5.835 billion as of March 31, 2025 from $5.859 billion as of December 31, 2024.

Total brokered deposits were $125.4 million at March 31, 2025, compared to $41.6 million at December 31, 2024, an increase of $83.8 million, or 201.8%.

The following table summarizes deposit composition at March 31, 2025 and December 31, 2024:

(dollars in thousands) March 31,

As of June 30, 2025, total deposits increased by $275.9 million, or 4.7%, from December 31, 2024.

Core deposits, which excludes brokered deposits, increased by $167.0 million, or 2.9%, to $6.026 billion as of June 30, 2025 from $5.859 billion as of December 31, 2024.

Total brokered deposits were $150.4 million at June 30, 2025, compared to $41.6 million at December 31, 2024, an increase of $108.9 million, or 261.9%.

The following table summarizes deposit composition at June 30, 2025 and December 31, 2024:

(dollars in thousands) June 30,

2025 Percentage of Total December 31,

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Total deposits $ 6,176,833 100.0 % $ 5,900,966 100.0 % $ 275,867

On March 31, 2025, commercial deposits represented 39.2% of total deposits versus 38.4% at December 31, 2024.

Retail deposits represented 30.0% at March 31, 2025 versus 30.2% at December 31, 2024.

Public Funds deposits represented 28.7% at March 31, 2025 versus 30.7% at December 31, 2024.

Brokered deposits represented 2.1% of total deposits at March 31, 2025 versus 0.7% at December 31, 2024.

Commercial deposits expanded $67.9 million, or 3.0%, from $2.269 billion at December 31, 2024 to $2.337 billion at March 31, 2025;

retail deposits expanded $7.3 million, or 0.4%, from $1.781 billion at December 31, 2024 to $1.788 billion at March 31, 2025;

and public funds deposits contracted $99.7 million, or 5.5%, from $1.810 billion at December 31, 2024 to $1.710 billion at March 31, 2025, due to seasonal activity.

Deposits not covered by FDIC deposit insurance were 57.2% as of March 31, 2025, versus 62.1% at December 31, 2024.

Deposits not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund (which insures public fund deposits in Indiana), were 28.9% of total deposits as of March 31, 2025, versus 32.3% as of December 31, 2024.

As of March 31, 2025 and December 31, 2024, 97.8% and 98.0% of deposit accounts had deposit balances less than $250,000, respectively.

As of March 31, 2025, total stockholders’ equity was $694.5 million, an increase of $10.6 million, or 1.5%, from $683.9 million at December 31, 2024.

The increase to total stockholders' equity was driven by net income of $20.1 million and was reduced by dividends declared and paid of $12.8 million and an increase of $2.6 million in accumulated other comprehensive income (loss).

On June 30, 2025, commercial deposits represented 36.6% of total deposits versus 38.4% at December 31, 2024.

Retail deposits represented 28.4% at June 30, 2025 versus 30.2% at December 31, 2024.

Public Funds deposits represented 32.6% at June 30, 2025 versus 30.7% at December 31, 2024.

Brokered deposits represented 2.4% of total deposits at June 30, 2025 versus 0.7% at December 31, 2024.

Commercial deposits contracted $12.4 million, or 0.5%, from $2.269 billion at December 31, 2024 to $2.257 billion at June 30, 2025;

retail deposits contracted $25.0 million, or 1.4%, from $1.781 billion at December 31, 2024 to $1.756 billion at June 30, 2025;

and public funds deposits expanded $204.4 million, or 11.3%, from $1.810 billion at December 31, 2024 to $2.014 billion at June 30, 2025, due to growth in public funds customers and seasonal activity.

Deposits not covered by FDIC deposit insurance were 59.4% as of June 30, 2025, versus 62.1% at December 31, 2024.

Deposits not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund, which insures public fund deposits in Indiana, were 27.1% of total deposits as of June 30, 2025, versus 32.3% as of December 31, 2024.

As of June 30, 2025 and December 31, 2024, 98.2% and 98.0% of deposit accounts had deposit balances less than $250,000, respectively.

As of June 30, 2025, total stockholders’ equity was $710.0 million, an increase of $26.1 million, or 3.8%, from $683.9 million at December 31, 2024.

The increase to total stockholders' equity was driven by net income of $47.1 million and was reduced by dividends declared and paid of $25.7 million and improvement of $5.4 million in accumulated other comprehensive income (loss).

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

2 unchanged sentences

banking organizations.

As of March 31, 2025, the Company's capital levels remained characterized as “well-capitalized”.

The actual capital amounts and ratios of the Company and the Bank as of March 31, 2025 and December 31, 2024, are presented in the table below.

Capital ratios for March 31, 2025 are preliminary until the Call Report and FR Y-9C are filed.

As of June 30, 2025, the Company's capital levels remained characterized as “well-capitalized”.

The actual capital amounts and ratios of the Company and the Bank as of June 30, 2025 and December 31, 2024, are presented in the table below.

Capital ratios for June 30, 2025 are preliminary until the Call Report and FR Y-9C are filed.

Actual Minimum Required For Capital Adequacy Purposes For Capital Adequacy Purposes Plus Capital Conservation Buffer Minimum Required to Be Well Capitalized Under Prompt Corrective Action Regulations

(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio

As of March 31, 2025:

As of June 30, 2025:

Total Capital (to Risk Weighted Assets)

30 unchanged sentences

• the effects of future economic, business and market conditions and changes, particularly in our Indiana market area, including prevailing interest rates and the rate of inflation;

• governmental trade, monetary and fiscal policies;

• governmental trade, monetary, tax and fiscal policies;

• the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand and the values and liquidity of loan collateral, securities and other interest sensitive assets and liabilities;

18 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-Q

Item 2. Management’s Discussion and Analysis