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Item 7. Management’s Discussion and Analysis

2026-02-25 compared with 2025-02-19 · 216 added, 200 removed, 652 unchanged (39% of the section changed)

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

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

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

Net income in 2025 was $103.4 million, an increase of 10.6%, from $93.5 million in 2024.

Net income for 2024 was less than 1% lower compared to $93.8 million in 2023.

Diluted net income per common share was $4.01 in 2025, $3.63 in 2024 and $3.65 in 2023.

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The average equity to average assets ratio was 10.44% in 2025, compared to 9.94% in 2024 and 9.11% in 2023.

Net income in 2025 as compared to 2024 was positively impacted by a $24.3 million increase to net interest income and a decrease in the provision for credit losses of $5.0 million.

Offsetting these positive contributions was a decrease in noninterest income of $8.9 million and an increase in noninterest expense of $6.5 million.

Pretax pre-provision earnings, a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $137.4 million for the year ended December 31, 2025, an increase of $8.9 million, or 7.0%, compared to $128.4 million for the year ended December 31, 2024.

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

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

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

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

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

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

Total assets were $6.990 billion as of December 31, 2025, versus $6.678 billion as of December 31, 2024, an increase of $311.6 million or 4.7%.

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

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

Balance sheet expansion in 2025 was driven by loan growth net of the allowance for credit losses of $274.4 million, or 5.5%, and an increase in available-for-sale securities of $60.6 million, or 6.1%.

Deposits increased by $72.4 million, or 1.2%, during 2025, to fund the balance sheet expansion.

Borrowings outstanding at December 31, 2025, were $184.2 million, compared to no borrowings outstanding at December 31, 2024.

CRITICAL ACCOUNTING POLICIES

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

The Company has an established process to determine the adequacy of the allowance for credit losses that generally includes consideration of changes in the nature and volume of the loan portfolio and overall portfolio quality, along with current and forecasted economic conditions that may affect borrowers’ ability to repay.

The Company has an established process to determine the adequacy of the allowance for credit losses that

generally includes consideration of changes in the nature and volume of the loan portfolio and overall portfolio quality, along with current and forecasted economic conditions that may affect borrowers’ ability to repay.

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

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

the primary measures.

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

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

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All of these factors are subject to change, which may be significant.

As a result of this detailed process, the allowance results in two forms of allocations, specific and general.

As a result of this detailed process, the allowance results in two forms of allocations, specific and pooled.

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

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

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

The Company's allowance for credit losses balance was comprised of 12% specific allocations and 88% pooled allocations at December 31, 2025, compared to 32% specific allocations and 68% pooled allocations at December 31, 2024.

The decrease in specific allocations was driven by a previously disclosed nonperforming commercial credit that was specifically allocated for within in the allowance for credit losses in 2024 and partially charged off in 2025.

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

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

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

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

Considerations with respect to specific allocations for these individual credits include, but are not limited to, the following:

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and consumer 1-4 family mortgage and other consumer loans.

General allocations of the allowance are determined by a historical loss rate based on the calculation of each pool’s probability of default-loss given default, subject to a floor.

Pooled allocations of the allowance are determined by a historical loss rate based on the calculation of each pool’s probability of default-loss given default, subject to a floor.

The length of the historical period for each pool is based on the average life of the pool.

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

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

Borrowers’ ability to

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

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

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projected unemployment rates and other economic indicators;

Company’s collateral position on adversely classified loans;

the Company’s collateral position on adversely classified loans;

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

RESULTS OF OPERATIONS

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

In 2025, the Company continued to expand its balance sheet organically, achieving average loan growth of 3.7% and average deposit growth of 3.5% in its geographic footprint of northern Indiana and in the Indianapolis market.

The Company had 55 branches as of December 31, 2025.

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

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

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

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

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

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

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

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

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

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

The Company’s increase in net interest income of $24.3 million, or 12.4%, was primarily responsible for the $9.9 million, or 10.6%, increase to net income.

Net interest margin expansion was the key driver for the increase in net interest income, which increased by 27 basis points from 3.18% in 2024 to 3.45% in 2025.

Deposit costs, which peaked in the second quarter of 2024 and began to contract during the second half of that year, continued to decline further as a result of continued monetary policy easing by the FOMC and favorable deposit repricing.

Additionally, the provision for credit losses decreased by $5.0 million, which further contributed to the increase in net income.

Offsetting these positive contributions was a decrease to noninterest income of $8.9 million and an increase to noninterest expense of $6.5 million.

Provision expense was elevated in 2024 as compared to 2025 a result of specific allocations that were recorded related to the previously disclosed downgrade of a $43.3 million commercial relationship to nonperforming status.

While provision expense in 2025 was partially driven by additional specific allocations that were recorded for this credit, the Company reached a settlement of the matter and recognized a net charge off of $27.8 million during 2025.

As a result, the allowance coverage ratio decreased from 1.68% at December 31, 2024 to 1.28% at December 31, 2025.

Individually analyzed and watch list loans as a percentage of total loans returned to near historic lows of 3.42% at December 31, 2025, as compared to 4.13% at December 31, 2024.

Fee based lines of business, including wealth advisory fees investment brokerage fees, service charges on deposit accounts, loan and service fees, and interest rate swap fee income anchored 2025 growth in adjusted core noninterest income, a non-GAAP financial measure that excludes the impact of certain non-routine operating events.

Adjusted core noninterest income increased by 2.4% and 7.6% for 2025 and 2024, respectively.

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

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

The outlook for 2026 includes plans for continued organic balance sheet growth, disciplined credit philosophy with proactive management of loan portfolio challenges, continued investments in human and technological capital, completion of the Lake City Bank Innovation and Technology Center which represents a significant investment in the downtown Warsaw campus headquarters, and expansion of our branch network into Boone County, Indiana, with a new office scheduled to open in Whitestown in 2026.

Beyond 2026, the Company plans to accelerate plans for branch development with locations in Indianapolis, South Bend, Fort Wayne and Elkhart identified for expansion over the next several years as the Company seeks to become a recognized Midwest leader in community banking.

Selecte d income statement information for the years ended December 31, 2025, 2024, and 2023 is presented in the following table.

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The Company believes that providing non-GAAP financial measures provides investors with information useful to understanding the company's financial performance.

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

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

31, 2024 Dec.

31, 2023 Dec.

Reconciliations of these non-GAAP financial measures is provided in the following tables (dollars in thousands, except per share data).

December 31, 2025 December 31, 2024 December 31, 2023

Total Equity $ 762,492 $ 683,911 $ 649,793

Goodwill (4,970) (4,970) (4,970)

Deferred Tax Assets Related to Goodwill 1,167 1,167 1,167

DTA Related to Goodwill 1,167 1,167 1,167

Tangible Common Equity 758,689 680,108 645,990

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Goodwill (4,970) (4,970) (4,970)

Deferred Tax Assets Related to Goodwill 1,167 1,167 1,167

DTA Related to Goodwill 1,167 1,167 1,167

Tangible Assets 6,986,219 6,674,571 6,520,226

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

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

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

31, 2024 Dec.

31, 2023 Dec.

Management considers these measures of core financial performance to be meaningful to understanding the Company’s business performance for these periods (dollars in thousands, except per share data).

December 31, 2025 December 31, 2024 December 31, 2023

Noninterest Income $ 47,971 $ 56,844 $ 49,858

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

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

Insurance Recovery 0 (1,000) (6,300)

Adjusted Core Noninterest Income $ 47,971 $ 46,848 $ 43,558

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Core Operational Profitability (2) $ 103,361 $ 89,377 $ 101,575

Diluted Earnings Per Share $ 3.63 $ 3.65 $ 4.04

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

Diluted Earnings Per Common Share $ 4.01 $ 3.63 $ 3.65

Impact of Adjusted Core Items 0.00 (0.16) 0.30

Core Operational Diluted Earnings Per Common Share $ 4.01 $ 3.47 $ 3.95

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

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

(2) Core operational profitability was $4.1 million lower than reported net income of $93.5 million and $7.8 million higher than reported net income of $93.8 million for the years ended December 31, 2024 and 2023, respectively.

Net income was $103.4 million in 2025, an increase of $9.9 million, versus net income of $93.5 million in 2024.

The increase was driven by an increase in net interest income of $24.3 million, or 12.4%, and a reduction in provision for loan losses of $5.0 million, or 29.6%.

Offsetting these items was a decrease in noninterest income of $8.9 million, or 15.6%, an increase in noninterest expense of $6.5 million, or 5.2%, and increased income tax expense of $4.0 million, or 22.0%.

Pretax pre-provision earnings were $137.4 million in 2025, an increase of $8.9 million, or 7.0%, compared to $128.4 million in 2024.

Noninterest income was elevated in 2024 as compared to 2025 primarily as a result of the net gain of $9.0 million on the exchange and sale of the Company's Visa shares.

Additionally, a $1.0 million insurance recovery related to the 2023 wire fraud loss was recorded in 2024.

Adjusted core noninterest income, which excludes the impact of these events, was $48.0 million in 2025 as compared to $46.8 million in 2024, representing an increase of $1.1 million, or 2.4%.

Noninterest expense in 2024 was impacted by the recognition of a previously disclosed legal accrual of $4.5 million.

Adjusted core noninterest expense, which excludes the impact of the settlement, was $131.6 million in 2025 as compared to $120.5 million in 2024, an increase of $11.1 million, or 9.2%.

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

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

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

In the second quarter of 2024, Visa Inc.

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

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

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

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

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

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

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

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

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

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

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

The increase to noninterest income in 2024 was primarily driven by the aforementioned net gain of $9.0 million on the exchange and sale of Visa shares and the $1.0 million insurance recovery.

Contributing further to the increase to noninterest income ware increases of $1.4 million, or 15.3%, in wealth advisory fees, $1.1 million, or 34.4%, in bank owned life insurance income, and $370,000 in mortgage banking income.

The decrease to noninterest expense in 2024 was driven by lower miscellaneous expenses for losses incurred in 2023 and was partially offset by a $4.5 million legal accrual.

Core operational profitability, a non-GAAP financial measure that excludes the impact of certain aforementioned non-routine operating events, was $103.4 million for the year ended December 31, 2025, an increase $14.0 million, or 15.6%, compared to $89.4 million for the year ended December 31, 2024.

Core operational profitability decreased $12.2 million, or 12.0%, in 2024 from $101.6 million in 2023.

Core operational diluted earnings per common share, a non-GAAP financial measure, were $4.01 for 2025, an increase of 15.6% from $3.47 for 2024.

Core operational diluted earnings per share decreased 12.2% in 2024, down from $3.95 in 2023.

Net Interest Income

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2025 2024 2023

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

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

Rate Average Balance Interest Income Yield (1)/

Earning Assets

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In denominations over $100,000 583,828 22,814 3.91 794,003 35,879 4.52 669,545 24,968 3.73

Miscellaneous short-term borrowings 66,334 3,720 5.61 166,821 8,441 5.06 6,559 272 4.15

Short-term borrowings 43,022 1,986 4.62 66,334 3,720 5.61 166,821 8,441 5.06

Long-term borrowings 967 0 0.00 0 0 0.00 0 0 0.00

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Net interest income and margin $ 225,458 3.45 % $ 201,363 3.18 % $ 202,347 3.31 %

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

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

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

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

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

Taxable equivalent basis adjustments were $4.4 million, $4.7 million and $5.3 million for the years ended December 31, 2025, 2024 and 2023, respectively.

The following table shows fluctuations in net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended December 31.

(2) Loan fees, which are immaterial in relation to total taxable loan interest income for the years ended December 31, 2025, 2024 and 2023, are included as taxable loan interest income.

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

NET INTEREST INCOME – RATE/VOLUME ANALYSIS (fully tax equivalent basis, dollars in thousands)

2025 Over (Under) 2024 (1) 2024 Over (Under) 2023 (1)

Attributable to Total Change Attributable to Total Change

Attributable to Total Change Attributable to Total

Volume Rate Volume Rate

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Miscellaneous short-term borrowings (1,154) (580) (1,734) (5,551) 830 (4,721)

Long-term borrowings and

subordinated debentures 0 0 0 (127) 0 (127)

Long-term borrowings 0 0 0 0 0 0

Total interest expense 5,452 (29,213) (23,761) 14,241 16,006 30,247

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

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

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

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

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

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

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

Net interest income increased by $24.3 million to $221.0 million in 2025 compared to $196.7 million in 2024, primarily as a result of decreased costs of funds.

Total interest expense decreased $23.8 million, or 13.5%.

Of this decrease, deposit interest expense decreased $22.0 million, or 12.8%, from decreased rates paid for customer deposits.

Funding costs for deposits decreased 46 basis points to 2.50% during 2025, compared to 2.96% during 2024.

Ending noninterest bearing deposits to total deposits were 20.4% at 2025 compared to 22.0% at 2024.

Average noninterest bearing deposits decreased $3.1 million, to $1.255 billion for 2025 as compared to $1.258 billion for 2024.

Average interest bearing deposits increased $206.9 million, or 4.5%, to $4.785 billion for 2025 as compared to $4.578 billion for 2024.

Wholesale funding reliance remained low at 0.80% as of December 31, 2025 compared to 0.70% at December 31, 2024.

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

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

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

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

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

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

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

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

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

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

Investment securities interest income increased $1.9 million, or 7.0%, and contributed to the increase in net interest income during 2025.

The increase in investment securities income was driven by an increase in average securities balances of $6.2 million, or 0.5%, during 2025 as a result of available-for-sale investment securities maturities, calls and paydowns of $66.8 million, and offset by purchases of securities of $83.3 million.

The yield on average investment securities increased 16 basis points to 2.97% for 2025, as compared to 2.81% for 2024.

Investment securities cash flows were used to fund loan growth and reinvested in securities during 2025.

Net interest margin increased 27 basis points to 3.45% in 2025 versus 3.18% in 2024.

Net interest margin decreased to 3.18% in 2024 from 3.31% in 2023 .

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

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

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

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

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

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

The improvement in net interest margin between the periods was primarily driven by the effects of the continued easing of monetary policy by the FOMC, which commenced in September 2024, and resulted in favorable deposit repricing, which has outpaced the downward repricing of earning assets.

Loan interest income decreased by $723,000, or 0.2%, to $337.0 million during 2025 compared to $337.8 million during 2024.

The increase in average loans was driven by loan growth during the period as average loan balances increased $184.1 million, or 3.7%, from $5.039 billion during 2024 to $5.223 billion during 2025.

Loan yields decreased 25 basis points, or 3.8%, from 6.71% for 2024 to 6.46% for 2025 as a result of the lower rate environment and loan repricing.

The utilization of commercial and retail lines of credit increased to 44% at December 31, 2025, up from 41% at December 31, 2024, and 39% at December 31, 2023.

Total lines of credit available have increased by $241.0 million to $4.789 billion at December 31, 2025, compared to $4.548 billion at December 31, 2024, or a 5.3% increase.

The increased line utilization marks the highest utilization rate since 2019 amid an encouraging increase in borrower demand for working lines of capital.

Provision for Credit Losses

The Company recorded a provision for credit losses of $11.8 million in 2025 compared to $16.8 million in 2024 and $5.9 million in 2023.

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

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

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

Provision expense during 2025 was partially driven by the recognition of additional specific allocations related to the downgrade of a previously disclosed commercial relationship.

The remainder of provision expense was attributable to growth of the loan portfolio and a net increase in specific allocations related to other watch list credits.

The Company’s allowance for credit losses as of December 31, 2025 was $69.0 million compared to $86.0 million as of December 31, 2024 and $72.0 million as of December 31, 2023.

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Net charge offs of $28.8 million, or 0.55% of average loans, and $2.8 million, or 0.05% of average loans, were recorded in 2025 and 2024, respectively.

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

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

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

Net charge offs for 2025 resulted primarily from the partial charge off of $28.6 million that was recognized during the second quarter of 2025 in conjunction with the disposition of the credit.

A subsequent recovery of $800,000 was recognized during the fourth quarter of 2025 related to this credit.

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

Noninterest Income

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Noninterest income to total revenue 17.8 % 22.4 % 20.2 %

Noninterest income decreased by $8.9 million, or 15.6%, to $48.0 million for the year ended December 31, 2025, compared to $56.8 million for the prior year.

Noninterest income was elevated during the prior year primarily due to the net gain of $9.0 million on the sale of Visa shares and a $1.0 million insurance recovery.

Adjusted core noninterest income, a non-GAAP financial measure that excludes the impact of these events, increased by $1.1 million, or 2.4%, from $46.8 million for the year ended December 31, 2024.

Noninterest income for the year ended December 31, 2025 benefited from fee-based service increases to wealth advisory fees of $896,000, or 8.6% , loan and service fees of $462,000, or 3.9% , service charges on deposit accounts of $317,000, or 2.8% , and investment brokerage fees of $304,000, or 16.1% , as compared to the prior year.

Wealth advisory fees growth was driven by continued client relationship expansion and increased assets under management.

Commercial service fee growth was the primary contributor for the increase in loan and service fees.

The expansion of investment brokerage fees was driven by increased volume and commissions on product mix.

Offsetting these increases was a decrease in other income of $1.9 million, or 41.1% .

The decline in other income was primarily attributable to reduced limited partnership income and the lack of insurance recovery of $1.0 million as compared to 2024.

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

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

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

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

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

Service charges on deposit accounts decreased by 7.1%, or $822,000, during 2023 from $11.6 million to $10.8 million due primarily to an increase to earnings allowances on business checking accounts and reduced overdraft and other deposit fees.

Loan and service fees declined by 3.8%, or $464,000, during 2023 primarily due to a decline in interchange revenue due to reduced volume and spend per debit card as compared to higher trends during the pandemic.

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

Noninterest Expense

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Total noninterest expense $ 131,605 $ 125,084 $ 130,710 5.2 % (4.3) %

Noninterest expense increased by $6.5 million, or 5.2%, from $125.1 million to $131.6 million for the year ended December 31, 2024 and 2025, respectively.

Salaries and benefits expense increased $8.6 million, or 12.8%.

The primary drivers for the increase to salaries and benefits expense were increased performance-based incentive compensation accruals of $5.3 million and salaries and wages of $3.3 million.

Data processing fees and supplies expense increased $1.4 million, or 9.1%, from continued investment in customer-facing and operational technology solutions, including artificial intelligence.

Net occupancy expense increased $659,000, or 9.6%, from the continued expansion of the bank's branch and operational networks, with the 55th branch location opening in Westfield, Indiana, during 2025.

Offsetting these increases was a decrease in professional fees of $1.3 million, or 14.0%, and other expense of $3.1 million, or 23.5%.

Legal accruals of $4.5 million were incurred in 2024 that were related to a one-time matter, previously disclosed.

Adjusted core noninterest expense, a non-GAAP financial measure, increased $11.1 million, or 9.2%, to $131.6 million from $120.5 million for the year ended December 31, 2025 and 2024, respectively.

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

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

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

The increase to noninterest expense during the year was driven by an $18.1 million wire fraud loss that occurred during the second quarter of 2023.

Contributing to the increase in noninterest expense during 2023 was an increase to professional fees expense of $2.1 million, or 32.4%, an increase to FDIC insurance and other regulatory fees of $1.4 million, or 68.2%, from increased assessments due to a blanket increase to the assessment rate used by the FDIC to calculate premiums.

Data processing fees and supplies expense increased $1.2 million, or 9.2%.

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

The Company recognized income tax expense in 2025 of $22.2 million, compared to $18.2 million in 2024 and $16.6 million in 2023.

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The following table provides certain of those disclosures.

Year ended December 31,

Years Ended December 31,

2025 2024 2023

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

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

FINANCIAL CONDITION

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Total loans outstanding increased by $257.4 million, or 5.0%, to $5.375 billion at December 31, 2025, from $5.118 billion at December 31, 2024.

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

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

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

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

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

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

Total deposits increased $72.4 million, or 1.2%, from $5.901 billion at December 31, 2024, to $5.973 billion at December 31, 2025, driven by increased public funds deposits due to the addition of new customers and offset by net retail and commercial outflows.

Total cash and equivalents decreased $26.9 million, to $141.3 million at December 31, 2025, from $168.2 million at December 31, 2024.

Total investment securities increased by $62.3 million, to $1.185 billion at December 31, 2025, from $1.123 billion at December 31, 2024.

The increase was attributable to an increase in available-for-sale securities, which increased by $60.6 million, primarily as a result of purchases of $83.3 million and an improvement in fair market valuations of $47.8 million.

These increases were offset by maturities, calls and paydowns of $66.8 million.

There were no securities sales during the year ended December 31, 2025.

The Company had borrowings of $184.2 million at December 31, 2025, as compared to no borrowings outstanding at December 31, 2024.

Borrowings at December 31, 2025 consisted of $183.0 million in short-term and other borrowings and $1.2 million in long-term borrowings.

Uses of Funds

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Purchases of securities available-for-sale totaled $83.3 million in 2025, $27.5 million in 2024 and $7.2 million in 2023.

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

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

Purchases in 2024 and 2025 were driven by the liquidity provided primarily by principal and interest paydowns.

Cash flows from the investment securities portfolio were used to fund loan growth and reinvestments into the investment securities portfolio, and the Company anticipates receiving approximately $134.5 million of principal and interest cash flows to use for such purposes in 2026.

Investment securities represented 17.0% of total assets on December 31, 2025 compared to 16.8% on December 31, 2024 and 18.1% on December 31, 2023.

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

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

There were no securities sales in 2025, as compared to sales of $7.1 million in 2024 and $105.2 million in 2023.

Paydowns from prepayments and scheduled payments of $66.5 million, $59.0 million and $56.2 million were received in 2025, 2024 and 2023, and the amortization of premiums, net of the accretion of discounts, was $4.0 million, $4.8 million and $4.9 million, respectively.

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

Maturities and calls of securities totaled $349,000 , $695,000 and $13.6 million in 2025 , 2024 and 2023, respectively.

No provision for allowance for credit loss was recorded in connection with the investment securities portfolio in 2025 , 2024 or 2023.

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

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

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

Securities held-to-maturity were carried at amortized cost of $133.2 million and $131.6 million at December 31, 2025 and 2024, respectively.

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

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

The net amount of the unrealized loss on the securities included in accumulated other comprehensive income (loss) was $17.0 million ($13.4 million, net of tax) at December 31, 2025.

The weighted average yields and maturity distribution for the securities portfolio at December 31, 2025, were as follows:

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Value Yield Fair

Treasury securities $ 0 0.00 % $ 10,119 4.00 % $ 0 0.00 % $ 0 0.00 %

government sponsor agency 0 0.00 4,702 1.00 10,080 4.75 100,908 1.58

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Real Estate Mortgage Loans Held-For-Sale

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

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

Real estate mortgages held-for-sale increased by $1.0 million to $2.7 million at December 31, 2025 from $1.7 million at December 31, 2024 as a result of fluctuations in secondary market sales activity.

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

The Company generally sells almost all of the conforming mortgage loans it originates in the secondary market.

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Commercial and industrial loans together with owner occupied commercial real estate loans represented 43.9% and 44.1% of total loans as of December 31, 2025 and 2024, respectively.

The non-owner occupied commercial real estate sector of the loan portfolio largely represents multi-family and industrial warehouse developments in the Indianapolis market with in-state developers that are well-known to the Bank.

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

Loans totaling $101.7 million for this sector represented 2.0% of total loans at December 31, 2024.

Loans totaling $104.2 million and $101.7 million for this sector represented 1.9% and 2.0% of total loans at December 31, 2025 and 2024, respectively.

Loans to the agriculture and agri-business sector of our Indiana footprint represent a significant loan segment of the overall loan portfolio.

This loan segment is well diversified with loans to corn, soybean, poultry, dairy, swine, beef and egg growers.

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

This loan segment is well diversified with loans to corn, soybean, poultry, dairy, swine, beef and egg operations.

The residential construction and land development loans class included construction loans totaling $10.0 million and $7.6 million as of December 31, 2025 and December 31, 2024.

Increases in consumer loans during 2025 resulted from an increased focus on indirect lending to consumers and adjustable rate mortgages.

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Bank Owned Life Insurance

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

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

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

Bank owned life insurance increased by $16.7 million to $130.0 million at December 31, 2025 and by $4.2 million to $113.3 million at December 31, 2024 from $109.1 million at December 31, 2023.

The increase during 2025 was primarily driven by the purchase of $12.5 million in general hybrid account policies, which contributed additional income during 2025.

Additional income was provided by improved market performance of the Bank's variable bank owned life insurance policies, which trend directionally with the performance of the broader equity markets.

The increase in 2024 was due to income from traditional policies and from variable policy market performance.

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

Sources of Funds

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Deposits by portfolio segment for December 31, 2025, 2024 and 2023 are presented below:

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

(dollars in thousands) 2025 2024 2023

Commercial $ 2,179,999 36.5 % $ 2,269,049 38.4 % $ 2,227,147 38.9 %

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Total deposits increased by $72.4 million, or 1.2%, to $5.973 billion, at December 31, 2025 compared to $5.901 billion at December 31, 2024.

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

Commercial deposits increased $41.9 million, or 1.9% and represented 38.4% and 38.9% of total deposits at December 31, 2024 and 2023, respectively.

The increase in deposits was attributable to an increase in public fund deposits.

Public fund deposits increased $169.7 million, or 9.4%, and represented 33.2% and 30.7% of total deposits at December 31, 2025 and 2024, respectively.

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

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

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

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

Offsetting the increase in public funds were decreases to commercial and retail deposits.

Commercial deposits decreased $89.1 million, or 3.9%, and represented 36.5% and 38.4% of total deposits at December 31, 2025 and 2024, respectively.

Retail deposits decreased $17.3 million, or 1.0%, and represented 29.5% and 30.2% of total deposits at December 31, 2025 and 2024, respectively.

Brokered deposits increased $9.0 million, or 21.7%, between the two periods.

Core deposits represented 99.2% and 99.3% of total deposits at December 31, 2025 and 2024, respectively.

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

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

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

2023 and 2022, respectively.

Commercial deposits increased $41.9 million, or 1.9% and represented 38.4% and 38.9% of total deposits at December 31, 2024 and 2023, respectively.

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

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

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

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

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FHLB Advances and Other Borrowings

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

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

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

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

Ending balances of short-term and miscellaneous borrowings decreased to $50.0 million at December 31, 2023 compared to $297.0 million at December 31, 2022.

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

During 2025, average total short-term and other borrowings decreased by $23.3 million to $43.0 million.

Ending balances of short-term and other borrowings increased to $183.0 million at December 31, 2025 compared to none at December 31, 2024.

At December 31, 2025, short-term borrowings consisted of a $170.0 million advance outstanding with the Federal Home Loan Bank of Indianapolis and $13.0 million was drawn on the Company's unsecured revolving credit agreement with another financial institution.

Long-term borrowings outstanding at December 31, 2025 were $1.2 million.

The Company's long-term borrowings were outstanding with the Federal Home Loan Bank of Indianapolis as part of the rate-subsidized Community Development Financial Institution ("CDFI") Rate Buydown Advance program to fund a low cost loan to a qualifying CDFI.

The Company had no long-term borrowings outstanding during 2024.

Average short-term borrowings decreased $100.5 million from $166.8 million in 2023 compared to 2024.

Average long-term borrowings were $967,000 during 2025, compared to none during 2024 and 2023.

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

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See "Note 15 – Capital Requirements and Restrictions on Retained Earnings" for more information.

The ability to maintain these ratios is a function of the balance between net income and a prudent dividend policy.

The ability to maintain these ratios is a function of the balance between net income, a prudent dividend policy, and the strategic yet disciplined utilization of the share repurchase plan.

During 2025, the Company repurchased 337,890 shares at a weighted average price of $58.03 per share.

The majority of share repurchases occurred during the fourth quarter of 2025, with 307,590 shares repurchased at a weighted average price of $58.23 per share.

The Company expects to continue to use the share repurchase program for opportunistic purposes during 2026 based on guardrails that measure tangible book value dilution and earnings accretion at a range of share prices.

Total stockholders’ equity increased by 11.5% to $762.5 million as of December 31, 2025 from $683.9 million as of December 31, 2024.

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Total stockholder's equity has been impacted by declines in the market value of the Company's available-for-sale investment securities portfolio.

The market value decline, resulting from higher interest rate environment, has generated unrealized losses in the available-for-sale portfolio.

The market value decline, resulting from FOMC's tightening of monetary policy in 2022 and 2023, has generated unrealized losses in the available-for-sale portfolio.

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

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

Improvements in the fair value of securities as a result of the easing of monetary policy by the FOMC starting in 2024 and net defined pension plan gains positively impacted equity by $39.4 million in 2025 compared to a decrease of $11.3 million in 2024.

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

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Investment Portfolio

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

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

treasuries, government or government-sponsored entity securities, and municipal bonds subject to an investment security policy that is approved annually by the board of directors.

As of December 31, 2025, the Company’s investment in U.S government sponsored mortgage-backed securities represented approximately 39% of total investment securities fair value consisting of mortgage bonds issued by Ginnie Mae, Fannie Mae and Freddie Mac.

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

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

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

Based upon these analytics as of December 31, 2025, the securities in the combined available-for-sale and held-to-maturity portfolios had an effective duration of approximatel y 5.94 y ears.

The analysis indicated a negative 6.7% change in market value in the event of a 100 basis point upward, instantaneous rate shock and a positive 6.8% change in mark et value in the event of a 100 basis point downward, instantaneous rate shock.

Loan Portfolio

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The owner occupied commercial real estate portfolio generally represents the financing of factories and operational facilities for the Bank's commercial and industrial borrowers.

The Company’s in-house lending limit is $40.0 million.

The Bank’s in-house lending limit was $40.0 million and its calculated legal lending limit was $144.0 million at December 31, 2025.

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

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

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

When segmenting the Bank's loan portfolio as of December 31, 2025, the largest segments are multifamily housing, agriculture, the recreational vehicle industry, and industrial commercial real estate which represented 13.6%, 8.8%, 4.5% and 4.0% of total loans, respectively.

The following is a summary of nonperforming loans on an amortized cost basis as of December 31, 2025 and 2024.

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Nonperforming assets of the Company include nonperforming loans (as indicated above), nonaccrual investments, other real estate owned and repossessions, the total of which amounted to $20.9 million and $56.9 million at December 31, 2025 and 2024, respectively.

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

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

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

Nonperforming loans decreased to 0.4% of total loans at December 31, 2025 compared to 1.1% at December 31, 2024.

Nonperforming loans decreased by $35.6 million during 2025, due primarily to the previously disclosed partial charge off of a nonperforming credit during 2025.

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

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

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

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

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 flow or at the fair value of collateral if repayment is expected solely from the collateral.

Total nonperforming loans were $56.4 million, or 1.1% of total loans, at December 31, 2024 versus $15.7 million, or 0.3% of total loans, at December 31, 2023.

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

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

Loans renegotiated as modifications to borrowers experiencing financial difficulty are those loans for which the Company modifies the terms of loans for borrowers experiencing financial distress by providing the following forms of relief:

A loan is individually analyzed for a specific allocation within the allowance for credit losses when full payment under the original loan terms is not expected or when the amount collected is expected to differ materially from the estimate that would be arrived at under the pooled method.

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

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

The total amortized cost basis of nonperforming loans were $20.9 million, or 0.4% of total loans, at December 31, 2025 versus $56.5 million, or 1.1% of total loans, at December 31, 2024.

There were 54 relationships totaling $43.0 million classified as individually analyzed as of December 31, 2025 on an amortized cost basis, versus 43 relationships totaling $78.6 million at the end of 2024.

The decrease in individually analyzed loans during December 31, 2025 resulted primarily from the aforementioned partial charge off.

Renegotiated loans to borrowers experiencing financial difficulty are those loans for which the Company modifies the terms of loans for borrowers experiencing financial distress by providing the following forms of relief:

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

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

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

For the year ended December 31, 2025, one material loan modification with a total balance of $1.7 million with total allocations of $204,000 was made to a borrower experiencing financial difficulty.

The modification was related to the previously disclosed partial charge-off with a personal guarantor of the loan.

The modified note is collateralized by several of the guarantor's commercial and residential real estate properties.

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

The following is a summary of the credit loss experience for the years ended December 31, 2025 , 2024 and 2023 .

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Total loans 1.28 % 1.68 % 1.46 %

Ratio of allowance for credit losses to nonperforming loans 152.25 % 458.01 % 424.91 %

Ratio of allowance for credit losses to nonperforming loans, net of deferred fees 330.06 % 152.29 % 458.07 %

The following is a summary of the allocation for credit losses as of December 31, 2025 and 2024 .

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Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will be adequate for expected credit losses relating to specifically identified loans based on an evaluation of the loans by management, as well as other expected credit losses inherent in the loan portfolio.

The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current and forecasted economic conditions that may affect the borrower’s ability to repay.

The allowance is an amount that management believes will be adequate for expected credit losses relating to specifically identified loans based on an analysis of the loans by management, as well as other expected credit losses inherent in the loan portfolio.

The analysis takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of individual problem loans, and current and forecasted economic conditions that may affect the borrower’s ability to repay.

Management also considers trends in adversely classified loans based upon a monthly review of those credits.

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

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

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

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

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

At December 31, 2025, on the basis of management’s review of the loan portfolio, the Company had 96 credits totaling $184.0 million on the classified loan list, which includes Special Mention credits, versus 81 credits totaling $211.1 million on December 31, 2024.

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

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

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

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

The decrease in the classified loan list in 2025 was primarily driven by the previously disclosed partial charge off in settlement of the troubled credit.

Excluding this credit, asset quality metrics remained stable and near historical lows despite the heightened uncertainty surrounding the evolving state of US trade policy.

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

As of December 31, 2025, the Company had $134.0 million of assets classified as Special Mention , $50.0 million classified as Substandard, $74,000 classified as Doubtful and none classified as Loss as compared to $123.6 million, $44.0 million, $43.5 million and none, respectively, at December 31, 2024.

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

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

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

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

One borrower in financial distress with loans totalling $1.7 million and total allocations of $204,000 received a modification for the year ended December 31, 2025.

There were no modifications to borrowers experiencing financial difficulty during the year ended December 31, 2024.

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

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

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

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

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

The allowance for credit losses decreased $17.0 million, or 19.7%, from $86.0 million at December 31, 2024 to $69.0 million at December 31, 2025, due primarily to net charge offs of $28.8 million and offset by provision expense of $11.8 million.

Pooled loan allocations increased $2.2 million from $58.4 million at December 31, 2024 to $60.6 million at December 31, 2025.

The unallocated component of the allowance for credit losses was $325,000 at December 31, 2025, which decreased $58,000 from $383,000 reported at December 31, 2024 .

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

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

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

Watch list loans decreased $27.1 million , or 12.8% , to $184.0 million as of December 31, 2025 , compared to $211.1 million at December 31, 2024 .

Watch list loans represented 3.4% of total loans at December 31, 2025 compared to 4.1% at December 31, 2024 .

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

The decrease in watch list loans resulted primarily from a partial charge off of the previously disclosed nonperforming credit, net with other watch list additions and removals.

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

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Further, the Company had available capacity at the Federal Reserve Bank of Chicago of up to $1.190 billion given its current collateral structure at the Federal Reserve Bank discount window program and the terms of that facility at December 31, 2025, with no balances outstanding at December 31, 2025.

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

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

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

unsecured, overnight line.

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.

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

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

The Company’s committed line of credit has availability up to $30.0 million, of which $13.0 million was drawn upon as of December 31, 2025 .

Further, the CFP identifies CFP team members and expressly details their respective roles.

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These policies set guidelines for balance sheet structure, which are designed to protect the Company from the impact that interest rate changes could have on net income, but it does not necessarily indicate the effect on future net interest income.

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

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

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

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

During both 2025 and 2024, the Bank demonstrated a fairly neutral balance sheet structure after a history of more asset sensitivity.

Driving this was a shift to shorter-term interest bearing deposit accounts, such as money market accounts, and an increase in deposit accounts with rates directly indexed to the effective federal funds rate.

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

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

Government and its agencies, particularly the Federal Reserve Board.

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

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

During 2025 the FOMC decreased the target federal funds rate a total of 75 basis points, following a decline in 2024 of 100 basis points after a combined increase of 525 basis points in 2022 and 2023.

Rate decreases were implemented during late 2025 at the September, October and December FOMC meetings.

The combined effect of these actions decreased the target federal funds rate to a range of 3.50% to 3.75%.

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

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

The FOMC statement released for the meeting in December 2025 recognized that inflation had moved up since earlier in the year and remains somewhat elevated.

The statement also indicated that the downside risks to employment had risen in recent months.

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

The updated economic projections released at the December meeting project the median federal funds rate decreasing to 3.4% in 2026 (lowering of the target federal funds rate by 25 basis points), with continued easing to 3.1% in 2027.

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

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

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

Additionally, the longer run median forecast for the federal funds rate was left unchanged at 3.0%.

The combined result of the decrease in the yield on earning assets being more than offset by a decrease in the cost of funds, led to an increase in net interest margin from 3.18% for 2024 to 3.45% for 2025.

The Company’s yield on earning assets decreased 18 basis points during 2025 as variable rate loans repriced at lower rates, offset by the positive tailwind of fixed/adjustable rate loans repricing at higher rates as to when they were originated.

The commercial loan portfolio represents 88% of the total loan portfolio as of December 31, 2025.

Approximately 67% of the commercial loan portfolio are variable rate loans which are primarily indexed to One Month Term SOFR, Prime and FHLB indices.

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

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

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

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

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

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

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

Another factor mitigating the earning asset yield decline was the investment securities yield improving 16 basis points from 2.81% for 2024 to 2.97% for 2025.

The decrease in earning asset yields was more than offset by a decrease in the Company's funding costs, primarily as result of continued easing of monetary policy by the Federal Reserve Bank.

The rate paid on deposit accounts and purchased funds decreased 45 basis points for 2025, following an increase of 40 basis points in 2024.

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

Future changes in the net interest margin will be dependent upon multiple factors including further actions by the FOMC during 2026 in response to inflation, economic conditions and geopolitical concerns, the results of any of the administration’s changes to economic policy and laws, competitive pressures in the various markets served, and changes in the structure of the balance sheet as a result of changes in customer demands for products and services.

The market rates table in Item 7A quantifies the current sensitivity to market rates and demonstrates our more neutral balance sheet compared to a historically more asset sensitive balance sheet.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis