LAKELAND FINANCIAL CORP 10-Q

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Net income in the first three months of 2026 was $26.5 million, which increased $6.4 million , or 31.8%, from $20.1 million for the comparable period of 2025 . Diluted earnings per common share was $1.04 in the first three months of 2026 , an increase of 33.3% from $0.78 in the comparable period of 2025 . The increase in net income for 2026 was primarily due to an increase to net interest income of $3.9 million, or 7.4%, an increase in noninterest income of $2.0 million, or 18.3%, and a decrease in the provision for credit losses of $4.8 million, or 70.6%. Offsetting these positive contributions was an increase in noninterest expense of $2.4 million, or 7.3%, and an increase to income tax expense of $1.9 million, or 46.3%. Pretax pre-provision earnings, a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $34.6 million in the first three months of 2026 , an increase of $3.5 million , or 11.3%, compared to $31.0 million for the comparable period of 2025 . Return on average total equity was 13.89% in the first three months of 2026 versus 11.70% in the comparable period of 2025 . Return on average total assets was 1.52% in the first three months of 2026 versus 1.20% for the comparable period of 2025 . The Company's average equity to average assets ratio was 10.91% in the first three months of 2026 versus 10.29% in the comparable period of 2025 . The Company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 10.53% at March 31, 2026, compared to 10.09% at March 31, 2025 and 10.86% at December 31, 2025. Unrealized losses from available-for-sale investment securities were $154.5 million at March 31, 2026, compared to $188.3 million at March 31, 2025 and $143.3 million at December 31, 2025. 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 12.20% at March 31, 2026, compared to 12.19% at March 31, 2025 and 12.45% at December 31, 2025. Total assets were $7.084 billion as of March 31, 2026 versus $6.990 billion as of December 31, 2025, an increase of $93.7 million, or 1.3% . Balance sheet expansion was driven by increases to t otal loans, net of the allowance for credit losses, which increased $98.1 million, or 1.8%, and cash and cash equivalents, which increased $10.0 million, or 7.1%. These increases were offset by a decrease to available-for-sale securities of $25.1 million, or 2.4% The balance sheet expansion from December 31, 2025 to March 31, 2026 was funded by an increase in total deposits of $216.9 million, or 3.6%, and was offset by a decrease in borrowings of $116.0 million, or 63.0%. Total equity decreased $13.5 million, or 1.8%, from $762.5 million at December 31, 2025 to $749.0 million at March 31, 2026. The decrease to total equity was primarily attributable to an increase in treasury stock of $19.3 million, or 53.8%, driven by the Company's utilization of the share repurchase program, and a decrease in accumulated other comprehensive income (loss) of $8.5 million, contributed further to the decline in total equity. Offsetting these reductions to total equity was an increase in retained earnings of $13.3 million, or 1.7%, primarily as a result of net income of $26.5 million less dividends declared and paid of $13.2 million. The combined effect of the repurchase activity under the share repurchase program and dividends paid during the quarter represented a total return of capital to Company shareholders of $32.4 million. CRITICAL ACCOUNTING POLICIES 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, 2025. 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. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Some of the facts and circumstances which could affect these judgments include changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for credit losses. See “Note 4 – Allowance for Credit Losses and Credit Quality” for more information on this critical accounting policy. 37 Table of Contents RESULTS OF OPERATIONS Overview Selected income statement information for the three months ended March 31, 2026 and 2025 is presented in the following table: Three Months Ended March 31, (dollars in thousands) 2026 2025 Income Statement Summary: Net interest income (A) $ 56,773 $ 52,875 Provision for credit losses 2,000 6,800 Noninterest income (B) 12,933 10,928 Noninterest expense (C) 35,151 32,763 Other Data: Efficiency ratio (1) 50.43 % 51.35 % Diluted EPS $ 1.04 $ 0.78 Average Equity/Average Assets 10.91 % 10.29 % Tangible capital ratio (2) 10.53 10.09 Adjusted tangible capital ratio (3) 12.20 12.19 Net charge-offs to average loans 0.16 0.03 Net interest margin 3.49 3.40 Noninterest income to total revenue 18.55 17.13 Pretax pre-provision earnings (4) $ 34,555 $ 31,040 (1) Noninterest expense (C) / (Net interest income (A) + Noninterest income (B)) = Efficiency Ratio (2) Non-GAAP financial measure. Calculated by subtracting intangible assets, net of deferred tax, from total assets and total equity. Management believes this is an important measure because it is useful for planning and forecasting purposes. See reconciliation on the following pages. (3) Non-GAAP financial measure. Calculated by removing the fair market value adjustment impact of the available-for-sale investment securities portfolio included in accumulated other comprehensive income (loss) ("AOCI") from tangible equity and tangible assets. Management believes this is an important measure because it provides better comparability to periods preceding the cycle of monetary policy tightening from 2022 and 2023 and demonstrates the Company's longer-term trend in capital strength. See reconciliation on the following pages. (4) Non-GAAP financial measure. Pretax pre-provision earnings is calculated by adding net interest income to noninterest income and subtracting noninterest expense. Management believes this is an important measure because it may enable investors to identify the trends in the Company's earnings exclusive of the effects of tax and provision expense, which may vary significantly from period to period. See reconciliation on the following pages. 38 Table of Contents The Company believes that providing non-GAAP financial measures provides investors with information useful to understanding the Company's financial performance. Tangible common equity, adjusted tangible common equity, tangible assets, adjusted tangible assets, tangible book value per common share, tangible common equity to tangible assets, adjusted tangible common equity to adjusted tangible assets, and pretax pre-provision earnings are non-GAAP financial measures calculated based on GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of equity, net of deferred tax. Tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets, net of deferred tax. Adjusted tangible assets and adjusted tangible common equity remove the fair market value adjustment impact of the available-for-sale investment securities portfolio in accumulated other comprehensive income (loss) ("AOCI"). Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding less true treasury stock. Pretax pre-provision earnings is calculated by adding net interest income to noninterest income and subtracting noninterest expense. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. However, management considers these measures of the Company’s value meaningful to understanding of the Company’s financial information and performance. A reconciliation of these non-GAAP financial measures is provided below. As of and For The Three Months Ended March 31, (dollars in thousands, except per share data) 2026 2025 Total Equity $ 748,993 $ 694,509 Less: Goodwill (4,970) (4,970) Plus: Deferred Tax Assets Related to Goodwill 1,167 1,167 Tangible Common Equity (A) 745,190 690,706 Market Value Adjustment in AOCI 135,106 163,879 Adjusted Tangible Common Equity (C) 880,296 854,585 Total Assets $ 7,083,680 $ 6,851,178 Less: Goodwill (4,970) (4,970) Plus: Deferred Tax Assets Related to Goodwill 1,167 1,167 Tangible Assets (B) 7,079,877 6,847,375 Market Value Adjustment in AOCI 135,106 163,879 Adjusted Tangible Assets (D) 7,214,983 7,011,254 Ending Common Shares Issued (E) 25,098,219 25,727,393 Tangible Book Value per Common Share (A/E) $ 29.69 $ 26.85 Tangible Capital Ratio (A/B) 10.53 % 10.09 % Adjusted Tangible Capital Ratio (C/D) 12.20 % 12.19 % Net Interest Income $ 56,773 $ 52,875 Plus: Noninterest Income 12,933 10,928 Minus: Noninterest Expense (35,151) (32,763) Pretax Pre-Provision Earnings $ 34,555 $ 31,040 39 Table of Contents Net Income Net income was $26.5 million in the first three months of 2026, which increased $6.4 million , or 31.8%, from $20.1 million for the comparable period of 2025 . Diluted earnings per common share was $1.04 in the first three months of 2026 , an increase of 33.3% from $0.78 in the comparable period of 2025 . The increase in net income for the first three months of 2026 was primarily due to an increase to net interest income of $3.9 million, or 7.4%, an increase to noninterest income of $2.0 million, or 18.3%, and a decrease in the provision for credit losses of $4.8 million, or 70.6%. Offsetting these positive contributions was an increase in noninterest expense of $2.4 million, or 7.3%, and an increase to income tax expense of $1.9 million, or 46.3%. N et Interest Income The following tables set forth consolidated information regarding average balances and rates: Three Months Ended March 31, 2026 2025 (fully tax equivalent basis, dollars in thousands) Average Balance Interest Income Yield (1)/ Rate Average Balance Interest Income Yield (1)/ Rate Earning Assets Loans: Taxable (2)(3) $ 5,417,380 $ 83,111 6.22 % $ 5,160,031 $ 81,740 6.42 % Tax exempt (1) 23,496 346 5.98 25,887 361 5.66 Investments: Securities (1) 1,190,278 8,786 2.99 1,136,404 8,338 2.98 Short-term investments 2,701 21 3.15 2,964 28 3.83 Interest bearing deposits 95,539 828 3.51 105,518 1,096 4.21 Total earning assets $ 6,729,394 $ 93,092 5.61 % $ 6,430,804 $ 91,563 5.77 % Less: Allowance for credit losses (68,944) (87,477) Nonearning Assets Cash and due from banks 67,282 71,004 Premises and equipment 65,997 60,523 Other nonearning assets 288,484 288,116 Total assets $ 7,082,213 $ 6,762,970 Interest Bearing Liabilities Savings deposits $ 287,643 $ 41 0.06 % $ 283,888 $ 42 0.06 % Interest bearing checking accounts 3,686,666 26,110 2.87 3,486,447 28,075 3.27 Time deposits: In denominations under $100,000 201,974 1,548 3.11 212,934 1,832 3.49 In denominations over $100,000 644,717 5,732 3.61 633,112 6,509 4.17 Short-term borrowings 182,423 1,783 3.96 99,830 1,122 4.56 Long-term borrowings 1,200 0 0.00 254 0 0.00 Total interest bearing liabilities $ 5,004,623 $ 35,214 2.85 % $ 4,716,465 $ 37,580 3.23 % Noninterest Bearing Liabilities Demand deposits 1,234,539 1,258,344 Other liabilities 70,105 92,108 Stockholders' Equity 772,946 696,053 Total liabilities and stockholders' equity $ 7,082,213 $ 6,762,970 Interest Margin Recap Interest income/average earning assets 93,092 5.61 % 91,563 5.77 % Interest expense/average earning assets 35,214 2.12 37,580 2.37 Net interest income and margin $ 57,878 3.49 % $ 53,983 3.40 % (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. Taxable equivalent basis adjustment was $1.1 million for the three-month periods ended March 31, 2026 and 2025. (2) Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended March 31, 2026 and 2025, are included as taxable loan interest income. (3) Nonaccrual loans are included in the average balance of taxable loans. 40 Table of Contents Net interest income, on a fully tax equivalent basis, increased $3.9 million, or 7.2%, to $57.9 million for the three months ended March 31, 2026, compared to $54.0 million for the first three months of 2025 . The increase in net interest income on a fully tax equivalent basis was driven by a decrease in deposit interest expense of $3.0 million , or 8.3% , from $36.5 million to $33.4 million . Securities interest income contributed further to the increase in fully tax equivalent net interest income, increasing by $448,000 , or 5.4% . Loan interest income increased by $1.4 million, or 1.7%, as an increase in average loans offset decreased average yields. Borrowings expense increased by $661,000 , or 58.9% . Total average earning assets were $6.729 billion for the three months ended March 31, 2026, an increase of $298.6 million, or 4.6%, compared to $6.431 billion for the three months ended March 31, 2025 . Average loans outstanding drove the increase to total average earning assets, increasing $255.0 million, or 4.9%, to $5.441 billion from $5.186 billion for the three months ended March 31, 2026 and 2025 , respectively . Average investment securities increased $53.9 million, or 4.7%, to $1.190 billion from $1.136 billion between the respective periods . Total average interest bearing liabilities were $5.005 billion for the three months ended March 31, 2026, an increase of $288.2 million, or 6.1%, from $4.716 billion for the three months ended March 31, 2025. This increase was driven by growth in average interest bearing deposits of $204.6 million, or 4.4%, from $4.616 billion for the three months ended March 31, 2025 to $4.821 billion for the three months ended March 31, 2026. Average short-term borrowings increased by $82.6 million, or 82.7% between the respective periods. Noninterest bearing demand deposits decreased $23.8 million, or 1.9%, to $1.235 billion from $1.258 billion between the two periods. The tax equivalent net interest margin was 3.49% for the three months ended March 31, 2026, compared to 3.40% during the first three months of 2025 , representing a 9 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 2.12% for the three months ended March 31, 2026 , down from 2.37% for the comparable period of 2025 , or a decrease of 25 basis points. This decline was attributable to a decrease in the rate for total interest bearing liabilities of 38 basis points from 3.23% to 2.85% between the respective periods. These decreases were driven by reduced costs associated with the repricing of the Company's interest bearing deposits and borrowings as a result of monetary policy easing from the Federal Reserve Bank. Contributing further to the reduction in the rate for interest bearing liabilities was a reduction in the average borrowings rate, which declined 60 basis points from 4.54% to 3.94%. The improvement in interest expense as a percentage of average earning assets was offset by a 16 basis point reduction in interest income as a percentage of average earning assets, which declined fro m 5.77% to 5.61%. This decrease was primarily attributable to a decline in average loan yields, which decreased 20 basis points to 6.22% for the three months ended March 31, 2026, down from 6.42% for the comparable period of 2025 . Provision for Credit Losses The Company recorded provision for credit losses expense of $2.0 million for the three months ended March 31, 2026, compared to provision expense of $6.8 million during the comparable period of 2025 , a decrease of $4.8 million, or 70.6%. Net charge-offs were $2.1 million during the three month period ended March 31, 2026, compared to $327,000 during the comparable period of 2025 , an increase of $1.8 million. The decrease in provision expense between the respective periods was attributable to the allocation of reserves to a previously disclosed nonperforming credit during the first quarter of 2025. 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. The Company’s management continues to monitor the adequacy of the provision based on loan levels, asset quality, economic conditions and other factors that may influence the assessment of the collectability of loans. 41 Table of Contents Noninterest Income Noninterest income categories for the three months ended March 31, 2026 and 2025 are shown in the following tables: Three Months Ended March 31, (dollars in thousands) 2026 2025 Dollar Change Percent Change Wealth advisory fees $ 3,063 $ 2,867 $ 196 6.8 % Investment brokerage fees 524 452 72 15.9 Service charges on deposit accounts 2,874 2,774 100 3.6 Loan and service fees 3,207 2,884 323 11.2 Merchant and interchange fee income 777 822 (45) (5.5) Bank owned life insurance income 976 322 654 203.1 Interest rate swap fee income 701 0 701 100.0 Mortgage banking income (loss) 81 (51) 132 (258.8) Other income 730 858 (128) (14.9) Total noninterest income $ 12,933 $ 10,928 $ 2,005 18.3 % Noninterest income to total revenue 18.55 % 17.13 % Noninterest income increased $2.0 million, or 18.3%, to $12.9 million for the first quarter of 2026, compared to $10.9 million for the first quarter of 2025. Loan and service fees income increased $323,000, or 11.2%, driven by increased commercial loan fees. Wealth advisory fees increased $196,000, or 6.8%, driven by continued growth in customers and assets under management. Investment brokerage fees increased $72,000, or 15.9%, due to increased volume and commissions on product mix. Bank owned life insurance income increased $654,000, or 203.1%, from improved market performance of the Bank's variable owned life insurance policies, which reflect returns in the equity markets, as well as incremental income from policies purchased in 2025. Interest rate swap fee income was $701,000 for the first quarter of 2026, which is borrower and market driven. Offsetting these increases was a decrease to other income of $128,000, or 14.9%, primarily driven by reduced limited partnership investment income. Noninterest Expense Noninterest expense categories for the three months ended March 31, 2026 and 2025 are shown in the following tables: Three Months Ended March 31, (dollars in thousands) 2026 2025 Dollar Change Percent Change Salaries and employee benefits $ 20,295 $ 17,902 $ 2,393 13.4 % Net occupancy expense 2,104 1,980 124 6.3 Equipment costs 1,464 1,382 82 5.9 Data processing fees and supplies 4,259 4,265 (6) (0.1) Corporate and business development 1,493 1,406 87 6.2 FDIC insurance and other regulatory fees 873 800 73 9.1 Professional fees 1,937 2,380 (443) (18.6) Other expense 2,726 2,648 78 2.9 Total noninterest expense $ 35,151 $ 32,763 $ 2,388 7.3 % Efficiency ratio 50.43 % 51.35 % Noninterest expense increased $2.4 million, or 7.3%, to $35.2 million for the first quarter of 2026, compared to $32.8 million during the first quarter of 2025. Salaries and employee benefits expense increased by $2.4 million, or 13.4%, primarily the result of increased salaries and wages, performance-based incentive pay, and employee benefits expenses. Net occupancy expense increased $124,000, or 6.3%, and equipment costs increased $82,000, or 5.9%, from the Company's continued expansion and reinvestment into its physical branch network. Corporate and business development expense increased $87,000, or 6.2%, and FDIC insurance and other regulatory fees increased $73,000, or 9.1%. Offsetting these increases was a decrease in professional fees of $443,000, or 18.6%, driven by reduced technology implementation fees incurred during the quarter. 42 Table of Contents The Company's income tax expense increased $1.9 million, or 46.3%, to $6.1 million in the three months ended March 31, 2026, compared to $4.2 million for the same period in 2025. The effective tax rate was 18.7% in the three months ended March 31, 2026, compared to 17.1% for the comparable period of 2025, driven by lower tax-free interest income on loans. FINANCIAL CONDITION Overview Total assets were $7.084 billion as of March 31, 2026 versus $6.990 billion as of December 31, 2025, an increase of $93.7 million, or 1.3% . Balance sheet expansion was driven by increases to t otal loans, net of the allowance for credit losses, which increased $98.1 million, or 1.8%, and cash and cash equivalents, which increased $10.0 million, or 7.1%. These increases were offset by a decrease to available-for-sale securities of $25.1 million, or 2.4% The balance sheet expansion from December 31, 2025 to March 31, 2026 was funded by an increase in total deposits of $216.9 million, or 3.6%, and was offset by a decrease in borrowings of $116.0 million, or 63.0%. Total equity decreased $13.5 million, or 1.8%, from $762.5 million at December 31, 2025 to $749.0 million at March 31, 2026. The decrease to total equity was primarily attributable to an increase in treasury stock of $19.3 million, or 53.8%, driven by the Company's utilization of the share repurchase program. A decrease in accumulated other comprehensive income (loss) of $8.5 million contributed further to the decline in total equity. Offsetting these reductions to total equity was an increase in retained earnings of $13.3 million, or 1.7%, primarily as a result of net income of $26.5 million less dividends declared and paid of $13.2 million. The combined effect of the repurchase activity under the share repurchase program and dividends paid during the quarter represented a total return of capital to Company shareholders of $32.4 million. Uses of Funds Total Cash and Cash Equivalents Total cash and cash equivalents increased by $10.0 million, or 7.1%, to $151.3 million at March 31, 2026, from $141.3 million at December 31, 2025. Cash and cash equivalents include short-term investments. The fluctuation in cash and cash equivalents at March 31, 2026 was driven by an increase in cash and due from banks of $8.6 million, or 15.0%, and an increase in interest bearing short-term investment accounts of $1.4 million, or 1.7%, 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, 2026 and December 31, 2025 were as follows: March 31, 2026 December 31, 2025 (dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Available-for-Sale U.S Treasury securities $ 15,185 $ 15,104 $ 10,117 $ 10,119 U.S government sponsored agencies 134,037 113,482 136,772 115,690 Mortgage-backed securities: residential 493,336 440,211 506,734 454,163 State and municipal securities 538,933 458,194 541,694 472,090 Total available-for-sale $ 1,181,491 $ 1,026,991 $ 1,195,317 $ 1,052,062 Held-to-Maturity State and municipal securities $ 133,617 $ 114,241 $ 133,208 $ 117,510 Total Investment Portfolio $ 1,315,108 $ 1,141,232 $ 1,328,525 $ 1,169,572 At March 31, 2026 and December 31, 2025, 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. Management is aware that the directional change in the fair value of the available-for-sale investment securities portfolio is inversely related to the directional movement of the interest rate environment, with the resulting impact being reflected in the unrealized gain (loss) of the available-for-sale investment securities portfolio. Since the majority of the bonds in the investment portfolio are fixed-rate, with only a few adjustable-rate bonds, we would expect our investment portfolio to follow this market value pattern. 43 Table of Contents 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 $5.1 million in the first three months of 2026. Investment securities represented 16.4% of total assets on March 31, 2026, compared to 17.0% of total assets on December 31, 2025. The Company anticipates receiving principal and interest cash flows of approximately $88.2 million during the remainder of 2026 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 6.0 years at March 31, 2026 and 5.9 years at December 31, 2025. Paydowns from prepayments and scheduled payments of $18.1 million were received in the first three months of 2026, and the amortization of premiums, net of the accretion of discounts, was $870,000. There were no sales of available-for-sale investment securities in the first three months of 2026. No allowance for credit losses was recognized for available-for-sale or held-to-maturity securities as of March 31, 2026 and December 31, 2025. The fair value of the available-for-sale investment securities portfolio as of March 31, 2026 included net unrealized losses of $154.5 million, compared to net unrealized losses of $143.3 million as of December 31, 2025. Unrealized losses in the available-for-sale investment securities portfolio are generally attributable to market value declines experienced during the rate tightening cycle of 2022 and 2023. Increases in the 10-year Treasury rate during the first quarter of 2026 increased unrealized losses in the investment securities portfolio. The investment portfolio is managed by a third-party firm to provide for an appropriate balance between liquidity, credit risk, interest rate risk management and investment return and to limit the Company’s exposure to credit risk in the investment securities portfolio. The Company does not trade or invest in or sponsor certain unregistered investment companies defined as hedge funds and private equity funds under what is commonly referred to as the “Volcker Rule” of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Real Estate Mortgage Loans Held-for-Sale Real estate mortgage loans held-for-sale decreased by $1.6 million, or 59.9%, to $1.1 million at March 31, 2026, from $2.7 million at December 31, 2025. 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 $4.8 million in the first three months of 2026, compared to $3.0 million in the first three months of 2025. 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 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 $290.4 million and $294.5 million, as of March 31, 2026 and December 31, 2025, respectively. Loan Portfolio The loan portfolio by portfolio segment as of March 31, 2026 and December 31, 2025 is summarized as follows: (dollars in thousands) March 31, 2026 December 31, 2025 Current Period Change Commercial and industrial loans $ 1,578,776 28.9 % $ 1,553,689 28.9 % $ 25,087 Commercial real estate and multi-family residential loans 2,740,335 50.1 2,666,515 49.5 73,820 Agri-business and agricultural loans 374,081 6.8 406,856 7.6 (32,775) Other commercial loans 95,764 1.7 97,381 1.8 (1,617) Consumer 1-4 family mortgage loans 570,753 10.4 537,192 10.0 33,561 Other consumer loans 116,158 2.1 116,224 2.2 (66) Subtotal, gross loans 5,475,867 100.0 % 5,377,857 100.0 % 98,010 Less: Allowance for credit losses (68,914) (68,995) 81 Net deferred loan fees (2,509) (2,508) (1) Loans, net $ 5,404,444 $ 5,306,354 $ 98,090 44 Table of Contents Total net loans, excluding real estate mortgage loans held-for-sale, increased by $98.1 million, or 1.8%, to $5.404 billion at March 31, 2026 from $5.306 billion at December 31, 2025. 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, excluding deferred fees and costs, as of March 31, 2026 and December 31, 2025: (dollars in thousands) March 31, 2026 December 31, 2025 Nonaccrual loans $ 20,909 $ 20,872 Loans past due over 90 days and still accruing 7 7 Total nonperforming loans 20,916 20,879 Other real estate owned 0 0 Repossessions 22 47 Total nonperforming assets $ 20,938 $ 20,926 Individually analyzed loans $ 43,160 $ 43,024 Nonperforming loans to total loans 0.38 % 0.39 % Nonperforming assets to total assets 0.30 % 0.30 % Total nonperforming assets increased by $12,000, or 0.1%, to $20.9 million during the three month period ended March 31, 2026. The ratio of nonperforming assets to total assets remained at 0.30% as of December 31, 2025 and March 31, 2026. A loan is individually analyzed when full payment under the original loan terms is not expected. The analysis for smaller loans that are similar in nature and which are not in nonaccrual or modified status, such as residential mortgage, consumer, and credit card loans, is determined based on the class of loans. 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 $136,000, or 0.3%, to $43.2 million at March 31, 2026 from $43.0 million at December 31, 2025. Loans are charged against the allowance for credit losses when management believes that the principal is uncollectible. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount that management believes will be adequate to absorb current expected credit losses relating to specifically identified loans based on an evaluation of the loans by management, as well as other current expected losses 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 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. General allowance is determined after considering the following factors: application of loss percentages using a probability of default/loss given default approach subject to a floor, emerging market risk, commercial loan focus and large credit concentrations, new industry lending activity and current economic conditions. Federal regulations require insured institutions to classify their own assets on a regular basis. The regulations provide for three categories of classified loans: Substandard, Doubtful and Loss. The regulations also contain a Special Mention category. Special Mention applies to loans that do not currently expose an insured institution to a sufficient degree of risk to warrant classification as Substandard, Doubtful or Loss but do possess credit deficiencies or potential weaknesses deserving management’s close attention. The Company’s policy is to establish a specific allowance for credit losses for any assets where management has identified conditions or circumstances that indicate an asset is nonperforming. 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, 2026, the allowance for credit losses was 1.26% of total loans, a decrease of 2 basis points from 1.28% at December 31, 2025. At March 31, 2026, 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 45 Table of Contents experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require increases in the allowance for credit losses. The process of identifying credit losses is a subjective process. The Company has a relatively high percentage of commercial and commercial real estate loans, which are extended to businesses with a broad range of revenue and within a wide variety of industries. 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 has limited exposure to commercial office space borrowers, all of which are located in the Bank's Indiana markets. Loans totaling $103.6 million for this sector represented 1.9% of total loans at March 31, 2026. Additionally, commercial real estate loans secured by multi-family residential properties and secured by non-farm non-residential properties were approximately 214.9% of the Bank's risk-based capital at March 31, 2026. The Company continues to monitor the impact of tariffs on its borrowers. As of March 31, 2026, based on management’s review of the loan portfolio, the Company had 95 credit relationships with principal balances totaling $182.3 million on the classified loan list versus 96 credit relationships with principal balances totaling $184.0 million as of December 31, 2025. As of March 31, 2026, the Company $132.7 million of assets classified as Special Mention, $49.5 million classified as Substandard, $73,000 classified as Doubtful and $0 classified as Loss as compared to $134.0 million, $50.0 million, $74,000 and $0, respectively, at December 31, 2025. The amounts by grade in "Note 4 - Allowance for Credit Losses and Credit Quality" are reported at amortized cost and include deferred fees and costs. Watch list loans as a percentage of total loans were 3.33% as of March 31, 2026, down 9 basis points from 3.42% at December 31, 2025. Allowance estimates are developed by management after taking into account actual loss experience adjusted for current economic conditions and a reasonably supportable forecast period. The Company has annual discussions regarding this methodology with regulatory authorities. 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. For a more thorough discussion of the allowance for credit losses methodology see the "Critical Accounting Policies" section of this Item 2. The allowance for credit losses decreased $81,000, or 0.1%, from $69.0 million at December 31, 2025 to $68.9 million at March 31, 2026. The decrease was primarily driven by net charge offs of $2.1 million, offset by provision for credit losses of $2.0 million. Net charge offs for the three months ended March 31, 2026 were primarily driven by a $2.0 million charge off to one commercial credit. 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. Sources of Funds The Company's sources of funds include a diversified deposit base gathered throughout the Company's footprint and includes a growing mix of commercial, retail and public funds deposit accounts. While the traditional base of core deposits represents the primary source of funding for the Company, the Company has access to a robust array of other liquidity sources, including secured borrowings available from the Federal Home Loan Bank and the Federal Reserve Bank Discount Window. 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, 2026, the Company had access to $3.312 billion in unused liquidity available from these aggregate sources as compared to $3.526 billion at December 31, 2025. 46 Table of Contents The average daily deposits and borrowings together with average rates paid on those deposits and borrowings for the three months ended March 31, 2026 and 2025 are summarized in the following table: Three months ended March 31, 2026 2025 (dollars in thousands) Balance Rate Balance Rate Noninterest bearing demand deposits $ 1,234,539 0.00 % $ 1,258,344 0.00 % Savings and transaction accounts: Savings deposits 287,643 0.06 283,888 0.06 Interest bearing demand deposits 3,686,666 2.87 3,486,447 3.27 Time deposits: Deposits of $100,000 or more 644,717 3.61 633,112 4.17 Other time deposits 201,974 3.11 212,934 3.49 Total deposits $ 6,055,539 2.24 % $ 5,874,725 2.52 % FHLB advances and other borrowings 183,623 3.94 % 100,084 4.54 % Total funding sources $ 6,239,162 2.29 % $ 5,974,809 2.55 % Average total deposits were $6.056 billion for the three months ended March 31, 2026, an increase of $180.8 million, or 3.1%, from the comparable period in 2025. Average total borrowings were $183.6 million for the three months ended March 31, 2026, an increase of $83.5 million, or 83.5%, from the comparable period in 2025. Total average deposit costs decreased 28 basis points from 2.52% for the three months ended March 31, 2025, to 2.24% for the three months ended March 31, 2026. Total average borrowing costs decreased 60 basis points from 4.54% for the three months ended March 31, 2025 to 3.94% for the three months ended March 31, 2026. As a result, the total cost of funding sources decreased by 26 basis points from 2.55% for the three months ended March 31, 2025, to 2.29% for the three months ended March 31, 2026. The decrease in the cost of funding sources 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 average rates for borrowings. Deposits and Borrowings As of March 31, 2026, total deposits increased by $216.9 million, or 3.6%, from December 31, 2025. Core deposits, which excludes brokered deposits, decreased by $108.1 million, or 1.8%, to $5.815 billion as of March 31, 2026 from $5.923 billion as of December 31, 2025. Total brokered deposits were $375.6 million at March 31, 2026, compared to $50.6 million at December 31, 2025, an increase of $325.0 million, or 642.7%. The following table summarizes deposit composition at March 31, 2026 and December 31, 2025: (dollars in thousands) March 31, 2026 Percentage of Total December 31, 2025 Percentage of Total Current Period Change Retail $ 1,800,420 29.1 % $ 1,763,452 29.5 % $ 36,968 Commercial 2,136,404 34.5 2,179,999 36.5 (43,595) Public funds 1,877,855 30.3 1,979,327 33.2 (101,472) Core deposits $ 5,814,679 93.9 % $ 5,922,778 99.2 % $ (108,099) Brokered deposits 375,581 6.1 50,572 0.8 325,009 Total deposits $ 6,190,260 100.0 % $ 5,973,350 100.0 % $ 216,910 On March 31, 2026, commercial deposits represented 34.5% of total deposits versus 36.5% at December 31, 2025. Retail deposits represented 29.1% at March 31, 2026 versus 29.5% at December 31, 2025. Public Funds deposits represented 30.3% at March 31, 2026 versus 33.2% at December 31, 2025. Brokered deposits represented 6.1% of total deposits at March 31, 2026 versus 0.8% at December 31, 2025. Commercial deposits contracted $43.6 million, or 2.0%, from $2.180 billion at December 31, 2025 to $2.136 billion at March 31, 2026; public funds deposits contracted $101.5 million, or 5.1%, from $1.979 billion at December 31, 2025 to $1.878 billion at March 31, 2026, due to seasonal fluctuations in public funds balances; and retail deposits expanded $37.0 million, or 2.1%, from $1.763 billion at December 31, 2025 to $1.800 billion at March 31, 2026. 47 Table of Contents Deposits not covered by FDIC deposit insurance were 55.1% as of March 31, 2026, versus 59.1% at December 31, 2025. Deposits not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund, which insures public fund deposits in Indiana, were 25.0% of total deposits as of March 31, 2026, versus 26.0% as of December 31, 2025. As of March 31, 2026 and December 31, 2025, 97.9% and 97.8% of deposit accounts had deposit balances less than $250,000, respectively. Capital As of March 31, 2026, total stockholders’ equity was $749.0 million, a decrease of $13.5 million, or 1.8%, from $762.5 million at December 31, 2025. The decrease to total stockholders' equity was driven by an increase in treasury stock of $19.3 million, or 53.8%, from utilization of the Company's share repurchase program and a reduction of $8.5 million in accumulated other comprehensive income (loss). Offsetting these decreases was net income of $26.5 million less dividends declared and paid of $13.2 million for a $13.3 million increase to retained earnings. The combined effect of the repurchase activity under the share repurchase program and dividends paid during the quarter represented a total return of capital to Company shareholders of $32.6 million. The impact on equity for other comprehensive income (loss) is not included in regulatory capital. The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1, or core capital, as a percentage of average assets, to measure the soundness of a financial institution. In addition, banking regulators have established risk-based capital guidelines for U.S. banking organizations. As of March 31, 2026, 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, 2026 and December 31, 2025, are presented in the table below. Capital ratios for March 31, 2026 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, 2026: Total Capital (to Risk Weighted Assets) Consolidated $ 948,558 15.58 % $ 487,032 8.00 % $ 639,229 N/A N/A N/A Bank $ 958,486 15.76 % $ 486,535 8.00 % $ 638,578 10.50 % $ 608,169 10.00 % Tier I Capital (to Risk Weighted Assets) Consolidated $ 879,555 14.45 % $ 365,274 6.00 % $ 517,471 N/A N/A N/A Bank $ 889,484 14.63 % $ 364,902 6.00 % $ 516,944 8.50 % $ 486,535 8.00 % Common Equity Tier 1 (CET1) Consolidated $ 879,555 14.45 % $ 273,955 4.50 % $ 426,153 N/A N/A N/A Bank $ 889,484 14.63 % $ 273,676 4.50 % $ 425,718 7.00 % $ 395,310 6.50 % Tier I Capital (to Average Assets) Consolidated $ 879,555 12.20 % $ 288,420 4.00 % $ 288,420 N/A N/A N/A Bank $ 889,484 12.35 % $ 288,160 4.00 % $ 288,160 4.00 % $ 360,200 5.00 % As of December 31, 2025: Total Capital (to Risk Weighted Assets) Consolidated $ 953,653 15.92 % $ 479,188 8.00 % $ 628,934 N/A N/A N/A Bank $ 960,393 16.05 % $ 478,735 8.00 % $ 628,339 10.50 % $ 598,419 10.00 % Tier I Capital (to Risk Weighted Assets) Consolidated $ 884,569 14.77 % $ 359,391 6.00 % $ 509,137 N/A N/A N/A Bank $ 891,310 14.89 % $ 359,051 6.00 % $ 508,656 8.50 % $ 478,735 8.00 % Common Equity Tier 1 (CET1) Consolidated $ 884,569 14.77 % $ 269,543 4.50 % $ 419,289 N/A N/A N/A Bank $ 891,310 14.89 % $ 269,288 4.50 % $ 418,893 7.00 % $ 388,972 6.50 % Tier I Capital (to Average Assets) Consolidated $ 884,569 12.39 % $ 285,531 4.00 % $ 285,531 N/A N/A N/A Bank $ 891,310 12.50 % $ 285,290 4.00 % $ 285,290 4.00 % $ 356,612 5.00 % 48 Table of Contents FORWARD-LOOKING STATEMENTS This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the federal securities law. Forward-looking statements are not historical facts and are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “project,” “possible,” “continue,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and, accordingly, the reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including, without limitation: • the effects of future economic, business and market conditions and changes, particularly in but not limited to our Indiana market area, including prevailing interest rates, the rate of inflation, and energy price volatility; • governmental foreign, trade, monetary, tax and fiscal policies, including the policy decisions of the Federal Reserve; • 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; • changes in borrowers’ credit risks and payment behaviors; • the failure of assumptions and estimates used in our reviews of our loan portfolio, underlying the establishment of reserves for possible credit losses, our analysis of our capital position and other estimates; • the performance of our commercial real estate loan portfolio, including the effects of the elevated interest rate environment and the strength of the commercial real estate market in our Indiana markets; • risk of cybersecurity attacks that could result in damage to the Company's or third-party service providers' networks or data of the Company • technological changes implemented by us and other parties, including our third-party vendors, which may have unforeseen consequences to us and our customers, including the development and implementation of tools incorporating artificial intelligence; • the timing and scope of any legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators; • increased competition in the financial services sector, including from non-bank competitors such as credit unions and fintech companies, and the inability to attract new customers; • the effects of war, geopolitical conflicts, acts of terrorism, or other catastrophic events, including storms, droughts, tornados and flooding, that may affect general economic conditions, including agricultural production and demand and prices for agricultural inputs, goods and land used for agricultural purposes, generally and in our markets; • the effects of fraud by or affecting employees, customers or third parties; • the effects of disruption and volatility in capital markets on the value of our investment portfolio; • changes in the prices, values and sales volumes of residential real estate; • changes in the scope and cost of FDIC insurance, the state of Indiana’s Public Deposit Insurance Fund and other coverages; • the impact of litigation and other claims we may be subject to from time to time; • changes in the availability and cost of credit and capital in the financial markets; • the loss of key executives and employees, talent shortages and employee turnover; • changes in technology or products that may be more difficult or costly to implement, or less effective than anticipated; • changes in accounting policies, rules and practices; 49 Table of Contents • the risks related to mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; and • the risks noted in the Risk Factors discussed under Item 1A of Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2025, as well as other risks and uncertainties set forth from time to time in the Company’s other filings with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.