LAKELAND FINANCIAL CORP 10-Q

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk represents the Company’s primary market risk exposure. The Company does not have a material exposure to foreign currency exchange risk, does not have a material amount of derivative financial instruments on a net basis and does not maintain a trading portfolio. The use of financial derivatives is limited to the back-to-back swap program for borrowers. The Corporate Risk Committee of the Board of Directors annually reviews and approves the policy used to manage interest rate risk. The policy was last reviewed and approved in July 2026. The policy sets 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 do not necessarily indicate the effect on future net interest income. The Company, through the Bank's Asset and Liability Committee, manages interest rate risk by monitoring the computer simulated earnings impact of various rate scenarios and general market conditions. The Company then modifies its long-term risk parameters by attempting to generate the types of loans, investments, and deposits that currently fit the Company’s needs, as determined by the Asset and Liability Committee. This computer simulation analysis measures the net interest income impact of various interest rate scenario changes during the next twelve months. The Company continually evaluates the assumptions used in the model. The current balance sheet structure is considered to be within acceptable risk levels. Interest rate scenarios for the base, falling 300 basis points, falling 200 basis points, falling 100 basis points, falling 50 basis points, falling 25 basis points, rising 25 basis points, rising 50 basis points, rising 100 basis points, rising 200 basis points and rising 300 basis points are listed below based upon the Company’s rate sensitive assets and liabilities at June 30, 2026. The net interest income shown represents cumulative net interest income over a twelve-month time horizon. Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations. The base scenario is an annual calculation that is highly dependent on numerous assumptions embedded in the model. While the base sensitivity analysis incorporates management’s best estimate of interest rate and balance sheet dynamics under various market rate movements, the actual behavior and resulting earnings impact will likely differ from that projected. For certain assets, the base simulation model captures the expected prepayment behavior under changing interest rate environments. Assumptions and methodologies regarding the interest rate or balance behavior of indeterminate maturity core deposit products, such as savings, money market, NOW and demand deposits reflect management’s best estimate of expected future behavior. (dollars in thousands) Base Falling (300 Basis Points) Falling (200 Basis Points) Falling (100 Basis Points) Falling (50 Basis Points) Falling (25 Basis Points) Rising (25 Basis Points) Rising (50 Basis Points) Rising (100 Basis Points) Rising (200 Basis Points) Rising (300 Basis Points) Net interest income $ 244,354 $ 235,686 $ 239,589 $ 242,749 $ 243,855 $ 244,278 $ 244,579 $ 244,738 $ 244,946 $ 245,106 $ 245,123 Variance from Base $ (8,668) $ (4,765) $ (1,605) $ (499) $ (76) $ 225 $ 384 $ 592 $ 752 $ 769 Percent of change from Base (3.55) % (1.95) % (0.66) % (0.20) % (0.03) % 0.09 % 0.16 % 0.24 % 0.31 % 0.31 %