LAKELAND FINANCIAL CORP

Previous wording

Net income in the first nine months of 2024 was $69.3 million, which increased $5.1 million, or 8.0%, from $64.1 million for the comparable period of 2023. Diluted income per common share was $2.69 in the first nine months of 2024, an increase of 8.0% from $2.49 in the comparable period of 2023. The increase in net income for 2024 wasprimarily due to an increase to noninterest income of $12.3 million, or 37.7%, and a decrease in noninterest expense of $6.8 million, or 6.7%. Offsetting these effects was an increase in the provision for credit losses of $7.5 million, or 135.3%, and a decrease to net interest income of $3.5 million, or 2.3%. Pretax pre-provision earnings, a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $95.5 million in the first nine months of 2024, an increase of $15.7 million, or 19.7%, compared to $79.8 million for the comparable period of 2023.

Current wording

Net income in the first three months of 2025 was $20.1 million, which decreased $3.3 million, or 14.2%, from $23.4 million for the comparable period of 2024. Diluted income per common share was $0.78 in the first three months of 2025, a decrease of 14.3% from $0.91 in the comparable period of 2024. The decrease in net income for 2025 wasprimarily due to an increase in the provision for credit losses of $5.3 million, or 347.4%, an increase in noninterest expense of $2.1 million, or 6.7%, and a decrease in noninterest income of $1.7 million, or 13.4%. Offsetting these effects was an increase to net interest income of $5.5 million, or 11.5%. Pretax pre-provision earnings, a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $31.0 million in the first three months of 2025, an increase of $1.7 million, or 5.9%, compared to $29.3 million for the comparable period of 2024.

Previous wording

Annualized return on average total equity was 14.21% in the first nine months of 2024 versus 14.44% in the comparable period of 2023. Annualized return on average total assets was 1.40% in the first nine months of 2024 versus 1.33% for the comparable period of 2023. The Company's average equity to average assets ratio was 9.84% in the first nine months of 2024 versus 9.21% in the comparable period of 2023.

Current wording

Annualized return on average total equity was 11.70% in the first three months of 2025 versus 14.59% in the comparable period of 2024. Annualized return on average total assets was 1.20% in the first three months of 2025 versus 1.44% for the comparable period of 2024. The Company's average equity to average assets ratio was 10.29% in the first three months of 2025 versus 9.84% in the comparable period of 2024.

Previous wording

The Company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 10.47% at September 30, 2024, compared to 8.62% at September 30, 2023 and 9.91% at December 31, 2023. Unrealized losses from available-for-sale investment securities were $154.5 million at September 30, 2024, compared to $266.4 million at September 30, 2023 and $174.6 million at December 31, 2023. 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 12.29% at September 30, 2024, compared to 11.74% at September 30, 2023 and 11.99% at December 31, 2023.

Current wording

The Company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 10.09% at March 31, 2025, compared to 9.80% at March 31, 2024 and 10.19% at December 31, 2024. Unrealized losses from available-for-sale investment securities were $188.3 million at March 31, 2025, compared to $189.9 million at March 31, 2024 and $191.1 million at December 31, 2024. When excluding the impact of accumulated other comprehensive income (loss) ("AOCI") on tangible common equity and tangible assets, the Company's adjusted tangible common equity to adjusted tangible assets ratio, which is a non-GAAP financial measure, was 12.19% at March 31, 2025, compared to 12.03% at March 31, 2024 and 12.37% at December 31, 2024.

Previous wording

Total assets were $6.645 billion as of September 30, 2024 versus $6.524 billion as of December 31, 2023, an increase of $121.3 million, or 1.9%. Total loans, net of the allowance for credit losses, increased $153.8 million, or 3.2%, which was the primary driver of balance sheet expansion between December 31, 2023 and September 30, 2024. Offsetting the increase to loans, net of the allowance of credit losses, was a decrease in available-for-sale securities of $35.1 million, or 3.3%. Total deposits increased by $116.8 million, or 2.0%, between December 31, 2023 and September 30, 2024. Total equity increased $49.4 million, or 7.6%, from $649.8 million at December 31, 2023 to $699.2 million at September 30, 2024. Retained earnings increased $31.8 million, or 4.6%, primarily as a result of net income of $69.3 million and reduced by dividends declared and paid of $37.0 million. AOCI increased $17.1 million, or 11.0%, from improvement in the fair market values of available-for-sale investment securities during the nine months ended September 30, 2024.

Current wording

Total assets were $6.851 billion as of March 31, 2025 versus $6.678 billion as of December 31, 2024, an increase of $172.8 million, or 2.6%. Balance sheet expansion was driven by increases to total loans, net of the allowance for credit losses, which increased $98.8 million, or 2.0%, cash and cash equivalents, which increased $67.0 million, or 39.8%, and available-for-sale securities, which increased $9.4 million, or 1.0%. Funding the balance sheet expansion between December 31, 2024 and March 31, 2025 were total deposits, which increased $59.2 million, or 1.0%, and total borrowings, which increased $108.2 million. Total equity increased $10.6 million, or 1.5%, from $683.9 million at December 31, 2024 to $694.5 million at March 31, 2025. Retained earnings increased $7.2 million, or 1.0%, primarily as a result of net income of $20.1 million and reduced by dividends declared and paid of $12.8 million.

Previous wording

Selected income statement information for the three and nine months ended September 30, 2024 and 2023 is presented in the following table:

Current wording

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

Previous wording

A reconciliation of these non-GAAP financial measures is provided below (dollars in thousands, except per share data).

Current wording

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

Previous wording

Adjusted core noninterest income, adjusted core noninterest expense, adjusted earnings before income taxes, core operational profitability, core operational diluted earnings per common share and adjusted core efficiency ratio are non-GAAP financial measures calculated based on GAAP amounts. These adjusted amounts are calculated by excluding the impact of the net gain on Visa shares, legal accrual, and wire fraud loss and associated insurance and loss recoveries and adjustments to salaries and employee benefits expense for the periods presented below. Management considers these measures of financial performance to be meaningful to understanding the company’s core business performance for these periods.

Current wording

Adjusted core noninterest income, adjusted earnings before income taxes, core operational profitability, core operational diluted earnings per common share and adjusted core efficiency ratio are non-GAAP financial measures calculated based on GAAP amounts. These adjusted amounts are calculated by excluding the impact of insurance recoveries related to the 2023 wire fraud loss for the periods presented below. Management considers these measures of financial performance to be meaningful to understanding the company’s core business performance for these periods.

Previous wording

A reconciliation of these non-GAAP financial measures is provided below (dollars in thousands, except per share data).

Current wording

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

Previous wording

(2) Core operational profitability was $11,000 higher than reported net income for the three months ended September 30, 2024. Core operational profitability was $4.1 million lower than reported net income for the nine months ended September 30, 2024 and 2023, respectively.

Current wording

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

Previous wording

Net income was $69.3 million in the first nine months of 2024, which increased $5.1 million, or 8.0%, from $64.1 million for the comparable period of 2023. Diluted income per common share was $2.69 in the first nine months of 2024, an increase of 8.0% from $2.49 in the comparable period of 2023. The increase in net income for the first nine months of 2024 wasprimarily due to an increase to noninterest income of $12.3 million, or 37.7%, and a decrease in noninterest expense of $6.8 million, or 6.7%. Offsetting these effects was a decrease to net interest income of $3.5 million, or 2.3%, and an increase in the provision for credit losses of $7.5 million, or 135.3%.

Current wording

Net income was $20.1 million in the first three months of 2025, which decreased $3.3 million, or 14.2%, from $23.4 million for the comparable period of 2024. Diluted income per common share was $0.78 in the first three months of 2025, a decrease of 14.3% from $0.91 in the comparable period of 2024. The decrease in net income for the first three months of 2025 wasprimarily due to an increase in the provision for credit losses of $5.3 million, or 347.4%, an increase in noninterest expense of $2.1 million, or 6.7%, and a decrease to noninterest income of $1.7 million, or 13.4%. Offsetting these effects was an increase to net interest income of $5.5 million, or 11.5%.

Previous wording

(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 adjustments were $1.1 million and $1.3 million in the three-month periods ended September 30, 2024 and September 30, 2023, respectively.

Current wording

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

Previous wording

Net interest income, on a fully tax equivalent basis, decreased $3.9 million, or 2.5%, to $148.6 million for the nine months ended September 30, 2024, compared to $152.4 million for the first nine months of 2023. The decline in net interest income on a fully tax equivalent basis was driven byan increase in deposit interest expense of$35.4 million, or 37.1%, from$95.6 million to$131.1 million. Securities interest income contributed further to the decline in fully tax equivalent net interest income, declining$1.7 million, or 6.5%. Loan interest income positively impacted fully tax equivalent net interest income, increasing $27.6 million, or 12.1%, from $227.1 million to $254.7 million between the two periods. Borrowings expense declined $4.5 million, or 54.9%.

Current wording

Net interest income, on a fully tax equivalent basis, increased $5.3 million, or 10.9%, to $54.0 million for the three months ended March 31, 2025, compared to $48.7 million for the first three months of 2024. The increase in net interest income on a fully tax equivalent basis was driven bya decrease in deposit interest expense of$4.7 million, or 11.4%, from$41.2 million to$36.5 million. Borrowings expense declined by $1.3 million, or 54.3%. Securities interest income contributed further to the increase in fully tax equivalent net interest income, increasing by$303,000, or 3.8%. A decline in loan interest income negatively impacted fully tax equivalent net interest income, decreasing $1.1 million, or 1.3%, from $83.2 million to $82.1 million between the two periods.

Previous wording

Total average earning assets were $6.281 billion for the nine months ended September 30, 2024, an increase of $177.1 million, or 2.9%, compared to $6.104 billion for the nine months ended September 30, 2023. Average loans outstanding drove the increase to total average earning assets, increasing $232.1 million, or 4.8%, to $5.024 billion from $4.791 billion for the nine months ended September 30, 2024 and 2023, respectively. Offsetting this increase was a decrease to average investment securities of $75.2 million, or 6.2%, to$1.135 billion from$1.211 billion between the respective periods. Total average interest bearing liabilities were $4.616 billion for the nine months ended September 30, 2024, an increase of $369.5 million, or 8.7%, from $4.247 billion for the nine months ended September 30, 2023. This increase was driven by increased interest bearing deposits of $499.4 million, or 12.4%, from $4.028 billion for the nine months ended September 30, 2023 to $4.528 billion for the nine months ended September 30, 2024. Offsetting the increase to average interest bearing deposits was a decrease in total average borrowings of $130.0 million, or 59.5%, to $88.6 million from $218.6 million for the nine months ended September 30, 2024 and 2023, respectively. Noninterest bearing demand deposits decreased $259.6 million, or 17.2%, to$1.250 billion from$1.509 billion between the two periods.

Current wording

Total average earning assets were $6.431 billion for the three months ended March 31, 2025, an increase of $213.9 million, or 3.4%, compared to $6.217 billion for the three months ended March 31, 2024. Average loans outstanding drove the increase to total average earning assets, increasing $214.9 million, or 4.3%, to $5.186 billion from $4.971 billion for the three months ended March 31, 2025 and 2024, respectively. Offsetting this increase was a decrease to average investment securities of $22.1 million, or 1.9%, to$1.136 billion from$1.159 billion between the respective periods. Total average interest bearing liabilities were $4.716 billion for the three months ended March 31, 2025, an increase of $184.3 million, or 4.1%, from $4.532 billion for the three months ended March 31, 2024. This increase was driven by increased interest bearing deposits of $260.1 million, or 6.0%, from $4.356 billion for the three months ended March 31, 2024 to $4.616 billion for the three months ended March 31, 2025. Offsetting the increase to average interest bearing deposits was a decrease in total average borrowings of $75.7 million, or 43.1%, to $100.1 million from $175.8 million for the three months ended March 31, 2025 and 2024, respectively. Noninterest bearing demand deposits decreased $15.8 million, or 1.2%, to$1.258 billion from$1.274 billion between the two periods.

Previous wording

The tax equivalent net interest margin was 3.16% for the nine months ended September 30, 2024, compared to 3.33% during the first nine months of 2023, representing a 17 basis point contraction between the two periods. The net interest margin contraction was primarily driven by an increase to interest expense as a percentage of average earning assets, which increased to 2.87% for thenine months ended September 30, 2024, up from 2.28% for the comparable period of 2023, for an increase of 59 basis points. This increase was attributable to an increase in the rate for total interest bearing liabilities of 63 basis points from 3.27% to 3.90% between the respective periods. This increase was driven by increased costs associated with the Company's interest bearing deposits, as depositors sought higher rates on interest bearing deposit products while competition for deposits remained high throughout the industry. This increase was offset by reduced borrowing expense due to lower average borrowings. The increase in interest expense for interest bearing deposits was a result of a combination of anincrease in average interest bearing deposits of$499.4 million, or 12.4%, from $4.028 billion to $4.528 billion, and an increase in the average rate for interest bearing deposits of 70 basis points, from 3.17% to 3.87% for thenine months ended September 30, 2024 as compared to the comparable period in the prior year. The Company anticipates the cost of funds may continue to remain elevated as a result of market competition and shifts from noninterest bearing deposits into interest bearing deposits. Offsetting the increase to interest expense as a percentage of average earning assets was an increase to interest income as a percentage of average earning assets of 42 basis points, or 7.4%, to 6.03% for thenine months ended September 30, 2024, up from 5.61% for the comparable period of 2023. This increase was attributable to an increase in loan yields, which was driven by the combination of an increase in average loans of$232.1 million, or 4.8%, to$5.024 billion from$4.791 billion, and an increase in average yield of 43 basis points from 6.34% to 6.77% between the respective periods. The Company expects that easing of monetary policy by the Federal Reserve Bank, which commenced in late September 2024, will exert downward pressure on loan yields as variable rate commercial loans reprice lower; however, deposits repricing lower is expected to offset the decline in loan yields.

Current wording

The tax equivalent net interest margin was 3.40% for the three months ended March 31, 2025, compared to 3.15% during the first three months of 2024, representing a 25 basis point expansion between the two periods. The net interest margin increase was primarily driven by a decrease to interest expense as a percentage of average earning assets, which decreased to 2.37% for thethree months ended March 31, 2025, down from 2.82% for the comparable period of 2024, for a decrease of 45 basis points. This decline was attributable to a decrease in the rate for total interest bearing liabilities of 64 basis points from 3.87% to 3.23% between the respective periods. This decrease was driven by reduced costs associated with the repricing of the Company's interest bearing deposits as a result of monetary policy easing from the Federal Reserve Bank. The decrease in interest expense for interest bearing deposits was a result ofa decrease in the average rate for interest bearing deposits of 60 basis points, from 3.80% to 3.20%. Offsetting the decrease in average rate wasan increase in average interest bearing deposits of$260.1 million, or 6.0%, from $4.356 billion for the three months ended March 31, 2024 to $4.616 billion for thethree months ended March 31, 2025. The decline provided by the reduction in interest expense as a percentage of average earning assets was amplified further by reduced borrowings expense as compared to the prior year. The Company anticipates the cost of funds would continue to respond favorably to any further monetary policy easing by the Federal Reserve Bank. The improvement in interest expense as a percentage of average earning assets was offset by a 20 basis point decrease in interest income as a percentage of average earning assets, which declined from 5.97% to 5.77%. This decrease was attributable to a decline in average loan yields, which decreased 31 basis to 6.42% for the three months ended March 31, 2025, down from 6.73% for the comparable period of 2024. Offsetting the impact the decline in average yield had on interest income as a percentage of average earning assets was an increase in average loans of$214.9 million, or 4.3%, to$5.186 billion from$4.971 billion between the respective periods. The Company expects that any continued easing of monetary policy by the Federal Reserve Bank, which commenced in September 2024, would exert downward pressure on loan yields as variable rate commercial loans reprice lower; however, this decline may be countered by further reductions in deposit pricing.

Previous wording

The Company recorded provision for credit losses expense of $13.1 million for the nine months ended September 30, 2024, compared to provision expense of $5.6 million during the comparable period of 2023, an increase of $7.5 million, or 135.3%. Net charge-offs were $1.4 million during the nine month period ended September 30, 2024, compared to $6.1 million during the comparable period of 2023, a decrease of $4.6 million, or 76.8%. The decrease in charge-offs between the respective periods was the result of a charge-off of $5.5 million attributable to a single commercial borrower that occurred during the first quarter of 2023.

Current wording

The Company recorded provision for credit losses expense of $6.8 million for the three months ended March 31, 2025, compared to provision expense of $1.5 million during the comparable period of 2024, an increase of $5.3 million, or 347.4%. Net charge-offs were $327,000 during the three month period ended March 31, 2025, compared to $312,000 during the comparable period of 2024, an increase of $15,000, or 4.8%. The increase in provision expense between the respective periods was primarily attributable to an increase in the specific reserve allocation for the previously disclosed $43.4 million nonperforming credit to an industrial company in Northern Indiana.

Previous wording

Additional factors considered by management included key loan quality metrics, including reserve coverage of nonperforming loans and 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.

Current wording

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

Previous wording

Noninterest income categories for the three and nine months ended September 30, 2024 and 2023 are shown in the following tables:

Current wording

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

Previous wording

Noninterest expense categories for the three and nine months ended September 30, 2024 and 2023 are shown in the following tables:

Current wording

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

Previous wording

The Company's income tax expense increased $3.0 million, or 30.1%, to $13.2 million in the nine months ended September 30, 2024, compared to $10.1 million for the same period in 2023. The effective tax rate was 16.0% in the nine months ended September 30, 2024, compared to 13.6% for the comparable period of 2023. The year-to-date effective tax rate was increased due to adoption of ASU 2023-02, to account for the Company's investment in low-income housing tax credit structures, as well as a reduction in the tax benefit recognized from stock-based compensation vesting of shares for plan participants.

Current wording

The Company's income tax expense decreased $247,000, or 5.6%, to $4.2 million in the three months ended March 31, 2025, compared to $4.4 million for the same period in 2024. The effective tax rate was 17.1% in the three months ended March 31, 2025, compared to 15.8% for the comparable period of 2024, driven by a reduction in the tax benefit recognized from stock-based compensation vesting of shares for plan participants.

Previous wording

Total assets were $6.645 billion as of September 30, 2024 versus $6.524 billion as of December 31, 2023, an increase of $121.3 million, or 1.9%. Total loans, net of the allowance for credit losses, increased $153.8 million, or 3.2%, between December 31, 2023 and September 30, 2024. Offsetting the increase to loans, net of the allowance for credit losses, was a decrease in available-for-sale securities of $35.1 million, or 3.3%. Total deposits increased $116.8 million, or 2.0%, between December 31, 2023 and September 30, 2024. The increase in total deposits was driven by an increase in interest bearing deposits of $185.7 million, or 4.3%, and was offset by a decrease in noninterest bearing deposits of $69.0 million, or 5.1%. Total equity increased $49.4 million, or 7.6%, from $649.8 million at December 31, 2023 to $699.2 million at September 30, 2024. Retained earnings increased $31.8 million, or 4.6%, as a result of net income of $69.3 million but was reduced by dividends declared and paid of $37.0 million. Accumulated other comprehensive income (loss), increased $17.1 million, or 11.0%, due primarily to an improvement in available-for-sale securities fair market values during the nine months ended September 30, 2024.

Current wording

Total assets were $6.851 billion as of March 31, 2025 versus $6.678 billion as of December 31, 2024, an increase of $172.8 million, or 2.6%. Balance sheet expansion was driven by increases to total loans, net of the allowance for credit losses, which increased $98.8 million, or 2.0%, cash and cash equivalents, which increased $67.0 million, or 39.8%, and available-for-sale securities, which increased $9.4 million, or 1.0%. Funding the balance sheet expansion between December 31, 2024 and March 31, 2025 were increases to total deposits, which increased $59.2 million, or 1.0%, and total borrowings, which increased $108.2 million. The increase in total deposits was driven by an increase in interest bearing deposits of $59.8 million, or 1.3%, and was offset by a decrease in noninterest bearing deposits of $549,000. Total equity increased $10.6 million, or 1.5%, from $683.9 million at December 31, 2024 to $694.5 million at March 31, 2025. Retained earnings increased $7.2 million, or 1.0%, as a result of net income of $20.1 million but was reduced by dividends declared and paid of $12.8 million.

Previous wording

Total cash and cash equivalents increased by $8.4 million, or 5.5%, to $160.2 million at September 30, 2024, from $151.8 million at December 31, 2023. Cash and cash equivalents include short-term investments. The fluctuation in cash and cash equivalents at September 30, 2024 was driven by an increase in cash and due from banks of $16.3 million, or 23.2%, and a decrease in interest bearing short-term investment accounts of $8.0 million, or 9.8%.

Current wording

Total cash and cash equivalents increased by $67.0 million, or 39.8%, to $235.2 million at March 31, 2025, from $168.2 million at December 31, 2024. Cash and cash equivalents include short-term investments. The fluctuation in cash and cash equivalents at March 31, 2025 was driven by an increase in cash and due from banks of $17.6 million, or 24.5%, and an increase in interest bearing short-term investment accounts of $49.4 million, or 51.2%.

Previous wording

There were no purchases of available-for-sale securities in the first nine months of 2024. Investment securities represented 17.3% of total assets on September 30, 2024, compared to 18.1% of total assets on December 31, 2023. The ratio of investment securities as a percentage of total assets remains elevated over historical levels of approximately 12% to 14%. The Company expects the investment securities portfolio as a percentage of assets to continue to decrease over time as the proceeds from pay downs, sales and maturities are used to fund loan portfolio growth and for general liquidity purposes. Tax equivalent adjusted effective duration for the investment securities portfolio was 6.3 years at September 30, 2024 and 6.5 years at December 31, 2023. Tax equivalent adjusted effective duration of the portfolio remains elevated as compared to 4.0 at December 31, 2019, prior to the deployment of excess liquidity to the investment portfolio and the rise in interest rates from the recent tightening cycle by the Federal Reserve. Paydowns from prepayments and scheduled payments of $44.6 million were received in the first nine months of 2024, and the amortization of premiums, net of the accretion of discounts, was $3.6 million. Sales of available-for-sale investment securities totaled $7.1 million in the first nine months of 2024 and resulted in net losses of $46,000. No allowance for credit losses was recognized for available-for-sale or held-to-maturity securities as of September 30, 2024 and December 31, 2023. The Company anticipates receiving principal and interest cash flows of approximately $26.4 million throughout the remainder of 2024 from its investment securities portfolio.

Current wording

Purchases of available-for-sale securities were $22.2 million in the first three months of 2025. Investment securities represented 16.5% of total assets on March 31, 2025, compared to 16.8% of total assets on December 31, 2024. The Company anticipates receiving principal and interest cash flows of approximately $82.3 million during the remainder of 2025 from the investment securities portfolio and plans to use that liquidity to fund loan growth and to reinvest cash flows into the investment securities portfolio. Tax equivalent adjusted effective duration for the investment securities portfolio was 5.9 years at March 31, 2025 and 6.0 years at December 31, 2024. Tax equivalent adjusted effective duration of the portfolio remains elevated as compared to 4.0 years at December 31, 2019. Paydowns from prepayments and scheduled payments of $14.7 million were received in the first three months of 2025, and the amortization of premiums, net of the accretion of discounts, was $1.0 million. There were no sales of available-for-sale investment securities in the first three months of 2025. No allowance for credit losses was recognized for available-for-sale or held-to-maturity securities as of March 31, 2025 and December 31, 2024.

Previous wording

The fair value of the available-for-sale investment securities portfolio as of September 30, 2024 included net unrealized losses of $154.5 million, compared to net unrealized losses of $174.6 million as of December 31, 2023. Unrealized losses in the available-for-sale investment securities portfolio resulted from the declines in market values of the investment securities. The improvement in market value seen since December 31, 2023 was driven partly by the commencement of monetary policy easing by the Federal Reserve during the third quarter of 2024, but available-for-sale securities fair values remain depressed compared to fair values prior to the policy tightening cycle during 2022 and 2023.

Current wording

The fair value of the available-for-sale investment securities portfolio as of March 31, 2025 included net unrealized losses of $188.3 million, compared to net unrealized losses of $191.1 million as of December 31, 2024. Unrealized losses in the available-for-sale investment securities portfolio resulted from the declines in market values of the investment securities resulting from the rise in interest rates.

Previous wording

Real estate mortgage loans held-for-sale increased by $2.0 million, or 171.8%, to $3.1 million at September 30, 2024, from $1.2 million at December 31, 2023. 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 $12.7 million in the first nine months of 2024, compared to $6.1 million in the first nine months of 2023. Management expects the volume of loans originated for sale in the secondary market could increase due to lower market rates for mortgage loans, however any uptick in activity may be encumbered by limited inventory, and existing homeowners being 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 $315.5 million and $333.1 million, as of September 30, 2024 and December 31, 2023, respectively.

Current wording

Real estate mortgage loans held-for-sale decreased by $405,000, or 23.8%, to $1.3 million at March 31, 2025, from $1.7 million at December 31, 2024. The balance of this asset category is subject to a high degree of variability depending on, among other factors, recent mortgage loan rates and the timing of loan sales into the secondary market. The Company generally sells conforming qualifying mortgage loans it originates on the secondary market. Proceeds from sales of residential mortgages totaled $3.0 million in the first three months of 2025, compared to $4.1 million in the first three months of 2024. Management expects the volume of loans originated for sale in the secondary market to increase if long-term interest rates decline from current levels. Demand for mortgage loans has been impacted by limited housing inventory and existing home owners locked in at historically low rates. Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others were $307.6 million and $313.0 million, as of March 31, 2025 and December 31, 2024, respectively.

Previous wording

Total loans, excluding real estate mortgage loans held-for-sale and deferred fees, increased by $153.8 million, or 3.2%, to $4.998 billion at September 30, 2024 from $4.845 billion at December 31, 2023. The increase was primarily driven by originations of loans concentrated in the commercial and industrial and commercial real estate and multi-family residential loans categories and was offset by paydowns in the agri-business and agricultural loans segment which traditionally experiences seasonal fluctuations in activity.

Current wording

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

Previous wording

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 $61.5 million, or 381.6%, to $77.7 million at September 30, 2024 from $16.1 million at December 31, 2023. The increase to individually analyzed loans was primarily related to the downgrade of two commercial relationships.

Current wording

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 $2.7 million, or 3.4%, to $81.3 million at March 31, 2025 from $78.6 million at December 31, 2024. The increase to individually analyzed loans was primarily related to the downgrade of one commercial relationship to nonperforming status, and a working capital credit line increase for an unrelated relationship currently on performing status.

Previous wording

At September 30, 2024, the allowance for credit losses was 1.65% of total loans, an increase of 19 basis points from 1.46% at December 31, 2023. At September 30, 2024, management believed the allowance for credit losses was at a level commensurate with the overall risk exposure of the loan portfolio. However, if economic conditions deteriorate, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require increases in the allowance for credit losses. The process of identifying credit losses is a subjective process.

Current wording

At March 31, 2025, the allowance for credit losses was 1.77% of total loans, an increase of 9 basis points from 1.68% at December 31, 2024. At March 31, 2025, management believed the allowance for credit losses was at a level commensurate with the overall risk exposure of the loan portfolio. However, if economic conditions deteriorate, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require increases in the allowance for credit losses. The process of identifying credit losses is a subjective process.

Previous wording

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 $102.6 million for this sector represented 2.0% of total loans at September 30, 2024. Additionally, commercial real estate loans secured by multi-family residential properties and secured by non-farm non-residential properties were approximately 210% of the Bank's risk-based capital at September 30, 2024.

Current wording

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 $100.6 million for this sector represented 1.9% of total loans at March 31, 2025. Additionally, commercial real estate loans secured by multi-family residential properties and secured by non-farm non-residential properties were approximately 214.0% of the Bank's risk-based capital at March 31, 2025.

Previous wording

As of September 30, 2024, based on management’s review of the loan portfolio, the Company had 91 credit relationships totaling $267.6 million on the classified loan list versus 68 credit relationships totaling $183.1 million as of December 31, 2023. As of September 30, 2024, the Company had $181.2 million of assets classified as Special Mention, $42.1 million classified as Substandard, $44.3 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. Watch list loans as a percentage of total loans increased to 5.27% as of September 30, 2024 from 3.72% as of December 31, 2023. The increase to the classified loan listing during 2024 was primarily driven by downgrades to four commercial relationships individually greater than $10.0 million, net of paydowns, payoffs and upgrades to other relationships.

Current wording

As of March 31, 2025, based on management’s review of the loan portfolio, the Company had 82 credit relationships with principal balances totaling $215.6 million on the classified loan list versus 81 credit relationships with principal balances totaling $211.1 million as of December 31, 2024. As of March 31, 2025, the Company had $124.5 million of assets classified as Special Mention, $47.7 million classified as Substandard, $43.4 million classified as Doubtful and $0 classified as Loss as compared to $123.6 million, $44.0 million, $43.5 million and $0, respectively, at December 31, 2024. Watch list loans as a percentage of total loans were 4.13% as of March 31, 2025 and December 31, 2024.

Previous wording

The allowance for credit losses increased $11.7 million, or 16.2%, from $72.0 million at December 31, 2023 to $83.6 million at September 30, 2024. The increase was a result of provision expense of $13.1 million which was offset by net charge-offs of $1.4 million. Provision expense recorded during the nine months ended September 30, 2024 was primarily attributable to an increase in the specific reserve allocation from the downgrade of a single $43.3 million commercial relationship, an industrial company in Northern Indiana, that was placed on nonperforming status during the second quarter of 2024. 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.

Current wording

The allowance for credit losses increased $6.5 million, or 7.5%, from $86.0 million at December 31, 2024 to $92.4 million at March 31, 2025. The increase was a result of provision expense of $6.8 million which was offset by net charge-offs of $327,000. Provision expense recorded during the three months ended March 31, 2025 was primarily attributable an increase in the specific allocation for the previously disclosed $43.3 million nonperforming credit to an industrial company in Northern Indiana. The remainder of the increase was attributable to the downgrade of an unrelated $1.0 million unsecured credit to nonperforming status and to loan growth between the two periods. 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.

Previous wording

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 September 30, 2024, the Company had access to $3.66 billion in unused liquidity available from these aggregate sources as compared to $3.41 billion at December 31, 2023.

Current wording

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

Previous wording

The average daily deposits and borrowings together with average rates paid on those deposits and borrowings for the nine months ended September 30, 2024 and 2023 are summarized in the following table:

Current wording

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

Previous wording

Average total deposits were $5.777 billion for the nine months ended September 30, 2024, an increase of $239.9 million, or 4.3%, from the comparable period in 2023. Average total borrowings were $88.6 million for the nine months ended September 30, 2024, a decrease of $130.0 million, or 59.5%, from the comparable period in 2023. Total average deposit costs increased 72 basis points from 2.31% for the nine months ended September 30, 2023, to 3.03% for the nine months ended September 30, 2024. Total average borrowing costs increased 56 basis points from 5.05% for the nine months ended September 30, 2023 to 5.61% for the nine months ended September 30, 2024. As a result, total funding costs increased by 66 basis points from 2.41% for the nine months ended September 30, 2023, to 3.07% for the nine months ended September 30, 2024. This increase was driven by an increase in rates on interest bearing deposits and a shift from noninterest bearing deposits to interest bearing deposits.

Current wording

Average total deposits were $5.875 billion for the three months ended March 31, 2025, an increase of $244.3 million, or 4.3%, from the comparable period in 2024. Average total borrowings were $100.1 million for the three months ended March 31, 2025, a decrease of $75.7 million, or 43.1%, from the comparable period in 2024. Total average deposit costs decreased 42 basis points from 2.94% for the three months ended March 31, 2024, to 2.52% for the three months ended March 31, 2025. Total average borrowing costs decreased 107 basis points from 5.61% for the three months ended March 31, 2024 to 4.54% for the three months ended March 31, 2025. As a result, total funding costs decreased by 47 basis points from 3.02% for the three months ended March 31, 2024, to 2.55% for the three months ended March 31, 2025. The decrease in funding costs between the two periods was attributable to easing of monetary policy by the Federal Reserve Bank which allowed deposit costs to reprice to lower levels and reduced the borrowings average rates.

Previous wording

As of September 30, 2024, total deposits increased by $116.8 million, or 2.0%, from December 31, 2023. Core deposits, which excludes brokered deposits, increased by $155.7 million, or 2.8%, to $5.741 billion as of September 30, 2024 from $5.585 billion as of December 31, 2023. Total brokered deposits were $96.5 million at September 30, 2024, compared to $135.4 million at December 31, 2023, a decrease of $38.9 million, or 28.7%.

Current wording

As of March 31, 2025, total deposits increased by $59.2 million, or 1.0%, from December 31, 2024. Core deposits, which excludes brokered deposits, decreased by $24.6 million, or 0.4%, to $5.835 billion as of March 31, 2025 from $5.859 billion as of December 31, 2024. Total brokered deposits were $125.4 million at March 31, 2025, compared to $41.6 million at December 31, 2024, an increase of $83.8 million, or 201.8%.

Previous wording

Core deposits, which excludes brokered deposits, expanded $155.7 million, or 2.8%, during the first nine months of 2024. Utilization of brokered deposits as a wholesale funding alternative has returned to pre-pandemic levels. On September 30, 2024, commercial deposits represented 39.5% of total deposits versus 38.9% at December 31, 2023. Retail deposits represented 29.3% at September 30, 2024 versus 31.4% at December 31, 2023. Public Funds deposits represented 29.6% at September 30, 2024 versus 27.3% at December 31, 2023. Brokered deposits represented 1.6% of total deposits at September 30, 2024 versus 2.4% at December 31, 2023. Commercial deposits expanded $76.9 million, or 3.5%, from $2.23 billion at December 31, 2023 to $2.30 billion at September 30, 2024; retail deposits contracted $85.1 million, or 4.7%, from $1.79 billion at December 31, 2023 to $1.71 billion at September 30, 2024; and public funds deposits expanded $163.9 million, or 10.5%, from $1.56 billion at December 31, 2023 to $1.73 billion at September 30, 2024.

Current wording

On March 31, 2025, commercial deposits represented 39.2% of total deposits versus 38.4% at December 31, 2024. Retail deposits represented 30.0% at March 31, 2025 versus 30.2% at December 31, 2024. Public Funds deposits represented 28.7% at March 31, 2025 versus 30.7% at December 31, 2024. Brokered deposits represented 2.1% of total deposits at March 31, 2025 versus 0.7% at December 31, 2024. Commercial deposits expanded $67.9 million, or 3.0%, from $2.269 billion at December 31, 2024 to $2.337 billion at March 31, 2025; retail deposits expanded $7.3 million, or 0.4%, from $1.781 billion at December 31, 2024 to $1.788 billion at March 31, 2025; and public funds deposits contracted $99.7 million, or 5.5%, from $1.810 billion at December 31, 2024 to $1.710 billion at March 31, 2025, due to seasonal activity.

Previous wording

Deposits not covered by FDIC deposit insurance were 61% as of September 30, 2024, versus 57% at December 31, 2023. Deposits not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund (which insures public fund deposits in Indiana), were 32% of total deposits as of September 30, 2024, versus 31% as of December 31, 2023. As of September 30, 2024 and December 31, 2023, 98% of deposit accounts had deposit balances less than $250,000.

Current wording

Deposits not covered by FDIC deposit insurance were 57.2% as of March 31, 2025, versus 62.1% at December 31, 2024. Deposits not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund (which insures public fund deposits in Indiana), were 28.9% of total deposits as of March 31, 2025, versus 32.3% as of December 31, 2024. As of March 31, 2025 and December 31, 2024, 97.8% and 98.0% of deposit accounts had deposit balances less than $250,000, respectively.

Previous wording

As of September 30, 2024, total stockholders’ equity was $699.2 million, an increase of $49.4 million, or 7.6%, from $649.8 million at December 31, 2023. The increase to total stockholders' equity was driven by net income of $69.3 million and was reduced by dividends declared and paid of $37.0 million and an increase of $17.1 million in accumulated other comprehensive income (loss).

Current wording

As of March 31, 2025, total stockholders’ equity was $694.5 million, an increase of $10.6 million, or 1.5%, from $683.9 million at December 31, 2024. The increase to total stockholders' equity was driven by net income of $20.1 million and was reduced by dividends declared and paid of $12.8 million and an increase of $2.6 million in accumulated other comprehensive income (loss).

Previous wording

•governmental monetary and fiscal policies;

Current wording

•governmental trade, monetary and fiscal policies;

Previous wording

•risk of cyber-security attacks that could result in damage to the Company's or third-party service providers' networks or data of the Company;

Current wording

•risk of cybersecurity attacks that could result in damage to the Company's or third-party service providers' networks or data of the Company;

Previous wording

•changes in accounting policies, rules and practices; and

Current wording

•changes in accounting policies, rules and practices;