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LAKELAND FINANCIAL CORP

LAKELAND FINANCIAL CORPLKFNEarnings & Financial Report

Nasdaq · Financials · State Commercial Banks

Amscot Financial is an American financial services company headquartered in Tampa, Florida. Founded in 1989 by Ian MacKechnie, Amscot Financial provides non-bank consumer financial services through a network of retail branches located exclusively within Florida. Amscot's core services include check cashing, bill payment, prepaid access cards, payday loans, free money orders, ATMs in every branch, wire transfers, notary services, fax services, and postage. Amscot Financial operates nearly 240 ...

What changed in LAKELAND FINANCIAL CORP's 10-K — 2023 vs 2024

Top changes in LAKELAND FINANCIAL CORP's 2024 10-K

439 paragraphs added · 440 removed · 350 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

117 edited+36 added−12 removed62 unchanged
The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) to the maximum extent provided under federal law and FDIC regulations. The Bank’s activities cover all traditional facets of commercial banking, including deposit products, commercial and consumer lending, retail and merchant credit card services, corporate treasury management services, and wealth advisory, trust and brokerage services.
The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC") to the maximum extent provided under federal law and FDIC regulations. The Bank’s activities cover all traditional facets of commercial banking, including deposit products, commercial and consumer lending, retail and merchant credit card services, corporate treasury management services, and wealth advisory, trust and brokerage services.
The Company has primarily targeted growth in the larger cities located in Northern Indiana and the Indianapolis market in Central Indiana and areas that are two hours from a Lake City Bank branch. The Company believes these areas offer above average growth potential with attractive demographics and potential for commercial lending and deposit gathering opportunities.
The Company has primarily targeted growth in the larger cities located in Northern Indiana and the Indianapolis market in Central Indiana and areas that are within two hours from a Lake City Bank branch. The Company believes these areas offer above average growth potential with attractive demographics and potential for commercial lending and deposit gathering opportunities.
These tests provide an incentive for banks and holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source and rely on stable funding like core deposits (in lieu of brokered deposits).
These tests provide an incentive for banks and bank holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source and rely on stable funding like core deposits (in lieu of brokered deposits).
Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board, securities laws administered by the SEC and state securities authorities, and anti-money laundering laws enforced by the U.S. Department of the Treasury (“Treasury”) have an impact on our business.
Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board, securities laws administered by the SEC and state securities authorities, and anti-money laundering laws enforced by the U.S. Department of the Treasury ("Treasury") have an impact on our business.
In addition to numerous disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The Regulatory Relief Act provided relief in connection with mortgages for banks with assets of less than $10 billion, and, as a result, mortgages the Bank makes are now considered to be qualified mortgages if they are held in portfolio for the life of the loan.
In addition to numerous disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain "qualified mortgages." The Regulatory Relief Act provided relief in connection with mortgages for banks with assets of less than $10 billion, and, as a result, mortgages the Bank makes are now considered to be qualified mortgages if they are held in portfolio for the life of the loan.
The Company makes available free of charge, in the Investor Relations section on this site, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other statements and reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.
The Company makes available free of charge, in the Investor Relations section on this site, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other statements and reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.
Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
Depending upon the capital category to which a banking organization is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
Because the global financial crisis was in part a liquidity crisis, Basel III includes a liquidity framework that requires the largest FDIC-insured institutions to measure their liquidity against specific liquidity tests.
Because the global financial crisis was in part a liquidity crisis, the Basel III Rule includes a liquidity framework that requires the largest FDIC-insured institutions to measure their liquidity against specific liquidity tests.
One test, referred to as the Liquidity Coverage Ratio, or LCR, is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.
One test, referred to as the Liquidity Coverage Ratio, or LCR, is designed to ensure that the banking organization has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.
“Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership. Capital Requirements. As a bank holding company, we are required to maintain capital in accordance with Federal Reserve capital adequacy requirements.
"Control" is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership. Capital Requirements. As a bank holding company, we are required to maintain capital in accordance with Federal Reserve capital adequacy requirements.
The so-called Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regime under the BSA provides a foundation to promote financial transparency and deter and detect those who seek to misuse the U.S. financial system to launder criminal proceeds, financed terrorist acts or move funds for other illicit purposes.
The so-called Anti-Money Laundering/Countering the Financing of Terrorism ("AML/CFT") regime under the BSA provides a foundation to promote financial transparency and deter and detect those who seek to misuse the U.S. financial system to launder criminal proceeds, finance terrorist acts or move funds for other illicit purposes.
The Bank offers employees a comprehensive health benefits package, a 401(k) match of up to 6% of an employee’s salary to encourage retirement savings, and tuition reimbursement that 22 employees used in 2023. The Bank also structures its bonus program for officers to create meaningful performance-based incentives.
The Bank offers employees a comprehensive health benefits package, a 401(k) match of up to 6% of an employee’s salary to encourage retirement savings, and tuition reimbursement that 22 employees used in 2024. The Bank also structures its bonus program for officers to create meaningful performance-based incentives.
The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.
The banking agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking ... as to be a proper incident thereto.” This authority would permit us to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999, to be "so closely related to banking ... as to be a proper incident thereto." This authority would permit us to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services.
Following the global financial crisis, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis. The Basel III Rule .
Following the global financial crisis, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced an agreement on a strengthened set of capital requirements for banking organizations around the world, known as the Basel III accords, to address deficiencies recognized in connection with the global financial crisis. The Basel III Rule.
As an Indiana corporation, we are subject to the limitations of Indiana General Business Corporations Law, which prohibit us from paying dividends if we are, or by payment of the dividend would become, insolvent, or if the payment of dividends would render us unable to pay its debts as they become due in the usual course of business.
As an Indiana corporation, we are subject to the limitations of Indiana General Business Corporations Law, which prohibit us from paying dividends if we are, or by payment of the dividend would become, insolvent, or if the payment of dividends would render us unable to pay our debts as they become due in the usual course of business.
Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common 8 Table of Contents Equity Tier 1 minority interests subject to certain regulatory adjustments.
Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings and Common Equity Tier 1 minority interests subject to certain regulatory adjustments.
In contrast to capital requirements historically, which were in the form of guidelines, Basel III was released in the form of binding regulations by each of the regulatory agencies. The Basel III Rule increased the required quantity and quality of capital and required more detailed categories of risk weighting of riskier, more opaque assets.
In contrast to capital requirements historically, which were in the form of guidelines, the Basel III Rule was released in the form of binding regulations by each of the banking agencies. The Basel III Rule increased the required quantity and quality of capital and required more detailed categories of risk weighting of riskier, more opaque assets.
For a discussion of capital requirements, see “The Role of Capital” above. Dividend Payments. Our ability to pay dividends to our shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.
For a discussion of capital requirements, see "The Role of Capital" above. Dividend Payments. Our ability to pay dividends to our shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.
If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency.
If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the banking agency is required to issue an order directing the institution to cure the deficiency.
In 2023, these efforts continued with a host of interactive, informative courses being offered to continue the learning process around these important issues. Eighty-three percent of our employees identify as women or people of color.
In 2023 and 2024, these efforts continued with a host of interactive, informative courses being offered to continue the learning process around these important issues. Eighty-three percent of our employees identify as women or people of color.
Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements, see “The Role of Capital” above.
Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements, see "The Role of Capital" above.
They are designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and has significant implications for FDIC-insured institutions, brokers, dealers and other businesses involved in the transfer of money.
They are designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and have significant implications for FDIC-insured institutions, brokers, dealers and other businesses involved in the transfer of money.
While capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress.
Although capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banking organizations prior to that crisis was insufficient to absorb losses during periods of severe stress.
The accords recognized that bank assets for the purpose of the capital ratio calculations needed to be risk weighted (the theory being that riskier assets should require more capital) and that off-balance sheet exposures needed to be factored in the calculations.
The accords recognized that bank assets for the purpose of the capital ratio calculations needed to be risk weighted (the theory being that riskier assets should require more capital) and that off-balance sheet exposures needed to be factored into the calculations.
The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.
The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of "covered transactions" and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2023. Notwithstanding the availability of funds for dividends, however, the Federal Reserve and the DFI may prohibit the payment of dividends by the Bank if either or both determine such payment would constitute an unsafe or unsound practice.
As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 2024. Notwithstanding the availability of funds for dividends, however, the Federal Reserve and the DFI may prohibit the payment of dividends by the Bank if either or both determine such payment would constitute an unsafe or unsound practice.
In reaction to the global financial crisis and particularly following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), we experienced heightened regulatory requirements and scrutiny.
In reaction to the global financial crisis and particularly following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), we experienced heightened regulatory requirements and scrutiny.
The Basel III Rule requires minimum capital ratios as follows: • A ratio of minimum Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets; • A ratio of minimum Tier 1 Capital equal to 6% of risk-weighted assets; • A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and • A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.
The Basel III Rule requires banking organizations to maintain minimum capital ratios as follows: • A ratio of minimum Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets; • A ratio of minimum Tier 1 Capital equal to 6% of risk-weighted assets; • A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and • A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.
If the Federal Reserve determines that a financial holding company or any bank subsidiary is not well-capitalized or well-managed, the Federal Reserve will provide a period of time in which to achieve compliance, but, during the period of noncompliance, the Federal Reserve may place any additional limitations on the Company that it deems appropriate.
If the Federal Reserve determines that a financial holding company or any bank subsidiary is not well-capitalized or well-managed, the Federal Reserve will provide a period of time in which to achieve compliance with those requirements, but, during the period of noncompliance, the Federal Reserve may place any additional limitations on the financial holding company that it deems appropriate.
Anti-Money Laundering. The Bank Secrecy Act (BSA) is the common name for a series of laws and regulations enacted in the United States to combat money laundering and the financing of terrorism.
Anti-Money Laundering/Countering the Financing of Terrorism/Sanctions. The Bank Secrecy Act ("BSA") is the common name for a series of laws and regulations enacted in the United States to combat money laundering and the financing of terrorism.
The Bank is required to obtain the approval of the DFI for the payment of any dividend if the total of all dividends declared by the Bank during the calendar year, including the proposed dividend, would exceed the sum of the Bank's net income for the year-to-date combined with its retained net income for the 12 Table of Contents previous two years.
The Bank is required to obtain the approval of the DFI for the payment of any dividend if the total of all dividends declared by the Bank during the calendar year, including the proposed dividend, would exceed the sum of the Bank's net income for the year-to-date combined with its retained net income for the previous two years.
In addition, the Company evaluates new growth markets that are in close proximity to the Company's footprint, such as the nine de novo branches that have been added in the past decade.
In addition, the Company evaluates new growth markets that are in close proximity to the Company's footprint, such as the 10 de novo branches that have been added in the past decade.
In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.
In addition, banking organizations that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.
The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk.
The federal banking agencies have reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk.
The majority of the Company’s revenue is from the business of banking and the Company’s assigned regions have similar economic characteristics, products, services and customers. Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable operating segment. 4 Table of Contents Expansion Strategy.
The majority of the Company’s revenue is from the business of banking and the Company’s assigned regions have similar economic characteristics, products, services and customers. Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable operating segment. Expansion Strategy.
These laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of our business, the kinds and amounts of investments we may make, required capital levels relative to our assets, the nature and amount of collateral for loans, the establishment of branches, our ability to merge, consolidate and acquire, dealings with our insiders and affiliates and our payment of dividends.
These laws, and the regulations of the banking agencies issued under them, affect, among other things, the scope of our business, the kinds and amounts of investments that we may make, required capital levels relative to our assets, the nature and amount of collateral for loans, the establishment of branches, our ability to merge, consolidate and acquire, dealings with our insiders and affiliates and our payment of dividends.
Federal law also prohibits FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF.
Federal law also prohibits FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a 13 Table of Contents significant risk to the DIF.
Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have c hanged the nature of banking markets.
Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, third-party relationships and the size and speed of financial transactions have c hanged the nature of banking markets.
The capital guidelines for U.S. banks beginning in 1989 have been based upon international capital accords (known as “Basel" rules) adopted by the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. bank regulatory agencies on an interagency basis.
The capital guidelines for U.S. banks beginning in 1989 have been based upon international capital accords (known as the "Basel" accords) adopted by the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. federal banking agencies on an interagency basis.
In July 2013, the U.S. federal banking agencies approved the implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rule”).
In July 2013, the U.S. federal banking agencies approved the implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the "Basel III Rule").
It increased shareholder influence over boards of directors by requiring companies to give stockholders a nonbinding vote on executive compensation and so-called “golden parachute” payments, and authorizing the SEC to promulgate rules that would allow shareholders to nominate and solicit voters for their own candidates using a company’s proxy materials.
It increased shareholder influence over boards of directors by requiring companies to give stockholders a nonbinding vote on executive compensation and so-called "golden parachute" payments, and authorizing the SEC to promulgate rules that would allow shareholders to nominate and solicit voters for their own candidates using a company’s proxy materials.
As an Indiana-chartered FDIC- insured member bank, the Bank is subject to the examination, supervision, reporting and enforcement 11 Table of Contents requirements of the DFI, the chartering authority for Indiana banks, the Federal Reserve, as the primary federal regulator of member banks, and the FDIC, as administrator of the DIF. Deposit Insurance .
As an Indiana-chartered FDIC-insured member bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the DFI, the chartering authority for Indiana banks, the Federal Reserve, as the primary federal regulator of member banks, and the FDIC, as administrator of the DIF. Deposit Insurance .
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits. Federal Securities Regulation. Our common stock is registered with the SEC under the Exchange Act.
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits, which may impact our business and operations. Federal Securities Regulation. Our common stock is registered with the SEC under the Exchange Act.
The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets.
The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to prohibit "unfair, deceptive or abusive" acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets.
Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity 10 Table of Contents and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.
The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies. 10 Table of Contents Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.
ITEM 1. BUSINESS The Company Lakeland Financial Corporation (“Lakeland Financial”), an Indiana corporation incorporated in 1983, is a bank holding company headquartered in Warsaw, Indiana that provides, through its wholly owned subsidiary Lake City Bank (the “Bank” and together with Lakeland Financial, the “Company”), a broad array of financial products and services throughout its Northern and Central Indiana markets.
ITEM 1. BUSINESS The Company Lakeland Financial Corporation ("Lakeland Financial"), an Indiana corporation incorporated in 1983, is a bank holding company headquartered in Warsaw, Indiana that provides, through its wholly owned subsidiary Lake City Bank (the "Bank") and together with Lakeland Financial (the "Company"), a broad array of financial products and services throughout its Northern and Central Indiana markets.
The Company plans to continue its organic expansion by capturing increased share in existing markets of operation and by growing its branch network in the Indianapolis market and in additional markets that are in close proximity to the Company's footprint.
The Company plans to continue its organic expansion by capturing increased share in existing markets of operation and by growing its branch network in the Indianapolis market and in additional 4 Table of Contents markets that are in close proximity to the Company's footprint.
The CRE Guidance does not limit banks’ levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations.
The CRE Guidance does not limit banks’ levels of CRE lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their CRE concentrations.
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 economic, business and market conditions and changes, particularly in our Indiana market area, including prevailing interest rates and the rate of inflation; • governmental monetary and fiscal policies; • the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand and the values and liquidity of loan collateral, securities and other interest sensitive assets and liabilities; • 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 effects of disruption and volatility in capital markets on the value of our investment portfolio; • the performance of our commercial real estate loan portfolio, including the effects of the elevated interest rate environment, the strength of the commercial real estate market in our Indiana markets, and recent changes in retail and office usage patterns; • 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; • the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services; • the risks related to the recent failures of First Republic Bank, Silicon Valley Bank and Signature Bank, including the effects already recognized and increased deposit volatility; • the outcome of pending litigation and other claims we may be subject to from time to time; • 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; • changes in the scope and cost of FDIC insurance, the state of Indiana’s Public Deposit Insurance Fund and other coverages; • changes in the prices, values and sales volumes of residential real estate; • the risk of labor shortages, trade policy and tariffs, as well as supply chain constraints could impact loan demand from the manufacturing sector; • the effects of fraud by or affecting employees, customers or third parties; 6 Table of Contents • the effects of war or other 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 goods and land used for agricultural purposes, generally and in our markets; • changes in the availability and cost of credit and capital in the financial markets; • changes in technology or products that may be more difficult or costly, or less effective than anticipated; • 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; • changes in accounting policies, rules and practices; and • the risks noted in the Risk Factors discussed under Item 1A of Part 1 of this Annual Report on Form 10-K, 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 (the "SEC").
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 economic, business and market conditions and changes, particularly in our Indiana market area, including prevailing interest rates and the rate of inflation; • governmental monetary and fiscal policies; • the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand and the values and liquidity of loan collateral, securities and other interest sensitive assets and liabilities; • 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, the strength of the commercial real estate market in our Indiana markets, and changes in retail and office usage patterns; • risk of cybersecurity attacks that could result in damage to the Company's or third-party service providers' networks or data of the Company; • the impact of labor shortages, and changes in trade policy and tariffs; • the timing and scope of any legislative and regulatory changes, including changes in tax, banking and securities laws and regulations and their application by our regulators; • the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services; • the effects of war or other 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 goods and land used for agricultural purposes, generally and in our markets; • 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 and multi-family 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; • the effects of fraud by or affecting employees, customers or third parties; • changes in the availability and cost of credit and capital in the financial markets; • changes in technology, including the use of artificial intelligence, or products that may be more difficult, more costly, or less effective than anticipated; • changes in accounting policies, rules and practices; • 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 6 Table of Contents • the risks noted in the Risk Factors discussed under Item 1A of Part 1 of this Annual Report on Form 10-K, 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 (the "SEC").
The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business.
The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective banking agencies, which results in examination reports and ratings that are not publicly 7 Table of Contents available and that can impact the conduct and growth of their business.
The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance (“CRE Guidance”) provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: 14 Table of Contents (i) commercial real estate loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital.
The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance ("CRE Guidance") provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) CRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital.
Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances.
Until the deficiency cited in the banking agency’s order is cured, the agency may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances.
There are certain regulatory restrictions on the extent to which subsidiary banks can pay dividends or otherwise supply funds to their holding companies. See “Supervision and Regulation of the Company” below for further discussion of these matters. Bank’s Business.
There are certain regulatory restrictions on the extent to which subsidiary banks can pay dividends or otherwise supply funds to their holding companies. See "Supervision and Regulation of the Company" below for further discussion of these matters. Bank’s Business.
The deposit accounts of the Bank are insured by the FDIC's Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category. The Bank is also a member of the Federal Reserve System (a “member bank”).
The deposit accounts of the Bank are insured by the FDIC's Deposit Insurance Fund ("DIF") to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category. The Bank is also a member of the Federal Reserve System (a "member bank").
The Bank is subject to certain restrictions imposed by federal law on “covered transactions” between the Bank and its “affiliates.” The Company is an affiliate of the Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by the Bank.
The Bank is subject to certain restrictions imposed by federal law on "covered transactions" between the Bank and its "affiliates." The Company is an affiliate of the Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by the Bank.
The amount of the assessment is calculated on the basis of the Bank’s total assets. During the year ended December 31, 2023, the Bank paid supervisory assessments to the DFI totaling approximately $314,000. Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “The Role of Capital” above.
The amount of the assessment is calculated on the basis of the Bank’s total assets. During the year ended December 31, 2024, the Bank paid supervisory assessments to the DFI totaling approximately $318,000. Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see "The Role of Capital" above.
Privacy and Cybersecurity . The Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public confidential information of their customers.
The Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public personal and other confidential information of their customers.
As of December 31, 2023, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. We are also in compliance with the capital conservation buffer. 9 Table of Contents Prompt Corrective Action .
As of December 31, 2024, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. We are also in compliance with the capital conservation buffer. Prompt Corrective Action .
The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies” (generally holding companies with consolidated assets of less than $3 billion) and certain qualifying banking organizations that may elect a simplified framework (which we have not done).
The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including national and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than "small bank holding companies" (generally holding companies with consolidated assets of less than $3 8 Table of Contents billion) and certain qualifying banking organizations that may elect a simplified framework (which we have not done).
In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends will have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.
In addition, under the Basel III Rule, institutions that want to pay unrestricted dividends will have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2023: (i) the Bank was not subject to a directive from the Federal Reserve to increase its capital and (ii) the Bank was well-capitalized, as defined by Federal Reserve regulations.
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. 9 Table of Contents As of December 31, 2024: (i) the Bank was not subject to a directive from the Federal Reserve or the DFI to increase its capital and (ii) the Bank was well-capitalized, as defined by Federal Reserve regulations.
For institutions like the Bank that are not considered large and highly complex banking organizations, assessments are based on examination ratings and financial ratios. The total base assessment rates currently range from 2.5 basis points to 32 basis points.
For institutions like the Bank that are not considered large and highly complex banking organizations, assessments are based on examination ratings and financial ratios. The total base assessment rates, effective as of January 1, 2023, currently range from 2.5 basis points to 32 basis points for institutions that are not considered large and highly complex banking organizations.
In 2023, 168 employees were promoted and 144 employees were hired externally, demonstrating a commitment to the professional development of Lake City Bank employees. In addition to the substantial investment in employee professional development, the Bank’s benefit and compensation programs are designed to ensure we recruit and retain top talent.
In 2024, 161 employees were promoted and 153 employees were hired externally, demonstrating a commitment to the professional development of Lake City Bank employees. In addition to the substantial investment in employee professional development, the Bank’s benefit and compensation programs are designed to ensure we recruit and retain top talent.
In addition, under the Basel III Rule, institutions that want to pay unrestricted dividends will have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “The Role of Capital” above. State Bank Investments and Activities.
In addition, under the Basel III Rule, institutions that want to pay unrestricted dividends must maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See "The Role of Capital" above. State Bank Investments, Activities and Acquisitions.
Well-Capitalized Requirements . The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.
Well-Capitalized Requirements . The ratios described above are minimum standards for banking organizations to be considered "adequately capitalized." Banking agencies uniformly encourage banks to hold more capital and be "well-capitalized" and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.
Building and strengthening this positive workplace culture starts with Lake City University. Founded in 1999, Lake City University is dedicated to helping employees thrive professionally and personally. In 2023, the Bank employees averaged 23.47 hours of instruction per employee through the program.
Building and strengthening this positive workplace culture starts with Lake City University. Founded in 1999, Lake City University is dedicated to helping employees thrive professionally and personally. In 2024, the Bank employees averaged 24.6 hours of instruction per employee through the program.
The Bank was originally organized in 1872 and has continuously operated under the laws of the State of Indiana since its organization. As of December 31, 2023, the Bank had 53 offices in fifteen counties, including 46 offices in Northern Indiana and seven offices in Central Indiana, in the Indianapolis market.
The Bank was originally organized in 1872 and has continuously operated under the laws of the State of Indiana since its organization. As of December 31, 2024, the Bank had 54 offices in fifteen counties, including 46 offices in Northern Indiana and eight offices in Central Indiana, in the Indianapolis market.
Since 1990, the Company has expanded from 17 offices in four Indiana counties to 53 offices in fifteen Indiana counties primarily through de novo branching. During this period, the Company has grown its assets from $286 million to $6.5 billion, a compound annual growth rate of 10%.
Since 1990, the Company has expanded from 17 offices in four Indiana counties to 54 offices in 15 Indiana counties through de novo branching. During this period, the Company has grown its assets from $286 million to $6.7 billion, a compound annual growth rate of 10%.
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Indiana Department of Financial Institutions (the “DFI”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the FDIC and the Consumer Financial Protection Bureau (the “CFPB”).
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various banking agencies, including the Indiana Department of Financial Institutions (the "DFI"), the Board of Governors of the Federal Reserve System (the "Federal Reserve"), the FDIC and the Consumer Financial Protection Bureau (the "CFPB").
The laws require financial services companies to have policies and procedures with respect to measures designed to address: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities. Concentrations in Commercial Real Estate.
The laws require financial services companies to have policies and procedures with respect to measures designed to address: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency 15 Table of Contents crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities.
Certain provisions of the Dodd-Frank Act and Basel III, discussed below, establish capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously. Capital Levels. Banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983.
Certain provisions of the Dodd-Frank Act and the Basel III Rule, discussed and defined below, establish capital standards for banking organizations that are meaningfully more stringent than those in place previously. Capital Levels. Banking organizations have been required to hold minimum levels of capital based on guidelines established by the banking agencies since 1983.
Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single "Community Bank Leverage Ratio" (“CBLR”) of between 8 and 10%.
Section 201 of the Regulatory Relief Act specifically instructed the federal banking agencies to establish a single "Community Bank Leverage Ratio" ("CBLR") of between 8 and 10%.
Federal law prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
Federal law prohibits any person or company from acquiring "control" of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal banking agency.
Under the BHCA, we are subject to periodic examination by the Federal Reserve and are required to file with the Federal Reserve periodic reports of our operations and such additional information regarding us and the Bank as the Federal Reserve may require. Acquisitions and Activities . The primary purpose of a bank holding company is to control and manage banks.
Under the BHCA, we are subject to periodic examination by the Federal Reserve and are required to file with the Federal Reserve periodic reports of our operations and such additional information regarding us and the Bank as the Federal Reserve may require. Acquisitions, Activities and Financial Holding Company Election .
Lakeland Financial is a bank holding company as defined in the Bank Holding Company Act of 1956, as amended. Lakeland Financial owns all of the outstanding stock of the Bank, a full-service commercial bank organized under Indiana law. Lakeland Financial conducts no business except that which is incidental to its ownership of the outstanding stock of the Bank.
Lakeland Financial owns all of the outstanding stock of the Bank, a full-service commercial bank organized under Indiana law. Lakeland Financial conducts no business except that which is incidental to its ownership of the outstanding stock of the Bank.
FDIC-insured institutions with $10 billion or less in assets, like the Bank, continue to be examined by their applicable bank regulators.
FDIC-insured institutions with $10 billion or less in assets, like the Bank, continue to be examined by their applicable bank regulators, but must comply with applicable regulations promulgated by the CFPB.
On July 10, 2023, the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks and an easing of CRE underwriting standards.
In recent years, the federal banking agencies have issued statements to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks and an easing of CRE underwriting standards.
Supervision and Regulation of the Company General. The Company, as the sole shareholder of the Bank, is a bank holding company. As a bank holding company, we are registered with, and subject to regulation by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (“BHCA”).
As a bank holding company, we are registered with, and subject to regulation, supervision and enforcement by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHCA").
The Bank team is 655 people strong, including 608 full-time, 35 part-time, and 12 seasonal/temporary employees as of December 31, 2023. Diversity and Inclusiveness. The Bank is committed to social and governance responsibility, and in 2020, the management team added “inclusivity” as the eighth core value defining our organizational culture.
The Bank team is 683 people strong, including 632 full-time, 33 part-time, and 18 seasonal/temporary employees as of December 31, 2024. Diversity and Inclusiveness. The Bank is committed to social and governance responsibility, and in 2020, the management team added "inclusivity" as the eighth core value defining our organizational culture.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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The market value of these investment securities has been, and may continue to be, affected by factors other than the underlying performance of the servicer of the securities or the mortgages underlying the securities, such as changes in the interest rate environment, negative trends in the residential and commercial real estate markets, ratings downgrades, adverse changes in the business climate and a lack of liquidity in the secondary market for certain investment securities.
The market value of these investment securities has been, and may continue to be, affected by factors other than the performance of the servicer of the securities or the mortgages underlying the securities, such as changes in the interest rate environment, negative trends in the residential and commercial real estate markets, ratings downgrades, adverse changes in the business climate and a lack of liquidity in the secondary market for certain investment securities.
Accordingly, we cannot make assurances of our ability to raise additional capital, if needed, on terms acceptable to us. In particular, if we were required to raise additional capital in the current interest rate environment, we believe the pricing and other terms investors may require in such an offering may not be attractive to use.
Accordingly, we cannot make assurances of our ability to raise additional capital, if needed, on terms acceptable to us. In particular, if we were required to raise additional capital in the current interest rate environment, we believe the pricing and other terms investors may require in such an offering may not be attractive to us.
A shift in funding away from public fund deposits would impact liquidity availability and could increase our cost of funds, as the alternate funding sources, such as brokered certificates of deposit, can be higher-cost, are less favorable deposits and could require additional collateral to be pledged.
A shift in funding away from public fund deposits would impact liquidity availability and could increase our cost of funds, as the alternate funding sources, such as brokered certificates of deposit, can be higher-cost, are less favorable deposits and could require collateral to be pledged.
In addition, we may determine to sell securities in our available-for-sale investment securities portfolio, and any such sale could cause us to realize currently unrealized losses that resulted from the recent increases in the prevailing interest rates.
In addition, we may determine to sell securities in our available-for-sale investment securities portfolio, and any such sale could cause us to realize currently unrealized losses that resulted from the increases in the prevailing interest rates.
The Dodd-Frank Act, together with the regulations to be developed thereunder, includes provisions affecting large and small financial institutions alike, including several provisions that affect how community banks, thrifts and small bank and thrift holding companies operate. In addition, the Federal Reserve, in recent years, has adopted numerous new regulations addressing banks’ overdraft and mortgage lending practices.
The Dodd-Frank Act, together with the regulations developed thereunder, includes provisions affecting large and small financial institutions alike, including several provisions that affect how community banks, thrifts and small bank and thrift holding companies operate. In addition, the Federal Reserve, in recent years, has adopted numerous new regulations addressing banks’ overdraft and mortgage lending practices.
Management has identified one accounting policy as being “critical” to the presentation of the Company’s financial condition and results of operations because it requires management to make particularly subjective and complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.
Management has identified one accounting policy as being "critical" to the presentation of the Company’s financial condition and results of operations because it requires management to make particularly subjective and complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.
The inability to maintain these public funds on deposit could result in a material adverse effect on the Bank’s liquidity and could materially impact our ability to grow and remain profitable. 20 Table of Contents Declines in asset values may result in impairment charges and adversely affect the value of our investment securities, financial performance and capital.
The inability to maintain these public funds on deposit could result in a material adverse effect on the Bank’s liquidity and could materially impact our ability to grow and remain profitable. 21 Table of Contents Declines in asset values may result in impairment charges and adversely affect the value of our investment securities, financial performance and capital.
If LCB Funding, Inc. fails to meet any of the required provisions for real estate investment trusts, it could no longer qualify as a real estate investment trust and the resulting tax consequences would increase our effective tax rate or cause us to have a tax liability for 23 Table of Contents prior years.
If LCB Funding, Inc. fails to meet any of the required provisions for real estate investment trusts, it could no longer qualify as a real estate investment trust and the resulting tax consequences would increase our effective tax rate or cause us to have a tax liability for 24 Table of Contents prior years.
For example, the cumulative effects of changes in the economy and overall business environment, labor availability shortages and supply chain constraints have adversely affected commercial and industrial loans, and we expect this trend to continue for certain portions of our loan portfolio, particularly if general economic conditions worsen.
For example, the cumulative effects of changes in the economy and overall business environment, impact of tariffs, labor availability shortages and supply chain constraints have adversely affected commercial and industrial loans, and we expect this trend to continue for certain portions of our loan portfolio, particularly if general economic conditions worsen.
The market value of real estate can fluctuate significantly in a short period of time as a result of interest rates and market conditions in our Indiana markets, where substantially all of our commercial real estate collateral is located, and, as a general matter, some of these values have been significantly and negatively affected by the recent rise in prevailing interest rates.
The market value of real estate can fluctuate significantly in a short period of time as a result of interest rates and market conditions in our Indiana markets, where substantially all of our commercial real estate collateral is located, and, as a general matter, some of these values have been significantly and negatively affected by prevailing interest rates.
Many of our larger competitors have substantially greater resources to invest in technological improvements, such as articifical intelligence. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage.
Many of our larger competitors have substantially greater resources to invest in technological improvements, such as artificial intelligence. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage.
If we cannot raise additional capital when needed, our financial condition and our ability to further expand our operations through internal growth or acquisitions could be materially impaired. We may experience difficulties in managing our growth, and our growth strategy involves risks that may negatively impact our net income.
If we cannot raise additional capital when needed, our financial condition and our ability to further expand our operations through organic growth or acquisitions could be materially impaired. We may experience difficulties in managing our growth, and our growth strategy involves risks that may negatively impact our net income.
Given the complex factors affecting the strength of the U.S. economy, including uncertainties regarding the persistence of inflation, international geopolitical developments, strength of the banking system, disruptions in the global energy market, labor market conditions and the impact of higher rates on consumers and businesses, there is a meaningful risk that the Federal Reserve and other central banks may underestimate the impact of their tightening policies and potentially cause an economic recession.
Given the complex factors affecting the strength of the U.S. economy, including uncertainties regarding the persistence of inflation, international geopolitical developments, developments in the global energy market, labor market conditions and the impact of higher rates on consumers and businesses, there is a meaningful risk that the Federal Reserve and other central banks may underestimate the impact of their tightening policies and potentially cause an economic recession.
The recent failures of Silicon Valley Bank and Signature Bank are expected to result in modifications to existing laws or the passage of additional laws and regulations governing banks and bank holding companies, including increasing capital 22 Table of Contents requirements, modifications to regulatory requirements with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, safe and sound banking practices and enhanced supervisory or enforcement activities.
The failures of Silicon Valley Bank and Signature Bank are expected to result in modifications to existing laws or the passage of additional laws and regulations governing banks and bank holding companies, including increasing capital 23 Table of Contents requirements, modifications to regulatory requirements with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, safe and sound banking practices and enhanced supervisory or enforcement activities.
Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the 25 Table of Contents transactions involve third parties and environments such as the point of sale that the Company does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact the Company through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks relating to them.
Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that the Company does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact the Company through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks relating to them.
In addition, increased competition with banks and credit unions in our fooprint, brokerage firms and online deposit gatherers for retail deposits may impact our ability to raise funds through deposits and could have a negative effect on our liquidity.
In addition, increased competition with banks and credit unions in our footprint, brokerage firms and online deposit gatherers for retail deposits may impact our ability to raise funds through deposits and could have a negative effect on our liquidity.
Our competitors include large national, regional and local community banks, credit unions, Fintech and nonbank financial service providers, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds and farm 21 Table of Contents credit services.
Our competitors include large national, regional and local community banks, credit unions, fintech and nonbank financial service providers, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds and farm 22 Table of Contents credit services.
A more detailed description of the primary federal and state banking laws and regulations that affect us is contained in the section of this Annual Report on Form 10-K captioned “Supervision and Regulation of the Bank”. Banking regulations are primarily intended to protect depositors’ funds, FDIC funds, customers and the banking system as a whole, rather than our shareholders.
A more detailed description of the primary federal and state banking laws and regulations that affect us is contained in the section of this Annual Report on Form 10-K captioned "Supervision and Regulation". Banking regulations are primarily intended to protect depositors’ funds, FDIC funds, customers and the banking system as a whole, rather than our shareholders.
If any events or circumstances occur which could undermine our reputation, there can be no assurance that the additional costs and expenses we may incur as a result would not have an adverse impact on our business. We have a continuing need to adapt to technological change and we may not have the resources to effectively implement new technology.
If any events or circumstances occur which could undermine our reputation, there can be no assurance that the additional costs and expenses we may incur as a result would not have an adverse impact on our business. 25 Table of Contents We have a continuing need to adapt to technological change and we may not have the resources to effectively implement new technology.
We are able to borrow from several federal funds lines at correspondent banks and are eligible to borrow from the Federal Reserve and the Federal Home Loan Bank (the “FHLB”) subject to collateral availability.
We are able to borrow from several federal funds lines at correspondent banks and are eligible to borrow from the Federal Reserve and the Federal Home Loan Bank (the "FHLB") subject to collateral availability.
In 2023, funding costs rose substantially as the cost to retain deposits and borrow increased due to market competition and a series of bank failures in the first quarter of 2023. The Company's increase in cost of funds negatively affected net interest income in 2023.
In 2023, funding costs rose substantially as the cost to retain deposits and borrow increased due to market competition and a series of bank failures in the first quarter of 2023. The Company's increase in cost of funds negatively affected net interest income in 2023 and throughout the first half of 2024.
Although a formal evaluation of the adequacy of the credit loss allowance is conducted 18 Table of Contents monthly, we cannot predict credit losses with certainty and we cannot provide assurance that our allowance for credit losses will prove sufficient to cover actual credit losses in the future.
Although a formal evaluation of the adequacy of the credit loss allowance is conducted monthly, we cannot predict credit losses with certainty and we cannot provide assurance that our allowance for credit losses will prove sufficient to cover actual credit losses in the future.
As a result of the recent increase in interest rates and other factors, we have observed a corresponding decline in the value of commercial real estate securing these loans, substantially all of which are located within our Indiana markets.
As a result of elevated interest rates and other factors, we have observed a corresponding decline in the value of commercial real estate securing these loans, substantially all of which are located within our Indiana markets.
For example, the failures of Silicon Valley Bank and Signature Bank in March 2023 and First Republic Bank in May 2023 led to disruption and volatility, including deposit outflows and increased need for liquidity, at certain banks.
For example, the failures of Silicon Valley Bank and Signature Bank in March 2023 and First Republic Bank in May 2023 led to disruption and volatility, including deposit outflows and increased need for liquidity, at 18 Table of Contents certain banks.
The CFPB is actively soliciting consumer input on fee practices associated with other consumer financial products or services, signaling that the “junk fee” initiative is likely to continue to broaden in scope.
The CFPB is actively soliciting consumer input on fee practices associated with other consumer financial products or services, signaling that the "junk fee" initiative is likely to continue to broaden in scope.
At December 31, 2023, consumer loans totaled $96.0 million, or 2% of our total loan portfolio. Consumer loans typically have shorter terms and lower balances with higher yields as compared to commercial loans, but generally carry higher risks of default.
At December 31, 2024, consumer loans totaled $104.0 million, or 2% of our total loan portfolio. Consumer loans typically have shorter terms and lower balances with higher yields as compared to commercial loans, but generally carry higher risks of default.
The actual amount of credit losses is affected by changes in economic, operating and other conditions within our markets, which may be beyond our control, and such losses may exceed current estimates. At December 31, 2023, our allowance for credit losses as a percentage of total loans was 1.46% and as a percentage of total nonperforming loans was 458%.
The actual amount of credit losses is affected by changes in economic, operating and other conditions within our markets, which may be beyond our control, and such losses may exceed current estimates. At December 31, 2024, our allowance for credit losses as a percentage of total loans was 1.68% and as a percentage of total nonperforming loans was 152%.
Our loan portfolio has a notable concentration in agri-business, which has a higher level of uncontrolled risk. Our agri-business loans, which totaled $388.8 million, or approximately 8% of our total loan portfolio, as of December 31, 2023, are subject to risks outside of our or the borrower’s control.
Our loan portfolio has a notable concentration in agri-business, which has a higher level of uncontrolled risk. Our agri-business loans, which totaled $387.4 million, or approximately 8% of our total loan portfolio, as of December 31, 2024, are subject to risks outside of our or the borrower’s control.
In addition, if interest rates continue to rise in response to elevated levels of inflation, the value of our securities portfolio would be negatively impacted. Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients' ability to repay indebtedness.
In addition, if prevailing interest rates persist or increase in response to elevated levels of inflation, the value of our securities portfolio would be negatively impacted. Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients' ability to repay indebtedness.
Because of the nature of our loan portfolio and our concentration in commercial and industrial loans, which tend to be larger loans, the movement of a small number of loans to nonperforming status can have a significant impact on these ratios.
Because of the nature of our loan portfolio and our concentration in commercial and industrial loans and commercial real estate loans, which tend to be larger loans, the movement of a small number of loans to 19 Table of Contents nonperforming status can have a significant impact on these ratios.
Credit losses in excess of our reserves may adversely affect our business, results of operations and financial condition. Commercial and industrial loans make up a significant portion of our loan portfolio. Commercial and industrial loans were $1.421 billion, or approximately 29% of our total loan portfolio, as of December 31, 2023.
Credit losses in excess of our reserves may adversely affect our business, results of operations and financial condition. Commercial and industrial loans make up a significant portion of our loan portfolio. Commercial and industrial loans were $1.451 billion, or approximately 28% of our total loan portfolio, as of December 31, 2024.
Historically, the Bank's largest charge offs have been in this segment of the loan portfolio. Our loan portfolio includes commercial real estate loans, which involve risks specific to real estate value. Commercial real estate loans were $2.438 billion, or approximately 50% of our total loan portfolio, as of December 31, 2023.
Historically, the Bank's largest charge offs have been in this segment of the loan portfolio. Our loan portfolio includes commercial real estate loans, which involve risks specific to real estate value. Commercial real estate loans were $2.593 billion, or approximately 51% of our total loan portfolio, as of December 31, 2024.
The United States has recently experienced elevated levels of inflation, with the rate peaking in 2022 and remaining elevated in 2023. Inflation pressures are currently expected to remain elevated as the inflation rate remains above the Federal Reserve’s target rate of 2%, which is intended to help accomplish its policy.
The United States has recently experienced elevated levels of inflation, with the rate peaking in 2022 and moderating in 2023 and 2024, although still higher than 2%. Inflation pressures are currently expected to remain elevated as the inflation rate remains above the Federal Reserve’s target rate of 2%, which is intended to help accomplish its policy.
For example, the Biden Administration announced a government-wide effort to eliminate “junk fees” which could subject our business practices to further scrutiny. The CFBP’s action on junk fees thus far has largely focused on fees associated with deposit products, such as “surprise” overdraft fees and non-sufficient funds fees. However, what constitutes a “junk fee” remains undefined.
For example, the previous presidential administration announced a government-wide effort to eliminate "junk fees" which could subject our business practices to further scrutiny. The CFBP’s action on junk fees thus far has largely focused on fees associated with deposit products, such as "surprise" overdraft fees and non-sufficient funds fees. However, what constitutes a "junk fee" remains undefined.
To the extent these or other factors affect the performance or financial condition of our agri-business borrowers, our results of operations and financial performance could suffer. 19 Table of Contents Our consumer loans generally have a higher degree of risk of default than our other loans.
To the extent these or other factors affect the performance or financial condition of our agri-business borrowers, such as the Avian bird flu, our results of operations and financial performance could suffer. 20 Table of Contents Our consumer loans generally have a higher degree of risk of default than our other loans.
At December 31, 2023, $379.0 million of unpledged investment securities were eligible to serve as collateral for liquidity availability at the FHLB and the Federal Reserve Bank.
At December 31, 2024, $544.3 million of unpledged investment securities were eligible to serve as collateral for liquidity availability at the FHLB and the Federal Reserve Bank.
It is also possible that governmental responses to the current inflation environment could adversely affect our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls.
It is also possible that governmental responses to the current inflation environment could adversely affect our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls. The duration and severity of the current inflationary period cannot be estimated with precision.
In addi tion, as a bank, we are susceptible to fraudulent activity that may be committed against us, third parties or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation.
Employee errors could also subject us to financial claims for negligence, among others. 26 Table of Contents In addi tion, as a bank, we are susceptible to fraudulent activity that may be committed against us, third parties or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation.
Accordingly, our ultimate losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies, which could adversely affect our financial condition and results of operations.
Accordingly, our ultimate losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies, which could adversely affect our financial condition and results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS We have no unresolved SEC staff comments.
Other legislative initiatives could detrimentally impact our operations in the future. Regulatory bodies may enact new laws or promulgate new regulations or view matters or interpret existing laws and regulations differently than they have in the past or commence investigations or inquiries into our business practices.
Other legislative initiatives could detrimentally impact our operations in the future. Governments and agencies may enact new laws or promulgate new regulations or view matters or interpret existing laws and regulations differently than they have in the past, including as a result of the new presidential administration, or commence investigations or inquiries into our business practices.
It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence, among others.
It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases.
Continued high levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse. For example, elevated inflation harms consumer purchasing power, which could negatively affect our retail customers and the economic environment and, ultimately, many of our business customers, and could also negatively affect our levels of non-interest expense.
For example, elevated inflation harms consumer purchasing power, which could negatively affect our retail customers and the economic environment and, ultimately, many of our business customers, and could also negatively affect our levels of non-interest expense.
Much of our success and growth has been influenced strongly by our ability to attract and retain management experienced in banking and financial services and familiar with the communities in our market areas.
Risks Relating to our Operations Our ability to attract and retain management and key personnel and any damage to our reputation may affect future growth and earnings. Much of our success and growth has been influenced strongly by our ability to attract and retain management experienced in banking and financial services and familiar with the communities in our market areas.
Any change in federal or state tax laws or regulations, including any increase in the federal corporate income tax rate from the current level of 21%, could negatively affect our business and results of operations, including as a result of our income tax expense and any impact to the profitability of our loan customers. 24 Table of Contents Risks Relating to our Operations Our ability to attract and retain management and key personnel and any damage to our reputation may affect future growth and earnings.
Any change in federal or state tax laws or regulations, including any increase in the federal corporate income tax rate from the current level of 21%, could negatively affect our business and results of operations, including as a result of our income tax expense and any impact to the profitability of our loan customers.
Moreover, because of our geographic concentration, we are less able than other regional or national financial institutions to diversify our credit risks across multiple markets. Monetary policies of the Federal Reserve could adversely affect our financial condition and results of operations.
Moreover, because of our geographic concentration, we are less able than other regional or national financial institutions to diversify our credit risks across multiple markets.
The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions on the way in which we conduct our business, or reputational harm.
In addition, companies in our industry are frequently the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings. The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions on the way in which we conduct our business, or reputational harm.
In the current environment, economic and business conditions are significantly affected by U.S. monetary policy, particularly the anticipated actions of the Federal Reserve to pivot from its campaign to raise short-term interest rates in an effort to fight elevated levels of inflation impacting the U.S. economy.
In the current environment, economic and business conditions are significantly affected by U.S. monetary policy, particularly the actions of the Federal Reserve to raise or lower short-term interest rates.
Conversely, 17 Table of Contents when interest rates fall, our interest bearing assets generally reprice more quickly than our interest bearing liabilities, given our asset-sensitive balance sheet, which may cause our net interest income to decrease.
Conversely, when interest rates fall, our interest bearing assets generally reprice slower than our interest bearing liabilities, given our balance sheet composition, which may cause our net interest income to increase.
Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening and competitive local labor market, especially for commercial lenders. As of December 31, 2023, Indiana's unemployment rate was 3.6%.
Although we have not experienced any material labor shortage to date, we have continued to experience a competitive local labor market, especially for commercial lenders. As of December 31, 2024, Indiana's unemployment rate was 4.5%.
Lower interest rates can also positively affect our customers’ businesses and financial condition, and increase the value of collateral securing loans in our portfolio.
Alternatively, a rise in long-term interest rates could result in an increase in the unrealized losses in available-for-sale securities. Lower interest rates can also positively affect our customers’ businesses and financial condition and increase the value of collateral securing loans in our portfolio.
A pivot in policy by the Federal Reserve to lower the target Federal Funds rate could further erode the Company’s net interest income due to lags in deposits repricing. However, a reduction in rates would positively impact the fair value of our investment securities portfolio, which had $174.6 million in unrealized losses in available-for-sale investment securities at December 31, 2023.
However, future changes by the Federal Reserve to adjust the target Federal Funds rate could have varying impacts on the Company's net interest margin. Additionally, a reduction in longer-term rates would positively impact the fair value of our investment securities portfolio, which had $191.1 million in unrealized losses in available-for-sale investment securities at December 31, 2024.
We face significant capital and other regulatory requirements as a financial institution, which were heightened with the implementation of the Basel III Rule and the phase-in of capital conservation buffer requirement and could be further impacted by the proposed Basel III Endgame Rule.
The Company, on a consolidated basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity. We face significant capital and other regulatory requirements as a financial institution, which were heightened with the implementation of the Basel III Rule and the phase-in of capital conservation buffer requirement.
The duration and severity of the current inflationary period cannot be estimated with precision. 16 Table of Contents Adverse developments or concerns affecting the financial services industry or specific financial institutions could adversely affect our financial condition and results of operations. The 2023 United States banking crisis could continue to have adverse effects on our business.
Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. Adverse developments or concerns affecting the financial services industry or specific financial institutions could adversely affect our financial condition and results of operations. The 2023 United States banking crisis could continue to have adverse effects on our business.
At December 31, 2023 , appro ximately 27% of our deposits are concentrated in public funds from municipalities and government agencies located in the Bank’s geographic footprint. These accounts represent less than 1% of total customer deposit accounts at December 31, 2023.
At December 31, 2024 , appro ximately 31% of our deposit balances are concentrated in public funds from municipalities and government agencies located in the Bank’s geographic footprint. The five largest of which have operating and other deposit accounts that, collectively, represented approximately 18% of total deposits at December 31, 2024.
These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations. Changes in these standards are continuously occurring, and given the current economic environment, more drastic changes may occur.
Changes in these standards are continuously occurring, and given the current economic environment, more drastic changes may occur. The implementation of such changes could have a material adverse effect on our financial condition and results of operations. We may be adversely affected by changes in U.S. tax laws and regulations.
In the context of resulting bankruptcy proceedings involving the former client, the liquidating trustee has filed a complaint against the Bank, focused on a series of business transactions among the former client, related entities and the Bank. In addition, companies in our industry are frequently the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings.
In the context of resulting bankruptcy proceedings involving the former client, the liquidating trustee had filed a complaint against the Bank, focused on a series of business transactions among the former client, related entities and the Bank. This matter was dismissed with prejudice on June 21, 2024.
From time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. In addition, trends in financial and business reporting, including environmental, social and governance (ESG) related disclosures, could require us to incur additional reporting expense.
From time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations.
Removed
In December 2023, the Federal Reserve indicated the possibility it would pivot from the current rate tightening cycle, forecasting a series of cuts to the Federal Funds rate in 2024. Rate increases benefited our net interest income during 2022, due to the asset sensitive nature of the Company’s balance sheet.
Added
Economic conditions in the United States and our Indiana markets are affected by complex factors that are difficult to predict and beyond our control, including uncertainties regarding the persistence of inflation, U.S. trade policy, including the potential impact of tariffs, geopolitical developments, such as ongoing conflicts in the Middle East and Ukraine, disruptions in the global energy market, labor market conditions, the potential impact of deportation initiatives, the effects of bird flu or other potential infectious diseases, supply chain issues both domestically and internationally, and the potential effects of the new presidential administration and its actions with respect to the foregoing.
Removed
Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. A resurgence of the COVID-19 pandemic, or a similar health crisis, could adversely affect our business. The COVID-19 pandemic had a significant economic impact on the communities in which we operate, our borrowers and depositors, and the national economy generally.
Added
In addition, uncertainty in the business community regarding these potential developments can itself harm economic conditions in our markets. Collectively, these issues could adversely affect our business, financial condition, results of operations and growth prospects. Monetary policies of the Federal Reserve could adversely affect our financial condition and results of operations.
Removed
While these effects have diminished, future developments and uncertainties are difficult to predict, such as the potential emergence of new variants, the course of the pandemic in other major economies, the persistence of pandemic-related work and lifestyle changes, changes in consumer preferences associated with the emergence of the pandemic, the emergence of a new health crisis and other market disruptions.
Added
In September of 2024, the Federal Reserve cut the Federal Funds rate by 50 basis points and proceeded with two additional 25 basis point cuts in November and December of 2024. At their December 2024 meeting, the Federal Reserve indicated the possibility of further cut rates in 2025, depending on the economic data.
Removed
Any such developments could have a complex and negative effect on our business, including with respect to the prevailing economic environment, our lending and investment activities, and our business operations.
Added
The pivot in policy actions by the Federal Reserve to lower the target Federal Funds rate allowed the Company to reprice deposits faster than loans in the second half of 2024, which had a positive impact on net interest income.
Removed
For example, as customer deposit levels have increased over the past year, we have observed that our sensitivity to rising deposits costs has increased as competition for deposits has risen.
Added
Continued high 17 Table of Contents levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse.
Removed
The Company, on a consolidated basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity.
Removed
The implementation of such changes could have a material adverse effect on our financial condition and results of operations. We may experience increases to, and volatility in, the balance of the allowance for credit losses and related provision expense due to the adoption of the Current Expected Credit Loss ("CECL") methodology.
Removed
We adopted CECL, effective as of January 1, 2021, following the delayed adoption period permitted by the CARES Act and extended by the Consolidated Appropriations Act, 2021. The CECL methodology requires measurement of anticipated credit losses to occur when a financial asset is first added to the balance sheet and periodically thereafter.
Removed
These measurements require significant use of management judgments as well as forward-looking information and forecasts. Any failure of these judgments or forecasts to be correct could negatively affect our results of operations and financial condition . We may be adversely affected by changes in U.S. tax laws and regulations.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Accordingly, we have long devoted significant resources to assessing, identifying and managing risks associated with cybersecurity threats, including: • an internal information security team that is responsible for conducting regular assessments of our information systems, existing controls, vulnerabilities and potential improvements; • continuous monitoring tools that can detect and help respond to cybersecurity threats in real-time; • performing due diligence with respect to our third-party service providers, including their cybersecurity practices, and requiring contractual commitments from our service providers to take certain cybersecurity measures; • third-party information security and cybersecurity consultants, who conduct periodic penetration testing, vulnerability assessments and other procedures to identify potential weaknesses in our systems and processes; and • ongoing cybersecurity training and phishing testing for our employees.
Accordingly, we have long devoted significant resources to assessing, identifying and managing risks associated with cybersecurity threats, including: • an internal information security team that is responsible for conducting regular assessments of our information systems, existing controls, vulnerabilities and potential improvements; • continuous monitoring tools that can detect and help respond to cybersecurity threats in real-time; • performing due diligence with respect to our third-party service providers, including their cybersecurity practices, and requiring contractual commitments from our service providers to take certain cybersecurity measures; 27 Table of Contents • third-party information security and cybersecurity consultants, who conduct periodic penetration testing, vulnerability assessments and other procedures to identify potential weaknesses in our systems and processes; and • ongoing cybersecurity training and phishing testing for our employees.
In addition, our board of directors, as a whole and through the Bank's Corporate Risk Committee (the “Risk Committee”), is responsible for the oversight of risk management.
In addition, our board of directors, as a whole and through the Bank's Corporate Risk Committee (the "Risk Committee"), is responsible for the oversight of risk management.
The nature of our business, as a financial services provider, and our relative size, make us and our business partners high-value targets for these bad actors to pursue. See section “Risks Relation to our Operations”.
The nature of our business, as a financial services provider, and our relative size, make us and our business partners high-value targets for these bad actors to pursue. See section "Risks Relation to our Operations".

Item 2. Properties

Properties — owned and leased real estate

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ITEM 2. PROPERTIES The Company is headquartered in the main office building of the Bank at 202 E. Center Street, Warsaw, Indiana 46580. The Company operates in 60 locations, 51 of which are owned by the Bank and nine of which are leased from third parties.
ITEM 2. PROPERTIES The Company is headquartered in the main office building of the Bank at 202 E. Center Street, Warsaw, Indiana 46580. The Company operates in 61 locations, 52 of which are owned by the Bank and nine of which are leased from third parties. None of the Company’s real property assets are the subject of any material encumbrances.
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None of the Company’s real property assets are the subject of any material encumbrances. 27 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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ITEM 3. LEGAL PROCEEDINGS Lakeland Financial Corporation and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings and other matters in which claims for monetary damages are asserted. On an ongoing basis management, after consultation with legal counsel, assesses the Company's liabilities and contingencies in connection with such proceedings.
Added
ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company, to which Lakeland Financial or the Bank is a party or to which any of their property is subject. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 28 Table of Contents PART II
Removed
For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements.
Removed
To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable.
Removed
Although the Company does not believe that the outcome of pending legal matters will be material to the Company's consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.
Removed
See "Note 1 - Summary of Significant Accounting Policies - Loss Contingencies" in our audited financial statements included in this Annual Report on Form 10-K. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 28 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PARTIES On January 8, 2019, the Company's board of directors approved a share repurchase program, under which the Company is authorized to repurchase, from time to time as the Company deems appropriate, shares of the Company's common stock with an aggregate purchase price of up to $30 million.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PARTIES On January 8, 2019, the Company's board of directors approved a share repurchase program, under which the Company is authorized to repurchase, from time to time as the Company deems appropriate, shares of the Company's common stock with an aggregate purchase price of up to $30.0 million.
Repurchases may be made in the open market, through block trades or otherwise, and in privately negotiated transactions. On April 11, 2023, the Company's board of directors reauthorized and extended the share repurchase program through April 30, 2025. As extended, the repurchase program has remaining aggregate purchase price authority of $30 million as of December 31, 2023.
Repurchases may be made in the open market, through block trades or otherwise, and in privately negotiated transactions. On April 11, 2023, the Company's board of directors reauthorized and extended the share repurchase program through April 30, 2025. As extended, the repurchase program has remaining aggregate purchase price authority of $30.0 million as of December 31, 2024.
(b) Following the renewal and extension of the Company's share repurchase program on April 11, 2023, the maximum dollar value of shares that may bet be repurchased under the program is $30 million as of December 31, 2023. The share repurchase program terminates April 30, 2025. ITEM 6. [Reserved] 31 Table of Contents
(b) Following the renewal and extension of the Company's share repurchase program on April 11, 2023, the maximum dollar value of shares that may be repurchased under the program is $30.0 million as of December 31, 2024. The share repurchase program terminates April 30, 2025. ITEM 6. [Reserved] 31 Table of Contents
The following table provides information about purchases by the Company and its affiliates during the quarter ended December 31, 2023 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act: Period Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (b) 10/01/23 - 10/31/23 0 $ 0.00 0 $ 30,000,000 11/01/23 - 11/30/23 1,580 53.15 0 30,000,000 12/01/23 - 12/31/23 0 0.00 0 30,000,000 Total 1,580 $ 53.15 0 $ 30,000,000 (a) The shares purchased during the quarter were credited to the deferred share accounts of non-employee directors under the Company’s directors’ deferred compensation plan.
There were no repurchases under this plan during the year ended December 31, 2024. 30 Table of Contents The following table provides information about purchases by the Company and its affiliates during the quarter ended December 31, 2024 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act: Period Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (b) 10/01/24 - 10/31/24 $ 0 $ 0.00 0 $ 30,000,000 11/01/24 - 11/30/24 1,306 65.71 0 30,000,000 12/01/24 - 12/31/24 0 0.00 0 30,000,000 Total $ 1,306 $ 65.71 0 $ 30,000,000 (a) The shares purchased during the quarter were credited to the deferred share accounts of non-employee directors under the Company’s directors’ deferred compensation plan.
Currently, the Company’s common stock is listed for trading on the Nasdaq Global Select Market under the symbol “LKFN.” On February 13, 2024, the Company had approximately 299 stockholders of record. The Company paid dividends on its common stock as set forth in the table above.
Currently, the Company’s common stock is listed for trading on the Nasdaq Global Select Market under the symbol "LKFN." On February 11, 2025, the Company had approximately 278 stockholders of record. The Company paid dividends on its common stock as set forth in the table above.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The quarterly high and low prices for the Company’s common stock and the cash dividends declared and paid on that common stock are set forth in the table below. 2023 2022 High* Low* Cash Dividend High* Low* Cash Dividend Fourth quarter $ 67.88 $ 45.59 $ 0.46 $ 83.57 $ 71.37 $ 0.40 Third quarter 57.00 44.47 0.46 81.27 64.05 0.40 Second quarter 62.71 43.05 0.46 79.14 64.84 0.40 First quarter 77.07 59.55 0.46 85.71 72.78 0.40 The common stock of the Company was first quoted on The Nasdaq Stock Market under the symbol “LKFN” on August 14, 1997.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The quarterly high and low prices for the Company’s common stock and the cash dividends declared and paid on that common stock are set forth in the table below. 2024 2023 High Low Cash Dividend High Low Cash Dividend Fourth quarter $ 78.61 $ 61.10 $ 0.48 $ 67.88 $ 45.59 $ 0.46 Third quarter 72.25 57.45 0.48 57.00 44.47 0.46 Second quarter 66.62 57.59 0.48 62.71 43.05 0.46 First quarter 73.22 60.56 0.48 77.07 59.55 0.46 The common stock of the Company was first quoted on The Nasdaq Stock Market under the symbol "LKFN" on August 14, 1997.
The Company’s ability to pay dividends to stockholders is largely dependent upon the dividends it receives from the Bank, and the Bank is subject to regulatory limitations on the amount of cash dividends it may pay. See “Supervision and Regulation of the Company – Dividend Payments” for additional information.
The Company’s ability to pay dividends to stockholders is largely dependent upon the dividends it receives from the Bank, and the Bank is subject to regulatory limitations on the amount of cash dividends it may pay.
BMI Banks Index 100.00 137.36 119.83 162.92 135.13 147.41 The above returns assume that $100 was invested on December 31, 2018 and that all dividends were reinvested.
BMI Banks Index 100.00 87.24 118.61 98.38 107.32 143.68 The above returns assume that $100 was invested on December 31, 2019 and that all dividends were reinvested.
Removed
Equity Compensation Plan Information The table below sets forth the following information as of December 31, 2023 for (i) all compensation plans previously approved by the Company’s stockholders and (ii) all compensation plans not previously approved by the Company’s stockholders: (a) the number of securities to be issued upon the exercise of outstanding options, warrants and rights; (b) the weighted-average exercise price of such outstanding options, warrants and rights; and (c) other than securities to be issued upon the exercise of such outstanding options, warrants and rights, the number of securities remaining available for future issuance under the plans.
Added
See "Supervision and Regulation of the Company – Dividend Payments" for additional information. 29 Table of Contents STOCK PRICE PERFORMANCE GRAPH The graph below compares the cumulative total return of the Company, the Nasdaq Market Index, the KBW Nasdaq Bank Index, and the S&P U.S. BMI Banks Index.
Removed
EQUITY COMPENSATION PLAN INFORMATION Plan category Number of securities to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders (1) 0 $ 0 279,618 Equity compensation plans not approved by security holders 0 0 0 Total 0 $ 0 279,618 (1) Lakeland Financial Corporation 2017 Equity Incentive Plan was adopted on April 12, 2017 by the board of directors. 29 Table of Contents STOCK PRICE PERFORMANCE GRAPH The graph below compares the cumulative total return of the Company, the Nasdaq Market Index, the KBW Nasdaq Bank Index, and the S&P U.S.
Added
Lakeland Financial Corporation Period Ending Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 Lakeland Financial Corporation $ 100.00 $ 112.55 $ 171.90 $ 159.87 $ 147.44 $ 160.24 NASDAQ Composite Index 100.00 144.92 177.06 119.45 172.77 223.87 KBW NASDAQ Bank Index 100.00 89.69 124.06 97.52 96.65 132.60 S&P U.S.
Removed
BMI Banks Index. Lakeland Financial Corporation Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Lakeland Financial Corporation $ 100.00 $ 124.99 $ 140.68 $ 214.86 $ 199.83 $ 184.29 NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 KBW NASDAQ Bank Index 100.00 136.13 122.09 168.88 132.75 131.57 S&P U.S.
Removed
There were no repurchases under this plan during the year ended December 31, 2023. 30 Table of Contents During the quarter ended December 31, 2023, no director or officer of the Company adopted or terminated any Rule 10b5-1 trading arrangement or any non-Rule 10b5-1 trading arrangement, in each case as defined in Item 408 of Regulation S-K.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

160 edited+44 added−58 removed56 unchanged
Loans for which the borrower appears to be unable or unwilling to repay its debt in full or on time, and the collateral is insufficient to cover all principal and accrued interest, will be reclassified as nonperforming to the extent they are unsecured, on or before the date when the loan becomes 90 days delinquent, with the exception of small dollar other consumer loans which are not placed on nonaccrual status since these loans are charged-off when they have been delinquent from 90 to 180 days, and when the related collateral, if any, is not sufficient to offset the indebtedness.
Loans for which the borrower appears to be unable or unwilling to repay its debt in full or on time, and the collateral is insufficient to cover all principal and accrued interest, will be reclassified as nonperforming to the extent they are unsecured, on or before the date when the loan becomes 90 days delinquent, with the exception of small dollar other consumer loans which are not placed on nonaccrual status since these loans are typically charged-off when they have been delinquent from 90 to 180 days, and when the related collateral, if any, is not sufficient to offset the indebtedness.
The Company has a formalized Contingency Funding Plan (“CFP”). The Board and management recognize the importance of liquidity during times of normal operations and in times of stress. The CFP was developed to ensure that the multiple liquidity sources available to the Company are readily available. All liquidity sources are tested annually.
The Company has a formalized Contingency Funding Plan ("CFP"). The Board and management recognize the importance of liquidity during times of normal operations and in times of stress. The CFP was developed to ensure that the multiple liquidity sources available to the Company are readily available. All liquidity sources are tested annually.
The Company’s committed line of credit has availability up to $30.0 million, of which $0 was drawn upon as of December 31, 2023. Further, the CFP identifies CFP team members and expressly details their respective roles. Potential risk scenarios are identified and the plan includes multiple scenarios, including short-term and long-term funding crisis situations.
The Company’s committed line of credit has availability up to $30.0 million, of which $0 was drawn upon as of December 31, 2024. Further, the CFP identifies CFP team members and expressly details their respective roles. Potential risk scenarios are identified and the plan includes multiple scenarios, including short-term and long-term funding crisis situations.
The Company manages this risk by utilizing conservative credit structures, adjusting its pricing to the perceived risk of each individual credit, diversifying the portfolio by customer, product, industry and market area and by obtaining personal loan guarantees. There were no loan concentrations within industries, which exceeded ten percent of total loans, except commercial real estate.
The Company manages this risk by utilizing conservative credit structures, adjusting its pricing to the perceived risk of each individual credit, diversifying the portfolio by customer, product, industry and market area and by obtaining personal loan guarantees. There were no loan concentrations within industries that exceeded ten percent of total loans, except commercial real estate.
All mortgage securities purchased by the Company in 2023 were within risk tolerances for price, prepayment, extension and original life risk characteristics contained in the Company’s investment policy. As of December 31, 2023, all mortgage-backed securities were performing in a manner consistent with management’s expectations at time of purchase.
All mortgage securities purchased by the Company in 2024 were within risk tolerances for price, prepayment, extension and original life risk characteristics contained in the Company’s investment policy. As of December 31, 2024, all mortgage-backed securities were performing in a manner consistent with management’s expectations at time of purchase.
Quarterly reports to management and the Board under the CFP include an early warning indicator matrix and pro forma cash flows for the various scenarios. The following table discloses information on the maturity of the Company’s contractual long-term obligations as of December 31, 2023.
Quarterly reports to management and the Board under the CFP include an early warning indicator matrix and pro forma cash flows for the various scenarios. The following table discloses information on the maturity of the Company’s contractual long-term obligations as of December 31, 2024.
The Company’s allowance for credit losses is subject to changes in the inputs to the model, including the following: the number of delinquent loans, nonaccrual loans, material modification due to a borrower experiencing financial difficulty, or charge offs; the levels of charge offs and recoveries; projected unemployment rates and other economic indicators; the Company’s collateral position on adversely classified loans; or management’s qualitative judgment of the implication of trends in its loan portfolio or in the broader economy.
The Company’s allowance for credit losses is subject to changes in the inputs to the model, including the following: the number of delinquent loans, nonaccrual loans, material modification due to a borrower experiencing financial difficulty, or charge offs; the levels of charge offs and recoveries; projected unemployment rates and other economic indicators; the 33 Table of Contents Company’s collateral position on adversely classified loans; or management’s qualitative judgment of the implication of trends in its loan portfolio or in the broader economy.
Growth of the investment portfolio during 2021 and 2022 served to provide an earning asset alternative for excess balance sheet liquidity stemming from increased levels of liquidity provided by government stimulus programs in response to the COVID-19 pandemic.
Growth of the investment portfolio during 2022 served to provide an earning asset alternative for excess balance sheet liquidity stemming from increased levels of liquidity provided by government stimulus programs in response to the COVID-19 pandemic.
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.
The Company’s practice is to establish a specific allowance for credit losses for any assets where management has identified conditions or circumstances that indicate an asset is nonperforming.
Off-balance sheet transactions are more fully discussed in "Note 17 – Commitments, Off-Balance Sheet Risks and Contingencies". 57 Table of Contents The following table discloses information on the maturity of the Company’s commitments.
Off-balance sheet transactions are more fully discussed in "Note 17 – Commitments, Off-Balance Sheet Risks and Contingencies". 56 Table of Contents The following table discloses information on the maturity of the Company’s commitments.
Consideration is not limited to these factors although they represent the most commonly cited factors. To determine the specific allocation levels for individual credits, management considers the current valuation of collateral and the amounts and timing of expected future cash flows as the primary measures.
Consideration is not limited to these factors although they represent the most commonly cited factors. To determine the specific allocation levels for individual credits, management considers the current valuation of collateral and the amounts and timing of expected future cash flows as 32 Table of Contents the primary measures.
The CFP also addresses the Bank’s ability to liquidate its securities portfolio or other liquid assets. The CFP funding sources at the holding company level include a holding company committed line of credit, as well as the ability to transfer securities from the investment subsidiary of the Bank to the Company.
The CFP also addresses the Bank’s ability to liquidate its securities portfolio or other liquid assets. The CFP funding sources at the holding company level include a holding company committed line of credit that renews annually, as well as the ability to transfer securities from the investment subsidiary of the Bank to the Company.
At December 31, 2023, 92% of municipal securities owned by the Company were AAA or AA rated with a diversified geography of state issuer. In addition, the Company has historically sold the majority of its originated mortgage loans on the secondary market to reduce interest rate risk and to create an additional source of funding.
At December 31, 2024, 96% of municipal securities owned by the Company were AAA or AA rated with a diversified geography of state issuer. In addition, the Company has historically sold the majority of its originated mortgage loans on the secondary market to reduce interest rate risk and to create an additional source of funding.
Municipal securities represent 52% of total investment securities fair value as of December 31, 2023 and were rated investment grade at the time of purchase and continue to be rated investment grade. The Company uses analytics provided by its third party portfolio advisor to evaluate and monitor credit risk for all investments on a quarterly basis.
Municipal securities represented 52% of total investment securities fair value as of December 31, 2024 and were rated investment grade at the time of purchase and continue to be rated investment grade. The Company uses analytics provided by its third party portfolio advisor to evaluate and monitor credit risk for all investments on a quarterly basis.
Actual collections may be impacted by wider economic conditions such as changes in the competitive environment or in the levels of business investment or consumer 33 Table of Contents spending, or by the quality of borrowers’ management teams and the success of their strategy execution.
Actual collections may be impacted by wider economic conditions such as changes in the competitive environment or in the levels of business investment or consumer spending, or by the quality of borrowers’ management teams and the success of their strategy execution.
The level of credit loss provision is influenced by growth in the overall loan portfolio, emerging market risk, emerging concentration risk, commercial loan focus and large credit concentration, new industry lending activity, general economic 32 Table of Contents conditions and historical loss analysis.
The level of credit loss provision is influenced by growth in the overall loan portfolio, emerging market risk, emerging concentration risk, commercial loan focus and large credit concentration, new industry lending activity, general economic conditions and historical loss analysis.
Future changes in the net interest margin will be dependent upon multiple factors including further actions by the FOMC during 2024 in response to inflation, economic conditions and geopolitical concerns, the results of any of the administration’s changes to economic policy and laws, competitive pressures in the various markets served, and changes in the structure of the balance sheet as a result of changes in customer demands for products and services.
Future changes in the net interest margin will be dependent upon multiple factors including further actions by the FOMC during 2025 in response to inflation, economic conditions and geopolitical concerns, the results of any of the administration’s changes to economic policy and laws, competitive pressures in the various markets served, and changes in the 57 Table of Contents structure of the balance sheet as a result of changes in customer demands for products and services.
Management also considers trends in adversely classified loans based upon an ongoing review of those credits. With respect to pools of similar loans, an appropriate level of general allowance is determined by portfolio segment using a probability of default-loss given default (“PD/LGD”) model, subject to a floor.
Management also considers trends in adversely classified loans based upon an ongoing review of those credits. With respect to pools of similar loans, an appropriate level of general allowance is determined by portfolio segment using a probability of default-loss given default ("PD/LGD") model, subject to a floor.
As of December 31, 2023, the Company’s investment in U.S government sponsored mortgage-backed securities represented approximately 38% of total investment securities fair value consisting of mortgage pools issued by Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae, Fannie Mae and Freddie Mac securities are each guaranteed by their respective agencies as to principal and interest.
As of December 31, 2024, the Company’s investment in U.S government sponsored mortgage-backed securities represented approximately 38% of total investment securities fair value consisting of mortgage bonds issued by Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae, Fannie Mae and Freddie Mac securities are each guaranteed by their respective agencies as to principal and interest.
Management expects the investment securities portfolio as a percentage of assets to decrease over time and return to historical levels of approximately 12%-14% during 2014 to 2020 as the proceeds from paydowns and maturities of these investment securities provide liquidity to fund future loan growth.
Management expects the investment securities portfolio as a percentage of assets to decrease over time and return to historical levels of approximately 12%-14% during 2014 to 2020 as the proceeds from paydowns and maturities of these investment securities provide liquidity to fund future loan growth as the balance sheet continues to grow.
Calculated by removing the fair market value adjustment impact of the available-for-sale investment securities portfolio included in accumulated other comprehensive income ("AOCI") from tangible equity and tangible assets. Management believes this is an important measure because it provides better comparability to periods preceding the recent significant rise in prevailing interest rates. See reconciliation on the following pages.
(4) 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 significant rise in prevailing interest rates. See reconciliation on the following pages.
The Company has board of directors approval to borrow up to $800.0 million at the FHLB, but given the Company’s current collateral structure and outstanding borrowings as of December 31, 2023, the Company could have only borrowed up to $574.9 million under this authority.
The Company has board of directors approval to borrow up to $800.0 million at the FHLB, but given the Company’s current collateral structure and outstanding borrowings as of December 31, 2024, the Company could have only borrowed up to $555.9 million under this authority.
The Company's continued growth strategy promotes diversification among industries as well as continued focus on the enforcement of a disciplined credit culture and a conservative posture in loan work-out situations.
The Company's continued growth strategy promotes diversification among industries as well as continued focus on the en forcement of a disciplined credit culture and a conservative posture in loan work-out situations.
Further, the Company had available capacity at the Federal Reserve Bank of Chicago of up to $1.259 billion given its current collateral structure at the Federal Reserve Bank discount window program and the terms of that facility at December 31, 2023, with no balances outstanding at December 31, 2023.
Further, the Company had available capacity at the Federal Reserve Bank of Chicago of up to $1.364 billion given its current collateral structure at the Federal Reserve Bank discount window program and the terms of that facility at December 31, 2024, with no balances outstanding at December 31, 2024.
In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the reverse situation may occur.
In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds.
The Bank is also a member of the American Financial Exchange (AFX) where overnight fed funds purchased can be obtained from other banks on the exchange that have approved the Bank for an unsecured, overnight line. These funds are only available if the approving banks have an ‘offer’ out to sell that day.
The Bank is also a member of the American Financial Exchange ("AFX") where overnight fed funds purchased can be obtained from other banks on the exchange that have approved the Bank for an 55 Table of Contents unsecured, overnight line. These funds are only available if the approving banks have an "offer" out to sell that day.
The CFP specifically considers liquidity at the Bank and the Company level. The CFP identifies the potential funding sources at the Bank level, which includes the FHLB, the Federal Reserve Bank, brokered deposits, one-way buy products via the IntraFi Network (CDARS and ICS) and Federal Funds.
The CFP specifically considers liquidity at the Bank and the Company level. The CFP identifies the potential funding sources at the Bank level, which includes the FHLB, the Federal Reserve Bank, brokered deposits, one-way buy products via the IntraFi Network (CDARS and Insured Cash Sweeps) and Federal Funds.
The combined result of the increase in the yield on earning assets, which was more than offset by an increase in the cost of funds due to increased competition for deposits experienced during 2023, led to a decrease in net interest margin from 3.40% for 2022 to 3.31% for 2023.
The combined result of the increase in the yield on earning assets, which was more than offset by an increase in the cost of funds due to continued increased competition for deposits experienced during 2024, led to a decrease in net interest margin from 3.31% for 2023 to 3.18% for 2024.
Adjusted core noninterest income, which excludes the net wire fraud loss, was $43.6 million in 2023, an increase of $1.7 million, or 4.1% compared to 2022. Wealth advisory fees increased by 5.1%, or $444,000, during 2023, from $8.6 million to $9.1 million reflecting continued growth in the business and improving equity market valuations.
Adjusted core noninterest income was $43.6 million in 2023, an increase of $1.7 million, or 4.1% compared to 2022. Wealth advisory fees increased by 5.1%, or $444,000, during 2023, from $8.6 million to $9.1 million reflecting continued growth in the business and improving equity market valuations.
Based upon these analytics as of December 31, 2023, the securities in the combined available-for-sale and held-to-maturity portfolios had an effective duration of approximately 6.5 years.
Based upon these analytics as of December 31, 2024, the securities in the combined available-for-sale and held-to-maturity portfolios had an effective duration of approximately 5.96 years.
Taxable equivalent basis adjustments were $5.3 million, $5.6 million and $3.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. 40 Table of Contents The following table shows fluctuations in net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended December 31.
Taxable equivalent basis adjustments were $4.7 million, $5.3 million and $5.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. The following table shows fluctuations in net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended December 31.
The Company also has established relationships in the brokered time deposit and brokered money market sectors, as well as the IntraFi Network CDARS One-Way Buy program, to access these funds when desired with settlement of funds in one to two weeks’ time.
The Company also has established relationships in the brokered time deposit and brokered money market sectors, as well as the IntraFi Network CDARS One-Way Buy and Insured Cash Sweep One-Way Buy programs, to access these funds when desired with settlement of funds in one to two weeks’ time.
Offsetting these decreases was an increase in noninterest expense of $8.0 million, or 19.1%, and a decrease in the provision for credit losses of $3.5 million, or 37.6%.
Offsetting these decreases were an increase in noninterest income of $8.0 million, or 19.1%, and a decrease in the provision for credit losses of $3.5 million, or 37.6%.
As a result, the Company expects net interest margin to remain stable in the first 25-50 basis points potential declines in the federal funds rate due to a more neutral posture for balance sheet sensitivity. Deposit re-pricing in a declining interest rate environment is expected to exceed past easing cylces.
As a result, the Company expects net interest margin to remain relatively stable in the first 100 basis points potential declines in the federal funds rate due to a more neutral posture for balance sheet sensitivity. Deposit re-pricing in a declining interest rate environment is expected to exceed past easing cycles.
Based upon the table above, all loans due after one year which have a predetermined interest rate and loans due after one year which have floating or adjustable interest rates as of December 31, 2023 amounted to $2.290 billion and $1.188 billion, respectively.
Based upon the table above, all loans due after one year which have a predetermined interest rate and loans due after one year which have floating or adjustable interest rates as of December 31, 2024 amounted to $2.178 billion and $1.205 billion, respectively.
Real Estate Mortgage Loans Held-For-Sale Real estate mortgages held-for-sale increased by $801,000 to $1.2 million at December 31, 2023 from $357,000 at December 31, 2022 as a result of fluctuations in secondary market sales activity.
Real Estate Mortgage Loans Held-For-Sale Real estate mortgages held-for-sale increased by $542,000 to $1.7 million at December 31, 2024 from $1.2 million at December 31, 2023 as a result of fluctuations in secondary market sales activity.
Maturities and calls of securities totaled $13.6 million , $9.3 million and $24.7 million in 2023, 2022 and 2021, respectively. No provision for allowance for credit loss was recorded in connection with the investment securities portfolio in 2023, 2022 or 2021 .
Maturities and calls of securities totaled $695,000 , $13.6 million and $9.3 million in 2024, 2023 and 2022, respectively. No provision for allowance for credit loss was recorded in connection with the investment securities portfolio in 2024 , 2023 or 2022.
The rate paid on deposit accounts and purchased funds increased 179 basis points for 2023. The realized increase in the rate paid on deposit accounts and purchased funds was magnified by a decrease in the average balance of non-interest bearing demand deposit accounts for 2023 verses 2022, primarily in commercial deposit accounts.
The realized increase in the rate paid on deposit accounts and purchased funds was magnified by a decrease in the average balance of non-interest bearing demand deposit accounts for 2024 verses 2023, primarily in commercial deposit accounts.
Loan and service fees declined by 3.8%, or $464,000, during 2023 primarily due to a decline in interchange revenue due to reduced volume and spend per debit card as compared to higher trends during the pandemic. Merchant fee income improved by 2.6%, or $91,000, during 2023.
Loan and service fees declined by 3.8%, or $464,000, during 2023 primarily due to a decline in interchange revenue due to reduced volume and spend per debit card as compared to higher trends during the pandemic.
M anufacturing loans are included in the commercial and industrial loans total and are well diversified by industry. Agri-business and agricultural loans represent 7.9% of total loans as of December 31, 2023 and are not concentrated to any agricultural sector.
M anufacturing loans are included in the commercial and industrial loans total and are well diversified by industry. Agri-business and agricultural loans represented 7.6% of total loans as of December 31, 2024 and are not concentrated to any agricultural sector.
Commercial real estate was $2.438 billion, or 49.5% , of total loans at December 31, 2023. The owner occupied commercial real estate portfolio generally represents the financing of factories and operational facilities for the Bank's commercial and industrial borrowers. The Company’s in-house lending limit is $40.0 million.
Commercial real estate was $2.593 billion, or 50.6% , of total loans at December 31, 2024. The owner occupied commercial real estate portfolio generally represents the financing of factories and operational facilities for the Bank's commercial and industrial borrowers. The Company’s in-house lending limit is $40.0 million.
The primary sources are increases in deposit accounts and cash flows from loan payments and the securities portfolio. The cash flow from the securities portfolio is expected to provide approximately $103.9 million of potential contingent funding in 2024.
The primary sources are increases in deposit accounts and cash flows from loan payments and the securities portfolio. The cash flow from the securities portfolio is expected to provide approximately $104.2 million of potential contingent funding in 2025.
For a detailed analysis of the Company’s income taxes see "Note 12 – Income Taxes". 44 Table of Contents CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES We are required to provide certain statistical disclosures as a bank holding company under the SEC's Industry Guide 3. The following table provides certain of those disclosures.
For a detailed analysis of the Company’s income taxes see "Note 12 – Income Taxes". 43 Table of Contents CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES We are required to provide certain statistical disclosures as a bank holding company. The following table provides certain of those disclosures.
Return on average total assets was 1.45% in 2023, versus 1.62% in 2022 and 1.56% in 2021. Return on average total equity was 15.93% in 2023, versus 17.40% in 2022 and 14.19% in 2021. The dividend payout ratio, with respect to diluted earnings per share, was 50.41% in 2023, versus 39.60% in 2022 and 36.36% in 2021.
Return on average total assets was 1.40% in 2024, versus 1.45% in 2023 and 1.62% in 2022. Return on average total equity was 14.12% in 2024, versus 15.93% in 2023 and 17.40% in 2022. The dividend payout ratio, with respect to diluted earnings per share, was 52.89% in 2024, versus 50.41% in 2023 and 39.60% in 2022.
Allowance for Credit Losses The Company maintains an allowance for credit losses to provide for expected credit losses. Losses are charged against the allowance when management believes that the principal is uncollectible. Subsequent recoveries, if any, are credited to the allowance.
Management believes that its critical accounting policies include determining the allowance for credit losses. Allowance for Credit Losses The Company maintains an allowance for credit losses to provide for expected credit losses. Losses are charged against the allowance when management believes that the principal is uncollectible. Subsequent recoveries, if any, are credited to the allowance.
Earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve Board. During 2023 the Federal Reserve Board’s Federal Open Market Committee (“FOMC”) increased the target federal funds rate a total of 100 basis points, following an increase of 425 basis points in 2022.
Earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve Board. During 2024 the Federal Reserve Board’s Federal Open Market Committee ("FOMC") decreased the target federal funds rate a total of 100 basis points, following a combined increase of 525 basis points in 2022 and 2023.
Borrowers’ ability to repay may also change due to the effects of government monetary or fiscal policy, which could affect the level of demand for borrowers’ products or services.
Borrowers’ ability to repay may also change due to the effects of government monetary or fiscal policy, which could affect the level of demand for borrowers’ products or services or the borrowers' ability to service their debt payments in the future.
The decrease in net income from 2022 to 2023 was driven by an increase in noninterest expense of $20.5 million, or 18.6% and a decrease in net interest income of $5.9 million, or 2.9%.
Net income was $93.8 million in 2023, a decrease of $10.1 million, or 9.7%, versus net income of $103.8 million in 2022. The decrease in net income from 2022 to 2023 was driven by an increase in noninterest expense of $20.5 million, or 18.6%, and a decrease in net interest income of $5.9 million, or 2.9%.
See "Note 2 – Securities" for more information on these investments. Purchases of securities available-for-sale totaled $7.2 million in 2023, $315.3 million in 2022 and $835.0 million in 2021.
See "Note 2 – Securities" for more information on these investments. Purchases of securities available-for-sale totaled $27.5 million in 2024, $7.2 million in 2023 and $315.3 million in 2022.
The increase in deposits was attributable to increases in commercial and public fund deposits. Commercial deposits increased $141.2 million, or 6.8% and represented 38.9% and 38.2% of total deposits at December 31, 2023 and 2022, respectively. Public fund deposits increased $133.1 million, or 9.3% and represented 27.3% and 26.1% of total deposits at December 31, 2023 and 2022, respectively.
The increase in deposits was attributable to increases in commercial and public fund deposits. Commercial deposits increased $141.2 million, or 6.8% and represented 38.9% and 38.2% of total deposits at December 31, 48 Table of Contents 2023 and 2022, respectively.
The Company had $325.0 million of availability in federal funds lines with eleven correspondent banks, of which none was drawn on as of December 31, 2023.
The Company had $395.0 million of availability in federal funds lines with thirteen correspondent banks, of which none was drawn on as of December 31, 2024.
Year ended December 31, 2023 2022 2021 Return on average assets 1.45 % 1.62 % 1.56 % Return on equity 15.93 17.40 14.19 Average equity to average assets 9.11 9.28 10.96 Dividend payout ratio 50.41 39.60 36.36 Return on average assets is computed by dividing net income by average assets for each indicated fiscal year.
Year ended December 31, 2024 2023 2022 Return on average assets 1.40 % 1.45 % 1.62 % Return on average equity 14.12 15.93 17.40 Average equity to average assets 9.94 9.11 9.28 Dividend payout ratio 52.89 50.41 39.60 Return on average assets is computed by dividing net income by average assets for each indicated fiscal year.
Pooled loan allocations increased $5.6 million from $58.2 million at December 31, 2022 to $63.8 million at December 31, 2023. The unallocated component of the allowance for credit losses was $372,000 at December 31, 2023, which decreased from $554,000 reported at December 31, 2022 .
Pooled loan allocations decreased $5.4 million from $63.8 million at December 31, 2023 to $58.4 million at December 31, 2024. The unallocated component of the allowance for credit losses was $383,000 at December 31, 2024, which increased nominally from $372,000 reported at December 31, 2023 .
Our primary credit risks result from lending and to a lesser extent, investment activities. 50 Table of Contents Investment Portfolio The Company’s investment portfolio consists of U.S. treasuries, government agencies and municipal bonds subject to an investment security policy that is approved annually by the board of directors.
Our primary credit risks result from lending and to a lesser extent, investment activities. 49 Table of Contents Investment Portfolio The Company’s investment portfolio consists of government or government-sponsored entity securities and municipal bonds subject to an investment security policy that is approved annually by the board of directors.
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. (4) Non-GAAP financial measure.
See reconciliation on the following pages. (2) Noninterest expense (c)/(Net interest income (a) plus Noninterest income (b)). (3) 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.
There were no foreign loans included in the loan portfolio for the periods presented. Repricing opportunities of the loan portfolio occur either according to predetermined float rate indices, adjustable rate schedules included in the related loan agreements or upon maturity of each principal payment.
Repricing opportunities of the loan portfolio occur either according to predetermined float rate indices, adjustable rate schedules included in the related loan agreements or upon maturity of each principal payment.
Generally, the Bank is asset sensitive due to the impact of the variable rate commercial loan portfolio on the Bank's sensitivity to market rates. During 2023, asset sensitivity declined due to a shift to short-term interest bearing deposit accounts such as money market accounts.
Generally, the Bank is asset sensitive due to the impact of the variable rate commercial loan portfolio on the Bank's sensitivity to market rates. During 2024, asset sensitivity declined due to a shift to shorter-term interest bearing deposit accounts, such as money market accounts and due to fixed rate loans that repriced in 2024.
As of December 31, 2023, the total amount approved for the Bank via AFX banks was $319.0 million and none was outstanding at year end. The Company had 90% of its securities in the available-for-sale portfolio at December 31, 2023, allowing the Company extensive flexibility to sell securities to meet funding demands.
As of December 31, 2024, the total amount approved for the Bank via AFX banks was $304.0 million and none was outstanding at year end. The Company h ad 90% of its securities, based upon fair market value, in the available-for-sale portfolio at December 31, 2024, allowing the Company extensive flexibility to sell securities to meet funding demands.
The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the TEFRA adjustment applicable to nondeductible interest expense. Net interest income decreased by $5.9 million to $197.0 million in 2023 compared to $202.9 million in 2022, primarily as a result of increased funding costs. Total interest expense increased $109.6 million, or 298.7%.
The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the TEFRA adjustment applicable to nondeductible interest expense. Net interest income decreased by $356,000 to $196.7 million in 2024 compared to $197.0 million in 2023, primarily as a result of increased funding costs. Total interest expense increased $30.2 million, or 20.7%.
Management believes the charge offs related to this credit were an isolated instance as a result of negative impacts caused by unique circumstances from the pandemic and are not reflective of deteriorating trends in the loan portfolio.
Net charge offs for 2023 resulted primarily from the deterioration of a single commercial credit. Management believes the charge off related to this credit was an isolated instance as a result of negative impacts caused by unique circumstances from the pandemic and are not reflective of deteriorating trends in the loan portfolio.
At December 31, 2023, on the basis of management’s review of the loan portfolio, the Company had 68 credits totaling $183.1 million on the classified loan list versus 58 credits totaling $161.0 million on December 31, 2022. These amounts represent outstanding balances, excluding deferred fees and costs.
At December 31, 2024, on the basis of management’s review of the loan portfolio, the Company had 81 credits totaling $211.1 million on the classified loan list, which includes Special Mention credits, versus 68 credits totaling $183.1 million on December 31, 2023. These amounts represent outstanding balances, excluding deferred fees and costs.
The Company has additional collateral that could be pledged to the FHLB of $8.4 million as of December 31, 2023 to generate additional liquidity.
The Company has additional collateral that could be pledged to the FHLB of $179.6 million as of December 31, 2024 to generate additional liquidity.
See reconciliation on the following pages. 35 Table of Contents The Company believes that providing non-GAAP financial measures provides investors with information useful to understanding the company's financial performance. Reconciliations of these non-GAAP financial measures is provided below. The impact of the wire fraud loss, insurance and loss recoveries and adjustments to salaries and benefits is presented below.
See reconciliation on the following pages. 35 Table of Contents The Company believes that providing non-GAAP financial measures provides investors with information useful to understanding the company's financial performance. Reconciliations of these non-GAAP financial measures is provided below.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Net income in 2023 was $93.8 million, down 9.7%, from $103.8 million in 2022. Net income for 2022 was 8.4% higher than $95.7 million in 2021. Diluted net income per common share was $3.65 in 2023, $4.04 in 2022 and $3.74 in 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Net income in 2024 was $93.5 million, a decrease of 0.3%, from $93.8 million in 2023. Net income for 2023 was 9.7% lower than $103.8 million in 2022. Diluted net income per common share was $3.63 in 2024, $3.65 in 2023 and $4.04 in 2022.
Paydowns from prepayments and scheduled payments of $56.2 million, $98.8 million and $113.1 million were received in 2023, 2022 and 2021, and the amortization of premiums, net of the accretion of discounts, was $4.9 million, $6.3 million and $5.0 million, respectively.
Securities sales totaled $7.1 million in 2024, $105.2 million in 2023 and $25.3 million in 2022. Paydowns from prepayments and scheduled payments of $59.0 million, $56.2 million and $98.8 million were received in 2024, 2023 and 2022, and the amortization of premiums, net of the accretion of discounts, was $4.8 million, $4.9 million and $6.3 million, respectively.
The analysis indicated a negative 18.1% change in market value in the event of a 300 basis point upward, instantaneous rate shock and an approximate positive 6.5% change in market value in the event of a 100 basis point downward, instantaneous rate shock.
The analysis indicated a negative 7.6% change in market value in the event of a 100 basis point upward, instantaneous rate shock and a positive 7.8% change in market value in the event of a 100 basis point downward, instantaneous rate shock.
As of December 31, 2023, the Company had $143.6 million of assets classified as Special Mention , $39.4 million classified as Substandard, $0 classified as Doubtful and $0 classified as Loss as compared to $115.7 million, $45.3 million, $0 and $0, respectively, at December 31, 2022.
As of December 31, 2024, the Company had $123.6 million of assets classified as Special Mention , $44.0 million classified as Substandard, $43.5 million classified as Doubtful and $0 classified as Loss as compared to $143.6 million, $39.4 million, $0 and $0, respectively, at December 31, 2023.
A shift in funding away from public fund deposits could require the Company to execute alternative funding plans under the Contingency Funding Plan discussed in further detail under “Liquidity Risk”. FHLB Advances and Other Borrowings During 2023, average total short-term borrowings increased by $160.3 million to $166.8 million.
A shift in funding away from public fund deposits could require the Company to execute alternative funding plans under the Contingency Funding Plan discussed in further detail under "Liquidity Risk". FHLB Advances and Other Borrowings During 2024, average total short-term borrowings decreased by $100.5 million to $66.3 million.
Total nonperforming loans were $15.7 million, or 0.32% of total loans, at December 31, 2023 versus $17.1 million, or 0.36% of total loans, at December 31, 2022. There were 33 relationships totaling $16.1 million classified as individually analyzed as of December 31, 2023 versus 39 relationships totaling $31.3 million at the end of 2022.
Total nonperforming loans were $56.4 million, or 1.1% of total loans, at December 31, 2024 versus $15.7 million, or 0.3% of total loans, at December 31, 2023. There were 43 relationships totaling $78.6 million classified as individually analyzed as of December 31, 2024 versus 33 relationships totaling $16.1 million at the end of 2023.
The Bank had total available sources of liquidity totaling $3.4 billion at December 31, 2023 compared to $3.0 billion at December 31, 2022. The Company has approval of $3.593 billion in secondary funding sources available as of December 31, 2023, of which $185.4 million was utilized.
The Bank had total available sources of liquidity totaling $3.681 billion at December 31, 2024 compared to $3.407 billion at December 31, 2023. The Company has approval of $3.723 billion in secondary funding sources available as of December 31, 2024, of which $41.6 million was utilized.
(dollars in thousands) 2023 2022 2021 Amount of loans outstanding, net of deferred fees, December 31, $ 4,916,534 $ 4,710,396 $ 4,287,841 Average daily loans outstanding during the year ended December 31, $ 4,813,678 $ 4,427,166 $ 4,421,094 Allowance for credit losses, January 1, $ 72,606 $ 67,773 $ 61,408 Impact of adopting ASC 326 0 0 9,050 Loans charged-off: Commercial and industrial loans 6,341 4,022 5,575 Commercial real estate and multi-family residential loans 0 597 70 Agri-business and agricultural loans 0 0 0 Other commercial loans 0 0 0 Consumer 1-4 family mortgage loans 163 42 51 Other consumer loans 828 473 287 Total loans charged-off 7,332 5,134 5,983 Recoveries of loans previously charged-off: Commercial and industrial loans 180 71 1,559 Commercial real estate and multi-family residential loans 322 277 14 Agri-business and agricultural loans 0 0 320 Other commercial loans 0 0 0 Consumer 1-4 family mortgage loans 38 52 122 Other consumer loans 308 192 206 Total recoveries 848 592 2,221 Net loans charged-off 6,484 4,542 3,762 Provision for credit loss charged to expense 5,850 9,375 1,077 Balance, December 31, $ 71,972 $ 72,606 $ 67,773 Ratios: Net charge offs (recoveries) to average daily loans outstanding: Commercial and industrial loans 0.13 % 0.09 % 0.09 % Commercial real estate and multi-family residential loans (0.01) 0.01 0.00 Agri-business and agricultural loans 0.00 0.00 0.00 Other commercial loans 0.00 0.00 0.00 Consumer 1-4 family mortgage loans 0.00 0.00 0.00 Other consumer loans 0.01 0.00 0.00 Total ratio of net charge offs (recoveries) 0.13 % 0.10 % 0.09 % Allowance for credit losses on loans to: Total loans 1.46 % 1.54 % 1.58 % Ratio of allowance for credit losses to nonperforming loans 458.01 % 424.91 % 449.13 % 54 Table of Contents The following is a summary of the allocation for credit losses as of December 31, 2023 and 2022.
(dollars in thousands) 2024 2023 2022 Amount of loans outstanding, net of deferred fees, December 31, $ 5,117,948 $ 4,916,534 $ 4,710,396 Average daily loans outstanding during the year ended December 31, $ 5,039,406 $ 4,813,678 $ 4,427,166 Allowance for credit losses, January 1, $ 71,972 $ 72,606 $ 67,773 Loans charged-off: Commercial and industrial loans 1,615 6,341 4,022 Commercial real estate and multi-family residential loans 840 0 597 Agri-business and agricultural loans 0 0 0 Other commercial loans 0 0 0 Consumer 1-4 family mortgage loans 94 163 42 Other consumer loans 919 828 473 Total loans charged-off 3,468 7,332 5,134 Recoveries of loans previously charged-off: Commercial and industrial loans 177 180 71 Commercial real estate and multi-family residential loans 106 322 277 Agri-business and agricultural loans 0 0 0 Other commercial loans 0 0 0 Consumer 1-4 family mortgage loans 53 38 52 Other consumer loans 370 308 192 Total recoveries 706 848 592 Net loans charged-off 2,762 6,484 4,542 Provision for credit loss charged to expense 16,750 5,850 9,375 Balance, December 31, $ 85,960 $ 71,972 $ 72,606 Ratios: Net charge offs (recoveries) to average daily loans outstanding: Commercial and industrial loans 0.03 % 0.13 % 0.09 % Commercial real estate and multi-family residential loans 0.01 (0.01) 0.01 Agri-business and agricultural loans 0.00 0.00 0.00 Other commercial loans 0.00 0.00 0.00 Consumer 1-4 family mortgage loans 0.00 0.00 0.00 Other consumer loans 0.01 0.01 0.00 Total ratio of net charge offs (recoveries) 0.05 % 0.13 % 0.10 % Allowance for credit losses on loans to: Total loans 1.68 % 1.46 % 1.54 % Ratio of allowance for credit losses to nonperforming loans 152.25 % 458.01 % 424.91 % 53 Table of Contents The following is a summary of the allocation for credit losses as of December 31, 2024 and 2023.
Data processing fees and supplies expense increased $1.2 million, or 9.2%. Offsetting these increases was a decrease in other expense of $2.4 million, or 18.0%, driven by reduced accruals related to ongoing litigation matters.
Data processing fees and supplies expense increased $1.2 million, or 9.2%. Offsetting these increases was a decrease in other expense of $2.4 million, or 18.0%, driven by reduced accruals related to ongoing litigation matters. Income Taxes The Company recognized income tax expense in 2024 of $18.2 million, compared to $16.6 million in 2023 and $21.3 million in 2022.
Bank Owned Life Insurance Bank owned life insurance increased by $707,000 to $109.1 million at December 31, 2023 and by $10.8 million to $108.4 million at December 31, 2022 from $97.7 million at December 31, 2021.
Bank Owned Life Insurance Bank owned life insurance increased by $4.2 million to $113.3 million at December 31, 2024 and by $707,000 to $109.1 million at December 31, 2023 from $108.4 million at December 31, 2022.
FINANCIAL CONDITION Overview Total assets of the Company were $6.524 billion as of December 31, 2023, an increase of $91.7 million, or 1.4%, when compared to $6.432 billion as of December 31, 2022. Total loans outstanding increased by $206.1 million, or 4.4%, to $4.917 billion at December 31, 2023 from $4.710 billion at December 31, 2022.
FINANCIAL CONDITION Overview Total assets of the Company were $6.678 billion as of December 31, 2024, an increase of $154.3 million, or 2.4%, when compared to $6.524 billion as of December 31, 2023. Total loans outstanding increased by $201.4 million, or 4.1%, to $5.118 billion at December 31, 2024, from $4.917 billion at December 31, 2023.
(dollars in thousands) 2023 2022 Amount of loans outstanding, net of deferred fees, December 31, $ 4,916,534 $ 4,710,396 Commercial and industrial loans Past due accruing loans (90 days or more) 0 1 Nonaccrual loans 11,395 13,064 Subtotal nonperforming loans 11,395 13,065 Commercial real estate and multi-family residential loans Past due accruing loans (90 days or more) 0 0 Nonaccrual loans 3,247 3,065 Subtotal nonperforming loans 3,247 3,065 Agri-business and agricultural loans Past due accruing loans (90 days or more) 0 0 Nonaccrual loans 100 145 Subtotal nonperforming loans 100 145 Other commercial loans Past due accruing loans (90 days or more) 0 0 Nonaccrual loans 0 0 Subtotal nonperforming loans 0 0 Consumer 1-4 family mortgage loans Past due accruing loans (90 days or more) 27 122 Nonaccrual loans 831 481 Subtotal nonperforming loans 858 603 Other consumer loans Past due accruing loans (90 days or more) 0 0 Nonaccrual loans 112 209 Subtotal nonperforming loans 112 209 Total nonperforming loans $ 15,712 $ 17,087 Ratio: Nonperforming loans to total loans 0.32 % 0.36 % Nonperforming assets of the Company include nonperforming loans (as indicated above), nonaccrual investments, other real estate owned and repossessions, the total of which amounted to $16.1 million and $17.2 million at December 31, 2023 and 2022, respectively.
(dollars in thousands) 2024 2023 Amount of loans outstanding, net of deferred fees, December 31, $ 5,117,948 $ 4,916,534 Commercial and industrial loans Past due accruing loans (90 days or more) 3 0 Nonaccrual loans 52,857 11,395 Subtotal nonperforming loans 52,860 11,395 Commercial real estate and multi-family residential loans Past due accruing loans (90 days or more) 0 0 Nonaccrual loans 1,775 3,247 Subtotal nonperforming loans 1,775 3,247 Agri-business and agricultural loans Past due accruing loans (90 days or more) 0 0 Nonaccrual loans 71 100 Subtotal nonperforming loans 71 100 Other commercial loans Past due accruing loans (90 days or more) 0 0 Nonaccrual loans 0 0 Subtotal nonperforming loans 0 0 Consumer 1-4 family mortgage loans Past due accruing loans (90 days or more) 26 27 Nonaccrual loans 1,439 831 Subtotal nonperforming loans 1,465 858 Other consumer loans Past due accruing loans (90 days or more) 0 0 Nonaccrual loans 275 112 Subtotal nonperforming loans 275 112 Total nonperforming loans $ 56,446 $ 15,712 Ratio: Nonperforming loans to total loans 1.10 % 0.32 % Nonperforming assets of the Company include nonperforming loans (as indicated above), nonaccrual investments, other real estate owned and repossessions, the total of which amounted to $56.9 million and $16.1 million at December 31, 2024 and 2023, respectively.
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.
(5) 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.
Total borrowings decreased by $247.0 million to $50.0 million at December 31, 2023 compared to $297.0 million at December 31, 2022. 45 Table of Contents Uses of Funds Investment Portfolio At year end 2023, 2022 and 2021, there were no holdings of securities of any one issuer, other than the U.S. government, government agencies and government sponsored agencies, in an amount greater than 10% of stockholders’ equity.
The Company was not in a borrowed position at December 31, 2024, compared to borrowings of $50.0 million at December 31, 2023, as a result of the liquidity provided by increased deposits at period end. 44 Table of Contents Uses of Funds Investment Portfolio At year end 2024, 2023 and 2022, there were no holdings of securities of any one issuer, other than the U.S. government, government agencies and government sponsored agencies, in an amount greater than 10% of stockholders’ equity.
On April 1, 2022, the Company elected to transfer $151.4 million in net book value of municipal bonds from the available-for-sale securities portfolio to held-to-maturity as an overall balance sheet management strategy. The fair value of these securities transferred was $127.0 million. Securities sales totaled $105.2 million in 2023, $25.3 million in 2022 and $14.0 million in 2021.
On April 1, 2022, the Company elected to transfer $151.4 million in net book value of municipal bonds from the available-for-sale securities portfolio to held-to-maturity as an overall balance sheet management strategy.
(dollars in thousands, except per share data) 2023 2022 2021 Income Statement Summary: Net interest income (a) $ 197,035 $ 202,887 $ 178,088 Provision for credit losses 5,850 9,375 1,077 Noninterest income (b) 49,858 41,862 44,720 Adjusted Core Noninterest Income (1) 43,558 41,862 44,720 Noninterest expense (c) 130,710 110,210 104,287 Adjusted Core Noninterest Expense (1) 114,049 110,210 104,287 Other Data: Efficiency ratio (2) 52.94 % 45.03 % 46.81 % Adjusted Core Efficiency Ratio (1) 47.40 45.03 46.81 Dilutive EPS $ 3.65 $ 4.04 $ 3.74 Total equity 649,793 568,887 704,906 Tangible capital ratio (3) 9.91 % 8.79 % 10.70 % Adjusted tangible capital ratio (4) 11.99 11.38 10.47 Net charge offs to average loans 0.13 0.10 0.09 Net interest margin 3.31 3.40 3.07 Net interest margin excluding Paycheck Protection Program ("PPP") loans (5) 3.31 3.40 2.95 Noninterest income to total revenue 20.19 17.10 20.07 Pretax Pre-Provision Earnings (6) $ 116,183 $ 134,539 $ 118,521 (1) Non-GAAP financial measure.
(dollars in thousands, except per share data) 2024 2023 2022 Income Statement Summary: Net interest income (a) $ 196,679 $ 197,035 $ 202,887 Provision for credit losses 16,750 5,850 9,375 Noninterest income (b) 56,844 49,858 41,862 Adjusted Core Noninterest Income (1) 46,848 43,558 41,862 Noninterest expense (c) 125,084 130,710 110,210 Adjusted Core Noninterest Expense (1) 120,547 114,049 110,210 Other Data: Efficiency ratio (2) 49.34 % 52.94 % 45.03 % Adjusted Core Efficiency Ratio (1) 49.49 47.40 45.03 Dilutive EPS $ 3.63 $ 3.65 $ 4.04 Total equity 683,911 649,793 568,887 Tangible capital ratio (3) 10.19 % 9.91 % 8.79 % Adjusted tangible capital ratio (4) 12.37 11.99 11.38 Net charge offs to average loans 0.05 0.13 0.10 Net interest margin 3.18 3.31 3.40 Noninterest income to total revenue 22.42 20.19 17.10 Pretax Pre-Provision Earnings (5) $ 128,439 $ 116,183 $ 134,539 (1) Non-GAAP financial measure.
The updated economic projections released at the December meeting project the median federal funds rate decreasing to 4.6% in 2024 (lowering of the target federal funds rate by 75 basis points), with continued easing to 3.6% in 2025. Additionally, the longer run median forecast for the federal funds rate was left unchanged at 2.50%.
The updated economic projections released at the December meeting project the median federal funds rate decreasing to 3.9% in 2025 (lowering of the target federal funds rate by 50 basis points), with continued easing to 3.4% in 2026.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Results 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 interest rate scenarios are listed below based upon the Company’s rate sensitive assets and liabilities at December 31, 2023.
Results 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 interest rate scenarios are listed below based upon the Company’s rate sensitive assets and liabilities at December 31, 2024.
Management believes that the Company’s liquidity and interest sensitivity position at December 31, 2023, remained adequate to meet the Company’s primary goal of achieving optimum interest margins while 60 Table of Contents avoiding undue interest rate risk. The Company places a greater level of credence in net interest income simulation modeling.
Management believes that the Company’s liquidity and interest sensitivity position at December 31, 2024, remained adequate to meet the Company’s primary goal of achieving optimum interest margins while 59 Table of Contents avoiding undue interest rate risk. The Company places a greater level of credence in net interest income simulation modeling.
Although management does not consider GAP ratios in planning, the information can be used in a general fashion to look at asset and liability mismatches. The Company’s cumulative repricing GAP ratio as of December 31, 2023 for the next 12 months using a scenario in which interest rates remained unchanged was a negative 13.78% of earning assets.
Although management does not consider GAP ratios in planning, the information can be used in a general fashion to look at asset and liability mismatches. The Company’s cumulative repricing GAP ratio as of December 31, 2024 for the next 12 months using a scenario in which interest rates remained unchanged was a negative 12.28% of earning assets.
(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 $ 210,702 $ 197,914 $ 203,707 $ 207,878 $ 209,476 $ 210,151 $ 211,168 $ 211,542 $ 212,130 $ 213,232 $ 214,375 Variance from Base ($12,788) ($6,995) ($2,824) ($1,226) ($551) $466 $840 $1,428 $ 2,530 $ 3,673 Percent of change from Base (6.07) % (3.32) % (1.34) % (0.58) % (0.26) % 0.22 % 0.40 % 0.68 % 1.20 % 1.74 % For more information on the Company’s interest rate sensitivity see the Interest Rate Risk discussion in Item 7A. above. 61 Table of Contents
(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 $ 230,487 $ 223,080 $ 227,066 $ 229,245 $ 229,973 $ 230,294 $ 230,579 $ 230,651 $ 230,749 $ 230,900 $ 231,046 Variance from Base ($7,407) ($3,421) ($1,242) ($514) ($193) $92 $164 $262 $413 $559 Percent of change from Base (3.21) % (1.48) % (0.54) % (0.22) % (0.08) % 0.04 % 0.07 % 0.11 % 0.18 % 0.24 % For more information on the Company’s interest rate sensitivity see the Interest Rate Risk discussion in Item 7A. above. 60 Table of Contents
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Weighted-average variable rates are based upon rates existing at the reporting date. 59 Table of Contents 2023 Principal/Notional Amount Maturing in: (dollars in thousands) Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter Total Fair Value 12/31/2023 Rate sensitive assets: Fixed interest rate loans $ 739,021 $ 448,779 $ 247,462 $ 163,758 $ 72,188 $ 127,235 $ 1,798,443 $ 1,748,419 Average interest rate 4.93 % 5.29 % 5.13 % 5.52 % 5.77 % 5.05 % Variable interest rate loans $ 1,518,052 $ 515,816 $ 288,064 $ 213,893 $ 180,428 $ 401,838 $ 3,118,091 $ 3,031,362 Average interest rate 8.20 % 7.75 % 7.32 % 7.10 % 7.09 % 6.96 % Total loans $ 2,257,073 $ 964,595 $ 535,526 $ 377,651 $ 252,616 $ 529,073 $ 4,916,534 $ 4,779,781 Average interest rate 7.13 % 6.61 % 6.31 % 6.42 % 6.71 % 6.50 % Fixed interest rate securities $ 72,231 $ 59,972 $ 67,025 $ 55,691 $ 66,237 $ 1,056,008 $ 1,377,164 $ 1,170,943 Average interest rate 2.27 % 2.07 % 2.12 % 2.12 % 2.04 % 2.25 % Variable interest rate securities $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Average interest rate 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Other interest-bearing assets $ 81,373 $ 0 $ 0 $ 0 $ 0 $ 0 $ 81,373 $ 81,373 Average interest rate 5.35 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Total earning assets $ 2,410,677 $ 1,024,567 $ 602,551 $ 433,342 $ 318,853 $ 1,585,081 $ 6,375,071 $ 6,032,097 Average interest rate 6.92 % 6.34 % 5.84 % 5.86 % 5.74 % 3.67 % Rate sensitive liabilities: Noninterest bearing checking $ 230,963 $ 130,956 $ 115,678 $ 102,183 $ 90,262 $ 683,435 $ 1,353,477 $ 1,353,477 Average interest rate 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Savings & interest bearing checking $ 810,190 $ 214,131 $ 188,996 $ 167,764 $ 149,533 $ 1,819,613 $ 3,350,227 $ 3,350,227 Average interest rate 3.72 % 2.87 % 2.95 % 3.02 % 3.08 % 3.82 % Time deposits $ 879,296 $ 84,752 $ 16,885 $ 31,638 $ 4,110 $ 140 $ 1,016,821 $ 1,010,172 Average interest rate 4.28 % 3.91 % 2.70 % 3.32 % 3.23 % 0.73 % Total deposits $ 1,920,449 $ 429,839 $ 321,559 $ 301,585 $ 243,905 $ 2,503,188 $ 5,720,525 $ 5,713,876 Average interest rate 3.53 % 2.20 % 1.88 % 2.03 % 1.94 % 2.78 % Fixed interest rate borrowings $ 50,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 50,000 $ 50,000 Average interest rate 5.63 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Variable interest rate borrowings $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Average interest rate 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Total funds $ 1,970,449 $ 429,839 $ 321,559 $ 301,585 $ 243,905 $ 2,503,188 $ 5,770,525 $ 5,763,876 Average interest rate 3.58 % 2.20 % 1.88 % 2.03 % 1.94 % 2.78 % Interest rate sensitivity gap by period $ 440,228 $ 594,728 $ 280,992 $ 131,757 $ 74,948 $ (918,107) Cumulative rate sensitivity gap $ 440,228 $ 1,034,956 $ 1,315,948 $ 1,447,705 $ 1,522,653 $ 604,546 Cumulative rate sensitivity ratio at December 31, 2023 122.3 % 238.4 % 187.4 % 143.7 % 130.7 % 63.3 % at December 31, 2022 147.2 % 169.1 % 185.3 % 146.7 % 114.2 % 62.8 % The Company utilizes computer modeling software to measure interest rate risk and to stress test the balance sheet under a wide variety of interest rate scenarios.
Added
Weighted-average variable rates are based upon rates existing at the reporting date. 58 Table of Contents 2024 Principal/Notional Amount Maturing in: (dollars in thousands) Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter Total Fair Value 12/31/2024 Rate sensitive assets: Fixed interest rate loans $ 840,141 $ 369,687 $ 288,183 $ 139,233 $ 75,574 $ 88,541 $ 1,801,359 $ 1,769,497 Average interest rate 5.12 % 5.49 % 5.96 % 6.24 % 6.22 % 5.11 % Variable interest rate loans $ 1,820,216 $ 489,519 $ 271,599 $ 187,711 $ 134,202 $ 413,342 $ 3,316,589 $ 3,257,927 Average interest rate 7.29 % 7.08 % 6.94 % 6.90 % 6.74 % 6.59 % Total loans $ 2,660,357 $ 859,206 $ 559,782 $ 326,944 $ 209,776 $ 501,883 $ 5,117,948 $ 5,027,424 Average interest rate 6.61 % 6.40 % 6.43 % 6.62 % 6.55 % 6.33 % Fixed interest rate securities $ 72,208 $ 63,570 $ 59,277 $ 66,569 $ 48,385 $ 1,023,025 $ 1,333,034 $ 1,104,530 Average interest rate 2.23 % 2.23 % 2.23 % 2.10 % 2.17 % 2.40 % Variable interest rate securities $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Average interest rate 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Other interest-bearing assets $ 96,472 $ 0 $ 0 $ 0 $ 0 $ 0 $ 96,472 $ 96,472 Average interest rate 4.12 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Total earning assets $ 2,829,037 $ 922,776 $ 619,059 $ 393,513 $ 258,161 $ 1,524,908 $ 6,547,454 $ 6,228,426 Average interest rate 6.41 % 6.11 % 6.03 % 5.85 % 5.73 % 3.70 % Rate sensitive liabilities: Noninterest bearing checking $ 209,825 $ 114,309 $ 102,296 $ 91,544 $ 81,923 $ 697,559 $ 1,297,456 $ 1,297,456 Average interest rate 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Savings & interest bearing checking $ 667,263 $ 238,315 $ 214,414 $ 193,336 $ 174,694 $ 2,259,612 $ 3,747,634 $ 3,747,634 Average interest rate 3.09 % 2.39 % 2.44 % 2.50 % 2.56 % 3.23 % Time deposits $ 720,094 $ 90,709 $ 35,337 $ 5,813 $ 3,718 $ 205 $ 855,876 $ 851,933 Average interest rate 4.06 % 3.49 % 3.42 % 3.06 % 2.70 % 0.50 % Total deposits $ 1,597,182 $ 443,333 $ 352,047 $ 290,693 $ 260,335 $ 2,957,376 $ 5,900,966 $ 5,897,023 Average interest rate 3.12 % 2.00 % 1.83 % 1.73 % 1.75 % 2.47 % Fixed interest rate borrowings $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Average interest rate 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Variable interest rate borrowings $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Average interest rate 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Total funds $ 1,597,182 $ 443,333 $ 352,047 $ 290,693 $ 260,335 $ 2,957,376 $ 5,900,966 $ 5,897,023 Average interest rate 3.12 % 2.00 % 1.83 % 1.73 % 1.75 % 2.47 % Interest rate sensitivity gap by period $ 1,231,855 $ 479,443 $ 267,012 $ 102,820 $ (2,174) $ (1,432,468) Cumulative rate sensitivity gap $ 1,231,855 $ 1,711,298 $ 1,978,310 $ 2,081,130 $ 2,078,956 $ 646,488 Cumulative rate sensitivity ratio at December 31, 2024 177.1 % 208.1 % 175.8 % 135.4 % 99.2 % 51.6 % at December 31, 2023 122.3 % 238.4 % 187.4 % 143.7 % 130.7 % 63.3 % The Company utilizes computer modeling software to measure interest rate risk and to stress test the balance sheet under a wide variety of interest rate scenarios.

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