株探米国株
英語
エドガーで原本を確認する
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 0-11487
LAKELAND FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1559596
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
202 East Center Street,
Warsaw , Indiana 46580
(Address of principal executive offices) (Zip Code)
(574) 267‑6144
(Registrant’s Telephone Number, Including Area Code)
Title of each class      Trading Symbol(s)      Name of each exchange on which registered
Common stock, No par value LKFN The NASDAQ Stock Market LLC
(Nasdaq Global Select Market)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.
Large accelerated filer ☒   Accelerated filer ☐   Non-accelerated filer ☐
Smaller reporting company ☐    Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of common stock outstanding at October 26, 2023:  25,431,724


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ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data)
September 30,
2023		 December 31,
2022
(Unaudited)
ASSETS      
Cash and due from banks $ 67,512  $ 80,992 
Short-term investments 78,768  49,290 
Total cash and cash equivalents 146,280  130,282 
Securities available-for-sale, at fair value 975,532  1,185,528 
Securities held-to-maturity, at amortized cost (fair value of $102,629 and $111,029, respectively)
 129,494  128,242 
Real estate mortgage loans held-for-sale 572  357 
Loans, net of allowance for credit losses of $72,105 and $72,606
 4,798,860  4,637,790 
Land, premises and equipment, net 58,512  58,097 
Bank owned life insurance 108,758  108,407 
Federal Reserve and Federal Home Loan Bank stock 21,420  15,795 
Accrued interest receivable 28,994  27,994 
Goodwill 4,970  4,970 
Other assets 153,452  134,909 
Total assets $ 6,426,844  $ 6,432,371 
LIABILITIES
Noninterest bearing deposits $ 1,377,650  $ 1,736,761 
Interest bearing deposits 4,279,425  3,723,859 
Total deposits 5,657,075  5,460,620 
Federal Funds purchased 0  22,000 
Federal Home Loan Bank advances 90,000  275,000 
Total borrowings 90,000  297,000 
Accrued interest payable 16,178  3,186 
Other liabilities 106,407  102,678 
Total liabilities 5,869,660  5,863,484 
STOCKHOLDERS’ EQUITY
Common stock: 90,000,000 shares authorized, no par value
25,903,264 shares issued and 25,431,724 outstanding as of September 30, 2023
25,825,127 shares issued and 25,349,225 outstanding as of December 31, 2022
 125,758  127,004 
Retained earnings 674,917  646,100 
Accumulated other comprehensive income (loss) (228,111) (188,923)
Treasury stock at cost (471,540 shares as of September 30, 2023, 475,902 shares as of December 31, 2022)
 (15,469) (15,383)
Total stockholders’ equity 557,095  568,798 
Noncontrolling interest 89  89 
Total equity 557,184  568,887 
Total liabilities and equity $ 6,426,844  $ 6,432,371 

The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME (unaudited - dollars in thousands, except share and per share data)
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2023 2022 2023 2022
NET INTEREST INCOME
Interest and fees on loans
Taxable $ 78,910  $ 52,707  $ 223,499  $ 136,580 
Tax exempt 1,008  462  2,869  911 
Interest and dividends on securities
Taxable 3,077  3,608  9,966  10,613 
Tax exempt 4,023  5,009  12,387  14,609 
Other interest income 1,605  772  3,604  1,501 
Total interest income 88,623  62,558  252,325  164,214 
Interest on deposits 37,108  10,066  95,637  18,037 
Interest on borrowings
Short-term 3,122  0  8,252  0 
Long-term 0  0  0  127 
Total interest expense 40,230  10,066  103,889  18,164 
NET INTEREST INCOME 48,393  52,492  148,436  146,050 
Provision for credit losses 400  0  5,550  417 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 47,993  52,492  142,886  145,633 
NONINTEREST INCOME
Wealth advisory fees 2,298  2,059  6,769  6,550 
Investment brokerage fees 408  651  1,370  1,711 
Service charges on deposit accounts 2,735  2,990  8,091  8,681 
Loan and service fees 2,934  3,047  8,782  9,131 
Merchant card fee income 938  941  2,744  2,660 
Bank owned life insurance income (loss) 1,009  54  2,393  (212)
Interest rate swap fee income 0  88  794  492 
Mortgage banking income (loss) (50) (89) (184) 771 
Net securities gains (losses) (35) 0  (16) 0 
Other income 598  423  1,907  1,559 
Total noninterest income 10,835  10,164  32,650  31,343 
NONINTEREST EXPENSE
Salaries and employee benefits 15,977  14,650  43,414  43,840 
Net occupancy expense 1,621  1,476  4,874  4,793 
Equipment costs 1,325  1,380  4,189  4,250 
Data processing fees and supplies 3,379  3,226  10,305  9,510 
Corporate and business development 1,201  1,426  3,930  4,078 
FDIC insurance and other regulatory fees 871  458  2,469  1,516 
Professional fees 2,114  1,554  6,284  4,527 
Wire fraud loss 0  0  18,058  0 
Other expense 2,609  3,724  7,742  10,262 
Total noninterest expense 29,097  27,894  101,265  82,776 
INCOME BEFORE INCOME TAX EXPENSE 29,731  34,762  74,271  94,200 
Income tax expense 4,479  6,237  10,130  16,360 
NET INCOME $ 25,252  $ 28,525  $ 64,141  $ 77,840 
BASIC WEIGHTED AVERAGE COMMON SHARES 25,613,456  25,533,832  25,601,493  25,525,734 
BASIC EARNINGS PER COMMON SHARE $ 0.99  $ 1.12  $ 2.51  $ 3.05 
DILUTED WEIGHTED AVERAGE COMMON SHARES 25,693,535  25,734,613  25,709,841  25,710,088 
DILUTED EARNINGS PER COMMON SHARE $ 0.98  $ 1.11  $ 2.49  $ 3.03 
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited - dollars in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Net income $ 25,252  $ 28,525  $ 64,141  $ 77,840 
Other comprehensive income (loss)
Change in available-for-sale and transferred securities:
Unrealized holding gain (loss) on securities available-for-sale arising during the period (64,432) (80,532) (51,150) (302,137)
Reclassification adjust for amortization of unrealized losses on securities transferred to held-to-maturity 501  504  1,486  995 
Reclassification adjustment for losses included in net income 35  0  16  0 
Net securities gain (loss) activity during the period (63,896) (80,028) (49,648) (301,142)
Tax effect 13,419  16,806  10,427  63,239 
Net of tax amount (50,477) (63,222) (39,221) (237,903)
Defined benefit pension plans:
Amortization of net actuarial loss 15  36  45  108 
Net gain activity during the period 15  36  45  108 
Tax effect (4) (9) (12) (27)
Net of tax amount 11  27  33  81 
Total other comprehensive income (loss), net of tax (50,466) (63,195) (39,188) (237,822)
Comprehensive income (loss) $ (25,214) $ (34,670) $ 24,953  $ (159,982)
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited - dollars in thousands, except share and per share data)
Three Months Ended
Common Stock Retained
Earnings		 Accumulated Other Comprehensive
Income (Loss)		 Treasury
Stock		 Total Stockholders’
Equity		 Noncontrolling
Interest		 Total
Equity
Shares Stock
Balance at July 1, 2022
 25,345,162  $ 123,571  $ 612,026  $ (158,534) $ (15,089) $ 561,974  $ 89  $ 562,063 
Comprehensive loss:
Net income 28,525  28,525  28,525 
Other comprehensive income (loss), net of tax (63,195) (63,195) (63,195)
Cash dividends declared and paid, $0.40 per share
 (10,214) (10,214) (10,214)
Treasury shares purchased under deferred directors' plan (3,158) 220  (220) 0  0 
Treasury shares sold and distributed under deferred directors' plan 0  0 
Stock activity under equity compensation plans 8,130  (52) (52) (52)
Stock based compensation expense 2,093  2,093  2,093 
Balance at September 30, 2022
 25,350,134  $ 125,832  $ 630,337  $ (221,729) $ (15,309) $ 519,131  $ 89  $ 519,220 
Balance at July 1, 2023
 25,429,216  $ 123,367  $ 661,447  $ (177,645) $ (15,263) $ 591,906  $ 89  $ 591,995 
Comprehensive loss:
Net income 25,252  25,252  25,252 
Other comprehensive income (loss), net of tax (50,466) (50,466) (50,466)
Cash dividends declared and paid, $0.46 per share
 (11,782) (11,782) (11,782)
Treasury shares purchased under deferred directors' plan (3,992) 206  (206) 0  0 
Treasury shares sold and distributed under deferred directors' plan 0  0 
Stock activity under equity compensation plans 6,500  0  0 
Stock based compensation expense 2,185  2,185  2,185 
Balance at September 30, 2023
 25,431,724  $ 125,758  $ 674,917  $ (228,111) $ (15,469) $ 557,095  $ 89  $ 557,184 
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Nine Months Ended
Common Stock Retained
Earnings		 Accumulated Other Comprehensive
Income (Loss)		 Treasury
Stock		 Total Stockholders’
Equity		 Noncontrolling
Interest		 Total
Equity
Shares Stock
Balance at January 1, 2022
 25,300,793  $ 120,615  $ 583,134  $ 16,093  $ (15,025) $ 704,817  $ 89  $ 704,906 
Comprehensive loss:
Net income 77,840  77,840  77,840 
Other comprehensive income (loss), net of tax (237,822) (237,822) (237,822)
Cash dividends declared and paid, $1.20 per share
 (30,637) (30,637) (30,637)
Treasury shares purchased under deferred directors' plan (6,732) 505  (505) 0  0 
Treasury shares sold and distributed under deferred directors' plan 8,555  (221) 221  0  0 
Stock activity under equity compensation plans 47,518  (1,780) (1,780) (1,780)
Stock based compensation expense 6,713  6,713  6,713 
Balance at September 30, 2022
 25,350,134  $ 125,832  $ 630,337  $ (221,729) $ (15,309) $ 519,131  $ 89  $ 519,220 
Balance at January 1, 2023
 25,349,225  $ 127,004  $ 646,100  $ (188,923) $ (15,383) $ 568,798  $ 89  $ 568,887 
Comprehensive income:
Net income 64,141  64,141  64,141 
Other comprehensive income (loss), net of tax (39,188) (39,188) (39,188)
Cash dividends declared and paid, $1.38 per share
 (35,324) (35,324) (35,324)
Treasury shares purchased under deferred directors' plan (8,493) 491  (491) 0  0 
Treasury shares sold and distributed under deferred directors' plan 12,855  (405) 405  0  0 
Stock activity under equity compensation plans 78,137  (3,124) (3,124) (3,124)
Stock based compensation expense 1,792  1,792  1,792 
Balance at September 30, 2023
 25,431,724  $ 125,758  $ 674,917  $ (228,111) $ (15,469) $ 557,095  $ 89  $ 557,184 
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)
Nine Months Ended September 30, 2023 2022
Cash flows from operating activities:
Net income $ 64,141  $ 77,840 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 4,579  4,494 
Provision for credit losses 5,550  417 
Amortization of loan servicing rights 431  583 
Net change in loan servicing rights valuation allowance 0  (708)
Loans originated for sale, including participations (6,120) (27,273)
Net gain on sales of loans (224) (958)
Proceeds from sale of loans, including participations 6,075  34,299 
Net (gain) loss on sales of premises and equipment 3  3 
Net loss on sales and calls of securities available-for-sale 16  0 
Net securities amortization 3,732  4,817 
Stock based compensation expense 1,792  6,713 
Losses (earnings) on life insurance (2,393) 212 
Tax benefit of stock award issuances (720) (514)
Net change:
Interest receivable and other assets (3,386) (2,782)
Interest payable and other liabilities 14,000  37,707 
Total adjustments 23,335  57,010 
Net cash from operating activities 87,476  134,850 
Cash flows from investing activities:
Proceeds from sale of securities available-for-sale 102,827  0 
Proceeds from maturities, calls and principal paydowns of securities available-for-sale 56,830  86,001 
Proceeds from maturities, calls and principal paydowns of securities held-to-maturity 6  5 
Purchases of securities available-for-sale (4,314) (313,905)
Purchase of life insurance (222) (727)
Net (increase) decrease in total loans (166,904) (202,945)
Proceeds from sales of land, premises and equipment 13  4 
Purchases of land, premises and equipment (5,010) (3,678)
Purchase of Federal Home Loan Bank stock (5,625) 0 
Proceeds from redemption of Federal Home Loan Bank stock 0  932 
Net cash from investing activities (22,399) (434,313)
Cash flows from financing activities:
Net increase (decrease) in total deposits 196,455  (71,274)
Net increase (decrease) in short-term borrowings (22,000) 0 
Payments on long-term FHLB borrowings 0  (75,000)
Net payments on short-term FHLB borrowings (185,000) 0 
Common dividends paid (35,311) (30,624)
Preferred dividends paid (13) (13)
Payments related to equity incentive plans (3,124) (1,780)
Purchase of treasury stock (491) (505)
Sale of treasury stock 405  221 
Net cash from financing activities (49,079) (178,975)
Net change in cash and cash equivalents 15,998  (478,438)
Cash and cash equivalents at beginning of the period 130,282  683,240 
Cash and cash equivalents at end of the period 146,280  204,802 
Cash paid during the period for:
Interest $ 90,897  18,583 
Income taxes 9,275  13,780 
Supplemental non-cash disclosures:
Loans transferred to other real estate owned 284  0 
Right-of-use assets obtained in exchange for lease liabilities 0  1,612 
The accompanying notes are an integral part of these consolidated financial statements.
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NOTE 1. BASIS OF PRESENTATION
This report is filed for Lakeland Financial Corporation (the "Company"), which has two wholly owned subsidiaries, Lake City Bank (the "Bank") and LCB Risk Management, a captive insurance company. Also included in this report are results for the Bank’s wholly owned subsidiary, LCB Investments II, Inc. ("LCB Investments"), which manages the Bank’s investment securities portfolio. LCB Investments owns LCB Funding, Inc. ("LCB Funding"), a real estate investment trust. All significant inter-company balances and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and are unaudited. In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2023. The Company’s 2022 Annual Report on Form 10-K should be read in conjunction with these statements.
Adoption of New Accounting Standards
On March 31, 2022, the FASB issued ASU 2022-02, "Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures." The update amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of an existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and and class of financing receivable by year of origination. The update is available for entities that have adopted the amendments in update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company elected to early adopt the provisions of the ASU related to the discontinuance of TDR reporting, with retrospective application of modification reporting effective starting January 1, 2022. The Company adopted the provisions related to reporting of current-period gross write-offs within the vintage disclosures effective January 1, 2023. The adoption of the provisions contained within ASU 2022-02 did not have a material impact on the consolidated financial statements.
On March 28, 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (ASC 815): Fair Value Hedging - Portfolio Layer Method." ASC 815 previously permitted only prepayable financial assets and one or more beneficial interests secured by a portfolio of prepayable financial instruments to be included in a last-of-layer closed portfolio. The amendment in this update allows nonrepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. That expanded scope allows an entity to apply the same portfolio hedging method to both prepayable and nonprepayable financial assets, thereby allowing consistent accounting for similar hedges. The update became effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company adopted ASU 2022-01 on January 1, 2023, which did not have a material impact on the consolidated financial statements.
On March 12, 2020, the FASB issued Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASC 848 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The Company has formed a cross-functional project team to lead the transition from LIBOR to a planned adoption of reference rates which could include Secured Overnight Financing Rate ("SOFR"), amongst others. The Company has identified certain loans that renewed prior to 2021 and obtained updated reference rate language at the time of the renewal. Additionally, management is utilizing the timeline guidance published by the Alternative Reference Rates Committee to develop and achieve internal milestones during this transitional period. The Company's policy is to adhere to the International Swaps and Derivatives Association 2020 IBOR Fallbacks Protocol that was released on October 23, 2020.
The Company discontinued the use of new LIBOR-based loans by December 31, 2021, according to regulatory guidelines. The Company transitioned LIBOR-based loans to an alternative reference rate before June 30, 2023. On December 22, 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (ASC 848): Deferral of the Sunset Date of Topic 848",
which definitively provided a sunset date of December 31, 2024 for the relief guidance allowed under Topic 848. The ASU was effective immediately upon issuance. The Company adopted the LIBOR transition relief allowed under this standard, and it did not have a material impact on the consolidated financial statements.
Newly Issued But Not Yet Effective Accounting Standards
On March 28, 2023, the FASB issued ASU 2023-02, "Investments-Equity Method and Joint Ventures (ASC 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." ASU 2014-01, "Investments-Equity Method and Joint Ventures (ASC 323): Accounting for Investments in Qualified Affordable Housing Projects", previously introduced the option to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and other income tax benefits when certain requirements are met; however, this guidance limited the proportional amortization method to investments in low-income-housing tax credit (LIHTC) structures. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the income statement as a component of net income tax expense (benefit). Equity investments in other tax credit structures are typically accounted for using the equity method, which results in investment income, gains and losses, and tax credits being presented gross on the income statement in their respective line items.
The amendments in this update permit reporting entities to elect to account for certain tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax benefits in the income statement as a component of income tax expense (benefit). To qualify for the proportional amortization method, all of the following conditions must be met: (1) It is probable that the income tax credits allocated to the tax equity investor will be available; (2) The tax equity investor does not have the ability to exercise significant influence over the operating and financial policies of the underlying project; (3) Substantially all of the projected benefits are from income tax credits and other income tax benefits. Projected benefits included income tax credits, other income tax benefits, and other non-income tax -related benefits. The projected benefits are determined on a discounted basis, using a discount rate that is consistent with the cash flow assumptions used by the tax equity investor in making its decision to invest in the project; (4) The tax equity investor's projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive; and (5) The tax equity investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the tax equity investor's liability is limited to its capital investment. An accounting policy election is allowed to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments. The amendments in this update require specific disclosures that must be applied to all investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method. The amendments require that a reporting entity disclose certain information in annual and interim reporting periods that enable investors to understanding the following information about its investments that generate income tax credits and other income tax benefits from a tax credit program including: (1) The nature of its tax equity investments; and (2) The effect of its tax equity investments and related income tax credits and other income tax benefits on its financial position and results of operations.
For public business entities, the amendments in this update are effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years. Early adoption is permitted in any interim period. If early adoption is elected, the provisions shall be adopted as of the beginning of the fiscal year that includes the interim period of adoption. The amendments in this update must be applied on either a modified retrospective or a retrospective basis. The Company is currently evaluating the impact of this standard for its LIHTC investments and the impact to noninterest income, income tax expense, and beginning retained earnings within the consolidated financial statements.
On October 9, 2023, the FASB issued ASU 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative", which modified the disclosure or presentation requirements of a variety of Topics in the Codification and was intended to both clarify or improve such requirements and align the requirements with the SEC's regulations. The amendments to Topics of Codification provided in this Update apply to all reporting entities within the scope of the affected Topics unless otherwise indicated by the Update. Given the variety of Topics amended, a broad range of entities may be affected by one or more of the amendments provided in the Update. The Company evaluated the amendments provided in the Update and believes certain of the disclosure improvements are applicable to the Company's interim or annual disclosures. Subtopic 230-10, as amended, requires disclosure within the accounting policy in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented within the statement of cash flows. Subtopic 260-10, as amended, requires disclosure of the methods used in the diluted earnings-per-share computation for each dilutive security and clarifies that certain disclosures should be made during interim
periods. Subtopic 470-10, as amended, requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on short-term borrowings outstanding as of the date of each balance sheet presented. The effective date for each amendment for entities subject to the SEC's existing disclosure requirements is the effective date of the removal of the related disclosure from Regulation S-X or Regulation S-K, with early adoption prohibited. The amendments in the Update are to be applied prospectively. The Company will apply prospectively the provisions provided in the amendments as such provisions become effective, and does not believe the application of these modified disclosure requirements will have a material impact on the consolidated financial statements.
Reclassification
Certain amounts appearing in the consolidated financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation. The reclassifications had no effect on net income or stockholders' equity as previously reported.
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NOTE 2. SECURITIES
Debt securities purchased with the intent and ability to hold to their maturity are classified as held-to-maturity securities. All other investment securities are classified as available-for-sale securities.

Available-for-Sale Securities

Information related to the amortized cost, fair value and allowance for credit losses of securities available-for-sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) is provided in the table below.
(dollars in thousands) Amortized
Cost		 Gross Unrealized Gain Gross Unrealized Losses Allowance for Credit Losses Fair Value
September 30, 2023
U.S. Treasury securities $ 2,873  $ 0  $ (12) $ 0  $ 2,861 
U.S. government sponsored agencies 148,895  0  (33,224) 0  115,671 
Mortgage-backed securities: residential 531,807  12  (102,157) 0  429,662 
State and municipal securities 558,346  1  (131,009) 0  427,338 
Total $ 1,241,921  $ 13  $ (266,402) $ 0  $ 975,532 
December 31, 2022
U.S. Treasury securities $ 3,057  $ 0  $ (23) $ 0  $ 3,034 
U.S. government sponsored agencies 156,184  0  (29,223) 0  126,961 
Mortgage-backed securities: residential 578,175  67  (85,934) 0  492,308 
State and municipal securities 663,367  157  (100,299) 0  563,225 
Total $ 1,400,783  $ 224  $ (215,479) $ 0  $ 1,185,528 
Held-to-Maturity Securities
Information related to the amortized cost, fair value and allowance for credit losses of securities held-to-maturity and the related gross unrealized gains and losses is presented in the table below.
(dollars in thousands) Amortized
Cost		 Gross Unrealized Gain Gross Unrealized Losses Allowance for Credit Losses Fair Value
September 30, 2023
State and municipal securities $ 129,494  $ 0  $ (26,865) $ 0  $ 102,629 
December 31, 2022
State and municipal securities $ 128,242  $ 0  $ (17,213) $ 0  $ 111,029 
On April 1, 2022, the Company elected to transfer securities from available-for-sale to held-to-maturity as an overall balance sheet management strategy. The fair value of securities transferred was $127.0 million. The unrealized loss on the securities transferred from available-for-sale to held-to-maturity was $24.4 million ($19.3 million, net of tax) based on the fair value of the securities on the transfer date and was $21.4 million ($16.9 million, net of tax) at September 30, 2023. The Company has the current intent and ability to hold the transferred securities until maturity. Any net unrealized gain or loss on the transferred securities included in accumulated other comprehensive income (loss) at the time of the transfer will be amortized over the remaining life of the underlying security as an adjustment to the yield on those securities. There have been no subsequent transfers of securities from available-for-sale to held-to-maturity.




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Information regarding the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by maturity as of September 30, 2023 is presented below. Maturity information is based on contractual maturity for all securities other than mortgage-backed securities. Actual maturities of securities may differ from contractual maturities because borrowers may have the right to prepay the obligation without a prepayment penalty.
Available-for-Sale Held-to-Maturity
(dollars in thousands) Amortized Cost Fair
Value		 Amortized Cost Fair
Value
Due in one year or less $ 4,818  $ 4,806  $ 0  $ 0 
Due after one year through five years 7,298  6,422  0  0 
Due after five years through ten years 38,103  33,697  0  0 
Due after ten years 659,895  500,945  129,494  102,629 
710,114  545,870  129,494  102,629 
Mortgage-backed securities 531,807  429,662  0  0 
Total debt securities $ 1,241,921  $ 975,532  $ 129,494  $ 102,629 
Available-for-sale securities proceeds, gross gains and gross losses are presented below.
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2023 2022 2023 2022
Sales of securities available-for-sale
Proceeds $ 2,876  $ 0  $ 102,827  $ 0 
Gross gains 0  0  439  0 
Gross losses (35) 0  (455) 0 
Number of securities 6  0  109  0 
In accordance with ASU No. 2017-8, purchase premiums for callable securities are amortized to the earliest call date and premiums on non-callable securities as well as discounts are recognized in interest income using the interest method over the terms of the securities or over the estimated lives of mortgage-backed securities. Gains and losses on sales are based on the amortized cost of the security sold and recorded on the trade date.
Securities with fair values of $740.8 million and $298.2 million were pledged as of September 30, 2023 and December 31, 2022, respectively, as collateral for borrowings from the Federal Home Loan Bank ("FHLB") and Federal Reserve Bank and for other purposes as permitted or required by law.
Unrealized Loss Analysis on Available-for-Sale and Held-to-Maturity Securities
Information regarding available-for-sale securities with unrealized losses as of September 30, 2023 and December 31, 2022 is presented on the following page. The tables divide the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.
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Less than 12 months 12 months or more Total
(dollars in thousands) Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses
September 30, 2023                  
U.S. Treasury securities $ 2,466  $ 8  $ 395  $ 4  $ 2,861  $ 12 
U.S. government sponsored agencies 0  0  115,671  33,224  115,671  33,224 
Mortgage-backed securities: residential 3,596  187  425,212  101,970  428,808  102,157 
State and municipal securities 26,084  2,106  397,793  128,903  423,877  131,009 
Total available-for-sale $ 32,146  $ 2,301  $ 939,071  $ 264,101  $ 971,217  $ 266,402 
December 31, 2022
U.S. Treasury securities $ 3,034  $ 23  $ 0  $ 0  $ 3,034  $ 23 
U.S. government sponsored agencies 8,420  1,350  118,541  27,873  126,961  29,223 
Mortgage-backed securities: residential 165,897  18,637  323,727  67,297  489,624  85,934 
State and municipal securities 277,967  33,405  244,436  66,894  522,403  100,299 
Total available-for-sale $ 455,318  $ 53,415  $ 686,704  $ 162,064  $ 1,142,022  $ 215,479 
Information regarding held-to-maturity securities with unrealized losses as of September 30, 2023 and December 31, 2022 is presented below. The table divides the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.
Less than 12 months 12 months or more Total
(dollars in thousands) Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses
September 30, 2023
State and municipal securities $ 0  $ 0  $ 102,629  $ 26,865  $ 102,629  $ 26,865 
December 31, 2022
State and municipal securities $ 0  $ 0  $ 111,029  $ 17,213  $ 111,029  $ 17,213 
The total number of securities with unrealized losses as of September 30, 2023 and December 31, 2022 is presented below.
Available-for-sale Held-to-maturity
Less than
12 months		 12 months
or more		 Total Less than
12 months		 12 months
or more		 Total
September 30, 2023      
U.S. Treasury securities 7  1  8  0  0  0 
U.S. government sponsored agencies 0  17  17  0  0  0 
Mortgage-backed securities: residential 8  126  134  0  0  0 
State and municipal securities 47  383  430  0  41  41 
Total temporarily impaired 62  527  589  0  41  41 
December 31, 2022
U.S. Treasury securities 7  0  7  0  0  0 
U.S. government sponsored agencies 1  16  17  0  0  0 
Mortgage-backed securities: residential 95  41  136  0  0  0 
State and municipal securities 269  223  492  0  41  41 
Total temporarily impaired 372  280  652  0  41  41 

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Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale debt securities in an unrealized loss position, management first assesses whether it intends to sell, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through the consolidated income statement. For available-for-sale debt securities that do not meet the above criteria and for held-to-maturity securities, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. For available-for-sale debt securities, any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss), net of applicable taxes.
No allowance for credit losses for available-for-sale or held-to-maturity debt securities was recorded at September 30, 2023 or December 31, 2022. Accrued interest receivable on securities totaled $7.1 million and $8.9 million at September 30, 2023 and December 31, 2022, respectively, and is excluded from the estimate of credit losses.
The U.S. government sponsored agencies and mortgage-backed securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies, and have a long history of no credit losses. Therefore, for those securities, we do not record expected credit losses. State and municipal securities credit losses are benchmarked against highly rated municipal securities of similar duration, as published by Moody's, resulting in an immaterial allowance for credit losses.
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NOTE 3. LOANS
(dollars in thousands) September 30,
2023		 December 31,
2022
Commercial and industrial loans:
Working capital lines of credit loans $ 589,345  12.1  % $ 650,948  13.8  %
Non-working capital loans 812,875  16.7  842,101  17.9 
Total commercial and industrial loans 1,402,220  28.8  1,493,049  31.7 
Commercial real estate and multi-family residential loans:
Construction and land development loans 633,920  13.0  517,664  11.0 
Owner occupied loans 811,175  16.6  758,091  16.0 
Nonowner occupied loans 740,783  15.2  706,107  15.0 
Multifamily loans 236,581  4.8  197,232  4.2 
Total commercial real estate and multi-family residential loans 2,422,459  49.6  2,179,094  46.2 
Agri-business and agricultural loans:
Loans secured by farmland 183,241  3.8  201,200  4.3 
Loans for agricultural production 197,287  4.0  230,888  4.9 
Total agri-business and agricultural loans 380,528  7.8  432,088  9.2 
Other commercial loans: 125,939  2.6  113,593  2.4 
Total commercial loans 4,331,146  88.8  4,217,824  89.5 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 247,114  5.1  212,742  4.5 
Open end and junior lien loans 189,611  3.9  175,575  3.7 
Residential construction and land development loans 12,888  0.3  19,249  0.4 
Total consumer 1-4 family mortgage loans 449,613  9.3  407,566  8.6 
Other consumer loans 93,737  1.9  88,075  1.9 
Total consumer loans 543,350  11.2  495,641  10.5 
Subtotal 4,874,496  100.0  % 4,713,465  100.0  %
Less: Allowance for credit losses (72,105) (72,606)
Net deferred loan fees (3,531) (3,069)
Loans, net $ 4,798,860  $ 4,637,790 
The recorded investment in loans does not include accrued interest, which totaled $20.7 million and $18.4 million as of September 30, 2023 and December 31, 2022, respectively.
The Company had $470,000 and $306,000 in residential real estate loans in the process of foreclosure as of September 30, 2023 and December 31, 2022, respectively.
NOTE 4. ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY
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 uncollectable. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance are made for specific loans and for pools of similar types of loans, although the entire allowance is available for any loan that, in management’s judgment, should be charged against the allowance. A provision for credit losses is taken based on management’s ongoing evaluation of the appropriate allowance balance. A formal evaluation of the adequacy of the credit loss allowance is conducted monthly. The ultimate recovery of all loans is susceptible to future market factors beyond the Company’s control.
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. In addition, management gives consideration to changes in the facts and circumstances of watch list credits, which includes the security position of the borrower, in determining the appropriate level of the credit loss provision.
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Furthermore, management’s overall view on credit quality is a factor in the determination of the provision.
The determination of the appropriate allowance is inherently subjective, as it requires significant estimates by management. The Company has an established process to determine the adequacy of the allowance for credit losses that generally includes consideration of changes in the nature and volume of the loan portfolio and overall portfolio quality, along with current and forecasted economic conditions that may affect borrowers’ ability to repay. 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. 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. A default can be triggered by one of several different asset quality factors, including past due status, nonaccrual status, material modification status or if the loan has had a charge-off. This PD is then combined with a LGD derived from historical charge-off data to construct a default rate. This loss rate is then supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, particularly the unemployment rate forecast from the Federal Open Market Committee’s Summary of Economic Projections, and other environmental factors based on the risks present for each portfolio segment. These environmental factors include consideration of the following: levels of, and trends in, delinquencies and nonperforming loans; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedure, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. It is also possible that these factors could include social, political, economic, and terrorist events or activities. All of these factors are susceptible to change, which may be significant. As a result of this detailed process, the allowance results in two forms of allocations, specific and general. These two components represent the total allowance for credit losses deemed adequate to cover probable losses inherent in the loan portfolio.
Commercial loans are subject to a dual standardized grading process administered by the credit administration function. These grade assignments are performed independent of each other and a consensus is reached by credit administration and the loan review officer. Specific allowances are established in cases where management has identified significant conditions or circumstances related to an individual credit that indicate it should be evaluated on an individual basis. Considerations with respect to specific allocations for these individual credits include, but are not limited to, the following: (a) the sufficiency of the customer’s cash flow or net worth to repay the loan; (b) the adequacy of the discounted value of collateral relative to the loan balance; (c) whether the loan has been criticized in a regulatory examination; (d) whether the loan is nonperforming; (e) any other reasons the ultimate collectability of the loan may be in question; or (f) any unique loan characteristics that require special monitoring.
Allocations are also applied to categories of loans considered not to be individually analyzed, but for which the rate of loss is expected to be consistent with or greater than historical averages. Such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values. These general pooled loan allocations are performed for portfolio segments of commercial and industrial; commercial real estate, multi-family, and construction; agri-business and agricultural; other commercial loans; and consumer 1-4 family mortgage and other consumer loans. General allocations of the allowance are determined by a historical loss rate based on the calculation of each pool’s probability of default-loss given default, subject to a floor. The length of the historical period for each pool is based on the average life of the pool. The historical loss rates are supplemented with consideration of economic conditions and portfolio trends.
Due to the imprecise nature of estimating the allowance for credit losses, the Company’s allowance for credit losses includes an immaterial unallocated component. The unallocated component of the allowance for credit losses incorporates the Company’s judgmental determination of potential expected losses that may not be fully reflected in other allocations. As a practical expedient, the Company has elected to disclose accrued interest separately from loan principal balances on the consolidated balance sheet. Additionally, when a loan is placed on non-accrual, interest payments are reversed through interest income.
For off balance sheet credit exposures outlined in the ASU at 326-20-30-11, it is the Company’s position that nearly all of the unfunded amounts on lines of credit are unconditionally cancellable, and therefore not subject to having a liability recorded.


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The following tables present the activity in the allowance for credit losses by portfolio segment for the periods ended:
(dollars in thousands) Commercial and Industrial Commercial Real Estate and Multifamily Residential Agri-business and Agricultural Other Commercial Consumer 1-4 Family Mortgage Other Consumer Unallocated Total
Three Months Ended September 30, 2023                        
Beginning balance, July 1 $ 30,978  $ 30,913  $ 4,402  $ 1,120  $ 3,448  $ 846  $ 351  $ 72,058 
Provision for credit losses (167) 230  (139) (102) 197  283  98  400 
Loans charged-off (193) 0  0  0  (149) (138) 0  (480)
Recoveries 21  12  0  0  3  91  0  127 
Net loans (charged-off) recovered (172) 12  0  0  (146) (47) 0  (353)
Ending balance $ 30,639  $ 31,155  $ 4,263  $ 1,018  $ 3,499  $ 1,082  $ 449  $ 72,105 
(dollars in thousands) Commercial and Industrial Commercial Real Estate and Multifamily Residential Agri-business and Agricultural Other Commercial Consumer 1-4 Family Mortgage Other Consumer Unallocated Total
Three Months Ended September 30, 2022                        
Beginning balance, July 1 $ 31,195  $ 26,448  $ 4,753  $ 713  $ 2,674  $ 1,093  $ 647  $ 67,523 
Provision for credit losses 1,357  (678) (547) 16  (197) 71  (22) 0 
Loans charged-off (222) 0  0  0  (20) (131) 0  (373)
Recoveries 18  25  0  0  3  43  0  89 
Net loans (charged-off) recovered (204) 25  0  0  (17) (88) 0  (284)
Ending balance $ 32,348  $ 25,795  $ 4,206  $ 729  $ 2,460  $ 1,076  $ 625  $ 67,239 
(dollars in thousands) Commercial and Industrial Commercial Real Estate and Multifamily Residential Agri-business and Agricultural Other Commercial Consumer 1-4 Family Mortgage Other Consumer Unallocated Total
Nine Months Ended September 30, 2023
                        
Beginning balance, January 1 $ 35,290  $ 27,394  $ 4,429  $ 917  $ 3,001  $ 1,021  $ 554  $ 72,606 
Provision for credit losses 1,065  3,465  (166) 101  642  548  (105) 5,550 
Loans charged-off (5,844) 0  0  0  (163) (759) 0  (6,766)
Recoveries 128  296  0  0  19  272  0  715 
Net loans (charged-off) recovered (5,716) 296  0  0  (144) (487) 0  (6,051)
Ending balance $ 30,639  $ 31,155  $ 4,263  $ 1,018  $ 3,499  $ 1,082  $ 449  $ 72,105 
(dollars in thousands) Commercial and Industrial Commercial Real Estate and Multifamily Residential Agri-business and Agricultural Other Commercial Consumer 1-4 Family Mortgage Other Consumer Unallocated Total
Nine Months Ended September 30, 2022
                        
Beginning balance, January 1 $ 30,595  $ 26,535  $ 5,034  $ 1,146  $ 2,866  $ 1,147  $ 450  $ 67,773 
Provision for credit losses 1,948  (168) (828) (417) (411) 118  175  417 
Loans charged-off (254) (597) 0  0  (42) (318) 0  (1,211)
Recoveries 59  25  0  0  47  129  0  260 
Net loans (charged-off) recovered (195) (572) 0  0  5  (189) 0  (951)
Ending balance $ 32,348  $ 25,795  $ 4,206  $ 729  $ 2,460  $ 1,076  $ 625  $ 67,239 
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Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis for Special Mention, Substandard and Doubtful grade loans and annually on Pass grade loans over $250,000.
The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as Special Mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
Substandard. Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans are considered to be "Pass" rated when they are reviewed as part of the previously described process and do not meet the criteria above, which are evaluated and listed with Substandard commercial grade loans and consumer nonaccrual loans, which are evaluated individually and listed with “Not Rated” loans. Loans listed as Not Rated are consumer loans or commercial loans with consumer characteristics included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status.
The following table summarizes the risk category of loans by loan segment and year of origination as of September 30, 2023:
(dollars in thousands) 2023 2022 2021 2020 2019 Prior Term Total Revolving Total
Commercial and industrial loans:                           
Working capital lines of credit loans:                           
Pass $ 233  $ 1,959  $ 2,342  $ 1,250  $ 0  $ 0  $ 5,784  $ 509,151  $ 514,935 
Special Mention 0  0  0  0  0  0  0  67,764  67,764 
Substandard 0  310  75  0  139  0  524  6,155  6,679 
Total 233  2,269  2,417  1,250  139  0  6,308  583,070  589,378 
Working capital lines of credit loans:
Current period gross write offs 0  0  0  0  125  0  125  161  286 
Non-working capital loans:
Pass 147,472  257,402  91,572  54,567  35,601  15,151  601,765  168,621  770,386 
Special Mention 490  8,926  1,051  2,279  2,644  5,643  21,033  5,253  26,286 
Substandard 575  2,699  689  4,036  62  632  8,693  564  9,257 
Not Rated 2,008  2,308  1,012  964  214  36  6,542  0  6,542 
Total 150,545  271,335  94,324  61,846  38,521  21,462  638,033  174,438  812,471 
Non-working capital loans:
Current period gross write offs 0  5,400  0  0  118  0  5,518  40  5,558 
Commercial real estate and multi-family residential loans:
Construction and land development loans:
Pass 41,662  20,498  10,870  13,078  178  0  86,286  544,725  631,011 
Special Mention 0  0  0  0  0  0  0  0  0 
Total 41,662  20,498  10,870  13,078  178  0  86,286  544,725  631,011 
Construction and land development loans:
Current period gross write offs 0  0  0  0  0  0  0  0  0 
Owner occupied loans:
Pass 114,935  135,960  158,405  132,051  65,426  129,363  736,140  36,067  772,207 
Special Mention 6,696  694  8,449  0  1,735  2,758  20,332  14,628  34,960 
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Substandard 223  265  0  1,476  352  1,160  3,476  0  3,476 
Total 121,854  136,919  166,854  133,527  67,513  133,281  759,948  50,695  810,643 
Owner occupied loans:
Current period gross write offs 0  0  0  0  0  0  0  0  0 
Nonowner occupied loans:
Pass 85,176  176,453  130,612  130,626  88,244  72,871  683,982  43,097  727,079 
Special Mention 4,552  0  6,352  0  0  2,268  13,172  0  13,172 
Total 89,728  176,453  136,964  130,626  88,244  75,139  697,154  43,097  740,251 
Nonowner occupied loans:
Current period gross write offs 0  0  0  0  0  0  0  0  0 
Multifamily loans:
Pass 78,741  23,445  9,094  35,972  33,621  30,149  211,022  5,518  216,540 
Special Mention 19,735  0  0  0  0  0  19,735  0  19,735 
Total 98,476  23,445  9,094  35,972  33,621  30,149  230,757  5,518  236,275 
Multifamily loans:
Current period gross write offs 0  0  0  0  0  0  0  0  0 
Agri-business and agricultural loans:
Loans secured by farmland:
Pass 20,352  32,883  25,842  27,886  9,940  20,114  137,017  46,102  183,119 
Special Mention 0  0  0  0  8  0  8  0  8 
Substandard 0  0  0  0  0  105  105  0  105 
Total 20,352  32,883  25,842  27,886  9,948  20,219  137,130  46,102  183,232 
Loans secured by farmland:
Current period gross write offs 0  0  0  0  0  0  0  0  0 
Loans for agricultural production:
Pass 27,282  11,290  27,881  26,015  3,981  11,077  107,526  88,811  196,337 
Special Mention 0  0  201  351  0  0  552  500  1,052 
Total 27,282  11,290  28,082  26,366  3,981  11,077  108,078  89,311  197,389 
Loans for agricultural production:
Current period gross write offs 0  0  0  0  0  0  0  0  0 
Other commercial loans:
Pass 6,057  28,024  39,057  14,778  102  7,488  95,506  27,640  123,146 
Special Mention 0  0  0  0  0  2,607  2,607  0  2,607 
Total 6,057  28,024  39,057  14,778  102  10,095  98,113  27,640  125,753 
Other commercial loans:
Current period gross write offs 0  0  0  0  0  0  0  0  0 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans:
Pass 8,072  10,663  12,954  9,354  4,476  4,753  50,272  9,674  59,946 
Special Mention 0  0  0  527  0  0  527  0  527 
Substandard 0  0  96  125  0  258  479  0  479 
Not Rated 45,488  52,631  39,206  17,653  4,378  26,466  185,822  0  185,822 
Total 53,560  63,294  52,256  27,659  8,854  31,477  237,100  9,674  246,774 
Closed end first mortgage loans:
Current period gross write offs 0  0  0  0  0  0  0  0  0 
Open end and junior lien loans:
Pass 565  137  504  339  0  7  1,552  8,722  10,274 
Substandard 0  0  0  0  27  48  75  129  204 
Not Rated 21,491  32,685  9,517  1,780  2,547  2,196  70,216  110,806  181,022 
Total 22,056  32,822  10,021  2,119  2,574  2,251  71,843  119,657  191,500 
Open end and junior lien loans:
Current period gross write offs 0  50  14  0  0  0  64  99  163 
Residential construction loans:
Not Rated 1,551  7,352  1,546  857  269  1,230  12,805  0  12,805 
Total 1,551  7,352  1,546  857  269  1,230  12,805  0  12,805 
Residential construction loans:
Current period gross write offs 0  0  0  0  0  0  0  0  0 
Other consumer loans:
Pass 1,908  808  1,505  358  0  0  4,579  13,393  17,972 
Substandard 0  0  0  0  3  0  3  0  3 
Not Rated 23,815  19,098  11,043  6,686  1,952  2,275  64,869  10,639  75,508 
Total 25,723  19,906  12,548  7,044  1,955  2,275  69,451  24,032  93,483 
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Other consumer loans:
Current period gross write offs 1  255  91  6  212  1  566  193  759 
Total period gross write offs 1  5,705  105  6  455  1  6,273  493  6,766 
Total Loans $ 659,079  $ 826,490  $ 589,875  $ 483,008  $ 255,899  $ 338,655  $ 3,153,006  $ 1,717,959  $ 4,870,965 
As of September 30, 2023, $1.5 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans. These loans were included in this risk rating category because they are fully guaranteed by the Small Business Administration ("SBA").
The following table summarizes the risk category of loans by loan segment and year of origination as of December 31, 2022:
(dollars in thousands) 2022 2021 2020 2019 2018 Prior Term Total Revolving Total
Commercial and industrial loans:                           
Working capital lines of credit loans:                           
Pass $ 2,207  $ 2,718  $ 1,601  $ 0  $ 0  $ 0  $ 6,526  $ 597,108  $ 603,634 
Special Mention 0  0  0  0  0  0  0  36,410  36,410 
Substandard 200  0  0  300  0  0  500  10,495  10,995 
Total 2,407  2,718  1,601  300  0  0  7,026  644,013  651,039 
Non-working capital loans:
Pass 272,273  124,600  91,850  47,711  9,981  13,670  560,085  240,490  800,575 
Special Mention 448  1,620  0  109  159  2,961  5,297  2,153  7,450 
Substandard 11,831  872  5,021  194  1,351  3,979  23,248  4,171  27,419 
Not Rated 2,891  1,550  1,254  413  120  23  6,251  0  6,251 
Total 287,443  128,642  98,125  48,427  11,611  20,633  594,881  246,814  841,695 
Commercial real estate and multi-family residential loans:
Construction and land development loans:
Pass 26,889  19,944  14,026  356  0  0  61,215  453,953  515,168 
Total 26,889  19,944  14,026  356  0  0  61,215  453,953  515,168 
Owner occupied loans:
Pass 113,656  179,014  139,880  97,353  65,519  97,335  692,757  40,533  733,290 
Special Mention 2,960  7,608  0  446  1,491  8,054  20,559  0  20,559 
Substandard 308  105  1,491  373  1,161  229  3,667  0  3,667 
Total 116,924  186,727  141,371  98,172  68,171  105,618  716,983  40,533  757,516 
Nonowner occupied loans:
Pass 194,294  125,190  134,661  91,907  15,109  64,874  626,035  68,603  694,638 
Special Mention 0  11,024  0  0  0  0  11,024  0  11,024 
Total 194,294  136,214  134,661  91,907  15,109  64,874  637,059  68,603  705,662 
Multifamily loans:
Pass 38,460  25,741  36,929  35,695  2,046  28,866  167,737  7,349  175,086 
Special Mention 21,855  0  0  0  0  0  21,855  0  21,855 
Total 60,315  25,741  36,929  35,695  2,046  28,866  189,592  7,349  196,941 
Agri-business and agricultural loans:
Loans secured by farmland:
Pass 38,344  28,684  29,741  9,656  8,145  19,638  134,208  63,094  197,302 
Special Mention 260  0  1,676  1,780  0  15  3,731  0  3,731 
Substandard 0  0  0  0  0  145  145  0  145 
Total 38,604  28,684  31,417  11,436  8,145  19,798  138,084  63,094  201,178 
Loans for agricultural production:
Pass 6,040  30,262  22,167  3,625  9,248  4,539  75,881  143,599  219,480 
Special Mention 947  243  7,262  928  0  0  9,380  2,129  11,509 
Total 6,987  30,505  29,429  4,553  9,248  4,539  85,261  145,728  230,989 
Other commercial loans:
Pass 27,097  4,815  17,911  147  931  10,985  61,886  48,295  110,181 
Special Mention 0  0  0  0  0  3,160  3,160  0  3,160 
Total 27,097  4,815  17,911  147  931  14,145  65,046  48,295  113,341 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans:
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Pass 8,768  12,809  12,289  4,805  4,045  3,860  46,576  5,634  52,210 
Special Mention 0  0  552  0  0  0  552  0  552 
Substandard 0  0  0  0  83  1,944  2,027  0  2,027 
Not Rated 57,404  44,331  20,023  5,936  2,970  27,004  157,668  0  157,668 
Total 66,172  57,140  32,864  10,741  7,098  32,808  206,823  5,634  212,457 
Open end and junior lien loans:
Pass 137  541  357  63  75  0  1,173  5,841  7,014 
Substandard 0  0  0  31  49  0  80  111  191 
Not Rated 44,472  13,597  3,014  3,616  1,476  2,252  68,427  101,750  170,177 
Total 44,609  14,138  3,371  3,710  1,600  2,252  69,680  107,702  177,382 
Residential construction loans:
Not Rated 14,463  2,167  897  291  129  1,223  19,170  0  19,170 
Total 14,463  2,167  897  291  129  1,223  19,170  0  19,170 
Other consumer loans:
Pass 1,344  1,841  432  600  0  948  5,165  16,152  21,317 
Substandard 0  0  0  210  0  0  210  0  210 
Not Rated 24,395  14,563  9,168  3,606  2,755  1,352  55,839  10,492  66,331 
Total 25,739  16,404  9,600  4,416  2,755  2,300  61,214  26,644  87,858 
TOTAL $ 911,943  $ 653,839  $ 552,202  $ 310,151  $ 126,843  $ 297,056  $ 2,852,034  $ 1,858,362  $ 4,710,396 
As of December 31, 2022, $1.5 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans. These loans were included in this risk rating category because they are fully guaranteed by the SBA.
Nonaccrual and Past Due Loans:
The Company does not record interest on nonaccrual loans until principal is recovered. For all loan classes, a loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectability of principal or interest. Interest accrued but not received is reversed against earnings. Cash interest received on these loans is applied to the principal balance until the principal is recovered or until the loan returns to accrual status. Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current, remain current for a prescribed period, and future payments are reasonably assured.
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The following table presents the aging of the amortized cost basis in past due loans as of September 30, 2023 by class of loans and loans past due 90 days or more and still accruing by class of loan:
(dollars in thousands) Loans Not Past Due 30-89 Days Past Due Greater than 89 Days Past Due and Accruing Total Accruing Total Nonaccrual Nonaccrual With No Allowance For Credit Loss Total
Commercial and industrial loans:                  
Working capital lines of credit loans $ 583,816  $ 190  $ 0  $ 584,006  $ 5,372  $ 109  $ 589,378 
Non-working capital loans 805,042  205  0  805,247  7,224  253  812,471 
Commercial real estate and multi-family residential loans:
Construction and land development loans 631,011  0  0  631,011  0  0  631,011 
Owner occupied loans 807,741  0  0  807,741  2,902  1,426  810,643 
Nonowner occupied loans 740,251  0  0  740,251  0  0  740,251 
Multifamily loans 236,275  0  0  236,275  0  0  236,275 
Agri-business and agricultural loans:
Loans secured by farmland 183,128  0  0  183,128  104  0  183,232 
Loans for agricultural production 197,389  0  0  197,389  0  0  197,389 
Other commercial loans 125,753  0  0  125,753  0  0  125,753 
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans 245,544  729  19  246,292  482  336  246,774 
Open end and junior lien loans 191,127  171  0  191,298  202  202  191,500 
Residential construction loans 12,805  0  0  12,805  0  0  12,805 
Other consumer loans 92,995  484  0  93,479  4  4  93,483 
Total $ 4,852,877  $ 1,779  $ 19  $ 4,854,675  $ 16,290  $ 2,330  $ 4,870,965 
As of September 30, 2023 there were an insignificant number of loans 30-89 days past due or greater than 89 days past due on nonaccrual. Additionally, interest income recognized on nonaccrual loans was insignificant during the three and nine month periods ended September 30, 2023.
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The following table presents the aging of the amortized cost basis in past due loans as of December 31, 2022 by class of loans and loans past due 90 days or more and still accruing by class of loan:
(dollars in thousands) Loans Not Past Due 30-89 Days Past Due Greater than 89 Days Past Due and Accruing Total Accruing Total Nonaccrual Nonaccrual With No Allowance For Credit Loss Total
Commercial and industrial loans:                  
Working capital lines of credit loans $ 649,529  $ 68  $ 0  $ 649,597  $ 1,442  $ 0  $ 651,039 
Non-working capital loans 830,033  39  1  830,073  11,622  727  841,695 
Commercial real estate and multi-family residential loans:
Construction and land development loans 515,168  0  0  515,168  0  0  515,168 
Owner occupied loans 754,451  0  0  754,451  3,065  1,469  757,516 
Nonowner occupied loans 705,662  0  0  705,662  0  0  705,662 
Multifamily loans 196,941  0  0  196,941  0  0  196,941 
Agri-business and agricultural loans:
Loans secured by farmland 201,033  0  0  201,033  145  0  201,178 
Loans for agricultural production 230,989  0  0  230,989  0  0  230,989 
Other commercial loans 113,341  0  0  113,341  0  0  113,341 
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans 211,736  306  122  212,164  293  225  212,457 
Open end and junior lien loans 176,758  436  0  177,194  188  188  177,382 
Residential construction loans 19,170  0  0  19,170  0  0  19,170 
Other consumer loans 87,333  316  0  87,649  209  6  87,858 
Total $ 4,692,144  $ 1,165  $ 123  $ 4,693,432  $ 16,964  $ 2,615  $ 4,710,396 
As of December 31, 2022 there were an insignificant number of loans 30-89 days past due or greater than 89 days past due on nonaccrual. Additionally, interest income recognized on nonaccrual loans was insignificant during the year ended December 31, 2022.
When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of the collateral. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.







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The following tables present the amortized cost basis of collateral dependent loans by class of loan as of:
September 30, 2023
(dollars in thousands) Real Estate General
Business
 Assets		 Other Total
Commercial and industrial loans:         
Working capital lines of credit loans $ 50  $ 5,063  $ 109  $ 5,222 
Non-working capital loans 44  6,689  394  7,127 
Commercial real estate and multi-family residential loans:
Owner occupied loans 617  1,476  1,161  3,254 
Agri-business and agricultural loans:
Loans secured by farmland 0  104  0  104 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 482  0  0  482 
Open end and junior lien loans 202  0  0  202 
Other consumer loans 0  0  4  4 
Total $ 1,395  $ 13,332  $ 1,668  $ 16,395 
December 31, 2022
(dollars in thousands) Real Estate General
Business
 Assets		 Other Total
Commercial and industrial loans:         
Working capital lines of credit loans $ 50  $ 5,402  $ 0  $ 5,452 
Non-working capital loans 544  18,109  229  18,882 
Commercial real estate and multi-family residential loans:
Owner occupied loans 413  1,491  1,161  3,065 
Agri-business and agricultural loans:
Loans secured by farmland 0  145  0  145 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 2,030  0  0  2,030 
Open end and junior lien loans 188  0  0  188 
Other consumer loans 0  0  7  7 
Total $ 3,225  $ 25,147  $ 1,397  $ 29,769 
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point to determine estimate such credit losses is historical loss information. The Company uses a probability of default/loss given default model to determine the allowance for credit losses recorded at origination. Occasionally, the Company subsequently modifies loans for borrowers experiencing financial distress by providing the following forms of relief: forgiveness of loan principal, extension of repayment terms, or an interest rate reduction, among other possible concessions. In some instances, the Company provides multiple types of concessions for such modifications. Because the effect of most modifications to borrowers experiencing financial difficulty is already included in the allowance for credit losses, no change to the allowance for credit losses is generally recorded for these modifications.




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The following tables present the amortized cost basis at the end of the reporting period of loans that were experiencing financial difficulty and received a modification of terms during the three and nine months ended September 30, 2023, by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables at the end of the reporting period is also presented below:
(dollars in thousands) Interest Rate Reduction Combination Interest Rate Reduction and Term Extension Combination Principal Forgiveness, Interest Rate Reduction and Term Extension Total Modifications Total Class of Financing Receivable
Three Months Ended September 30, 2023
Commercial and industrial loans:      
Working capital lines of credit loans $ 2,000  $ 931  $ 0  $ 2,931  0.50  %
Non-working capital loans 0  0  0  0  0.00 
Total commercial and industrial loans 2,000  931  0  2,931  0.21 
Total loan modifications made to borrowers experiencing financial difficulty $ 2,000  $ 931  $ 0  $ 2,931  0.06  %
(dollars in thousands) Interest Rate Reduction Combination Interest Rate Reduction and Term Extension Combination Principal Forgiveness, Interest Rate Reduction and Term Extension Total Modifications Total Class of Financing Receivable
Nine Months Ended September 30, 2023
Commercial and industrial loans:      
Working capital lines of credit loans $ 2,000  $ 931  $ 0  $ 2,931  0.50  %
Non-working capital loans 0  0  1,596  1,596  0.20 
Total commercial and industrial loans 2,000  931  1,596  4,527  0.32 
Total loan modifications made to borrowers experiencing financial difficulty $ 2,000  $ 931  $ 1,596  $ 4,527  0.09  %
The Company has no material commitments to lend additional funds to borrowers included in the previous tables.
The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2023:
(dollars in thousands) Principal Forgiveness Interest Rate Reduction
Financial Effect		 Term Extension
Financial Effect		 Total Class of Financing Receivable
Three Months Ended September 30, 2023
Commercial and industrial loans:      
Working capital lines of credit loans $ 0 
Reduction of two variable Prime Rate lines of credit to 1.00% Fixed

Reduction of one variable line of credit from Prime plus 1.00% to 1.00% Fixed
Extension of terms for one variable rate line of credit from 12 months to 120 months
0.50  %
Non-working capital loans 0  No modifications No modifications 0.00  %
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(dollars in thousands) Principal Forgiveness Interest Rate Reduction
Financial Effect		 Term Extension
Financial Effect		 Total Class of Financing Receivable
Nine Months Ended September 30, 2023
Commercial and industrial loans:      
Working capital lines of credit loans $ 0 
Reduction of two variable Prime Rate lines of credit to 1.00% Fixed

Reduction of one variable line of credit from Prime plus 1.00% to 1.00% Fixed
Term extension for one variable rate line of credit from 12 months to 120 months
 0.50  %
Non-working capital loans 9,380 
Reduction of one term loan from Prime plus 0.75% to 1.00% Fixed
Term extension from 40 months to 300 months
 0.20 
During the three and nine months ended September 30, 2022, no modifications were made to loans for borrowers experiencing financial difficulty.
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. At September 30, 2023, no loans receiving such a modification within the last twelve months were 30 days or greater past due.
At September 30, 2023, no loans receiving a modification due to borrower financial difficulty within the last twelve months experienced a payment default.
Upon the Company's determination that a modified loan (or portion thereof) has subsequently been deemed uncollectible, the loan (or a portion thereof) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
NOTE 5. BORROWINGS
For the period ended September 30, 2023, the Company had an advance outstanding from the FHLB in the amount of $90.0 million. The outstanding advance was a fixed rate bullet advance with an interest rate of 5.55% and matured October 6, 2023. For the period ended December 31, 2022, the Company had a fixed rate bullet advance from the FHLB with an interest rate of 4.21% in the amount of $275.0 million that matured on January 5, 2023.
On August 2, 2019 the Company entered into an unsecured revolving credit agreement with another financial institution allowing the Company to borrow up to $30.0 million; this credit agreement was subsequently amended and renewed on July 29, 2023 for $12.5 million. Funds provided under the agreement could be used to repurchase shares of the Company’s common stock under the share repurchase program, which was reauthorized by the Company’s board of directors on April 11, 2023 and expires on April 30, 2025, and for general operations. The credit agreement included a negative pledge agreement whereby the Company agreed not to pledge or otherwise encumber the stock of the Bank. The credit agreement had a one year term which may be amended, extended, modified or renewed. There were no outstanding borrowings on the credit agreement at September 30, 2023 and December 31, 2022.
This unsecured revolving credit agreement was terminated on October 11, 2023 and replaced by a new revolving credit agreement with a different financial institution. The new unsecured revolving credit agreement was effective October 11, 2023, for $30.0 million.
NOTE 6. FAIR VALUE DISCLOSURES
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
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Level 2  Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3  Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Securities:  Securities available-for-sale are valued primarily by a third party pricing service. The fair values of securities available-for-sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or pricing models which utilize significant observable inputs such as matrix pricing. This is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). These models utilize the market approach with standard inputs that include, but are not limited to benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain municipal securities that are not rated and observable inputs about the specific issuer are not available, fair values are estimated using observable data from other municipal securities presumed to be similar or other market data on other non-rated municipal securities (Level 3 inputs).
The Company’s Finance Department, which is responsible for all accounting and SEC disclosure compliance, and the Company’s Treasury Department, which is responsible for investment portfolio management and asset/liability modeling, are the two areas that determine the Company’s valuation policies and procedures. Both of these areas report directly to the Executive Vice President and Chief Financial Officer of the Company. For assets or liabilities that may be considered for Level 3 fair value measurement on a recurring basis, these two departments and the Executive Vice President and Chief Financial Officer determine the appropriate level of the assets or liabilities under consideration. If there are new assets or liabilities that are determined to be Level 3 by this group, the Risk Management Committee of the Company and the Audit Committee of the Board are made aware of such assets at their next scheduled meeting.
Securities pricing is obtained on securities from a third party pricing service and all security prices are tested annually against prices from another third party provider and reviewed with a market value price tolerance variance that varies by sector: municipal securities +/-5%, government MBS/CMO +/-3% and U.S. treasuries +/-1%. If any securities fall outside the tolerance threshold and have a variance of $100,000 or more, a determination of materiality is made for the amount over the threshold. Any security that would have a material threshold difference would be further investigated to determine why the variance exists and if any action is needed concerning the security pricing for that individual security. Changes in market value are reviewed monthly in aggregate by security type and any material changes are reviewed to determine why they exist. At least annually, the pricing methodology of the pricing service is received and reviewed to support the fair value levels used by the Company. A detailed pricing evaluation is requested and reviewed on any security determined to be fair valued using unobservable inputs by the pricing service.
Mortgage banking derivative:  The fair values of mortgage banking derivatives are based on observable market data as of the measurement date (Level 2).
Interest rate swap derivatives:  Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The fair value of interest rate swap derivatives is determined by pricing or valuation models using observable market data as of the measurement date (Level 2).
Collateral dependent loans: Collateral dependent loans with specific allocations of the allowance for credit losses are generally based on the fair value of the underlying collateral when repayment is expected solely from the collateral. Fair value is determined using several methods. Generally, the fair value of real estate is based on appraisals by qualified third party appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and result in a Level 3 classification of the inputs for determining fair value.
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In addition, the Company’s management routinely applies internal discount factors to the value of appraisals used in the fair value evaluation of collateral dependent loans. The deductions to the appraisals take into account changing business factors and market conditions, as well as value impairment in cases where the appraisal date predates a likely change in market conditions. Commercial real estate is generally discounted from its appraised value by 30-50% with the higher discounts applied to real estate that is determined to have a thin trading market or to be specialized collateral. In addition to real estate, the Company’s management evaluates other types of collateral as follows: (a) raw and finished inventory is discounted from its cost or book value by 40-60%, depending on the marketability of the goods (b) finished goods are generally discounted by 40-60%, depending on the ease of marketability, cost of transportation or scope of use of the finished good (c) work in process inventory is typically discounted by 60%-100%, depending on the length of manufacturing time, types of components used in the completion process, and the breadth of the user base (d) equipment is valued at a percentage of depreciated book value or recent appraised value, if available, and is typically discounted at 20-50% after various considerations including age and condition of the equipment, marketability, breadth of use, and whether the equipment includes unique components or add-ons; and (e) marketable securities are discounted by 10%-30%, depending on the type of investment, age of valuation report and general market conditions. This methodology is based on a market approach and typically results in a Level 3 classification of the inputs for determining fair value.
Mortgage servicing rights:  As of September 30, 2023, the fair value of the Company’s Level 3 servicing assets for residential mortgage loans (“MSRs”) was $2.3 million, carried at amortized cost and no valuation reserve. These residential mortgage loans have a weighted average interest rate of 3.5%, a weighted average maturity of 20 years and are secured by homes generally within the Company’s market area of Northern Indiana and Indianapolis. A third-party valuation is used to estimate fair value by stratifying the portfolios on the basis of certain risk characteristics, including loan type and interest rate. Impairment is estimated based on an income approach. The inputs used include estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, late fees and float income. The most significant assumption used to value MSRs is prepayment rate. Prepayment rates are estimated based on published industry consensus prepayment rates. The most significant unobservable assumption is the discount rate. At September 30, 2023, the constant prepayment speed (“PSA”) used was 148 and used a discount rate range of 9.5%-11.5%. At December 31, 2022, the PSA used was 159 and the discount rate used was 9.5%.
Other real estate owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value less costs to sell. Fair values are generally based on third party appraisals of the property and are reviewed by the Company’s internal appraisal officer. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable properties used to determine value. Such adjustments are usually significant and result in a Level 3 classification. In addition, the Company’s management may apply discount factors to the appraisals to take into account changing business factors and market conditions, as well as value impairment in cases where the appraisal date predates a likely change in market conditions. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.
Real estate mortgage loans held-for-sale: Real estate mortgage loans held-for-sale are carried at the lower of cost or fair value, as determined by outstanding commitments, from third party investors, and result in a Level 2 classification.
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The tables below present the balances of assets measured at fair value on a recurring basis:
September 30, 2023
Fair Value Measurements Using Assets
at Fair Value
(dollars in thousands) Level 1 Level 2 Level 3
Assets:
U.S. Treasury securities $ 2,861  $ 0  $ 0  $ 2,861 
U.S. government sponsored agency securities 0  115,671  0  115,671 
Mortgage-backed securities: residential 0  429,662  0  429,662 
State and municipal securities 0  425,348  1,990  427,338 
Total securities available-for-sale 2,861  970,681  1,990  975,532 
Mortgage banking derivative 0  66  0  66 
Interest rate swap derivative 0  42,035  0  42,035 
Total assets $ 2,861  $ 1,012,782  $ 1,990  $ 1,017,633 
Liabilities:
Interest rate swap derivative 0  42,036  0  42,036 
Total liabilities $ 0  $ 42,036  $ 0  $ 42,036 
December 31, 2022
Fair Value Measurements Using Assets
at Fair Value
(dollars in thousands) Level 1 Level 2 Level 3
Assets:            
U.S. Treasury securities $ 3,034  $ 0  $ 0  $ 3,034 
U.S. government sponsored agency securities 0  126,961  0  126,961 
Mortgage-backed securities: residential 0  492,308  0  492,308 
State and municipal securities 0  561,150  2,075  563,225 
Total securities available-for-sale 3,034  1,180,419  2,075  1,185,528 
Mortgage banking derivative 0  43  0  43 
Interest rate swap derivative 0  36,920  0  36,920 
Total assets $ 3,034  $ 1,217,382  $ 2,075  $ 1,222,491 
Liabilities:
Interest rate swap derivative 0  36,921  0  36,921 
Total liabilities $ 0  $ 36,921  $ 0  $ 36,921 
The fair value of Level 3 available-for-sale securities was immaterial and thus did not require additional recurring fair value disclosure.








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The tables below present the balances of assets measured at fair value on a nonrecurring basis:
September 30, 2023
Fair Value Measurements Using Assets
at Fair Value
(dollars in thousands) Level 1 Level 2 Level 3
Assets
Collateral dependent loans:
Commercial and industrial loans:
Working capital lines of credit loans $ 0  $ 0  $ 2,832  $ 2,832 
Non-working capital loans 0  0  2,187  2,187 
Commercial real estate and multi-family residential loans:
Owner occupied loans 0  0  369  369 
Agri-business and agricultural loans:
Loans secured by farmland 0  0  26  26 
Total collateral dependent loans 0  0  5,414  5,414 
Other real estate owned 0  0  384  384 
Total assets $ 0  $ 0  $ 5,798  $ 5,798 
December 31, 2022
Fair Value Measurements Using Assets
at Fair Value
(dollars in thousands) Level 1 Level 2 Level 3
Assets            
Collateral dependent loans:            
Commercial and industrial loans:            
Working capital lines of credit loans $ 0  $ 0  $ 3,178  $ 3,178 
Non-working capital loans 0  0  8,354  8,354 
Commercial real estate and multi-family residential loans:
Owner occupied loans 0  0  425  425 
Agri-business and agricultural loans:
Loans secured by farmland 0  0  35  35 
Total collateral dependent loans 0  0  11,992  11,992 
Other real estate owned 0  0  100  100 
Total assets $ 0  $ 0  $ 12,092  $ 12,092 
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2023:
(dollars in thousands) Fair Value Valuation Methodology Unobservable Inputs Average Range of Inputs
Collateral dependent loans:               
Commercial and industrial $ 5,019  Collateral based measurements Discount to reflect current market conditions and ultimate collectability 74  %
10%-99%
Collateral dependent loans:      
Commercial real estate and multi-family residential loans 369  Collateral based measurements Discount to reflect current market conditions and ultimate collectability 75  %
Collateral dependent loans:
Agri-business and agricultural 26  Collateral based measurements Discount to reflect current market conditions and ultimate collectability 75  %
Other real estate owned 384  Appraisals Discount to reflect current market conditions and ultimate collectability 36  %
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The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at December 31, 2022:
(dollars in thousands) Fair Value Valuation Methodology Unobservable Inputs Average Range of Inputs
Collateral dependent loans:               
Commercial and industrial $ 11,532  Collateral based measurements Discount to reflect current market conditions and ultimate collectability 62  %
29%-99%
Collateral dependent loans:      
Commercial real estate and multi-family residential loans 425  Collateral based measurements Discount to reflect current market conditions and ultimate collectability 57  %
37%-76%
Collateral dependent loans:      
Agri-business and agricultural 35  Collateral based measurements Discount to reflect current market conditions and ultimate collectability 76  %
Other real estate owned 100  Appraisals Discount to reflect current market conditions and ultimate collectability 68  %
The following tables contain the estimated fair values and the related carrying values of the Company’s financial instruments. Items that are not financial instruments are not included.
September 30, 2023
Carrying
Value		 Estimated Fair Value
(dollars in thousands) Level 1 Level 2 Level 3 Total
Financial Assets:               
Cash and cash equivalents $ 146,280  $ 146,280  $ 0  $ 0  $ 146,280 
Securities available-for-sale 975,532  2,861  970,681  1,990  975,532 
Securities held-to-maturity 129,494  0  102,629  0  102,629 
Real estate mortgages held-for-sale 572  0  594  0  594 
Loans, net 4,798,860  0  0  4,598,444  4,598,444 
Mortgage banking derivative 66  0  66  0  66 
Interest rate swap derivative 42,035  0  42,035  0  42,035 
Federal Reserve and Federal Home Loan Bank Stock 21,420  N/A N/A N/A N/A
Accrued interest receivable 28,994  0  8,269  20,725  28,994 
Financial Liabilities:
Certificates of deposit 1,072,091  0  1,060,130  0  1,060,130 
All other deposits 4,584,984  4,584,984  0  0  4,584,984 
Federal Home Loan Bank advances 90,000  90,000  0  0  90,000 
Interest rate swap derivative 42,036  0  42,036  0  42,036 
Standby letters of credit 353  0  0  353  353 
Accrued interest payable 16,178  581  15,597  0  16,178 
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December 31, 2022
Carrying
Value		 Estimated Fair Value
(dollars in thousands) Level 1 Level 2 Level 3 Total
Financial Assets:               
Cash and cash equivalents $ 130,282  $ 129,069  $ 1,213  $ 0  $ 130,282 
Securities available-for-sale 1,185,528  3,034  1,180,419  2,075  1,185,528 
Securities held-to-maturity 128,242  0  111,029  0  111,029 
Real estate mortgages held-for-sale 357  0  372  0  372 
Loans, net 4,637,790  0  0  4,454,678  4,454,678 
Mortgage banking derivative 43  0  43  0  43 
Interest rate swap derivative 36,920  0  36,920  0  36,920 
Federal Reserve and Federal Home Loan Bank Stock 15,795  N/A N/A N/A N/A
Accrued interest receivable 27,994  0  9,598  18,396  27,994 
Financial Liabilities:
Certificates of deposit 626,186  0  621,206  0  621,206 
All other deposits 4,834,434  4,834,434  0  0  4,834,434 
Federal Funds purchased 22,000  22,000  0  0  22,000 
Federal Home Loan Bank advances 275,000  275,000  0  0  275,000 
Interest rate swap derivative 36,921  0  36,921  0  36,921 
Standby letters of credit 249  0  0  249  249 
Accrued interest payable 3,186  486  2,700  0  3,186 
NOTE 7. OFFSETTING ASSETS AND LIABILITIES
The following tables summarize gross and net information about financial instruments and derivative instruments that are offset in the statement of financial position or that are subject to an enforceable master netting arrangement at September 30, 2023 and December 31, 2022.
September 30, 2023
Gross Amounts of Recognized Assets/Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position Net Amount
(dollars in thousands) Financial Instruments Cash Collateral Position
Assets                  
Interest Rate Swap Derivatives $ 42,035  $ 0  $ 42,035  $ 0  $ (38,225) $ 3,810 
Total Assets $ 42,035  $ 0  $ 42,035  $ 0  $ (38,225) $ 3,810 
Liabilities
Interest Rate Swap Derivatives $ 42,036  $ 0  $ 42,036  $ 0  $ (90) $ 41,946 
Total Liabilities $ 42,036  $ 0  $ 42,036  $ 0  $ (90) $ 41,946 
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December 31, 2022
Gross Amounts of Recognized Assets/Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position Net Amount
(dollars in thousands) Financial Instruments Cash Collateral Position
Assets
Interest Rate Swap Derivatives $ 36,920  $ 0  $ 36,920  $ 0  $ (34,185) $ 2,735 
Total Assets $ 36,920  $ 0  $ 36,920  $ 0  $ (34,185) $ 2,735 
Liabilities
Interest Rate Swap Derivatives $ 36,921  $ 0  $ 36,921  $ 0  $ (90) $ 36,831 
Total Liabilities $ 36,921  $ 0  $ 36,921  $ 0  $ (90) $ 36,831 
If an event of default occurs causing an early termination of an interest rate swap derivative, any early termination amount payable to one party by the other party may be reduced by set-off against any other amount payable by the one party to the other party. If a default in performance of any obligation of a repurchase agreement occurs, each party will set-off property held in respect of transactions against obligations owing in respect of any other transactions.
NOTE 8. EARNINGS PER SHARE
Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period, which includes shares held in treasury on behalf of participants in the Company’s Directors Fee Deferral Plan, and share repurchases. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock based awards and warrants, none of which were antidilutive.
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Weighted average shares outstanding for basic earnings per common share 25,613,456  25,533,832  25,601,493  25,525,734 
Dilutive effect of stock based awards 80,079  200,781  108,348  184,354 
Weighted average shares outstanding for diluted earnings per common share 25,693,535  25,734,613  25,709,841  25,710,088 
Basic earnings per common share $ 0.99  $ 1.12  $ 2.51  $ 3.05 
Diluted earnings per common share $ 0.98  $ 1.11  $ 2.49  $ 3.03 
NOTE 9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the three months ended September 30, 2023 and 2022, all shown net of tax:
(dollars in thousands) Unrealized Gains and Losses on Available-
for-Sales Securities		 Defined Benefit Pension Items Total
Balance at July 1, 2023
 $ (176,898) $ (747) $ (177,645)
Other comprehensive income (loss) before reclassification (50,900) 0  (50,900)
Amounts reclassified from accumulated other comprehensive income (loss) 423  11  434 
Net current period other comprehensive income (loss) (50,477) 11  (50,466)
Balance at September 30, 2023 $ (227,375) $ (736) $ (228,111)

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(dollars in thousands) Unrealized Gains and Losses on Available-
for-Sales Securities		 Defined Benefit Pension Items Total
Balance at July 1, 2022
 $ (157,625) $ (909) $ (158,534)
Other comprehensive income (loss) before reclassification (63,620) 0  (63,620)
Amounts reclassified from accumulated other comprehensive income (loss) 398  27  425 
Net current period other comprehensive income (loss) (63,222) 27  (63,195)
Balance at September 30, 2022 $ (220,847) $ (882) $ (221,729)
The following tables summarize the changes within each classification of accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 and 2022, all shown net of tax:
(dollars in thousands) Unrealized Gains and Losses on Available-
for-Sales Securities		 Defined Benefit Pension Items Total
Balance at January 1, 2023 $ (188,154) $ (769) $ (188,923)
Other comprehensive income (loss) before reclassification (40,407) 0  (40,407)
Amounts reclassified from accumulated other comprehensive income (loss) 1,186  33  1,219 
Net current period other comprehensive income (loss) (39,221) 33  (39,188)
Balance at September 30, 2023
 $ (227,375) $ (736) $ (228,111)
(dollars in thousands) Unrealized Gains and Losses on Available-
for-Sales Securities		 Defined Benefit Pension Items Total
Balance at January 1, 2022 $ 17,056  $ (963) $ 16,093 
Other comprehensive income (loss) before reclassification (238,689) 0  (238,689)
Amounts reclassified from accumulated other comprehensive income (loss) 786  81  867 
Net current period other comprehensive income (loss) (237,903) 81  (237,822)
Balance at September 30, 2022
 $ (220,847) $ (882) $ (221,729)
Reclassifications out of other accumulated other comprehensive income (loss) for the three months ended September 30, 2023 are as follows:
Details about
Accumulated Other
Comprehensive
Income (Loss) Components		  Amount
Reclassified From Accumulated Other Comprehensive Income (Loss)		 Affected Line Item
in the Statement Where Net Income is Presented
(dollars in thousands)
Amortization of unrealized losses on held-to-maturity securities $ (501) Interest income
Realized gains and (losses) on available-for-sale securities (35) Net securities gains (losses)
Tax effect 113  Income tax expense
(423) Net of tax
Amortization of defined benefit pension items (15) Other expense
Tax effect 4  Income tax expense
(11) Net of tax
Total reclassifications for the period $ (434) Net income
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Reclassifications out of other accumulated comprehensive income (loss) for the three months ended September 30, 2022 are as follows:
Details about
Accumulated Other
Comprehensive
Income (Loss) Components		 Amount
Reclassified From Accumulated Other Comprehensive Income (Loss)		 Affected Line Item
in the Statement Where Net Income is Presented
(dollars in thousands)
Amortization of unrealized losses on held-to-maturity securities $ (504) Interest income
Tax effect 106  Income tax expense
(398) Net of tax
Amortization of defined benefit pension items (36) Other expense
Tax effect 9  Income tax expense
(27) Net of tax
Total reclassifications for the period $ (425) Net income
Reclassifications out of accumulated comprehensive income (loss) for the nine months ended September 30, 2023 are as follows:
Details about
Accumulated Other
Comprehensive
Income (Loss) Components		 Amount
Reclassified From Accumulated Other Comprehensive Income (Loss)		 Affected Line Item
in the Statement Where Net Income is Presented
(dollars in thousands)
Amortization of unrealized losses on held-to-maturity securities $ (1,486) Interest income
Realized gains and (losses) on available-for-sale securities (16) Net securities gains (losses)
Tax effect 316  Income tax expense
(1,186) Net of tax
Amortization of defined benefit pension items (45) Other expense
Tax effect 12  Income tax expense
(33) Net of tax
Total reclassifications for the period $ (1,219) Net income
Reclassifications out of accumulated other comprehensive income (loss) for the nine months ended September 30, 2022 are as follows:
Details about
Accumulated Other
Comprehensive
Income (Loss) Components		 Amount
Reclassified From Accumulated Other Comprehensive Income (Loss)		 Affected Line Item
in the Statement Where Net Income is Presented
(dollars in thousands)
Amortization of unrealized losses on held-to-maturity securities $ (995) Interest income
Tax effect 209  Income tax expense
(786) Net of tax
Amortization of defined benefit pension items (108) Other expense
Tax effect 27  Income tax expense
(81) Net of tax
Total reclassifications for the period $ (867) Net income
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NOTE 10. LEASES
The Company leases certain office facilities under long-term operating lease agreements. The leases expire at various dates through 2037 and some include renewal options. Many of these leases require the payment of property taxes, insurance premiums, maintenance, utilities and other costs. In many cases, rentals are subject to increase in relation to a cost-of-living index. The Company accounts for lease and non-lease components together as a single lease component. The Company determines if an arrangement is a lease at inception. Operating leases are recorded as a right-of-use ("ROU") lease assets and are included in other assets on the consolidated balance sheet. The Company's corresponding lease obligations are included in other liabilities on the consolidated balance sheet. ROU lease assets represent the Company's right to use an underlying asset for the lease term and lease obligations represent the Company's obligation to make lease payments arising from the lease. Operating ROU lease assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The ROU lease asset also includes any lease payments made and excludes lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases, as allowed as a practical expedient of the standard.
The following is a maturity analysis of the operating lease liabilities as of September 30, 2023:
Years ending December 31, (in thousands) Operating Lease Obligation
2023 $ 183 
2024 744 
2025 756 
2026 730 
2027 753 
2028 and thereafter
 2,185 
Total undiscounted lease payments 5,351 
Less imputed interest (503)
Lease liability $ 4,848 
Right-of-use asset $ 4,848 
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2023 2022 2023 2022
Lease cost      
Operating lease cost $ 241  $ 169  $ 719  $ 502 
Short-term lease cost 4  4  12  18 
Total lease cost $ 245  $ 173  $ 731  $ 520 
Other information
Operating cash outflows from operating leases $ 241  $ 169  $ 719  $ 502 
Weighted-average remaining lease term - operating leases 6.5 years 7.5 years 6.5 years 7.5 years
Weighted average discount rate - operating leases 2.5  % 2.5  % 2.5  % 2.5  %
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NOTE 11. LOSS CONTINGENCIES

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

The Bank discovered potentially fraudulent activity by a former treasury management client involving multiple banks. The former client subsequently filed several related bankruptcy cases, captioned In re Interlogic Outsourcing, Inc., et al., which are pending in the United States Bankruptcy Court for the Western District of Michigan. On April 27, 2021, the bankruptcy court entered an order approving an amended plan of liquidation, which was filed by the former client, other debtors and bankruptcy plan proponents, and approving the consolidation of the assets in the aforementioned cases under the Khan IOI Consolidated Estate Trust. On August 9, 2021, the liquidating trustee for the bankruptcy estates filed a complaint against the Bank and the Company, and agreed to stay prosecution of the action through August 31, 2022. The original complaint focused on a series of business transactions among the client, related entities and the Bank, which the liquidating trustee alleged are voidable under applicable federal bankruptcy and state law. The complaint also addressed treatment of the Bank's claims filed in the bankruptcy cases.

On August 31, 2022, the trustee filed his amended complaint against the former client, the Bank, the Company, four officers of the Bank and one independent director of the Bank. The amended complaint alleged that the former client engaged in a check kiting scheme involving multiple banks. The amended complaint alleged that a series of business transactions among the client, his related entities and the Bank are voidable under applicable bankruptcy and state laws. The amended complaint also alleged that the Bank, the Company and the five individual bank representatives who are named as defendants violated various federal and state laws in assisting the former client in his check kiting scheme. On October 26, 2022, the trustee filed his second amended complaint which was virtually identical to his amended complaint. On January 5, 2023, the Bank, the Company and the five individual bank representatives filed motions to dismiss the second amended complaint. On May 30, 2023, the court issued its decision granting the defendants’ motion to dismiss in part and denying it in part. The court dismissed all claims against the Company and the Bank’s independent director. The court dismissed several of the claims against the defendants but granted the trustee the right to file an amended complaint. On June 20, 2023, the trustee filed his third amended complaint. The trustee alleges many of the same claims that were alleged in his second amended complaint. The defendants filed a motion to dismiss the third amended complaint on July 25, 2023. The Trustee subsequently filed a response to this motion and the parties are currently awaiting a decision from the court to rule on the motion and response as filed or to schedule a hearing for the parties to present arguments on the motion. This activity is expected to occur in the fourth quarter of 2023.

Based on current information, we have determined that a material loss is neither probable nor estimable at this time, and the Bank, and the four individual Bank representatives who are named as defendants in the third amended complaint, intend to vigorously defend themselves against all allegations asserted in the third amended complaint.

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net income in the first nine months of 2023 was $64.1 million, which decreased $13.7 million, or 17.6%, from $77.8 million for the comparable period of 2022. Diluted income per common share was $2.49 in the first nine months of 2023, a decrease of 17.8% from $3.03 in the comparable period of 2022. The decrease in net income for 2023 was primarily due to an increase in noninterest expense of $18.5 million, or 22.3%, and an increase in provision for credit losses expense of $5.1 million. Offsetting these items was an increase to net interest income of $2.4 million, or 1.6%, and an increase to noninterest income of $1.3 million, or 4.2%. Pretax pre-provision earnings, a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $79.8 million in the first nine months of 2023, a decrease of $14.8 million, or 15.6%, compared to $94.6 million for the comparable period of 2022.
Annualized return on average total equity was 14.44% in the first nine months of 2023 versus 16.89% in the comparable period of 2022. Annualized return on average total assets was 1.33% in the first nine months of 2023 versus 1.61% for the comparable period of 2022. The Company's average equity to average assets ratio was 9.21% in the first nine months of 2023 versus 9.53% in the comparable period of 2022. Equity has been negatively impacted by unrealized losses from the available-for-sale investment securities portfolio, which are reported as a component of accumulated other comprehensive income (loss).
The Company's second quarter 2023 net income was negatively impacted by the recognition of a wire fraud loss of $13.6 million, net of tax, or $0.53 per diluted earnings per share. Core operational profitability, which is a non-GAAP financial measure that excludes the estimated effect of this one-time event, decreased by $1.5 million, or 1.9%, to $76.4 million for the first nine months of 2023 from $77.8 million for the comparable period of 2022.
Net income in the third quarter of 2023 was $25.3 million, down 11.5%, or $3.3 million, from $28.5 million for the comparable period of 2022. Diluted earnings per common share was $0.98 in the third quarter of 2023, down 11.7% from $1.11 in the comparable period of 2022. The decrease was driven primarily by a decrease in net interest income of $4.1 million, or 7.8%, and an increase in noninterest expense of $1.2 million, or 4.3%, and was partially offset by an increase in noninterest income of $671,000, or 6.6%. Pretax pre-provision earnings in the third quarter of 2023 were $30.1 million, a decrease of $4.6 million, or 13.3%, compared to $34.8 million for the comparable period of 2022.
Annualized return on average total equity was 16.91% in the third quarter of 2023 versus 19.39% in the comparable period of 2022. Annualized return on average total assets was 1.54% in the third quarter of 2023 versus 1.80% in the comparable period of 2022. The average equity to average assets ratio was 9.12% in the third quarter of 2023 versus 9.27% the comparable period of 2022.

The Company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 8.62% at September 30, 2023, compared to 8.20% at September 30, 2022 and 8.79% at December 31, 2022. Unrealized losses from available-for-sale investment securities were $266.4 million at September 30, 2023, compared to $256.1 million at September 30, 2022 and $215.3 million at December 31, 2022. When excluding the impact of accumulated other comprehensive income (loss) on tangible common equity and tangible assets, the Company's adjusted tangible common equity to adjusted tangible assets ratio, which is a non-GAAP financial measure, was 11.74% at September 30, 2023, compared to 11.32% at September 30, 2022 and 11.38% at December 31, 2022.
Total assets were $6.427 billion as of September 30, 2023 versus $6.432 billion as of December 31, 2022, a decrease of $5.5 million, or less than 1%. Total loans, net of the allowance for credit losses, and cash and cash equivalents increased $161.1 million, or 3.5%, and $16.0 million, or 12.3%, respectively, between December 31, 2022 and September 30, 2023. Offsetting these increases was a decrease in available-for-sale securities of $210.0 million, or 17.7%. Total deposits increased $196.5 million, or 3.6%, between December 31, 2022 and September 30, 2023. Deposits have shifted from noninterest bearing to interest bearing products as a result of the rising interest rate environment. Noninterest bearing deposits decreased $359.1 million, or 20.7%, and interest bearing deposits increased $555.6 million, or 14.9%. Total borrowings decreased $207.0 million, or 69.7%. Total equity decreased $11.7 million, or 2.1%, from $568.9 million at December 31, 2022 to $557.2 million at September 30, 2023. Retained earnings increased $28.8 million, or 4.5%, as a result of net income of $64.1 million, offset by dividends declared and paid of $35.3 million. Accumulated other comprehensive income (loss), decreased $39.2 million, or 20.7%, due primarily to a decline in the fair market values of available-for-sale investment securities during the nine months ended September 30, 2023.
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CRITICAL ACCOUNTING POLICIES
The Company’s accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Certain of the Company’s accounting policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Some of the facts and circumstances which could affect these judgments include changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for credit losses. See “Note 4 – Allowance for Credit Losses and Credit Quality” for more information on this critical accounting policy.
RESULTS OF OPERATIONS
Overview
Selected income statement information for the three and nine months ended September 30, 2023 and 2022 is presented in the following table:
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2023 2022 2023 2022
Income Statement Summary:
Net interest income $ 48,393  52,492  $ 148,436  $ 146,050 
Provision for credit losses 400  0  5,550  417 
Noninterest income 10,835  10,164  32,650  31,343 
Noninterest expense 29,097  27,894  101,265  82,776 
Other Data:
Efficiency ratio (1) 49.13  % 44.52  % 55.92  % 46.66  %
Diluted EPS $ 0.98  $ 1.11  $ 2.49  $ 3.03 
Average Equity/Average Assets 9.12  % 9.27  % 9.21  % 9.53  %
Tangible capital ratio (2) 8.62  8.20  8.62  8.20 
Adjusted tangible capital ratio (3) 11.74  11.32  11.74  11.32 
Net charge-offs to average loans 0.03  0.03  0.17  0.03 
  Net interest margin Net interest margin 3.21  3.57  3.33  3.25 
Noninterest income to total revenue 18.29  16.22  18.03  17.67 
Pretax pre-provision earnings (4) $ 30,131  $ 34,762  $ 79,821  $ 94,617 


(1)Noninterest expense/net interest income plus noninterest income.
(2)Non-GAAP financial measure. The Company believes that disclosing non-GAAP financial measures provides investors with information useful to understanding the Company’s financial performance. Additionally, these non-GAAP measures are used by management for planning and forecasting purposes, including measures based on “tangible common equity,” which is “total equity” excluding intangible assets, net of deferred tax, and “tangible assets,” which is “total assets” excluding intangible assets, net of deferred tax. The tangible capital ratio is calculated by excluding the balance of goodwill, net of deferred taxes. See reconciliation on the next page.
(3)Non-GAAP financial measure. Calculated by removing the fair market value adjustment impact of the investment securities portfolio from tangible equity and tangible assets. Management believes this is an important measure because it provides better comparability to prior periods. See reconciliation on the next page.
(4)Non-GAAP financial measure. Pretax pre-provision earnings is calculated by adding net interest income to noninterest income and subtracting noninterest expense. Management believes this is an important measure because it may enable investors to identify the trends in the Company's earnings exclusive of the effects of tax and provision expense, which may vary significantly from period to period. See reconciliation on the next page.

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Reconciliations of non-GAAP measures are provided below (in thousands, except for per share data).
As of and For The As of and For The
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2023 2022 2023 2022
Total Equity $ 557,184  $ 519,220  $ 557,184  $ 519,220 
Less: Goodwill (4,970) (4,970) (4,970) (4,970)
Plus: Deferred Tax Assets Related to Goodwill 1,167  1,167  1,167  1,167 
Tangible Common Equity (A) 553,381  515,417  553,381  515,417 
Market Value Adjustment in AOCI 227,375  220,847  227,375  220,847 
Adjusted Tangible Common Equity (C) 780,756  736,264  780,756  736,264 
Total Assets $ 6,426,844  $ 6,288,406  $ 6,426,844  $ 6,288,406 
Less: Goodwill (4,970) (4,970) (4,970) (4,970)
Plus: Deferred Tax Assets Related to Goodwill 1,167  1,167  1,167  1,167 
Tangible Assets (B) 6,423,041  6,284,603  6,423,041  6,284,603 
Market Value Adjustment in AOCI 227,375  220,847  227,375  220,847 
Adjusted Tangible Assets (D) 6,650,416  6,505,450  6,650,416  6,505,450 
Ending Common Shares Issued (E) 25,614,163  25,536,026  25,614,163  25,536,026 
Tangible Book Value per Common Share (A/E) $ 21.60  $ 20.18  $ 21.60  $ 20.18 
Tangible Capital Ratio (A/B) 8.62  % 8.20  % 8.62  % 8.20  %
Adjusted Tangible Capital Ratio (C/D) 11.74  11.32  11.74  11.32 
Net Interest Income $ 48,393  $ 52,492  148,436  146,050 
Noninterest Income 10,835  10,164  32,650  31,343 
Noninterest Expense (29,097) (27,894) (101,265) (82,776)
Pretax Pre-Provision Earnings $ 30,131  $ 34,762  $ 79,821  $ 94,617 
Nine Months Ended
Sep. 30, 2023 Sep. 30, 2022
Noninterest Expense $ 101,265  $ 82,776 
Less: Wire Fraud Loss (18,058) 0 
Plus: Salaries and Employee Benefits (1) 1,850  0 
Adjusted Core Noninterest Expense $ 85,057  $ 82,776 
Earnings Before Income Taxes 74,271  $ 94,200 
Adjusted Core Noninterest Expense Impact 16,208  0 
Adjusted Earnings Before Income Taxes 90,479  94,200 
Tax Effect (14,123) (16,360)
Core Operational Profitability 76,356  77,840 
Core Operational Diluted Earnings Per Common Share $ 2.97  $ 3.03 
Adjusted Core Efficiency Ratio 46.97  % 46.66  %
(1)     Long-term, incentive-based compensation accruals were reduced as a result of the wire fraud loss.

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Adjusted core noninterest expense, adjusted earnings before income taxes, core operational profitability, core operational diluted earnings per common share and adjusted core efficiency ratio are non‐GAAP financial measures calculated using GAAP amounts. These adjusted amounts are calculated by excluding the impact of the wire fraud loss and corresponding reduction to salaries and employee benefits for the nine month periods ended September 30, 2023 and 2022. There was no impact to the three month periods ended September 30, 2023 and 2022. Management considers these measures of financial performance to be meaningful to understanding the company’s core business performance for these periods.
Net Income
Net income was $64.1 million in the first nine months of 2023, which decreased $13.7 million, or 17.6%, from $77.8 million for the comparable period of 2022. The decrease in net income for the first nine months of 2023 was primarily due to an increase in noninterest expense of $18.5 million, or 22.3%, and an increase in the provision for credit losses of $5.1 million. Offsetting these items was an increase to net interest income of $2.4 million, or 1.6%, and an increase to noninterest income of $1.3 million, or 4.2%.
The Company's second quarter 2023 net income was negatively impacted by the recognition of a wire fraud loss of $13.6 million, net of tax, or $0.53 per diluted earnings per share. Core operational profitability, which is a non-GAAP financial measure that excludes the estimated effect of this one-time event, decreased by $1.5 million, or 1.9%, to $76.4 million for the first nine of 2023 from $77.8 million for the comparable period of 2022.
Net income in third quarter of 2023 was $25.3 million, down 11.5% from $28.5 million for the comparable period of 2022. Diluted earnings per common share was $0.98 in the third quarter of 2023, down 11.7% from $1.11 in the comparable period of 2022. The decrease was driven primarily by a decrease in net interest income of $4.1 million, or 7.8%, and an increase in noninterest expense of $1.2 million, or 4.3%, and was partially offset by an increase in noninterest income of $671,000, or 6.6%.


















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Net Interest Income
The following tables set forth consolidated information regarding average balances and rates:
Nine Months Ended September 30,
2023 2022
(fully tax equivalent basis, dollars in thousands) Average Balance Interest Yield (1)/
Rate		 Average Balance Interest Yield (1)/
Rate
Earning Assets                  
Loans:               
Taxable (2)(3) $ 4,733,421  $ 223,499  6.31  % $ 4,351,009  $ 136,580  4.20  %
Tax exempt (1) 58,010  3,577  8.24  30,275  1,149  5.07 
Investments:
Securities (1) 1,210,540  25,645  2.83  1,472,807  29,105  2.64 
Short-term investments 2,362  77  4.36  2,251  12  0.71 
Interest bearing deposits 99,205  3,527  4.75  322,445  1,489  0.62 
Total earning assets $ 6,103,538  $ 256,325  5.61  % $ 6,178,787  $ 168,335  3.64  %
Less: Allowance for credit losses (72,242) (67,684)
Nonearning Assets
Cash and due from banks 71,406  72,240 
Premises and equipment 58,699  59,026 
Other nonearning assets 286,915  226,732 
Total assets $ 6,448,316  $ 6,469,101 
Interest Bearing Liabilities
Savings deposits $ 360,535  $ 194  0.07  % $ 421,363  $ 241  0.08  %
Interest bearing checking accounts 2,854,161  76,518  3.58  2,658,739  14,456  0.73 
Time deposits:
In denominations under $100,000 196,914  3,296  2.24  189,459  951  0.67 
In denominations over $100,000 616,477  15,629  3.39  607,352  2,389  0.53 
Miscellaneous short-term borrowings 218,561  8,252  5.05  9  0  0.00 
Long-term borrowings and subordinated debentures 0  0  0.00  42,857  127  0.40 
Total interest bearing liabilities $ 4,246,648  $ 103,889  3.27  % $ 3,919,779  $ 18,164  0.62  %
Noninterest Bearing Liabilities
Demand deposits 1,509,292  1,868,858 
Other liabilities 98,313  64,262 
Stockholders' Equity 594,063  616,202 
Total liabilities and stockholders' equity $ 6,448,316  $ 6,469,101 
Interest Margin Recap
Interest income/average earning assets 256,325  5.61  % 168,335  3.64  %
Interest expense/average earning assets 103,889  2.28  18,164  0.39 
Net interest income and margin $ 152,436  3.33  % $ 150,171  3.25  %
(1)Tax exempt income was converted to a fully taxable equivalent basis at a 21 percent tax rate. The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) adjustment applicable to nondeductible interest expenses. Taxable equivalent basis adjustments were $4.0 million and $4.1 million for the nine-month periods ended September 30, 2023 and September 30, 2022, respectively.
(2)Loan fees, which are immaterial in relation to total taxable loan interest income for the nine-months ended September 30, 2023 and 2022, are included as taxable loan interest income.
(3)Nonaccrual loans are included in the average balance of taxable loans.
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Three Months Ended September 30,
2023 2022
(fully tax equivalent basis, dollars in thousands) Average Balance Interest Yield (1)/
Rate		 Average Balance Interest Yield (1)/
Rate
Earning Assets                  
Loans:               
Taxable (2)(3) $ 4,791,156  $ 78,910  6.53  % $ 4,376,724  $ 52,707  4.78  %
Tax exempt (1) 58,602  1,258  8.52  39,220  583  5.90 
Investments:
Securities (1) 1,171,426  8,169  2.77  1,429,186  9,949  2.76 
Short-term investments 2,533  29  4.54  2,307  9  1.55 
Interest bearing deposits 122,177  1,576  5.12  144,193  763  2.10 
Total earning assets $ 6,145,894  $ 89,942  5.81  % $ 5,991,630  $ 64,011  4.24  %
Less: Allowance for credit losses (71,997) (67,481)
Nonearning Assets
Cash and due from banks 68,669  70,672 
Premises and equipment 58,782  58,796 
Other nonearning assets 297,636  244,741 
Total assets $ 6,498,984  $ 6,298,358 
Interest Bearing Liabilities
Savings deposits $ 329,557  $ 57  0.07  % $ 430,428  $ 85  0.08  %
Interest bearing checking accounts 2,873,795  27,891  3.85  2,623,747  8,809  1.33 
Time deposits:
In denominations under $100,000 211,039  1,507  2.83  180,774  298  0.65 
In denominations over $100,000 740,434  7,653  4.10  586,750  874  0.59 
Miscellaneous short-term borrowings 227,555  3,122  5.44  0  0  0.00 
Long-term borrowings and subordinated debentures 0  0  0.00  0  0  0.00 
Total interest bearing liabilities $ 4,382,380  $ 40,230  3.64  % $ 3,821,699  $ 10,066  1.04  %
Noninterest Bearing Liabilities
Demand deposits 1,417,641  1,816,770 
Other liabilities 106,453  76,210 
Stockholders' Equity 592,510  583,679 
Total liabilities and stockholders' equity $ 6,498,984  $ 6,298,358 
Interest Margin Recap
Interest income/average earning assets 89,942  5.81  % 64,011  4.24  %
Interest expense/average earning assets 40,230  2.60  10,066  0.67 
Net interest income and margin $ 49,712  3.21  % $ 53,945  3.57  %
(1)Tax exempt income was converted to a fully taxable equivalent basis at a 21 percent tax rate. The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) adjustment applicable to nondeductible interest expenses. Taxable equivalent basis adjustments were $1.3 million and $1.5 million in the three-month periods ended September 30, 2023 and September 30, 2022, respectively.
(2)Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended September 30, 2023 and 2022, are included as taxable loan interest income.
(3)Nonaccrual loans are included in the average balance of taxable loans.
Net interest income, on a fully tax equivalent basis, increased $2.3 million, or 1.5%, to $152.4 million for the nine months ended September 30, 2023, compared to $150.2 million for the first nine months of 2022. Growth in average loans and an improvement in earning assets yields were the primary drivers behind the $88.0 million, or 52.3%, increase in tax equivalent interest income between the two periods. Offsetting these increases was a decrease in the average balance of investment securities. Interest expense, which mostly offset the positive impact of the increase to tax equivalent interest income, increased by $85.7 million, or 472.0%. and was driven by increased funding costs from increased average interest bearing liabilities and a decrease in average noninterest bearing liabilities.
    
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Total average earning assets were $6.104 billion for the nine months ended September 30, 2023, a decrease of $75.2 million, or 1.2%, compared to $6.179 billion for the nine months ended September 30, 2022. A decrease to average investment securities of $262.3 million, or 17.8%, from $1.473 billion for the nine months ended September 30, 2022 to $1.211 billion for the nine months ended September 30, 2023, and a decrease to the Company's cash held in interest bearing deposits of $223.2 million, or 69.2%, from $322.4 million for the nine months ended September 30, 2022 to $99.2 million for the nine months ended September 30, 2023, drove the contraction in average earning assets between the two periods. Offsetting these decreases was an increase in average loans outstanding, which increased $410.1 million, or 9.4%, to $4.791 billion during the nine months ended September 30, 2023, compared to $4.381 billion during the same period of 2022. Total average interest bearing liabilities were $4.247 billion for the nine months ended September 30, 2023, an increase of $326.9 million, or 8.3%, from $3.920 billion for the nine months ended September 30, 2022. This increase was driven by increased interest bearing deposits of $151.2 million, or 3.9%, from $3.877 billion for the nine months ended September 30, 2022 to $4.028 billion for the nine months ended September 30, 2023, and an increase in total average borrowings of $175.7 million, or 409.9%, from $42.9 million for the nine months ended September 30, 2022 to $218.6 million for the nine month ended September 30, 2023. Noninterest bearing demand deposits decreased $359.6 million, or 19.2%, from $1.869 billion for the nine months ended September 30, 2022 to $1.509 billion for the nine months ended September 30, 2023.

The tax equivalent net interest margin was 3.33% for the nine months ended September 30, 2023, compared to 3.25% during the first nine months of 2022, representing an 8 basis point, or 2.5%, expansion between the two periods. The net interest margin expansion was driven by a 525 basis point increase to the target Federal Funds rate implemented by the Federal Reserve through a series of rate increases beginning in March of 2022, increasing the target Federal Funds Rate range from a zero-bound range of 0.00%-0.25% in March 2022 to a range of 5.25%-5.50% at September 30, 2023. The impact of the higher interest rate environment has increased earning asset yields by 197 basis points, or 54.1%, to 5.61% for the nine months ended September 30, 2023, up from 3.64% for the comparable period of 2022. The increase in earning asset yields was offset by an increase in the Company's funding costs, as depositors sought higher interest bearing deposit products and competition for deposits increased throughout the industry. Interest expense as a percentage of average earning assets increased to 2.28% for the nine months ended September 30, 2023, up from 0.39% for the comparable period of 2022, an increase of 189 basis points, or 484.6%. The Company anticipates the cost of funds may continue to rise throughout the remainder of 2023 as a result of increased market competition for deposits, shifts from noninterest bearing deposits into interest bearing deposits, and elevated wholesale funding costs.
Net interest income, on a fully tax equivalent basis, decreased by $4.2 million, or 7.8%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Tax equivalent net interest income benefited from increased average loan balances and yields between the two periods. Offsetting this benefit were increased interest bearing liabilities and an increased funding costs.
Total average earning assets were $6.146 billion for the third quarter of 2023, an increase of $154.3 million, or 2.6%, compared to $5.992 billion for the third quarter of 2022. The increase in average earning assets was driven by an increase in average loans of $433.8 million, or 9.8%, from $4.416 billion for the third quarter of 2022 to $4.850 billion for the third quarter of 2023. Offsetting the increase in average loans was a decrease in average investment securities, which decreased $257.8 million, or 18.0%, from $1.429 billion for the third quarter of 2022 to $1.171 billion for the third quarter of 2023. Total average interest bearing liabilities were $4.382 billion for the third quarter of 2023, an increase of $560.7 million, or 14.7%, from $3.822 billion for the third quarter of 2022. This increase was driven by increased interest bearing deposits of $333.1 million, or 8.7%, from $3.822 billion for the third quarter of 2022 to $4.155 billion for the third quarter of 2023 and increased average borrowings of $227.6 million for the third quarter of 2023 compared to no average borrowings for the third quarter of 2022. Noninterest bearing demand deposits decreased $399.1 million, or 22.0%, from $1.817 billion for the third quarter of 2022 to $1.418 billion for the third quarter of 2023.
The tax equivalent net interest margin contracted by 36 basis points, or 10.1%, to 3.21% for the third quarter of 2023, compared to 3.57% for the third quarter of 2022. Earning asset yields expanded 157 basis points, or 37.0%, from 4.24% for the third quarter of 2022 to 5.81% for the third quarter of 2023. This increase was offset by an increase in the Company's funding costs as interest expense as a percentage of average earning assets increased 193 basis points, or 288.1%, from 0.67% for the third quarter of 2022 to 2.60% for the third quarter of 2023. Increases to the Company's earning asset yields and interest expense as a percentage of average earning assets between the two periods were driven by the Federal Reserve's action to increase the target Federal Funds rate to 5.50% from 0.25%. The target Federal Funds rate was increased 225 basis points between September 30, 2022 and September 30, 2023, increasing the target Federal Funds rate range from 3.00%-3.25% to 5.25%-5.50%. While the rate increases have positively affected the Company's yields on earning assets, the Company has experienced a corresponding increase to funding costs, as depositors sought higher interest bearing deposit products and competition for deposits increased throughout the industry. The Company anticipates the cost of funds may continue to rise throughout the remainder of 2023 as a result of increased market competition for deposits, shifts from noninterest bearing deposits into interest bearing deposits, and elevated wholesale funding costs.
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Provision for Credit Losses
The Company recorded provision for credit losses expense of $5.6 million for the nine months ended September 30, 2023, compared to provision expense of $417,000 during the comparable period of 2022, an increase of $5.1 million, or 1,230.9%. The increase in provision during the nine months ended September 30, 2023, compared to the comparable period in 2022, was primarily attributable to loan growth and increased qualitative risk factors for current market conditions impacting certain segments of the loan portfolio. Net charge-offs were $6.1 million during the nine month period ended September 30, 2023, compared to net charge-offs of $951,000 during the comparable period of 2022, an increase of $5.1 million, or 536.3%. The increase in charge-offs during the nine months ended September 30, 2023, compared to the comparable period in 2022 was the result of a charge-off of $5.5 million attributable to a single commercial borrower during the first quarter of 2023.
The Company recorded provision expense of $400,000 during the third quarter of 2023, compared to no provision expense recorded during the third quarter of 2022. Provision expense during the quarter was primarily driven by growth in the loan portfolio. Net charge-offs were $353,000 during the third quarter of 2023, compared to $284,000 during the third quarter of 2022.
Additional factors considered by management included key loan quality metrics, including reserve coverage of nonperforming loans and economic conditions in the Company’s markets, and changes in the facts and circumstances of watch list credits, which includes the security position of the borrower. Management’s overall view on current credit quality was also a factor in the determination of the provision for credit losses. The Company’s management continues to monitor the adequacy of the provision based on loan levels, asset quality, economic conditions and other factors that may influence the assessment of the collectability of loans.

Noninterest Income

Noninterest income categories for the nine month and three month period ended September 30, 2023 and 2022 are shown in the following tables:
Nine Months Ended
September 30,
(dollars in thousands) 2023 2022 Dollar Change Percent Change
Wealth advisory fees $ 6,769  $ 6,550  $ 219  3.3  %
Investment brokerage fees 1,370  1,711  (341) (19.9)
Service charges on deposit accounts 8,091  8,681  (590) (6.8)
Loan and service fees 8,782  9,131  (349) (3.8)
Merchant card fee income 2,744  2,660  84  3.2 
Bank owned life insurance income (loss) 2,393  (212) 2,605  (1,228.8)
Interest rate swap fee income 794  492  302  61.4 
Mortgage banking income (loss) (184) 771  (955) (123.9)
Net securities gains (losses) (16) 0  (16) N/A
Other income 1,907  1,559  348  22.3 
Total noninterest income $ 32,650  $ 31,343  $ 1,307  4.2  %
Noninterest income to total revenue 18.03  % 17.67  %

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Three Months Ended
September 30,
(dollars in thousands) 2023 2022 Dollar Change Percent Change
Wealth advisory fees $ 2,298  $ 2,059  $ 239  11.6  %
Investment brokerage fees 408  651  (243) (37.3)
Service charges on deposit accounts 2,735  2,990  (255) (8.5)
Loan and service fees 2,934  3,047  (113) (3.7)
Merchant card fee income 938  941  (3) (0.3)
Bank owned life insurance income (loss) 1,009  54  955  1,768.5 
Interest rate swap fee income 0  88  (88) (100.0)
Mortgage banking income (loss) (50) (89) 39  (43.8)
Net securities gains (losses) (35) 0  (35) N/A
Other income 598  423  175  41.4 
Total noninterest income $ 10,835  $ 10,164  $ 671  6.6  %
Noninterest income to total revenue 18.29  % 16.22  %
Noninterest income increased by $1.3 million, or 4.2%, to $32.7 million for the nine months ended September 30, 2023, compared to $31.3 million for the prior year nine-month period. The increase was driven by increases to bank owned life insurance income of $2.6 million, other income of $348,000, or 22.3%, interest rate swap fee income of $302,000, or 61.4%, and wealth advisory fees of $219,000, or 3.3%. These increases were offset by decreases to mortgage banking income of $955,000, or 123.9%, service charges on deposit accounts of $590,000, or 6.8%, loan and service fees of $349,000, or 3.8%, and investment brokerage fees of $341,000, or 19.9%.
The company’s noninterest income increased $671,000, or 6.6%, to $10.8 million for the third quarter of 2023, compared to $10.2 million for the third quarter of 2022. The increase in noninterest income was primarily driven by an increase in bank owned life insurance income of $955,000, an increase in wealth advisory fees of $239,000, or 11.6%, and an increase in other income of $175,000, or 41.4%. Bank owned life insurance income benefited from improved market performance of the company's variable life insurance policies which track to the overall performance of the equity markets, and from the purchase of general life insurance policies during the fourth quarter of 2022. The increase in wealth advisory fees was driven by an increase in trust assets which benefited from new customer inflows. The increase to other income was driven by increased limited partnership income and higher dividend from the company's FHLB stock holding. Offsetting these increases to noninterest income was a decrease to service charges on deposit accounts of of $255,000, or 8.5%, primarily the result of increased earning credit rating for commercial depositors related to commercial treasury management fees and other changes to the deposit fee schedule for retail accounts, a decrease to investment brokerage fees of $243,000, or 37.3%, due to fluctuations in fee generating sales volume and mix, and a decrease to loan and service fees of $113,000, or 3.7%, due to a decline in fee-based volume.










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Noninterest Expense
Noninterest expense categories for the nine month and three month period ended September 30, 2023 and 2022 are shown in the following tables:
Nine Months Ended
September 30,
(dollars in thousands) 2023 2022 Dollar Change Percent Change
Salaries and employee benefits $ 43,414  $ 43,840  $ (426) (1.0) %
Net occupancy expense 4,874  4,793  81  1.7 
Equipment costs 4,189  4,250  (61) (1.4)
Data processing fees and supplies 10,305  9,510  795  8.4 
Corporate and business development 3,930  4,078  (148) (3.6)
FDIC insurance and other regulatory fees 2,469  1,516  953  62.9 
Professional fees 6,284  4,527  1,757  38.8 
Wire fraud loss 18,058  0  18,058  N/A
Other expense 7,742  10,262  (2,520) (24.6)
Total noninterest expense $ 101,265  $ 82,776  $ 18,489  22.3  %
Efficiency ratio 55.92  % 46.66  %
Three Months Ended
September 30,
(dollars in thousands) 2023 2022 Dollar Change Percent Change
Salaries and employee benefits $ 15,977  $ 14,650  $ 1,327  9.1  %
Net occupancy expense 1,621  1,476  145  9.8 
Equipment costs 1,325  1,380  (55) (4.0)
Data processing fees and supplies 3,379  3,226  153  4.7 
Corporate and business development 1,201  1,426  (225) (15.8)
FDIC insurance and other regulatory fees 871  458  413  90.2 
Professional fees 2,114  1,554  560  36.0 
Wire fraud loss 0  0  0  N/A
Other expense 2,609  3,724  (1,115) (29.9)
Total noninterest expense $ 29,097  $ 27,894  $ 1,203  4.3  %
Efficiency ratio 49.13  % 44.52  %
Noninterest expense increased by $18.5 million, or 22.3%, for the nine months ended September 30, 2023, from $82.8 million to $101.3 million. The increase to noninterest expense during the year was driven by an $18.1 million wire fraud loss recorded as a component of noninterest expense during the second quarter of 2023. Other drivers contributing to the increase in noninterest expense include an increase to professional fees of $1.8 million, or 38.8%, an increase to FDIC insurance and other regulatory fees of $953,000, or 62.9%, and an increase to data processing fees and supplies of $795,000, or 8.4%. Adjusted core noninterest expense, which excludes the estimated impact of the wire fraud loss, increased by $2.3 million, or 2.8%, from $82.8 million for the nine months ended September 30, 2022, to $85.1 million for the nine months ended September 30, 2023.
Noninterest expense increased $1.2 million, or 4.3%, to $29.1 million for the third quarter of 2023, compared to $27.9 million during the third quarter of 2022. The increase in noninterest expense during the quarter was attributable to an increase in salaries and employee benefits of $1.3 million, or 9.1%, an increase in professional fees of $560,000, or 36.0%, and an increase in FDIC insurance and other regulatory fees of $413,000, or 90.2%. Salaries and employee benefits increased due to increases in salaries and employee insurance expense and an increase in deferred compensation expense which is tied to the market performance of the company's variable bank owned life insurance policies. Professional fees increased as a result of increased interest charges associated with the bank's cash swap collateral positions and increased legal expense related to the wire fraud loss and ongoing matters. The increase to FDIC insurance and other regulatory fees was caused by a blanket increase to the assessment rate used by the FDIC to calculate insurance premiums. Offsetting these increases was a decrease to other expense of $1.1 million, or 29.9%, driven by a decrease in accruals pertaining to ongoing legal matters.

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The Company's income tax expense decreased $6.2 million, or 38.1%, to $10.1 million in the nine months ended September 30, 2023, compared to $16.4 million for the same period in 2022. The effective tax rate was 13.6% in the nine months ended September 30, 2023, compared to 17.4% for the comparable period of 2022. The year-to-date effective tax rate is reduced by the wire fraud loss, income from tax-advantaged sources such as federally tax exempt municipal bond interest income as well as a tax benefit from stock-based compensation vesting of shares for plan participants.
FINANCIAL CONDITION
Overview
Total assets were $6.427 billion as of September 30, 2023 versus $6.432 billion as of December 31, 2022, a decrease of $5.5 million, or less than 1%. Total loans, net of the allowance for credit losses, and cash and cash equivalents increased $161.1 million, or 3.5%, and $16.0 million, or 12.3%, respectively, between December 31, 2022 and September 30, 2023. Offsetting these increases was a decrease in available-for-sale securities of $210.0 million, or 17.7%. Total deposits increased $196.5 million, or 3.6%, between December 31, 2022 and September 30, 2023. Noninterest bearing deposits decreased $359.1 million, or 20.7%, and interest bearing deposits increased $555.6 million, or 14.9%. Total borrowings decreased $207.0 million, or 69.7%. Total equity decreased $11.7 million, or 2.1%, from $568.9 million at December 31, 2022 to $557.2 million at September 30, 2023. Retained earnings increased $28.8 million, or 4.5%, as a result of net income of $64.1 million, offset by dividends declared and paid of $35.3 million. Accumulated other comprehensive income (loss), decreased $39.2 million, or 20.7%, due primarily to a decline in available-for-sale securities fair market values during the nine months ended September 30, 2023.
Uses of Funds
Total Cash and Cash Equivalents
Total cash and cash equivalents increased by $16.0 million, or 12.3%, to $146.3 million at September 30, 2023, from $130.3 million at December 31, 2022. Cash and cash equivalents include short-term investments. The increase in cash and cash equivalents at September 30, 2023 was driven by an increase in interest bearing short-term investment accounts of $29.5 million, or 59.8%, offset by a decrease in cash and due from banks of $13.5 million, or 16.6%.
Investment Portfolio
The amortized cost and the fair value of securities as of September 30, 2023 and December 31, 2022 were as follows:
September 30, 2023 December 31, 2022
(dollars in thousands) Amortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value
Available-for-Sale
U.S Treasury securities $ 2,873  $ 2,861  $ 3,057  $ 3,034 
U.S government sponsored agencies 148,895  115,671  156,184  126,961 
Mortgage-backed securities: residential 531,807  429,662  578,175  492,308 
State and municipal securities 558,346  427,338  663,367  563,225 
Total available-for-sale $ 1,241,921  $ 975,532  $ 1,400,783  $ 1,185,528 
Held-to-Maturity
State and municipal securities $ 129,494  $ 102,629  $ 128,242  $ 111,029 
Total Investment Portfolio $ 1,371,415  $ 1,078,161  $ 1,529,025  $ 1,296,557 
At September 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S. government agencies and government sponsored entities, in an amount greater than 10% of stockholders’ equity. Management is aware that, as interest rates rise, any unrealized loss in the available-for-sale investment securities portfolio will increase, and as interest rates fall the unrealized gain in the investment portfolio will rise. Since the majority of the bonds in the investment portfolio are fixed-rate, with only a few adjustable-rate bonds, we would expect our investment portfolio to follow this market value pattern. This is taken into consideration when evaluating the gain or loss of investment securities in the portfolio and the potential for an allowance for credit losses.
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Purchases of securities available-for-sale totaled $4.3 million in the first nine months of 2023. The purchases consisted of U.S. Treasury securities and mortgage-backed securities issued by government sponsored entities for CRA purposes. Investment securities represented 17.2% of total assets on September 30, 2023, compared to 20.4% of total assets on December 31, 2022. Effective duration for the investment portfolio was 6.7 years at September 30, 2023, compared to 4.0 years at December 31, 2019, before the pandemic, and 6.5 years at December 31, 2022. Duration of the portfolio extended following the deployment of excess liquidity to the portfolio and the dramatic rise in interest rates during 2022 and into 2023. The ratio of investment securities as a percentage of total assets remains elevated over historical levels of approximately 12-14% during 2014 to 2020. The Company expects the investment securities portfolio as a percentage of assets to decrease over time as the proceeds from pay downs, sales and maturities of these investment securities are used to fund loan portfolio growth and for other general liquidity purposes. Paydowns from prepayments and scheduled payments of $44.5 million were received in the first nine months of 2023, and the amortization of premiums, net of the accretion of discounts, was $3.7 million. Maturities and calls of securities totaled $12.1 million in the first nine months of 2023. Sales of available-for-sale investment securities totaled $102.8 million in the first nine months of 2023 and resulted in net losses of $16,000. No allowance for credit losses was recognized for available-for-sale or held-to-maturity securities as of September 30, 2023 and December 31, 2022.
The fair value of the available-for-sale investment securities portfolio as of September 30, 2023 included net unrealized losses of $266.4 million, compared to net unrealized losses of $215.3 million as of December 31, 2022. Unrealized losses in the available-for-sale investment securities portfolio resulted from the declines in market values of the investment securities. These declines were driven by the rising interest rate environment as a result of the Federal Reserve's monetary tightening policy to combat elevated levels of inflation affecting the U.S. economy.

The investment portfolio is managed by a third-party firm to provide for an appropriate balance between liquidity, credit risk, interest rate risk management and investment return and to limit the Company’s exposure to credit risk in the investment securities portfolio. The Company does not trade or invest in or sponsor certain unregistered investment companies defined as hedge funds and private equity funds under what is commonly referred to as the “Volcker Rule” of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Real Estate Mortgage Loans Held-for-Sale
Real estate mortgage loans held-for-sale increased by $215,000, or 60.2%, to $572,000 at September 30, 2023, from $357,000 at December 31, 2022. The balance of this asset category is subject to a high degree of variability depending on, among other factors, recent mortgage loan rates and the timing of loan sales into the secondary market. The Company generally sells conforming qualifying mortgage loans it originates on the secondary market. Proceeds from sales of residential mortgages totaled $6.1 million in the first nine months of 2023, compared to $34.3 million in the first nine months of 2022. Management expects the volume of loans originated for sale in the secondary market to remain at reduced levels due to elevated mortgage rates, limited inventory, and existing homeowners being locked in at historically low rates. Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others were $340.1 million and $364.3 million, as of September 30, 2023 and December 31, 2022, respectively.
Loan Portfolio
The loan portfolio by portfolio segment as of September 30, 2023 and December 31, 2022 is summarized as follows:
(dollars in thousands) September 30,
2023		 December 31,
2022		 Current Period Change
Commercial and industrial loans $ 1,402,220  28.8  % $ 1,493,049  31.7  % $ (90,829)
Commercial real estate and multi-family residential loans 2,422,459  49.6  2,179,094  46.2  243,365 
Agri-business and agricultural loans 380,528  7.8  432,088  9.2  (51,560)
Other commercial loans 125,939  2.6  113,593  2.4  12,346 
Consumer 1-4 family mortgage loans 449,613  9.3  407,566  8.6  42,047 
Other consumer loans 93,737  1.9  88,075  1.9  5,662 
Subtotal, gross loans 4,874,496  100.0  % 4,713,465  100.0  % 161,031 
Less: Allowance for credit losses (72,105) (72,606) 501 
Net deferred loan fees (3,531) (3,069) (462)
Loans, net $ 4,798,860  $ 4,637,790  $ 161,070 
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Total loans, excluding real estate mortgage loans held-for-sale and deferred fees, increased by $161.1 million, or 3.5%, to $4.874 billion at September 30, 2023 from $4.713 billion at December 31, 2022. The increase was primarily driven by originations of loans concentrated in the commercial real estate and multi-famly residential, other commercial, and consumer 1-4 family mortgage loans categories and was offset by paydowns in commercial and industrial loans and the agri-business and agricultural loans segments, the latter of which traditionally experiences seasonal fluctuations in activity.
The following table summarizes the Company’s non-performing assets as of September 30, 2023 and December 31, 2022:
(dollars in thousands) September 30,
2023		 December 31,
2022
Nonaccrual loans $ 16,290  $ 16,964 
Loans past due over 90 days and still accruing 19  123 
Total nonperforming loans 16,309  17,087 
Other real estate owned 384  100 
Repossessions 45  37 
Total nonperforming assets $ 16,738  $ 17,224 
Individually analyzed loans $ 16,739  $ 31,327 
Nonperforming loans to total loans 0.33  % 0.36  %
Nonperforming assets to total assets 0.26  % 0.27  %

Total nonperforming assets decreased by $486,000, or 2.8%, to $16.7 million during the nine month period ended September 30, 2023. The ratio of nonperforming assets to total assets decreased 1 basis point from 0.27% at December 31, 2022 to 0.26% at September 30, 2023.
A loan is individually analyzed when full payment under the original loan terms is not expected. The analysis for smaller loans that are similar in nature and which are not in nonaccrual or modified status, such as residential mortgage, consumer, and credit card loans, is determined based on the class of loans. If a loan is individually analyzed, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows or at the fair value of collateral if repayment is expected solely from the collateral. Total individually analyzed loans decreased by $14.6 million, or 46.6%, to $16.7 million at September 30, 2023 from $31.3 million at December 31, 2022, due primarily to a charge off of a single commercial credit during the first quarter of 2023 and nonaccrual loan paydowns.
Loans are charged against the allowance for credit losses when management believes that the principal is uncollectible. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount that management believes will be adequate to absorb current expected credit losses relating to specifically identified loans based on an evaluation of the loans by management, as well as other current expected losses in the loan portfolio. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect the borrower’s ability to repay. Management also considers trends in adversely classified loans based upon a monthly review of those credits. General allowance is determined after considering the following factors: application of loss percentages using a probability of default/loss given default approach subject to a floor, emerging market risk, commercial loan focus and large credit concentrations, new industry lending activity and current economic conditions. Federal regulations require insured institutions to classify their own assets on a regular basis. The regulations provide for three categories of classified loans: Substandard, Doubtful and Loss. The regulations also contain a Special Mention category. Special Mention applies to loans that do not currently expose an insured institution to a sufficient degree of risk to warrant classification as Substandard, Doubtful or Loss but do possess credit deficiencies or potential weaknesses deserving management’s close attention. The Company’s policy is to establish a specific allowance for credit losses for any assets where management has identified conditions or circumstances that indicate an asset is nonperforming. If an asset or portion, thereof is classified as a loss, the Company’s policy is to either establish specified allowances for credit losses in the amount of 100% of the portion of the asset classified loss or charge-off such amount.
At September 30, 2023, the allowance for credit losses was 1.48% of total loans outstanding, versus 1.54% of total loans outstanding at December 31, 2022. At September 30, 2023, management believed the allowance for credit losses was at a level commensurate with the overall risk exposure of the loan portfolio. However, if economic conditions deteriorate, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require increases in the allowance for credit losses.
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The process of identifying credit losses is a subjective process.
The Company has a relatively high percentage of commercial and commercial real estate loans, which are extended to businesses with a broad range of revenue and within a wide variety of industries. Traditionally, this type of lending may have more credit risk than other types of lending because of the size and diversity of the credits. The Company manages this risk by utilizing relatively conservative credit structures, by adjusting its pricing to the perceived risk of each individual credit and by diversifying the portfolio by customer, product, industry and market area. The Company has limited exposure to commercial office space borrowers, all of which are located in the Bank's Indiana markets. Loans totaling $71.9 million for this sector represented only 1.5% of total loans at September 30, 2023.
As of September 30, 2023, based on management’s review of the loan portfolio, the Company had 66 credit relationships totaling $186.4 million on the classified loan list versus 58 credit relationships totaling $161.0 million as of December 31, 2022. The increase in classified loans for the first nine months of 2023 resulted primarily from borrower risk rating downgrades of pass rated loans to the non-individually analyzed portion of the watch list. As of September 30, 2023, the Company had $166.1 million of assets classified as Special Mention, $20.2 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. Watch list loans as a percentage of total loans increased to 3.83% as of September 30, 2023, up from a historical low at 3.42% as of December 31, 2022.
Allowance estimates are developed by management after taking into account actual loss experience adjusted for current economic conditions and a reasonably supportable forecast period. The Company has annual discussions regarding this methodology with regulatory authorities. Allowance estimates are considered a prudent measurement of the risk in the Company’s loan portfolio based upon loan segment. In accordance with applicable accounting guidance, the allowance is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. For a more thorough discussion of the allowance for credit losses methodology see the ("Critical Accounting Policies") section of this Item 2.
The allowance for credit losses decreased $501,000, or less than 1%, from $72.6 million at December 31, 2022 to $72.1 million at September 30, 2023. The decrease was a result of net charge-offs recorded during the period of $6.1 million, offset by provision expense of $5.6 million. Of the $6.1 million in net charge-offs, $5.5 million was attributable to a single deteriorated commercial relationship. The increased provision expense recorded during the nine months ended September 30, 2023 was primarily attributable to loan growth. As the bulk of the Company’s lending activity is concentrated in the commercial loan portfolio, which can result in overall asset quality being influenced by a small number of credits, management has historically considered growth and portfolio composition when determining credit loss allocations.
Sources of Funds
The Company's sources of funds include a diversified deposit base gathered throughout the Company's footprint and includes a stable mix of commercial, retail and public funds deposit accounts. While the traditional base of core deposits represents the primary source of funding for the Company, the Company has access to a robust array of other liquidity sources, including secured borrowings available from the Federal Home Loan Bank, the Federal Reserve Bank Discount Window and the Federal Reserve Bank Term Funding Program. In addition, the Company has access to unsecured borrowing capacity through long established relationships within the brokered deposit markets, Federal Funds lines from correspondent bank partners and Insured Cash Sweep (ICS) one-way buy funds available from the Intrafi network. As of September 30, 2023, the Company had access to $3.27 billion in unused liquidity available from these aggregate sources, up from $2.99 billion at December 31, 2022.





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The average daily deposits and borrowings together with average rates paid on those deposits and borrowings for the nine months ended September 30, 2023 and 2022 are summarized in the following table:
Nine months ended September 30,
2023 2022
(dollars in thousands) Balance Rate Balance Rate
Noninterest bearing demand deposits $ 1,509,292  0.00  % $ 1,868,858  0.00  %
Savings and transaction accounts:
Savings deposits 360,535  0.07  421,363  0.08 
Interest bearing demand deposits 2,854,161  3.58  2,658,739  0.73 
Time deposits: .
Deposits of $100,000 or more 616,477  3.39  607,352  0.53 
Other time deposits 196,914  2.24  189,459  0.67 
Total deposits $ 5,537,379  2.31  % $ 5,745,771  0.42  %
FHLB advances and other borrowings 218,561  5.05  42,866  0.40 
Total funding sources $ 5,755,940  2.41  % $ 5,788,637  0.42  %
Average total deposits were $5.537 billion for the nine months ended September 30, 2023, a decrease of $208.4 million, or 3.6%, from the comparable period in 2022. Average total borrowings were $218.6 million for the nine months ended September 30, 2023, an increase of $175.7 million, or 409.9%, from the comparable period in 2022. Total average deposit costs increased 189 basis points from 0.42% for the nine months ended September 30, 2022, compared to 2.31% for the nine months ended September 30, 2023. Total average borrowing costs increased 465 basis points from 0.40% for the nine months ended September 30, 2022 to 5.05% for the nine months ended September 30, 2023. As a result, total funding costs increased by 199 basis points from 0.42% for the nine months ended September 30, 2022, to 2.41% for the nine months ended September 30, 2023.
Deposits and Borrowings
As of September 30, 2023, total deposits increased by $196.5 million, or 3.6%, from December 31, 2022. Core deposits, which excludes brokered deposits, increased by $29.1 million, or less than 1%, to $5.480 billion as of September 30, 2023 from $5.451 billion as of December 31, 2022. Total brokered deposits were $177.4 million at September 30, 2023, compared to $10.0 million at December 31, 2022, an increase of $167.4 million.

The following table summarizes deposit composition at September 30, 2023 and December 31, 2022:
(dollars in thousands) September 30,
2023		 Percentage of Total December 31,
2022		 Percentage of Total Current
Period
Change
Retail $ 1,761,235  31.1  % $ 1,934,787  35.4  % $ (173,552)
Commercial 2,154,853  38.1  2,085,934  38.2  68,919 
Public funds 1,563,557  27.7  1,429,872  26.2  133,685 
Core deposits $ 5,479,645  96.9  % $ 5,450,593  99.8  % $ 29,052 
Brokered deposits 177,430  3.1  10,027  0.2  167,403 
Total deposits $ 5,657,075  100.0  % $ 5,460,620  100.0  % $ 196,455 
Core deposits have been stable during 2023. Utilization of brokered deposits as a wholesale funding alternative has returned to pre-pandemic levels. On September 30, 2023 commercial deposits represented 38.1% of total deposits versus 38.2% at December 31, 2022. Retail deposits represented 31.1% at September 30, 2023 versus 35.4% at December 31, 2022. Public Funds deposits represented 27.7% at September 30, 2023 versus 26.2% at December 31, 2022. Brokered deposits represented 3.1% of total deposits at September 30, 2023 versus less than 1% at December 31, 2022. Commercial deposits expanded $68.9 million, or 3.3%, from $2.09 billion at December 31, 2022 to $2.15 billion at September 30, 2023; retail deposits contracted $173.6 million, or 9.0%, from $1.93 billion at December 31, 2022 to $1.76 billion at September 30, 2023; and public funds deposits expanded $133.7 million, or 9.3%, from $1.43 billion at December 31, 2022 to $1.56 billion at September 30, 2023.

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Uninsured deposits not covered by FDIC deposit insurance were 54% as of September 30, 2023, versus 56% at December 31, 2022. Uninsured deposits not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund (which insures public fund deposits in Indiana), were 28% of total deposits as of September 30, 2023, versus 30% as of December 31, 2022. As of September 30, 2023 and December 31, 2022, 98% of deposit accounts had deposit balances less than $250,000.

Capital
As of September 30, 2023, total stockholders’ equity was $557.2 million, a decrease of $11.7 million, or 2.1%, from $568.9 million at December 31, 2022. Net income of $64.1 million was offset by a decrease of $39.2 million in accumulated other comprehensive income (loss) and dividends declared and paid of $35.3 million.
The impact on equity for other comprehensive income (loss) is not included in regulatory capital. The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1, or core capital, as a percentage of average assets, to measure the soundness of a financial institution. In addition, banking regulators have established risk-based capital guidelines for U.S. banking organizations. As of September 30, 2023, the Company's capital levels remained characterized as “well-capitalized”.
The actual capital amounts and ratios of the Company and the Bank as of September 30, 2023 and December 31, 2022, are presented in the table below. Capital ratios for September 30, 2023 are preliminary until the Call Report and FR Y-9C are filed.
Actual Minimum Required For Capital Adequacy Purposes For Capital Adequacy Purposes Plus Capital Conservation Buffer Minimum Required to Be Well Capitalized Under Prompt Corrective Action Regulations
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio
As of September 30, 2023:
Total Capital (to Risk Weighted Assets)
Consolidated $ 850,554  15.14  % $ 449,320  8.00  % $ 589,732  N/A N/A N/A
Bank $ 829,438  14.77  % $ 449,182  8.00  % $ 589,551  10.50  % $ 561,477  10.00  %
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 780,235  13.89  % $ 336,990  6.00  % $ 477,402  N/A N/A N/A
Bank $ 759,141  13.52  % $ 336,886  6.00  % $ 477,255  8.50  % $ 449,182  8.00  %
Common Equity Tier 1 (CET1)
Consolidated $ 780,235  13.89  % $ 252,742  4.50  % $ 393,155  N/A N/A N/A
Bank $ 759,141  13.52  % $ 252,665  4.50  % $ 393,034  7.00  % $ 364,960  6.50  %
Tier I Capital (to Average Assets)
Consolidated $ 780,235  11.64  % $ 268,199  4.00  % $ 268,199  N/A N/A N/A
Bank $ 759,141  11.35  % $ 267,560  4.00  % $ 267,560  4.00  % $ 334,451  5.00  %
As of December 31, 2022:
Total Capital (to Risk Weighted Assets)
Consolidated $ 821,008  15.07  % $ 435,786  8.00  % $ 571,969  N/A N/A N/A
Bank $ 801,044  14.74  % $ 434,758  8.00  % $ 570,620  10.50  % $ 543,448  10.00  %
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 752,751  13.82  % $ 326,840  6.00  % $ 463,023  N/A N/A N/A
Bank $ 732,966  13.49  % $ 326,069  6.00  % $ 461,930  8.50  % $ 434,758  8.00  %
Common Equity Tier 1 (CET1)
Consolidated $ 752,751  13.82  % $ 245,130  4.50  % $ 381,313  N/A N/A N/A
Bank $ 732,966  13.49  % $ 244,551  4.50  % $ 380,413  7.00  % $ 353,241  6.50  %
Tier I Capital (to Average Assets)
Consolidated $ 752,751  11.50  % $ 261,859  4.00  % $ 261,859  N/A N/A N/A
Bank $ 732,966  11.22  % $ 261,222  4.00  % $ 261,222  4.00  % $ 326,527  5.00  %
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FORWARD-LOOKING STATEMENTS
This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the federal securities law. Forward-looking statements are not historical facts and are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “project,” “possible,” “continue,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and, accordingly, the reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including, without limitation:
•the effects of future economic, business and market conditions and changes, particularly in our Indiana market area, including prevailing interest rates and the rate of inflation;
•governmental monetary and fiscal policies and the impact the current economic environment will have on these;
•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;
•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 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 and commercial real estate;
•the risk of labor availability, trade policy and tariffs, as well as supply chain constraints could impact loan demand from the manufacturing sector;
•the outcome of pending 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;
•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
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•the risks noted in the Risk Factors discussed under Item 1A of Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2022, as well as other risks and uncertainties set forth from time to time in the Company’s other filings with the SEC.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk represents the Company’s primary market risk exposure. The Company does not have a material exposure to foreign currency exchange risk, does not have any material amount of derivative financial instruments and does not maintain a trading portfolio. The Corporate Risk Committee of the Board of Directors annually reviews and approves the policy used to manage interest rate risk. The policy was last reviewed and approved in July 2023. The policy sets guidelines for balance sheet structure, which are designed to protect the Company from the impact that interest rate changes could have on net income but do not necessarily indicate the effect on future net interest income. The Company, through the Bank's Asset and Liability Committee, manages interest rate risk by monitoring the computer simulated earnings impact of various rate scenarios and general market conditions. The Company then modifies its long-term risk parameters by attempting to generate the types of loans, investments, and deposits that currently fit the Company’s needs, as determined by the Asset and Liability Committee. This computer simulation analysis measures the net interest income impact of various interest rate scenario changes during the next twelve months. The Company continually evaluates the assumptions used in the model. The current balance sheet structure is considered to be within acceptable risk levels.
Interest rate scenarios for the base, falling 300 basis points, falling 200 basis points, falling 100 basis points, falling 50 basis points, falling 25 basis points, rising 25 basis points, rising 50 basis points, rising 100 basis points, rising 200 basis points and rising 300 basis points are listed below based upon the Company’s rate sensitive assets and liabilities at September 30, 2023. The net interest income shown represents cumulative net interest income over a twelve-month time horizon. Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations.
The base scenario is an annual calculation that is highly dependent on numerous assumptions embedded in the model. While the base sensitivity analysis incorporates management’s best estimate of interest rate and balance sheet dynamics under various market rate movements, the actual behavior and resulting earnings impact will likely differ from that projected. For certain assets, the base simulation model captures the expected prepayment behavior under changing interest rate environments. Assumptions and methodologies regarding the interest rate or balance behavior of indeterminate maturity core deposit products, such as savings, money market, NOW and demand deposits reflect management’s best estimate of expected future behavior.
(dollars in thousands) Base Falling (300 Basis Points) Falling (200 Basis Points) Falling
(100 Basis
Points)		 Falling
(50
Basis
Points)		 Falling (25 
Basis
Points)		 Rising (25 
Basis
Points)		 Rising
(50 
Basis
Points)		 Rising (100 Basis Points) Rising
(200 
Basis
Points)		 Rising
(300 
Basis
Points)
Net interest income $ 208,689  $ 185,295  $ 194,043  $ 201,881  $ 205,391  $ 207,088  $ 209,952  $ 211,143  $ 213,496  $ 218,223  $ 222,947 
Variance from Base $ (23,394) $ (14,646) $ (6,808) $ (3,298) $ (1,601) $ 1,263  $ 2,454  $ 4,807  $ 9,534  $ 14,258 
Percent of change from Base (11.21) % (7.02) % (3.26) % (1.58) % (0.77) % 0.61  % 1.18  % 2.30  % 4.57  % 6.83  %
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ITEM 4 – CONTROLS AND PROCEDURES
As required by Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of September 30, 2023. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
During the quarter ended September 30, 2023, there were no changes to the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. 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. 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. 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. 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.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Item 1A. of Part I of the Company’s Form 10-K for the year ended December 31, 2022. Please refer to that section of the Company’s Form 10-K for disclosures regarding the risks and uncertainties related to the Company’s business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PARTIES
On April 11, 2023, the Company's board of directors reauthorized and extended a share repurchase program through April 30, 2025, 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. Repurchases may be made in the open market, through block trades or otherwise, and in privately negotiated transactions. The repurchase program does not obligate the Company to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended or discontinued at any time. There were no repurchases under this plan during the three months ended September 30, 2023.
During the quarter ended September 30, 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.
The following table provides information as of September 30, 2023 with respect to shares of common stock repurchased by the Company during the quarter then ended:
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)
July 1 - 31 2,501  $ 48.97  0  $ 30,000,000 
August 1 - 31 1,491  55.82  0  30,000,000 
September 1 - 30 0  0.00  0  30,000,000 
Total 3,992  $ 51.53  0  $ 30,000,000 

(a)The shares purchased during July and August were credited to the deferred share accounts of non-employee directors under the Company’s directors’ deferred compensation plan. These shares are held in treasury stock of the Company and were purchased in the ordinary course of business and consistent with past practice.
(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. The share repurchase program terminates April 30, 2025.

Item 3. Defaults Upon Senior Securities Item 4.
None
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Mine Safety Disclosures
N/A

Item 5. Other Information
During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation
S-K.

Item 6. Exhibits
31.1
31.2
32.1
32.2
101 Interactive Data File
 
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2023 and September 30, 2022; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and September 30, 2022; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and September 30, 2022; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and September 30, 2022; and (vi) Notes to Unaudited Consolidated Financial Statements.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LAKELAND FINANCIAL CORPORATION
(Registrant)
Date: November 1, 2023
 /s/ David M. Findlay
  David M. Findlay – Chief Executive Officer
Date: November 1, 2023
 /s/ Lisa M. O’Neill
  Lisa M. O’Neill – Executive Vice President and
  Chief Financial Officer
  (principal financial officer)
Date: November 1, 2023
 /s/ Brok A. Lahrman
  Brok A. Lahrman – Senior Vice President and Chief Accounting Officer
  (principal accounting officer)
56
EX-31.1 2 exhibit311-q32023.htm EX-31.1 Document

Exhibit 31.1
I, David M. Findlay, Chief Executive Officer of Lakeland Financial Corporation, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Lakeland Financial Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and;
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 1, 2023
 /s/ David M. Findlay
David M. Findlay
Chief Executive Officer


EX-31.2 3 exhibit312-q32023.htm EX-31.2 Document

Exhibit 31.2
I, Lisa M. O’Neill, Chief Financial Officer of Lakeland Financial Corporation, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Lakeland Financial Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and;
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a.All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 1, 2023
 /s/ Lisa M. O’Neill
Lisa M. O’Neill
Chief Financial Officer


EX-32.1 4 exhibit321-q32023.htm EX-32.1 Document

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lakeland Financial Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David M. Findlay, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ David M. Findlay
David M. Findlay
Chief Executive Officer
November 1, 2023
A signed original of this written statement required by Section 906 has been provided to Lakeland Financial Corporation and will be retained by Lakeland Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.


EX-32.2 5 exhibit322-q32023.htm EX-32.2 Document

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lakeland Financial Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lisa M. O’Neill, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Lisa M. O’Neill
Lisa M. O’Neill
Chief Financial Officer
November 1, 2023
A signed original of this written statement required by Section 906 has been provided to Lakeland Financial Corporation and will be retained by Lakeland Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.