LKFN 10-K & 10-Q changes, risk factors and insider trading

Economic conditions in the United States and our Indiana markets are affected by complex factors that are difficult to predict and beyond our control, including uncertainties regarding the persistence of inflation, U.S. trade policy, including the potential impactchanges ofto tariffs, geopolitical developments, such as ongoing conflicts in the Middle East and Ukraine, disruptions in the global energy market, labor market conditions, the potential impact of deportation initiatives, the effects of bird flu or other potential infectious diseases, supply chain issues both domestically and internationally, and the potential effects of the newcurrent presidential administration and its actions with respect to the foregoing. In addition, uncertainty in the business community regarding these potential developments can itself harm economic conditions in our markets. Collectively, these issues could adversely affect our business, financial condition, results of operations and growth prospects.

In the current environment, economic and business conditions are significantly affected by U.S. monetary policy, particularly the actions of the Federal Open Market Committee of the Federal Reserve ("FOMC") to raise or lower short-term interest rates. Beginning in March of 2022, the Federal ReserveFOMC substantially increasedtightened monetary policy by increasing the target Federal Funds rate in pursuit of its policy mandate to maintain maximum employment and achieve price stabilitystability. and subsequently paused furtherFurther rate raisesincreases were paused starting in September 2023 as the rate of inflation had significantly subsided from levels experienced in 2022. In September of 2024, the FederalFOMC Reservebegan cuteasing monetary policy by cutting the Federal Funds rate by 50 basis points and proceeded with two additional 25 basis point cuts in November and December of 2024. AtIn their2025, Decemberthe 2024FOMC meeting,cut the Federal ReserveFunds indicatedrate theby possibility75 ofbasis furtherpoints, cutwith rates25 basis point cuts in 2025,September, dependingOctober onand theDecember, economicand data.signaled additional cuts may be warranted in 2026. In 2023, funding costs rose substantially as the cost to retain deposits and borrow increased due to market competition and a series of bank failures in the first quarter of 2023. The Company's increase in cost of funds negatively affected net interest income in 2023 and throughout the first half of 2024. The pivot in policy actions by the Federal ReserveFOMC to lower the target Federal Funds rate allowed the Company to reprice deposits faster than loans in the second half of 2024,2024 and into 2025, which had a positive impact on net interest income. However, futureFuture changes by the Federal ReserveFOMC to adjust the target Federal Funds rate could have varying impacts on the Company's net interest margin. Additionally, a reduction in longer-term rates would positively impact the fair value of our investment securities portfolio, which had $191.1$143.3 million in unrealized losses in available-for-sale investment securities at December 31, 2024.2025. Alternatively, a rise in long-term interest rates could result in an increase in the unrealized losses in available-for-sale securities. Lower interest rates can also positively affect our customers’ businesses and financial condition and increase the value of collateral securing loans in our portfolio.

Given the complex factors affecting the strength of the U.S. economy, including uncertainties regarding the persistence of inflation, international geopolitical developments, developments in the global energy market, labor market conditions and the impact of higher rates on consumers and businesses, there is a meaningful risk that the Federal Reserve and other central banks may underestimate the impact of their tighteningmonetary policies and potentially cause an economic recession. Restrictive monetary policies could limit economic growth and potentially cause an economic recession.recession, and accommodative monetary policy could lead to rapid and prolonged inflation. As noted above, this could decrease loan demand, harm the credit characteristics of our existing loan portfolio and decrease the value of collateral securing loans in the portfolio.

The United States has recently experienced elevated levels of inflation, with the rate peaking in 2022mid-2022 and moderating in 20232024 and 2024,2025, although still higherabove than2% 2%.at the end of 2025. Inflation pressures are currently expected to remain elevated as the inflation rate remains above the Federal Reserve’s target rate of 2%, which is intended to help accomplish its policy. Continued high levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse. For example, elevated inflation harms consumer purchasing power, which could negatively affect our retail customers and the economic environment and, ultimately, many of our business customers, and could also negatively affect our levels of non-interestnoninterest expense. In addition, if prevailing interest rates persist or increase in response to elevated levels of inflation, the value of our securities portfolio would be negatively impacted. Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients' ability to repay indebtedness. It is also possible that governmental responses to the current inflation environment could adversely affect our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls. The duration and severity of the current inflationary period cannot be estimated with precision.

Adverse developments or concerns affecting the financial services industry or specific financial institutions could adversely affect our financial condition and results of operations. The 2023 United States banking crisis could continue to have adverse effects on our business.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar events, have in the past and may in the future lead to erosion of customer confidence in the banking system, deposit volatility, liquidity issues, stock price volatility and other adverse developments. ForAdditionally, example,we themay be negatively affected by brand or reputational harm as a result of failures of Siliconother Valleyfinancial Bank and Signature Bank in March 2023 and First Republic Bank in May 2023 led to disruption and volatility, including deposit outflows and increased need for liquidity, at certain banks. Although depositors of these banks were largely protected, it is not certain that the Federal Reserve or FDIC will treat future bank failures similarly.institutions.

InflationThe and the rapid increases incurrent interest ratesrate haveenvironment has led to a decline in the trading value of previously issued debt securities with interest rates below current market interest rates. Any sale of investment securities that are held in an unrealized loss position by athe financial institutionCompany for liquidity or other purposes will cause actual losses to be realized. There can be no assurance that there will not be additional bank failures or issues such as liquidity concerns in the broader financial services industry or in the U.S. financial system as a whole. Adverse financial market and economic conditions can exert downward pressure on stock prices, security prices and credit availability for financial institutions without regard to their underlying financial strength. The volatility and economic disruption resulting from the failures of Silicon Valley Bank and Signature Bank particularly impacted the market valuation of securities issued by financial institutions.

While we did not experience any abnormal changes in our total outstanding deposit balances following these bank closure events,events of 2023, we experienced changes in deposit balances resulting from typical seasonal fluctuations due to the nature of our business. While our deposit base primarily consists of a stable mix of retail,commercial, commercialpublic funds, and public fundretail deposits, we cannot be assured that unusual deposit withdrawal activity will not affect banks generally or the Company specifically in the future. Continued uncertainty regarding or worsening of the severity or duration of volatility in the banking industry could also adversely impact our estimate of our allowance for credit losses and related provision for credit losses.

Additionally, the cost of resolving recent and future bank failures may prompt the FDIC to charge higher deposit insurance premiums and/or impose special assessments on insured depository institutions, regardless of asset size. These events and any future similar events may also result in changes to laws or regulations governing bank holding companies and banks, including higher capital requirements, or the imposition of restrictions through supervisory or enforcement activities, any of which could have a material adverse effect.

There are risks inherent in making any loan, including risks inherent in working with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateralcollateral, and risks resulting from changes in economic and industry conditions. In general, these risks have increasedremained elevated as a result of the recentcurrent increasesmonetary in prevailing interest ratespolicy and uncertaintiesimpact associatedof with inflation,tariffs, which have potentially increased the risk of a near-term decline in growth or an economic downturn. We cannot assure you that our loan application approval procedures, use of loan concentration limits, credit monitoring, use of independent reviews of outstanding loansloans, use of third-party appraisals, or other procedures will reduce these credit risks. If the overall economic climate in the United States, generally, and our market areas, specifically, does not perform in the manner we expect, or even if it does, our borrowers may experience difficulties in repaying their loans, and the level of nonperforming loans, charge offsoffs, and delinquencies could rise and require increases in the provision for credit losses, which would cause our net income and return on equity to decrease.

Commercial and industrial loans were $1.451$1.554 billion, or approximately 28%28.9% of our total loan portfolio, as of December 31, 2024.2025. Commercial and industrial loans are often larger and involve greater risks than other types of lending. Because payments on such loans are often dependent on the successful operation of the borrower involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the general economy. For example, the cumulative effects of changes in the economy and overall business environment, impact of tariffs, and labor availability shortages and supply chain constraints have adversely affected commercial and industrial loans, and we expect this trend to continue for certain portions of our loan portfolio, particularly if general economic conditions worsen.

Negative economic trends can also harm the value of security for our commercial and industrial loans. These loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.borrower, and in many cases, personal guarantees provided by the business owners. Most often, this collateral is accounts receivable, inventory, machinerymachinery, or real estate. As a result of elevated interest rates and other factors, we have observed a corresponding decline in the value of commercial real estate securing these loans, substantially all of which are located within our Indiana markets. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers, which could decline in the case of an economic recession.

The collateral securing other loans may depreciate over time, may be difficult to appraiseappraise, and may fluctuate in value based on the success of the business. Due to the larger average size of each commercial loan as compared with otherconsumer loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small number of commercial loans could adversely affect our business, results of operationsoperations, and growth prospects. Historically, the Bank's largest charge offs have been in this segment of the loan portfolio.

Although a significant portion of such loans are secured by real estate as a secondary form of collateral, these developments and any future adverse developments affecting real estate values in one or more of our markets could increase the credit risk associated with our loan portfolio. A portion of our owner-occupied commercial real estate loans represent the factories and businesses owned by our commercial and industrial borrowers discussed above, which are secured by real estate. Additionally, real estate lending typically involves higher loan principal amounts and the repayment of the loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and market values of the affected properties.

Our agri-business loans, which totaled $387.4$406.9 million, or approximately 8%7.6% of our total loan portfolio, as of December 31, 2024,2025, are subject to risks outside of our or the borrower’s control. Although our agriculture portfolio is well-diversified, the risks, specific to the agricultural industry, include decreases in livestock and crop prices, increases in labor and input prices, increase in stockpiles of agricultural commodities, the strength of the U.S. dollar, the potential impactchanges ofin tariffs and other trade restrictions on commodities and the nature of climate and weather conditions. To the extent these or other factors affect the performance or financial condition of our agri-business borrowers, such as the Avian bird flu, our results of operations and financial performance could suffer.

Our nonperforming assetsassets, totaling $20.9 million at December 31, 2025, adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or other real estate owned, which adversely affects our net income and returns on assets and equity, increases our loan administration costscosts, and adversely affects our efficiency ratio. When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its current fair market value at the time of transfer, which may result in a loss. These nonperforming loans and other real estate owned also increase our risk profile and our regulatory capital requirements may increase in light of such risks. The resolution of nonperforming assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities. If we experience increases in nonperforming loans and other nonperforming assets, our net interest income and provision expense may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loansloans, andinvestment securities, or other sources could have a substantial, negative effect on our liquidity. Our primary sources of funds consist of deposits, cash from operationsoperations, and investment security maturities and sales. Additional liquidity is provided by brokered time deposits, Certificatebrokered ofmoney Deposit Account Registry Service ("CDARS")market deposits, IntraFi Network CDARS One-Way Buy and Insured Cash Sweep One-Way Buy program deposits, and American Financial Exchange overnight borrowings and IntraFi Network’s insured cash sweep program.borrowings. We are also able to borrow from several federal funds lines at correspondent banks and are eligible to borrow from the Federal Reserve and the Federal Home Loan Bank (the "FHLB"), subject to collateral availability. At December 31, 2024,2025, $544.3available liquidity totaled $3.526 billion, with $436.2 million of unpledged loan collateral. A portion of this available liquidity is comprised of $622.8 million of unpledged investment securities that were eligible to serve as collateral for liquidity availability at the FHLB and the Federal Reserve Bank. Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry. In addition, increased competition with banks and credit unions in our footprint, brokerage firmsfirms, and online deposit gatherers for retail deposits may impact our ability to raise funds through deposits and could have a negative effect on our liquidity.

At December 31, 2024,2025, approximately 31%33.2% of our deposit balances are concentrated in public funds from municipalities and government agencies located in the Bank’s geographic footprint. The five largest of which have operating and other deposit accounts that, collectively, represented approximately 18%18.9% of total deposits at December 31, 2024.2025. A shift in funding away from public fund deposits would impact liquidity availability and could increase our cost of funds, as the alternate funding sources, such as brokered certificates of deposit, can be higher-cost, are less favorable depositsdeposits, and could require collateral to be pledged. The inability to maintain these public funds on deposit could result in a materialmaterial, adverse effect on the Bank’s liquidity and could materially impact our ability to grow and remain profitable.

We maintain an investment securities portfolio that includes, but is not limited to, U.S. treasuries, mortgage-backed securities and municipal securities. The market value of these investment securities has been, and may continue to be, affected by factors other than the performance of the servicer of the securities or the mortgages underlying the securities, such as changes in the interest rate environment, negative trends in the residential and commercial real estate markets, ratings downgrades, adverse changes in the business climateclimate, and a lack of liquidity in the secondary market for certain investment securities. On a quarterly basis, we evaluate investment securities and other assets for credit and other impairment indicators. We may be required to record additional credit reserve charges if our investment securities suffer a decline in fair value that has resulted from credit losses or other factors. If we determine that a significant reserve is needed, we would be required to charge against earnings the credit-related portion, which could have a material adverse effect on our results of operations in the periods in which the write-offs occur. In addition, we may determine to sell securities in our available-for-sale investment securities portfolio, and any such sale could cause us to realize currently unrealized losses that resulted from the increases in the prevailing interest rates.rates since the time these securities were purchased.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. Accordingly, we may need to raise additional capital to support our future growth plans. Our ability to raise additional capital depends on conditions in the capital markets, economic conditionsconditions, and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. Accordingly, we cannot make assurances of our ability to raise additional capital, if needed, on terms acceptable to us. In particular, if we were required to raise additional capital in the current interest rate environment, we believe the pricing and other terms investors may require in such an offering may not be attractive to us. If we cannot raise additional capital when needed, our financial condition and our ability to further expand our operations through organic growth or acquisitions could be materially impaired.impacted.

Increased competition may also result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit ratesrates, or loan terms that are more favorable to the borrower, particularly in the case of incremental loan growth. Any of these results could have a materialmaterial, adverse effect on our ability to grow and remain profitable. If increased competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted. If increased competition causes us to relax our underwriting standards, we could be exposed to higher losses from lending activities. Moreover, we rely on deposits to be a low-cost source of funding, and a loss in our deposit base could cause us to incur higher funding costs from wholesale funding sources.

The financial services industry is constantly undergoing rapid technological changes with frequent introductions of new technology-driven products and services.services, including artificial intelligence. We invest from time to time in investment funds that seek to promote the development of such new and emerging financial technologies. However, there can be no assurance that we will be able to effectively incorporate, or otherwise benefit from, such developments.

Additionally, many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, possess larger lending limitslimits, and offer a broader range of financial services than we can offer.

We expect that other banking and financial service companies, many of which have significantly greater resources than we do, will compete with us in acquiring other financial institutions if we pursue such acquisitions. This competition could increase prices for potential acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals, we will not be able to consummate an acquisition that we believe is in our best interests. Among other things,factors, our regulators consider our capital, liquidity, profitability, regulatory compliancecompliance, and levels of goodwill and intangibles when considering acquisition and expansion proposals. Any acquisition could be dilutive to our earnings and stockholders’ equity per share of our common stock.

We are subject to extensive federal and state regulation, supervisionsupervision, and examination. A more detailed description of the primary federal and state banking laws and regulations that affect us is contained in the section of this Annual Report on Form 10-K captioned "Supervision and Regulation". Banking regulations are primarily intended to protect depositors’ funds, FDIC funds, customerscustomers, and the banking system as a whole, rather than our shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policypolicy, and growth, among other things.considerations.

As a bank holding company, we are subject to extensive regulation and supervision and undergo periodic examinations by our regulators, who have extensive discretion and authority to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies. Failure to comply with applicable laws, regulationsregulations, or policies could result in sanctions by regulatory agencies, civil monetary penaltiespenalties, and/or damage to our reputation, which could have a material adverse effect on us. Although we have policies and procedures designed to mitigate the risk of any such violations, there can be no assurance that such violations will not occur.

The laws, regulations, rules, standards, policiespolicies, and interpretations governing us are constantly evolving and may change significantly over time. For example, on July 21, 2010, the Dodd-Frank Act was signed into law, which significantly changed the regulation of financial institutions and the financial services industry. The Dodd-Frank Act, together with the regulations developed thereunder, includes provisions affecting large and small financial institutions alike, including several provisions that affect how community banks, thriftsthrifts, and small bank and thrift holding companies operate. In addition, the Federal Reserve, in recent years, has adopted numerous new regulations addressing banks’ overdraft and mortgage lending practices. Further, the CFPB has historically had broad powers to supervise and enforce consumer protection laws, and additional consumer protection legislation andmay regulatorybe activityenacted isor anticipatedpursued in the near future, including with respect to fees charged by banks and other financial companies.future. Any enforcement actions or other rule-making in these areas could negatively affect our business and our ability to maintain or grow levels of noninterest income.

The failures of Silicon Valley Bank and Signature Bank are expected to result in modifications to existing laws or the passage of additional laws and regulations governing banks and bank holding companies, including increasing capital requirements, modifications to regulatory requirements with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, safe and sound banking practices and enhanced supervisory or enforcement activities. Other legislative initiatives could detrimentally impact our operations in the future. Governments and agencies may enact new laws or promulgate new regulations or view matters or interpret existing laws and regulations differently than they have in the past, including as a result of the new presidential administration, or commence investigations or inquiries into our business practices. For example, the previous presidential administration announced a government-wide effort to eliminate "junk fees" which could subject our business practices to further scrutiny. The CFBP’s action on junk fees thus far has largely focused on fees associated with deposit products, such as "surprise" overdraft fees and non-sufficient funds fees. However, what constitutes a "junk fee" remains undefined. The CFPB is actively soliciting consumer input on fee practices associated with other consumer financial products or services, signaling that the "junk fee" initiative is likely to continue to broaden in scope. As a result of this regulatory focus, we have changed how we assess overdraft and non-sufficient funds fees and may be required to implement additional changes based on regulatory directives or guidance. Such changes have led to and may continue to cause a reduction in our noninterest income and thus impact our overall net income.

These provisions, as well as any other aspects of current or proposed regulatory or legislative changes to laws applicable to the financial industry, may impact the profitability of our business activitiesactivities, and may change certain of our business practices, including our ability to offer new products, obtain financing, attract deposits, make loansloans, and achieve satisfactory interest spreads and could expose us to additional costs, including increased compliance costs.

An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments of the discount raterate, and changes in reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investmentsinvestments, and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial conditioncondition, and results of operations cannot be predicted.

The Company, on a consolidated basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity. We face significant capital and other regulatory requirements as a financial institution, which were heightened with the implementation of the Basel III Rule and the phase-in of the capital conservation buffer requirement. Our ability to raise additional capital depends on conditions in the capital markets, economic conditionsconditions, and a number of other factors, including investor perceptions regarding the banking industry, market conditionsconditions, and governmental activities and on our financial condition and performance. Accordingly, we cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to maintain capital to meet regulatory requirements, our financial condition, liquidityliquidity, and results of operations would be materially and adversely affected.

From time to time, the Financial Accounting Standards Board ("FASB") and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations. Changes in these standards are continuously occurring, and given the current economic environment, more drastic changes may occur. The implementation of such changes could have a material adverse effect on our financial condition and results of operations.

Much of our success and growth has been influenced strongly by our ability to attract and retain management experienced in banking and financial services and familiar with the communities in our market areas. Our ability to retain the executive officers, management teams, branch managersmanagers, loan officers, and loanwealth officersadvisors at the Bank will continue to be important to the successful implementation of our strategy. It is also critical, as we grow, to be able to attract and retain qualified additional management and loan officers with the appropriate level of experience and knowledge about our market areas to implement our community-based operating strategy. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, results of operationsoperations, and financial condition.

In addition, our business depends on earning and maintaining the trust of our customers and communities. Harm to our reputation could arise from numerous sources, including employee misconduct, compliance failures, internal control deficiencies, litigationlitigation, or our failure to deliver appropriate levels of service. If any events or circumstances occur which could undermine our reputation, there can be no assurance that the additional costs and expenses we may incur as a result would not have an adverse impact on our business.

The financial services industry is constantly undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend in part upon our ability to address the needs of our customers by using technology and artificial intelligence to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow and expand our market areas. Many of our larger competitors have substantially greater resources to invest in technological improvements, such as artificial intelligence. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage. Accordingly, we cannot provide assurances that we will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers.

The Company relies heavily on internal and outsourced technologies, communications, and information systems to conduct its business, particularly with respect to our core processing provider and our digital banking provider. Additionally, in the normal course of business, the Company collects, processesprocesses, and retains sensitive and confidential information regarding our customers. As the Company’s reliance on technology has increased, so have the potential risks of a technology-related operation interruption (such as disruptions in the Company’s core provider, general ledger, deposit, loan, digital banking or other systems) or the occurrence of a cyber-attack (such as unauthorized access to the Company’s systems). These risks have increased for all financial institutions as new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financialfinancial, and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terroriststerrorists, and others have increased. In addition to cyber-attacks, business e-mail compromise campaignscampaigns, or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks against financial institutions, particularly denial of service attacks, which are designed to disrupt key business services, such as customer-facing web sites and social engineering attacks that could influence an employee of the Company to click on a link that downloads malware or ransomware to the Company’s system or prompts the employee to enter system credentials. The Company is not able to anticipate or implement effective preventive measures against all security breaches of these types, including deep fakes, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. In addition, it is possible that we may not be able to detect security breaches on a timely basis, or at all, which could increase the costs and risks associated with any such breach.

The Company also faces risks related to cyber-attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding the Company’s customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and its processors. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that the Company does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact the Company through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks relating to them. In addition, the Company offers its customers protection against fraud and certain losses for unauthorized use of debit cards in order to stay competitive with other financial institutions. Offering such protection exposes the Company to losses that could adversely affect its business, financial conditioncondition, and results of operations. Further cyber-attacks or other breaches in the future, whether affecting the Company or others, could intensify consumer concern and regulatory focus and result in reduced use of payment cards and increased costs, all of which could have a material adverse effect on the Company’s business. To the extent we are involved in any future cyber-attacks or other breaches, the Company’s reputation could be affected, which could also have a material adverse effect on the Company’s business, financial condition or results of operations.

Employee errors and misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding their own unauthorized activities from us, improper or unauthorized activities on behalf of our customerscustomers, or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence, among others.

In addition, as a bank, we are susceptible to fraudulent activity that may be committed against us, third parties or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. For example, as previously disclosed in the second quarter ofduring 2023, the Bank was the victim of international wire fraud resulting in an estimateda loss of $18.1 million, prior to additional insurance and loss recoveries of $6.3$7.3 million in the fourth quarter of 2023.million.

We maintain a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors, cyber-attacks, and customer or employee fraud. Should our internal controlswe fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, results of operations and financial condition.

Net income in 20242025 as compared to 20232024 was positively impacted by a $7.0$24.3 million increase into noninterestnet interest income and a $5.6 million decrease in noninterest expense. Offsetting these positive contributions to net income were an increase to the provision for credit losses of $10.9$5.0 million,million. Offsetting these positive contributions was a decrease in noninterest income of $8.9 million and an increase toin income taxnoninterest expense of $1.6$6.5 million,million. andPretax pre-provision earnings, a decreasenon-GAAP tomeasure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $137.4 million for the year ended December 31, 2025, an increase of $356,000.$8.9 Pretaxmillion, pre-provisionor earnings,7.0%, whichcompared is a non-GAAP measure, wereto $128.4 million for the year ended December 31, 2024, an increase of $12.3 million, or 10.5%, compared to $116.2 million for the year ended December 31, 2023.2024.

Total assets were $6.990 billion as of December 31, 2025, versus $6.678 billion as of December 31, 2024, versus $6.524 billion as of December 31, 2023, an increase of $154.3$311.6 million or 2.4%.4.7%. Balance sheet expansion in 20242025 was driven by loan growth net of $201.4the allowance for credit losses of $274.4 million, or 4.1%.5.5%, Offsettingand thean loan growth was a decreaseincrease in investmentsavailable-for-sale securities of $58.7$60.6 million, or 5.0%.6.1%. Deposits increased by $180.4$72.4 million, or 3.2%,1.2%, during 20242025, to fund the balance sheet expansion. Borrowings outstanding at December 31, 2025, were $184.2 million, compared to no borrowings outstanding at December 31, 2024.

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 to a borrower experiencing financial difficulty 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; changes in collateral strength; 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 subject to change, which may be significant. As a result of this detailed process, the allowance results in two forms of allocations, specific and general.pooled. These two components represent the total allowance for credit losses deemed adequate to cover expected losses inherent in the loan portfolio. The Company's allowance for credit losses balance was comprised of 32%12% specific reservesallocations and 68%88% generalpooled reservesallocations at December 31, 2024,2025, compared to 11%32% specific reservesallocations and 89%68% generalpooled reservesallocations at December 31, 2023.2024. The increasedecrease in specific reservesallocations was driven by a largepreviously disclosed nonperforming commercial credit withthat awas balancespecifically ofallocated $43.3for millionwithin beingin placedthe onallowance nonaccrualfor duringcredit 2024.losses in 2024 and partially charged off in 2025.

Commercial loans are subject to a dual standardized grading process administered by the credit administration function. These grade assignments are performed independently of each other and a consensus is reached by credit administration and the loan officer. Specific allowancesallocations are established in cases where management has identified significant conditions or circumstances related to an individual credit that indicate it should be evaluatedanalyzed 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. GeneralPooled 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.

In 2024,2025, the Company continued to expand its balance sheet organically, achieving average loan growth of 4.7%3.7% and average deposit growth of 4.1%3.5% in its geographic footprint of northern Indiana and in central Indiana in the Indianapolis market. The Company had 5455 branches as of December 31, 2024.2025. The Company’s increase in net interest income remainedof stable$24.3 duringmillion, or 12.4%, was primarily responsible for the year,$9.9 decliningmillion, byor less10.6%, thanincrease 1%.to However,net income. Net interest margin expansion was the key driver for the increase in net interest marginincome, declinedwhich increased by 27 basis points from 3.31% in 2023 to 3.18% in 2024. The combined effects of the 2022-2023 monetary policy tightening cycle, increased market competition for deposits and a deposit mix shift from noninterest bearing demand accounts2024 to interest bearing deposit products drove funding costs higher and net interest margin compression3.45% in 2023.2025. TheDeposit risecosts, in deposit costswhich peaked in the second quarter of 2024 and began to declinecontract induring the second half of 2024that year, continued to decline further as a result of continued monetary policy easing by the FederalFOMC Reserveand Bankfavorable starteddeposit repricing. Additionally, the provision for credit losses decreased by $5.0 million, which further contributed to ease rates. Anthe increase in net income. Offsetting these positive contributions was a decrease to noninterest income of 14.0%$8.9 million and aan decreaseincrease into noninterest expense of 4.3%$6.5 contributed positively to net income.million.

Fee based lines of businessbusiness, including wealth advisory fees andinvestment brokerage feesfees, service charges on deposit accounts, loan and service fees, and interest rate swap fee income anchored 2025 growth in adjusted core noninterest income, a non-GAAP financial measure that excludes the impact of certain non-routine operating events,events. increasingAdjusted core noninterest income increased by 7.6%2.4% and 4.1%,7.6% for 2025 and 2024, respectively. The growth in adjusted core noninterest expense, a non-GAAP financial measure that excludes the impact of certain non-routine operating events, reflects the Company's continued investment in its people, technology, and physical infrastructure. The outlook for 20252026 includes plans for continued organic balance sheet growth, disciplined credit philosophy with proactive management of loan portfolio challenges, continued investments in human and technological capital, completion of the Lake City Bank Innovation and Technology Center which represents a significant investment in the downtown Warsaw campus headquarters to establish the Lake City Bank Innovationheadquarters, and Technology Center, and continued expansion of our branch network into Boone County, Indiana, with a new office scheduled to open in the Indianapolis marketWhitestown in 2025.2026. Beyond 2026, the Company plans to accelerate plans for branch development with locations in Indianapolis, South Bend, Fort Wayne and Elkhart identified for expansion over the next several years as the Company seeks to become a recognized Midwest leader in community banking.

The Company believes that providing non-GAAP financial measures provides investors with information useful to understanding the company's financial performance. Reconciliations of these non-GAAP financial measures is provided below.in the following tables (dollars in thousands, except per share data).

The impact of the net gain on Visa shares, legal accrual, wire fraud loss and associated insurance and loss recoveries and adjustments to salaries and benefits is presented below. Management considers these measures of core financial performance to be meaningful to understanding the Company’s business performance for these periods.periods (dollars in thousands, except per share data).

(2)Core operational profitability was $4.1 million lower than reported net income of $93.5 million and $7.8 million higher than reported net income of $93.8 million for the years ended December 31, 2024 and 2023, respectively.

The increase to noninterest income in 2024 was primarily driven by the aforementioned net gainsgain of $9.0 million on the exchange and sale of Visa shares previously held at a cost basis of $0 since 2008. Inand the second quarter of 2024, Visa Inc. announced the commencement of an exchange offer for Visa Class B-1 common stock. The Company accepted the exchange offer and tendered its Visa Class B-1 common stock in exchange for a combination of Visa Class C and Visa Class B-2 common stock. After entering the exchange, the Company redeemed its Visa Class C common shares and sold its Visa Class B-2 shares in the secondary market. The Company recognized $9.0$1.0 million ininsurance netrecovery. gainsContributing from these transactions. Other items contributingfurther to the increase into noninterest income wereware aincreases $1.0 million insurance recovery, aof $1.4 million, or 15.3% increase,15.3%, in wealth advisory fees, a $1.1 million, or 34.4% increase,34.4%, in bank owned life insurance income, and a $370,000 increase in mortgage banking income. The decrease to noninterest expense in 2024 was driven by lower miscellaneous expenses for losses incurred in 2023 and was partially offset by a $4.5 million legal accrual recorded in the second quarter of 2024 related to resolution of a previously disclosed legal matter.accrual.

Core operational profitability, a non-GAAP financial measure that excludes the impact of certain aforementioned non-routine operating events, was $103.4 million for the year ended December 31, 2025, an increase $14.0 million, or 15.6%, compared to $89.4 million for the year ended December 31, 2024,2024. aCore decreaseoperational ofprofitability 12.0%, ordecreased $12.2 million, comparedor to12.0%, in 2024 from $101.6 million for the year ended December 31,in 2023. Core operational diluted earnings per common share, a non-GAAP financial measure, were $4.01 for 2025, an increase of 15.6% from $3.47 for the2024. yearCore endedoperational Decemberdiluted 31,earnings per share decreased 12.2% in 2024, a decrease of 12.2%down from $3.95 forin the prior year.2023.

Net interest income decreasedincreased by $356,000$24.3 million to $221.0 million in 2025 compared to $196.7 million in 2024 compared to $197.0 million in 2023,2024, primarily as a result of increaseddecreased fundingcosts costs.of funds. Total interest expense increaseddecreased $30.2$23.8 million, or 20.7%.13.5%. Of this increase,decrease, deposit interest expense increaseddecreased $35.0$22.0 million, or 25.4%,12.8%, from increaseddecreased rates paid for customer deposits and a shift in deposit mix from noninterest bearing deposits to interest bearing deposits. Funding costs for deposits increaseddecreased 5046 basis points to 2.96%2.50% during 2024,2025, compared to 2.46%2.96% during 2023.2024. NoninterestEnding noninterest bearing deposits to total deposits were 22.0%20.4% at 20242025 compared to 23.7%22.0% at 2023.2024. Average noninterest bearing deposits decreased $217.5$3.1 million, orto 14.7%,$1.255 billion for 2025 as compared to $1.258 billion for 2024 as compared to $1.475 billion for 2023.2024. Average interest bearing deposits increased $449.3$206.9 million, or 10.9%,4.5%, to $4.785 billion for 2025 as compared to $4.578 billion for 2024 as compared, to $4.129 billion for 2023.2024. Wholesale funding reliance remained low at 0.70%0.80% as of December 31, 20242025 compared to 3.21%0.70% at December 31, 2023.2024.

Investment securities interest income decreasedincreased $1.8$1.9 million, or 6.0%,7.0%, and contributed to the declineincrease in net interest income during 2024.2025. The decreaseincrease in investment securities income was driven by aan decreaseincrease in average securities balances of $49.7$6.2 million, or 4.2%,0.5%, during 20242025 as a result of available-for-sale investment securities sales of $7.1 million, maturities, calls and paydowns of $59.7$66.8 million, and offset by purchases of securities of $27.5$83.3 million. Realized losses of $46,000 were recognized on the securities sales during 2024. The yield on average investment securities decreasedincreased 516 basis points to 2.81%2.97% for 2024,2025, as compared to 2.86%2.81% for 2023.2024. Investment securities cash flows were primarily used to fund loan growth and reinvested in securities during 2024.2025.

Net interest margin decreasedincreased 1327 basis points to 3.45% in 2025 versus 3.18% in 2024 versus 3.31% in 2023.2024. Net interest margin decreased to 3.18% in 2024 from 3.31% in 2023 from 3.40% in 2022.2023. The decreaseimprovement in net interest margin between the periods was primarily driven by the effects of the dramaticcontinued tighteningeasing of monetary policy by the FederalFOMC, Reservewhich duringcommenced 2022in September 2024, and 2023.resulted Thein ratefavorable increasesdeposit quicklyrepricing, bolsteredwhich loanhas yields due tooutpaced the assetdownward sensitive naturerepricing of theearning balance sheet, which drove net interest margin expansion in 2022. Net interest margin contracted in 2023 and 2024 due to the lag in deposit repricing by the Company and a shift in deposit mix from noninterest bearing demand accounts to interest bearing deposit products, as customers became more rate sensitive during the increased rate environment.assets.

The utilization of commercial and retail lines of credit increased to 44% at December 31, 2025, up from 41% at December 31, 2024, as compared toand 39% at December 31, 2023,2023. andTotal downlines fromof 42%credit available have increased by $241.0 million to $4.789 billion at December 31, 2022.2025, Available lines of credit have decreased by $238.0 millioncompared to $4.548 billion at December 31, 2024, compared to $4.786 billion at December 31, 2023, or a 5.0%5.3% reduction.increase. The increased line utilization marks the highest utilization rate since 2019 amid an encouraging increase in lineborrower usage is attributable to more normalized cash balancesdemand for ourworking business customers as the elevated levelslines of commercial demand deposits have been utilized post-pandemic.capital.

The Company recorded a provision for credit losses of $11.8 million in 2025 compared to $16.8 million in 2024 compared toand $5.9 million in 2023 and $9.4 million in 2022.2023. Provision expense during 20242025 was partially driven primarily by anthe recognition of additional specific allocations related to the downgrade of a previously disclosed commercial relationship. The remainder of provision expense was attributable to growth of the loan portfolio and a net increase in specific allocations from the downgrade of a $43.3 million creditrelated to another industrialwatch companylist in Northern Indiana. The relationship was placed on nonperforming status in conjunction with the downgrade, which occurred during the second quarter of 2024. The remainder of expense was driven by growth in the loan portfolio during the year.credits. The Company’s allowance for credit losses as of December 31, 20242025 was $86.0$69.0 million compared to $86.0 million as of December 31, 2024 and $72.0 million as of December 31, 2023 and $72.6 million as of December 31, 2022.2023. The allowance for credit losses represented 1.68%1.28% of total loans as of December 31, 2024,2025, versus 1.68% at December 31, 2024 and 1.46% at December 31, 2023 and 1.54% at December 31, 2022.2023. Net charge offs of $28.8 million, or 0.55% of average loans, and $2.8 million, or 0.05% of average loans, and $6.5 million, or 0.13% of average loans, were recorded in 20242025 and 2023,2024, respectively. Net charge offs for 20232025 resulted primarily from the deterioration of a single commercial credit. Management believes thepartial charge off of $28.6 million that was recognized during the second quarter of 2025 in conjunction with the disposition of the credit. A subsequent recovery of $800,000 was recognized during the fourth quarter of 2025 related to this credit was an isolated instance as a result of negative impacts caused by unique circumstances from the pandemic and are not reflective of deteriorating trends in the loan portfolio.credit. The Company’s management continues to monitor the adequacy of the provision based on loan levels, asset quality, economic conditions including the impact of the increased interestcurrent rate environment, inflation levels, and other factors that may influence the assessment of the collectability of loans.

Refer to the "Financial Condition - Loan Portfolio", "Financial Condition - Sources of Funds" and "Risk Management - Loan Portfolio" sections of this MD&A and to the Notes to Consolidated Financial Statements of this Form 10-K for the other required statistical disclosures.

Total assets of the Company were $6.990 billion as of December 31, 2025, an increase of $311.6 million, or 4.7%, when compared to $6.678 billion as of December 31, 2024, an increase of $154.3 million, or 2.4%, when compared to $6.524 billion as of December 31, 2023.2024. Total loans outstanding increased by $201.4$257.4 million, or 4.1%,5.0%, to $5.375 billion at December 31, 2025, from $5.118 billion at December 31, 2024, from $4.917 billion at December 31, 2023.2024. Total deposits increased $180.4$72.4 million, or 3.2%,1.2%, from $5.721 billion at December 31, 2023, to $5.901 billion at December 31, 2024, to $5.973 billion at December 31, 2025, driven by increased public funds deposits due to the addition of new customers and offset by net brokeredretail and retailcommercial outflows.

Total cash and equivalents increaseddecreased $16.4$26.9 million, to $141.3 million at December 31, 2025, from $168.2 million at December 31, 2024,2024. fromTotal $151.8investment millionsecurities increased by $62.3 million, to $1.185 billion at December 31, 2023.2025, Total investment securities decreased by $58.7 million, tofrom $1.123 billion at December 31, 2024, from $1.182 billion at December 31, 2023.2024. The decreaseincrease was attributable to aan decreaseincrease in available-for-sale securities, which decreasedincreased by $60.3$60.6 million, primarily as a result of callspurchases of $83.3 million and paydownsan of $59.7 million, a declineimprovement in fair market valuations of $16.5$47.8 million,million. These increases were offset by maturities, calls and investmentpaydowns of $66.8 million. There were no securities sales of $7.1 million, and offset by purchases of $27.5 million. Losses of $46,000 were realized fromduring the saleyear ofended available-for-saleDecember securities31, in 2024.2025. The Company was not in a borrowed position at December 31, 2024, compared tohad borrowings of $50.0$184.2 million at December 31, 2023,2025, as acompared resultto no borrowings outstanding at December 31, 2024. Borrowings at December 31, 2025 consisted of the$183.0 liquiditymillion providedin byshort-term increasedand depositsother atborrowings periodand end.$1.2 million in long-term borrowings.

SecuritiesThere were no securities sales totaledin 2025, as compared to sales of $7.1 million in 2024,2024 and $105.2 million in 2023 and $25.3 million in 2022.2023. Paydowns from prepayments and scheduled payments of $59.0$66.5 million, $56.2$59.0 million and $98.8$56.2 million were received in 2024,2025, 20232024 and 2022,2023, and the amortization of premiums, net of the accretion of discounts, was $4.8$4.0 million, $4.9$4.8 million and $6.3$4.9 million, respectively. Maturities and calls of securities totaled $695,000,$349,000, $695,000 and $13.6 million and $9.3 million in 2024,2025, 20232024 and 2022,2023, respectively. No provision for allowance for credit loss was recorded in connection with the investment securities portfolio in 2024,2025, 20232024 or 2022.2023. The investment portfolio is managed to provide for an appropriate balance between liquidity, credit risk and investment return and to limit the Company’s exposure to risk to an acceptable level. The longer duration of the investment security portfolio serves to balance the shorter duration of the loan portfolio.

Real estate mortgages held-for-sale increased by $542,000$1.0 million to $2.7 million at December 31, 2025 from $1.7 million at December 31, 2024 from $1.2 million at December 31, 2023 as a result of fluctuations in secondary market sales activity. This asset category is subject to a high degree of variability depending on, among other things,factors, recent mortgage loan rates and the quantity and timing of loan sales into the secondary market. The Company generally sells almost all of the conforming mortgage loans it originates in the secondary market. Proceeds from sales totaled $17.6 million in 2025, $20.8 million in 2024,2024 and $8.0 million in 2023 and $36.5 million in 2022.2023.

The mix of the Company's loan portfolio consists primarily of commercial loans, and the Bank's lending focus is on the commercial sector of the Lake City Bank footprint. Owner occupied commercial real estate loans represent in many instances the buildings and factories of our commercial and industrial borrowers. Commercial and industrial loans together with owner occupied commercial real estate loans represented 44.1%43.9% and 45.7%44.1% of total loans as of December 31, 20242025 and 2023,2024, respectively. The non-owner occupied commercial real estate sector of the loan portfolio largely represents multi-family and industrial warehouse developments in the Indianapolis market with in-state developers that are well-known to the Bank. The Company has limited exposure to commercial office space borrowers, all of which are located in the Bank's Indiana markets. Loans totaling $104.2 million and $101.7 million for this sector represented 1.9% and 2.0% of total loans at December 31, 2024.2025 and 2024, respectively. Loans to the agriculture and agri-business sector of our Indiana footprint represent a significant loan segment of the overall loan portfolio. This loan segment is well diversified with loans to corn, soybean, poultry, dairy, swine, beef and egg growers.operations.

The residential construction and land development loans class included construction loans totaling $7.6$10.0 million and $1.0$7.6 million as of December 31, 20242025 and 2023.December 31, 2024. Increases in consumer loans during 20242025 resulted from an increased focus on indirect lending to consumers and adjustable rate mortgages. The Bank generally sells conforming mortgage loans, which it originates locally, into the secondary market. These loans generally represent mortgage loans that are made to clients with long-term or substantial relationships with the Bank on terms consistent with secondary market requirements. The loan classifications are based on the nature of the loans as of the loan origination date. There were no foreign loans included in the loan portfolio for the periods presented.

Bank owned life insurance increased by $16.7 million to $130.0 million at December 31, 2025 and by $4.2 million to $113.3 million at December 31, 2024 and by $707,000 tofrom $109.1 million at December 31, 20232023. fromThe $108.4increase during 2025 was primarily driven by the purchase of $12.5 million atin Decembergeneral 31,hybrid 2022.account Thepolicies, increaseswhich contributed additional income during 20232025. and 2024 were primarily due toAdditional income fromwas traditionalprovided policies and fromby improved market performance of the Bank's variable bank owned life insurance policies, which tracktrend directionally with the performance of the broader equity markets. The increase in 2024 was due to income from traditional policies and from variable policy market performance. Bank owned life insurance investment income is used asto an offset tofund the cost of term life insurance purchased by the Bank as a benefit for bank officers.

Total deposits increased by $259.9$72.4 million, or 4.8%,1.2%, to $5.721$5.973 billion, at December 31, 20232025 compared to $5.461$5.901 billion at December 31, 2022.2024. The increase in deposits was attributable to increasesan increase in commercial and public fund deposits. CommercialPublic fund deposits increased $141.2$169.7 million, or 6.8%9.4%, and represented 38.9%33.2% and 38.2%30.7% of total deposits at December 31, 20232025 and 2022,2024, respectively. PublicThe fundgrowth in public funds was positively impacted by the addition of new public funds customers in the Lake City Bank footprint, including their operating accounts. Offsetting the increase in public funds were decreases to commercial and retail deposits. Commercial deposits increaseddecreased by $133.1$89.1 million, or 9.3%3.9%, and represented 27.3%36.5% and 26.1%38.4% of total deposits at December 31, 20232025 and 2022,2024, respectively. Additionally, brokeredRetail deposits increaseddecreased $125.4$17.3 millionmillion, or 1.0%, and represented 2.4%29.5% and 0.3%30.2% of total deposits at December 31, 20232025 and 2022,2024, respectively. RetailBrokered deposits decreasedincreased $139.8$9.0 million, or 7.2%21.7%, between the two periods. Core deposits represented 99.2% and represented 31.4% and 35.4%99.3% of total deposits at December 31, 20232025 and 2022,2024, respectively.

During 2024, average totalAverage short-term borrowings decreased by $100.5 million tofrom $66.3$166.8 million.million Endingin balances of short-term and miscellaneous borrowings decreased to zero at December 31, 20242023 compared to $50.02024. million at December 31, 2023. There were noAverage long-term borrowings outstandingwere $967,000 during 2025, compared to none during 2024 and 2023.

The Company believes that a strong, appropriately managed capital position is critical to support continued growth of loans and earnings. Capital is used primarily to fund continued organic loan growth and to support dividends to shareholders. The Company had a total risk-based capital ratio of 15.90%,15.92%, a Tier I risk-based capital ratio of 14.64%14.77% and a common Tier 1 risk-based capital ratio of 14.64%14.77% as of December 31, 2024.2025. These ratios met or exceeded the Federal Reserve Bank’s "well-capitalizedwell capitalized" minimums of 10.0%, 8.0% and 6.5%, respectively. The Company also had a Tier 1 leverage ratio of 12.15%12.39% and a tangible equity ratio of 10.19%.10.86%. When excluding the impact of accumulated other comprehensive income (loss) on tangible common equity, the Company's adjusted tangible common equity to adjusted tangible assets was 12.37%.12.45%. See "Note 15 – Capital Requirements and Restrictions on Retained Earnings" for more information.

The ability to maintain these ratios is a function of the balance between net income and a prudent dividend policy. Total stockholders’ equity increased by 5.3%11.5% to $762.5 million as of December 31, 2025 from $683.9 million as of December 31, 2024 from $649.8 million as of December 31, 2023.2024. The Company earned $103.4 million in 2025 and $93.5 million in 20242024. andThe $93.8Company milliondeclared cash dividends of $2.00 per share in 2023.2025, which decreased equity by $51.4 million. The Company declared cash dividends of $1.92 per share in 2024, which decreased equity by $49.3 million. The Company declared cash dividends of $1.84 per share in 2023, which decreased equity by $47.1 million. Total stockholder's equity has been impacted by declines in the market value of the Company's available-for-sale investment securities portfolio. The market value decline, resulting from higherFOMC's interesttightening rateof environment,monetary policy in 2022 and 2023, has generated unrealized losses in the available-for-sale portfolio. Unrealized losses from the available-for-sale investment securities portfolio are recorded, net of tax, in accumulated other comprehensive income (loss) in the statement of stockholders' equity. ChangesImprovements in the fair value of securities as a result of the easing of monetary policy by the FOMC starting in 2024 and net defined pension plan gains negativelypositively impacted equity by $39.4 million in 2025 compared to a decrease of $11.3 million in 2024 compared to an increase of $33.7 million in 2023.2024. The impact to equity due to other comprehensive income (loss) is not included in regulatory capital.

The Company’s investment portfolio consists of U.S. treasuries, government or government-sponsored entity securitiessecurities, and municipal bonds subject to an investment security policy that is approved annually by the board of directors. As of December 31, 2024,2025, the Company’s investment in U.S government sponsored mortgage-backed securities represented approximately 38%39% of total investment securities fair value consisting of mortgage bonds issued by Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae, Fannie Mae and Freddie Mac securities are each guaranteed by their respective agencies as to principal and interest. All mortgage securities purchased by the Company in 20242025 were within risk tolerances for price, prepayment, extension and original life risk characteristics contained in the Company’s investment policy. As of December 31, 2024,2025, all mortgage-backed securities were performing in a manner consistent with management’s expectations at time of purchase. Municipal securities represented 52%50% of total investment securities fair value as of December 31, 20242025 and were rated investment grade at the time of purchase and continue to be rated investment grade. The Company uses analytics provided by its third party portfolio advisor to evaluate and monitor credit risk for all investments on a quarterly basis. Based upon these analytics as of December 31, 2024,2025, the securities in the combined available-for-sale and held-to-maturity portfolios had an effective duration of approximately 5.965.94 years. The analysis indicated a negative 7.6%6.7% change in market value in the event of a 100 basis point upward, instantaneous rate shock and a positive 7.8%6.8% change in market value in the event of a 100 basis point downward, instantaneous rate shock.

There were no loan concentrations within industries that exceeded ten percent of total loans, except commercial real estate. Commercial real estate was $2.593$2.667 billion, or 50.6%,49.5%, of total loans at December 31, 2024.2025. The owner occupied commercial real estate portfolio generally represents the financing of factories and operational facilities for the Bank's commercial and industrial borrowers. The Company’sBank’s in-house lending limit iswas $40.0 million.million and its calculated legal lending limit was $144.0 million at December 31, 2025. Manufacturing loans are included in the commercial and industrial loans total and are well diversified by industry. Agri-business and agricultural loans represented 7.6% of total loans as of December 31, 20242025 and are not concentrated to any agricultural sector. Substantially all of the Bank’s commercial, industrial, agricultural real estate mortgage, real estate construction mortgage and consumer loans are made within its geographic market areas and to diverse industries. When segmenting the Bank's loan portfolio as of December 31, 2024,2025, the largest segments are multifamily housing, agriculture, the recreational vehicle industry, and industrial commercial real estate and the recreational vehicle industry which represented 13.1%,13.6%, 8.7%,8.8%, 4.9%4.5% and 4.2%4.0% of total loans, respectively.

Net income in the first threesix months of 2026 was $26.5$54.9 million, which increased $6.4$7.9 million, or 31.8%,16.7%, from $20.1$47.1 million for the comparable period of 2025. Diluted earnings per common share waswere $1.04$2.17 in the first threesix months of 2026, an increase of 33.3%19.2% from $0.78$1.82 in the comparable period of 2025. The increase in net income for 2026 was primarily due to an increase to net interest income of $3.9$7.3 million, or 7.4%,6.8%, an increase in noninterest income of $2.0$3.1 million, or 18.3%,13.8%, and a decrease in the provision for credit losses of $4.8$6.1 million, or 70.6%.62.2%. Offsetting these positive contributions was an increase in noninterest expense of $2.4$6.4 million, or 7.3%,10.1%, and an increase to income tax expense of $1.9$2.2 million, or 46.3%.22.0%. Pretax pre-provision earnings, a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $34.6$71.0 million in the first threesix months of 2026, an increase of $3.5$4.0 million, or 11.3%,6.0%, compared to $31.0$67.0 million for the comparable period of 2025.

Return on average total equity was 13.89%14.44% in the first threesix months of 2026 versus 11.70%13.62% in the comparable period of 2025. Return on average total assets was 1.52%1.55% in the first threesix months of 2026 versus 1.20%1.39% for the comparable period of 2025. The Company's average equity to average assets ratio was 10.91%10.74% in the first threesix months of 2026 versus 10.29%10.19% in the comparable period of 2025.

The Company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 10.53%10.63% at MarchJune 31,30, 2026, compared to 10.09%10.15% at MarchJune 31,30, 2025 and 10.86% at December 31, 2025. Unrealized losses from available-for-sale investment securities were $154.5$140.9 million at MarchJune 31,30, 2026, compared to $188.3$185.3 million at MarchJune 31,30, 2025 and $143.3 million at December 31, 2025. When excluding the impact of accumulated other comprehensive income (loss) ("AOCI") on tangible common equity and tangible assets, the Company's adjusted tangible common equity to adjusted tangible assets ratio, which is a non-GAAP financial measure, was 12.20%12.14% at MarchJune 31,30, 2026, compared to 12.19%12.17% at MarchJune 31,30, 2025 and 12.45% at December 31, 2025.

Total assets were $7.084$7.243 billion as of MarchJune 31,30, 2026 versus $6.990 billion as of December 31, 2025, an increase of $93.7$252.9 million, or 1.3%.3.6%. Balance sheet expansion was driven by increases to total loans, net of the allowance for credit losses, which increased $98.1$202.7 million, or 1.8%,3.8%, and cash and cash equivalents, which increased $10.0$52.8 million, or 7.1%.37.4%. These increases were offset by a decrease to available-for-sale securities of $25.1$16.9 million, or 2.4%1.6%. The balance sheet expansion from December 31, 2025 to MarchJune 31,30, 2026 was funded by an increase in total deposits of $216.9$356.2 million, or 3.6%,6.0%, and was offset by a decrease in borrowings of $116.0$113.0 million, or 63.0%.61.3%. Total equity decreasedincreased $13.5$10.9 million, or 1.8%,1.4%, from $762.5 million at December 31, 2025 to $749.0$773.4 million at MarchJune 31,30, 2026. TheDriving decrease to total equity was primarily attributable to anthe increase in treasury stock of $19.3 million, or 53.8%, driven by the Company's utilization of the share repurchase program, and a decrease in accumulated other comprehensive income (loss) of $8.5 million, contributed further to the decline in total equity. Offsetting these reductions to total equity was an increase in retained earnings of $13.3$28.7 million, or 1.7%,3.6%, primarily as a result of net income of $26.5$54.9 million less dividends declared and paid of $13.2$26.3 million. Accumulated other comprehensive income (loss) improved by $2.7 million and contributed further to the increase in total equity. Offsetting these items was an increase in treasury stock, which increased by $23.5 million, or 65.7%, driven by the Company's utilization of its share repurchase program. The combined effect of the repurchase activity under the share repurchase program and dividends paid during the quarterfirst six months of 2026 represented a total return of capital to Company shareholders of $32.4$49.8 million.

Selected income statement information for the three and six months ended MarchJune 31,30, 2026 and 2025 is presented in the following table:

Tangible common equity, adjusted tangible common equity, tangible assets, adjusted tangible assets, tangible book value per common share, tangible common equity to tangible assets, adjusted tangible common equity to adjusted tangible assets, and pretax pre-provision earnings are non-GAAP financial measures calculated based on GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of equity, net of deferred tax. Tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets, net of deferred tax. Adjusted tangible assets and adjusted tangible common equity remove the fair market value adjustment impact of the available-for-sale investment securities portfolio in accumulated other comprehensive income (loss) ("AOCI").AOCI. Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding less true treasury stock. Pretax pre-provision earnings is calculated by adding net interest income to noninterest income and subtracting noninterest expense. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. However, management considers these measures of the Company’s value meaningful to understanding of the Company’s financial information and performance.

Net income was $26.5$54.9 million in the first threesix months of 2026, which increased $6.4$7.9 million, or 31.8%,16.7%, from $20.1$47.1 million for the comparable period of 2025. Diluted earnings per common share waswere $1.04$2.17 in the first threesix months of 2026, an increase of 33.3%19.2% from $0.78$1.82 in the comparable period of 2025. The increase in net income for the first threesix months of 2026 was primarily due to an increase to net interest income of $3.9$7.3 million, or 7.4%,6.8%, an increase to noninterest income of $2.0$3.1 million, or 18.3%,13.8%, and a decrease in the provision for credit losses of $4.8$6.1 million, or 70.6%.62.2%. Offsetting these positive contributions was an increase in noninterest expense of $2.4$6.4 million, or 7.3%,10.1%, and an increase to income tax expense of $1.9$2.2 million, or 46.3%.22.0%.

(1)Tax exempt income was converted to a fully taxabletax 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. TaxableTax equivalent basis adjustment was $1.1$2.2 million for the three-monthsix-month periods ended MarchJune 31,30, 2026 and 2025.

(2)Loan fees, which are immaterial in relation to total taxable loan interest income for the threesix months ended MarchJune 31,30, 2026 and 2025, are included as taxable loan interest income.

Net interest income, on a fully tax equivalent basis, increased $3.9$7.3 million, or 7.2%,6.6%, to $57.9$117.3 million for the threesix months ended MarchJune 31,30, 2026, compared to $54.0$110.0 million for the first threesix months of 2025. The increase in net interest income on a fully tax equivalent basis was driven by a decrease in deposit interest expense of $3.0$5.8 million, or 8.3%,7.6%, from $36.5$75.6 million to $33.4$69.8 million. Securities interest income contributedContributing further to the increase in fully tax equivalent net interest income, increasing by $448,000, or 5.4%. Loan interest income increased by $1.4 million, or 1.7%, aswas an increase in averageloan loansinterest offsetincome decreasedof average$2.9 yields.million, Borrowingsor 1.8%, from $166.9 million to $169.8 million, and an increase in securities interest income of $710,000, or 4.2%, from $16.8 million to $17.5 million. Offsetting these items was an increase in borrowings expense increasedof by $661,000,$731,000, or 58.9%.48.1%, from $1.5 million to $2.3 million.

Total averageAverage earning assets were $6.729$6.781 billion for the threesix months ended MarchJune 31,30, 2026, an increase of $298.6$280.2 million, or 4.6%,4.3%, compared to $6.431$6.501 billion for the threesix months ended MarchJune 31,30, 2025. Average loans outstanding drove the increase to total average earning assets, increasing $255.0$278.5 million, or 4.9%,5.3%, to $5.441$5.486 billion from $5.186$5.208 billion for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Average investment securities increased $53.9$45.0 million, or 4.7%,4.0%, to $1.190$1.176 billion from $1.136$1.131 billion between the respective periods. Total averageAverage interest bearing liabilities were $5.005$5.069 billion for the threesix months ended MarchJune 31,30, 2026, an increase of $288.2$267.2 million, or 6.1%,5.6%, from $4.716$4.802 billion for the threesix months ended MarchJune 31,30, 2025. This increase was driven by growth in average interest bearing deposits of $204.6$218.6 million, or 4.4%,4.6%, from $4.616$4.735 billion for the threesix months ended MarchJune 31,30, 2025 to $4.821$4.954 billion for the threesix months ended MarchJune 31,30, 2026. Average short-term borrowings increased by $82.6$48.1 million, or 82.7%72.5%, between the respective periods. Noninterest bearing demand deposits decreased $23.8$20.1 million, or 1.9%,1.6%, to $1.235$1.231 billion from $1.258$1.251 billion between the two periods.

The fully tax equivalent net interest margin was 3.49% for the threesix months ended MarchJune 31,30, 2026, compared to 3.40%3.41% during the first threesix months of 2025, representing aan 98 basis point expansion between the two periods. The net interest margin increase was primarily driven by a decrease to interest expense as a percentage of average earning assets, which decreased to 2.12%2.14% for the threesix months ended MarchJune 31,30, 2026, down from 2.37%2.39% for the comparable period of 2025, or a decrease of 25 basis points. This decline was attributable to a decrease in the rate for total interest bearing liabilities of 3837 basis points from 3.23%3.24% to 2.85%2.87% between the respective periods. These decreases were driven by reduced costs associated with the repricing of the Company's interest bearing deposits and borrowings as a result of monetary policy easing from the Federal Reserve Bank.Bank in late 2025. The average rate for interest bearing deposits declined 38 basis points from 3.22% to 2.84% between the two periods. Contributing further to the reduction in the rate for interest bearing liabilities was a reduction in the average borrowings rate, which declined 6065 basis points from 4.54%4.57% to 3.94%.3.92%. The improvement in interest expense as a percentage of average earning assets was offset by a 17 basis point reduction in interest income as a percentage of average earning assets, which declined from 5.80% to 5.63%. This decrease was primarily attributable to a decline in average loan yields, which decreased 22 basis points to 6.24% for the six months ended June 30, 2026, down from 6.46% for the comparable period of 2025.

The Company recorded provision for credit losses expense of $2.0$3.7 million for the threesix months ended MarchJune 31,30, 2026, compared to provision expense of $6.8$9.8 million during the comparable period of 2025, a decrease of $4.8$6.1 million, or 70.6%. Net charge-offs were $2.1 million during the three month period ended March 31, 2026, compared to $327,000 during the comparable period of 2025, an increase of $1.8 million.62.2%. The decrease in provision expense between the respective periods was attributable to the allocation of reserves to a previously disclosed nonperforming credit during the first quarter of 2025. Net charge-offs were $2.1 million during the six month period ended June 30, 2026, compared to $29.2 million during the comparable period of 2025 for a decrease of $27.1 million, or 92.8%. Net charge-offs for the first six months of 2026 were primarily driven by a $2.0 million charge off to one commercial credit during the first quarter of 2026. The decrease in charge offs between the respective periods was attributable to the partial charge off of the previously disclosed nonperforming credit during the second quarter of 2025.

Noninterest income categories for the three and six months ended MarchJune 31,30, 2026 and 2025 are shown in the following tables:

NoninterestThe Company's noninterest income increased $2.0by $3.1 million, or 18.3%,13.8%, to $12.9$25.5 million for the firstsix quartermonths ofended June 30, 2026, compared to $10.9$22.4 million for the firstprior quarteryear ofperiod. 2025.Increases Loanin fee-based revenue streams contributed to the increase to noninterest income, with wealth advisory fees improving by $546,000, or 9.9%, loan and service fees incomeimproving increasedby $323,000,$377,000, or 11.2%,6.4%, drivenservice charges on deposit accounts improving by increased commercial loan fees. Wealth advisory fees increased $196,000,$151,000, or 6.8%, driven by continued growth in customers2.7%, and assets under management. Investmentinvestment brokerage fees increasedimproving $72,000,by $33,000, or 15.9%,3.3%. dueAdditionally, to increased volume and commissions on product mix. Bankbank owned life insurance income increased $654,000,$1.2 million, or 203.1%,90.4%, from improved market performance of the Bank'sfrom variable bank owned life insurance policies,policies which reflect returns in the equity markets, as well asand incremental income from general account policies purchased in 2025. InterestIncreased transaction volume drove increases to interest rate swap fee income was $701,000 for the first quarter of 2026, which is borrower$681,000 and marketmortgage driven. Offsetting these increases was a decrease to otherbanking income of $128,000, or 14.9%, primarily driven by reduced limited partnership investment income.$136,000.

Noninterest expense categories for the three and six months ended MarchJune 31,30, 2026 and 2025 are shown in the following tables:

NoninterestThe Company's noninterest expense increased $2.4by $6.4 million, or 7.3%,10.1%, for the six months ended June 30, 2026 to $35.2$69.6 million compared to $63.2 million for the firstsix quartermonths ofended 2026,June compared to $32.8 million during the first quarter of30, 2025. Salaries and employee benefits expense increased by $2.4$5.8 million, or 13.4%,16.5%, primarily thedue result ofto increased salaries and wages,wages of $2.0 million, performance-based incentive pay,compensation accruals of $2.3 million, variable deferred compensation expense of $799,000, and employeehealth benefitsinsurance expenses.expense of $677,000. Net occupancy expense increased $124,000,$344,000, or 6.3%,9.2%. Data processing fees and equipmentsupplies costsexpense increased $82,000,$216,000, or 5.9%,2.6%, from the Company's continued expansioninvestment in customer-facing and reinvestmentoperational intotechnology its physical branch network.solutions. Corporate and business development expense increased $87,000,$169,000, or 6.2%,6.6%, from increased advertising and corporate development expenses. FDIC insurance and other regulatory fees increased $73,000,$115,000, or 9.1%.7.0%, from increased FDIC insurance premium accruals. Offsetting these increases was a decrease in professional fees of $443,000,$364,000, or 18.6%,8.9%, primarily driven by reduced technology implementation fees incurred during the quarter.fees.

The Company's income tax expense increased $1.9$2.2 million, or 46.3%,22.0%, to $6.1$12.3 million in the threesix months ended MarchJune 31,30, 2026, compared to $4.2$10.1 million for the same period in 2025. The effective tax rate was 18.7%18.4% in the threesix months ended MarchJune 31,30, 2026, compared to 17.1%17.7% for the comparable period of 2025, driven by higher earnings and lower tax-freetax-exempt interestincome. incomeIncome ontax loans.expense increased $304,000, or 5.1%, to $6.3 million for the second quarter of 2026 compared to $6.0 million for the second quarter of 2025. The effective tax rate for the second quarter of 2026 was 18.1%, compared to 18.1% for the prior year period.

Total assets were $7.084$7.243 billion as of MarchJune 31,30, 2026 versus $6.990 billion as of December 31, 2025, an increase of $93.7$252.9 million, or 1.3%.3.6%. Balance sheet expansion was driven by increases to total loans, net of the allowance for credit losses, which increased $98.1$202.7 million, or 1.8%,3.8%, and cash and cash equivalents, which increased $10.0$52.8 million, or 7.1%.37.4%. These increases were offset by a decrease to available-for-sale securities of $25.1$16.9 million, or 2.4%1.6%. The balance sheet expansion from December 31, 2025 to MarchJune 31,30, 2026 was funded by an increase in total deposits of $216.9$356.2 million, or 3.6%,6.0%, and was offset by a decrease in borrowings of $116.0$113.0 million, or 63.0%.61.3%. Total equity decreasedincreased $13.5$10.9 million, or 1.8%,1.4%, from $762.5 million at December 31, 2025 to $749.0$773.4 million at MarchJune 31,30, 2026. TheDriving decrease to total equity was primarily attributable to anthe increase in treasury stock of $19.3 million, or 53.8%, driven by the Company's utilization of the share repurchase program. A decrease in accumulated other comprehensive income (loss) of $8.5 million contributed further to the decline in total equity. Offsetting these reductions to total equity was an increase in retained earnings of $13.3$28.7 million, or 1.7%,3.6%, primarily as a result of net income of $26.5$54.9 million less dividends declared and paid of $13.2$26.3 million. Accumulated other comprehensive income (loss) improved by $2.7 million and contributed further to the increase in total equity. Offsetting these items was an increase in treasury stock, which increased by $23.5 million, or 65.7%, driven by the Company's utilization of its share repurchase program. The combined effect of the repurchase activity under the share repurchase program and dividends paid during the quarterfirst six months of 2026 represented a total return of capital to Company shareholders of $32.4$49.8 million.

Total cash and cash equivalents increased by $10.0$52.8 million, or 7.1%,37.4%, to $151.3$194.1 million at MarchJune 31,30, 2026, from $141.3 million at December 31, 2025. Cash and cash equivalents include short-term investments. The fluctuation in cash and cash equivalents at MarchJune 31,30, 2026 was driven by an increase in cash and due from banks of $8.6$12.7 million, or 15.0%,22.3%, and an increase in interest bearing short-term investment accounts of $1.4$40.1 million, or 1.7%,47.6%, which were deposited primarily at the Federal Reserve Bank of Chicago.

The amortized cost and the fair value of securities as of MarchJune 31,30, 2026 and December 31, 2025 were as follows:

At MarchJune 31,30, 2026 and December 31, 2025, there were no holdings of securities of any one issuer, other than the U.S. government agencies and government sponsored entities, in an amount greater than 10% of stockholders’ equity. Management is aware that the directional change in the fair value of the available-for-sale investment securities portfolio is inversely related to the directional movement of the interest rate environment, with the resulting impact being reflected in the unrealized gain (loss) of the available-for-sale investment securities portfolio. Since the majority of the bonds in the investment portfolio are fixed-rate, with only a few adjustable-rate bonds, we would expect our investment portfolio to follow this market value pattern. This is taken into consideration when evaluating the gain or loss of investment securities in the portfolio and the potential for an allowance for credit losses.

Purchases of available-for-sale securities were $5.1$20.5 million in the first threesix months of 2026. Investment securities represented 16.4%16.1% of total assets on MarchJune 31,30, 2026, compared to 17.0% of total assets on December 31, 2025. The Company anticipates receiving principal and interest cash flows of approximately $88.2$51.9 million during the remainder of 2026 from the investment securities portfolio and plans to use that liquidity to fund loan growth as well as to fund reinvestments to the investment securities portfolio. Tax equivalent adjusted effective duration for the investment securities portfolio was 6.05.8 years at MarchJune 31,30, 2026 and 5.9 years at December 31, 2025. Paydowns from prepayments and scheduled payments of $18.1$38.1 million were received in the first threesix months of 2026, and the amortization of premiums, net of the accretion of discounts, was $870,000.$1.8 million. There were no sales of available-for-sale investment securities in the first threesix months of 2026. No allowance for credit losses was recognized for available-for-sale or held-to-maturity securities as of MarchJune 31,30, 2026 and December 31, 2025.

The fair value of the available-for-sale investment securities portfolio as of MarchJune 31,30, 2026 included net unrealized losses of $154.5$140.9 million, compared to net unrealized losses of $143.3 million as of December 31, 2025. Unrealized losses in the available-for-sale investment securities portfolio are generally attributable to market value declines experienced during the rate tightening cycle of 2022 and 2023. Increases in the 10-year Treasury rate during the first quarter of 2026 increased unrealized losses in the investment securities portfolio.

Real estate mortgage loans held-for-sale decreasedincreased by $1.6 million,$923,000, or 59.9%,34.1%, to $1.1$3.6 million at MarchJune 31,30, 2026, from $2.7 million at December 31, 2025. The balance of this asset category is subject to a high degree of variability depending on, among other factors, recent mortgage loan rates and the timing of loan sales into the secondary market. The Company generally sells conforming qualifying mortgage loans it originates on the secondary market. Proceeds from sales of residential mortgages totaled $4.8$9.4 million in the first threesix months of 2026, compared to $3.0$8.7 million in the first threesix months of 2025. Management expects the volume of loans originated for sale in the secondary market to increase if long-term interest rates decline from current levels. Demand for mortgage loans has been impacted by elevated interest rates, limited housing inventory and existing home owners locked in at historically low rates. Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others were $290.4$286.8 million and $294.5 million, as of MarchJune 31,30, 2026 and December 31, 2025, respectively.

The loan portfolio by portfolio segment as of MarchJune 31,30, 2026 and December 31, 2025 is summarized as follows:

Total net loans, excluding real estate mortgage loans held-for-sale, increased by $98.1$202.7 million, or 1.8%,3.8%, to $5.404$5.509 billion at MarchJune 31,30, 2026 from $5.306 billion at December 31, 2025. The increase was primarily driven by originations of loans concentrated in the commercial and industrial loans, commercial real estate and multi-family residential loansloans, other commercial loans, and consumer 1-4 family mortgage loans categories and was offset by paydowns in the agri-business and agricultural loans segment, which traditionally experiences seasonal fluctuations in activity.

The following table summarizes the Company’s non-performing assets, excluding deferred fees and costs, as of MarchJune 31,30, 2026 and December 31, 2025:

Total nonperforming assets increaseddecreased by $12,000,$926,000, or 0.1%,4.4%, tofrom $20.9 million duringat the three month period ended MarchDecember 31, 2025 to $20.0 million at June 30, 2026. The ratio of nonperforming assets to total assets remaineddeclined to 0.28% at June 30, 2026, down from 0.30% as of December 31, 2025 and March 31, 2026.2025.

A loan is individually analyzed when full payment under the original loan terms is not expected. The analysis for smaller loans that are similar in nature and which are not in nonaccrual or modified status, such as residential mortgage, consumer, and credit card loans, is determined based on the class of loans. If a loan is individually analyzed, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows or at the fair value of collateral if repayment is expected solely from the collateral. Total individually analyzed loans increased by $136,000,$23.9 million, or 0.3%,55.6%, to $43.2$66.9 million at MarchJune 31,30, 2026 from $43.0 million at December 31, 2025. The increase in individually analyzed loans during the first six months of 2026 was primarily driven by migration within the watchlist as three unrelated relationships with an aggregate balance of approximately $24.7 million were moved from the pooled watch list to individually analyzed status during the second quarter of 2026.

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 establishevaluate for 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 MarchJune 31,30, 2026, the allowance for credit losses was 1.26%1.27% of total loans, a decrease of 21 basis pointspoint from 1.28% at December 31, 2025. At MarchJune 31,30, 2026, management believed the allowance for credit losses was at a level commensurate with the overall risk exposure of the loan portfolio. However, if economic conditions deteriorate, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require increases in the allowance for credit losses. The process of identifying credit losses is a subjective process.

The Company has a relatively high percentage of commercial and commercial real estate loans, which are extended to businesses with a broad range of revenue and within a wide variety of industries. Traditionally, this type of lending may have more credit risk than other types of lending because of the size and diversity of the credits. The Company manages this risk by utilizing relatively conservative credit structures, by adjusting its pricing to the perceived risk of each individual credit and by diversifying the portfolio by customer, product, industry and market area. The Company has limited exposure to commercial office space borrowers, all of which are located in the Bank's Indiana markets. Loans totaling $103.6$104.9 million for this sector represented 1.9% of total loans at MarchJune 31,30, 2026. Additionally, commercial real estate loans secured by multi-family residential properties and secured by non-farm non-residential properties were approximately 214.9%222.8% of the Bank's risk-based capital at MarchJune 31,30, 2026. The Company continues to monitor the impact of tariffs on its borrowers.

As of MarchJune 31,30, 2026, based on management’s review of the loan portfolio, the Company had 95107 credit relationships with principal balances totaling $182.3$198.0 million on the classified loan list versus 96 credit relationships with principal balances totaling $184.0 million on the classified loan list as of December 31, 2025. As of MarchJune 31,30, 2026, the Company $132.7had $135.3 million of assets classified as Special Mention, $49.5$62.7 million classified as Substandard, $73,000$43,000 classified as Doubtful and $0 classified as Loss as compared to $134.0 million, $50.0 million, $74,000 and $0, respectively, at December 31, 2025. The amounts by grade in "Note 4 - Allowance for Credit Losses and Credit Quality" are reported at amortized cost and include deferred fees and costs. Watch list loans as a percentage of total loans were 3.33%3.55% as of MarchJune 31,30, 2026, downup 913 basis points from 3.42% at December 31, 2025.

The allowance for credit losses decreasedincreased $81,000,$1.6 million, or 0.1%,2.3%, from $69.0 million at December 31, 2025 to $68.9$70.6 million at MarchJune 31,30, 2026. The decreaseincrease was primarily driven provision for credit losses of $3.7 million and offset by net charge offs of $2.1 million, offset by provision for credit losses of $2.0 million. Net charge offs for the threesix months ended MarchJune 31,30, 2026 were primarily driven by a $2.0 million charge off to one commercial credit.credit during the first quarter of 2026. 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.

The Company's sources of funds include a diversified deposit base gathered throughout the Company's footprint and includes a growing mix of commercial, retail and public funds deposit accounts. While the traditional base of core deposits represents the primary source of funding for the Company, the Company has access to a robust array of other liquidity sources, including secured borrowings available from the Federal Home Loan Bank and the Federal Reserve Bank Discount Window. In addition, the Company has access to unsecured borrowing capacity through long established relationships within the brokered deposit markets, Federal Funds lines from correspondent bank partners and Insured Cash Sweep (ICS) one-way buy funds available from the Intrafi network. As of MarchJune 31,30, 2026, the Company had access to $3.312$3.380 billion in unused liquidity available from these aggregate sources as compared to $3.526 billion at December 31, 2025.

The average daily deposits and borrowings together with average rates paid on those deposits and borrowings for the threesix months ended MarchJune 31,30, 2026 and 2025 are summarized in the following table:

Average total deposits were $6.056$6.185 billion for the threesix months ended MarchJune 31,30, 2026, an increase of $180.8$198.6 million, or 3.1%,3.3%, from the comparable period in 2025. Average total borrowings were $183.6$115.7 million for the threesix months ended MarchJune 31,30, 2026, an increase of $83.5$48.6 million, or 83.5%,72.4%, from the comparable period in 2025. Total average deposit costs decreased 2827 basis points from 2.52%2.55% for the threesix months ended MarchJune 31,30, 2025, to 2.24%2.28% for the threesix months ended MarchJune 31,30, 2026. Total average borrowing costs decreased 6065 basis points from 4.54%4.57% for the threesix months ended MarchJune 31,30, 2025 to 3.94%3.92% for the threesix months ended MarchJune 31,30, 2026. As a result, the total cost of funding sources decreased by 26 basis points from 2.55%2.57% for the threesix months ended MarchJune 31,30, 2025, to 2.29%2.31% for the threesix months ended MarchJune 31,30, 2026. The decrease in the cost of funding sources between the two periods was attributable to easing of monetary policy by the Federal Reserve Bank which allowed deposit costs to reprice to lower levels and reduced average rates for borrowings.

As of MarchJune 31,30, 2026, total deposits increased by $216.9$356.2 million, or 3.6%,6.0%, from December 31, 2025. Core deposits, which excludes brokered deposits, decreasedincreased by $108.1$107.6 million, or 1.8%, to $5.815$6.030 billion as of MarchJune 31,30, 2026 from $5.923 billion as of December 31, 2025. Total brokered deposits were $375.6$299.2 million at MarchJune 31,30, 2026, compared to $50.6 million at December 31, 2025, an increase of $325.0$248.6 million, or 642.7%.491.5%.

The following table summarizes deposit composition at MarchJune 31,30, 2026 and December 31, 2025:

On MarchJune 31,30, 2026, commercial deposits represented 34.5%33.4% of total deposits versus 36.5% at December 31, 2025. Retail deposits represented 29.1%28.0% at MarchJune 31,30, 2026 versus 29.5% at December 31, 2025. Public Funds deposits represented 30.3%33.9% at MarchJune 31,30, 2026 versus 33.2% at December 31, 2025. Brokered deposits represented 6.1%4.7% of total deposits at MarchJune 31,30, 2026 versus 0.8% at December 31, 2025. CommercialPublic funds deposits contractedexpanded $43.6$168.3 million, or 2.0%, from $2.180 billion at December 31, 2025 to $2.136 billion at March 31, 2026; public funds deposits contracted $101.5 million, or 5.1%,8.5%, from $1.979 billion at December 31, 2025 to $1.878$2.148 billion at MarchJune 31,30, 2026, due to seasonal fluctuations in public funds balances; and retail deposits expanded $37.0$5.6 million, or 2.1%,0.3%, from $1.763 billion at December 31, 2025 to $1.800$1.769 billion at MarchJune 30, 2026; and commercial deposits contracted $66.2 million, or 3.0%, from $2.180 billion at December 31, 2025 to $2.114 billion at June 30, 2026.

Deposits not covered by FDIC deposit insurance were 55.1%57.7% as of MarchJune 31,30, 2026, versus 59.1% at December 31, 2025. Deposits not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund, which insures public fund deposits in Indiana, were 25.0%24.2% of total deposits as of MarchJune 31,30, 2026, versus 26.0% as of December 31, 2025. As of MarchJune 31,30, 2026 and December 31, 2025, 97.9% and 97.8%98.2% of deposit accounts had deposit balances less than $250,000, respectively.

As of MarchJune 31,30, 2026, total stockholders’ equity was $749.0$773.4 million, aan decreaseincrease of $13.5$10.9 million, or 1.8%,1.4%, from $762.5 million at December 31, 2025. TheDriving decreasethe toincrease in total stockholders' equity was driven by an increase in treasuryretained stockearnings of $19.3$28.7 million, or 53.8%,3.6%, fromprimarily utilization of the Company's share repurchase program andas a reductionresult of $8.5 million in accumulated other comprehensive income (loss). Offsetting these decreases was net income of $26.5$54.9 million less dividends declared and paid of $13.2$26.3 million. Accumulated other comprehensive income (loss) improved by $2.7 million forand acontributed $13.3further millionto the increase toin retainedtotal earnings.equity. Offsetting these items was an increase in treasury stock, which increased by $23.5 million, or 65.7%, driven by the Company's utilization of its share repurchase program. The combined effect of the repurchase activity under the share repurchase program and dividends paid during the quarterfirst six months of 2026 represented a total return of capital to Company shareholders of $32.6$49.8 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 MarchJune 31,30, 2026, the Company's capital levels remained characterized as “well-capitalized”.

The actual capital amounts and ratios of the Company and the Bank as of MarchJune 31,30, 2026 and December 31, 2025, are presented in the table below. Capital ratios for MarchJune 31,30, 2026 are preliminary until the Call Report and FR Y-9C are filed.