Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-11487 LAKELAND FINANCIAL CORPORATION Indiana 35-1559596 (State of incorporation) (I.R.S. Employer Identification No.) 202 East Center Street, P.O. Box 1387, Warsa ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number: 0-11487 LAKELAND FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number: 0-11487 LAKELAND FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) (Sta ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number: 0-11487 LAKELAND FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) (St ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (State of incorporation) (I.R.S. Employer Identification No.) 202 East Center Street, P.O. Box 1387, Warsaw, Indiana 46581-1387 (Address of principal executive offices) Telephone: (574) 267-6144 Securities registered pursuant to Section 12(b) of the Act: For the fiscal year ended December 31, 2020 Commission file number 0-11487 LAKELAND FINANCIAL CORPORATION Indiana 35-1559596 FORM 10-K ANNUAL REPORT PURSUANT TO SECTIO ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number: 0-11487 LAKELAND FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) ...

Part I [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The consolidated financial statements detail the company's financial position, operations, and cash flows, reflecting asset growth and a decrease in net income due to increased loan loss provisions Consolidated Balance Sheet Highlights (in thousands) | | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$5,441,092** | **$4,946,745** | | Loans, net | $4,431,513 | $4,015,176 | | Total Deposits | $4,643,427 | $4,133,819 | | Total Liabilities | $4,820,200 | $4,348,645 | | **Total Equity** | **$620,892** | **$598,100** | Consolidated Income Statement Highlights (in thousands, except per share data) | | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net Interest Income | $78,382 | $76,620 | | Provision for loan losses | $12,100 | $1,985 | | **Net Income** | **$36,969** | **$43,395** | | **Diluted EPS** | **$1.44** | **$1.69** | Consolidated Cash Flow Highlights (in thousands) | Six Months Ended June 30, | 2020 | 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $40,740 | $44,659 | | Net cash from investing activities | ($436,259) | ($95,277) | | Net cash from financing activities | $422,473 | $30,066 | | **Net change in cash and cash equivalents** | **$26,954** | **($20,552)** | [Note 1: Basis of Presentation](index=10&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) The financial statements adhere to U.S. GAAP, with new accounting standards adopted without material impact, and CECL adoption delayed per the CARES Act - The company adopted ASU 2017-04 (Goodwill Impairment), ASU 2018-13 (Fair Value Disclosures), and ASU 2018-15 (Cloud Computing Costs) on January 1, 2020, none of which had a **no material impact** on its financial condition or results of operations[17](index=17&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - Under a provision of the CARES Act, the Company elected to **delay the adoption of the CECL standard**. Adoption will be retroactive to January 1, 2020, once the delay period ends[24](index=24&type=chunk) [Note 2: Securities](index=13&type=section&id=NOTE%202.%20SECURITIES) Securities available-for-sale increased to **$632.9 million**, primarily state/municipal and residential mortgage-backed securities, with unrealized losses deemed temporary Securities Available-for-Sale (in thousands) | Category | Fair Value at June 30, 2020 | Fair Value at Dec 31, 2019 | | :--- | :--- | :--- | | Mortgage-backed securities: residential | $274,749 | $288,181 | | Mortgage-backed securities: commercial | $40,569 | $36,972 | | State and municipal securities | $317,590 | $283,080 | | **Total** | **$632,908** | **$608,233** | - As of June 30, 2020, securities with a carrying value of **$420.3 million** were pledged as collateral for borrowings and other purposes[35](index=35&type=chunk) - Management considers unrealized losses on securities to be **primarily interest-rate driven and temporary**, as it does not have the intent to sell and it is not more likely than not that it will be required to sell these securities before recovery[39](index=39&type=chunk) [Note 3: Loans](index=15&type=section&id=NOTE%203.%20LOANS) The net loan portfolio grew to **$4.43 billion**, driven by commercial and industrial loans, largely due to PPP loan originations Loan Portfolio Composition (in thousands) | Loan Category | June 30, 2020 | % of Total | Dec 31, 2019 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial loans | $1,807,177 | 40.1% | $1,426,868 | 35.1% | | Commercial real estate & multi-family | $1,781,299 | 39.5% | $1,673,322 | 41.1% | | Agri-business and agricultural loans | $352,051 | 7.8% | $379,531 | 9.3% | | Consumer 1-4 family mortgage loans | $355,361 | 7.9% | $376,745 | 9.3% | | Other loans | $209,500 | 4.7% | $210,919 | 5.2% | | **Subtotal** | **$4,505,388** | **100.0%** | **$4,067,385** | **100.0%** | [Note 4: Allowance for Loan Losses and Credit Quality](index=16&type=section&id=NOTE%204.%20ALLOWANCE%20FOR%20LOAN%20LOSSES%20AND%20CREDIT%20QUALITY) The allowance for loan losses increased to **$59.0 million** due to COVID-19 impacts, with **$652.5 million** in COVID-related loan deferrals not classified as TDRs Allowance for Loan Losses Activity - Six Months Ended June 30, 2020 (in thousands) | | Amount | | :--- | :--- | | Beginning Balance (Jan 1, 2020) | $50,652 | | Provision for loan losses | $12,100 | | Net loans charged-off | ($3,733) | | **Ending Balance (June 30, 2020)** | **$59,019** | - As of June 30, 2020, total loan deferrals attributed to COVID-19 were **$652.5 million**, representing **15%** of the total loan portfolio. In accordance with the CARES Act, these were **not considered troubled debt restructurings**[57](index=57&type=chunk) - Paycheck Protection Program (PPP) loans totaling **$554.6 million** were included in the **'Pass' risk rating category** as they are **fully guaranteed by the SBA**[67](index=67&type=chunk) [Note 6: Fair Value Disclosures](index=29&type=section&id=NOTE%206.%20FAIR%20VALUE%20DISCLOSURES) Fair value measurements are detailed across three levels, with recurring assets totaling **$659.1 million**, primarily Level 2 securities and derivatives - Fair value is determined using a three-level hierarchy. **Level 1 uses quoted prices**, **Level 2 uses observable inputs** (e.g., matrix pricing), and **Level 3 uses significant unobservable inputs**[71](index=71&type=chunk)[72](index=72&type=chunk) Assets Measured at Fair Value on a Recurring Basis - June 30, 2020 (in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Securities | $0 | $632,763 | $145 | $632,908 | | Mortgage banking derivative | $0 | $1,766 | $0 | $1,766 | | Interest rate swap derivative | $0 | $24,464 | $0 | $24,464 | | **Total Assets** | **$0** | **$658,993** | **$145** | **$659,138** | - Impaired loans are measured at fair value on a nonrecurring basis, primarily using collateral-based measurements (**Level 3 inputs**), with a fair value of **$11.1 million** as of June 30, 2020[81](index=81&type=chunk) [Note 11: COVID-19 and Current Economic Conditions](index=41&type=section&id=NOTE%2011.%20COVID-19%20AND%20CURRENT%20ECONOMIC%20CONDITIONS) COVID-19 has impacted operations, with loan deferrals decreasing, though potential future impairment losses on assets like goodwill are acknowledged - As of July 22, 2020, total COVID-19 related loan deferrals had decreased to **$425.1 million** (**9%** of the total loan portfolio), down from **$652.5 million** on June 30, 2020[95](index=95&type=chunk) - The carrying value of certain assets, including goodwill, right-of-use lease assets, other real estate owned, and mortgage servicing rights, **could be negatively impacted** by the effects of COVID-19, potentially resulting in **future impairment losses**[96](index=96&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income decreased due to higher loan loss provisions, while total assets grew significantly, driven by PPP loans, with the company maintaining strong liquidity and capital despite net interest margin compression [Overview](index=42&type=section&id=Overview) Net income declined due to increased loan loss provisions related to COVID-19, while total assets grew significantly, primarily driven by PPP loan originations Performance Summary - First Six Months 2020 vs 2019 | Metric | H1 2020 | H1 2019 | | :--- | :--- | :--- | | Net Income | $37.0 million | $43.4 million | | Diluted EPS | $1.44 | $1.69 | | Provision for Loan Losses | $12.1 million | $2.0 million | | Pretax Pre-provision Earnings | $57.2 million | $55.2 million | - Total assets increased by **$494.3 million** (**10.0%**) since year-end 2019, primarily due to a **$416.3 million** increase in net loans, driven by **$554.6 million** in outstanding Paycheck Protection Program (PPP) loans[102](index=102&type=chunk) - As of July 22, 2020, COVID-related loan deferrals had declined by **42%** from their peak to **$425 million**, representing **9%** of the total loan portfolio[109](index=109&type=chunk) [Critical Accounting Policies](index=45&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies include the subjective allowance for loan losses and the valuation of investment securities, both requiring significant management judgment and estimates - The allowance for loan losses is a critical accounting policy due to the **subjective nature** of estimating probable incurred credit losses. The process involves specific allocations for impaired loans and general allocations for pools of similar loans based on historical experience and environmental factors[117](index=117&type=chunk)[119](index=119&type=chunk) - Valuation and other-than-temporary impairment of available-for-sale securities is another **critical policy**, requiring **significant judgment** in assessing fair value and determining if a decline below cost is permanent[124](index=124&type=chunk)[125](index=125&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) Net interest income grew despite margin compression, while a surge in loan loss provisions and a decline in noninterest income impacted results, partially offset by lower noninterest expenses Net Interest Margin Analysis (Six Months Ended June 30) | | 2020 | 2019 | | :--- | :--- | :--- | | Net Interest Income (FTE) | $79,567 | $77,631 | | Average Earning Assets | $4,975,358 | $4,588,656 | | **Net Interest Margin (FTE)** | **3.22%** | **3.42%** | - The provision for loan loss expense was **$12.1 million** for H1 2020, a **significant increase** from **$2.0 million** in H1 2019, primarily due to the economic impact of the COVID-19 pandemic[148](index=148&type=chunk) - Noninterest income for H1 2020 was **negatively impacted** by a **$4.2 million** decrease in service charges on deposit accounts, which was partially offset by a **$1.3 million** increase in mortgage banking income and a **$1.2 million** increase in swap fee income[149](index=149&type=chunk)[151](index=151&type=chunk) [Financial Condition](index=60&type=section&id=Financial%20Condition) Total assets grew significantly, driven by loan growth including PPP loans, while nonperforming assets decreased and deposit funding increased, maintaining a strong financial position Loan Portfolio Change (in thousands) | Loan Category | June 30, 2020 | Dec 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Commercial and industrial | $1,807,177 | $1,426,868 | $380,309 | | Commercial real estate | $1,781,299 | $1,673,322 | $107,977 | | **Total Gross Loans** | **$4,505,388** | **$4,067,385** | **$438,003** | - Nonperforming assets decreased by **$3.9 million** (**20.6%**) to **$15.1 million** at June 30, 2020. The ratio of nonperforming assets to total assets improved to **0.28%** from **0.38%** at year-end 2019[171](index=171&type=chunk) - Total deposits increased by **$509.6 million** (**12.3%**) since year-end 2019, driven by a **$595.1 million** increase in core deposits, while brokered deposits decreased by **$85.5 million**. The growth was largely fueled by PPP loan proceeds being deposited into customer accounts[187](index=187&type=chunk)[189](index=189&type=chunk) [Capital](index=72&type=section&id=Capital) Stockholders' equity increased due to net income and comprehensive income, despite dividends and share repurchases, with all regulatory capital ratios remaining well-capitalized - Total stockholders' equity increased by **$22.8 million** since year-end 2019, driven by **net income**, offset by **dividends and share repurchases**[192](index=192&type=chunk) - The company repurchased **289,101 shares** for **$10 million** in Q1 2020 but **suspended the repurchase plan** in March. **No shares were repurchased** under the plan in Q2 2020[193](index=193&type=chunk)[212](index=212&type=chunk) Regulatory Capital Ratios - Consolidated | Ratio | June 30, 2020 | Minimum to be Well Capitalized* | | :--- | :--- | :--- | | Total Capital (to RWA) | 14.93% | 10.00% (Bank) | | Tier I Capital (to RWA) | 13.68% | 8.00% (Bank) | | Common Equity Tier 1 (CET1) | 13.68% | 6.50% (Bank) | | Tier I Capital (to Average Assets) | 10.84% | 5.00% (Bank) | *Well capitalized ratios are shown for the Bank level as specified in the table. [Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with simulation analysis indicating an asset-sensitive balance sheet and acceptable risk levels Net Interest Income Sensitivity Analysis (as of June 30, 2020) | Rate Scenario (Change in Basis Points) | Change in Net Interest Income (in thousands) | % Change from Base | | :--- | :--- | :--- | | +300 | $21,454 | 13.31% | | +200 | $14,475 | 8.98% | | +100 | $7,878 | 4.89% | | +50 | $3,890 | 2.41% | | -25 | ($2,331) | (1.45)% | [Controls and Procedures](index=75&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were **effective** as of June 30, 2020[204](index=204&type=chunk) - **No changes were made** to the Company's internal control over financial reporting during the quarter ended June 30, 2020, that have **materially affect**, or are reasonably likely to **materially affect**, its internal control over financial reporting[205](index=205&type=chunk) Part II [Legal Proceedings](index=77&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any material pending legal proceedings beyond ordinary routine litigation - There are **no material pending legal proceedings** against the Company or its subsidiaries outside of ordinary routine litigation[208](index=208&type=chunk) [Risk Factors](index=77&type=page&id=Item%201A.%20Risk%20Factors) **No material changes** to risk factors from the 2019 Form 10-K, except as previously disclosed in the Q1 2020 Form 10-Q - **No material changes** to risk factors from the Annual Report on Form 10-K for the year ended December 31, 2019, other than those disclosed in the Q1 2020 Form 10-Q[209](index=209&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=77&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's share repurchase program was suspended in March 2020, with no repurchases in Q2 2020 and approximately **$20 million** remaining authorized - The company's board reauthorized a **$30 million** share repurchase program on January 14, 2020, effective through January 31, 2021[211](index=211&type=chunk) - **No shares were repurchased** under the publicly announced plan during the second quarter of 2020. As of June 30, 2020, **approximately $20 million** remained available for repurchase under the program[212](index=212&type=chunk)[213](index=213&type=chunk) [Exhibits](index=80&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and the Interactive Data File (XBRL) - The filing includes **CEO and CFO certifications** pursuant to Rules 13a-14(a)/15d-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002[219](index=219&type=chunk) - **Interactive data files (XBRL)** for the consolidated financial statements and notes are included as an exhibit[217](index=217&type=chunk)

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Lakeland Financial Corporation's unaudited consolidated financial statements for Q1 2020, detailing financial position, performance, and cash flows, with notes on accounting policies and CECL adoption [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $5.03 billion as of March 31, 2020, driven by higher cash, loans, and deposits, while borrowings decreased and equity rose Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$5,030,078** | **$4,946,745** | | Total cash and cash equivalents | $132,581 | $99,381 | | Loans, net | $4,032,129 | $4,015,176 | | **Total Liabilities** | **$4,423,506** | **$4,348,645** | | Total deposits | $4,281,703 | $4,133,819 | | Total borrowings | $85,500 | $170,000 | | **Total Equity** | **$606,572** | **$598,100** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q1 2020 decreased to $17.3 million, primarily due to a significant increase in the provision for loan losses, despite a slight rise in net interest income Income Statement Summary (in thousands, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Interest Income | $38,854 | $38,209 | | Provision for loan losses | $6,600 | $1,200 | | Noninterest Income | $10,777 | $11,525 | | Noninterest Expense | $22,089 | $22,473 | | **Net Income** | **$17,299** | **$21,682** | | Diluted EPS | $0.67 | $0.84 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities was $19.5 million, while investing activities used $29.8 million, and financing activities generated $43.4 million, leading to a $33.2 million net increase in cash Cash Flow Summary - Three Months Ended March 31 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $19,515 | $23,659 | | Net cash from investing activities | $(29,753) | $(22,780) | | Net cash from financing activities | $43,438 | $(29,048) | | **Net change in cash and cash equivalents** | **$33,200** | **$(28,169)** | [Notes to the Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Notes detail accounting policies, financial instruments, loan portfolio, fair value measurements, and the initial impact of COVID-19, including delayed CECL adoption - The company elected to delay the adoption of the new CECL standard under a provision of the **CARES Act** until the earlier of the end of the national emergency or **December 31, 2020**. Adoption will be retroactive to **January 1, 2020**[24](index=24&type=chunk) - As of March 31, 2020, total loan deferrals attributed to COVID-19 were **$99.8 million**, representing **77 borrowers** (**2%** of the total loan portfolio). These were not considered troubled debt restructurings per regulatory guidance[57](index=57&type=chunk) - The company is transitioning from **LIBOR** to the **Secured Overnight Financial Rate (SOFR)** and expects to adopt the transition relief allowed under **ASC 848**[28](index=28&type=chunk) [Management's Discussion and Analysis (MD&A)](index=40&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2020 financial results, highlighting a 20.2% net income decrease due to increased loan loss provisions from COVID-19, and details the company's pandemic response and financial condition - Net income for Q1 2020 was **$17.3 million**, down **20.2%** from Q1 2019, mainly due to a **$6.6 million** provision for loan losses, a **450%** increase YoY, driven by the economic impact of the COVID-19 pandemic[104](index=104&type=chunk) - The company is participating in the **Paycheck Protection Program (PPP)** and had received approval for **1,677 client loans** totaling **$530 million** as of April 16, 2020[128](index=128&type=chunk) - As permitted by the **CARES Act**, the company elected to defer its application of the **CECL standard**, believing the current incurred loss method is more accurate in the current uncertain environment[125](index=125&type=chunk) [Impact of COVID-19](index=40&type=section&id=Impact%20of%20COVID-19) The company actively managed the COVID-19 crisis, identifying 19% of the loan portfolio in impacted industries, with deferrals reaching $467.1 million, while enhancing liquidity and participating in PPP COVID-19 Related Loan Deferrals | Date | Total Deferrals | Borrower Count | % of Total Loans | | :--- | :--- | :--- | :--- | | March 31, 2020 | $99.8 million | 77 | 2% | | April 22, 2020 | $467.1 million | 404 | 11% | - An initial review identified industries most likely to be impacted by COVID-19, representing approximately **19%** of the total loan portfolio. These include recreational vehicles (**4%**), nursing homes (**4%**), hotels (**2%**), and restaurants (**2%**)[115](index=115&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) Q1 2020 net income decreased to $17.3 million due to a surge in loan loss provisions and compressed net interest margin, despite a slight rise in net interest income Key Performance Metrics - Q1 2020 vs Q1 2019 | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Interest Margin | 3.35% | 3.45% | | Net Charge-offs to Average Loans | 0.36% | 0.01% | | Efficiency Ratio | 44.51% | 45.19% | | Pretax Pre-Provision Earnings | $27,542 thousand | $27,261 thousand | - The provision for loan losses increased by **$5.4 million** (**450%**) YoY, primarily due to the economic impact of COVID-19 and a **$3.7 million** charge-off on a single commercial manufacturing relationship[147](index=147&type=chunk)[154](index=154&type=chunk) - Noninterest income was negatively impacted by a **$1.5 million** decrease in service charges on deposit accounts, partly due to the termination of a large treasury management client relationship in June 2019, and a **$736,000** loss on bank owned life insurance[155](index=155&type=chunk) [Financial Condition](index=57&type=section&id=Financial%20Condition) Total assets grew to $5.03 billion, with modest loan growth and improved asset quality, as nonperforming assets decreased and the allowance for loan losses increased, supported by strong core deposit growth Non-Performing Assets (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total nonperforming loans | $13,954 | $18,720 | | Total nonperforming assets | $14,316 | $19,036 | | Nonperforming assets to total assets | 0.28% | 0.38% | - The allowance for loan losses increased by **$3.0 million** to **$53.6 million** at March 31, 2020. The ratio of allowance to total loans increased to **1.31%** from **1.25%** at year-end 2019[179](index=179&type=chunk)[185](index=185&type=chunk) - Total deposits increased by **$147.9 million**, driven by a **$151.8 million** increase in core deposits, while total borrowings decreased by **$84.5 million**[192](index=192&type=chunk)[194](index=194&type=chunk) [Capital](index=67&type=section&id=Capital) Stockholders' equity increased to $606.5 million in Q1 2020, driven by net income and AOCI, partially offset by share repurchases and dividends, with all capital ratios remaining strong - During Q1 2020, the company repurchased **289,101 shares** for **$10.0 million** at an average price of **$34.63 per share**. The repurchase plan was temporarily suspended on **March 24, 2020**, with **$20 million** remaining authorized[196](index=196&type=chunk)[218](index=218&type=chunk) Consolidated Capital Ratios - March 31, 2020 | Ratio | Actual | Minimum to be Well Capitalized | | :--- | :--- | :--- | | Total Capital (to Risk Weighted Assets) | 14.23% | N/A | | Tier I Capital (to Risk Weighted Assets) | 13.02% | N/A | | Common Equity Tier 1 (CET1) | 13.02% | N/A | | Tier I Capital (to Average Assets) | 11.67% | N/A | [Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with simulations showing asset-sensitivity where a 100 bps rate increase boosts net interest income by $7.5 million Net Interest Income Sensitivity Analysis (as of March 31, 2020) | Rate Scenario | NII Change (in thousands) | % Change from Base | | :--- | :--- | :--- | | +300 bps | +$23,380 | +14.98% | | +200 bps | +$15,430 | +9.89% | | +100 bps | +$7,512 | +4.81% | | -25 bps | -$3,411 | -2.19% | - The company's primary market risk exposure is **interest rate risk**. It does not have material exposure to foreign currency risk or maintain a trading portfolio[203](index=203&type=chunk) [Controls and Procedures](index=71&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of March 31, 2020[207](index=207&type=chunk) - **No material changes** were made to the company's internal control over financial reporting during the first quarter of 2020[208](index=208&type=chunk) [PART II. OTHER INFORMATION](index=73&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=73&type=section&id=Item%201.%20Legal%20Proceedings) The company and its subsidiaries are not party to any material pending legal proceedings beyond ordinary routine litigation - There are **no material pending legal proceedings** against the Company or its subsidiaries outside of ordinary routine litigation[210](index=210&type=chunk) [Risk Factors](index=73&type=section&id=Item%201A.%20Risk%20Factors) This section highlights significant risks, including the adverse impact of the COVID-19 pandemic on business and the potential for increased volatility from future CECL adoption - The COVID-19 outbreak is having and could continue to have a **material adverse impact** on the company's business, results of operations, financial condition, and capital levels due to its effects on customers, economic conditions, and operations[211](index=211&type=chunk)[212](index=212&type=chunk) - The company may experience **increases and volatility** in its allowance for credit losses and provision expense due to the delayed but eventual adoption of the **CECL methodology**, which requires more management judgment and forward-looking forecasts[214](index=214&type=chunk)[215](index=215&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 289,101 shares for $10 million in Q1 2020 under its reauthorized program before temporarily suspending it on March 24, 2020 Issuer Purchases of Equity Securities - Q1 2020 | Period | Total Shares Purchased | Average Price Paid per Share | Purchased as Part of Public Plan | | :--- | :--- | :--- | :--- | | Jan 1-31 | 3,352 | $48.49 | 0 | | Feb 1-29 | 1,097 | $48.21 | 0 | | Mar 1-31 | 289,101 | $34.63 | 289,101 | | **Total** | **293,550** | **$34.84** | **289,101** | - The share repurchase program was **temporarily suspended** on **March 24, 2020**, with **$20 million** of authorization remaining available[218](index=218&type=chunk) [Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Interactive Data Files (Inline XBRL) - Exhibits filed include **CEO/CFO certifications** (31.1, 31.2, 32.1, 32.2) and **Interactive Data Files** (101, 104)[222](index=222&type=chunk)[223](index=223&type=chunk)

PART I [Item 1. Business](index=3&type=section&id=Item%201.%20Business) An Indiana-based bank holding company with $4.9 billion in assets, focusing on organic growth and subject to extensive financial regulation [Company Overview and Strategy](index=3&type=section&id=Company%20Overview%20and%20Strategy) The company is a $4.9 billion Indiana-based bank holding company pursuing an organic growth strategy through community-based banking - Lakeland Financial is a bank holding company headquartered in Warsaw, Indiana, with its primary subsidiary being Lake City Bank and **$4.9 billion in consolidated total assets** as of December 31, 2019[13](index=13&type=chunk) - The company's business strategy is centered on organic growth, expanding from $286 million in assets in 1990 to $4.9 billion in 2019, a **compound annual growth rate of 11%**[20](index=20&type=chunk) - The Bank operates **50 offices across fifteen counties** in Northern and Central Indiana, focusing on long-term commercial and retail relationships[15](index=15&type=chunk)[17](index=17&type=chunk) - The company faces intense competition from national and community banks, credit unions, and fintech companies[22](index=22&type=chunk) [Supervision and Regulation](index=7&type=section&id=Supervision%20and%20Regulation) The company and its bank subsidiary are subject to extensive federal and state regulations, with a primary focus on capital adequacy - The Company and its bank subsidiary are extensively regulated by agencies including the DFI, Federal Reserve, FDIC, and CFPB for depositor protection[30](index=30&type=chunk)[31](index=31&type=chunk) - The Company and the Bank are subject to the **Basel III Rule**, which mandates stringent minimum capital ratios and a capital conservation buffer[40](index=40&type=chunk)[45](index=45&type=chunk) Well-Capitalized Requirements | Capital Ratio | Minimum to be Well-Capitalized | | :--- | :--- | | Common Equity Tier 1 to risk-weighted assets | 6.5% or more | | Tier 1 Capital to risk-weighted assets | 8.0% or more | | Total Capital to risk-weighted assets | 10.0% or more | | Tier 1 Capital to total adjusted average quarterly assets | 5.0% or greater | - As of December 31, 2019, both the Company and the Bank were **well-capitalized** and in compliance with the capital conservation buffer[48](index=48&type=chunk) - As a financial holding company, Lakeland Financial must maintain its well-capitalized status to engage in a wider range of nonbanking activities[59](index=59&type=chunk) - The Bank's ability to pay dividends to the holding company is restricted by state law and Federal Reserve regulations[73](index=73&type=chunk)[75](index=75&type=chunk) [Item 1A. Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces credit, market, operational, and regulatory risks, including loan portfolio concentrations and interest rate sensitivity - **Credit & Concentration Risk:** Success is heavily dependent on the economic conditions in its Northern and Central Indiana markets[95](index=95&type=chunk) - **Loan Portfolio Risk:** The loan portfolio has significant concentrations in **commercial & industrial (35.1%)** and **commercial real estate (41.1%)** loans[101](index=101&type=chunk)[102](index=102&type=chunk) - **Market & Liquidity Risk:** Shifts in interest rates can compress net interest income, and a **27% deposit concentration in public funds** presents liquidity risk[108](index=108&type=chunk)[116](index=116&type=chunk) - **Regulatory & Compliance Risk:** The company must maintain sufficient capital to meet heightened regulatory requirements like Basel III[127](index=127&type=chunk)[128](index=128&type=chunk) - **Operational & Technology Risk:** The company faces significant risks from cybersecurity attacks that could interrupt business and compromise data[136](index=136&type=chunk) - **Accounting & Transition Risk:** The company faces risks from the **discontinuance of LIBOR** and the adoption of the **Current Expected Credit Losses (CECL)** methodology[145](index=145&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Item 1B. Unresolved Staff Comments](index=39&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from the SEC staff - There are no unresolved SEC staff comments[152](index=152&type=chunk) [Item 2. Properties](index=39&type=section&id=Item%202.%20Properties) The company operates from 55 locations, primarily owned by the Bank, with its headquarters in Warsaw, Indiana - The Company's headquarters is located at 202 E. Center Street, Warsaw, Indiana[153](index=153&type=chunk) - The Company operates in 55 locations, with **49 properties owned** by the Bank and 6 leased from third parties[153](index=153&type=chunk) [Item 3. Legal Proceedings](index=39&type=section&id=Item%203.%20Legal%20Proceedings) The company is not a party to any material pending legal proceedings - There are no material pending legal proceedings against the Company or the Bank[155](index=155&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[156](index=156&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on Nasdaq (LKFN), with a share repurchase program and a history of consistent dividend payments 2019 Quarterly Stock Prices and Dividends | Quarter | High Price | Low Price | Cash Dividend | | :--- | :--- | :--- | :--- | | Fourth | $49.90 | $42.48 | $0.300 | | Third | $47.10 | $41.41 | $0.300 | | Second | $49.04 | $43.95 | $0.300 | | First | $48.68 | $40.75 | $0.260 | - A share repurchase program authorizing up to **$30 million in stock purchases** was reauthorized on January 14, 2020[170](index=170&type=chunk) - In February 2019, the company issued **224,066 shares of common stock** upon the cashless exercise of a warrant[172](index=172&type=chunk) [Item 6. Selected Financial Data](index=46&type=section&id=Item%206.%20Selected%20Financial%20Data) The company shows consistent five-year growth in assets, loans, and net income, with improving performance ratios Selected Financial Data (2015-2019) | (in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Assets** | $4,946,745 | $4,875,254 | $4,682,976 | $4,290,025 | $3,766,286 | | **Loans, net** | $4,065,828 | $3,914,745 | $3,818,459 | $3,470,927 | $3,080,929 | | **Total equity** | $598,100 | $521,704 | $468,667 | $427,067 | $392,901 | | **Net income** | $87,047 | $80,411 | $57,330 | $52,084 | $46,367 | | **Diluted EPS** | $3.38 | $3.13 | $2.23 | $2.05 | $1.84 | Key Performance Ratios (2015-2019) | Ratio | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Return on average assets** | 1.76% | 1.69% | 1.29% | 1.29% | 1.29% | | **Return on average total equity** | 15.47% | 16.51% | 12.72% | 12.52% | 12.26% | | **Net interest margin** | 3.38% | 3.43% | 3.33% | 3.18% | 3.19% | | **Efficiency** | 44.70% | 45.01% | 46.11% | 48.22% | 49.64% | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income grew 8.3% in 2019, driven by higher income and lower provisions, despite slight net interest margin compression [Results of Operations](index=51&type=section&id=Results%20of%20Operations) Net income increased in 2019 due to higher noninterest income and lower loan loss provisions, though the net interest margin tightened Income Statement Summary (2017-2019) | (dollars in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Net interest income** | $155,047 | $151,271 | $135,892 | | **Provision for loan losses** | $3,235 | $6,400 | $3,000 | | **Noninterest income** | $44,997 | $40,302 | $36,040 | | **Noninterest expense** | $89,424 | $86,229 | $79,298 | | **Net Income** | $87,047 | $80,411 | $57,330 | - **Net income increased by 8.3%** in 2019 to $87.0 million, driven by higher noninterest income and a lower provision for loan losses[199](index=199&type=chunk)[201](index=201&type=chunk) - **Net interest margin decreased to 3.38%** in 2019 from 3.43% in 2018 due to higher funding costs[209](index=209&type=chunk) - Noninterest income grew 11.6% in 2019, driven by a **$1.7 million increase in swap fees** from commercial lending[216](index=216&type=chunk) - Noninterest expense increased 3.7% in 2019, mainly from higher salaries and fees, partially offset by a **$1.1 million FDIC insurance credit**[221](index=221&type=chunk) [Financial Condition](index=60&type=section&id=Financial%20Condition) Total assets grew to $4.95 billion in 2019, supported by loan and deposit growth, while stockholders' equity strengthened - Total assets increased by $71.5 million (1.5%) to **$4.947 billion** at year-end 2019, driven by a 3.9% growth in total loans[224](index=224&type=chunk) Loan Portfolio Composition (December 31, 2019) | Loan Category | Amount (in billions) | % of Total Loans | | :--- | :--- | :--- | | Commercial and industrial | $1.427 | 35.1% | | Commercial real estate & multi-family | $1.673 | 41.1% | | Agri-business and agricultural | $0.380 | 9.3% | | Consumer 1-4 family mortgage | $0.377 | 9.3% | | Other | $0.211 | 5.2% | - Total deposits grew by $89.8 million to **$4.134 billion** in 2019, with core deposits representing 97.2% of the total[240](index=240&type=chunk)[243](index=243&type=chunk) - Total stockholders' equity increased by 14.6% to **$598.0 million** in 2019, improving the tangible equity ratio to 12.0%[246](index=246&type=chunk)[247](index=247&type=chunk) [Risk Management](index=70&type=section&id=Risk%20Management) The company actively manages credit, liquidity, and interest rate risks, noting an increase in nonperforming loans in 2019 - **Credit Risk:** Nonperforming loans increased to **$18.7 million (0.46% of total loans)** in 2019, primarily due to a single manufacturing borrower[254](index=254&type=chunk)[256](index=256&type=chunk)[259](index=259&type=chunk) Allowance for Loan Losses | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Allowance for Loan Losses | $50.7 million | $48.5 million | | Allowance / Total Loans | 1.25% | 1.24% | | Allowance / Nonperforming Loans | 270.58% | 667.40% | - **Liquidity Risk:** The company maintains a Contingency Funding Plan with access to **$2.278 billion in secondary funding sources**[277](index=277&type=chunk)[280](index=280&type=chunk) - **Interest Rate Risk:** The company has an asset-sensitive balance sheet; a simulated **100 bps rate drop would decrease net interest income by 5.73%** over 12 months[289](index=289&type=chunk)[300](index=300&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=83&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with an asset-sensitive position vulnerable to falling rates - The company's primary market risk exposure is interest rate risk, with no material foreign currency or trading portfolio exposure[292](index=292&type=chunk) Net Interest Income Sensitivity Analysis (as of Dec 31, 2019) | Rate Scenario | Change in Net Interest Income (12-month) | % Change from Base | | :--- | :--- | :--- | | Rising 300 bps | +$19.1 million | +11.63% | | Rising 100 bps | +$6.7 million | +4.11% | | **Base Case** | **$164.2 million** | **N/A** | | Falling 100 bps | -$9.4 million | -5.73% | - The company relies on net interest income simulation modeling over traditional GAP analysis for more dynamic risk assessment[296](index=296&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=86&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements and the independent auditor's unqualified opinion from Crowe LLP [Report of Independent Registered Public Accounting Firm](index=86&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Crowe LLP issued unqualified opinions on the financial statements and internal controls, identifying the allowance for loan losses as a critical audit matter - Crowe LLP issued an **unqualified opinion** on the fair presentation of the financial statements for the three-year period ended December 31, 2019[303](index=303&type=chunk) - The firm also issued an **unqualified opinion** on the effectiveness of the Company's internal control over financial reporting[303](index=303&type=chunk) - The critical audit matter was the audit of management's determination of **qualitative factors affecting the allowance for loan losses**[311](index=311&type=chunk)[313](index=313&type=chunk) [Consolidated Financial Statements](index=91&type=section&id=Consolidated%20Financial%20Statements) The financial statements detail the company's balance sheet, income, and comprehensive income for the reporting periods Consolidated Balance Sheet Highlights | (in thousands) | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $4,946,745 | $4,875,254 | | Loans, net | $4,015,176 | $3,866,292 | | Total Deposits | $4,133,819 | $4,044,065 | | Total Borrowings | $170,000 | $276,483 | | Total Equity | $598,100 | $521,704 | Consolidated Income Statement Highlights | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net Interest Income | $155,047 | $151,271 | $135,892 | | Provision for Loan Losses | $3,235 | $6,400 | $3,000 | | Noninterest Income | $44,997 | $40,302 | $36,040 | | Noninterest Expense | $89,424 | $86,229 | $79,298 | | Net Income | $87,047 | $80,411 | $57,330 | - **Comprehensive income for 2019 was $105.3 million**, including $87.0 million in net income and $18.3 million in other comprehensive income[320](index=320&type=chunk) [Notes to Consolidated Financial Statements](index=96&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Key notes detail accounting policy changes, loan loss allowance composition, capital adequacy, and other significant financial events - **Note 1 (Accounting Policies):** The upcoming **CECL standard is expected to increase the allowance for credit losses by 8% - 13%** upon adoption[379](index=379&type=chunk)[384](index=384&type=chunk) - **Note 4 (Allowance for Loan Losses):** The allowance increased to **$50.7 million** at year-end 2019, consisting of a $10.4 million specific and a $40.3 million general component[401](index=401&type=chunk)[403](index=403&type=chunk) - **Note 10 (Subordinated Debentures):** On December 31, 2019, the company redeemed **$30.0 million of trust preferred securities**[464](index=464&type=chunk) - **Note 16 (Capital Requirements):** As of December 31, 2019, the company and bank were **well-capitalized**, with a consolidated Total risk-based capital ratio of 14.36%[511](index=511&type=chunk)[512](index=512&type=chunk) - **Note 23 (Warrant):** In February 2019, a warrant was exercised on a cashless basis, resulting in the issuance of **224,066 shares of common stock**[532](index=532&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=117&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - There have been no changes in or disagreements with the Company's accountants in the prior two years[545](index=545&type=chunk) [Item 9A. Controls and Procedures](index=117&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the Company's **disclosure controls and procedures were effective** as of December 31, 2019[546](index=546&type=chunk) - Based on the COSO framework, management concluded that the Company maintained **effective internal control over financial reporting** as of December 31, 2019[549](index=549&type=chunk) [Item 9B. Other Information](index=117&type=section&id=Item%209B.%20Other%20Information) This item is not applicable - Not applicable[551](index=551&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=118&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information is incorporated by reference from the company's 2020 Proxy Statement - The required information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on April 14, 2020[553](index=553&type=chunk) [Item 11. Executive Compensation](index=118&type=section&id=Item%2011.%20Executive%20Compensation) Information is incorporated by reference from the company's 2020 Proxy Statement - The required information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on April 14, 2020[554](index=554&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=118&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information is incorporated by reference from the company's 2020 Proxy Statement - The required information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on April 14, 2020[555](index=555&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=118&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information is incorporated by reference from the company's 2020 Proxy Statement - The required information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on April 14, 2020[557](index=557&type=chunk) [Item 14. Principal Accountant Fees and Services](index=118&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information is incorporated by reference from the company's 2020 Proxy Statement - The required information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on April 14, 2020[558](index=558&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=119&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K report - A list of all exhibits filed with the Form 10-K is provided, including governance documents, compensation plans, and required certifications[561](index=561&type=chunk)[563](index=563&type=chunk) [Item 16. Form 10-K Summary](index=121&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company states there is no summary for the Form 10-K - None[565](index=565&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the periods ended September 30, 2019, and December 31, 2018 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This statement summarizes the company's assets, liabilities, and stockholders' equity at specific points in time Consolidated Balance Sheet Summary (in thousands) | Metric | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Total assets | $4,948,155 | $4,875,254 | | Total liabilities | $4,363,719 | $4,353,550 | | Total stockholders' equity | $584,347 | $521,615 | - Total assets increased by **$72.9 million (1.5%)** from December 31, 2018, to September 30, 2019, driven by growth in net loans and securities[7](index=7&type=chunk)[106](index=106&type=chunk) - Total stockholders' equity increased by **$62.7 million (12.0%)** from December 31, 2018, to September 30, 2019, due to net income and other comprehensive income[7](index=7&type=chunk)[106](index=106&type=chunk)[170](index=170&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) This statement details the company's revenues, expenses, and net income over specific periods Consolidated Income Statement Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $39,545 | $37,925 | $116,165 | $111,681 | | Provision for loan losses | $1,000 | $1,100 | $2,985 | $6,100 | | Noninterest income | $10,765 | $10,624 | $33,878 | $30,225 | | Noninterest expense | $22,737 | $22,200 | $67,302 | $63,705 | | Net income | $21,454 | $20,570 | $64,849 | $59,048 | | Basic EPS | $0.84 | $0.81 | $2.54 | $2.33 | | Diluted EPS | $0.83 | $0.80 | $2.52 | $2.30 | - Net income for the nine months ended September 30, 2019, increased by **9.8% to $64.8 million**, driven by higher income and lower loan loss provisions[8](index=8&type=chunk)[123](index=123&type=chunk) - Diluted EPS for the nine months ended September 30, 2019, increased by **9.6% to $2.52**[8](index=8&type=chunk)[104](index=104&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This statement reports net income and other comprehensive income, such as unrealized gains or losses Consolidated Comprehensive Income Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income | $21,454 | $20,570 | $64,849 | $59,048 | | Total other comprehensive income (loss), net of tax | $3,967 | $(3,566) | $19,658 | $(12,365) | | Comprehensive income | $25,421 | $17,004 | $84,507 | $46,683 | - Comprehensive income for the nine months ended September 30, 2019, increased significantly to **$84.5 million**, driven by unrealized gains on securities[10](index=10&type=chunk)[106](index=106&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This statement tracks changes in equity from net income, dividends, and other comprehensive income Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2019) | Metric (in thousands) | Balance at Jan 1, 2019 | Balance at Sep 30, 2019 | | :--- | :--- | :--- | | Total Stockholders' Equity | $521,615 | $584,347 | | Net income | $64,849 | | | Other comprehensive income, net of tax | $19,658 | | | Cash dividends declared | $(21,965) | | | Stock based compensation expense | $3,626 | | - Stockholders' equity increased by **$62.7 million** from January 1 to September 30, 2019, driven by net income and other comprehensive income[13](index=13&type=chunk)[106](index=106&type=chunk)[170](index=170&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement outlines cash movements from operating, investing, and financing activities Consolidated Cash Flow Summary | Metric (in thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $71,874 | $75,168 | | Net cash from investing activities | $(121,456) | $(81,401) | | Net cash from financing activities | $(30,765) | $12,373 | | Net change in cash and cash equivalents | $(80,347) | $6,140 | | Cash and cash equivalents at end of period | $136,575 | $182,320 | - Net cash used in investing activities increased significantly due to a larger net increase in total loans and purchases of life insurance[14](index=14&type=chunk) - Net cash from financing activities shifted from an inflow to a significant outflow, mainly due to decreases in short-term borrowings and FHLB advances[14](index=14&type=chunk) [Notes to the Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the line items in the financial statements [NOTE 1. BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) This note outlines the basis of presentation for the financial statements and the adoption of new accounting standards - The Company adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing a **$5.5 million right-of-use asset and lease liability**[17](index=17&type=chunk) - Adoption of ASU 2017-08 resulted in a **$1.3 million reduction in retained earnings**, net of tax, due to accelerated premium amortization[18](index=18&type=chunk) - The Company estimates a **5%-15% increase** in its allowance for credit losses upon adoption of the CECL methodology[22](index=22&type=chunk)[24](index=24&type=chunk) [NOTE 2. SECURITIES](index=12&type=section&id=NOTE%202.%20SECURITIES) This note provides details on the company's securities, including fair value, cost, and unrealized gains and losses Securities Available-for-Sale Summary | Metric (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Amortized Cost | $594,564 | $591,621 | | Total Fair Value | $613,230 | $585,549 | | Gross Unrealized Gain | $19,192 | $2,795 | | Gross Unrealized Losses | $(526) | $(8,867) | - The fair value of securities available-for-sale increased by **$27.7 million**, with a significant increase in gross unrealized gains[29](index=29&type=chunk)[106](index=106&type=chunk) - Securities with unrealized losses decreased from **$384.5 million to $49.5 million**, with losses deemed primarily interest rate driven[34](index=34&type=chunk)[37](index=37&type=chunk) [NOTE 3. LOANS](index=15&type=section&id=NOTE%203.%20LOANS) This note details the composition of the company's loan portfolio by segment Loan Portfolio Composition | Loan Category (in thousands) | Sep 30, 2019 | % of Total | Dec 31, 2018 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial loans | $1,432,330 | 35.6% | $1,405,379 | 35.9% | | Commercial real estate and multi-family residential loans | $1,680,808 | 41.7% | $1,569,635 | 40.1% | | Agri-business and agricultural loans | $329,967 | 8.2% | $370,513 | 9.5% | | Other commercial loans | $100,100 | 2.5% | $95,657 | 2.4% | | Consumer 1-4 family mortgage loans | $390,775 | 9.7% | $389,078 | 9.9% | | Other consumer loans | $90,631 | 2.3% | $86,064 | 2.2% | | Subtotal | $4,024,611 | 100.0% | $3,916,326 | 100.0% | | Less: Allowance for loan losses | $(50,628) | | $(48,453) | | | Loans, net | $3,972,593 | | $3,866,292 | | - Net loans increased by **$106.3 million (2.8%)**, driven by growth in commercial real estate and commercial and industrial loans[38](index=38&type=chunk)[106](index=106&type=chunk)[151](index=151&type=chunk) - Agri-business and agricultural loans decreased by **$40.5 million** due to seasonal repayments and yield curve impacts[38](index=38&type=chunk)[151](index=151&type=chunk) [NOTE 4. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY](index=16&type=section&id=NOTE%204.%20ALLOWANCE%20FOR%20LOAN%20LOSSES%20AND%20CREDIT%20QUALITY) This note details activity in the allowance for loan losses, impaired loans, and credit quality indicators Allowance for Loan Losses Activity | Metric (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Provision for loan losses | $1,000 | $1,100 | $2,985 | $6,100 | | Net loans charged-off | $(936) | $(463) | $(810) | $(4,878) | | Ending ALL balance | $50,628 | $48,343 | $50,628 | $48,343 | - The provision for loan losses decreased significantly to **$3.0 million** for the first nine months of 2019, compared to $6.1 million in 2018[40](index=40&type=chunk)[135](index=135&type=chunk) - Total impaired loans increased by **$1.4 million (5.3%) to $28.1 million** at September 30, 2019, due to an increase in nonaccrual loans[41](index=41&type=chunk)[155](index=155&type=chunk) - The allowance for loan losses as a percentage of total loans increased slightly to **1.26%** at September 30, 2019[157](index=157&type=chunk) [NOTE 5. FAIR VALUE DISCLOSURES](index=30&type=section&id=NOTE%205.%20FAIR%20VALUE%20DISCLOSURES) This note describes the fair value measurement hierarchy and methodologies for various financial instruments - The Company's fair value measurements primarily use **Level 2 inputs** for securities and derivatives, reflecting observable market data[68](index=68&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk)[79](index=79&type=chunk) - **Impaired loans** are measured at fair value on a nonrecurring basis, primarily using **Level 3 inputs** based on collateral appraisals[73](index=73&type=chunk)[83](index=83&type=chunk) Fair Value of Impaired Loans (Collateral Based) | Asset Category (in thousands) | Fair Value (Sep 30, 2019) | Valuation Methodology | Unobservable Inputs (Average Discount) | | :--- | :--- | :--- | :--- | | Commercial and industrial impaired loans | $8,255 | Collateral based | 53% (1%-100%) | | Commercial real estate impaired loans | $973 | Collateral based | 42% (30%-100%) | | Agri-business and agricultural impaired loans | $57 | Collateral based | 61% | | Consumer 1-4 family mortgage impaired loans | $1,044 | Collateral based | 13% (5%-100%) | [NOTE 6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE](index=38&type=section&id=NOTE%206.%20SECURITIES%20SOLD%20UNDER%20AGREEMENTS%20TO%20REPURCHASE) This note describes collateralized borrowings from securities sold under repurchase agreements - The Company had **no securities sold under agreements to repurchase** at September 30, 2019, a decrease from $75.6 million at year-end 2018[89](index=89&type=chunk) [NOTE 7. EMPLOYEE BENEFIT PLANS](index=38&type=section&id=NOTE%207.%20EMPLOYEE%20BENEFIT%20PLANS) This note provides details on the net periodic benefit cost for the company's pension and SERP plans Net Periodic Benefit Cost | Metric (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net pension expense (benefit) | $21 | $37 | $62 | $111 | | Net SERP expense (benefit) | $13 | $12 | $41 | $35 | - The Company contributed **$27,000** to its pension plan as of September 30, 2019, to maintain full funding[90](index=90&type=chunk) - There is **no service cost** for the pension plan or SERP as the plans were frozen effective April 1, 2000[90](index=90&type=chunk) [NOTE 8. OFFSETTING ASSETS AND LIABILITIES](index=40&type=section&id=NOTE%208.%20OFFSETTING%20ASSETS%20AND%20LIABILITIES) This note summarizes information about financial instruments subject to master netting arrangements Offsetting Financial Instruments | Metric (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Gross Interest Rate Swap Derivatives (Assets) | $8,992 | $3,869 | | Gross Interest Rate Swap Derivatives (Liabilities) | $9,802 | $4,025 | | Repurchase Agreements (Liabilities) | $0 | $75,555 | - The Company had **no repurchase agreements** outstanding at September 30, 2019, compared to $75.6 million at year-end 2018[93](index=93&type=chunk) [NOTE 9. EARNINGS PER SHARE](index=40&type=section&id=NOTE%209.%20EARNINGS%20PER%20SHARE) This note provides the calculation of basic and diluted earnings per common share Earnings Per Share Calculation | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Basic EPS | $0.84 | $0.81 | $2.54 | $2.33 | | Diluted EPS | $0.83 | $0.80 | $2.52 | $2.30 | | Weighted average shares outstanding for basic EPS | 25,622,338 | 25,301,033 | 25,576,740 | 25,284,085 | | Dilutive effect of stock options, awards and warrants | 174,358 | 444,118 | 168,289 | 435,608 | - Diluted EPS increased by **$0.22 (9.6%)** for the nine months ended September 30, 2019, compared to the prior year period[96](index=96&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) [NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)](index=41&type=section&id=NOTE%2010.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20INCOME%20(LOSS)) This note summarizes the changes within each classification of accumulated other comprehensive income Changes in Accumulated Other Comprehensive Income | Metric (in thousands) | Balance at Jan 1, 2019 | Net current period other comprehensive income | Balance at Sep 30, 2019 | | :--- | :--- | :--- | :--- | | Unrealized Gains and (Losses) on Available-for-Sales Securities | $(4,796) | $19,542 | $14,746 | | Defined Benefit Pension Gains (Losses) | $(1,395) | $116 | $(1,279) | | Total | $(6,191) | $19,658 | $13,467 | - Accumulated other comprehensive income shifted from a **loss of $6.2 million to a gain of $13.5 million**, driven by a $19.5 million increase in unrealized gains[99](index=99&type=chunk)[106](index=106&type=chunk) [NOTE 11. LEASES](index=43&type=section&id=NOTE%2011.%20LEASES) This note details the company's accounting for leases, including right-of-use assets and lease liabilities - The Company recognized a **right-of-use asset and lease liability of $5.2 million** each as of September 30, 2019, for operating leases[103](index=103&type=chunk) Lease Metrics | Lease Metric (in thousands) | 9 Months Ended Sep 30, 2019 | | :--- | :--- | | Total lease cost | $390 | | Operating cash outflows from operating leases | $372 | | Weighted-average remaining lease term | 10.1 years | | Weighted average discount rate | 2.8% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and key trends [Overview](index=46&type=section&id=OVERVIEW) This overview highlights key performance metrics and financial condition changes for the reported periods Key Performance Metrics | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income | $64.8 million | $59.0 million | $21.5 million | $20.6 million | | Diluted EPS | $2.52 | $2.30 | $0.83 | $0.80 | | Annualized return on average total equity | 15.68% | 16.42% | 14.78% | 16.55% | | Annualized return on average total assets | 1.76% | 1.67% | 1.72% | 1.72% | | Average equity to average assets ratio | 11.22% | 10.16% | 11.65% | 10.38% | - Net income for the first nine months of 2019 increased by **9.8% to $64.8 million**, and diluted EPS rose by **9.6% to $2.52**[104](index=104&type=chunk) - Total assets increased by **$72.9 million (1.5%) to $4.948 billion**, driven by growth in net loans and securities[106](index=106&type=chunk) [Critical Accounting Policies](index=46&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section describes accounting policies requiring significant management judgment and estimation - The Company's critical accounting policies include determining the **allowance for loan losses** and the valuation of **investment securities**[107](index=107&type=chunk) - The allowance for loan losses is determined through a detailed process considering portfolio quality, economic conditions, and historical loss analysis[108](index=108&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk) - **Other-than-temporary impairment** for investment securities is assessed based on the extent of unrealized loss and the Company's intent to hold the security[119](index=119&type=chunk)[120](index=120&type=chunk) [Results of Operations](index=50&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's operational performance and financial results [Overview](index=50&type=section&id=Overview) This overview summarizes key financial performance metrics for the three and nine months ended September 30, 2019 and 2018 Financial Performance Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $39,545 | $37,925 | $116,165 | $111,681 | | Provision for loan losses | $1,000 | $1,100 | $2,985 | $6,100 | | Noninterest income | $10,765 | $10,624 | $33,878 | $30,225 | | Noninterest expense | $22,737 | $22,200 | $67,302 | $63,705 | | Efficiency ratio | 45.19% | 45.51% | 44.86% | 44.81% | | Diluted EPS | $0.83 | $0.80 | $2.52 | $2.30 | - Net income for the first nine months of 2019 increased by **$5.8 million (9.8%) to $64.8 million**, driven by growth in net interest and noninterest income[123](index=123&type=chunk) [Net Interest Income](index=52&type=section&id=Net%20Interest%20Income) This section analyzes changes in net interest income, interest income, and interest expense Net Interest Income and Margin | Metric (in thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $116,165 | $111,681 | $39,545 | $37,925 | | Yield on earning assets | 4.75% | 4.41% | 4.67% | 4.53% | | Cost of funds (as % of average earning assets) | 1.35% | 1.01% | 1.29% | 1.11% | | Tax equivalent net interest margin | 3.40% | 3.40% | 3.38% | 3.42% | - Net interest income increased by **$4.5 million (4.0%)** for the nine months ended September 30, 2019, due to a **$185.3 million** increase in average earning assets[130](index=130&type=chunk) - The tax equivalent net interest margin remained stable at **3.40%** for the nine-month period but declined to **3.38%** for the third quarter of 2019[132](index=132&type=chunk)[134](index=134&type=chunk) [Provision for Loan Losses](index=56&type=section&id=Provision%20for%20Loan%20Losses) This section discusses the provision for loan losses, highlighting a decrease in expense due to lower net charge-offs Provision and Net Charge-offs | Metric (in thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Provision for loan loss expense | $3,000 | $6,100 | $1,000 | $1,100 | | Net charge-offs | $810 | $4,900 | $936 | $463 | - The provision for loan loss expense decreased by **$3.1 million** for the nine months ended September 30, 2019, due to lower net charge-offs[135](index=135&type=chunk) [Noninterest Income](index=57&type=section&id=Noninterest%20Income) This section analyzes the components of noninterest income, detailing increases across various fee categories Noninterest Income Breakdown | Noninterest Income Category (in thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Dollar Change | Percent Change | | :--- | :--- | :--- | :--- | :--- | | Wealth advisory fees | $5,002 | $4,676 | $326 | 7.0% | | Investment brokerage fees | $1,300 | $1,043 | $257 | 24.6% | | Service charges on deposit accounts | $12,791 | $11,542 | $1,249 | 10.8% | | Loan and service fees | $7,403 | $6,925 | $478 | 6.9% | | Mortgage banking income | $1,256 | $998 | $258 | 25.9% | | Total noninterest income | $33,878 | $30,225 | $3,653 | 12.1% | - Total noninterest income increased by **$3.7 million (12.1%)** for the nine months ended September 30, 2019, with broad-based growth[137](index=137&type=chunk) - Mortgage banking income increased by **$317,000 (99.4%)** for the third quarter of 2019, driven by mortgage refinance volumes[138](index=138&type=chunk) [Noninterest Expense](index=58&type=section&id=Noninterest%20Expense) This section details changes in noninterest expense categories, including salaries, professional fees, and FDIC insurance Noninterest Expense Breakdown | Noninterest Expense Category (in thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Dollar Change | Percent Change | | :--- | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $37,231 | $36,267 | $964 | 2.7% | | Professional fees | $3,487 | $2,716 | $771 | 28.4% | | Other expense | $6,880 | $5,346 | $1,534 | 28.7% | | FDIC insurance and other regulatory fees | $566 | $1,282 | $(716) | (55.9%) | | Total noninterest expense | $67,302 | $63,705 | $3,597 | 5.6% | - Total noninterest expense increased by **$3.6 million (5.6%)**, driven by higher salaries, professional fees, and other expenses[139](index=139&type=chunk) - **FDIC insurance fees decreased significantly** due to credits received against the Bank's deposit insurance assessment[139](index=139&type=chunk)[140](index=140&type=chunk) [Income Tax Expense](index=60&type=section&id=Income%20Tax%20Expense) This section provides an overview of the company's income tax expense and effective tax rates Income Tax Summary | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $14,907 | $13,053 | $5,119 | $4,679 | | Effective tax rate | 18.7% | 18.1% | 19.3% | 18.5% | - Income tax expense increased by **$1.9 million** for the nine months ended September 30, 2019, with the effective tax rate rising to **18.7%**[142](index=142&type=chunk) [Financial Condition](index=60&type=section&id=FINANCIAL%20CONDITION) This section analyzes the company's balance sheet, including assets, liabilities, and capital resources [Overview](index=60&type=section&id=Overview) This overview summarizes the company's total assets, their growth drivers, and changes in funding sources - Total assets increased by **$72.9 million (1.5%) to $4.948 billion**, driven by a $106.3 million increase in net loans[143](index=143&type=chunk) - Total deposits increased by **$239.3 million**, primarily from core deposits, while total borrowings decreased by **$245.6 million**[143](index=143&type=chunk) [Uses of Funds](index=60&type=section&id=Uses%20of%20Funds) This section details changes in the company's uses of funds, focusing on cash, investments, and loans held-for-sale - Total cash and cash equivalents decreased by **$80.3 million (37%) to $136.6 million**[144](index=144&type=chunk) - The fair value of the investment portfolio increased by **$27.7 million to $613.2 million**, with purchases totaling $91.7 million[145](index=145&type=chunk)[146](index=146&type=chunk) Investment Portfolio Summary | Investment Category (in thousands) | Amortized Cost (Sep 30, 2019) | Fair Value (Sep 30, 2019) | Amortized Cost (Dec 31, 2018) | Fair Value (Dec 31, 2018) | | :--- | :--- | :--- | :--- | :--- | | U.S. Treasury securities | $995 | $1,007 | $994 | $987 | | U.S. government sponsored agencies | $2,303 | $2,308 | $4,435 | $4,350 | | Mortgage-backed securities: residential | $291,427 | $296,232 | $329,516 | $325,412 | | Mortgage-backed securities: commercial | $37,335 | $37,669 | $38,712 | $38,141 | | State and municipal securities | $262,504 | $276,014 | $217,964 | $216,659 | | Total | $594,564 | $613,230 | $591,621 | $585,549 | [Loan Portfolio](index=62&type=section&id=Loan%20Portfolio) This section provides a detailed breakdown of the loan portfolio and discusses changes in non-performing assets Loan Portfolio Growth | Loan Category (in thousands) | Sep 30, 2019 | Dec 31, 2018 | Current Period Change | | :--- | :--- | :--- | :--- | | Commercial and industrial loans | $1,432,330 | $1,405,379 | $26,951 | | Commercial real estate and multi-family residential loans | $1,680,808 | $1,569,635 | $111,173 | | Agri-business and agricultural loans | $329,967 | $370,513 | $(40,546) | | Total gross loans | $4,024,611 | $3,916,326 | $108,285 | | Loans, net | $3,972,593 | $3,866,292 | $106,301 | Non-performing Assets | Non-performing Assets (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Nonaccrual loans | $18,657 | $7,260 | | Total nonperforming loans | $18,963 | $7,260 | | Total nonperforming assets | $19,286 | $7,576 | | Nonperforming loans to total loans | 0.47% | 0.19% | | Nonperforming assets to total assets | 0.39% | 0.16% | - Total nonperforming assets increased by **$11.7 million (154.6%) to $19.3 million**, due to four commercial relationships being placed in nonaccrual status[153](index=153&type=chunk) - The allowance for loan losses increased by **$2.2 million (4.5%) to $50.6 million**[163](index=163&type=chunk) [Sources of Funds](index=68&type=section&id=Sources%20of%20Funds) This section analyzes the company's funding sources, including deposits and borrowings Funding Source Summary | Funding Source (in thousands) | Balance (Sep 30, 2019) | Rate (Sep 30, 2019) | Balance (Sep 30, 2018) | Rate (Sep 30, 2018) | | :--- | :--- | :--- | :--- | :--- | | Noninterest bearing demand deposits | $923,253 | 0.00% | $841,797 | 0.00% | | Total deposits | $4,220,248 | 1.40% | $4,070,565 | 1.03% | | FHLB advances and other borrowings | $111,771 | 3.11% | $151,161 | 1.83% | | Total funding sources | $4,332,019 | 1.44% | $4,221,726 | 1.06% | - Total deposits increased by **$239.3 million (5.9%)**, with core deposits increasing by **$287.5 million**[167](index=167&type=chunk) - Total borrowings decreased significantly by **$245.6 million (88.8%)**, due to repayments of FHLB advances and repurchase agreements[169](index=169&type=chunk) [Capital](index=69&type=section&id=Capital) This section discusses the company's stockholders' equity and regulatory capital ratios - Total stockholders' equity increased by **$62.7 million (12.0%) to $584.3 million**, driven by net income and other comprehensive income[170](index=170&type=chunk) - The Company and the Bank remained **'well-capitalized'** under regulatory guidelines as of September 30, 2019[172](index=172&type=chunk) Consolidated Capital Ratios | Capital Ratio (Consolidated) | Sep 30, 2019 (Actual) | Minimum Required for Capital Adequacy | Minimum Required for Well Capitalized | | :--- | :--- | :--- | :--- | | Total Capital (to Risk Weighted Assets) | 14.78% | 8.00% | N/A | | Tier I Capital (to Risk Weighted Assets) | 13.62% | 6.00% | N/A | | Common Equity Tier 1 (CET1) | 12.94% | 4.50% | N/A | | Tier I Capital (to Average Assets) | 12.07% | 4.00% | N/A | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=74&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section addresses the company's primary market risk exposure, which is interest rate risk, and its management approach - **Interest rate risk** is the Company's primary market risk exposure, managed through computer simulated earnings impact analysis[179](index=179&type=chunk) - The Company's current balance sheet structure is considered within **acceptable risk levels**, with net interest income projected to increase in rising rate environments[179](index=179&type=chunk)[182](index=182&type=chunk) Net Interest Income Sensitivity Analysis | Interest Rate Scenario | Net Interest Income (in thousands) | Percent of change from Base | | :--- | :--- | :--- | | Base | $160,465 | | | Falling 100 Basis Points | $149,468 | (6.85)% | | Rising 100 Basis Points | $168,806 | 5.20% | | Rising 300 Basis Points | $183,878 | 14.59% | [Item 4. Controls and Procedures](index=74&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms management's evaluation of the effectiveness of the company's disclosure controls and procedures - The Company's disclosure controls and procedures were **effective** as of September 30, 2019[183](index=183&type=chunk) - **No material changes** to the Company's internal control over financial reporting occurred during the quarter ended September 30, 2019[184](index=184&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=76&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no material pending legal proceedings against the company or its subsidiaries - **No material pending legal proceedings** exist against the Company or its subsidiaries[186](index=186&type=chunk) [Item 1A. Risk Factors](index=76&type=section&id=Item%201A.%20Risk%20Factors) This section indicates no material changes to previously disclosed risk factors - There have been **no material changes** to the risk factors disclosed in the Company's Form 10-K for the year ended December 31, 2018[187](index=187&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=76&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the issuance of common stock and the company's share repurchase program - On February 8, 2019, the Company issued **224,066 shares** of common stock through a cashless exercise of a warrant[188](index=188&type=chunk) - The board approved a share repurchase program authorizing up to **$30 million** in common stock repurchases, expiring December 31, 2019[189](index=189&type=chunk) Share Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | | July 1-31 | 3,497 | $46.48 | $30,000,000 | | August 1-31 | 1,203 | $43.98 | $30,000,000 | | September 1-30 | 0 | $0 | $30,000,000 | | Total | 4,700 | $45.84 | $30,000,000 | [Item 3. Defaults Upon Senior Securities](index=76&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities - **No defaults** upon senior securities occurred[190](index=190&type=chunk) [Item 4. Mine Safety Disclosures](index=76&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that there are no mine safety disclosures - **No mine safety disclosures** are reported[191](index=191&type=chunk) [Item 5. Other Information](index=76&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to disclose - **No other information** is disclosed[191](index=191&type=chunk) [Item 6. Exhibits](index=78&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q - Exhibits include **CEO and CFO certifications** and Interactive Data Files (XBRL) for the consolidated financial statements[193](index=193&type=chunk) [SIGNATURES](index=79&type=section&id=SIGNATURES) This section contains the signatures of the company's authorized officers certifying the report filing - The report was signed on **November 1, 2019**, by the President and CEO, EVP and CFO, and SVP and Chief Accounting Officer[196](index=196&type=chunk)