Lakeland Financial Corporation
10/28/2026 | Press release | Distributed by Public on 10/28/2026 04:57
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net income in the first nine months of 2026 was $83.8 million, which increased $10.3 million, or 14.0%, from $73.5 million for the comparable period of 2025. Diluted earnings per common share were $3.31 in the first nine months of 2026, an increase of 16.1% from $2.85 in the comparable period of 2025. The increase in net income for 2026 was primarily due to an increase to net interest income of $12.0 million, or 7.3%, an increase in noninterest income of $2.4 million, or 6.8%, and a decrease in the provision for credit losses of $6.9 million, or 58.4%. Offsetting these positive contributions to the increase in net income was an increase in noninterest expense of $7.6 million, or 7.7%, and an increase to income tax expense of $3.4 million, or 21.5%. Pretax pre-provision earnings, a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense, were $107.8 million in the first nine months of 2026, an increase of $6.8 million, or 6.7%, compared to $101.0 million for the comparable period of 2025.
Return on average total equity was 14.59% in the first nine months of 2026 versus 13.96% in the comparable period of 2025. Return on average total assets was 1.57% in the first nine months of 2026 versus 1.44% for the comparable period of 2025. The Company's average equity to average assets ratio was 10.72% in the first nine months of 2026 versus 10.29% in the comparable period of 2025.
Net income in the third quarter of 2026 was $28.9 million, an increase of $2.5 million, or 9.3%, from $26.4 million for the comparable period of 2025. Diluted earnings per common share were $1.14 in the third quarter of 2026, an increase of 10.7% from $1.03 in the comparable period of 2025. The increase was driven primarily by an increase in net interest income of $4.6 million, or 8.3%, and a decrease in provision for credit losses of $800,000, or 40.0%. Offsetting these positive contributions to the increase in net income was an increase in noninterest expense of $1.2 million, or 3.3%, an increase in income tax expense of $1.2 million, or 20.5%, and a decrease in noninterest income of $680,000, or 5.2%. Pretax pre-provision earnings in the third quarter of 2026 were $36.9 million, an increase of $2.8 million, or 8.3%, compared to $34.1 million for the comparable period of 2025.
Return on average total equity was 14.88% in the third quarter of 2026 versus 14.60% in the comparable period of 2025. Return on average total assets was 1.59% in the third quarter of 2026 versus 1.53% in the comparable period of 2025. The average equity to average assets ratio was 10.69% in the third quarter of 2026 versus 10.47% in the comparable period of 2025.
The Company's tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 10.11% at September 30, 2026, compared to 10.79% at September 30, 2025 and 10.86% at December 31, 2025. Unrealized losses from available-for-sale investment securities were $213.9 million at September 30, 2026, compared to $159.9 million at September 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 12.32% at September 30, 2026, compared to 12.57% at September 30, 2025 and 12.45% at December 31, 2025.
Total assets were $7.208 billion as of September 30, 2026 versus $6.990 billion as of December 31, 2025, an increase of $217.9 million, or 3.1%. Balance sheet expansion was driven by loan growth with total loans, net of the allowance for credit losses, increasing by $304.8 million, or 5.7%. The increase in loans was offset by a decrease in available-for-sale securities of $96.0 million, or 9.1%, and a decrease in cash and cash equivalents of $25.6 million, or 18.1%. The balance sheet expansion from December 31, 2025 to September 30, 2026 was funded by an increase in total deposits of $321.4 million, or 5.4%, and was offset by a decrease in borrowings of $82.9 million, or 45.0%. Total equity decreased $30.4 million, or 4.0%, from $762.5 million at December 31, 2025 to $732.1 million at September 30, 2026. Driving the decrease in total equity was a decrease in accumulated other comprehensive income (loss) of $54.6 million, driven by a decline in available-for-sale market valuations, and an increase in treasury stock, which increased by $26.2 million, or 73.4%, from the Company's utilization of its share repurchase program. Offsetting these items was an increase in retained earnings of $44.5 million, or 5.6%, primarily as a result of net income of $83.8 million less dividends declared and paid of $39.3 million. The combined effect of the repurchase activity under the share repurchase program and dividends paid during the first nine months of 2026 represented a total return of capital to Company shareholders of $65.3 million.
CRITICAL ACCOUNTING POLICIES
The Company's accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025.
Certain of the Company's accounting policies are important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Some of the facts and circumstances which could affect these judgments include changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for credit losses. See "Note 4 - Allowance for Credit Losses and Credit Quality" for more information on this critical accounting policy.
RESULTS OF OPERATIONS
Overview
Selected income statement information for the three and nine months ended September 30, 2026 and 2025 is presented in the following table:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Income Statement Summary: | ||||||||||||||||||||||||||
| Net interest income (A) | $ | 60,721 | 56,073 | $ | 175,795 | $ | 163,824 | |||||||||||||||||||
| Provision for credit losses | 1,200 | 2,000 | 4,908 | 11,800 | ||||||||||||||||||||||
| Noninterest income (B) | 12,274 | 12,954 | 37,779 | 35,368 | ||||||||||||||||||||||
| Noninterest expense (C) | 36,121 | 34,965 | 105,729 | 98,160 | ||||||||||||||||||||||
| Other Data: | ||||||||||||||||||||||||||
| Efficiency ratio (1) | 49.48 | % | 50.65 | % | 49.50 | % | 49.28 | % | ||||||||||||||||||
| Diluted EPS | $ | 1.14 | $ | 1.03 | $ | 3.31 | $ | 2.85 | ||||||||||||||||||
| Average Equity/Average Assets | 10.69 | % | 10.47 | % | 10.72 | % | 10.29 | % | ||||||||||||||||||
| Tangible capital ratio (2) | 10.11 | 10.79 | 10.11 | 10.79 | ||||||||||||||||||||||
| Adjusted tangible capital ratio (3) | 12.32 | 12.57 | 12.32 | 12.57 | ||||||||||||||||||||||
| Net charge-offs to average loans | 0.21 | 0.03 | 0.12 | 0.76 | ||||||||||||||||||||||
| Net interest margin | 3.58 | 3.50 | 3.52 | 3.44 | ||||||||||||||||||||||
| Noninterest income to total revenue | 16.81 | 18.77 | 17.69 | 17.76 | ||||||||||||||||||||||
| Pretax pre-provision earnings (4) | $ | 36,874 | $ | 34,062 | $ | 107,845 | $ | 101,032 | ||||||||||||||||||
(1)Noninterest expense (C) / (Net interest income (A) + Noninterest income (B)) = Efficiency Ratio
(2)Non-GAAP financial measure. Calculated by subtracting intangible assets, net of deferred tax, from total assets and total equity. Management believes this is an important measure because it is useful for planning and forecasting purposes. See reconciliation on the following pages.
(3)Non-GAAP financial measure. Calculated by removing the fair market value adjustment impact of the available-for-sale investment securities portfolio included in accumulated other comprehensive income (loss) ("AOCI") from tangible equity and tangible assets. Management believes this is an important measure because it provides better comparability to periods preceding the cycle of monetary policy tightening from 2022 and 2023 and demonstrates the Company's longer-term trend in capital strength. See reconciliation on the following pages.
(4)Non-GAAP financial measure. Pretax pre-provision earnings is calculated by adding net interest income to noninterest income and subtracting noninterest expense. Management believes this is an important measure because it may enable investors to identify the trends in the Company's earnings exclusive of the effects of tax and provision expense, which may vary significantly from period to period. See reconciliation on the following pages.
The Company believes that providing non-GAAP financial measures provides investors with information useful to understanding the Company's financial performance.
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 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.
A reconciliation of these non-GAAP financial measures is provided below.
| As of and For The | As of and For The | |||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands, except per share data) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Total Equity | $ | 732,094 | $ | 747,503 | $ | 732,094 | $ | 747,503 | ||||||||||||||||||
| Less: Goodwill | (4,970) | (4,970) | (4,970) | (4,970) | ||||||||||||||||||||||
| Plus: Deferred Tax Assets Related to Goodwill | 1,167 | 1,167 | 1,167 | 1,167 | ||||||||||||||||||||||
| Tangible Common Equity (A) | 728,291 | 743,700 | 728,291 | 743,700 | ||||||||||||||||||||||
| Market Value Adjustment in AOCI | 181,273 | 140,165 | 181,273 | 140,165 | ||||||||||||||||||||||
| Adjusted Tangible Common Equity (C) | 909,564 | 883,865 | 909,564 | 883,865 | ||||||||||||||||||||||
| Total Assets | $ | 7,207,927 | $ | 6,895,028 | $ | 7,207,927 | $ | 6,895,028 | ||||||||||||||||||
| Less: Goodwill | (4,970) | (4,970) | (4,970) | (4,970) | ||||||||||||||||||||||
| Plus: Deferred Tax Assets Related to Goodwill | 1,167 | 1,167 | 1,167 | 1,167 | ||||||||||||||||||||||
| Tangible Assets (B) | 7,204,124 | 6,891,225 | 7,204,124 | 6,891,225 | ||||||||||||||||||||||
| Market Value Adjustment in AOCI | 181,273 | 140,165 | 181,273 | 140,165 | ||||||||||||||||||||||
| Adjusted Tangible Assets (D) | 7,385,397 | 7,031,390 | 7,385,397 | 7,031,390 | ||||||||||||||||||||||
| Ending Common Shares Issued (E) | 24,994,459 | 25,704,243 | 24,994,459 | 25,704,243 | ||||||||||||||||||||||
| Tangible Book Value per Common Share (A/E) | $ | 29.14 | $ | 28.93 | $ | 29.14 | $ | 28.93 | ||||||||||||||||||
| Tangible Capital Ratio (A/B) | 10.11 | % | 10.79 | % | 10.11 | % | 10.79 | % | ||||||||||||||||||
| Adjusted Tangible Capital Ratio (C/D) | 12.32 | % | 12.57 | % | 12.32 | % | 12.57 | % | ||||||||||||||||||
| Net Interest Income | $ | 60,721 | $ | 56,073 | $ | 175,795 | $ | 163,824 | ||||||||||||||||||
| Plus: Noninterest Income | 12,274 | 12,954 | 37,779 | 35,368 | ||||||||||||||||||||||
| Minus: Noninterest Expense | (36,121) | (34,965) | (105,729) | (98,160) | ||||||||||||||||||||||
| Pretax Pre-Provision Earnings | $ | 36,874 | $ | 34,062 | $ | 107,845 | $ | 101,032 | ||||||||||||||||||
Net Income
Net income was $83.8 million in the first nine months of 2026, which increased $10.3 million, or 14.0%, from $73.5 million for the comparable period of 2025. Diluted earnings per common share were $3.31 in the first nine months of 2026, an increase of 16.1% from $2.85 in the comparable period of 2025. The increase in net income for the first nine months of 2026 was primarily due to an increase to net interest income of $12.0 million, or 7.3%, an increase to noninterest income of $2.4 million, or 6.8%, and a decrease in the provision for credit losses of $6.9 million, or 58.4%. Offsetting these positive contributions to the increase in net income was an increase in noninterest expense of $7.6 million, or 7.7%, and an increase to income tax expense of $3.4 million, or 21.5%.
Net income during the third quarter of 2026 was $28.9 million, an increase of 9.3% from $26.4 million for the comparable period of 2025. Diluted earnings per common share were $1.14 in the third quarter of 2026, an increase of 10.7% from $1.03 in the comparable period of 2025. The increase was driven primarily by an increase in net interest income of $4.6 million, or 8.3%, and a decrease in the provision for credit losses of $800,000, or 40.0%. Offsetting these positive contributions to the increase in net income was an increase in noninterest expense of $1.2 million, or 3.3%, an increase to income tax expense of $1.2 million, or 20.5%, and a decrease in noninterest income of $680,000, or 5.2%.
Net Interest Income
The following tables set forth consolidated information regarding average balances and rates:
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||||||||||||||
| (fully tax equivalent basis, dollars in thousands) | Average Balance | Interest Income |
Yield (1)/ Rate |
Average Balance | Interest Income |
Yield (1)/ Rate |
||||||||||||||||||||||||||||||||
| Earning Assets | ||||||||||||||||||||||||||||||||||||||
| Loans: | ||||||||||||||||||||||||||||||||||||||
| Taxable (2)(3) | $ | 5,495,446 | $ | 257,488 | 6.26 | % | $ | 5,181,704 | $ | 251,648 | 6.49 | % | ||||||||||||||||||||||||||
| Tax exempt (1) | 25,080 | 1,141 | 6.08 | 25,501 | 1,074 | 5.63 | ||||||||||||||||||||||||||||||||
| Investments: | ||||||||||||||||||||||||||||||||||||||
| Securities (1) | 1,167,769 | 26,261 | 3.01 | 1,129,664 | 25,199 | 2.98 | ||||||||||||||||||||||||||||||||
| Short-term investments | 3,230 | 76 | 3.15 | 2,863 | 83 | 3.88 | ||||||||||||||||||||||||||||||||
| Interest bearing deposits | 108,828 | 2,846 | 3.50 | 158,511 | 5,049 | 4.26 | ||||||||||||||||||||||||||||||||
| Total earning assets | $ | 6,800,353 | $ | 287,812 | 5.66 | % | $ | 6,498,243 | $ | 283,053 | 5.82 | % | ||||||||||||||||||||||||||
| Less: Allowance for credit losses | (69,798) | (82,671) | ||||||||||||||||||||||||||||||||||||
| Nonearning Assets | ||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 63,683 | 66,766 | ||||||||||||||||||||||||||||||||||||
| Premises and equipment | 69,192 | 62,079 | ||||||||||||||||||||||||||||||||||||
| Other nonearning assets | 293,420 | 295,345 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 7,156,850 | $ | 6,839,762 | ||||||||||||||||||||||||||||||||||
| Interest Bearing Liabilities | ||||||||||||||||||||||||||||||||||||||
| Savings deposits | $ | 285,318 | $ | 121 | 0.06 | % | $ | 284,797 | $ | 127 | 0.06 | % | ||||||||||||||||||||||||||
| Interest bearing checking accounts | 3,791,936 | 82,370 | 2.90 | 3,662,917 | 90,955 | 3.32 | ||||||||||||||||||||||||||||||||
| Time deposits: | ||||||||||||||||||||||||||||||||||||||
| In denominations under $100,000 | 201,130 | 4,679 | 3.11 | 208,872 | 5,255 | 3.36 | ||||||||||||||||||||||||||||||||
| In denominations over $100,000 | 705,902 | 19,107 | 3.62 | 595,367 | 17,678 | 3.97 | ||||||||||||||||||||||||||||||||
| Short-term borrowings | 81,616 | 2,417 | 3.96 | 54,706 | 1,888 | 4.61 | ||||||||||||||||||||||||||||||||
| Long-term borrowings | 1,216 | 0 | 0.00 | 888 | 0 | 0.00 | ||||||||||||||||||||||||||||||||
| Total interest bearing liabilities | $ | 5,067,118 | $ | 108,694 | 2.87 | % | $ | 4,807,547 | $ | 115,903 | 3.22 | % | ||||||||||||||||||||||||||
| Noninterest Bearing Liabilities | ||||||||||||||||||||||||||||||||||||||
| Demand deposits | 1,252,184 | 1,248,876 | ||||||||||||||||||||||||||||||||||||
| Other liabilities | 70,024 | 79,775 | ||||||||||||||||||||||||||||||||||||
| Stockholders' Equity | 767,524 | 703,564 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 7,156,850 | $ | 6,839,762 | ||||||||||||||||||||||||||||||||||
| Interest Margin Recap | ||||||||||||||||||||||||||||||||||||||
| Interest income/average earning assets | 287,812 | 5.66 | % | 283,053 | 5.82 | % | ||||||||||||||||||||||||||||||||
| Interest expense/average earning assets | 108,694 | 2.14 | 115,903 | 2.38 | ||||||||||||||||||||||||||||||||||
| Net interest income and margin | $ | 179,118 | 3.52 | % | $ | 167,150 | 3.44 | % | ||||||||||||||||||||||||||||||
(1)Tax exempt income was converted to a fully tax 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. Tax equivalent basis adjustment was $3.3 million for the nine-month periods ended September 30, 2026 and 2025.
(2)Loan fees, which are immaterial in relation to total taxable loan interest income for the nine months ended September 30, 2026 and 2025, are included as taxable loan interest income.
(3)Nonaccrual loans are included in the average balance of taxable loans.
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||||||||||||||
| (fully tax equivalent basis, dollars in thousands) | Average Balance | Interest Income |
Yield (1)/ Rate |
Average Balance | Interest Income |
Yield (1)/ Rate |
||||||||||||||||||||||||||||||||
| Earning Assets | ||||||||||||||||||||||||||||||||||||||
| Loans: | ||||||||||||||||||||||||||||||||||||||
| Taxable (2)(3) | $ | 5,560,289 | $ | 88,383 | 6.31 | % | $ | 5,180,847 | $ | 85,490 | 6.55 | % | ||||||||||||||||||||||||||
| Tax exempt (1) | 27,455 | 431 | 6.23 | 24,986 | 354 | 5.62 | ||||||||||||||||||||||||||||||||
| Investments: | ||||||||||||||||||||||||||||||||||||||
| Securities (1) | 1,151,647 | 8,796 | 3.03 | 1,127,094 | 8,444 | 2.97 | ||||||||||||||||||||||||||||||||
| Short-term investments | 3,414 | 27 | 3.14 | 2,795 | 27 | 3.83 | ||||||||||||||||||||||||||||||||
| Interest bearing deposits | 94,965 | 832 | 3.48 | 156,918 | 1,679 | 4.25 | ||||||||||||||||||||||||||||||||
| Total earning assets | $ | 6,837,770 | 98,469 | 5.71 | % | $ | 6,492,640 | 95,994 | 5.87 | % | ||||||||||||||||||||||||||||
| Less: Allowance for credit losses | (70,473) | (67,115) | ||||||||||||||||||||||||||||||||||||
| Nonearning Assets | ||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 59,654 | 62,671 | ||||||||||||||||||||||||||||||||||||
| Premises and equipment | 72,013 | 64,391 | ||||||||||||||||||||||||||||||||||||
| Other nonearning assets | 297,457 | 298,084 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 7,196,421 | $ | 6,850,671 | ||||||||||||||||||||||||||||||||||
| Interest Bearing Liabilities | ||||||||||||||||||||||||||||||||||||||
| Savings deposits | $ | 280,866 | $ | 39 | 0.06 | % | $ | 284,553 | $ | 41 | 0.06 | % | ||||||||||||||||||||||||||
| Interest bearing checking accounts | 3,820,281 | 28,076 | 2.92 | 3,731,706 | 31,382 | 3.34 | ||||||||||||||||||||||||||||||||
| Time deposits: | ||||||||||||||||||||||||||||||||||||||
| In denominations under $100,000 | 199,739 | 1,555 | 3.09 | 204,997 | 1,678 | 3.25 | ||||||||||||||||||||||||||||||||
| In denominations over $100,000 | 743,563 | 6,797 | 3.63 | 563,920 | 5,345 | 3.76 | ||||||||||||||||||||||||||||||||
| Short-term borrowings | 16,957 | 166 | 3.88 | 31,739 | 368 | 4.60 | ||||||||||||||||||||||||||||||||
| Long-term borrowings | 1,249 | 0 | 0.00 | 1,200 | 0 | 0.00 | ||||||||||||||||||||||||||||||||
| Total interest bearing liabilities | $ | 5,062,655 | $ | 36,633 | 2.87 | % | $ | 4,818,115 | $ | 38,814 | 3.20 | % | ||||||||||||||||||||||||||
| Noninterest Bearing Liabilities | ||||||||||||||||||||||||||||||||||||||
| Demand deposits | 1,293,641 | 1,244,381 | ||||||||||||||||||||||||||||||||||||
| Other liabilities | 70,992 | 70,747 | ||||||||||||||||||||||||||||||||||||
| Stockholders' Equity | 769,133 | 717,428 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 7,196,421 | $ | 6,850,671 | ||||||||||||||||||||||||||||||||||
| Interest Margin Recap | ||||||||||||||||||||||||||||||||||||||
| Interest income/average earning assets | 98,469 | 5.71 | % | 95,994 | 5.87 | % | ||||||||||||||||||||||||||||||||
| Interest expense/average earning assets | 36,633 | 2.13 | 38,814 | 2.37 | ||||||||||||||||||||||||||||||||||
| Net interest income and margin | $ | 61,836 | 3.58 | % | $ | 57,180 | 3.50 | % | ||||||||||||||||||||||||||||||
(1)Tax exempt income was converted to a fully tax 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. Tax equivalent basis adjustments were $1.1 million for the three-month periods ended September 30, 2026 and September 30, 2025.
(2)Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended September 30, 2026 and 2025, are included as taxable loan interest income.
(3)Nonaccrual loans are included in the average balance of taxable loans.
Net interest income, on a fully tax equivalent basis, increased $12.0 million, or 7.2%, to $179.1 million for the nine months ended September 30, 2026, compared to $167.2 million for the first nine 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 $7.7 million, or 6.8%, from $114.0 million to $106.3 million. Contributing further to the increase in fully tax equivalent net interest income was an increase in loan interest income of $5.9 million, or 2.3%, from $252.7 million to $258.6 million, and an increase in securities interest income of $1.1 million, or 4.2%, from $25.2 million to $26.3 million. Offsetting these items was an increase in borrowings expense of $529,000, or 28.0%, from $1.9 million to $2.4 million.
Average earning assets were $6.800 billion for the nine months ended September 30, 2026, an increase of $302.1 million, or 4.6%, compared to $6.498 billion for the nine months ended September 30, 2025. Average loans outstanding drove the increase to average earning assets, increasing $313.3 million, or 6.0%, to $5.521 billion from $5.207 billion for the nine months ended September 30, 2026 and 2025, respectively. Average investment securities increased $38.1 million, or 3.4%, to $1.168 billion from $1.130 billion between the respective periods. Average interest bearing liabilities were $5.067 billion for the nine months ended September 30, 2026, an increase of $259.6 million, or 5.4%, from $4.808 billion for the nine months ended September 30, 2025. This increase was driven by growth in average interest bearing deposits of $232.3 million, or 4.9%, from $4.752 billion for the nine months ended September 30, 2025 to $4.984 billion for the nine months ended September 30, 2026. Average short-term borrowings increased by $26.9 million, or 49.2%, between the respective periods. Noninterest bearing demand deposits increased $3.3 million, or 0.3%, to $1.252 billion from $1.249 billion between the two periods.
The fully tax equivalent net interest margin was 3.52% for the nine months ended September 30, 2026, compared to 3.44% during the first nine months of 2025, representing an 8 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 2.14% for the nine months ended September 30, 2026, down from 2.38% for the comparable period of 2025, or a decrease of 24 basis points. This decline was attributable to a decrease in the rate for total interest bearing liabilities of 35 basis points from 3.22% to 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 from the effects of monetary policy easing from the Federal Reserve Bank in late 2025. The average rate for interest bearing deposits declined 36 basis points from 3.21% to 2.85% 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 64 basis points from 4.54% to 3.90%. The improvement in interest expense as a percentage of average earning assets was offset by a 16 basis point reduction in interest income as a percentage of average earning assets, which declined from 5.82% to 5.66%. This decrease was primarily attributable to a decline in average loan yields, which decreased 23 basis points to 6.26% for the nine months ended September 30, 2026, down from 6.49% for the comparable period of 2025. Investment securities yields improved by 3 basis points from 2.98% to 3.01% between the two periods.
Net interest income, on a fully tax equivalent basis, increased by $4.7 million, or 8.1%, to $61.8 million for the three months ended September 30, 2026 as compared to $57.2 million for the three months ended September 30, 2025. The increase in net interest income on a fully tax equivalent basis was driven by an increase in loan interest income of $3.0 million, or 3.5%, from $85.8 million to $88.8 million, a decrease in deposit interest expense of $2.0 million, or 5.1%, from $38.4 million to $36.5 million, and an increase to securities interest income of $352,000, or 4.2%, from $8.4 million to $8.8 million. Additionally, borrowings expense decreased $202,000, or 54.9%, from $368,000 to $166,000.
Average earning assets were $6.838 billion for the third quarter of 2026, an increase of $345.1 million, or 5.3%, compared to $6.493 billion for the third quarter of 2025. The increase in average earning assets was driven by an increase in average loans of $381.9 million, or 7.3%, from $5.206 billion for the third quarter of 2025 to $5.588 billion for the third quarter of 2026. Average investment securities increased $24.6 million, or 2.2%, from $1.127 billion for the third quarter of 2025 to $1.152 billion for the third quarter of 2026. Average interest bearing liabilities were $5.063 billion for the third quarter of 2026, an increase of $244.5 million, or 5.1%, from $4.818 billion for the third quarter of 2025. This increase was driven by growth in interest bearing deposits of $259.3 million, or 5.4%, from $4.785 billion for the third quarter of 2025 to $5.044 billion for the third quarter of 2026. Average short-term borrowings decreased $14.8 million, or 46.6%, from $31.7 million to $17.0 million. Noninterest bearing demand deposits increased $49.3 million, or 4.0%, to $1.294 billion for the third quarter of 2026 from $1.244 billion for the third quarter of 2025.
The fully tax equivalent net interest margin expanded by 8 basis points to 3.58% for the third quarter of 2026, compared to 3.50% for the third quarter of 2025. The net interest margin expansion was primarily driven by a decrease in interest expense as a percentage of average earning assets, which decreased to 2.13% for the third quarter of 2026, down from 2.37% for the comparable period of 2025, or 24 basis points. This decrease was attributable to a decrease in the rate for total interest bearing liabilities of 33 basis points from 3.20% to 2.87% between the respective periods. This decrease was driven by reduced costs associated with the repricing of the Company's interest bearing deposits and borrowings. The average rate for interest bearing deposits declined 32 basis points from 3.19% to 2.87%. Contributing further to the reduction in the rate for interest bearing liabilities was a reduction in the average borrowings rate, which declined 80 basis points from 4.43% to 3.63%. The improvement in interest expense as a percentage of average earning assets was offset by a 16 basis point reduction in interest income as a percentage of average earning assets, which declined from 5.87% for the third quarter of 2025 to 5.71% for the third quarter of 2026. This decrease was primarily attributable to a decrease in loan yields, which decreased 23 basis points from 6.54% to 6.31% between the two periods. Investment securities yields increased 6 basis points to 3.03% from 2.97%.
Provision for Credit Losses
The Company recorded provision for credit losses expense of $4.9 million for the nine months ended September 30, 2026, compared to provision expense of $11.8 million during the comparable period of 2025, a decrease of $6.9 million, or 58.4%. 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 $5.1 million during the nine month period ended September 30, 2026, compared to $29.6 million during the comparable period of 2025 for a decrease of $24.5 million, or 82.9%. Net charge-offs for the first nine months of 2026 were primarily driven by a $2.0 million charge off to one commercial credit during the first quarter and a $2.8 million partial charge off of a separate, unrelated commercial credit during the third 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.
The Company recorded provision expense of $1.2 million during the third quarter of 2026, compared to $2.0 million during the third quarter of 2025. Net charge-offs were $3.0 million during the third quarter of 2026 compared to $384,000 during the third quarter of 2025.
Additional factors considered by management in determining provision expense included key loan quality metrics, reserve coverage of nonperforming loans, economic conditions in the Company's markets, and changes in the facts and circumstances of watch list credits, which includes the security position of the borrower. Management's overall view on current credit quality was also a factor in the determination of the provision for credit losses. The Company's management continues to monitor the adequacy of the provision based on loan levels, asset quality, economic conditions and other factors that may influence the assessment of the collectability of loans.
Noninterest Income
Noninterest income categories for the three and nine months ended September 30, 2026 and 2025 are shown in the following tables:
|
Nine Months Ended September 30, |
||||||||||||||||||||||||||
| (dollars in thousands) | 2026 | 2025 | Dollar Change | Percent Change | ||||||||||||||||||||||
| Wealth advisory fees | $ | 9,233 | $ | 8,389 | $ | 844 | 10.1 | % | ||||||||||||||||||
| Investment brokerage fees | 1,570 | 1,559 | 11 | 0.7 | ||||||||||||||||||||||
| Service charges on deposit accounts | 8,757 | 8,522 | 235 | 2.8 | ||||||||||||||||||||||
| Loan and service fees | 9,302 | 9,309 | (7) | (0.1) | ||||||||||||||||||||||
| Merchant and interchange fee income | 2,489 | 2,568 | (79) | (3.1) | ||||||||||||||||||||||
| Bank owned life insurance income | 3,746 | 2,929 | 817 | 27.9 | ||||||||||||||||||||||
| Interest rate swap fee income | 701 | 20 | 681 | 3,405.0 | ||||||||||||||||||||||
| Mortgage banking income | 297 | 67 | 230 | 343.3 | ||||||||||||||||||||||
| Other income | 1,684 | 2,005 | (321) | (16.0) | ||||||||||||||||||||||
| Total noninterest income | $ | 37,779 | $ | 35,368 | $ | 2,411 | 6.8 | % | ||||||||||||||||||
| Noninterest income to total revenue | 17.69 | % | 17.76 | % | ||||||||||||||||||||||
|
Three Months Ended September 30, |
||||||||||||||||||||||||||
| (dollars in thousands) | 2026 | 2025 | Dollar Change | Percent Change | ||||||||||||||||||||||
| Wealth advisory fees | $ | 3,153 | $ | 2,855 | $ | 298 | 10.4 | % | ||||||||||||||||||
| Investment brokerage fees | 535 | 557 | (22) | (3.9) | ||||||||||||||||||||||
| Service charges on deposit accounts | 3,005 | 2,921 | 84 | 2.9 | ||||||||||||||||||||||
| Loan and service fees | 3,035 | 3,419 | (384) | (11.2) | ||||||||||||||||||||||
| Merchant and interchange fee income | 876 | 892 | (16) | (1.8) | ||||||||||||||||||||||
| Bank owned life insurance income | 1,153 | 1,567 | (414) | (26.4) | ||||||||||||||||||||||
| Mortgage banking income (loss) | 88 | (6) | 94 | (1,566.7) | ||||||||||||||||||||||
| Other income | 429 | 749 | (320) | (42.7) | ||||||||||||||||||||||
| Total noninterest income | $ | 12,274 | $ | 12,954 | $ | (680) | (5.2) | % | ||||||||||||||||||
| Noninterest income to total revenue | 16.81 | % | 18.77 | % | ||||||||||||||||||||||
The Company's noninterest income increased by $2.4 million, or 6.8%, to $37.8 million for the nine months ended September 30, 2026, compared to $35.4 million for the prior year period. Increases in fee-based revenue streams contributed to the increase to noninterest income, with wealth advisory fees improving by $844,000, or 10.1%, and service charges on deposit accounts improving by $235,000, or 2.8%. Conversely, merchant and interchange fee income declined $79,000, or 3.1%. Bank owned life insurance income improved by $817,000, or 27.9%, from improved market performance from variable bank owned life insurance policies, which reflect returns in the equity markets, and incremental income from general account policies purchased in 2025. Interest rate swap fee income improved by $681,000 and mortgage banking income improved $230,000, or 343.3%, from increased volume.
Noninterest income decreased $680,000, or 5.2%, to $12.3 million for the third quarter of 2026, compared to $13.0 million for the third quarter of 2025. Wealth advisory fees increased $298,000, or 10.4%. Mortgage banking income increased $94,000 from increased pipeline volume. Service charges on deposit accounts increased by $84,000, or 2.9%. Equity market declines negatively impacted the performance of the bank's variable owned life insurance policies, which declined by $476,000 during the third quarter of 2026 as compared to the prior quarter. Loan and service fees decreased $384,000, or 11.2%, from reduced commercial loan fees. Other income decreased by $320,000, or 42.7%, from a reduction in limited partnership investment income.
Noninterest Expense
Noninterest expense categories for the three and nine months ended September 30, 2026 and 2025 are shown in the following tables:
|
Nine Months Ended September 30, |
||||||||||||||||||||||||||
| (dollars in thousands) | 2026 | 2025 | Dollar Change | Percent Change | ||||||||||||||||||||||
| Salaries and employee benefits | $ | 61,571 | $ | 55,412 | $ | 6,159 | 11.1 | % | ||||||||||||||||||
| Net occupancy expense | 6,224 | 5,604 | 620 | 11.1 | ||||||||||||||||||||||
| Equipment costs | 4,305 | 4,294 | 11 | 0.3 | ||||||||||||||||||||||
| Data processing fees and supplies | 12,983 | 12,533 | 450 | 3.6 | ||||||||||||||||||||||
| Corporate and business development | 4,365 | 4,129 | 236 | 5.7 | ||||||||||||||||||||||
| FDIC insurance and other regulatory fees | 2,664 | 2,517 | 147 | 5.8 | ||||||||||||||||||||||
| Professional fees | 5,845 | 5,812 | 33 | 0.6 | ||||||||||||||||||||||
| Other expense | 7,772 | 7,859 | (87) | (1.1) | ||||||||||||||||||||||
| Total noninterest expense | $ | 105,729 | $ | 98,160 | $ | 7,569 | 7.7 | % | ||||||||||||||||||
| Efficiency ratio | 49.50 | % | 49.28 | % | ||||||||||||||||||||||
|
Three Months Ended September 30, |
||||||||||||||||||||||||||
| (dollars in thousands) | 2026 | 2025 | Dollar Change | Percent Change | ||||||||||||||||||||||
| Salaries and employee benefits | $ | 20,782 | $ | 20,414 | $ | 368 | 1.8 | % | ||||||||||||||||||
| Net occupancy expense | 2,153 | 1,877 | 276 | 14.7 | ||||||||||||||||||||||
| Equipment costs | 1,432 | 1,475 | (43) | (2.9) | ||||||||||||||||||||||
| Data processing fees and supplies | 4,350 | 4,116 | 234 | 5.7 | ||||||||||||||||||||||
| Corporate and business development | 1,630 | 1,563 | 67 | 4.3 | ||||||||||||||||||||||
| FDIC insurance and other regulatory fees | 910 | 878 | 32 | 3.6 | ||||||||||||||||||||||
| Professional fees | 2,123 | 1,726 | 397 | 23.0 | ||||||||||||||||||||||
| Other expense | 2,741 | 2,916 | (175) | (6.0) | ||||||||||||||||||||||
| Total noninterest expense | $ | 36,121 | $ | 34,965 | $ | 1,156 | 3.3 | % | ||||||||||||||||||
| Efficiency ratio | 49.48 | % | 50.65 | % | ||||||||||||||||||||||
The Company's noninterest expense increased by $7.6 million, or 7.7%, for the nine months ended September 30, 2026, to $105.7 million compared to $98.2 million for the comparable period of 2025. Salaries and employee benefits expense increased $6.2 million, or 11.1%, primarily due to increased salaries and wages of $2.9 million, performance-based incentive compensation accruals of $1.6 million, health insurance expense of $1.3 million, and variable deferred compensation expense of $370,000. Net occupancy expense increased $620,000, or 11.1%, from investing in our retail branch and operational infrastructure, including the completion of construction and opening of the Innovation and Technology Center at the Company's downtown Warsaw headquarters. Data processing fees and supplies expense increased $450,000, or 3.6%, from continued investment in customer-facing and operational technology solutions. Corporate and business development expense increased $236,000, or 5.7%, from increased advertising and corporate development expenses. FDIC insurance and other regulatory fees increased $147,000, or 5.8%, from increased FDIC insurance premium accruals due to balance sheet growth.
Noninterest expense increased $1.2 million, or 3.3%, to $36.1 million for the third quarter of 2026, compared to $35.0 million during the third quarter of 2025. Salaries and employee benefits expense increased by $368,000, or 1.8%, primarily the result of increased salaries and wages and benefits expense, and was offset by reduced performance-based incentive compensation accruals. Full-time equivalent staff increased by 31 persons at September 30, 2026 compared to the same period in the prior year, or 4.7%. The growth in staff reflects the organic growth plans with an increase of 18 revenue generating personnel and 13 support staff over the past year. Professional fees increased $397,000, or 23.0%, from increased technology implementation fees and other professional expenses. Net occupancy expense increased $276,000, or 14.7%, from the company's continued expansion and reinvestment into its physical branch and operational infrastructure. Data processing fees and supplies increased $234,000, or 5.7%, from continued investment in customer-facing and operational technology solutions, including artificial intelligence capabilities. Offsetting these increases was a decrease in other expense of $175,000, or 6.0%. The reduction in other expense was driven by reduced office supplies and telecommunications expenses.
The Company's income tax expense increased $3.4 million, or 21.5%, to $19.2 million in the nine months ended September 30, 2026, compared to $15.8 million for the same period in 2025. The effective tax rate was 18.6% in the nine months ended September 30, 2026, compared to 17.7% for the comparable period of 2025, driven by higher earnings and lower tax-exempt income. Income tax expense increased $1.2 million, or 20.5%, to $6.8 million for the third quarter of 2026 compared to $5.7 million for the third quarter of 2025. The effective tax rate for the third quarter of 2026 was 19.1%, compared to 17.6% for the prior year period.
FINANCIAL CONDITION
Overview
Total assets were $7.208 billion as of September 30, 2026 versus $6.990 billion as of December 31, 2025, an increase of $217.9 million, or 3.1%. Balance sheet expansion was driven by loan growth with total loans, net of the allowance for credit losses, increasing by $304.8 million, or 5.7%. The increase in loans was offset by a decrease in available-for-sale securities of $96.0 million, or 9.1%, and a decrease in cash and cash equivalents of $25.6 million, or 18.1%. The balance sheet expansion from December 31, 2025 to September 30, 2026 was funded by an increase in total deposits of $321.4 million, or 5.4%, and was offset by a decrease in borrowings of $82.9 million, or 45.0%. Total equity decreased $30.4 million, or 4.0%, from $762.5 million at December 31, 2025 to $732.1 million at September 30, 2026. Driving the decrease in total equity was a decrease in accumulated other comprehensive income (loss) of $54.6 million, driven by a decline in available-for-sale market valuations, and an increase in treasury stock, which increased by $26.2 million, or 73.4%, from the Company's utilization of its share repurchase program. Offsetting these items was an increase in retained earnings of $44.5 million, or 5.6%, primarily as a result of net income of $83.8 million less dividends declared and paid of $39.3 million. The combined effect of the repurchase activity under the share repurchase program and dividends paid during the first nine months of 2026 represented a total return of capital to Company shareholders of $65.3 million.
Uses of Funds
Total Cash and Cash Equivalents
Total cash and cash equivalents decreased by $25.6 million, or 18.1%, to $115.8 million at September 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 September 30, 2026 was driven by a decrease in cash and due from banks of $3.3 million, or 5.8%, and a decrease in interest bearing short-term investment accounts of $22.2 million, or 26.4%, which were deposited primarily at the Federal Reserve Bank of Chicago.
Investment Portfolio
The amortized cost and the fair value of securities as of September 30, 2026 and December 31, 2025 were as follows:
| September 30, 2026 | December 31, 2025 | |||||||||||||||||||||||||
| (dollars in thousands) |
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
||||||||||||||||||||||
| Available-for-Sale | ||||||||||||||||||||||||||
| U.S Treasury securities | $ | 29,894 | $ | 29,408 | $ | 10,117 | $ | 10,119 | ||||||||||||||||||
| U.S government sponsored agencies | 128,374 | 103,976 | 136,772 | 115,690 | ||||||||||||||||||||||
| Mortgage-backed securities: residential | 481,247 | 411,113 | 506,734 | 454,163 | ||||||||||||||||||||||
| State and municipal securities | 530,417 | 411,516 | 541,694 | 472,090 | ||||||||||||||||||||||
| Total available-for-sale | $ | 1,169,932 | $ | 956,013 | $ | 1,195,317 | $ | 1,052,062 | ||||||||||||||||||
| Held-to-Maturity | ||||||||||||||||||||||||||
| State and municipal securities | $ | 134,434 | $ | 103,352 | $ | 133,208 | $ | 117,510 | ||||||||||||||||||
| Total Investment Portfolio | $ | 1,304,366 | $ | 1,059,365 | $ | 1,328,525 | $ | 1,169,572 | ||||||||||||||||||
At September 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 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 $39.6 million in the first nine months of 2026. Investment securities represented 15.1% of total assets on September 30, 2026, compared to 17.0% of total assets on December 31, 2025. The Company anticipates receiving principal and interest cash flows of approximately $24.1 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 5.6 years at September 30, 2026 and 5.9 years at December 31, 2025. Paydowns from prepayments and scheduled payments of $62.6 million were received in the first nine months of 2026, and the amortization of premiums, net of the accretion of discounts, was $2.6 million. There were no sales of available-for-sale investment securities in the first nine months of 2026. No allowance for credit losses was recognized for available-for-sale or held-to-maturity securities as of September 30, 2026 and December 31, 2025.
The fair value of the available-for-sale investment securities portfolio as of September 30, 2026 included net unrealized losses of $213.9 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 and more recently to the rapid increase in longer-dated US Treasury yields during the third quarter of 2026.
The investment portfolio is managed by a third-party firm to provide for an appropriate balance between liquidity, credit risk, interest rate risk management and investment return and to limit the Company's exposure to credit risk in the investment securities portfolio. The Company does not trade or invest in or sponsor certain unregistered investment companies defined as hedge funds and private equity funds under what is commonly referred to as the "Volcker Rule" of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Real Estate Mortgage Loans Held-for-Sale
Real estate mortgage loans held-for-sale decreased by $439,000, or 16.2%, to $2.3 million at September 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 $13.5 million in the first nine months of 2026, compared to $16.2 million in the first nine 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 $284.0 million and $294.5 million, as of September 30, 2026 and December 31, 2025, respectively.
Loan Portfolio
The loan portfolio by portfolio segment as of September 30, 2026 and December 31, 2025 is summarized as follows:
| (dollars in thousands) |
September 30, 2026 |
December 31, 2025 |
Current Period Change | |||||||||||||||||||||||||||||
| Commercial and industrial loans | $ | 1,705,461 | 30.0 | % | $ | 1,553,689 | 28.9 | % | $ | 151,772 | ||||||||||||||||||||||
| Commercial real estate and multi-family residential loans | 2,772,806 | 48.8 | 2,666,515 | 49.5 | 106,291 | |||||||||||||||||||||||||||
| Agri-business and agricultural loans | 348,186 | 6.1 | 406,856 | 7.6 | (58,670) | |||||||||||||||||||||||||||
| Other commercial loans | 120,661 | 2.1 | 97,381 | 1.8 | 23,280 | |||||||||||||||||||||||||||
| Consumer 1-4 family mortgage loans | 616,766 | 10.9 | 537,192 | 10.0 | 79,574 | |||||||||||||||||||||||||||
| Other consumer loans | 119,172 | 2.1 | 116,224 | 2.2 | 2,948 | |||||||||||||||||||||||||||
| Subtotal, gross loans | 5,683,052 | 100.0 | % | 5,377,857 | 100.0 | % | 305,195 | |||||||||||||||||||||||||
| Less: Allowance for credit losses | (68,830) | (68,995) | 165 | |||||||||||||||||||||||||||||
| Net deferred loan fees | (3,048) | (2,508) | (540) | |||||||||||||||||||||||||||||
| Loans, net | $ | 5,611,174 | $ | 5,306,354 | $ | 304,820 | ||||||||||||||||||||||||||
Total net loans, excluding real estate mortgage loans held-for-sale, increased by $304.8 million, or 5.7%, to $5.611 billion at September 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 loans, 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 September 30, 2026 and December 31, 2025:
| (dollars in thousands) |
September 30, 2026 |
December 31, 2025 |
||||||||||||
| Nonaccrual loans | $ | 17,927 | $ | 20,872 | ||||||||||
| Loans past due over 90 days and still accruing | 6 | 7 | ||||||||||||
| Total nonperforming loans | 17,933 | 20,879 | ||||||||||||
| Other real estate owned | 0 | 0 | ||||||||||||
| Repossessions | 24 | 47 | ||||||||||||
| Total nonperforming assets | $ | 17,957 | $ | 20,926 | ||||||||||
| Individually analyzed loans | $ | 65,869 | $ | 43,024 | ||||||||||
| Nonperforming loans to total loans | 0.32 | % | 0.39 | % | ||||||||||
| Nonperforming assets to total assets | 0.25 | % | 0.30 | % | ||||||||||
Total nonperforming assets decreased by $3.0 million, or 14.2%, from $20.9 million at December 31, 2025 to $18.0 million at September 30, 2026. The ratio of nonperforming assets to total assets declined to 0.25% at September 30, 2026, down from 0.30% as of December 31, 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 $22.8 million, or 53.1%, to $65.9 million at September 30, 2026 from $43.0 million at December 31, 2025. The increase in individually analyzed loans during the first nine 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 evaluate 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 September 30, 2026, the allowance for credit losses was 1.21% of total loans, a decrease of 7 basis points from 1.28% at December 31, 2025. At September 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 $117.4 million for this sector represented 2.1% of total loans at September 30, 2026. Additionally, commercial real estate loans secured by multi-family residential properties and secured by non-farm non-residential properties were approximately 227.1% of the Bank's risk-based capital at September 30, 2026. The Company continues to monitor the impact of tariffs on its borrowers.
As of September 30, 2026, based on management's review of the loan portfolio, the Company had 116 credit relationships with principal balances totaling $202.0 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 September 30, 2026, the Company had $129.3 million of assets classified as Special Mention, $69.6 million classified as Substandard, $3.0 million 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 3.56% as of September 30, 2026, up 14 basis points from 3.42% at December 31, 2025.
Allowance estimates are developed by management after taking into account actual loss experience adjusted for current economic conditions and a reasonably supportable forecast period. The Company has annual discussions regarding this methodology with regulatory authorities. Allowance estimates are considered a prudent measurement of the risk in the Company's loan portfolio based upon loan segment. In accordance with applicable accounting guidance, the allowance is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. For a more thorough discussion of the allowance for credit losses methodology see the "Critical Accounting Policies" section of this Item 2.
The allowance for credit losses decreased $165,000, or 0.2%, from $69.0 million at December 31, 2025 to $68.8 million at September 30, 2026. The decrease was primarily driven by provision for credit losses of $4.9 million and offset by net charge offs of $5.1 million. Net charge offs for the nine months ended September 30, 2026 were primarily driven by a $2.0 million charge off to a commercial credit during the first quarter and a partial charge off of $2.8 million of a separate, unrelated credit in the third 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.
Sources of Funds
The Company's sources of funds include a diversified deposit base gathered throughout the Company's footprint and includes a growing mix of commercial, retail and public funds deposit accounts. While the traditional base of core deposits represents the primary source of funding for the Company, the Company has access to a robust array of other liquidity sources, including secured borrowings available from the Federal Home Loan Bank and the Federal Reserve Bank Discount Window. In addition, the Company has access to unsecured borrowing capacity through long established relationships within the brokered deposit markets, Federal Funds lines from correspondent bank partners and Insured Cash Sweep (ICS) one-way buy funds available from the Intrafi network. As of September 30, 2026, the Company had access to $3.565 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 nine months ended September 30, 2026 and 2025 are summarized in the following table:
| Nine months ended September 30, | ||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||
| (dollars in thousands) | Balance | Rate | Balance | Rate | ||||||||||||||||||||||
| Noninterest bearing demand deposits | $ | 1,252,184 | 0.00 | % | $ | 1,248,876 | 0.00 | % | ||||||||||||||||||
| Savings and transaction accounts: | ||||||||||||||||||||||||||
| Savings deposits | 285,318 | 0.06 | 284,797 | 0.06 | ||||||||||||||||||||||
| Interest bearing demand deposits | 3,791,936 | 2.90 | 3,662,917 | 3.32 | ||||||||||||||||||||||
| Time deposits: | ||||||||||||||||||||||||||
| Deposits of $100,000 or more | 705,902 | 3.62 | 595,367 | 3.97 | ||||||||||||||||||||||
| Other time deposits | 201,130 | 3.11 | 208,872 | 3.36 | ||||||||||||||||||||||
| Total deposits | $ | 6,236,470 | 2.28 | % | $ | 6,000,829 | 2.54 | % | ||||||||||||||||||
| FHLB advances and other borrowings | 82,832 | 3.90 | % | 55,594 | 4.54 | % | ||||||||||||||||||||
| Total funding sources | $ | 6,319,302 | 2.30 | % | $ | 6,056,423 | 2.56 | % | ||||||||||||||||||
Average total deposits were $6.236 billion for the nine months ended September 30, 2026, an increase of $235.6 million, or 3.9%, from the comparable period in 2025. Average total borrowings were $82.8 million for the nine months ended September 30, 2026, an increase of $27.2 million, or 49.0%, from the comparable period in 2025. Total average deposit costs decreased 26 basis points from 2.54% for the nine months ended September 30, 2025, to 2.28% for the nine months ended September 30, 2026. Total average borrowing costs decreased 64 basis points from 4.54% for the nine months ended September 30, 2025 to 3.90% for the nine months ended September 30, 2026. As a result, the total cost of funding sources decreased by 26 basis points from 2.56% for the nine months ended September 30, 2025, to 2.30% for the nine months ended September 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 in late 2025 which allowed deposit costs to reprice to lower levels and reduced average rates for borrowings.
Deposits and Borrowings
As of September 30, 2026, total deposits increased by $321.4 million, or 5.4%, from December 31, 2025. Core deposits, which excludes brokered deposits, increased by $130.2 million, or 2.2%, to $6.053 billion as of September 30, 2026 from $5.923 billion as of December 31, 2025. Total brokered deposits were $241.8 million at September 30, 2026, compared to $50.6 million at December 31, 2025, an increase of $191.3 million, or 378.2%.
The following table summarizes deposit composition at September 30, 2026 and December 31, 2025:
| (dollars in thousands) |
September 30, 2026 |
Percentage of Total |
December 31, 2025 |
Percentage of Total |
Current Period Change |
|||||||||||||||||||||||||||
| Retail | $ | 1,817,961 | 28.9 | % | $ | 1,763,452 | 29.5 | % | $ | 54,509 | ||||||||||||||||||||||
| Commercial | 2,210,358 | 35.1 | 2,179,999 | 36.5 | 30,359 | |||||||||||||||||||||||||||
| Public funds | 2,024,628 | 32.2 | 1,979,327 | 33.2 | 45,301 | |||||||||||||||||||||||||||
| Core deposits | $ | 6,052,947 | 96.2 | % | $ | 5,922,778 | 99.2 | % | $ | 130,169 | ||||||||||||||||||||||
| Brokered deposits | 241,849 | 3.8 | 50,572 | 0.8 | 191,277 | |||||||||||||||||||||||||||
| Total deposits | $ | 6,294,796 | 100.0 | % | $ | 5,973,350 | 100.0 | % | $ | 321,446 | ||||||||||||||||||||||
On September 30, 2026, commercial deposits represented 35.1% of total deposits versus 36.5% at December 31, 2025. Retail deposits represented 28.9% at September 30, 2026 versus 29.5% at December 31, 2025. Public Funds deposits represented 32.2% at September 30, 2026 versus 33.2% at December 31, 2025. Brokered deposits represented 3.8% of total deposits at September 30, 2026 versus 0.8% at December 31, 2025. Public funds deposits expanded $45.3 million, or 2.3%, from $1.979 billion at December 31, 2025 to $2.025 billion at September 30, 2026; retail deposits expanded $54.5 million, or 3.1%, from $1.763 billion at December 31, 2025 to $1.818 billion at September 30, 2026; and commercial deposits expanded $30.4 million, or 1.4%, from $2.180 billion at December 31, 2025 to $2.210 billion at September 30, 2026.
Deposits not covered by FDIC deposit insurance were 57.7% as of September 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 26.0% of total deposits as of September 30, 2026 and December 31, 2025. As of September 30, 2026 and December 31, 2025, 97.8% and 97.9% of deposit accounts had deposit balances less than $250,000, respectively.
Capital
As of September 30, 2026, total equity was $732.1 million, a decrease of $30.4 million, or 4.0%, from $762.5 million at December 31, 2025. Driving the decrease was a decrease to accumulated other comprehensive income (loss) of $54.6 million from a decline in available-for-sale investment securities market valuations. Additionally, treasury stock increased by $26.2 million, or 73.4%, driven by the Company's utilization of its share repurchase program, which further contributed to the decrease in total equity. Offsetting these items was an increase in retained earnings of $44.5 million, or 5.6%, primarily as a result of net income of $83.8 million less dividends declared and paid of $39.3 million. The combined effect of the repurchase activity under the share repurchase program and dividends paid during the first nine months of 2026 represented a total return of capital to Company shareholders of $65.3 million.
The impact on equity for other comprehensive income (loss) is not included in regulatory capital. The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1, or core capital, as a percentage of average assets, to measure the soundness of a financial institution. In addition, banking regulators have established risk-based capital guidelines for U.S. banking organizations. As of September 30, 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 September 30, 2026 and December 31, 2025, are presented in the table below. Capital ratios for September 30, 2026 are preliminary until the Call Report and FR Y-9C are filed.
| Actual | Minimum Required For Capital Adequacy Purposes | For Capital Adequacy Purposes Plus Capital Conservation Buffer | Minimum Required to Be Well Capitalized Under Prompt Corrective Action Regulations | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||||||||||||||
|
As of September 30, 2026:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Capital (to Risk Weighted Assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 977,719 | 15.56 | % | $ | 502,785 | 8.00 | % | $ | 659,906 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||
| Bank | $ | 956,603 | 15.24 | % | $ | 502,166 | 8.00 | % | $ | 659,093 | 10.50 | % | $ | 627,708 | 10.00 | % | ||||||||||||||||||||||||||||||||||
| Tier I Capital (to Risk Weighted Assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 908,800 | 14.46 | % | $ | 377,089 | 6.00 | % | $ | 534,210 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||
| Bank | $ | 887,684 | 14.14 | % | $ | 376,625 | 6.00 | % | $ | 533,552 | 8.50 | % | $ | 502,166 | 8.00 | % | ||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 (CET1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 908,800 | 14.46 | % | $ | 282,817 | 4.50 | % | $ | 439,937 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||
| Bank | $ | 887,684 | 14.14 | % | $ | 282,469 | 4.50 | % | $ | 439,396 | 7.00 | % | $ | 408,010 | 6.50 | % | ||||||||||||||||||||||||||||||||||
| Tier I Capital (to Average Assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 908,800 | 12.36 | % | $ | 294,029 | 4.00 | % | $ | 294,029 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||
| Bank | $ | 887,684 | 12.09 | % | $ | 293,754 | 4.00 | % | $ | 293,754 | 4.00 | % | $ | 367,193 | 5.00 | % | ||||||||||||||||||||||||||||||||||
|
As of December 31, 2025:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Capital (to Risk Weighted Assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 953,653 | 15.92 | % | $ | 479,188 | 8.00 | % | $ | 628,934 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||
| Bank | $ | 960,393 | 16.05 | % | $ | 478,735 | 8.00 | % | $ | 628,339 | 10.50 | % | $ | 598,419 | 10.00 | % | ||||||||||||||||||||||||||||||||||
| Tier I Capital (to Risk Weighted Assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 884,569 | 14.77 | % | $ | 359,391 | 6.00 | % | $ | 509,137 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||
| Bank | $ | 891,310 | 14.89 | % | $ | 359,051 | 6.00 | % | $ | 508,656 | 8.50 | % | $ | 478,735 | 8.00 | % | ||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 (CET1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 884,569 | 14.77 | % | $ | 269,543 | 4.50 | % | $ | 419,289 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||
| Bank | $ | 891,310 | 14.89 | % | $ | 269,288 | 4.50 | % | $ | 418,893 | 7.00 | % | $ | 388,972 | 6.50 | % | ||||||||||||||||||||||||||||||||||
| Tier I Capital (to Average Assets) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 884,569 | 12.39 | % | $ | 285,531 | 4.00 | % | $ | 285,531 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||
| Bank | $ | 891,310 | 12.50 | % | $ | 285,290 | 4.00 | % | $ | 285,290 | 4.00 | % | $ | 356,612 | 5.00 | % | ||||||||||||||||||||||||||||||||||
FORWARD-LOOKING STATEMENTS
This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the federal securities law. Forward-looking statements are not historical facts and are generally identifiable by the use of words such as "believe," "expect," "anticipate," "project," "possible," "continue," "plan," "intend," "estimate," "may," "will," "would," "could," "should" or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain and, accordingly, the reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including, without limitation:
•the effects of future economic, business and market conditions and changes, particularly in but not limited to our Indiana market area, including prevailing interest rates, the rate of inflation, and energy price volatility;
•governmental foreign, trade, monetary, tax and fiscal policies, including the policy decisions of the Federal Reserve;
•the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand and the values and liquidity of loan collateral, securities and other interest sensitive assets and liabilities;
•changes in borrowers' credit risks and payment behaviors;
•the failure of assumptions and estimates used in our reviews of our loan portfolio, underlying the establishment of reserves for possible credit losses, our analysis of our capital position and other estimates;
•the performance of our commercial real estate loan portfolio, including the effects of the elevated interest rate environment and the strength of the commercial real estate market in our Indiana markets;
•risk of cybersecurity attacks that could result in damage to the Company's or third-party service providers' networks or data;
•technological changes implemented by us and other parties, including our third-party vendors, which may have unforeseen consequences to us and our customers, including the development and implementation of tools incorporating artificial intelligence;
•the timing and scope of any legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators;
•the effects of war, geopolitical conflicts, acts of terrorism, or other catastrophic events, including storms, droughts, tornados and flooding, that may affect general economic conditions, including agricultural production and demand and prices for agricultural inputs, goods and land used for agricultural purposes, generally and in our markets;
•increased competition in the financial services sector, including from non-bank competitors such as credit unions and fintech companies, and the inability to attract new customers;
•the effects of fraud by or affecting employees, customers or third parties;
•the effects of disruption and volatility in capital markets on the value of our investment portfolio;
•changes in the prices, values and sales volumes of residential real estate;
•changes in the scope and cost of FDIC insurance, the state of Indiana's Public Deposit Insurance Fund and other coverages;
•the impact of litigation and other claims we may be subject to from time to time;
•changes in the availability and cost of credit and capital in the financial markets;
•the loss of key executives and employees, talent shortages and employee turnover;
•changes in technology or products that may be more difficult or costly to implement, or less effective than anticipated;
•changes in accounting policies, rules and practices;
•the risks related to mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; and
•the risks noted in the Risk Factors discussed under Item 1A of Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2025, as well as other risks and uncertainties set forth from time to time in the Company's other filings with the Securities and Exchange Commission.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Lakeland Financial Corporation published this content on October 28, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 28, 2026 at 10:57 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]