What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-07 compared with 2024-03-06 · 244 added, 215 removed, 752 unchanged (38% of the section changed)

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Detailed discussion and analysis of the financial condition and results of operation for 2024 as compared to 2023 can be found below.

Detailed discussion and analysis of the financial condition and results of operation for 2023 as compared to 2022 can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

HBT Financial, Inc., headquartered in Bloomington, Illinois, is the holding company for Heartland Bank and Trust Company, and has banking roots that can be traced back to 1920.

We provide a comprehensive suite of financial products and services to businesses, families, and local governments throughout Illinois and Eastern Iowa.

We provide a comprehensive suite of financial products and services to consumers, businesses, and municipal entities throughout Illinois and eastern Iowa.

As of December 31, 2024, the Company had total assets of $5.0 billion, loans held for investment of $3.5 billion, and total deposits of $4.3 billion.

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Total $ 3,466,146 $ 4,318,254 $ 3,404,417 $ 4,401,437

The Company incurred the following pre-tax acquisition expenses:

Year Ended December 31,

(dollars in thousands) 2023 2022 2021

PROVISION FOR CREDIT LOSSES (1)

$ 5,924 $ — $ —

NONINTEREST EXPENSE

Salaries 3,584 — 65

Furniture and equipment 39 — 18

Data processing 2,031 304 355

Marketing and customer relations 24 — 12

Loan collection and servicing 125 — 11

Legal fees and other noninterest expense 1,964 788 955

Total noninterest expense 7,767 1,092 1,416

Total acquisition-related expenses $ 13,691 $ 1,092 $ 1,416

_________________________________________________

(1) Includes recognition of an allowance for credit losses on non-purchase credit deteriorated ("non-PCD") loans of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million in connection with the Town and Country merger during the first quarter of 2023 in accordance with ASC 326 which was adopted on January 1, 2023.

Town and Country Financial Corporation

Town and Country Financial Corporation Acquisition

On February 1, 2023, HBT Financial completed its acquisition of Town and Country, the holding company for Town and Country Bank.

The acquisition of Town and Country further enhanced HBT Financial’s footprint in central Illinois and expanded our footprint into metro-east St.

At the time of acquisition, Town and Country Bank operated ten full-service branch locations which began operating as branches of Heartland Bank.

At the time of acquisition, Town and Country Bank operated 10 full-service branch locations which began operating as branches of Heartland Bank.

The core system conversion was successfully completed in April 2023.

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Goodwill of $30.5 million was recorded in the acquisition.

NXT Bancorporation, Inc.

On October 1, 2021, HBT Financial completed its acquisition of NXT Bancorporation, Inc.

(“NXT”), the holding company for NXT Bank.

The acquisition expanded our footprint into Eastern Iowa with four locations that began operating as branches of Heartland Bank following the merger and system conversion of NXT Bank into Heartland Bank in December 2021.

After considering business combination accounting adjustments, NXT added total assets of $239.9 million, total loans of $194.6 million, and total deposits of $181.6 million.

Total consideration consisted of 1.8 million shares of HBT Financial’s common stock and $10.6 million in cash.

Based upon the closing price of HBT Financial common stock of $16.27 on October 1, 2021, the aggregate consideration was approximately $39.9 million.

Goodwill of $5.7 million was recorded in the acquisition.

Branch Rationalization Plan

In April 2021, the Company made plans to close or consolidate six branches.

One branch was consolidated during the second quarter of 2021, and the remaining five branches were closed during the third quarter of 2021.

The Company estimated annual pre-tax cost savings, net of associated revenue impacts, related to the branch rationalization plan to be approximately $1.1 million.

The Company incurred the following pre-tax branch closure costs during the year ended December 31, 2021 (dollars in thousands):

NONINTEREST INCOME

Gains (losses) on other assets $ (682)

NONINTEREST EXPENSE

Marketing and customer relations 6

Legal fees and other noninterest expense 7

Total noninterest expense 66

Total branch closure costs $ 748

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Economic Conditions

The Company's business and financial performance are affected by economic conditions generally in the U.S.

and more directly in the Illinois and Iowa markets where we primarily operate.

The significant economic factors that are most relevant to our business and our financial performance include the general economic conditions in the U.S.

and in the Company's markets (including the effect of inflationary pressures and supply chain constraints), unemployment rates, real estate markets, and interest rates.

Interest Rates

Net interest income is our primary source of revenue.

Net interest income is equal to the excess of interest income earned on interest earning assets (including discount accretion on purchased loans plus certain loan fees) over interest expense incurred on interest-bearing liabilities.

The level of interest rates as well as the volume of interest-earning assets and interest-bearing liabilities both impact net interest income.

Net interest income is also influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the Federal Reserve Board (“FRB”) and market interest rates.

The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, which are primarily driven by the FRB’s actions.

The yields generated by our loans and securities are typically driven by short-term and long-term interest rates, which are set by the market and, to some degree, by the FRB’s actions.

Our net interest income is therefore influenced by movements in such interest rates and the pace at which such movements occur.

Generally, we expect increases in market interest rates will increase our net interest income and net interest margin in future periods, while decreases in market interest rates may decrease our net interest income and net interest margin in future periods.

Credit Trends

We focus on originating loans with appropriate risk/reward profiles.

We have a detailed loan policy that guides our overall loan origination philosophy and a well-established loan approval process that requires experienced credit officers to approve larger loan relationships.

Although we believe our loan approval and credit review processes are strengths that allow us to maintain a high-quality loan portfolio, we recognize that credit trends in the markets in which we operate and in our loan portfolio can materially impact our financial condition and performance and that these trends are primarily driven by the economic conditions in our markets.

Our profitability and growth are affected by the highly competitive nature of the financial services industry.

We compete with community banks in all our markets and, to a lesser extent, with money center banks, primarily in the Chicago MSA.

Additionally, we compete with non-bank financial services companies, FinTechs and other financial institutions operating within the areas we serve.

We compete by emphasizing personalized service and efficient decision-making tailored to individual needs.

We do not rely on any individual, group, or entity for a material portion of our loans or our deposits.

We continue to see significant competitive pressure on loan rates and terms, as well as deposit pricing, which may affect our financial results in the future.

Digital Banking

Throughout the banking industry, in-person branch traffic is expected to continue to decline as more customers turn to digital banking for routine banking transactions.

The COVID-19 pandemic accelerated this transition, and in-person branch traffic is not expected to return to pre-pandemic levels.

Additionally, widespread adoption of faster payment and instant payment technologies could require us to substantially increase our expenditures on technology infrastructure, increase our regulatory compliance costs, and adversely impact the stability of our deposit base.

We plan to continue investing in our digital banking platforms, while maintaining an appropriately sized branch network.

An inability to meet evolving customer expectations, with the appropriate level of security, for both digital and in-person banking may adversely affect our financial results in the future.

Regulatory Environment and Trends

We are subject to federal and state regulation and supervision, which continue to evolve as the legal and regulatory framework governing our operations continues to change.

The current operating environment includes extensive regulation and supervision in areas such as consumer compliance, the Bank Secrecy Act and anti-money laundering compliance, risk management and internal audit.

We anticipate that this environment of extensive regulation and supervision will continue for the industry.

As a result, changes in the regulatory environment may result in additional costs for additional compliance, risk management and audit personnel or professional fees associated with advisors and consultants.

FACTORS AFFECTING COMPARABILITY OF FINANCIAL RESULTS

JOBS Act Accounting Election

We qualify as an “emerging growth company” under the JOBS Act.

The JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies.

The Company may remain an emerging growth company until the earliest to occur of:

(1) the end of the fiscal year following the fifth anniversary of the completion of our initial public offering, which is December 31, 2024, (2) the last day of the fiscal year in which the Company has $1.235 billion or more in annual revenues, (3) the date on which the Company is deemed to be a “large accelerated filer” under the Exchange Act or (4) the date on which the Company has, during the previous three year period, issued, publicly or privately, more than $1.0 billion in non-convertible debt securities.

We have elected to use the extended transition period until we are no longer an emerging growth company or until we choose to affirmatively and irrevocably opt out of the extended transition period.

As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.

Total acquisition-related expenses were $13.7 million, including the recognition of an allowance for credit losses on non-purchased credit deteriorated loans (“non-PCD loans”) of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million through provision for credit losses, during the year ended December 31, 2023 and were $1.1 million during the year ended December 31, 2022.

There were no acquisition-related expenses during the year ended December 31, 2024.

RESULTS OF OPERATIONS

Overview of Recent Financial Results

The following table presents selected financial results and measures:

Year Ended December 31,

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$ 75,002 $ 78,182 $ 55,805

Net interest income (tax-equivalent basis) (1) (2)

Pre-provision net revenue (1)

$ 100,414 $ 96,154 $ 75,484

Pre-provision net revenue less net charge-offs (recoveries) (1)

98,656 95,974 77,587

Adjusted pre-provision net revenue (1)

104,920 107,281 74,282

Adjusted pre-provision net revenue less net charge-offs (recoveries) (1)

103,162 107,101 76,385

Share and Per Share Information

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Yield on interest-earning assets 5.28 4.90 3.72

Cost of interest-bearing liabilities 1.14 0.26 0.23

Cost of total deposits 1.30 0.60 0.07

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53.46 55.81 56.93

Adjusted efficiency ratio (tax-equivalent basis) (1)(2)

52.42 51.68 57.05

Return on average assets 1.43 % 1.34 % 1.32 %

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Notable changes include the following:

• A $45.2 million increase in net interest income, primarily attributable to the increase in average interest-earning assets following the Town and Country merger and higher yields on interest-earning assets, partially offset by higher funding costs;

• Town and Country acquisition-related expenses totaled $13.7 million during the year ended December 31, 2023, including the recognition of an allowance for credit losses on non-PCD loans of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million through provision for credit losses, compared to $1.1 million of acquisition-related expenses during the year ended December 31, 2022;

• Net losses of $1.8 million on the sale of $185.3 million of securities were realized during the year ended December 31, 2023 with the sales proceeds used to reduce FHLB borrowings and fund loan growth;

• Excluding Town and Country acquisition-related expenses, noninterest expense increased by $19.2 million primarily due to the addition of Town and Country’s operations.

• There were no Town and Country acquisition-related expenses during the year ended December 31, 2024, compared to $13.7 million of acquisition-related expenses incurred during the year ended December 31, 2023;

• Net losses of $3.7 million were realized on the sale of debt securities during the year ended December 31, 2024, compared to net losses of $1.8 million realized during the year ended December 31, 2023;

• A $2.2 million decrease in net interest income, primarily attributable to higher funding costs which were partially offset by higher asset yields and an increase in interest-earning assets;

• A $0.2 million negative mortgage servicing rights fair value adjustment included in the 2024 results, compared to a $1.6 million negative mortgage servicing rights fair value adjustment included in the 2023 results;

• A $2.9 million increase in income tax expense, primarily reflecting higher pre-tax income resulting from the above items as well as an additional $0.5 million for a deferred tax expense write-down, primarily as a result of an Illinois tax change.

This increased our effective tax rate to 26.3% during the year ended December 31, 2024, compared to 25.7% during the year ended December 31, 2023.

Net Interest Income

Net interest income equals the excess of interest income on interest earning assets (including discount accretion on acquired loans plus certain loan fees) over interest expense incurred on interest-bearing liabilities.

Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income.

Interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities that fund those assets.

The net interest margin is expressed as the percentage of net interest income to average interest-earning assets.

The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds, principally noninterest-bearing demand deposits and stockholders’ equity, also support interest-earning assets.

Net interest margin, which is expressed as the percentage of net interest income to average interest-earning assets, is utilized to measure and explain changes in net interest income.

The following table sets forth average balances, average yields and costs, and certain other information.

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Loans $ 3,378,059 $ 214,863 6.36 % $ 3,231,736 $ 195,197 6.04 % $ 2,514,549 $ 123,478 4.91 %

Securities 1,350,528 30,187 2.24 1,403,016 27,937 1.99 1,148,900 21,348 1.86

Debt securities 1,200,444 27,903 2.32 1,343,419 29,971 2.23 1,396,704 27,806 1.99

Deposits with banks 178,436 8,272 4.64 84,544 3,020 3.57 197,030 1,541 0.78

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Nonaccrual interest recoveries 1,117 0.02 703 0.02 2,828 0.07

Securities 30,187 0.65 27,937 0.68 21,348 0.56

Debt securities 27,903 0.59 29,971 0.64 27,806 0.67

Interest-bearing deposits in bank 8,272 0.18 3,020 0.06 1,541 0.04

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Loans $ 9,054 $ 10,612 $ 19,666 $ 39,701 $ 32,018 $ 71,719

Securities (1,075) 3,325 2,250 4,977 1,612 6,589

Debt securities (3,286) 1,218 (2,068) (1,092) 3,257 2,165

Deposits with banks 4,141 1,111 5,252 (1,312) 2,791 1,479

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Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

Net interest income for the year ended December 31, 2023 was $191.1 million, increasing $45.2 million, or 31.0%, from the year ended December 31, 2022.

The increase is primarily attributable to the increase in average interest-earning assets following the Town and Country merger and higher yields on interest-earning assets, partially offset by higher funding costs.

Net interest margin increased to 4.09% for the year ended December 31, 2023, compared to 3.54% for the year ended December 31, 2022.

The increase was primarily attributable to higher yields on interest-earning assets which were partially offset by increased funding costs, driven by significant increases in market rates since early 2022.

Additionally, the contribution of acquired loan discount accretion to net interest margin increased to 9 basis points during the year ended December 31, 2023, from 2 basis points during the year ended December 31, 2022.

Net interest income for the year ended December 31, 2024 was $188.9 million, decreasing $2.2 million, or 1.2%, when compared to the year ended December 31, 2023.

The decrease is primarily attributable to an increase in funding costs which were partially offset by higher yields on interest-earning assets and higher interest-earning asset balances following the Town and Country merger.

Net interest margin decreased to 3.96% for the year ended December 31, 2024, compared to 4.09% for the year ended December 31, 2023.

The decrease was primarily attributable to increases in funding costs outpacing increases in interest-earning asset yields.

Additionally, the contribution of acquired loan discount accretion to net interest margin was 9 basis points for each of the years ended December 31, 2024 and 2023.

The quarterly net interest margins were as follows:

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December 31 3.96 3.93 4.10

In March 2020, the Federal Open Markets Committee (“FOMC”), in response to the economic downturn caused by the COVID-19 pandemic, lowered the target range for the federal funds rate to 0% to 0.25% and announced the Federal Reserve would substantially increase its Treasury and agency mortgage-backed securities holdings.

This resulted in a historically low interest rate environment which lasted through the rest of 2020 and into 2021, putting downward pressure on our net interest margin over the same period.

The FOMC began raising interest rates in March 2022 and continued raising interest rates until setting the target range for the federal funds rate at 5.25% to 5.50% in its July 2023 meeting.

As a result, market interest rates have also risen since March 2022 which led to improvements in our net interest margin through the first quarter of 2023.

The FOMC began raising the target range for the federal funds rate in March 2022 and continued raising interest rates until its July 2023 meeting.

As a result, market interest rates also rose during this time which led to improvements in our net interest margin through the first quarter of 2023.

Our net interest margin decreased modestly beginning in the second quarter of 2023, as increased competition for deposits drove an increase in our funding costs.

Competition for deposits continues to be elevated relative to 2022.

As a result, deposit and funding costs have increased during 2023 compared to such costs in 2022 and could continue to increase.

Additionally, core deposits balances may decrease and be replaced by higher cost funding sources, such as FHLB advances and brokered deposits.

This continued during the remainder of 2023 with increases in funding costs outpacing increases in interest-earning asset yields.

Our deposit balances and funding costs began to stabilize during the first quarter of 2024 while yields on loans continued to increase and debt securities continued to reprice at higher rates.

The FOMC began lowering interest rates in September 2024, with the target range for the federal funds rate decreasing by 100 basis points to a range of 4.25% to 4.50% by the end of 2024.

This decrease, and potential future decreases, may put downward pressure on our net interest margin, as the negative impact on floating rate loans may not be fully offset by the positive impacts of maturing fixed rate loans and securities repricing at higher rates or potential decreases in deposit costs.

however, this depends upon the timing and extent of interest rate fluctuations and may not always be the case.

Provision for Credit Losses

The following table sets forth the components of provision for credit losses for the periods indicated:

The following table sets forth the components of provision for credit losses for the years indicated:

Year Ended December 31,

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Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

In connection with the Town and Country merger, we recognized an allowance for credit losses on non-PCD loans of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million.

Excluding the impact of the Town and Country merger, the remaining provision for credit losses primarily reflects a $2.4 million increase in required reserves driven by growth of and changes in the loan portfolio and unfunded commitments, a $1.4 million increase in required reserves resulting from changes in economic and qualitative factors, and a $2.1 million decrease in specific reserves on individually evaluated loans.

The Company recorded a provision for credit losses of $3.0 million for the year ended December 31, 2024.

The 2024 provision for credit losses primarily reflects a $4.0 million increase in required reserves resulting from changes in qualitative factors;

an $0.8 million increase in required reserves driven by changes within the loan portfolio;

a $1.2 million decrease in specific reserves on individually evaluated loans;

and a $0.6 million decrease in required reserves resulting from improvements in economic forecasts.

Additionally, the 2023 results included the recognition of an allowance for credit losses on non-PCD loans of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million through provision for credit losses which were related to the Town and Country acquisition.

Credit losses are highly dependent on current and forecast economic conditions.

Potential deterioration of economic conditions may lead to higher credit losses and adversely impact our financial condition and results of operations.

The economic forecasts utilized in estimating the allowance for credit losses on loans and lending-related unfunded commitments include the unemployment rate and changes in GDP as macroeconomic variables, although other economic metrics are considered on a qualitative basis.

The economic forecasts utilized in estimating the allowance for credit losses on loans and lending-related unfunded commitments include the unemployment rate and changes in gross domestic product ("GDP") as macroeconomic variables, although other economic metrics are considered on a qualitative basis.

Noninterest Income

The following table sets forth the major categories of noninterest income for the periods indicated:

The following table sets forth the major categories of noninterest income for the years indicated:

Year Ended December 31, Year Ended December 31,

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Mortgage servicing 4,437 4,678 (241) (5.2) 4,678 2,609 2,069 79.3

Mortgage servicing rights fair value adjustment (1,615) 2,153 (3,768) NM 2,153 1,690 463 27.4

Mortgage servicing rights fair value adjustment (174) (1,615) 1,441 NM (1,615) 2,153 (3,768) NM

Gains on sale of mortgage loans 1,611 1,526 85 5.6 1,526 1,461 65 4.4

Realized gains (losses) on sales of securities (1,820) — (1,820) NM — — — —

Realized gains (losses) on sales of securities (3,697) (1,820) (1,877) NM (1,820) — (1,820) NM

Unrealized gains (losses) on equity securities (59) 160 (219) NM 160 (414) 574 NM

Gains (losses) on foreclosed assets 501 (314) 815 NM (314) 310 (624) NM

Gains (losses) on foreclosed assets 22 501 (479) (95.6) 501 (314) 815 NM

Gains (losses) on other assets (635) 166 (801) NM 166 136 30 22.1

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Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

Total noninterest income for the year ended December 31, 2023, was $36.0 million, an increase of $1.3 million, or 3.8%, from the year ended December 31, 2022.

Total noninterest income for the year ended December 31, 2024, was $35.6 million, a decrease of $0.5 million, or 1.3%, from the year ended December 31, 2023.

Notable changes in noninterest income include the following:

• A $3.8 million decrease in the mortgage servicing rights fair value adjustment, primarily due to changes in prepayment assumptions utilized in the valuations;

• Net losses of $1.8 million were realized on the sale of $185.3 million of debt securities during the year ended December 31, 2023.

The vast majority of the securities portfolio acquired from Town and Country was sold during the first quarter of 2023 with an additional $39.4 million of municipal debt securities sold during the third quarter of 2023;

• The addition of Town and Country's operations in the first quarter of 2023 contributed to a $2.1 million increase in mortgage servicing revenue, with the size of our existing mortgage servicing portfolio nearly doubling, a $0.8 million increase in service charges on deposit accounts, a $0.7 million increase in wealth management fees, and a $0.7 million increase in card income;

• A $0.5 million gain on foreclosed assets was recognized during 2023, primarily related to the sale of one property, compared to a $0.3 million loss on foreclosed assets during 2022.

• A $1.1 million increase in wealth management fees, driven by higher values of assets under management, partially offset by lower farm management fees as a result of lower commodity prices;

• Impairment losses on bank premises of $0.6 million related to the closure of two branch premises were recognized during 2024, compared to a $0.1 million gain on sales of closed branch premises recognized during 2023;

• A $0.3 million increase in income on bank owned life insurance, primarily attributable to a $0.2 million gain on life insurance proceeds.

Noninterest Expense

The following table sets forth the major categories of noninterest expense for the periods indicated:

The following table sets forth the major categories of noninterest expense for the years indicated:

Year Ended December 31, Year Ended December 31,

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Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

Total noninterest expense for the year ended December 31, 2023, was $131.0 million, an increase of $25.9 million, or 24.6%, from the year ended December 31, 2022.

Total noninterest expense for the year ended December 31, 2024, was $124.0 million, a decrease of $7.0 million, or 5.3%, from the year ended December 31, 2023.

Notable changes in noninterest expense include the following:

• Town and Country acquisition-related noninterest expenses totaled $7.8 million and $1.1 million for the years ended December 31, 2023 and 2022, respectively;

• Excluding Town and Country acquisition-related expenses, the $19.2 million increase in noninterest expense was mainly attributable to the addition of Town and Country’s operations, primarily related to personnel costs, occupancy of bank premises, and data processing;

• Legal accruals totaled $1.0 million during the year ended December 31, 2023 and $8.2 million during the year ended December 31, 2022 relating to legal matters disclosed in Note 22 - Commitments and Contingencies - Legal Contingencies to the consolidated financial statements;

• A $1.8 million increase in amortization of intangible assets related to the addition of $22.3 million of intangible assets recognized through the Town and Country acquisition.

During the year ended December 31, 2023 and 2022, we recorded income tax expense of $22.7 million, or an effective tax rate of 25.7%, and $19.7 million, or an effective tax rate of 25.9%, respectively.

The fluctuations in effective tax rate are primarily attributable to changes in state income taxes and changes in the proportion of federally tax-exempt interest income to pre-tax income.

• There were no Town and Country acquisition-related noninterest expenses for the year ended December 31, 2024, but acquisition-related noninterest expenses totaled $7.8 million for the year ended December 31, 2023;

• Excluding Town and Country acquisition-related expenses, the $1.3 million increase in salaries expense was primarily driven by annual merit increases;

• The $1.3 million increase in employee benefits expense was primarily attributable to higher medical benefits expenses;

• Excluding Town and Country acquisition-related expenses, the $2.3 million decrease in other noninterest expense primarily reflects the absence of $0.8 million of legal fees and $1.0 million of accruals related to litigation matters disclosed in Note 23 to the Company's Consolidated Financial Statements in this Annual Report on Form 10-K.

During the years ended December 31, 2024 and 2023, we recorded income tax expense of $25.6 million, or an effective tax rate of 26.3%, and $22.7 million, or an effective tax rate of 25.7%, respectively.

The increase in effective tax rate during 2024 was primarily attributable to an additional $0.5 million of tax expense for a deferred tax asset write-down, as a result of an Illinois tax change, as well as changes in the proportion of federally tax-exempt interest income to pre-tax income.

FINANCIAL CONDITION

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2023 $ Change % Change

Consolidated Balance Sheet Information

Cash and cash equivalents $ 137,692 $ 141,252 $ (3,560) (2.5) %

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Tangible book value per share (1)

14.80 12.90 1.90 14.7

Shares of common stock outstanding 31,559,366 31,695,828

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Notable changes in our consolidated balance sheet include the following:

• The Town and Country merger added $937.2 million in total assets, $635.4 million in loans held for investment, and $720.4 million in deposits;

• Excluding the impact of the Town and Country merger, loan growth since December 31, 2022 was broad-based with total loans increasing $148.8 million;

• Following the Town and Country merger, the vast majority of the securities acquired from Town and Country were sold and an additional $39.4 million of municipal securities sold during the third quarter of 2023.

The proceeds were used to reduce FHLB borrowings and fund loan growth;

• Additionally, paydowns, maturities and calls of debt securities generated another $102.6 million of proceeds which were also used to reduce FHLB borrowings and fund loan growth;

• Excluding the impact of the Town and Country merger, total deposits increased $94.0 million with the addition of $144.9 million of brokered deposits and $144.0 million of wealth management customer money market deposits brought on balance sheet in December 2023.

These increases were partially offset by reduced balances held in existing customer deposit accounts.

• Debt securities decreased $83.0 million, largely due to the sale of $69.2 million of municipal securities with sales proceeds primarily used to reduce wholesale funding.

Additionally, paydowns, maturities, and calls of debt securities generated another $126.3 million of cash proceeds with $105.1 million being reinvested into debt securities at higher yields;

• Loans increased by $61.7 million, primarily attributable to new originations to recurring customers;

• Total deposits decreased by $83.2 million, primarily attributable to a $144.9 million decrease in brokered deposits.

Deposit balances continued to shift towards higher cost deposit products, such as time deposits, which increased $158.2 million, including the addition of $65.0 million of time deposits from a State of Illinois loan matching program.

Loan Portfolio

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Loans, before allowance for credit losses were $3.47 billion at December 31, 2024, an increase of $61.7 million, or 1.8%, from December 31, 2023.

Excluding the impact of the Town and Country merger, total loans increased $148.8 million, or 5.7%, with the following notable changes:

• The relative percent decrease in construction and land development loans was generally driven by the completion of a number of sizeable projects that are now amortizing and have been moved into other real estate loan categories, including the commercial real estate - non-owner occupied and multi-family categories;

• The increase in commercial and industrial loans was driven by new loan fundings and the purchase of four pools of loans totaling $61.0 million.

Three pools include equipment finance loans purchased from a bank that originated the loans through its equipment finance division.

These loans are to borrowers across multiple industries and geographic regions.

The remaining pool is a 50% participation in a pool of loans originated by a financial services company with a long-standing history of originating loans to healthcare and professional service borrowers.

These loans are to borrowers across multiple geographic regions.

As of December 31, 2023, office commercial real estate loans totaled $169.2 million, with 2.0% rated pass-watch, less than 0.1% rated substandard, and less than 0.1% past due 30 days or more.

Management regularly monitors office and other industry concentrations within the loan portfolio.

Notable changes include the following:

• A $10.7 million increase in construction loans primarily attributable to draws on existing construction projects and new construction loans to existing customers which were mostly offset by transfers of completed projects into other categories.

• An $18.9 million increase in commercial real estate – non-owner occupied loans and a $13.6 million increase in multi-family loans, primarily attributable to completed construction projects transferred from the construction and land development category, partially offset by early payoffs;

• During 2024, we purchased pools of commercial and industrial loans totaling $14.6 million.

One pool included equipment finance loans purchased from a bank that originated the loans through its equipment finance division to borrowers across multiple industries and geographic regions.

The remaining pool consisted of loans originated by a financial services company with a long-standing history of originating loans to healthcare and professional service borrowers across multiple geographic regions.

Commercial Real Estate Portfolios

Commercial real estate – owner occupied loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.

The commercial real estate – owner occupied portfolio composition, segmented by the owner’s business classification, as of December 31, 2024 was as follows:

December 31, 2024

(dollars in thousands) Balance Substandard

Manufacturing $ 44,718 $ 333

Health care and social assistance 38,658 319

Auto repair and dealers 33,991 —

Accommodation and food services 31,217 3,993

Retail trade 27,331 —

Real estate, rental, and leasing 21,430 26

Wholesale trade 20,055 —

Construction 19,777 1,405

Grain elevators 19,058 —

Arts, entertainment, and recreation 12,457 77

Other services (except public administration) 11,942 —

Administrative and support services 11,929 —

Professional, scientific, and technical services 8,312 —

Agriculture, forestry, fishing, and hunting 6,634 —

Education services 6,537 1,331

Finance and insurance 4,916 —

Other 3,354 —

Total $ 322,316 $ 7,484

Commercial real estate – non-owner occupied loans are primarily made based on projected cash flows from the rental or sale of the underlying collateral.

The commercial real estate – non-owner occupied portfolio composition, segmented by the property type, as of December 31, 2024 was as follows:

December 31, 2024

(dollars in thousands) Balance Substandard

Risk Rating Weighted Average LTV (1)

Warehouse and manufacturing $ 189,982 $ — 56 %

Retail 179,843 9,191 55

Office 159,198 4,854 56

Senior Living 107,742 12,912 56

Hotel 86,151 7,527 55

Mixed use (commercial and residential) 67,103 — 63

Medical office 33,893 — 58

Gas station 24,780 — 62

Auto repair and dealers 20,697 — 54

Restaurant and bar 12,653 — 60

Other 17,523 — 55

Total $ 899,565 $ 34,484 56 %

________________

(1) Weighted average LTV is based on the most recent appraisals available, which are generally obtained at the time of origination.

Multi-family loans totaled $431.5 million as of December 31, 2024, and are primarily made based on projected cash flows from the rental or sale of the underlying collateral.

As of December 31, 2024, multi-family loans had a weighted average LTV of 57%, based on the most recent appraisals available, which are generally obtained at the time of origination.

Management’s disciplined approach to credit risk management is exercised through portfolio diversification, robust underwriting policies, and routine loan monitoring practices in order to identify and mitigate any credit weakness as early as possible.

Management continually monitors and evaluates commercial real estate concentrations by property class, industry, and relative to the Bank’s regulatory capital to remain in line with board-established limits and adapt to changing industry conditions.

A centralized credit underwriting group, independent of the originating lender, evaluates a vast majority of the commercial exposures over $750 thousand annually, if not more frequently, through a standardized credit review process to ensure uniform application of policies and procedures as well as analyze credit performance.

All loans require appropriate internal approval, with a centralized credit approval group reviewing all exposures over $500 thousand.

Additionally, a robust internal review process reviews more than 45% of loan commitments on a rolling 24 month basis that is in addition to an annual third-party review of a sample of the portfolio.

Beginning in the fourth quarter of 2022 in response to the rapid increase in interest rates, we have prepared quarterly cash flow stress tests for our commercial real estate – non-owner occupied and multi-family loans.

For commercial real estate – non-owner occupied and multi-family loans over $1 million, we evaluate the impact of current interest rates on the underlying cash flows of the properties securing these loans, based on the most recent cash flow data available.

This testing is completed in addition to the various sensitivity testing completed at the initial extension of credit.

Individual credits with a maturity scheduled within the next five quarters that are presenting stress under current renewal terms are identified, so that ample time is available to develop solutions to manage credit risk.

Loan Portfolio Maturities

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Nonperforming Assets

The following table sets forth information concerning nonperforming loans and nonperforming assets as of each of the dates indicated.

Our nonperforming loans and nonperforming assets were as follows:

(dollars in thousands) December 31, 2024 December 31, 2023

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Nonperforming assets to loans, before allowance for credit losses, and foreclosed assets 0.23 0.26

_________________________________________________

(1) Prior to 2023, excludes loans acquired with deteriorated credit quality that are past due 90 or more days and accruing.

Such loans totaled $145 thousand as of December 31, 2022.

Total nonperforming assets were $8.7 million at December 31, 2023, increasing by $3.5 million since December 31, 2022.

The increase was primarily attributable to the Town and Country merger, which added $3.8 million in nonaccrual loans and $0.3 million of foreclosed assets, and one commercial real estate - non-owner occupied retail credit moved to nonaccrual.

These increases were partially offset by the sale of one larger foreclosed property.

Additionally, of the $7.9 of nonperforming loans held as of December 31, 2023, $2.6 million are either wholly or partially guaranteed by the U.S.

Total nonperforming assets were $8.0 million at December 31, 2024, a slight decrease when compared to $8.7 million at December 31, 2023.

The slight decrease was primarily attributable to sales of foreclosed assets and a decrease in nonaccrual one-to-four family residential loans.

Additionally, of the $7.7 million of nonperforming loans held as of December 31, 2024, $1.6 million are either wholly or partially guaranteed by the U.S.

Risk Classification of Loans

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Pass-watch 83,947 98,206

Special mention (1)

Substandard 71,213 64,322

Total $ 3,466,146 $ 3,404,417

Pass-watch loans increased $31.3 million, or 46.7%, and substandard loans decreased $9.5 million, or 12.9%, from December 31, 2022 to December 31, 2023.

The increase in pass-watch loans was primarily attributable to

pass-watch loans acquired from Town and Country.

The decrease in substandard loans was primarily attributable to $12.4 million substandard relationship in the commercial real estate – non-owner occupied category which paid off during the second quarter of 2023, as well as several other smaller paydowns and payoffs, partially offset by substandard loans acquired from Town and Country.

Net Charge-offs and Recoveries

The following table summarizes net charge-offs (recoveries) to average loans, before allowance for credit losses, by loan category.

_________________________________________________

(1) In June 2024, the Company updated its risk rating categories to add the special mention category to provide another level of granularity in distinguishing risk levels of loans.

As of June 30, 2024, $19.5 million of the special mention loans would have been considered pass-watch and $10.6 million would have been considered substandard under the previous risk rating categories.

Loans rated pass-watch or worse increased $39.2 million, or 24.1%, from December 31, 2023 to December 31, 2024, primarily attributable to downgrades within the agricultural and farmland, commercial and industrial, and construction and land development segments.

Net Charge-offs (Recoveries)

The following table summarizes net charge-offs (recoveries) to average loans by loan category.

Year Ended December 31,

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The net charge-offs (recoveries) to average total loans ratio has remained low for several years.

We believe our continuous credit monitoring and collection efforts have resulted in lower levels of loan losses, while also recognizing that favorable economic conditions prior to the COVID-19 pandemic and substantial federal economic stimulus during the pandemic have also contributed to reduced loan losses.

While we believe our continuous credit monitoring and collection efforts have resulted in lower levels of credit losses, we also recognize that substantial federal economic stimulus during the COVID-19 pandemic and the relatively stable economic conditions after the pandemic have also contributed to reduced credit losses.

Additionally, heightened net charge-offs within the commercial and industrial segment are primarily related to equipment finance loans which were purchased as part of a pool of loans during 2023.

The Company’s investment policy emphasizes safety of the principal, liquidity needs, expected returns, cash flow targets, and consistency with our interest rate risk management strategy.

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Due after 10 years

government agency $ — — % $ 3,093 2.83 % $ 3,093 2.83 %

Municipal $ 16,031 1.71 % $ 2,255 3.43 % $ 18,286 1.92 %

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Management continues to focus on growing deposits through the Company’s relationship-driven banking philosophy and community-focused marketing programs.

Additionally, the Bank continues to add and improve digital banking services to solidify deposit relationships.

Additionally, we continue to add and improve digital banking services to solidify deposit relationships.

The following table sets forth the distribution of average deposits, by account type:

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Total deposits $ 3,708,720 100.0 % 0.07 %

The increase in average deposit balances in 2023 compared to 2022 was primarily attributable to the Town and Country merger which added $720.4 million of deposits on February 1, 2023.

Partially offsetting the additions from Town and Country was a decrease in balances held in existing customer accounts with recent increases in in market interest rates driving increased competition for deposits.

As a result, deposit costs increased during 2023, relative to 2022, with some lower cost deposits being replaced by higher cost funding sources, such as time deposits and wholesale funding.

As of December 31, 2023, the Company has $144.9 million of wholesale brokered deposits outstanding.

Brokered deposits are generally considered to be deposits that have been received from a third party who is engaged in the business of placing deposits on behalf of others.

A traditional deposit broker will direct deposits to the banking institution offering the highest interest rate available.

Federal banking laws and regulations place restrictions on depository institutions regarding brokered deposits because of the general concern that these deposits are not relationship based and are at a greater risk of being withdrawn and placed on deposit at another institution offering a higher interest rate, thus posing liquidity risk for institutions that gather brokered deposits in significant amounts.

The increase in average deposit balances in 2024 compared to 2023 was primarily attributable to increases in time deposits, including the addition of $65.0 million from a State of Illinois loan matching program, and money market accounts as balances continued to shift towards higher cost deposit products.

Partially offsetting these increases was a decrease in brokered deposits due to planned repayment at scheduled maturity.

As a result of these changes, deposit costs increased during 2024 compared to 2023.

The following table sets forth time deposits by remaining maturity as of December 31, 2024:

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12 Months Total

Time and brokered time deposits:

Time deposits:

Amounts less than $100,000 $ 139,856 $ 96,944 $ 64,947 $ 28,486 $ 330,233

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Amounts of $250,000 or more 105,284 72,534 21,295 3,083 202,196

Total time and brokered time deposits $ 219,445 $ 204,323 $ 253,127 $ 95,238 $ 772,133

As of December 31, 2023 and December 31, 2022, the Bank’s uninsured deposits were estimated to be $867.7 million and $739.0 million, respectively.

Total time deposits $ 362,935 $ 245,940 $ 133,866 $ 42,689 $ 785,430

As of December 31, 2024 and 2023, the Bank’s uninsured deposits were estimated to be $949.4 million and $867.7 million, respectively.

Securities Sold Under Agreements to Repurchase

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Our level of short-term borrowing can fluctuate on a daily basis depending on funding needs and the source of funds to satisfy the needs.

Our use of FHLB advances and other borrowings was nominal during 2021, but increased during the second half of 2022 and throughout 2023 to fund increases in loan demand and to offset a decrease in deposits.

Our use of FHLB advances and other borrowings was nominal during the first half of 2022, but increased during the second half of 2022 and throughout most of 2023 to fund increases in loan demand and to offset a decrease in deposits.

Our use of FHLB advances and other borrowings returned to nominal levels during 2024, with loan demand funded primarily through cash flows from the debt securities portfolio.

The following table sets forth information concerning balances and interest rates on our borrowings.

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While the Bank does not control the types of deposit instruments our clients choose, those choices can be influenced with the rates and the deposit specials offered.

Additional sources of liquidity include unpledged securities, federal funds purchased, borrowings from the FHLB and Federal Reserve, and brokered deposits.

Unpledged securities may be sold or pledged as collateral for borrowings to meet liquidity needs.

Interest is charged at the prevailing market rate.

Our on-balance sheet sources of liquidity included cash and cash equivalents as well as unpledged securities which may be sold or pledged as collateral to meet liquidity needs.

As of December 31, 2024 and December 31, 2023, our on-balance sheet sources of liquidity included the following:

(dollars in thousands) December 31, 2024 December 31, 2023

Cash and cash equivalents $ 137,692 $ 141,252

Fair value of unpledged securities 705,106 827,760

Total cash and unpledged securities $ 842,798 $ 969,012

Additional sources of liquidity include borrowings from the FHLB, the Federal Reserve discount window, and federal fund lines of credit.

Interest is charged on outstanding borrowings at the prevailing market rate.

As of December 31, 2024, our current borrowings and additional available borrowing capacity were as follows:

December 31, 2024

(dollars in thousands) Current Balance Additional

Available Capacity

FHLB $ 13,231 $ 1,019,027

Federal Reserve — 91,860

Federal funds lines of credit — 80,000

Total $ 13,231 $ 1,190,887

Further, the Bank could utilize brokered deposits as an additional source of liquidity, as needed.

As of December 31, 2024, management believed the current liquidity and available sources of liquidity are adequate to meet all of the reasonably foreseeable short-term and intermediate-term demands of the Bank .

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Management believes that these limitations will not impact the Holding Company’s ability to meet its ongoing short-term cash obligations.

During the years ended December 31, 2023, 2022, 2021, the Bank paid $64.0 million, $28.0 million, and $20.0 million in dividends to the Holding Company, respectively.

During the years ended December 31, 2024, 2023, and 2022, the Bank paid $34.0 million, $64.0 million, and $28.0 million in dividends to the Holding Company, respectively.

The liquidity needs of the Holding Company on an unconsolidated basis consist primarily of operating expenses, interest payments on the subordinated notes and junior subordinated debentures, and shareholder distributions in the form of dividends and stock repurchases.

1 unchanged sentence

Additionally, the Holding Company paid $24.2 million, $21.9 million, and $18.6 million of dividends to stockholders during the years ended December 31, 2024, 2023, and 2022, respectively.

The Holding Company also paid $38.0 million in cash consideration in the acquisition of Town and Country during the first quarter of 2023.

The Holding Company also paid $38.0 million in cash consideration in the acquisition of Town and Country during 2023.

As of December 31, 2024, management was not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material impact on the Holding Company’s liquidity.

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In addition to meeting minimum capital requirements, the Company and the Bank must also maintain a “capital conservation buffer” to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management.

As of December 31, 2023 and December 31, 2022, the capital conservation buffer requirement was 2.5% of risk-weighted assets.

The capital conservation buffer requirement is 2.5% of risk-weighted assets.

As of December 31, 2024 and 2023, the Company and the Bank met all capital adequacy requirements to which they were subject.

4 unchanged sentences

Adequacy Purposes

Conversation Buffer (1)

Conservation Buffer (1)

Capitalized Under

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Further, changes in accounting standards could impact the Company’s critical accounting estimates.

The following accounting estimates could be deemed critical:

The following accounting estimate could be deemed critical:

Allowance for Credit Losses

7 unchanged sentences

The Company uses regression analysis of historical internal and peer data to determine which macroeconomic variables are most closely correlated with credit losses, such as the unemployment rate and changes in GDP.

Management leverages economic projections from a reputable third party to inform its economic forecasts with a reversion to historical averages for periods beyond a reasonable and supportable forecast period.

Management leverages economic projections from a reputable third party to form its economic forecasts with a reversion to historical averages for periods beyond a reasonable and supportable forecast period.

Nonaccrual loans and loans which do not share risk characteristics with other loans in the pool are individually evaluated to determine expected credit losses.

The allowance for credit losses on unfunded commitments is estimated in the same manner as the associated loans, adjusted for anticipated funding rate.

Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations

Business combinations are accounted for using the acquisition method of accounting.

Under the acquisition method of accounting, assets acquired and liabilities assumed are recorded at their estimated fair value on the acquisition date.

Estimating such fair values may require highly subjective assumptions or the use of a valuation specialist.

In the Town and Country acquisition, the fair value for loans was most significant estimate and relatively small changes in assumptions used in this estimate could result in a materially different conclusion.

The fair value for loans was based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market interest rates and other market factors, such as liquidity, from the perspective of a market participant.

Loan cash flows were generated on an individual loan basis.

The probability of default, loss given default, exposure at default, and prepayment assumptions are key factors in this analysis.

NON-GAAP FINANCIAL INFORMATION

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- excludes branch closure expenses,

- excludes net earnings (losses) from closed or sold operations,

- excludes realized gains (losses) on sales of closed branch premises,

- excludes gains (losses) on closed branch premises,

- excludes realized gains (losses) on sales of securities,

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- Adjusted Earnings Per Share – Diluted, which is Adjusted Net Income allocated to common shares divided by weighted average common shares outstanding, including all dilutive potential shares.

• Adjusted Return on Average Assets is a performance measure utilized in determining executive compensation.

Pre-Provision Net Revenue • Net interest income, plus noninterest income, less noninterest expense.

• Provides investors with information regarding profitability excluding provision for credit losses and income tax expense, which may fluctuate from period to period.

• We also sometimes refer to measures that include Pre-Provision Net Revenue, such as:

- Adjusted Pre-Provision Net Revenue which reflects the adjustments considered in Adjusted Net Income, as necessary.

- Pre-Provision Net Revenue Less Charge-offs (Recoveries).

- Adjusted Pre-Provision Net Revenue Less Charge-offs (Recoveries) which reflects the adjustments considered in Adjusted Net Income, as necessary.

• Adjusted Pre-Provision Net Revenue Less Net Charge-Offs (Recoveries) is a performance measure utilized in determining executive compensation.

Non-GAAP Financial Measure Definition How the Measure Provides Useful Information to Investors

Net Interest Income (Tax-Equivalent Basis) • Net interest income adjusted for the tax-favored status of tax-exempt loans and securities.

6 unchanged sentences

That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue.

_________________________________________________

(1) Tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.

Non-GAAP Financial Measure Definition How the Measure Provides Useful Information to Investors

Tangible Common Equity to Tangible Assets • Tangible Common Equity is total stockholders’ equity less goodwill and other intangible assets.

• We also sometimes refer to Adjusted Efficiency Ratio (Tax-Equivalent Basis) which reflects the adjustments considered in Adjusted Net Income, as necessary.

• Adjusted Efficiency Ratio (Tax-Equivalent Basis) is a performance measure utilized in determining executive compensation.

Ratio of Tangible Common Equity to Tangible Assets • Tangible Common Equity is total stockholders’ equity less goodwill and other intangible assets.

• Tangible Assets is total assets less goodwill and other intangible assets.

• Generally used by investors, our management, and banking regulators to evaluate capital adequacy.

• Facilitates comparison of our earnings with the earnings of other banking organization with significant amounts of goodwill or intangible assets.

• Facilitates comparison of our earnings with the earnings of other banking organization with varying amounts of goodwill or intangible assets.

• We also sometimes refer to ratios that include Tangible Common Equity, such as:

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• We also sometimes refer to the ratio of Core Deposits to total deposits.

Reconciliation of Non-GAAP Financial Measure - Adjusted Net Income and Adjusted Return on Average Assets

_________________________________________________

(1) Tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.

Reconciliation of Non-GAAP Financial Measure —

Adjusted Net Income and Adjusted Return on Average Assets

Year Ended December 31,

3 unchanged sentences

— (13,691) (1,092)

Branch closure expenses — — (748)

Gains (losses) on sales of closed branch premises 75 141 —

Gains (losses) on closed branch premises (635) 75 141

Realized gains (losses) on sales of securities (3,697) (1,820) —

2 unchanged sentences

Tax effect of adjustments (2)

1,284 4,711 (551)

Total adjustments after tax effect (3,222) (12,340) 651

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(1) Includes recognition of an allowance for credit losses on non-PCD loans of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million in connection with the Town and Country merger during the first quarter of 2023 in accordance with ASC 326 which was adopted on January 1, 2023.

Reconciliation of Non-GAAP Financial Measure - Adjusted Earnings Per Share

(2) Assumes a federal income tax rate of 21% and a state tax rate of 9.5%.

Reconciliation of Non-GAAP Financial Measure —

Adjusted Earnings Per Share

Year Ended December 31,

2 unchanged sentences

Earnings allocated to participating securities (1)

(36) (66) (104)

Numerator for earnings per share - basic and diluted $ 71,780 $ 65,806 $ 56,390

1 unchanged sentence

Earnings allocated to participating securities (1)

(42) (65) (105)

Numerator for adjusted earnings per share - basic and diluted $ 75,002 $ 78,140 $ 55,740

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_________________________________________________

(1) The Company has granted certain restricted stock units that contain non-forfeitable rights to dividend equivalents.

Such restricted stock units are considered participating securities.

As such, we have included these restricted stock units in the calculation of basic earnings per share and calculate basic earnings per share using the two-class method.

(1) The Company previously granted restricted stock units that contained non-forfeitable rights to dividend equivalents which were considered participating securities.

Prior to 2024, these restricted stock units were included in the calculation of basic earnings per share using the two-class method.

The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.

Reconciliation of Non-GAAP Financial Measure – Net Interest Income and Net Interest Margin (Tax Equivalent Basis)

Reconciliation of Non-GAAP Financial Measure —

Pre-Provision Net Revenue, Pre-Provision Net Revenue Less Charge-offs (Recoveries),

Adjusted Pre-Provision Net Revenue, and

Adjusted Pre-Provision Net Revenue Less Charge-offs (Recoveries)

Year Ended December 31,

(dollars in thousands) 2024 2023 2022

Net interest income $ 188,850 $ 191,072 $ 145,874

Noninterest income 35,571 36,046 34,717

Noninterest expense (124,007) (130,964) (105,107)

Pre-provision net revenue 100,414 96,154 75,484

Acquisition expenses — (7,767) (1,092)

Gains (losses) on closed branch premises (635) 75 141

Realized gains (losses) on sales of securities (3,697) (1,820) —

Mortgage servicing rights fair value adjustment (174) (1,615) 2,153

Total adjustments (4,506) (11,127) 1,202

Adjusted pre-provision net revenue $ 104,920 $ 107,281 $ 74,282

Pre-provision net revenue $ 100,414 $ 96,154 $ 75,484

net charge-offs (recoveries) 1,758 180 (2,103)

Pre-provision net revenue less net charge-offs (recoveries) $ 98,656 $ 95,974 $ 77,587

Adjusted pre-provision net revenue $ 104,920 $ 107,281 $ 74,282

net charge-offs (recoveries) 1,758 180 (2,103)

Adjusted pre-provision net revenue less net charge-offs (recoveries) $ 103,162 $ 107,101 $ 76,385

Reconciliation of Non-GAAP Financial Measure —

Net Interest Income and Net Interest Margin (Tax-Equivalent Basis)

Year Ended December 31,

(dollars in thousands) 2024 2023 2022

Net interest income (tax-equivalent basis)

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(1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.

Reconciliation of Non-GAAP Financial Measure - Efficiency Ratio (Tax Equivalent Basis)

Reconciliation of Non-GAAP Financial Measure —

Efficiency Ratio (Tax-Equivalent Basis) and Adjusted Efficiency Ratio (Tax-Equivalent Basis)

Year Ended December 31,

(dollars in thousands) 2024 2023 2022

Efficiency ratio (tax-equivalent basis)

Total noninterest expense $ 124,007 $ 130,964 $ 105,107

1 unchanged sentence

Noninterest expense excluding amortization of intangible assets $ 121,168 $ 128,294 $ 104,234

adjustments to noninterest expense

Acquisition expenses — 7,767 1,092

Total adjustments to noninterest expense — 7,767 1,092

Adjusted noninterest expense $ 121,168 $ 120,527 $ 103,142

Net interest income $ 188,850 $ 191,072 $ 145,874

5 unchanged sentences

226,663 229,876 183,090

adjustments to noninterest income

Gains (losses) on closed branch premises (635) 75 141

Realized gains (losses) on sales of securities (3,697) (1,820) —

Mortgage servicing rights fair value adjustment (174) (1,615) 2,153

Total adjustments to noninterest income (4,506) (3,360) 2,294

Adjusted operating revenue (tax-equivalent basis) (1)

$ 231,169 $ 233,236 $ 180,796

Efficiency ratio 53.99 % 56.49 % 57.72 %

1 unchanged sentence

53.46 55.81 56.93

Adjusted efficiency ratio (tax-equivalent basis) (1)

52.42 51.68 57.05

_________________________________________________

(1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.

Reconciliation of Non-GAAP Financial Measure - Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share

Reconciliation of Non-GAAP Financial Measure —

Ratio of Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share

(dollars in thousands, except per share data) December 31, 2024 December 31, 2023

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Tangible book value per share 14.80 12.90

Reconciliation of Non-GAAP Financial Measure – Return on Average Tangible Common Equity, Adjusted Return on Average Stockholders’ Equity, and Adjusted Return on Average Tangible Common Equity

Reconciliation of Non-GAAP Financial Measure —

Return on Average Tangible Common Equity, Adjusted Return on Average Stockholders’ Equity, and Adjusted Return on Average Tangible Common Equity

Year Ended December 31,

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Adjusted return on average tangible common equity 17.19 20.94 15.83

Reconciliation of Non-GAAP Financial Measure - Core Deposits

Reconciliation of Non-GAAP Financial Measure —

Core Deposits

(dollars in thousands) December 31, 2024 December 31, 2023

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis