Midland States Bancorp, Inc. 10-Q

msbi-20240331 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission File Number 001-35272 MIDLAND STATES BANCORP, INC. (Exact name of registrant as specified in its charter) Illinois 37-1233196 (State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1201 Network Centre Drive 62401 Effingham , IL (Zip Code) (Address of principal executive offices) ( 217 ) 342-7321 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol(s) Name of each exchange on which registered Common stock, $0.01 par value MSBI The Nasdaq Stock Market LLC Depositary Shares, each representing a 1/40th interest in a share of 7.75% fixed rate reset non-cumulative perpetual preferred stock, Series A MSBIP The Nasdaq Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No As of April 26, 2024, the Registrant had 21,481,762 shares of outstanding common stock, $0.01 par value. Table of Contents MIDLAND STATES BANCORP, INC. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets at March 31, 2024 (Unaudited) and December 31, 2023 3 Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2024 and 2023 4 Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2024 and 2023 5 Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended March 31, 2024 and 2023 6 Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2024 and 2023 7 Notes to Consolidated Financial Statements (Unaudited) 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 3. Quantitative and Qualitative Disclosures about Market Risk 54 Item 4. Controls and Procedures 55 PART II. OTHER INFORMATION Item 1. Legal Proceedings 55 Item 1A. Risk Factors 55 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 56 Item 5. Other Information 56 Item 6. Exhibits 57 SIGNATURES 58 1 Table of Contents GLOSSARY OF ABBREVIATIONS AND ACRONYMS As used in this report, references to the "Company," "we," "our," "us," and similar terms refer to the consolidated entity consisting of Midland States Bancorp, Inc. and its wholly owned subsidiaries. Midland States Bancorp refers solely to the parent holding company and Midland States Bank (the "Bank") refers to our wholly owned banking subsidiary. The acronyms and abbreviations identified below are used throughout this report, including the Notes to the Consolidated Financial Statements. You may find it helpful to refer to this page as you read this report. 2019 Incentive Plan The Amended and Restated Midland States Bancorp, Inc. 2019 Long-Term Incentive Plan ACL Allowance for credit losses on loans ASU Accounting Standards Update BaaS Banking-as-a-Service Basel III Rule Basel III regulatory capital reforms required by the Dodd-Frank Act BHCA Bank Holding Company Act of 1956, as amended CBLR Community Bank Leverage Ratio CFPB Consumer Financial Protection Bureau CISA Cybersecurity and Infrastructure Security Agency COVID Coronavirus Disease CRA Community Reinvestment Act CRA Proposal Joint Proposal to Strengthen and Modernize Community Reinvestment Act Regulations CRE Commercial Real Estate CRE Guidance Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance DFPR Illinois Department of Financial and Professional Regulation DIF Deposit Insurance Fund EAD Exposure at default Exchange Act Securities Exchange Act of 1934 FASB Financial Accounting Standards Board FDIC Federal Deposit Insurance Corporation Federal Reserve Board of Governors of the Federal Reserve System FHA Federal Housing Administration FHLB Federal Home Loan Bank FinTech Financial Technology FRB Federal Reserve Bank GAAP U.S. generally accepted accounting principles Greensky GreenSky, LLC Illinois CRA Illinois Community Reinvestment Act LendingPoint LendingPoint, LLC LGD Loss given default LIBOR London Inter-Bank Offered Rate Midland Trust Midland States Preferred Securities Trust Nasdaq Nasdaq Global Select Market NII at Risk Net Interest Income at Risk OREO Other real estate owned PCAOB Public Company Accounting Oversight Board PCD Purchased credit deteriorated PD Probability of default Q-Factor Qualitative factor Regulatory Relief Act Economic Growth, Regulatory Relief and Consumer Protection Act SBA Small Business Administration SEC U.S. Securities and Exchange Commission SOFR Secured Overnight Financing Rate Treasury U.S. Department of the Treasury TDR Troubled debt restructuring 2 Table of Contents PART I – FINANCIAL INFORMATION ITEM 1 – FINANCIAL STATEMENTS MIDLAND STATES BANCORP, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) March 31, 2024 December 31, 2023 (unaudited) Assets Cash and due from banks $ 166,471 $ 134,212 Federal funds sold 845 849 Cash and cash equivalents 167,316 135,061 Investment securities available for sale, at fair value 1,040,406 915,895 Equity securities, at fair value 4,494 4,501 Loans 5,958,462 6,131,079 Allowance for credit losses on loans ( 78,057 ) ( 68,502 ) Total loans, net 5,880,405 6,062,577 Loans held for sale 5,043 3,811 Premises and equipment, net 81,831 82,814 Other real estate owned 8,920 9,112 Nonmarketable equity securities 33,476 43,421 Accrued interest receivable 25,931 24,934 Loan servicing rights, at lower of cost or fair value 19,577 20,253 Goodwill 161,904 161,904 Other intangible assets, net 15,019 16,108 Company-owned life insurance 205,286 203,485 Other assets 182,201 182,992 Total assets $ 7,831,809 $ 7,866,868 Liabilities and Shareholders’ Equity Liabilities: Deposits: Noninterest-bearing demand deposits $ 1,212,382 $ 1,145,395 Interest-bearing deposits 5,111,602 5,164,134 Total deposits 6,323,984 6,309,529 Short-term borrowings 214,446 34,865 Federal Home Loan Bank advances and other borrowings 255,000 476,000 Subordinated debt 93,617 93,546 Trust preferred debentures 50,790 50,616 Accrued interest payable and other liabilities 102,966 110,459 Total liabilities 7,040,803 7,075,015 Shareholders’ Equity: Preferred stock, $ 2.00 par value; 4,000,000 shares authorized; 115,000 Series A shares, $ 1,000 per share liquidation preference, issued and outstanding at March 31, 2024 and December 31, 2023, respectively 110,548 110,548 Common stock, $ 0.01 par value; 40,000,000 shares authorized; 21,485,231 and 21,551,402 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 215 216 Capital surplus 434,398 435,463 Retained earnings 327,264 322,379 Accumulated other comprehensive loss, net of tax ( 81,419 ) ( 76,753 ) Total shareholders’ equity 791,006 791,853 Total liabilities and shareholders’ equity $ 7,831,809 $ 7,866,868 The accompanying notes are an integral part of the consolidated financial statements. 3 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME — (UNAUDITED) (dollars in thousands, except per share data) Three Months Ended March 31, 2024 2023 Interest income: Loans including fees: Taxable $ 88,995 $ 87,459 Tax exempt 390 425 Loans held for sale 55 16 Investment securities: Taxable 10,179 5,370 Tax exempt 418 494 Nonmarketable equity securities 687 795 Federal funds sold and cash investments 951 980 Total interest income 101,675 95,539 Interest expense: Deposits 39,214 26,405 Short-term borrowings 836 25 Federal Home Loan Bank advances and other borrowings 3,036 6,006 Subordinated debt 1,280 1,370 Trust preferred debentures 1,389 1,229 Total interest expense 45,755 35,035 Net interest income 55,920 60,504 Provision for credit losses on loans 14,000 3,135 Net interest income after provision for credit losses 41,920 57,369 Noninterest income: Wealth management revenue 7,132 6,411 Service charges on deposit accounts 3,116 2,745 Interchange revenue 3,358 3,412 Residential mortgage banking revenue 527 405 Income on company-owned life insurance 1,801 876 Loss on sales of investment securities, net — ( 648 ) Other income 5,253 2,578 Total noninterest income 21,187 15,779 Noninterest expense: Salaries and employee benefits 24,102 24,243 Occupancy and equipment 4,142 4,443 Data processing 6,722 6,311 FDIC insurance 1,274 1,329 Professional services 2,255 1,760 Marketing 737 703 Communications 342 511 Loan expense 1,231 818 Amortization of intangible assets 1,089 1,291 Other expense 2,973 3,073 Total noninterest expense 44,867 44,482 Income before income taxes 18,240 28,666 Income taxes 4,355 6,894 Net income 13,885 21,772 Preferred dividends 2,228 2,228 Net income available to common shareholders $ 11,657 $ 19,544 Per common share data: Basic earnings per common share $ 0.53 $ 0.86 Diluted earnings per common share $ 0.53 $ 0.86 Weighted average common shares outstanding 21,774,647 22,478,808 Weighted average diluted common shares outstanding 21,787,691 22,501,970 The accompanying notes are an integral part of the consolidated financial statements. 4 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — (UNAUDITED) (dollars in thousands) Three Months Ended March 31, 2024 2023 Net income $ 13,885 $ 21,772 Other comprehensive income (loss): Investment securities available for sale: Unrealized (losses) gains that occurred during the period ( 7,037 ) 5,364 Reclassification adjustment for realized net losses on sales of investment securities included in net income — 648 Income tax effect 1,900 ( 1,622 ) Change in investment securities available for sale, net of tax ( 5,137 ) 4,390 Cash flow hedges: Net unrealized derivative gains on cash flow hedges 644 2,206 Income tax effect ( 173 ) ( 596 ) Change in cash flow hedges, net of tax 471 1,610 Other comprehensive (loss) income, net of tax ( 4,666 ) 6,000 Total comprehensive income $ 9,219 $ 27,772 The accompanying notes are an integral part of the consolidated financial statements . 5 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY — (UNAUDITED) (dollars in thousands, except per share data) Preferred stock Common stock Capital surplus Retained earnings Accumulated other comprehensive (loss) income Total shareholders' equity Balances, December 31, 2023 $ 110,548 $ 216 $ 435,463 $ 322,379 $ ( 76,753 ) $ 791,853 Net income — — — 13,885 — 13,885 Other comprehensive loss — — — — ( 4,666 ) ( 4,666 ) Common dividends declared ($ 0.31 per share) — — — ( 6,772 ) — ( 6,772 ) Preferred dividends declared ($ 19.375 per share) — — — ( 2,228 ) — ( 2,228 ) Common stock repurchased — ( 1 ) ( 1,943 ) — — ( 1,944 ) Share-based compensation expense — — 701 — — 701 Issuance of common stock under employee benefit plans — — 177 — — 177 Balances, March 31, 2024 $ 110,548 $ 215 $ 434,398 $ 327,264 $ ( 81,419 ) $ 791,006 Balances, December 31, 2022 $ 110,548 $ 222 $ 449,196 $ 282,405 $ ( 83,797 ) $ 758,574 Net income — — — 21,772 — 21,772 Other comprehensive income — — — — 6,000 6,000 Common dividends declared ($ 0.30 per share) — — — ( 6,749 ) — ( 6,749 ) Preferred dividends declared ( $ 19.375 per share) — — — ( 2,228 ) — ( 2,228 ) Common stock repurchased — ( 1 ) ( 2,800 ) — — ( 2,801 ) Share-based compensation expense — — 625 — — 625 Issuance of common stock under employee benefit plans — — 450 — — 450 Balances, March 31, 2023 $ 110,548 $ 221 $ 447,471 $ 295,200 $ ( 77,797 ) $ 775,643 The accompanying notes are an integral part of the consolidated financial statements. 6 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS — (UNAUDITED) (dollars in thousands) Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net income $ 13,885 $ 21,772 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses on loans 14,000 3,135 Depreciation on premises and equipment 1,231 1,208 Amortization of intangible assets 1,089 1,291 Amortization of operating lease right-of-use asset 402 421 Amortization of loan servicing rights 676 88 Share-based compensation expense 701 625 Increase in cash surrender value of life insurance ( 1,801 ) ( 876 ) Investment securities accretion, net ( 1,296 ) ( 47 ) Loss on sales of investment securities, net — 648 Gain on sales of other real estate owned ( 22 ) — Origination of loans held for sale ( 14,070 ) ( 7,507 ) Proceeds from sales of loans held for sale 17,627 6,261 Gain on sale of loans held for sale ( 442 ) ( 264 ) Net change in operating assets and liabilities: Accrued interest receivable ( 997 ) ( 221 ) Other assets 1,034 4,423 Accrued expenses and other liabilities ( 5,100 ) ( 14,949 ) Net cash provided by operating activities 26,917 16,008 Cash flows from investing activities: Purchases of investment securities available for sale ( 172,715 ) ( 136,881 ) Proceeds from sales of investment securities available for sale — 84,493 Maturities and payments on investment securities available for sale 42,464 13,748 Purchases of equity securities ( 93 ) ( 139 ) Net decrease (increase) in loans 163,694 ( 49,923 ) Purchases of premises and equipment ( 527 ) ( 2,788 ) Proceeds from sale of premises and equipment — 8 Purchases of nonmarketable equity securities ( 58,162 ) ( 11,315 ) Proceeds from redemptions of nonmarketable equity securities 68,107 4,385 Proceeds from sales of other real estate owned 301 — Net cash provided by (used in) investing activities 43,069 ( 98,412 ) Cash flows from financing activities: Net increase in deposits 14,455 60,549 Net increase (decrease) in short-term borrowings 179,581 ( 11,138 ) Net (decrease) increase in short-term FHLB borrowings ( 166,000 ) 92,000 Proceeds from long-term FHLB borrowings 35,000 235,000 Payments made on long-term FHLB borrowings ( 90,000 ) ( 305,000 ) Cash dividends paid on preferred stock ( 2,228 ) ( 2,228 ) Cash dividends paid on common stock ( 6,772 ) ( 6,749 ) Common stock repurchased ( 1,944 ) ( 2,801 ) Proceeds from issuance of common stock under employee benefit plans 177 450 Net cash (used in) provided by financing activities ( 37,731 ) 60,083 Net increase (decrease) in cash and cash equivalents 32,255 ( 22,321 ) Cash and cash equivalents: Beginning of period 135,061 160,631 End of period $ 167,316 $ 138,310 Supplemental disclosures of cash flow information: Cash payments for: Interest paid on deposits and borrowed funds $ 46,187 $ 34,888 Income tax paid (net of refunds) 985 1,409 Supplemental disclosures of noncash investing and financing activities: Transfer of loans to other real estate owned 51 — Right of use assets obtained in exchange for lease obligations 222 1,130 The accompanying notes are an integral part of the consolidated financial statements . 7 Table of Contents MIDLAND STATES BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (UNAUDITED) Note 1: Business Description 8 Note 2 : Investment Securities 9 Note 3 : Loans 12 Note 4 : Premises, Equipment and Leases 24 Note 5 : Derivative Instruments 24 Note 6 : Deposits 26 Note 7 : Short-Term Borrowings 26 Note 8 : FHLB Advances and Other Borrowings 26 Note 9 : Subordinated Debt 27 Note 1 0 : Earnings Per Common Share 27 Note 1 1 : Fair Value of Financial Instruments 28 Note 1 2 : Commitments, Contingencies and Credit Risk 33 Note 1 3 : Segment Information 34 Note 1 4 : Revenue from Contracts with Customers 35 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Midland States Bancorp, Inc. is a diversified financial holding company headquartered in Effingham, Illinois. Our wholly owned banking subsidiary, Midland States Bank, has branches across Illinois and in Missouri, and provides a full range of commercial and consumer banking products and services, business equipment financing, merchant credit card services, trust and investment management services, and insurance and financial planning services. Our principal business activity has been lending to and accepting deposits from individuals, businesses, municipalities and other entities. We have derived income principally from interest charged on loans and, to a lesser extent, from interest and dividends earned on investment securities. We have also derived income from noninterest sources, such as: fees received in connection with various lending and deposit services; wealth management services; mortgage loan originations, sales and servicing; and, from time to time, gains on sales of assets. Our principal expenses include interest expense on deposits and borrowings, operating expenses, such as salaries and employee benefits, occupancy and equipment expenses, data processing costs, professional fees and other noninterest expenses, provisions for credit losses and income tax expense. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP and guidance provided by the SEC for interim financial information. Accordingly, the condensed financial statements do not include all of the information and footnotes required by GAAP for completed financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates. The consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 23, 2024. Certain reclassifications of 2023 amounts have been made to conform to the 2024 presentation. All significant transactions and accounts between subsidiaries have been eliminated. Assets held for customers in a fiduciary or agency capacity are not assets of the Company and, accordingly, other than trust cash on deposit with the Bank, are not included in the accompanying unaudited balance sheets. Management has evaluated subsequent events for potential recognition or disclosure. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other period. 8 Table of Contents Accounting Guidance Adopted in 2024 FASB ASU No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method – In March 2023, the FASB issued ASU No. 2023-02, which allows for reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the type of program the tax credits are related to. The ASU is effective for fiscal years beginning after December 15, 2023. The Company adopted this guidance on January 1, 2024 on a prospective basis. The adoption of this accounting pronouncement did not have a material impact on the consolidated financial statements. Accounting Guidance Not Yet Adopted FASB ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures - In December 2023, the FASB issued ASU No. 2023-07, which requires public entities to disclose significant segment expenses, an amount and description for other segment items, the title and position of the entity's chief operating decision maker and an explanation of how the chief operating decision maker uses the reported measures of profit or loss to assess segment performance, and, on an interim basis, certain segment related disclosures that previously were required only on an annual basis.The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company will update the related disclosures upon adoption. FASB ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures - In December 2023, the FASB issued ASU No. 2023-09, which requires public entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. The pronouncement also requires entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company will update the related disclosures upon adoption. NOTE 2 – INVESTMENT SECURITIES Investment Securities Available for Sale Investment securities available for sale at March 31, 2024 and December 31, 2023 were as follows: March 31, 2024 (dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investment securities available for sale U.S. government sponsored entities and U.S. agency securities $ 69,487 $ 126 $ 1,890 $ 67,723 Mortgage-backed securities - agency 763,902 1,517 83,899 681,520 Mortgage-backed securities - non-agency 93,146 456 4,074 89,528 State and municipal securities 66,902 233 6,505 60,630 Collateralized loan obligations 33,558 102 46 33,614 Corporate securities 117,145 142 9,896 107,391 Total available for sale securities $ 1,144,140 $ 2,576 $ 106,310 $ 1,040,406 9 Table of Contents December 31, 2023 (dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investment securities available for sale U.S. Treasury securities $ 1,097 $ — $ — $ 1,097 U.S. government sponsored entities and U.S. agency securities 74,161 176 1,765 72,572 Mortgage-backed securities - agency 650,119 2,325 77,944 574,500 Mortgage-backed securities - non-agency 87,019 414 3,904 83,529 State and municipal securities 62,952 258 5,750 57,460 Collateralized loan obligations 27,646 3 84 27,565 Corporate securities 109,598 41 10,467 99,172 Total available for sale securities $ 1,012,592 $ 3,217 $ 99,914 $ 915,895 The following is a summary of the amortized cost and fair value of the investment securities available for sale, by maturity, at March 31, 2024. Expected maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be prepaid without penalties. The maturities of all other investment securities available for sale are based on final contractual maturity. (dollars in thousands) Amortized cost Fair value Investment securities available for sale Within one year $ 12,571 $ 12,566 After one year through five years 101,298 98,686 After five years through ten years 136,040 122,565 After ten years 37,183 35,541 Mortgage-backed securities 857,048 771,048 Total available for sale securities $ 1,144,140 $ 1,040,406 Proceeds and gross realized gains and losses on sales of investment securities available for sale for the three months ended March 31, 2024 and 2023 are summarized as follows: Three Months Ended March 31, (dollars in thousands) 2024 2023 Investment securities available for sale Proceeds from sales $ — $ 84,493 Gross realized gains on sales — 338 Gross realized losses on sales — ( 986 ) 10 Table of Contents Unrealized losses and fair values for investment securities available for sale as of March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as follows: March 31, 2024 Less than 12 Months 12 Months or more Total (dollars in thousands) Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Investment securities available for sale U.S. government sponsored entities and U.S. agency securities $ 28,789 $ 50 $ 21,364 $ 1,840 $ 50,153 $ 1,890 Mortgage-backed securities - agency 160,215 6,769 383,450 77,130 543,665 83,899 Mortgage-backed securities - non-agency 30,644 453 18,920 3,621 49,564 4,074 State and municipal securities 51,422 6,505 — — 51,422 6,505 Collateralized loan obligations 14,712 46 — — 14,712 46 Corporate securities 3,671 62 88,991 9,834 92,662 9,896 Total available for sale securities $ 289,453 $ 13,885 $ 512,725 $ 92,425 $ 802,178 $ 106,310 December 31, 2023 Less than 12 Months 12 Months or more Total (dollars in thousands) Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Investment securities available for sale U.S. Treasury securities $ — $ — $ — $ — $ — $ — U.S. government sponsored entities and U.S. agency securities 42,826 87 8,323 1,678 51,149 1,765 Mortgage-backed securities - agency 130,106 7,386 348,476 70,558 478,582 77,944 Mortgage-backed securities - non-agency 8,852 353 19,418 3,551 28,270 3,904 State and municipal securities 51,497 5,750 — — 51,497 5,750 Collateralized loan obligations 14,763 84 — — 14,763 84 Corporate securities 4,688 53 84,662 10,414 89,350 10,467 Total available for sale securities $ 252,732 $ 13,713 $ 460,879 $ 86,201 $ 713,611 $ 99,914 At March 31, 2024, 285 investment securities available for sale had unrealized losses with aggregate depreciation of 11.70 % from their amortized cost basis. For all of the above investment securities, the unrealized losses were generally due to changes in interest rates and other market conditions, and unrealized losses were considered to be temporary as the fair value is expected to recover as the securities approach their respective maturity dates. The issuers are of high credit quality and all principal amounts are expected to be paid when securities mature. The Company does not intend to sell and it is likely that the Company will not be required to sell the securities prior to their anticipated recovery. 11 Table of Contents NOTE 3 – LOANS The following table presents total loans outstanding by portfolio class, as of March 31, 2024 and December 31, 2023: (dollars in thousands) March 31, 2024 December 31, 2023 Commercial: Commercial $ 813,963 $ 825,938 Commercial other 601,704 656,592 Commercial real estate: Commercial real estate non-owner occupied 1,591,455 1,622,668 Commercial real estate owner occupied 450,149 436,857 Multi-family 287,586 279,904 Farmland 67,923 67,416 Construction and land development 474,128 452,593 Total commercial loans 4,286,908 4,341,968 Residential real estate: Residential first lien 316,310 317,388 Other residential 62,273 63,195 Consumer: Consumer 99,157 107,743 Consumer other 737,935 827,435 Lease financing 455,879 473,350 Total loans $ 5,958,462 $ 6,131,079 Total loans include net deferred loan costs of $ 3.5 million and $ 3.8 million at March 31, 2024 and December 31, 2023, respectively, and unearned discounts of $ 64.4 million and $ 66.4 million within the lease financing portfolio at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, the Company had residential real estate loans held for sale totaling $ 5.0 million, compared to $ 3.8 million at December 31, 2023. The Company sold loans and leases with proceeds totaling $ 17.6 million and $ 6.3 million during the three months ended March 31, 2024 and 2023, respectively. Classifications of Loan Portfolio The Company monitors and assesses the credit risk of its loan portfolio using the classes set forth below. These classes also represent the segments by which the Company monitors the performance of its loan portfolio and estimates its allowance for credit losses on loans. Commercial —Loans to varying types of businesses, including municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital, operational needs and term financing of equipment. Repayment of such loans is generally provided through operating cash flows of the business. Commercial loans are predominately secured by equipment, inventory, accounts receivable, and other sources of repayment. Commercial FHA warehouse lines of $ 8.0 million as of March 31, 2024 were included in this classification. Commercial real estate —Loans secured by real estate occupied by the borrower for ongoing operations, including loans to borrowers engaged in agricultural production, and non-owner occupied real estate leased to one or more tenants, including commercial office, industrial, special purpose, retail and multi-family residential real estate loans. Construction and land development —Secured loans for the construction of business and residential properties. Real estate construction loans often convert to a real estate commercial loan at the completion of the construction period. Secured development loans are made to borrowers for the purpose of infrastructure improvements to vacant land to create finished marketable residential and commercial lots/land. Most land development loans are originated with the intention that the loans will be paid through the sale of developed lots/land by the developers within twelve months of the completion date. Interest reserves may be established on real estate construction loans. 12 Table of Contents Residential real estate —Loans, secured by residential properties, that generally do not qualify for secondary market sale; however, the risk to return and/or overall relationship are considered acceptable to the Company. This category also includes loans whereby consumers utilize equity in their personal residence, generally through a second mortgage, as collateral to secure the loan. Consumer —Loans to consumers primarily for the purpose of home improvements or acquiring automobiles, recreational vehicles and boats. Consumer loans consist of relatively small amounts that are spread across many individual borrowers. Lease financing —Our equipment leasing business provides financing leases to varying types of businesses, nationwide, for purchases of business equipment and software. The financing is secured by a first priority interest in the financed assets and generally requires monthly payments. Commercial, commercial real estate, and construction and land development loans are collectively referred to as the Company’s commercial loan portfolio, while residential real estate, consumer loans and lease financing receivables are collectively referred to as the Company’s other loan portfolio. We have extended loans to certain of our directors, executive officers, principal shareholders and their affiliates. These loans were made in the ordinary course of business upon substantially the same terms, including collateralization and interest rates prevailing at the time. The new loans, other additions, repayments and other reductions for the three months ended March 31, 2024 and 2023, are summarized as follows: Three Months Ended March 31, (dollars in thousands) 2024 2023 Beginning balance $ 20,990 $ 19,776 Repayments and other reductions ( 264 ) ( 257 ) Ending balance $ 20,726 $ 19,519 The following table represents, by loan portfolio segment, a summary of changes in the allowance for credit losses on loans for the three months ended March 31, 2024 and 2023: Commercial Loan Portfolio Other Loan Portfolio (dollars in thousands) Commercial Commercial real estate Construction and land development Residential real estate Consumer Lease financing Total Changes in allowance for credit losses on loans for the three months ended March 31, 2024: Balance, beginning of period $ 21,847 $ 20,229 $ 4,163 $ 5,553 $ 3,770 $ 12,940 $ 68,502 Provision for credit losses on loans 1,776 1,677 8,466 82 ( 11 ) 2,010 14,000 Charge-offs ( 2,410 ) ( 691 ) — ( 35 ) ( 235 ) ( 1,665 ) ( 5,036 ) Recoveries 116 152 — 55 87 181 591 Balance, end of period $ 21,329 $ 21,367 $ 12,629 $ 5,655 $ 3,611 $ 13,466 $ 78,057 Changes in allowance for credit losses on loans for the three months ended March 31, 2023: Balance, beginning of period $ 14,639 $ 29,290 $ 2,435 $ 4,301 $ 3,599 $ 6,787 $ 61,051 Provision for credit losses on loans 1,998 ( 330 ) 7 63 700 697 3,135 Charge-offs ( 969 ) ( 746 ) — ( 31 ) ( 263 ) ( 390 ) ( 2,399 ) Recoveries 94 2 — 17 93 74 280 Balance, end of period $ 15,762 $ 28,216 $ 2,442 $ 4,350 $ 4,129 $ 7,168 $ 62,067 The Company utilizes a combination of models which measure probability of default and loss given default in determining expected future credit losses. 13 Table of Contents The probability of default is the risk that the borrower will be unable or unwilling to repay its debt in full or on time. The risk of default is derived by analyzing the obligor’s capacity to repay the debt in accordance with contractual terms. Probability of default is generally associated with financial characteristics such as inadequate cash flow to service debt, declining revenues or operating margins, high leverage, declining or marginal liquidity, and the inability to successfully implement a business plan. In addition to these quantifiable factors, the borrower’s willingness to repay also must be evaluated. The probability of default is forecasted, for most commercial and retail loans, using a regression model that determines the likelihood of default within the twelve month time horizon. The regression model uses forward-looking economic forecasts including variables such as gross domestic product, housing price index, and real disposable income to predict default rates. The forecasting method for the equipment financing portfolio assumes a rolling twelve-month average of the through-the-cycle default rate, to predict default rates for the twelve month time horizon. The loss given default component is the percentage of defaulted loan balance that is ultimately charged off. As a method for estimating the allowance, a form of migration analysis is used that combines the estimated probability of loans experiencing default events and the losses ultimately associated with the loans experiencing those defaults. Multiplying one by the other gives the Company its loss rate, which is then applied to the loan portfolio balance to determine expected future losses. Within the model, the loss given default approach produces segmented loss given default estimates using a loss curve methodology, which is based on historical net losses from charge-off and recovery information. The main principle of a loss curve model is that the loss follows a steady timing schedule based on how long the defaulted loan has been on the books. The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look-back period includes January 2012 through the current period on a monthly basis. When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data. Historical data is evaluated in multiple components of the expected credit loss, including the reasonable and supportable forecast and the post-reversion period of each loan segment. The historical experience is used to infer probability of default and loss given default in the reasonable and supportable forecast period. In the post-reversion period, long-term average loss rates are segmented by loan pool. Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration other analytics performed within the organization, such as enterprise and concentration management, along with other credit-related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible. The Company segments the loan portfolio into pools based on the following risk characteristics: financial asset type, collateral type, loan characteristics, credit characteristics, outstanding loan balances, contractual terms and prepayment assumptions, industry of borrower and concentrations, historical or expected credit loss patterns, and reasonable and supportable forecast periods. Within the probability of default segmentation, credit metrics are identified to further segment the financial assets. The Company utilizes risk ratings for the commercial portfolios and days past due for the consumer and the lease financing portfolios. Within the probability of default segmentation, credit metrics are identified to further segment the financial assets. The Company utilizes risk ratings for the commercial portfolios and days past due for the consumer and the lease financing portfolios. 14 Table of Contents The Company has defined five transitioning risk states for each asset pool within the expected credit loss model. The below table illustrates the transition matrix: Risk state Commercial loans risk rating Consumer loans and equipment finance loans and leases days past due 1 0-5 0 - 14 2 6 15 - 29 3 7 30 - 59 4 8 60 - 89 Default 9+ and nonaccrual 90 + and nonaccrual Expected Credit Losses In calculating expected credit losses, the Company individually evaluates loans on nonaccrual status with a balance greater than $ 500,000 , loans past due 90 days or more and still accruing interest, and loans that do not share risk characteristics with other loans in the pool. The following table presents the amortized cost basis of individually evaluated loans on nonaccrual status as of March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 (dollars in thousands) Nonaccrual with allowance Nonaccrual with no allowance Total nonaccrual Nonaccrual with allowance Nonaccrual with no allowance Total nonaccrual Commercial: Commercial $ 3,572 $ — $ 3,572 $ 3,560 $ — $ 3,560 Commercial other 6,251 — 6,251 4,941 — 4,941 Commercial real estate: Commercial real estate non-owner occupied 6,544 14,902 21,446 1,614 14,098 15,712 Commercial real estate owner occupied 4,198 6,500 10,698 4,276 6,500 10,776 Multi-family 3,413 2,652 6,065 240 6,015 6,255 Farmland 1,265 — 1,265 1,148 — 1,148 Construction and land development 15,724 10,594 26,318 39 — 39 Total commercial loans 40,967 34,648 75,615 15,818 26,613 42,431 Residential real estate: Residential first lien 2,658 590 3,248 2,583 490 3,073 Other residential 670 — 670 635 — 635 Consumer: Consumer 91 — 91 134 — 134 Lease financing 10,185 15 10,200 9,097 36 9,133 Total loans $ 54,571 $ 35,253 $ 89,824 $ 28,267 $ 27,139 $ 55,406 There was no interest income recognized on nonaccrual loans during the three months ended March 31, 2024 and 2023 while the loans were in nonaccrual status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $ 1.3 million and $ 0.8 million for the three months ended March 31, 2024 and 2023, respectively. Collateral Dependent Financial Assets A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of 15 Table of Contents protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral’s value increases and the loan may become collateral dependent. The table below presents the value of individually evaluated, collateral dependent loans by loan class, for borrowers experiencing financial difficulty, as of March 31, 2024 and December 31, 2023: Type of Collateral (dollars in thousands) Real Estate Equipment Total March 31, 2024 Commercial: Commercial $ — $ 1,972 $ 1,972 Commercial other — 1,399 1,399 Commercial real estate: Non-owner occupied 20,293 — 20,293 Owner occupied 9,275 — 9,275 Multi-family 20,461 — 20,461 Construction and land development 26,204 — 26,204 Total collateral dependent loans $ 76,233 $ 3,371 $ 79,604 December 31, 2023 Commercial: Commercial $ — $ 1,972 $ 1,972 Commercial other — 1,232 1,232 Commercial real estate: Non-owner occupied 14,147 — 14,147 Owner occupied 9,275 — 9,275 Multi-family 5,143 — 5,143 Total collateral dependent loans $ 28,565 $ 3,204 $ 31,769 16 Table of Contents The aging status of the recorded investment in loans by portfolio as of March 31, 2024 was as follows: Accruing loans (dollars in thousands) 30-59 days past due 60-89 days past due Past due 90 days or more Total past due Nonaccrual Current Total Commercial: Commercial $ 4,164 $ 640 $ 450 $ 5,254 $ 3,572 $ 805,137 $ 813,963 Commercial other 12,247 4,474 3 16,724 6,251 578,729 601,704 Commercial real estate: Commercial real estate non-owner occupied 7,072 4,339 — 11,411 21,446 1,558,598 1,591,455 Commercial real estate owner occupied 284 265 — 549 10,698 438,902 450,149 Multi-family — — 14,483 14,483 6,065 267,038 287,586 Farmland 3 — — 3 1,265 66,655 67,923 Construction and land development — — — — 26,318 447,810 474,128 Total commercial loans 23,770 9,718 14,936 48,424 75,615 4,162,869 4,286,908 Residential real estate: Residential first lien 429 — 212 641 3,248 312,421 316,310 Other residential 142 52 — 194 670 61,409 62,273 Consumer: Consumer 39 22 — 61 91 99,005 99,157 Consumer other 6,735 4,126 2 10,863 — 727,072 737,935 Lease financing 8,646 5,174 5 13,825 10,200 431,854 455,879 Total loans $ 39,761 $ 19,092 $ 15,155 $ 74,008 $ 89,824 $ 5,794,630 $ 5,958,462 The aging status of the recorded investment in loans by portfolio as of December 31, 2023 was as follows: Accruing loans (dollars in thousands) 30-59 days past due 60-89 days past due Past due 90 days or more Total past due Nonaccrual Current Total Commercial: Commercial $ 9,340 $ 504 $ — $ 9,844 $ 3,560 $ 812,534 $ 825,938 Commercial other 11,156 5,990 781 17,927 4,941 633,724 656,592 Commercial real estate: Commercial real estate non-owner occupied 384 — — 384 15,712 1,606,572 1,622,668 Commercial real estate owner occupied — — — — 10,776 426,081 436,857 Multi-family 14,506 8,140 — 22,646 6,255 251,003 279,904 Farmland — 120 — 120 1,148 66,148 67,416 Construction and land development 211 10,593 — 10,804 39 441,750 452,593 Total commercial loans 35,597 25,347 781 61,725 42,431 4,237,812 4,341,968 Residential real estate: Residential first lien 69 299 161 529 3,073 313,786 317,388 Other residential 100 50 — 150 635 62,410 63,195 Consumer: Consumer 62 20 — 82 134 107,527 107,743 Consumer other 7,225 4,561 3 11,789 — 815,646 827,435 Lease financing 7,622 1,826 — 9,448 9,133 454,769 473,350 Total loans $ 50,675 $ 32,103 $ 945 $ 83,723 $ 55,406 $ 5,991,950 $ 6,131,079 17 Table of Contents Loan Restructurings The Company adopted the accounting guidance in ASU No. 2022-02, effective as of January 1, 2023, which eliminated the recognition and measurement of a TDR. Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are for modifications which have a direct impact on cash flows. The Company may offer various types of concessions when modifying a loan. Commercial and industrial loans modified in a loan restructuring often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Loans modified in a loan restructuring for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for loans that have been modified in a loan restructuring is measured based on the probability of default and loss given default model, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. Commercial and consumer loans modified in a loan restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a loan restructuring subsequently default, the Company evaluates the loan for possible further loss. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. In some cases, the Company will modify a loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession such as an interest rate reduction or principal forgiveness, may be granted. During the three months ended March 31, 2024 the Company restructured four loans and three leases for borrowers experiencing financial difficulties with principal balances totaling $ 1.5 million. Each of the restructured loans and leases were provided a term extension. The Company has not committed to lend any additional amounts to the borrowers that have been granted a loan modification. Credit Quality Monitoring The Company maintains loan policies and credit underwriting standards as part of the process of managing credit risk. These standards include making loans generally within the Company’s four geographic regions. In addition, our specialty finance division does nationwide bridge lending for FHA and HUD developments and originates loans for multifamily, assisted and senior living and multi-use properties. Our equipment leasing business provides financing to business customers across the country. The Company has a loan approval process involving underwriting and individual and group loan approval authorities to consider credit quality and loss exposure at loan origination. The loans in the Company’s commercial loan portfolio are risk rated at origination based on the grading system set forth below. All loan authority is based on the aggregate credit to a borrower and its related entities. The Company’s consumer loan portfolio is primarily comprised of both secured and unsecured loans that are relatively small and are evaluated at origination on a centralized basis against standardized underwriting criteria. The ongoing measurement of credit quality of the consumer loan portfolio is largely done on an exception basis. If payments are made on schedule, as agreed, then no further monitoring is performed. However, if delinquency occurs, the delinquent loans are turned over to the Company’s Consumer Collections Group for resolution. Credit quality for the entire consumer loan portfolio is measured by the periodic delinquency rate, nonaccrual amounts and actual losses incurred. Loans in the commercial loan portfolio tend to be larger and more complex than those in the other loan portfolio, and therefore, are subject to more intensive monitoring. All loans in the commercial loan portfolio have an assigned relationship manager, and most borrowers provide periodic financial and operating information that allows the relationship managers to stay abreast of credit quality during the life of the loans. The risk ratings of loans in the commercial loan portfolio are reassessed at least annually, with loans below an acceptable risk rating reassessed more frequently and reviewed by various individuals within the Company at least quarterly. 18 Table of Contents The Company maintains a centralized independent loan review function that monitors the approval process and ongoing asset quality of the loan portfolio, including the accuracy of loan grades. The Company also maintains an independent appraisal review function that participates in the review of all appraisals obtained by the Company. Credit Quality Indicators The Company uses a ten grade risk rating system to monitor the ongoing credit quality of its commercial loan portfolio. These loan grades rank the credit quality of a borrower by measuring liquidity, debt capacity, and coverage and payment behavior as shown in the borrower’s financial statements. The risk grades also measure the quality of the borrower’s management and the repayment support offered by any guarantors. The Company considers all loans with Risk Grades 1 - 6 as acceptable credit risks and structures and manages such relationships accordingly. Periodic financial and operating data combined with regular loan officer interactions are deemed adequate to monitor borrower performance. Loans with Risk Grades of 7 are considered "watch credits" categorized as special mention and the frequency of loan officer contact and receipt of financial data is increased to stay abreast of borrower performance. Loans with Risk Grades of 8 - 10 are considered problematic and require special care. Risk Grade 8 is categorized as substandard, 9 as substandard - nonaccrual and 10 as doubtful. Further, loans with Risk Grades of 7 - 10 are managed regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive and senior management of the Company, which includes highly structured reporting of financial and operating data, intensive loan officer intervention and strategies to exit, as well as potential management by the Company's Special Assets Group. Loans not graded in the commercial loan portfolio are monitored by aging status and payment activity. 19 Table of Contents The following tables present the recorded investment of the commercial loan portfolio by risk category as of March 31, 2024 and December 31, 2023: March 31, 2024 Term Loans Amortized Cost Basis by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving loans Total Commercial Commercial Acceptable credit quality $ 34,179 $ 161,363 $ 94,071 $ 63,411 $ 32,308 $ 51,224 $ 343,792 $ 780,348 Special mention — — 450 — — 169 1,103 1,722 Substandard 970 3,321 13,192 420 322 5,229 4,867 28,321 Substandard – nonaccrual — 1,308 — 1,321 — 273 670 3,572 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 35,149 165,992 107,713 65,152 32,630 56,895 350,432 813,963 Commercial other Acceptable credit quality 31,164 117,553 177,957 89,308 49,811 49,197 77,454 592,444 Special mention 2 — 400 368 109 94 1,071 2,044 Substandard — 36 220 — — — 709 965 Substandard – nonaccrual — 2,301 2,437 654 148 595 116 6,251 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 31,166 119,890 181,014 90,330 50,068 49,886 79,350 601,704 Commercial real estate Non-owner occupied Acceptable credit quality 183,143 181,438 540,756 294,180 102,842 185,288 6,923 1,494,570 Special mention — 4,423 — 181 452 277 — 5,333 Substandard 17,978 19,027 11,474 — — 21,627 — 70,106 Substandard – nonaccrual — 5,256 — 96 860 15,234 — 21,446 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 201,121 210,144 552,230 294,457 104,154 222,426 6,923 1,591,455 Owner occupied Acceptable credit quality 11,641 37,180 108,068 111,372 47,480 95,805 793 412,339 Special mention — 5,750 — 127 — 546 5 6,428 Substandard — — 7,644 265 — 12,775 — 20,684 Substandard – nonaccrual — 109 9,419 5 159 702 304 10,698 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 11,641 43,039 125,131 111,769 47,639 109,828 1,102 450,149 Multi-family Acceptable credit quality 59,782 12,834 111,585 25,660 27,987 20,888 112 258,848 Special mention — — — — — — — — Substandard 8,140 — — — — 14,533 — 22,673 Substandard – nonaccrual — 1,658 — 899 — 3,508 — 6,065 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 67,922 14,492 111,585 26,559 27,987 38,929 112 287,586 Farmland Acceptable credit quality 1,017 9,720 4,654 15,117 12,037 21,322 1,040 64,907 Special mention — — — 1,451 — — — 1,451 Substandard — — — 14 — 286 — 300 Substandard – nonaccrual — — — 117 — 1,100 48 1,265 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 1,017 9,720 4,654 16,699 12,037 22,708 1,088 67,923 Construction and land development Acceptable credit quality 9,176 69,390 229,815 88,372 — 1,566 27,125 425,444 Special mention — — 9,851 3,810 — 40 — 13,701 Substandard — — — 6,000 — — — 6,000 Substandard – nonaccrual — — — 26,278 — 40 — 26,318 Doubtful — — — — — — — — Not graded 264 1,601 421 355 — 24 — 2,665 Subtotal 9,440 70,991 240,087 124,815 — 1,670 27,125 474,128 Total Acceptable credit quality 330,102 589,478 1,266,906 687,420 272,465 425,290 457,239 4,028,900 Special mention 2 10,173 10,701 5,937 561 1,126 2,179 30,679 Substandard 27,088 22,384 32,530 6,699 322 54,450 5,576 149,049 Substandard – nonaccrual — 10,632 11,856 29,370 1,167 21,452 1,138 75,615 Doubtful — — — — — — — — Not graded 264 1,601 421 355 — 24 — 2,665 Total commercial loans $ 357,456 $ 634,268 $ 1,322,414 $ 729,781 $ 274,515 $ 502,342 $ 466,132 $ 4,286,908 20 Table of Contents December 31, 2023 Term Loans Amortized Cost Basis by Origination Year (dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving loans Total Commercial Commercial Acceptable credit quality $ 157,498 $ 96,295 $ 71,366 $ 36,680 $ 14,688 $ 42,827 $ 369,297 $ 788,651 Special mention 3,015 450 4 — 181 43 983 4,676 Substandard 4,485 13,651 420 342 253 4,961 4,940 29,052 Substandard – nonaccrual 1,238 — 1,321 25 79 360 536 3,559 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 166,236 110,396 73,111 37,047 15,201 48,191 375,756 825,938 Commercial other Acceptable credit quality 139,057 195,726 100,946 59,392 32,848 28,946 90,928 647,843 Special mention — 532 399 114 107 4 1,682 2,838 Substandard 37 220 — — — — 639 896 Substandard – nonaccrual 1,819 1,918 449 184 361 94 116 4,941 Doubtful — — — — — — — — Not graded 74 — — — — — — 74 Subtotal 140,987 198,396 101,794 59,690 33,316 29,044 93,365 656,592 Commercial real estate Non-owner occupied Acceptable credit quality 237,215 653,057 309,013 110,743 82,563 124,430 6,328 1,523,349 Special mention 4,480 — 181 457 — 274 — 5,392 Substandard 35,811 1,658 — — 17,835 22,911 — 78,215 Substandard – nonaccrual 5,573 — 154 999 7,597 1,389 — 15,712 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 283,079 654,715 309,348 112,199 107,995 149,004 6,328 1,622,668 Owner occupied Acceptable credit quality 32,972 100,893 113,264 48,415 23,671 77,854 1,803 398,872 Special mention 5,750 — 129 — 149 177 8 6,213 Substandard — 7,716 265 — 705 12,310 — 20,996 Substandard – nonaccrual 126 9,431 28 171 27 689 304 10,776 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 38,848 118,040 113,686 48,586 24,552 91,030 2,115 436,857 Multi-family Acceptable credit quality 4,483 170,519 25,835 28,137 10,185 11,538 254 250,951 Special mention — — — — — — — — Substandard 8,140 — — — — 14,558 — 22,698 Substandard – nonaccrual 1,700 — 899 — 104 3,552 — 6,255 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 14,323 170,519 26,734 28,137 10,289 29,648 254 279,904 Farmland Acceptable credit quality 10,104 4,735 13,405 12,255 3,723 18,636 1,439 64,297 Special mention — — 1,451 — — 96 — 1,547 Substandard — — 133 — 22 269 — 424 Substandard – nonaccrual — — — — — 1,100 48 1,148 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 10,104 4,735 14,989 12,255 3,745 20,101 1,487 67,416 Construction and land development Acceptable credit quality 65,538 233,660 88,047 — 677 916 29,385 418,223 Special mention — — — — — 40 — 40 Substandard — — 16,594 — — — 15,349 31,943 Substandard – nonaccrual — — — — — 39 — 39 Doubtful — — — — — — — — Not graded 1,535 432 356 — — 25 — 2,348 Subtotal 67,073 234,092 104,997 — 677 1,020 44,734 452,593 Total Acceptable credit quality 646,867 1,454,885 721,876 295,622 168,355 305,147 499,434 4,092,186 Special mention 13,245 982 2,164 571 437 634 2,673 20,706 Substandard 48,473 23,245 17,412 342 18,815 55,009 20,928 184,224 Substandard – nonaccrual 10,456 11,349 2,851 1,379 8,168 7,223 1,004 42,430 Doubtful — — — — — — — — Not graded 1,609 432 356 — — 25 — 2,422 Total commercial loans $ 720,650 $ 1,490,893 $ 744,659 $ 297,914 $ 195,775 $ 368,038 $ 524,039 $ 4,341,968 21 Table of Contents The following table presents the gross charge-offs by class of loan and year of origination on the commercial loan portfolio for the three months ended March 31, 2024: Term Loans by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Total For the three months ended March 31, 2024 Commercial Commercial $ — $ — $ — $ — $ 10 $ 1 $ 102 $ 113 Commercial Other — 866 1,074 294 20 43 — 2,297 Commercial Real Estate Non-owner occupied — — — — — — — — Owner occupied — — — — 138 553 — 691 Multi-family — — — — — — — — Construction and land development — — — — — — — — Total gross commercial charge-offs $ — $ 866 $ 1,074 $ 294 $ 168 $ 597 $ 102 $ 3,101 The Company evaluates the credit quality of its other loan portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity. Accordingly, loans on nonaccrual status and loans past due 90 days or more and still accruing interest are considered to be nonperforming for purposes of credit quality evaluation. The following tables present the recorded investment of our other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming as of March 31, 2024 and December 31, 2023: March 31, 2024 Term Loans Amortized Cost Basis by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Total Residential real estate Residential first lien Performing $ 5,943 $ 43,221 $ 73,140 $ 36,738 $ 28,978 $ 124,818 $ 12 $ 312,850 Nonperforming — 176 — 331 — 2,953 — 3,460 Subtotal 5,943 43,397 73,140 37,069 28,978 127,771 12 316,310 Other residential Performing 542 2,465 1,039 329 375 2,542 54,311 61,603 Nonperforming — — — 24 — 169 477 670 Subtotal 542 2,465 1,039 353 375 2,711 54,788 62,273 Consumer Consumer Performing 2,856 27,585 21,508 29,044 5,203 11,971 900 99,067 Nonperforming — 15 42 9 — 23 1 90 Subtotal 2,856 27,600 21,550 29,053 5,203 11,994 901 99,157 Consumer other Performing 20 183,855 350,647 128,536 50,076 24,798 — 737,932 Nonperforming — — — — — 3 — 3 Subtotal 20 183,855 350,647 128,536 50,076 24,801 — 737,935 Leases financing Performing 30,896 128,315 144,134 65,687 43,798 32,844 — 445,674 Nonperforming — 1,342 5,107 2,720 261 775 — 10,205 Subtotal 30,896 129,657 149,241 68,407 44,059 33,619 — 455,879 Total Performing 40,257 385,441 590,468 260,334 128,430 196,973 55,223 1,657,126 Nonperforming — 1,533 5,149 3,084 261 3,923 478 14,428 Total other loans $ 40,257 $ 386,974 $ 595,617 $ 263,418 $ 128,691 $ 200,896 $ 55,701 $ 1,671,554 22 Table of Contents December 31, 2023 Term Loans Amortized Cost Basis by Origination Year (dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving loans Total Residential real estate Residential first lien Performing $ 42,550 $ 74,613 $ 37,009 $ 29,628 $ 19,647 $ 110,703 $ 4 $ 314,154 Nonperforming 179 50 335 — 139 2,531 — 3,234 Subtotal 42,729 74,663 37,344 29,628 19,786 113,234 4 317,388 Other residential Performing 3,245 1,113 377 409 836 2,009 54,571 62,560 Nonperforming — 9 — — — 178 448 635 Subtotal 3,245 1,122 377 409 836 2,187 55,019 63,195 Consumer Consumer Performing 30,748 24,190 31,946 6,116 2,313 10,794 1,502 107,609 Nonperforming 11 55 6 6 — 56 — 134 Subtotal 30,759 24,245 31,952 6,122 2,313 10,850 1,502 107,743 Consumer other Performing 190,018 392,184 149,791 63,461 23,991 7,987 — 827,432 Nonperforming — — — — — 3 — 3 Subtotal 190,018 392,184 149,791 63,461 23,991 7,990 — 827,435 Leases financing Performing 143,334 157,059 74,359 50,174 30,428 8,863 — 464,217 Nonperforming 1,485 5,043 1,482 317 612 194 — 9,133 Subtotal 144,819 162,102 75,841 50,491 31,040 9,057 — 473,350 Total Performing 409,895 649,159 293,482 149,788 77,215 140,356 56,077 1,775,972 Nonperforming 1,675 5,157 1,823 323 751 2,962 448 13,139 Total other loans $ 411,570 $ 654,316 $ 295,305 $ 150,111 $ 77,966 $ 143,318 $ 56,525 $ 1,789,111 The following table presents the gross charge-offs by class of loan and year of origination on the other loan portfolio for the three months ended March 31, 2024: Term Loans by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Total For the three months ended March 31, 2024 Residential real estate Residential first lien $ — $ — $ 11 $ — $ — $ — $ — $ 11 Other residential — — 16 — — — 8 24 Consumer Consumer — — — — 6 27 — 33 Consumer other — — — — — 202 — 202 Lease financing — 123 1,371 114 37 20 — 1,665 Total gross other charge-offs $ — $ 123 $ 1,398 $ 114 $ 43 $ 249 $ 8 $ 1,935 23 Table of Contents NOTE 4 – PREMISES, EQUIPMENT AND LEASES A summary of premises, equipment and leases at March 31, 2024 and December 31, 2023 is as follows: March 31, December 31, (dollars in thousands) 2024 2023 Land $ 15,968 $ 15,968 Buildings and improvements 78,196 78,104 Furniture and equipment 35,461 35,797 Lease right-of-use assets 7,492 7,673 Total 137,117 137,542 Accumulated depreciation ( 55,286 ) ( 54,728 ) Premises and equipment, net $ 81,831 $ 82,814 Depreciation expense for the three months ended March 31, 2024 and 2023 was $ 1.2 million for each period. The Company has entered into operating leases, primarily for banking offices and operating facilities, which have remaining lease terms of 7 months to 14 years, some of which may include options to extend the lease terms for up to an additional 10 years. The options to extend are included in the remaining lease term if they are reasonably certain to be exercised. The Company had operating lease right-of-use assets of $ 7.5 million and $ 7.7 million as of March 31, 2024 and December 31, 2023, respectively, included in premises and equipment on our consolidated balance sheets. The operating lease liabilities of the Company were $ 9.0 million and $ 9.3 million as of March 31, 2024 and December 31, 2023, respectively, and are included in accrued interest payable and other liabilities on our consolidated balance sheets. Information related to operating leases for the three months ended March 31, 2024 and 2023 was as follows: Three Months Ended March 31, (dollars in thousands) 2024 2023 Operating lease cost $ 476 $ 484 Operating cash flows from leases 572 590 Right-of-use assets obtained in exchange for lease obligations 222 1,130 Weighted average remaining lease term 7.61 years 8.10 years Weighted average discount rate 3.44 % 3.26 % The projected minimum rental payments under the terms of the leases as of March 31, 2024 were as follows: (dollars in thousands) Amount Year ending December 31: 2024 remaining $ 1,475 2025 1,402 2026 1,277 2027 1,132 2028 1,074 Thereafter 3,976 Total future minimum lease payments 10,336 Less imputed interest ( 1,305 ) Total operating lease liabilities $ 9,031 NOTE 5 – DERIVATIVE INSTRUMENTS As part of the Company’s overall interest rate risk management, the Company utilizes derivative instruments to minimize significant, unanticipated earnings fluctuations caused by interest rate volatility, including interest rate lock commitments, forward commitments to sell mortgage-backed securities, cash flow hedges and interest rate swap contracts. The notional amount does not represent amounts exchanged by the parties, rather the amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. 24 Table of Contents Interest Rate Lock Commitments / Forward Commitments to Sell Mortgage-Backed Securities The Company issues interest rate lock commitments on originated fixed-rate residential real estate loans to be sold. The interest rate lock commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities. The fair value of the interest rate lock commitments and forward contracts to sell mortgage-backed securities are included in other assets or other liabilities in the consolidated balance sheets. Changes in the fair value of derivative financial instruments are recognized in residential mortgage banking revenue in the consolidated statements of income. The following table summarizes the interest rate lock commitments and forward commitments to sell mortgage-backed securities held by the Company, their notional amount and estimated fair values at March 31, 2024 and December 31, 2023: Notional amount Fair value gain (dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 Derivative instruments (included in other assets): Interest rate lock commitments $ 5,564 $ 2,405 $ 116 $ 62 Notional amount Fair value loss (dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 Derivative instruments (included in other liabilities): Forward commitments to sell mortgage-backed securities $ 8,500 $ 5,000 $ 19 $ 83 During both the three months ended March 31, 2024 and 2023, the Company recognized net gains of $ 0.1 million on derivative instruments in residential mortgage banking revenue in the consolidated statements of income. Cash Flow Hedges The Company periodically enters into interest rate swap agreements, which qualify as cash flow hedges, to manage the risk of changes in future cash flows due to interest rate fluctuations. The following table summarizes the Company's receive-fixed, pay-variable interest rate swaps on certain pools of loans indexed to prime at March 31, 2024 and December 31, 2023 (dollars in thousands) March 31, 2024 December 31, 2023 Notional Amount $ 425,000 $ 400,000 Fair value loss included in other liabilities ( 8,895 ) ( 8,443 ) Tax effected amount included in accumulated other comprehensive (loss) income ( 5,693 ) ( 6,164 ) Average remaining life 2.56 2.67 Weighted average pay rate 6.37 % 6.55 % Weighted average receive rate 5.40 % 5.41 % Interest Rate Swap Contracts Not Designated as Hedges The Company entered into interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by contracts simultaneously purchased by the Company from other financial dealer institutions with mirror-image terms. Because of the mirror-image terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in the fair value subsequent to initial recognition have a minimal effect on earnings. These derivative contracts do not qualify for hedge accounting. The notional amounts of the customer derivative instruments and the offsetting counterparty derivative instruments were $ 6.8 million and $ 6.9 million at March 31, 2024 and December 31, 2023, respectively. The fair value of the customer derivative instruments and the offsetting counterparty derivative instruments was $ 0.4 million and $ 0.3 million at March 31, 2024 and December 31, 2023, respectively, which are included in other assets and other liabilities, respectively, on the consolidated balance sheets. 25 Table of Contents NOTE 6 – DEPOSITS The following table summarizes the classification of deposits as of March 31, 2024 and December 31, 2023: (dollars in thousands) March 31, 2024 December 31, 2023 Noninterest-bearing demand $ 1,212,382 $ 1,145,395 Interest-bearing: Checking 2,394,163 2,511,840 Money market 1,128,463 1,135,629 Savings 555,552 559,267 Time 1,033,424 957,398 Total deposits $ 6,323,984 $ 6,309,529 NOTE 7 – SHORT-TERM BORROWINGS The following table presents the distribution of securities sold under agreements to repurchase and federal funds purchased and the related weighted average interest rates as of March 31, 2024: As of and for the quarter ended March 31, 2024 (dollars in thousands) Repurchase agreements Federal funds purchased Outstanding at period-end $ 7,446 $ 207,000 Average amount outstanding 7,347 57,835 Maximum amount outstanding at any month end 7,446 207,000 Weighted average interest rate: During period 0.26 % 5.78 % End of period 0.25 % 5.44 % NOTE 8 – FHLB ADVANCES AND OTHER BORROWINGS The following table summarizes our FHLB advances and other borrowings as of March 31, 2024 and December 31, 2023: (dollars in thousands) March 31, 2024 December 31, 2023 FHLB advances – fixed rate, fixed term at rates averaging 4.64 % and 4.94 % at March 31, 2024 and December 31, 2023 - maturing through February 2029 $ 100,000 $ 150,000 FHLB advances – putable fixed rate at rates averaging 3.11 % and 3.07 % at March 31, 2024 and December 31, 2023, respectively – maturing through February 2028 with call provisions through October 2024 155,000 160,000 FHLB advances – Short term fixed rate at rates averaging 5.45 % at December 31, 2023 – matured January 2024 — 166,000 Total FHLB advances and other borrowings $ 255,000 $ 476,000 The Company’s advances from the FHLB are collateralized by a blanket collateral agreement of qualifying mortgage and home equity line of credit loans and certain commercial real estate loans totaling approximately $ 3.01 billion and $ 2.98 billion at March 31, 2024 and December 31, 2023, respectively. 26 Table of Contents NOTE 9 – SUBORDINATED DEBT The following table summarizes the Company’s subordinated debt at March 31, 2024 and December 31, 2023: Subordinated debt Fixed to Float (dollars in thousands) Issued September 2019 Issued September 2019 Total At March 31, 2024 Outstanding amount $ 66,750 $ 27,250 $ 94,000 Carrying amount 66,632 26,985 93,617 Current rate 5.00 % 5.50 % At December 31, 2023 Outstanding amount $ 66,750 $ 27,250 $ 94,000 Carrying amount 66,573 26,973 93,546 Current rate 5.00 % 5.50 % Maturity date 9/30/2029 9/30/2034 Optional redemption date 9/30/2024 9/30/2029 Fixed to variable conversion date 9/30/2024 9/30/2029 Variable rate 3-month SOFR plus 3.61 % 3-month SOFR plus 4.05 % Interest payment terms Semiannually Semiannually The value of subordinated debentures have been reduced by the debt issuance costs, which are being amortized on a straight line basis through the earlier of the redemption option or maturity date. All of the subordinated debentures above may be included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations. NOTE 10 – EARNINGS PER COMMON SHARE Earnings per common share is calculated utilizing the two-class method. Basic earnings per common share is calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of shares adjusted for the dilutive effect of common stock awards. Presented 27 Table of Contents below are the calculations for basic and diluted earnings per common share for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, (dollars in thousands, except per share data) 2024 2023 Net income $ 13,885 $ 21,772 Preferred dividends declared ( 2,228 ) ( 2,228 ) Net income available to common shareholders 11,657 19,544 Common shareholder dividends ( 6,666 ) ( 6,669 ) Unvested restricted stock award dividends ( 106 ) ( 80 ) Undistributed earnings to unvested restricted stock awards ( 75 ) ( 151 ) Undistributed earnings to common shareholders $ 4,810 $ 12,644 Basic Distributed earnings to common shareholders $ 6,666 $ 6,669 Undistributed earnings to common shareholders 4,810 12,644 Total common shareholders earnings, basic $ 11,476 $ 19,313 Diluted Distributed earnings to common shareholders $ 6,666 $ 6,669 Undistributed earnings to common shareholders 4,810 12,644 Total common shareholders earnings 11,476 19,313 Add back: Undistributed earnings reallocated from unvested restricted stock awards — — Total common shareholders earnings, diluted $ 11,476 $ 19,313 Weighted average common shares outstanding, basic 21,774,647 22,478,808 Options 13,044 23,162 Weighted average common shares outstanding, diluted 21,787,691 22,501,970 Basic earnings per common share $ 0.53 $ 0.86 Diluted earnings per common share 0.53 0.86 Antidilutive stock options (1) 235,652 265,831 (1) The diluted earnings per common share computation excludes antidilutive stock options because the exercise prices of these stock options exceeded the average market prices of the Company's common shares for those respective periods. NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows: • Level 1: Unadjusted quoted prices for identical assets or liabilities traded in active markets. • Level 2: Significant other observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. • Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument: Investment securities. The fair value of investment securities available for sale are determined by quoted market prices, if available (Level 1). For investment securities available for sale where quoted prices are not available, fair values are 28 Table of Contents calculated based on market prices of similar securities (Level 2). For investment securities available for sale where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Securities classified as Level 3 are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. There were no transfers between Levels 1, 2 or 3 during the period presented for assets measured at fair value on a recurring basis. The fair value of equity securities is determined using quoted prices or market prices for similar securities (Level 2). Loans held for sale. The fair value of loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2). Derivative instruments. The fair value of derivative instruments are determined based on derivative valuation models using observable market data as of the measurement date (Level 2). Loan servicing rights. In accordance with GAAP , the Company records impairment charges on loan servicing rights on a non-recurring basis when the carrying value exceeds the estimated fair value. The fair value of our servicing rights is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs, replacement reserves and other economic factors which are estimated based on current market conditions (Level 3). Nonperforming loans. All of our nonaccrual loans are considered nonperforming and are reviewed individually for the amount of impairment, if any. We measure collateral dependent nonperforming loans based on the estimated fair value of such collateral. In cases where the Company has an agreed upon selling price for the collateral, the fair value is set at the selling price (Level 1). The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral (Level 2). When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable (Level 3). The nonperforming loans categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, cash flows discounted at the effective loan rate, and management’s judgment. Other Real Estate Owned. OREO is initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost basis. After foreclosure, OREO is held for sale and is carried at the lower of cost or fair value less estimated costs of disposal. Fair value for OREO is based on an appraisal performed upon foreclosure. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Property is evaluated regularly to ensure the recorded amount is supported by its fair value less estimated costs to dispose. After the initial foreclosure appraisal, fair value is generally determined by an annual appraisal unless known events warrant adjustments to the recorded value (Level 2). 29 Table of Contents Assets and liabilities measured and recorded at fair value, including financial assets for which the Company has elected the fair value option, on a recurring and nonrecurring basis at March 31, 2024 and December 31, 2023, are summarized below: March 31, 2024 (dollars in thousands) Carrying amount Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets and liabilities measured at fair value on a recurring basis: Assets Investment securities available for sale: U.S. government sponsored entities and U.S. agency securities $ 67,723 $ — $ 67,723 $ — Mortgage-backed securities - agency 681,520 — 681,520 — Mortgage-backed securities - non-agency 89,528 — 89,528 — State and municipal securities 60,630 — 60,630 — Collateralized loan obligations 33,614 — 33,614 — Corporate securities 107,391 — 107,391 — Equity securities 4,494 4,494 — — Loans held for sale 5,043 — 5,043 — Derivative assets 1,585 — 1,585 — Total $ 1,051,528 $ 4,494 $ 1,047,034 $ — Liabilities Derivative liabilities $ 9,287 $ — $ 9,287 $ — Total $ 9,287 $ — $ 9,287 $ — Assets measured at fair value on a non-recurring basis: Nonperforming loans $ 20,740 $ — $ 19,115 $ 1,625 Other real estate owned 8,920 — 8,920 — 30 Table of Contents December 31, 2023 (dollars in thousands) Carrying amount Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets and liabilities measured at fair value on a recurring basis: Assets Investment securities available for sale: U.S. Treasury securities $ 1,097 $ 1,097 $ — $ — U.S. government sponsored entities and U.S. agency securities 72,572 — 72,572 — Mortgage-backed securities - agency 574,500 — 574,500 — Mortgage-backed securities - non-agency 83,529 — 83,529 — State and municipal securities 57,460 — 57,460 — Corporate securities 99,172 — 99,172 — Equity securities 4,501 4,501 — — Loans held for sale 3,811 — 3,811 — Derivative assets 372 — 372 — Total $ 924,579 $ 5,598 $ 918,981 $ — Liabilities Derivative liabilities $ 8,836 $ — $ 8,836 $ — Total $ 8,836 $ — $ 8,836 $ — Assets measured at fair value on a non-recurring basis: Nonperforming loans $ 4,633 $ — $ 3,964 $ 669 Other real estate owned 9,112 — 9,112 — The following table presents losses recognized on assets measured on a nonrecurring basis for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, (dollars in thousands) 2024 2023 Nonperforming loans $ 4,834 $ 1,103 The following tables present quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured on a nonrecurring basis at March 31, 2024 and December 31, 2023: (dollars in thousands) Fair value Valuation technique Unobservable input / assumptions Range (weighted average) (1) March 31, 2024 Nonperforming loans $ 1,625 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 25.80 % - 100.00 % ( 51.90 %) December 31, 2023 Nonperforming loans $ 669 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 24.38 % - 100.00 % ( 27.46 %) (1) Unobservable inputs were weighted by the relative fair value of the instruments. ASC Topic 825, Financial Instruments , requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements. 31 Table of Contents The Company has elected the fair value option for newly originated residential loans held for sale. These loans are intended for sale and are hedged with derivative instruments. We have elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification. The following table presents the difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected as of March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 (dollars in thousands) Aggregate fair value Difference Contractual principal Aggregate fair value Difference Contractual principal Residential loans held for sale $ 5,043 $ 259 $ 4,784 $ 3,811 $ 203 $ 3,608 The following table presents the amount of gains from fair value changes included in income before income taxes for financial assets carried at fair value for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, (dollars in thousands) 2024 2023 Residential loans held for sale $ 18 $ 99 The carrying values and estimated fair value of certain financial instruments not carried at fair value at March 31, 2024 and December 31, 2023 were as follows: March 31, 2024 (dollars in thousands) Carrying amount Fair value Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Cash and due from banks $ 166,471 $ 166,471 $ 166,471 $ — $ — Federal funds sold 845 845 845 — — Loans 5,958,462 5,888,375 — — 5,888,375 Accrued interest receivable 25,931 25,931 — 25,931 — Liabilities Deposits $ 6,323,984 $ 6,304,279 $ — $ 6,304,279 $ — Short-term borrowings 214,446 214,446 207,000 7,446 — FHLB and other borrowings 255,000 252,517 — 252,517 — Subordinated debt 93,617 86,353 — 86,353 — Trust preferred debentures 50,790 53,240 — 53,240 — 32 Table of Contents December 31, 2023 (dollars in thousands) Carrying amount Fair value Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Cash and due from banks $ 134,212 $ 134,212 $ 134,212 $ — $ — Federal funds sold 849 849 849 — — Loans 6,131,079 6,129,244 — — 6,129,244 Accrued interest receivable 24,934 24,934 — 24,934 — Liabilities Deposits $ 6,309,529 $ 6,294,979 $ — $ 6,294,979 $ — Short-term borrowings 34,865 34,865 25,000 9,865 — FHLB and other borrowings 476,000 475,240 — 475,240 — Subordinated debt 93,546 90,253 — 90,253 — Trust preferred debentures 50,616 51,626 — 51,626 — The methods utilized to measure fair value of financial instruments at March 31, 2024 and December 31, 2023 represent an approximation of exit price; however, an actual exit price may differ. NOTE 12 – COMMITMENTS, CONTINGENCIES AND CREDIT RISK In the normal course of business, there are outstanding various contingent liabilities such as claims and legal actions, which are not reflected in the consolidated financial statements. No material losses are anticipated as a result of these actions or claims. We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank used the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The commitments are principally tied to variable rates. Loan commitments as of March 31, 2024 and December 31, 2023 were as follows: (dollars in thousands) March 31, 2024 December 31, 2023 Commitments to extend credit $ 827,049 $ 855,489 Financial guarantees – standby letters of credit 23,689 22,745 The Company establishes a mortgage repurchase liability to reflect management’s estimate of losses on loans for which the Company could have a repurchase obligation based on the volume of loans sold in 2024 and years prior, borrower default expectations, historical investor repurchase demand and appeals success rates, and estimated loss severity. Loans repurchased from investors are initially recorded at fair value, which becomes the Company’s new accounting basis. Any difference between the loan’s fair value and the outstanding principal amount is charged or credited to the mortgage repurchase liability, as appropriate. Subsequent to repurchase, such loans are carried in loans receivable. There were no losses as a result of make-whole requests and loan repurchases for the three months ended March 31, 2024 and 2023. The liability for unresolved repurchase demands totaled $ 0.1 million at both March 31, 2024 and December 31, 2023. 33 Table of Contents NOTE 13 – SEGMENT INFORMATION The Company's reportable segments are comprised of strategic business units primarily based upon industry categories and, to a lesser extent, the core competencies relating to product origination, distribution methods, operations and servicing. Segment determination also considers organizational structure and is consistent with the presentation of financial information to the chief operating decision maker to evaluate segment performance, develop strategy and allocate resources. The Company's chief operating decision maker is the Chief Executive Officer of the Company. Management has determined that the Company has three reportable segments consisting of Banking, Wealth Management and Corporate. The Banking segment provides a wide range of financial products and services to consumers and businesses, including commercial, commercial real estate, mortgage and other consumer loan products; commercial equipment financing; mortgage loan sales and servicing; letters of credit; various types of deposit products, including checking, savings and time deposit accounts; merchant services; and corporate treasury management services. The Wealth Management segment consists of trust and fiduciary services, brokerage and retirement planning services. The Corporate segment includes the holding company financing and investment activities, administrative expenses, as well as the elimination of intercompany transactions. The Corporate segment also included our captive insurance business unit for the three months ended March 31, 2023. This business was dissolved as of December 31, 2023. Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially the same as those described in the “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2023 Form 10-K. Transactions between segments consist primarily of borrowed funds and servicing fees. Noninterest income and expense directly attributable to a segment are assigned to it with various shared service costs such as human resources, accounting, finance, risk management and information technology expense assigned to the Banking segment. Selected business segment financial information for the three months ended March 31, 2024 and 2023 were as follows: (dollars in thousands) Banking Wealth Management Corporate Total Three Months Ended March 31, 2024 Net interest income (expense) $ 58,216 $ ( 8 ) $ ( 2,288 ) $ 55,920 Provision for credit losses 14,000 — — 14,000 Noninterest income 14,491 7,132 ( 436 ) 21,187 Noninterest expense 40,098 5,412 ( 643 ) 44,867 Income (loss) before income taxes (benefit) 18,609 1,712 ( 2,081 ) 18,240 Income taxes (benefit) 4,461 690 ( 796 ) 4,355 Net income (loss) $ 14,148 $ 1,022 $ ( 1,285 ) $ 13,885 Total assets $ 7,810,328 $ 33,103 $ ( 11,622 ) $ 7,831,809 Three Months Ended March 31, 2023 Net interest income (expense) $ 62,608 $ — $ ( 2,104 ) $ 60,504 Provision for credit losses 3,135 — — 3,135 Noninterest income 9,621 6,411 ( 253 ) 15,779 Noninterest expense 39,847 4,841 ( 206 ) 44,482 Income (loss) before income taxes (benefit) 29,247 1,570 ( 2,151 ) 28,666 Income taxes (benefit) 7,206 439 ( 751 ) 6,894 Net income (loss) $ 22,041 $ 1,131 $ ( 1,400 ) $ 21,772 Total assets $ 7,918,339 $ 29,828 $ ( 17,993 ) $ 7,930,174 34 Table of Contents NOTE 14 – REVENUE FROM CONTRACTS WITH CUSTOMERS The Company’s revenue from contracts with customers in the scope of Topic 606 is recognized within noninterest income in the consolidated statements of income. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2024 and 2023. Three Months Ended March 31, (dollars in thousands) 2024 2023 Noninterest income - in-scope of Topic 606 Wealth management revenue: Trust management/administration fees $ 6,267 $ 5,636 Investment advisory and brokerage fees 423 431 Other 442 344 Service charges on deposit accounts: Nonsufficient fund fees 1,822 1,698 Other 1,294 870 Interchange revenues 3,358 3,412 Other income: Merchant services revenue 344 358 Other 98 630 Noninterest income - out-of-scope of Topic 606 7,139 2,400 Total noninterest income $ 21,187 $ 15,779 Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and investment securities. In addition, certain noninterest income streams such as commercial FHA revenue, residential mortgage banking revenue and gain on sales of investment securities, net, are also not in scope of Topic 606. Topic 606 is applicable to noninterest income streams such as wealth management revenue, service charges on deposit accounts, interchange revenue, gain on sales of other real estate owned, and certain other noninterest income streams. The noninterest income streams considered in-scope by Topic 606 are discussed below. Wealth Management Revenue Wealth management revenue is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company also earns investment advisory fees through its SEC registered investment advisory subsidiary. The Company’s performance obligation in both of these instances is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and contractually determined fee schedules. Payment is generally received a few days after month end through a direct charge to each customer’s account. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Fees generated from transactions executed by the Company’s third party broker dealer are remitted to the Company on a monthly basis for that month’s transactional activity. Service Charges on Deposit Accounts Service charges on deposit accounts consist of fees received under depository agreements with customers to provide access to deposited funds, serve as custodian of deposited funds, and when applicable, pay interest on deposits. These service charges primarily include non-sufficient fund fees and other account related service charges. Non-sufficient fund fees are earned when a depositor presents an item for payment in excess of available funds, and the Company, at its discretion, provides the necessary funds to complete the transaction. The Company generates other account related service charge revenue by providing depositors proper safeguard and remittance of funds as well as by delivering optional services for depositors, such as check imaging or treasury management, that are performed upon the depositor’s request. The Company’s performance obligation for the proper safeguard and remittance of funds, monthly account analysis and any other monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is typically received immediately or in the following month through a direct charge to a customer’s account. 35 Table of Contents Interchange Revenue Interchange revenue includes debit / credit card income and ATM user fees. Card income is primarily comprised of interchange fees earned for standing ready to authorize and providing settlement on card transactions processed through the MasterCard interchange network. The levels and structure of interchange rates are set by MasterCard and can vary based on cardholder purchase volumes. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with completion of the Company’s performance obligation, the transaction processing services provided to the cardholder. Payment is typically received immediately or in the following month. ATM fees are primarily generated when a Company cardholder withdraws funds from a non-Company ATM or a non-Company cardholder withdraws funds from a Company ATM. The Company satisfies its performance obligation for each transaction at the point in time when the ATM withdrawal is processed. Other Noninterest Income The other noninterest income revenue streams within the scope of Topic 606 consist of merchant services revenue, safe deposit box rentals, wire transfer fees, paper statement fees, check printing commissions, gain on sales of other real estate owned and other noninterest related fees. Revenue from the Company’s merchant services business consists principally of transaction and account management fees charged to merchants for the electronic processing of transactions. These fees are net of interchange fees paid to the credit card issuing bank, card company assessments, and revenue sharing amounts. Account management fees are considered earned at the time the merchant’s transactions are processed or other services are performed. Fees related to the other components of other noninterest income within the scope of Topic 606 are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at the point in time the customer uses the selected service to execute a transaction. 36 Table of Contents ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of March 31, 2024, as compared to December 31, 2023, and operating results for the three months ended March 31, 2024 and 2023. These comments should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes appearing elsewhere herein and our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 23, 2024. In addition to the historical information contained herein, this Form 10-Q includes “forward-looking statements” within the meaning of such term under the Private Securities Litigation Reform Act of 1995. These statements are subject to many risks and uncertainties, including changes in interest rates and other general economic, business and political conditions, including prevailing interest rates and the rate of inflation; changes in the financial markets; changes in business plans as circumstances warrant; risks related to mergers and acquisitions and the integration of acquired businesses; changes to U.S. tax laws, regulations and guidance; and other risks detailed from time to time in filings made by the Company with the SEC. Readers should note that the forward-looking statements included herein are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “will,” “propose,” “may,” “plan,” “seek,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” or “continue,” or similar terminology. Any forward-looking statements presented herein are made only as of the date of this document, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise . Critical Accounting Policies The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under current circumstances. These estimates form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on the Company’s reported financial position and results of operations are set forth in “Note 1 – Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2023. Significant Developments and Transactions Each item listed below affects the comparability of our results of operations for the three months ended March 31, 2024 and 2023, and our financial condition as of March 31, 2024 and December 31, 2023, and may affect the comparability of financial information we report in future fiscal periods. Balance sheet repositioning. The Company took advantage of certain market conditions during 2023 to reposition out of lower yielding securities into other structures, which were expected to result in improved overall margin, liquidity and capital allocations. These transactions resulted in losses of $0.6 million in the three months ended March 31, 2023. In addition, in the third quarter of 2023, the Company surrendered certain low-yielding life insurance policies and purchased additional policies. The Company recognized a $4.5 million tax charge related to the surrender of the policies. Redemption of Subordinated Notes. In the second quarter of 2023, the Company redeemed $6.6 million of outstanding subordinated notes. The weighted average redemption price was 89.2% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest. The Company recorded gains totaling $0.7 million on these redemptions. 37 Table of Contents Results of Operations Overview. The following table sets forth condensed income statement information of the Company for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, (dollars in thousands, except per share data) 2024 2023 Income Statement Data: Interest income $ 101,675 $ 95,539 Interest expense 45,755 35,035 Net interest income 55,920 60,504 Provision for credit losses 14,000 3,135 Noninterest income 21,187 15,779 Noninterest expense 44,867 44,482 Income before income taxes 18,240 28,666 Income taxes 4,355 6,894 Net income 13,885 21,772 Preferred dividends 2,228 2,228 Net income available to common shareholders $ 11,657 $ 19,544 Per Share Data: Basic earnings per common share $ 0.53 $ 0.86 Diluted earnings per common share $ 0.53 $ 0.86 Performance Metrics: Return on average assets 0.72 % 1.12 % Return on average shareholders' equity 7.07 % 11.51 % During the three months ended March 31, 2024, we generated net income of $13.9 million, or diluted earnings per common share of $0.53, compared to net income of $21.8 million, or diluted earnings per common share of $0.86, in the three months ended March 31, 2023. Earnings for the first quarter of 2024 compared to the first quarter of 2023 decreased primarily due to a $4.6 million decrease in net interest income, a $10.9 million increase in provision for credit losses, and a $0.4 million increase in noninterest expense. These results were partially offset by a $5.4 million increase in noninterest income and a $2.5 million decrease in income tax expense. Net Interest Income and Margin. Our primary source of revenue is net interest income, which is the difference between interest income from interest-earning assets (primarily loans and securities) and interest expense of funding sources (primarily interest-bearing deposits and borrowings). Net interest income is influenced by many factors, primarily the volume and mix of interest-earning assets, funding sources, and interest rate fluctuations. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. Net interest margin is calculated as net interest income divided by average interest-earning assets. Net interest margin is presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to a pretax-equivalent income, assuming a federal income tax rate of 21% for 2024 and 2023. At its March 20, 2024 meeting, the Federal Reserve held its key interest rate steady for the fifth consecutive meeting, as the central bank awaits more data to determine when, and if, to cut rates. Federal Reserve officials also released an updated set of economic projections that show they now expect fewer rate cuts in the coming years than they estimated in December 2023. A majority of policymakers continue to expect three rate cuts this year, but they now see fewer in 2025 and 2026. They expect interest rates in the longer run to be slightly higher than they projected in December. Economic growth is also expected to be much higher this year than officials previously estimated. In 2023, the Federal Reserve increased the federal funds rate 100 basis points to a target range of 5.25%-5.50%, the highest since August 2007. The benchmark federal funds rate remains at a target range between 5.25%-5.50%, compared to a target range of 4.25%-4.50% at the beginning of 2023. During the three months ended March 31, 2024, net interest income, on a tax-equivalent basis, decreased to $56.1 million compared to $60.7 million for the three months ended March 31, 2023. The tax-equivalent net interest margin decreased to 3.18% for the first quarter of 2024 compared to 3.39% for the first quarter of 2023. 38 Table of Contents Average Balance Sheet, Interest and Yield/Rate Analysis. The following tables present the average balance sheets, interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended March 31, 2024 and 2023. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments. Three Months Ended March 31, 2024 2023 (tax-equivalent basis, dollars in thousands) Average balance Interest & fees Yield/ Rate Average balance Interest & fees Yield/ Rate Interest-earning assets: Federal funds sold and cash investments $ 69,316 $ 951 5.52 % $ 85,123 $ 980 4.67 % Investment securities : Taxable investment securities 933,785 10,179 4.38 731,075 5,370 2.98 Investment securities exempt from federal income tax (1) 54,931 529 3.87 78,773 625 3.22 Total securities 988,716 10,708 4.36 809,848 5,995 3.00 Loans : Loans (2) 5,964,454 88,995 6.00 6,264,591 87,459 5.66 Loans exempt from federal income tax (1) 47,578 494 4.17 55,811 538 3.91 Total loans 6,012,032 89,489 5.99 6,320,402 87,997 5.65 Loans held for sale 3,405 55 6.56 1,506 16 4.41 Nonmarketable equity securities 35,927 687 7.69 47,819 795 6.75 Total interest-earning assets 7,109,396 101,890 5.76 7,264,698 95,783 5.35 Noninterest-earning assets 671,671 610,811 Total assets $ 7,781,067 $ 7,875,509 Interest-bearing liabilities: Deposits: Checking and money market deposits $ 3,605,946 $ 29,237 3.26 % $ 3,686,192 $ 22,955 2.53 % Savings deposits 555,668 477 0.34 650,138 243 0.15 Time deposits 852,440 7,310 3.45 703,039 3,121 1.80 Brokered time deposits 181,064 2,190 4.86 14,572 86 2.39 Total interest-bearing deposits 5,195,118 39,214 3.04 5,053,941 26,405 2.12 Short-term borrowings 65,182 836 5.16 38,655 25 0.26 FHLB advances and other borrowings 313,121 3,036 3.90 540,278 6,006 4.51 Subordinated debt 93,583 1,280 5.50 99,812 1,370 5.57 Trust preferred debentures 50,707 1,389 11.02 50,047 1,229 9.96 Total interest-bearing liabilities 5,717,711 45,755 3.22 5,782,733 35,035 2.46 Noninterest-bearing liabilities: Noninterest-bearing deposits 1,151,542 1,250,899 Other noninterest-bearing liabilities 121,908 74,691 Total noninterest-bearing liabilities 1,273,450 1,325,590 Shareholders’ equity 789,906 767,186 Total liabilities and shareholders’ equity $ 7,781,067 $ 7,875,509 Net interest income / net interest margin (3) $ 56,135 3.18 % $ 60,748 3.39 % (1) Interest income and average rates for tax-exempt loans and securities are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. Tax-equivalent adjustments totaled $0.2 million for each of the three months ended March 31, 2024 and 2023. (2) Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs. (3) Net interest margin during the periods presented represents: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period. 39 Table of Contents Interest Rates and Operating Interest Differential. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. Changes which are not due solely to volume or rate have been allocated proportionally to the change due to volume and the change due to rate. Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023 Change due to: Interest Variance (tax-equivalent basis, dollars in thousands) Volume Rate Earning assets: Federal funds sold and cash investments $ (196) $ 167 $ (29) Investment securities: Taxable investment securities 1,846 2,963 4,809 Investment securities exempt from federal income tax (210) 114 (96) Total securities 1,636 3,077 4,713 Loans: Loans (3,987) 5,523 1,536 Loans exempt from federal income tax (80) 36 (44) Total loans (4,067) 5,559 1,492 Loans held for sale 26 13 39 Nonmarketable equity securities (210) 102 (108) Total earning assets $ (2,811) $ 8,918 $ 6,107 Interest-bearing liabilities: Checking and money market deposits $ (481) $ 6,763 $ 6,282 Savings deposits (57) 291 234 Time deposits 989 3,200 4,189 Brokered time deposits 1,501 603 2,104 Total interest-bearing deposits 1,952 10,857 12,809 Short-term borrowings 179 632 811 FHLB advances and other borrowings (2,349) (621) (2,970) Subordinated debt (90) — (90) Trust preferred debentures 23 137 160 Total interest-bearing liabilities $ (285) $ 11,005 $ 10,720 Net interest income $ (2,526) $ (2,087) $ (4,613) Interest Income. Interest income, on a tax-equivalent basis, increased $6.1 million to $101.9 million in the three months ended March 31, 2024 as compared to the same quarter in 2023, primarily due to improved yields on earning assets. The yield on earning assets increased 41 basis points to 5.76% from 5.35% primarily due to the impact of increasing market interest rates. Average earning assets decreased to $7.11 billion in the first quarter of 2024 from $7.26 billion in the same quarter of 2023. Decreases in average loans and federal funds sold and cash investments of $308.4 million and $15.8 million, respectively, were partially offset by a $178.9 million increase in investment securities. Average loans decreased $308.4 million in the first quarter of 2024 compared to the same quarter of 2023. Average commercial loans decreased $120.6 million. Included in this category are commercial FHA warehouse lines, which decreased $12.1 million to $1.2 million in the first quarter of 2024. 40 Table of Contents Average commercial real estate loans and leases also decreased this quarter by $44.8 million and $37.5 million, respectively, compared to prior year's first quarter. Average construction loans increased this quarter by $136.9 million, compared to the prior year's first quarter, primarily due to funding draws on existing multifamily project lines. Average balances in our consumer loan portfolio decreased this quarter by $252.0 million compared to the prior year first quarter. During the fourth quarter of 2023, the Company ceased originating consumer loans through both Greensky and LendingPoint. Interest Expense. Interest expense increased $10.7 million to $45.8 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The cost of interest-bearing liabilities increased to 3.22% for the first quarter of 2024, compared to 2.46% for the first quarter of 2023, due to the increase in deposit costs as a result of the rate increases announced by the Federal Reserve. Interest expense on deposits increased $12.8 million to $39.2 million for the three months ended March 31, 2024 from the comparable period in 2023. The increase was primarily due to an increase in rates paid on deposits. Average balances of interest-bearing deposit accounts increased $141.2 million, or 2.8%, to $5.20 billion for the three months ended March 31, 2024 compared to the same period one year earlier. The increase in volume was attributable to increases of brokered deposits and reciprocal deposits of $194.0 million and $227.5 million, respectively. Our retail, commercial, servicing and public fund deposits decreased $26.3 million, $156.8 million, $49.0 million, and $48.1 million, respectively. Interest expense on FHLB advances and other borrowings decreased $3.0 million for the three months ended March 31, 2024, from the comparable period in 2023. Average balances decreased $227.2 million for the three months ended March 31, 2024, from the comparable period in 2023, as loan paydowns and increases brokered deposits replaced this funding source. Interest expense on trust preferred debentures increased $0.2 million for the three months ended March 31, 2024, from the comparable period in 2023, due to interest rate increases, as these debt instruments reprice quarterly. Provision for Credit Losses. The Company's provision for credit losses on loans was $14.0 million for the three months ended March 31, 2024, compared to $3.1 million for the three months ended March 31, 2023. The Company recorded a specific reserve of $8.0 million on one large construction and land development loan. Net charge-offs for the quarter totaled $4.4 million compared to $2.1 million for the comparable quarter of 2023. The provision for credit losses on loans recognized during the three months ended March 31, 2024 was made at a level deemed necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors. Noninterest Income. Noninterest income increased 34.3% for the three months ended March 31, 2024, compared to the same period one year prior. The following table sets forth the major components of our noninterest income for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, Increase (decrease) (dollars in thousands) 2024 2023 Noninterest income: Wealth management revenue $ 7,132 $ 6,411 $ 721 Service charges on deposit accounts 3,116 2,745 371 Interchange revenue 3,358 3,412 (54) Residential mortgage banking revenue 527 405 122 Income on Company-owned life insurance 1,801 876 925 Loss on sales of investment securities, net — (648) 648 Other income 5,253 2,578 2,675 Total noninterest income $ 21,187 $ 15,779 $ 5,408 Wealth management revenue . Income from our wealth management business increased $0.7 million for the three months ended March 31, 204, as compared to the same period in 2023. Assets under administration increased to $3.89 billion at March 31, 2024 from $3.50 billion at March 31, 2023, primarily due to an increase in the market performance as a result of economic growth between the two periods. 41 Table of Contents Company-owned life insurance income. Income on company-owned life insurance income increased $0.9 million for the three months ended March 31, 2024, as compared to the same period in 2023. As previously discussed, the Company surrendered certain low-yielding life insurance policies and purchased additional policies in the third quarter of 2023. Loss on sale of investment securities . The Company took advantage of certain market conditions during the three months ended March 31, 2023 to reposition out of lower yielding securities into other structures, which are expected to result in improved overall margin, liquidity and capital allocations. These transactions resulted in net losses of $0.6 million. Other noninterest income. Other income totaled $5.3 million for the three months ended March 31, 2024, an increase of $2.7 million, as compared to the same period of 2023 . Other noninterest income in 2024 included incremental servicing revenues of $3.7 million related to Greensky portfolio. In addition, we recognized amortization expense of $0.6 million on our commercial serving portfolio in the current quarter but no expense in the first quarter of 2023, as the portfolio was classified as held for sale. Noninterest Expense. The following table sets forth the major components of noninterest expense for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, Increase (decrease) (dollars in thousands) 2024 2023 Noninterest expense: Salaries and employee benefits $ 24,102 $ 24,243 $ (141) Occupancy and equipment 4,142 4,443 (301) Data processing 6,722 6,311 411 FDIC insurance 1,274 1,329 (55) Professional services 2,255 1,760 495 Marketing 737 703 34 Communications 342 511 (169) Loan expense 1,231 818 413 Amortization of intangible assets 1,089 1,291 (202) Other expense 2,973 3,073 (100) Total noninterest expense $ 44,867 $ 44,482 $ 385 Total noninterest expense increased $0.4 million, or 0.9%, in the three months ended March 31, 2024, as compared to the same period of 2023. Income Tax Expense . Income tax expense was $4.4 million for the three months ended March 31, 2024, as compared to $6.9 million for the three months ended March 31, 2023. The resulting effective tax rates were 23.9% and 24.0% for the three months ended March 31, 2024 and 2023, respectively. Financial Condition Assets. Total assets were $7.83 billion at March 31, 2024, as compared to $7.87 billion at December 31, 2023. 42 Table of Contents Loans. The loan portfolio is the largest category of our assets. The following table presents the balance and associated percentage of each major category in our loan portfolio at March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 (dollars in thousands) Balance Percent Balance Percent Loans: Commercial: Equipment finance loans $ 494,068 8.3 % $ 531,143 8.7 % Equipment finance leases 455,879 7.7 473,350 7.7 Commercial FHA lines 8,035 0.1 — — Other commercial loans 913,564 15.3 951,387 15.5 Total commercial loans and leases 1,871,546 31.4 1,955,880 31.9 Commercial real estate 2,397,113 40.2 2,406,845 39.3 Construction and land development 474,128 8.0 452,593 7.4 Residential real estate 378,583 6.4 380,583 6.2 Consumer 837,092 14.0 935,178 15.2 Total loans, gross 5,958,462 100.0 % 6,131,079 100.0 % Allowance for credit losses on loans (78,057) (68,502) Total loans, net $ 5,880,405 $ 6,062,577 Total loans decreased $172.6 million to $5.96 billion at March 31, 2024, as compared to December 31, 2023, as the Company originated loans in a more selective and deliberate approach to balance liquidity and funding costs. An increase in construction and land development loans of $21.5 million was offset by decreases in all other loan categories. The increase in our construction and land development portfolio was primarily driven by draws on existing lines. Consumer loans decreased $98.1 million to $837.1 million at March 31, 2024 compared to December 31, 2023, due to loan payoffs and a cessation in loans originated through GreenSky. Our Greensky-originated loan balances decreased $77.5 million during the first quarter of 2024 to $606.0 million at March 31, 2024. In addition, during the fourth quarter of 2023, the Company ceased originating loans through LendingPoint. At March 31, 2024, the Company had $112.7 million in loans outstanding that were originated through LendingPoint, which will continue to be serviced by LendingPoint. The principal segments of our loan portfolio are discussed below: Commercial loans. We provide a mix of variable and fixed rate commercial loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and farm operations. Commercial loans generally include lines of credit and loans with maturities of five years or less. The loans are generally made with business operations as the primary source of repayment, but may also include collateralization by inventory, accounts receivable and equipment, and generally include personal guarantees. The commercial loan category also includes loans originated by the equipment financing business that are secured by the underlying equipment. Commercial real estate loans. Our commercial real estate loans consist of both real estate occupied by the borrower for ongoing operations and non-owner occupied real estate properties. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner occupied offices, warehouses and production facilities, office buildings, hotels, mixed-use residential and commercial facilities, retail centers, multifamily properties and assisted living facilities. Our commercial real estate loan portfolio also includes farmland loans. Farmland loans are generally made to a borrower actively involved in farming rather than to passive investors. Construction and land development loans. Our construction and land development loans are comprised of residential construction, commercial construction and land acquisition and development loans. Interest reserves are generally established on real estate construction loans. 43 Table of Contents The following table presents the balance and associated percentage of the major property types within our commercial real estate and construction and land development loan portfolios at March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 (dollars in thousands) Balance Percent Balance Percent Multi-Family $ 537,704 18.7 % $ 516,295 18.1 % Skilled Nursing 420,768 14.6 469,096 16.4 Retail 466,572 16.2 454,589 15.9 Industrial/Warehouse 218,399 7.6 217,956 7.6 Hotel/Motel 176,447 6.1 159,707 5.6 Office 154,253 5.4 153,756 5.4 All other 897,098 31.4 888,039 31.0 Total commercial real estate and construction and land development loans $ 2,871,241 100.0 % $ 2,859,438 100.0 % Loans secured by office space totaled $154.3 million and $153.8 million at March 31, 2024 and December 31, 2023, respectively, primarily located in suburban locations in Illinois and Missouri. Residential real estate loans. Our residential real estate loans, secured by residential properties, that generally do not qualify for secondary market sale. Consumer loans. Our consumer loans include direct personal loans, indirect automobile loans, lines of credit and installment loans originated through home improvement specialty retailers and contractors. Personal loans are generally secured by automobiles, boats and other types of personal property and are made on an installment basis. Lease financing. Our equipment leasing business provides financing leases to varying types of businesses nationwide for purchases of business equipment and software. The financing is secured by a first priority interest in the financed asset and generally requires monthly payments. The following table shows the contractual maturities of our loan portfolio and the distribution between fixed and adjustable interest rate loans at March 31, 2024: March 31, 2024 Within One Year One Year to Five Years Five Years to 15 Years After 15 Years (dollars in thousands) Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total Commercial $ 106,058 $ 427,010 $ 541,137 $ 78,344 $ 124,373 $ 91,298 $ — $ 47,447 $ 1,415,667 Commercial real estate 330,647 312,529 955,687 243,948 355,598 175,316 5,530 17,858 2,397,113 Construction and land development 74,590 97,996 94,159 155,958 2,647 45,858 100 2,820 474,128 Total commercial loans 511,295 837,535 1,590,983 478,250 482,618 312,472 5,630 68,125 4,286,908 Residential real estate 4,275 5,702 8,050 18,306 24,095 36,980 169,877 111,298 378,583 Consumer 3,343 53 687,572 113,182 32,942 — — — 837,092 Lease financing 24,092 — 344,661 — 87,126 — — — 455,879 Total loans $ 543,005 $ 843,290 $ 2,631,266 $ 609,738 $ 626,781 $ 349,452 $ 175,507 $ 179,423 $ 5,958,462 Loan Quality We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio. Our underwriting policies and practices govern the risk profile, credit and geographic concentration for our loan portfolio. We also have what we believe to be a comprehensive methodology to monitor these credit quality standards, including a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level. 44 Table of Contents Analysis of the Allowance for Credit Losses on Loans. The allowance for credit losses on loans was $78.1 million, or 1.31% of total loans, at March 31, 2024 compared to $68.5 million, or 1.12% of total loans, at December 31, 2023. The following table allocates the allowance for credit losses on loans by loan category: March 31, 2024 December 31, 2023 (dollars in thousands) Allowance Percent (1) Allowance Percent (1) Commercial $ 21,329 1.51 % $ 21,847 1.47 % Commercial real estate 21,367 0.89 20,229 0.84 Construction and land development 12,629 2.66 4,163 0.92 Total commercial loans 55,325 1.29 46,239 1.06 Residential real estate 5,655 1.49 5,553 1.46 Consumer 3,611 0.43 3,770 0.40 Lease financing 13,466 2.95 12,940 2.73 Total allowance for credit losses on loans $ 78,057 1.31 % $ 68,502 1.12 % (1) Represents the percentage of the allowance to total loans in the respective category. We measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan and borrower attributes and certain macroeconomic variables. Models are adjusted to reflect the impact of certain current macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. In estimating expected credit losses as of March 31, 2024, we utilized certain forecasted macroeconomic variables from Oxford Economics in our models. The forecasted projections included, among other things, (i) U.S. gross domestic product ranging from 1.5% to 3.0% over the next four quarters; (ii) the 10-year treasury rate decreasing from 4.2% in the first quarter of 2024 to 3.7% by the first quarter of 2025; and (iii) Illinois unemployment rate averaging 4.9% through the first quarter of 2025. We qualitatively adjust the model results based on this scenario for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already fully captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. The qualitative factor adjustment at March 31, 2024, was approximately 42 basis points of total loans, consistent with 41 basis points at December 31, 2023. The allowance allocated to commercial loans totaled $21.3 million, or 1.51% of total commercial loans, at March 31, 2024, compared to $21.8 million, or 1.47%, at December 31, 2023. Modeled expected credit losses increased $0.2 million and qualitative factor adjustments related to commercial loans decreased $0.3 million. Specific allocations for commercial loans that were evaluated for expected credit losses on an individual basis decreased $0.4 million from $1.8 million at December 31, 2023. The allowance allocated to commercial real estate loans totaled $21.4 million, or 0.89% to total commercial real estate loans, at March 31, 2024, increasing $1.1 million, from $20.2 million, or 0.84% of total commercial real estate loans, at December 31, 2023. Modeled expected credit losses were unchanged from prior quarter. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increased from $0.7 million at December 31, 2023, to $2.3 million at March 31, 2024. The commercial real estate portfolio does not include significant exposure to urban office properties. The allowance allocated to construction and land development loans totaled $12.6 million, or 2.66% to total construction loans, at March 31, 2024, increasing $8.5 million, from $4.2 million, or 0.92% of total constructions loans, at December 31, 2023. Specific allocations for construction loans that were evaluated for expected credit losses on an individual basis total $8.0 million and $0.0 million at March 31, 2024 and December 31, 2023, respectively. This represents the specific reserve of $8.0 million on one large construction and land development loan recognized in our first current period provision for 45 Table of Contents credit losses. Modeled expected credit losses decreased $0.1 million and qualitative factor adjustments related to construction loans increased $0.6 million. The allowance allocated to the lease portfolio totaled $13.5 million, or 2.95% of total commercial leases, at March 31, 2024, increasing $0.5 million, from $12.9 million, or 2.73% of total commercial leases at December 31, 2023. Modeled expected credit losses related to commercial leases increased $0.3 million and specific allocation reserves increased $0.4 million. The following table provides an analysis of the allowance for credit losses on loans, provision for credit losses on loans and net charge-offs for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, (dollars in thousands) 2024 2023 Balance, beginning of period $ 68,502 $ 61,051 Charge-offs: Commercial 2,410 969 Commercial real estate 691 746 Residential real estate 35 31 Consumer 235 263 Lease financing 1,665 390 Total charge-offs 5,036 2,399 Recoveries: Commercial 116 94 Commercial real estate 152 2 Residential real estate 55 17 Consumer 87 93 Lease financing 181 74 Total recoveries 591 280 Net charge-offs 4,445 2,119 Provision for credit losses on loans 14,000 3,135 Balance, end of period $ 78,057 $ 62,067 Gross loans, end of period $ 5,958,462 $ 6,354,271 Average total loans $ 6,012,032 $ 6,320,402 Net charge-offs to average loans 0.30 % 0.14 % Allowance for credit losses to total loans 1.31 % 0.98 % Individual loans considered to be uncollectible are charged-off against the allowance. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Collateral value is determined using updated appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is determined to be other-than-temporary. Recoveries on loans previously charged-off are added to the allowance. Charge-offs of equipment financing loans and leases for the three months ended March 31, 2024 and 2023, totaled $3.6 million and $1.2 million, respectively, primarily due to continued weakness within the trucking and transportation sector. Net charge-offs for the three months ended March 31, 2024 totaled $4.4 million, compared to $2.1 million for the same period one year ago. 46 Table of Contents Nonperforming Loans . The following table sets forth our nonperforming assets by asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest. The balances of nonperforming loans reflect the net investment in these assets. (dollars in thousands) March 31, 2024 December 31, 2023 Nonperforming loans: Commercial $ 10,276 $ 9,282 Commercial real estate 53,957 33,891 Construction and land development 26,318 39 Residential real estate 4,130 3,869 Consumer 93 137 Lease financing 10,205 9,133 Total nonperforming loans 104,979 56,351 Other real estate owned and other repossessed assets 11,742 11,350 Nonperforming assets $ 116,721 $ 67,701 Nonperforming loans to total loans 1.76 % 0.92 % Nonperforming assets to total assets 1.49 % 0.86 % Allowance for credit losses to nonperforming loans 74.35 % 121.56 % Non-performing loans increased $48.6 million to $105.0 million at March 31, 2024, compared to $56.4 million as of December 31, 2023. Four loans totaling $47.4 million account for the increase. Of these, three loans totaling $40.8 million are multi-family construction or multi-family projects. We did not recognize interest income on nonaccrual loans during the three months ended March 31, 2024 or 2023 while the loans were in nonaccrual status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $1.3 million and $0.8 million for the three months ended March 31, 2024 and 2023, respectively. The following table presents the change in our non-performing loans for the three months ended March 31, 2024: (dollars in thousands) Year Ended March 31, 2024 Balance, beginning of period $ 56,351 New nonperforming loans 56,119 Return to performing status (1,471) Payments received (3,452) Transfer to OREO and other repossessed assets (522) Charge-offs (2,046) Balance, end of period $ 104,979 Investment Securities. Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk. The types and maturities of securities purchased are primarily based on our current and projected liquidity and interest rate sensitivity positions. In the periods presented, all investment securities of the Company are classified as available for sale and, therefore, the book value of investment securities is equal to the fair market value. 47 Table of Contents The following table sets forth the book value and associated percentage of each category of investment securities at March 31, 2024 and December 31, 2023. March 31, 2024 December 31, 2023 (dollars in thousands) Balance Percent Balance Percent Investment securities available for sale: U.S. Treasury securities $ — — % $ 1,097 0.1 % U.S. government sponsored entities and U.S. agency securities 67,723 6.5 72,572 7.9 Mortgage-backed securities - agency 681,520 65.5 574,500 62.7 Mortgage-backed securities - non-agency 89,528 8.6 83,529 9.1 State and municipal securities 60,630 5.8 57,460 6.3 Collateralized loan obligations 33,614 3.2 27,565 3.0 Corporate securities 107,391 10.4 99,172 10.9 Total investment securities, available for sale, at fair value $ 1,040,406 100.0 % $ 915,895 100.0 % 48 Table of Contents The following table sets forth the book value, maturities and weighted average yields for our investment portfolio at March 31, 2024. (dollars in thousands) Balance Percent Weighted average yield Investment securities available for sale: U.S. government sponsored entities and U.S. agency securities: Maturing within one year $ — — % Maturing in one to five years 33,923 3.3 5.82 Maturing in five to ten years 33,800 3.2 4.65 Maturing after ten years — — — Total U.S. government sponsored entities and U.S. agency securities $ 67,723 6.5 % 5.23 % Mortgage-backed securities - agency: Maturing within one year $ 13,461 1.3 % 4.92 % Maturing in one to five years 335,140 32.2 4.45 Maturing in five to ten years 179,363 17.2 3.17 Maturing after ten years 153,556 14.8 2.85 Total mortgage-backed securities - agency $ 681,520 65.5 % 3.73 % Mortgage-backed securities - non-agency: Maturing within one year $ — — % — % Maturing in one to five years 79,896 7.7 4.69 Maturing in five to ten years 4,230 0.4 2.24 Maturing after ten years 5,402 0.5 3.21 Total mortgage-backed securities - non-agency $ 89,528 8.6 % 4.45 % State and municipal securities (1) : Maturing within one year $ 1,175 0.1 % 2.82 % Maturing in one to five years 9,253 0.9 2.59 Maturing in five to ten years 25,760 2.5 2.15 Maturing after ten years 24,442 2.3 3.99 Total state and municipal securities $ 60,630 5.8 % 2.95 % Collateralized loan obligations: Maturing within one year $ 6,395 0.6 % 6.82 % Maturing in one to five years 16,120 1.5 6.99 Maturing in five to ten years — — — Maturing after ten years 11,099 1.1 6.49 Total collateralized loan obligations $ 33,614 3.2 % 6.79 % Corporate securities: Maturing within one year $ 4,997 0.5 % 8.41 % Maturing in one to five years 39,390 3.8 4.42 Maturing in five to ten years 63,004 6.1 3.87 Maturing after ten years — — — Total corporate securities $ 107,391 10.4 % 4.25 % Total investment securities, available for sale $ 1,040,406 100.0 % 3.98 % (1) Weighted average yield for tax-exempt securities are presented on a tax-equivalent basis assuming a federal income tax rate of 21%. 49 Table of Contents The table below presents the credit ratings for our investment securities classified as available for sale, at fair value, at March 31, 2024. Amortized Fair Average credit rating (dollars in thousands) cost Value AAA AA+/- A+/- BBB+/- <BBB- Not Rated Investment securities available for sale: U.S. government sponsored entities and U.S. agency securities 69,487 67,723 47,417 20,306 — — — — Mortgage-backed securities - agency 763,902 681,520 39,740 641,780 — — — — Mortgage-backed securities - non-agency 93,146 89,528 13,786 75,742 — — — — State and municipal securities 66,902 60,630 788 59,842 — — — — Collateralized loan obligations 33,558 33,614 20,246 13,368 — — — — Corporate securities 117,145 107,391 — 63,291 21,984 16,325 5,791 — Total investment securities, available for sale $ 1,144,140 $ 1,040,406 $ 121,977 $ 874,329 $ 21,984 $ 16,325 $ 5,791 $ — Liabilities. At March 31, 2024, liabilities totaled $7.04 billion compared to $7.08 billion at December 31, 2023. Deposits. We emphasize developing total client relationships with our customers in order to increase our retail and commercial core deposit bases, which are our primary funding sources. Our deposits consist of noninterest-bearing and interest-bearing demand, savings and time deposit accounts. Total deposits increased $14.5 million to $6.32 billion at March 31, 2024, as compared to December 31, 2023. Increases in noninterest-bearing demand accounts and time deposits of $67.0 million and $76.0 million, respectively, during this period, were partially offset by decreases in interest-bearing checking, money market and savings account balances. Noninterest-bearing demand commercial accounts, servicing deposits and treasury services accounts increased $20.3 million, $21.4 million, and $16.7 million, respectively during the first quarter of 2024. Our noninterest-bearing deposits increased to 19.2% of total deposits at March 31, 2024 compared to 18.1% at December 31, 2023. Brokered time deposits increased to $188.2 million at March 31, 2024 from $94.5 million at December 31, 2023, accounting for all of the increase in time deposit balances. (dollars in thousands) March 31, 2024 December 31, 2023 Balance Percent Balance Percent Noninterest-bearing demand $ 1,212,382 19.2 % $ 1,145,395 18.1 % Interest-bearing: Checking 2,394,163 37.9 2,511,840 39.8 Money market 1,128,463 17.8 1,135,629 18.0 Savings 555,552 8.8 559,267 8.9 Time 1,033,424 16.3 957,398 15.2 Total deposits $ 6,323,984 100.0 % $ 6,309,529 100.0 % The following table sets forth the maturity of uninsured time deposits as of March 31, 2024: (dollars in thousands) Amount Three months or less $ 58,488 Three to six months 24,419 Six to 12 months 7,301 After 12 months 8,763 Total $ 98,971 50 Table of Contents Short-term Borrowings . Short-term borrowings, consisting of federal funds purchased and securities sold under agreements to repurchase totaled $214.4 million and $34.9 million at March 31, 2024 and December 31, 2023, respectively. The Company utilized additional short-term liquidity resources and reduced our reliance on FHLB advances to optimize contingent liquidity and improve our cost of funds. FHLB Advances and Other Borrowings . FHLB advances and other borrowings totaled $255.0 million and $476.0 million as of March 31, 2024 and December 31, 2023, respectively. The decrease in borrowings was due to FHLB advances totaling $251.0 million being repaid in accordance with contract terms. Capital Resources and Liquidity Management Capital Resources. Shareholders’ equity is influenced primarily by earnings, dividends, issuances and redemptions of common and preferred stock and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on available-for-sale investment securities and cash flow hedges. Shareholders’ equity decreased $0.8 million to $791.0 million at March 31, 2024 as compared to December 31, 2023. The change in shareholders’ equity was the result of the generation of net income of $13.9 million, offset by dividends to common shareholders of $6.8 million, dividends to preferred shareholders of $2.2 million, the repurchases of common stock of $1.9 million and increase in accumulated other comprehensive losses of $4.7 million. On December 5, 2023, the Company’s board of directors authorized a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2024. As of March 31, 2024, the Company repurchased 73,781 shares of its common stock at a weighted average price of $26.31 under its stock repurchase program, with approximately $23.1 million of remaining repurchase authority. Liquidity Management. Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders. Integral to our liquidity management is the administration of short-term borrowings. To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis. Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction, which represents the amount of the Bank’s obligation. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. Investment securities with a carrying amount of $15.8 million and $20.9 million at March 31, 2024 and December 31, 2023, respectively, were pledged for securities sold under agreements to repurchase. The table below presents our sources of liquidity as of March 31, 2024 and December 31, 2023: (dollars in thousands) March 31, 2024 December 31, 2023 Cash and cash equivalents $ 167,316 $ 160,631 Unpledged securities 506,158 209,184 FHLB committed liquidity 1,167,381 997,388 FRB discount window availability 613,250 12,201 Total Estimated Liquidity $ 2,454,105 $ 1,379,404 Conditional Funding Based on Market Conditions Additional credit facility $ 431,000 $ 250,000 Brokered CDs (additional capacity) $ 400,000 $ 500,000 51 Table of Contents The Company is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. The Company’s main source of funding is dividends declared and paid to it by the Bank. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to the Company. Management believed at March 31, 2024, that these limitations will not impact our ability to meet our ongoing short-term cash obligations. Regulatory Capital Requirements We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. In December 2018, the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the CECL accounting standard. In March 2020, the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company is adopting the capital transition relief over the permissible five-year period. At March 31, 2024, the Company and the Bank exceeded the regulatory minimums and met the regulatory definition of well-capitalized. The following table presents the Company's and the Bank’s capital ratios and the minimum requirements at March 31, 2024: Ratio Actual Minimum Regulatory Requirements (1) Well Capitalized Total risk-based capital ratio Midland States Bancorp, Inc. 13.68 % 10.50 % N/A Midland States Bank 12.77 10.50 10.00 % Tier 1 risk-based capital ratio Midland States Bancorp, Inc. 11.16 8.50 N/A Midland States Bank 11.62 8.50 8.00 Common equity tier 1 risk-based capital ratio Midland States Bancorp, Inc. 8.60 7.00 N/A Midland States Bank 11.62 7.00 6.50 Tier 1 leverage ratio Midland States Bancorp, Inc. 9.92 4.00 N/A Midland States Bank 10.33 4.00 5.00 (1) Total risk-based capital ratio, Tier 1 risk-based capital ratio and Common equity tier 1 risk-based capital ratio include the capital conservation buffer of 2.5%. Quantitative and Qualitative Disclosures About Market Risk Market Risk. Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price risk from investments in securities backed by mortgage loans. Interest Rate Risk. Interest rate risk is the risk to earnings arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity 52 Table of Contents (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and SOFR (basis risk). We actively manage interest rate risk, as changes in market interest rates may have a significant impact on reported earnings. Changes in market interest rates may result in changes in the fair market value of our financial instruments, cash flows, and net interest income. We seek to achieve consistent growth in net interest income while managing volatility arising from shifts in market interest rates. Our Board of Directors’ Risk Policy and Compliance Committee oversees interest rate risk, as well as the establishment of risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income. The Committee meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits. Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints. An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin. Interest rate risk measurement is calculated and reported to the Risk Policy and Compliance Committee at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk. We use NII at Risk to model interest rate risk utilizing various assumptions for assets, liabilities, and derivatives. NII at Risk uses net interest income simulation analysis which involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. The sensitivity of net interest income to changes in interest rates is measured using numerous interest rate scenarios including shocks, gradual ramps, curve flattening, curve steepening as well as forecasts of likely interest rates scenarios. Modeling the sensitivity of net interest earnings to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. To the extent that actual performance is different than what was assumed, actual net interest earnings sensitivity may be different than projected. We use a data warehouse to study interest rate risk at a transactional level and use various ad-hoc reports to continuously refine assumptions. Assumptions and methodologies regarding administered rate liabilities (e.g., savings accounts, money market accounts and interest-bearing checking accounts), balance trends, and repricing relationships reflect our best estimate of expected behavior and these assumptions are reviewed periodically. The following table shows NII at Risk at the dates indicated: Net interest income sensitivity (Shocks) Immediate change in rates (dollars in thousands) -200 -100 +100 +200 March 31, 2024: Dollar change $ 497 $ (295) $ (768) $ (2,519) Percent change 0.2 % (0.1) % (0.3) % (1.1) % December 31, 2023: Dollar change $ 539 $ (293) $ (1,424) $ (3,162) Percent change 0.2 % (0.1) % (0.6) % (1.3) % We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The NII at Risk results included in the table above reflect the analysis used quarterly by management. It models -200, −100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next twelve months. We were within board policy limits for all scenarios at March 31, 2024. 53 Table of Contents Tolerance levels for risk management require the continuing development of remedial plans to maintain residual risk within approved levels as we adjust the balance sheet. NII at Risk reported at March 31, 2024 projects that our earnings exhibit increasing profitability in a declining rate environment, consistent with our modeling at December 31, 2023. Throughout the course of 2023, the bank exhibited similar trends to the industry concerning its beta assumptions related to its non-maturity deposit portfolio. Coupled with a market shift to slowing rate increases or even rate cuts into 2024, the bank did start to position its investment strategy to protect against lower rates in the future. These two aspects are the primary drivers of moving to a virtually neutral position as measured in the +/- 100 basis point rate shocks. Price Risk. Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from mortgage-backed securities, derivative instruments, and equity investments. ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The quantitative and qualitative disclosures about market risk are included under “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk”. 54 Table of Contents ITEM 4 – CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. The Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act)), as of the end of the period covered by this report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in internal control over financial reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. P ART II – O THER I NFORMATION ITEM 1 – LEGAL PROCEEDINGS In the normal course of business, we are named or threatened to be named as a defendant in various lawsuits, none of which we expect to have a material effect on the Company. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business (including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security, anti-money laundering and anti-terrorism), we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk. There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject. ITEM 1A– RISK FACTORS There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2023. 55 Table of Contents ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Unregistered Sales of Equity Securities None. Issuer Purchases of Equity Securities The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the first quarter of 2024. Period Total number of shares purchased (1) Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of shares that may yet be purchased under the plans or programs (2) January 1 - 31, 2024 55,166 $ 27.26 55,023 $ 23,500,019 February 1 - 29, 2024 278 24.74 — 23,500,019 March 1 - 31, 2024 18,758 23.51 18,758 23,059,060 Total 74,202 $ 26.30 73,781 $ 23,059,060 (1) Represents shares of the Company’s common stock repurchased under the employee stock purchase program and shares withheld to satisfy tax withholding obligations upon the vesting of awards of restricted stock. (2) As previously disclosed, the board of directors of the Company approved a stock repurchase program on December 5, 2023, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2024. Stock repurchases under this programs may be made from time to time on the open market, in privately negotiated transactions, or in any manner that complies with applicable securities laws, at the discretion of the Company. The timing of purchases and the number of shares repurchased under the programs are dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market condition. The repurchase program may be suspended or discontinued at any time without notice. As of March 31, 2024, 73,781 shares of the Company’s common stock have been repurchased under the program for an aggregate purchase price of $1.9 million. ITEM 5 – OTHER INFORMATION During the three months ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. 56 Table of Contents ITEM 6 – EXHIBITS Exhibit No. Description 31.1 Chief Executive Officer’s Certification required by Rule 13(a)-14(a) – filed herewith. 31.2 Chief Financial Officer’s Certification required by Rule 13(a)-14(a) – filed herewith. 32.1 Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith. 32.2 Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith. 101 Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements – filed herewith. 104 The cover page from Midland States Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended March 31, 2024 formatted in inline XBRL and contained in Exhibit 101. 57 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Midland States Bancorp, Inc. Date: May 9, 2024 By: /s/ Jeffrey G. Ludwig Jeffrey G. Ludwig President and Chief Executive Officer (Principal Executive Officer) Date: May 9, 2024 By: /s/ Eric T. Lemke Eric T. Lemke Chief Financial Officer (Principal Financial Officer) 58