Midland States Bancorp, Inc. 10-K

msbi-20241231 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31 , 2024 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to _______________ Commission File Number 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 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No 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, 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☒ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No The aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates on June 30, 2024 was $ 466,599,960 (based on the closing price on the Nasdaq Global Select Market on that date of $22.65). As of June 13, 2025, the Registrant had 21,515,138 shares of outstanding common stock, $0.01 par value. Table of Contents MIDLAND STATES BANCORP, INC. 2024 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS Page PART I Item 1. Business 5 Item 1A. Risk Factors 18 Item 1B. Unresolved Staff Comments 30 Item 1C. Cybersecurity 30 Item 2. Properties 31 Item 3. Legal Proceedings 31 Item 4. Mine Safety Disclosures 31 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 31 Item 6. [Reserved] 32 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 58 Item 8. Financial Statements and Supplementary Data 59 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 136 Item 9A. Controls and Procedures 136 Item 9B. Other Information 137 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 138 PART III Item 10. Directors, Executive Officers and Corporate Governance 139 Item 11. Executive Compensation 142 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 164 Item 13. Certain Relationships and Related Transactions, and Director Independence 167 Item 14. Principal Accountant Fees and Services 168 PART IV Item 15. Exhibits and Financial Statement Schedules 168 Item 16. Form 10-K Summary 173 Signatures 174 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 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 FOMC Federal Open Market Committee 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 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 EXPLANATORY NOTE Introduction In connection with the preparation of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, the Audit Committee (the "Audit Committee") of the Board of Directors of the Company, after discussion with management and the Company's independent registered public accounting firm, Crowe LLP, concluded that the Company's audited consolidated financial statements as of December 31, 2023 and 2022 and for each year in the three year period ended December 31, 2023, and its unaudited consolidated financial statements as of and for the interim periods ended March 31, 2024 and 2023, June 30, 2024 and 2023 and September 30, 2024 and 2023 (collectively, the "Restated Financial Periods") should no longer be relied upon because of errors identified in such financial statements, as described below. The errors relate to the Company’s accounting for loans originated pursuant to third-party loan origination programs. These programs go back as far as 2012. As part of these programs, the third-party providers offered various credit enhancements with respect to loans originated under the programs, including contributions to reserve accounts, yield maintenance and certain other payments. Historically, the Company accounted for all borrower payments and credit enhancement payments under these programs on a single unit, or net basis, with all such payments presented as interest income representing the Company’s effective yield on the portfolios. The Company has determined that these payments should instead be accounted for on a separate unit of account, or gross basis, with loan yields and interest income recorded at the gross borrower loan rate, credit losses and associated provisions for credit losses recorded on a gross basis over the life of the loans, and with all credit enhancement payments recorded separately as a credit enhancement derivative. As a result of the above, the Company is restating the consolidated financial statements (i) as of and for the year ended December 31, 2023 and (ii) for the year ended December 31, 2022, as presented in the audited financial statements as of and for the year ended December 31, 2024 in this Annual Report on Form 10-K. The impact of the errors prior to January 1, 2022 has been adjusted through opening equity as of January 1, 2022 in the audited consolidated financial statements presented herein. These financial statements include audited consolidated financial statements: • As of and for the year ended December 31, 2024; • As of and for the year ended December 31, 2023 (restated); and • For the year ended December 31, 2022 (restated), excluding the consolidated balance sheet. Additionally, to reflect the impact of the restatement, this Form 10-K includes consolidated financial statements as of and for the quarters and year-to-date periods ended March 31, 2024 and 2023, June 30, 2024 and 2023 and September 30, 2024 and 2023 (unaudited, restated). This Form 10-K includes more information than normally would be included in an Annual Report on Form 10-K in order to provide a presentation of information related to the restatement of the periods listed above. See Note 25 - Restatement of Prior Period Financial Statements , in the accompanying Consolidated Financial Statements included in Part II, Item 8 for additional information, including the impact on the specific accounts. We have not filed, and do not intend to file, amendments to any of our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q covering the Restated Financial Periods or 2021. Accordingly, with respect to such periods, investors and others should rely only on the financial information and other disclosures contained in this Form 10-K or in our future filings with the SEC, and not on the financial statements of any previously issued or filed reports, earnings releases or similar communications relating to the Restated Financial Periods and 2021. Impact on Internal Controls over Financial Reporting See Item 9A, Controls and Procedures, for information related to identified material weaknesses in internal control over financial reporting and the related remedial measures. Items Restated in this Form 10-K The following items have been restated, as appropriate, to correct the errors noted above: • Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations • Part II, Item 8. Financial Statements and Supplementary Data 3 Table of Contents Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of, and are intended to be covered by the safe harbor provisions of, the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “outlook,” “aim,” and “would” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in Item 1A – "Risk Factors” or Item 7 – "Management’s Discussion and Analysis of Financial Condition and Results of Operations” or the following: • business, economic and political conditions, particularly those affecting the financial services industry and our primary market areas; • the effects of U.S. and global trade policy, including changes in applicable tariff rates and the effect such policies and rates have on economic conditions in our markets and the U.S. generally, including growth rates, inflation, interest rates and levels of volatility and economic uncertainty; • the effects of interest rates, including on our net interest income and the value of our securities portfolio as well as monetary and fiscal policies of the U.S. government, including policies of the Treasury and the Federal Reserve; • factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions; • our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses on loans; • the failure of assumptions and estimates underlying the establishment of our allowances for credit losses on loans, and estimation of values of collateral and various financial assets and liabilities; • compliance with governmental and regulatory requirements, particularly those relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with commercial mortgage servicing operations; • legislative and regulatory changes, including changes in banking, consumer protection, securities, trade and tax laws and regulations and their application by our regulators; • our dependence upon third parties for certain information system, data management and processing services, and to provide key components of our business infrastructure; • our ability to identify and address cyber-security risks, fraud and systems errors; • our ability to effectively execute our strategic plan and manage our growth; • the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services, including FinTech companies and private credit funds, and demand for financial services in our market areas; • credit risk and risks from concentrations by type of borrower, geographic area, collateral and industry within our loan portfolio and, large loans to certain borrowers including commercial real estate loans; • effects on the U.S. economy resulting from the implementation of policies proposed by the new presidential administration, including tariffs, mass deportations and changes in banking regulation; • risks related to acquisitions, including our ability to receive required regulatory approvals, exposure to potential asset and credit quality risks and unknown or contingent liabilities, the time and costs of integrating systems, procedures and personnel, the need for capital to finance such transactions, and possible failures in realizing the anticipated benefits from acquisitions; 4 Table of Contents • the effects of the accounting treatment for loans acquired in connection with our acquisitions; • changes in our senior management team and our ability to attract, motivate and retain qualified personnel; • liquidity issues, including fluctuations in the fair value and liquidity of the securities we hold for sale and our ability to raise additional capital, if necessary; • changes in federal tax law or policy; • the quality and composition of our loan and investment portfolios and the valuation of our investment portfolio; • demand for loan products and deposit flows; • the costs, effects and outcomes of existing or future litigation; • changes in accounting principles, policies and guidelines; and • the effects of severe weather, natural disasters, acts of war or terrorism, widespread disease or pandemics, and other external events. The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. In addition, our past results of operations are not necessarily indicative of our future results. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. P ART I ITEM 1 – BUSINESS Our Company Midland States Bancorp, Inc., an Illinois corporation formed in 1988, is a diversified financial holding company headquartered in Effingham, Illinois. Our banking subsidiary, Midland States Bank, an Illinois state-chartered bank formed in 1881, 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, and insurance and financial planning services. As of December 31, 2024, the Company had total assets of $7.51 billion, and our wealth management group had assets under administration of approximately $4.15 billion. Our strategic plan focuses on delivering a superior customer experience through a high-tech, high-touch approach, while remaining committed to core community banking and relationship-driven growth. We continue to enhance our regional franchise approach that serves our core customers with a consistent, high-performance culture rooted in our One Midland values and with a strong foundation in Enterprise Risk Management. Our Principal Businesses Community Banking. Our community banking business primarily consists of commercial and retail lending and deposit taking. We deliver a comprehensive range of banking products and services to individuals, businesses, municipalities and other entities within our market areas, which include Illinois and the St. Louis metropolitan area, where we operated 53 full-service banking offices as of December 31, 2024. Our lending strategy is to maintain a broadly diversified loan portfolio based on the type of customer (i.e., businesses versus individuals), type of loan product (e.g., owner occupied commercial real estate, commercial loans, agricultural loans, etc.), geographic location and industries in which our business customers are engaged (e.g., manufacturing, retail, hospitality, etc.). We principally focus our commercial lending activities on loans that we originate from borrowers located in our market areas. We market our lending products and services to qualified lending customers primarily through branch offices and high touch personal service. We focus our business development and marketing strategy primarily on middle market businesses. Our primary products and services include the following: Commercial Loans. Our commercial loan portfolio is comprised primarily of term loans to purchase capital equipment and lines of credit for working capital and operational purposes to small and midsized businesses. Although most loans are made on a secured basis, loans may be made on an unsecured basis where warranted by the overall financial condition of the borrower. Part of our commercial loan portfolio includes loans extended to finance agricultural equipment and production. 5 Table of Contents These loans are typically short-term loans extended to farmers and other agricultural producers to purchase seed, fertilizer and equipment. Commercial Real Estate Loans. We offer real estate loans for owner occupied and non-owner occupied commercial property. 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 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 portfolio includes loans to small and midsized businesses to construct owner-user properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single family homes in our market areas. These loans are typically disbursed as construction progresses and carry interest rates that may vary with SOFR. 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 December 31, 2024 and 2023: December 31, 2024 2023 (dollars in thousands) Balance % Balance % Multi-Family $ 547,016 18.9 % $ 516,295 18.1 % Retail 460,283 15.9 469,096 16.4 Skilled Nursing 400,902 13.8 454,589 15.9 Industrial/Warehouse 235,674 8.2 217,956 7.6 Hotel/Motel 228,764 7.9 159,707 5.6 Office 146,295 5.1 153,756 5.4 All other 872,572 30.2 888,039 31.0 Total commercial real estate and construction and land development loans $ 2,891,506 100.0 % $ 2,859,438 100.0 % Residential Real Estate Loans. We offer first and second mortgage loans to our individual customers primarily for the purchase of primary residences. We also offer home equity lines of credit, consisting of loans secured by first or second mortgages primarily on owner occupied primary residences. Consumer Installment Loans. We provide consumer installment loans for the purchase of cars, boats and other recreational vehicles, as well as for the purchase of major appliances and other home improvement projects. Our major appliance and other home improvement lending is originated principally through national and regional retailers and other vendors of these products and services. We have historically originated these loans through GreenSky and LendingPoint. However, during the fourth quarter of 2023, the Company ceased originating consumer loans through both GreenSky and LendingPoint. Subsequently, we sold our LendingPoint portfolio in the fourth quarter of 2024, and in April 2025 sold participation interests in consumer loans with an aggregate principal amount of $317.5 million that were originated through the GreenSky program. Commercial Equipment Leasing. We originate and manage custom leasing and financing programs for commercial customers on a nationwide basis. The industries we service include manufacturing, construction, transportation and healthcare. The financings generated are typically retained and serviced by the Bank, and are generally leases between $50,000 and $500,000, but can be larger in certain circumstances. Deposit Taking. We offer traditional depository products, including checking, savings, money market and certificates of deposits, to individuals, businesses, municipalities and other entities throughout our market areas. We also offer sweep accounts to our business customers. Deposits at the Bank are insured by the FDIC up to statutory limits. We also offer sweep accounts that are guaranteed through repurchase agreements to our business and municipal customers. Our ability to gather deposits, particularly core deposits, is an important aspect of our business franchise. Wealth Management. Our wealth management group operates under the name Midland Wealth Management and provides a comprehensive suite of trust and wealth management products and services, including financial and estate planning, 6 Table of Contents trustee and custodial services, investment management, tax and insurance planning, business planning, corporate retirement plan consulting and administration and retail brokerage services through a nationally recognized third party broker dealer. Competition We compete in a number of areas, including commercial and retail banking, residential mortgages, wealth management and commercial equipment leasing. These industries are highly competitive, and the Bank and its subsidiaries face strong direct competition for deposits, loans and leases, wealth management, and other financial-related services. We compete primarily with other community banks, thrifts and credit unions. In addition, we compete with large banks and other financial intermediaries, such as consumer finance companies, private credit funds, brokerage firms, mortgage banking companies, business leasing and finance companies, insurance companies, securities firms, mutual funds and certain government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services. Additionally, we face growing competition from so-called "online businesses" with few or no physical locations, including online banks, lenders and consumer and commercial lending platforms, and FinTech companies, as well as automated retirement and investment service providers. We believe that the range and quality of products that we offer, the knowledge of our personnel and our emphasis on building long-lasting relationships set us apart from our competitors. The following table reflects information on the markets we currently serve, as of June 30, 2024 , the most recent date for which such information was publicly available: (dollars in thousands) June 30, 2024 December 31, 2024 County State Deposits Market Share # of Banking Offices Effingham IL $ 1,060,572 37.66 % 1 St. Charles MO 993,953 9.87 2 Winnebago IL 874,694 11.76 7 Kankakee IL 819,476 32.21 8 La Salle IL 309,863 8.21 4 Will IL 285,690 1.33 4 St. Louis MO 276,933 0.62 6 Lee IL 251,061 29.61 1 Boone IL 213,454 27.42 2 Whiteside IL 190,361 10.05 2 Bureau IL 154,169 12.77 1 Kendall IL 139,720 4.93 2 Grundy IL 101,530 6.31 1 Monroe IL 85,578 7.43 2 Marion IL 76,452 7.01 1 Champaign IL 48,844 0.70 1 St. Clair IL 45,373 0.83 1 Fayette IL 43,509 7.81 2 Jefferson MO 42,476 1.11 1 Franklin MO 34,342 0.93 1 Bond IL 29,255 6.73 1 Saint Louis (City) MO 25,353 0.05 1 Livingston IL 21,984 1.65 1 Human Capital Resources At December 31, 2024, we had 896 employees, including 32 part-time employees. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good. We believe our ability to attract and retain employees is a key to our success. Accordingly, we strive to offer competitive salaries and employee benefits to all employees and monitor salaries in our market areas. In addition, we are committed to developing our staff through continuing and specialty education within banking. In this regard, we have developed and provided all employees with access to our Midland University training program. This program was developed to provide continuing education required or advisable regarding regulatory matters (such as anti-money laundering, bank secrecy, etc.) as well as other matters important to our organization and culture (e.g., social inclusion, diversity 7 Table of Contents and non-discrimination, etc.). Additionally, our Midland University program provides for continuing education in areas specifically related to our banking and financial services business. Leadership and professional development at Midland is reinforced through programs designed to cultivate talent and accelerate development. Our MASTERS program—Midland’s Advanced Study for Talent Enrichment and Resource Strengthening— enhances the career growth of high-potential employees who demonstrate the qualities essential for the Company’s continued success. More than 110 employees have participated in this program since 2016. Additionally, we support professional growth and community-building through affinity groups such as Midland WOMEN and the African American Affinity Group. Midland WOMEN is dedicated to advancing the leadership development of women at all levels of the organization, offering programs and initiatives that engage employees across the Company. The African American Affinity Group provides a platform for personal and professional development, fostering opportunities for advancement and mentorship. Executive management actively supports these groups. Corporate Information Through our website at www.midlandsb.com under “Investors - SEC Filings,” we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The contents of our website are not incorporated by reference into this report. Supervision and Regulation General FDIC-insured institutions, their holding companies and their affiliates are extensively regulated under federal and state law. As a result, the Company’s growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various banking agencies, including the DFPR, the Federal Reserve, the FDIC and the CFPB. Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the SEC and state securities authorities, and anti-money laundering laws and sanctions enforced by the Treasury have an impact on the Company’s business. The effect of these statutes, regulations, regulatory policies and accounting rules are significant to the Company’s operations and results. Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of FDIC-insured institutions, their holding companies and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than shareholders. These laws, and the regulations of the banking agencies issued under them, affect, among other things, the scope of the Company’s business, the kinds and amounts of investments that the Company and the Bank may make, required capital levels relative to assets, the nature and amount of collateral for loans, the establishment of branches, the ability of the Company or the Bank to merge, consolidate and acquire, dealings with the Company’s and the Bank’s insiders and affiliates and the Company’s payment of dividends. In reaction to the global financial crisis and particularly following the passage of the Dodd Frank Act, the Company experienced heightened regulatory requirements and scrutiny. Although the reforms primarily targeted large banking organizations and systemically important financial institutions, their influence filtered down in varying degrees to community banks over time and caused the Company’s compliance and risk management processes, and the costs thereof, to increase. However, in May 2018, the Regulatory Relief Act was enacted by Congress in part to provide regulatory relief for community banks and their holding companies. To that end, the law eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving the Company of any requirement to engage in mandatory stress tests, maintain a risk committee or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds. The Company believes these reforms are favorable to its operations. It is anticipated that the Trump Administration and the current U.S. Congress likely will not increase the regulatory burden on community banking organizations and may seek to reduce and streamline certain prudential and regulatory requirements applicable to these banking organizations at a federal level based on statements made by relevant congressional leaders and the acting leaders of certain federal banking agencies. At this time, however, it is not possible to predict with any certainty the actual impact that the Trump Administration may have on the banking industry or the operations of the Company or the Bank. The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective banking agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, 8 Table of Contents liquidity, and various other factors. The banking agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations. The approach to supervision adopted by each banking agency may have significant impacts on the operations and results of the Company and the Bank, as well as the banking industry in general. Based on statements made by congressional leaders and the acting leaders of certain federal banking agencies, there may be changes in the supervisory processes and approach made by the federal banking agencies. The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and the Bank. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision. The Role of Capital Regulatory capital represents the net assets of a banking organization available to absorb losses. Because of the risks attendant to their business, FDIC-insured institutions, such as the Bank, as well as their holding companies ( i.e. , banking organizations) are generally required to hold more capital than other businesses, which directly affects the Company’s earnings capabilities. While capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking agencies recognized that the amount and quality of capital held by banking organizations prior to that crisis was insufficient to absorb losses during periods of severe stress. Certain provisions of the Dodd-Frank Act and the Basel III Rule, defined and discussed below, establish capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously. Minimum Required Capital Levels. Banking organizations have been required to hold minimum levels of capital based on guidelines established by the Federal banking agencies since 1983. The minimum capital levels for banking organizations have been expressed in terms of ratios of “capital” divided by “total assets”. As discussed below, bank capital measures have become more sophisticated over the years and have focused more on the quality of capital and the risks of bank assets. Bank holding companies have historically had to comply with less stringent capital standards than their bank subsidiaries and have been able to raise capital with hybrid instruments such as trust preferred securities. The Dodd-Frank Act mandated the Federal Reserve to establish minimum capital levels for bank holding companies on a consolidated basis as stringent as those required for FDIC-insured institutions. A result of this change is that the proceeds of hybrid instruments, such as trust preferred securities, were excluded from capital over a phase-out period. However, if such securities were issued prior to May 19, 2010 by bank holding companies with less than $15 billion of assets, they may be retained, subject to certain restrictions. Because the Company has assets of less than $15 billion, the Company is able to maintain its trust preferred proceeds as capital but the Company has to comply with new capital mandates in other respects and will not be able to raise capital in the future through the issuance of trust preferred securities. The Basel International Capital Accords. The risk-based capital guidelines for U.S. banking organizations since 1989 were based upon the 1988 capital accord known as “Basel I” adopted by the international Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. banking agencies on an interagency basis. The accord recognized that bank assets for the purpose of the capital ratio calculations needed to be assigned risk weights (the theory being that riskier assets should require more capital) and that off-balance sheet exposures needed to be factored in the calculations. Basel I had a very simple formula for assigning risk weights to bank assets from 0% to 100% based on four categories. In 2008, the banking agencies collaboratively began to phase-in capital standards based on a second capital accord, referred to as “Basel II,” for large or “core” international banks (generally defined for U.S. purposes as having total assets of $250 billion or more, or consolidated foreign exposures of $10 billion or more) known as “advanced approaches” banks. The primary focus of Basel II was on the calculation of risk weights based on complex models developed by each advanced approaches bank. Because most banks were not subject to Basel II, the U.S. banking agencies worked to improve the risk sensitivity of the Basel I standards without imposing the complexities of Basel II. This “standardized approach” increased the number of risk-weight categories and recognized risks well above the original 100% maximum risk weight. It is institutionalized by the Dodd-Frank Act for all banking organizations, even for the advanced approaches banks, as a floor. On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced an agreement on a strengthened set of capital requirements for banking organizations around the world, known as "Basel III", to address deficiencies recognized in connection with the global financial crisis. 9 Table of Contents The Basel III Rule. In July 2013, the U.S. federal banking agencies approved the implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the "Basel III Rule"). In contrast to capital requirements historically, which were in the form of guidelines, Basel III was released in the form of enforceable regulations by each of the federal banking agencies. The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including national and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies” (generally holding companies with consolidated assets of less than $3 billion) and certain qualifying banking organizations that may elect a simplified framework (which the Company has not done.) Thus, the Company and the Bank are each currently subject to the Basel III Rule as described below. The Basel III Rule increased the required quantity and quality of capital and, for nearly every class of assets, it requires a more complex, detailed and calibrated assessment of risk and calculation of risk-weight amounts. Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments. The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations). A number of instruments that qualified as Tier 1 Capital under Basel I do not qualify, or their qualifications changed. For example, noncumulative perpetual preferred stock, which qualified as simple Tier 1 Capital under Basel I, does not qualify as Common Equity Tier 1 Capital, but qualifies as Additional Tier 1 Capital. The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and requires deductions from Common Equity Tier 1 Capital in the event that such assets exceed a certain percentage of a banking organization’s Common Equity Tier 1 Capital. The Basel III Rule requires banking organizations to maintain minimum capital ratios as follows: • A ratio of minimum Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets; • An increase in the minimum required amount of Tier 1 Capital from 4% to 6% of risk-weighted assets; • A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and • A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances. In addition, banking organizations that want to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer. The purpose of the conservation buffer is to ensure that banking organizations maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital. In July 2023, the Biden Administration federal banking agencies had proposed wide-ranging and significant changes to the Basel III Rule (the “Basel III Endgame Proposal”), which would have, among other requirements, imposed structural changes to the calculation of capital requirements and risk-weighted assets in an effort to finish the implementation of the Basel III accords. The Basel III Endgame Proposal would generally have impacted the capital requirements applicable to banking organizations with $100 billion or more in total assets, and, as a general matter, would not have had a significant impact on the Company or the Bank. The Basel III Endgame Proposal has not been, and is not expected to be, adopted in a form substantially similar to the Basel III Endgame Proposal. Based on statements made by the current leaders of the federal banking agencies, as well as the Secretary of the Treasury, the agencies may issue a new version of this proposal. Well-Capitalized Requirements . The capital ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Banking agencies uniformly encourage banking organizations to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, roll-over or renew brokered deposits. Higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines 10 Table of Contents contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions ( i.e. , Tier 1 Capital less all intangible assets), well above the minimum levels. Under the capital regulations of the Federal Reserve, in order to be well-capitalized, a banking organization must maintain: • A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more; • A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more; • A ratio of Total Capital to total risk-weighted assets of 10% or more; and • A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater. It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2024: (i) the Bank was not subject to a directive from the Federal Reserve or the DFPR to increase its capital; and (ii) the Bank was well-capitalized, as defined by Federal Reserve regulations. As of December 31, 2024, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. The Company is also in compliance with the capital conservation buffer. Prompt Corrective Action . The concept of a banking organization being “well-capitalized” is part of a regulatory enforcement regime that provides the federal banking agencies with broad power to take “prompt corrective action” to resolve the problems of undercapitalized depository institutions based on the capital level of each particular institution. The extent of the banking agencies’ powers depends on whether the banking organization in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which a banking organization is assigned, the banking agencies’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution. Community Bank Capital Simplification . Community banking organizations have long raised concerns with the federal banking agencies about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, the U.S. Congress provided an “off-ramp” for institutions, like the Company, with total consolidated assets of less than $10 billion as part of the Regulatory Relief Act. Section 201 of the Regulatory Relief Act specifically instructed the federal banking agencies to establish a single CBLR of between 8% and 10%. Under the final rule, a community banking organization is eligible to elect to comply with its capital requirements the CBLR framework if it has (i) less than $10 billion in total consolidated assets, (ii) limited amounts of certain assets and off-balance sheet exposures, and (iii) a CBLR greater than 9%. Nevertheless, the Company has not currently determined to elect the CBLR, but it may elect the framework at any time. Supervision and Regulation of the Company General. The Company, as the sole shareholder of the Bank, is a bank holding company that has elected financial holding company status. As a bank holding company, the Company is registered with, and is subject to regulation supervision and enforcement by, the Federal Reserve under the BHCA. The Company is legally obligated to act as a source of financial and managerial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is required to file with the Federal Reserve periodic reports of the Company’s operations and such additional information regarding the Company and its subsidiaries as the Federal Reserve may require. Acquisitions, Activities and Financial Holding Company Election . The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank 11 Table of Contents holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its FDIC-insured institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company. Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements, see “The Role of Capital” above. The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of 5% or more of a class of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking ... as to be a proper incident thereto.” This authority permits the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services. The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies. In addition to approval from the Federal Reserve that may be required in certain circumstances, prior approval for acquisitions by the Company may be required from other agencies, such as the DFPR or other agencies that regulate the target company of an acquisition. Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally. In 2006, the Company elected to operate as a financial holding company. In order to maintain its status as a financial holding company, the Company and the Bank must be well-capitalized, well-managed, and the Bank must have a least a satisfactory CRA rating. If the Federal Reserve determines that a financial holding company is not well-capitalized or well-managed, the Company has a period of time in which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any limitations on the Company that it believes to be appropriate. Furthermore, if the Federal Reserve determines that a financial holding company’s subsidiary bank has not received a satisfactory CRA rating, that company will not be able to commence any new financial activities or acquire a company that engages in such activities. Change in Control. Federal law prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal banking agency. “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership. Capital Requirements. Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements. For a discussion of capital requirements, see “The Role of Capital” above. Dividend Payments. The Company’s ability to pay dividends to the Company’s shareholders may be affected by both general corporate law considerations and the policies and capital requirements of the Federal Reserve applicable to bank holding companies. As an Illinois corporation, the Company is subject to the limitations of the Illinois Business Corporations Act, as amended, which allows us to pay dividends unless, after such dividend, (i) the Company would not be able to pay its debts as they become due in the usual course of business or (ii) the Company’s total assets would be less than the sum of the Company’s total liabilities plus any amount that would be needed if it were to be dissolved at the time of the dividend payment, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to the rights of the shareholders receiving the distribution. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to shareholders if: (i) the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to 12 Table of Contents prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. In addition, under the Basel III Rule, banking organizations that want to pay unrestricted dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “The Role of Capital” above. Incentive Compensation. There have been a number of developments in recent years focused on incentive compensation plans sponsored by bank holding companies and banks, reflecting recognition by the federal banking agencies and U.S. Congress that flawed incentive compensation practices in the financial industry were one of many factors contributing to the global financial crisis. The result is interagency guidance on sound incentive compensation practices for banking organizations. The interagency guidance recognized three core principles. Effective incentive plans should: (i) provide employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Much of the guidance is directed at large banking organizations and, because of the size and complexity of their operations, the federal banking agencies expect those organizations to maintain systematic and formalized policies, procedures, and systems for ensuring that the incentive compensation arrangements for all executive and non-executive employees covered by this guidance are identified and reviewed, and appropriately balance risks and rewards. Under the guidance, smaller banking organizations like the Company that use incentive compensation arrangements are expected to implement less extensive, formalized, and detailed policies, procedures, and systems than those of larger banks. In May 2024, certain of the federal banking and other financial services agencies released a proposed rule regarding certain incentive-based compensation arrangements at certain financial institutions with at least $1 billion in assets, as required under Section 956 of the Dodd-Frank Act. This proposal was largely based on an earlier 2016 proposal. The Federal Reserve and the SEC, however, did not join this proposal and it was not published in the Federal Register, signaling potential interagency misalignment. In March 2025, the FDIC withdrew its support for this proposed rule, making it unlikely that any rule in a substantially similar form will be finalized. Monetary Policy. The monetary policy of the Federal Reserve has a significant effect on the operating results of bank holding companies and their subsidiaries. Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S. government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits, which may impact the business and operations of the Company and the Bank. Federal Securities Regulation. The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Exchange Act. Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. Corporate Governance . The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies. The Dodd Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders a nonbinding vote on executive compensation and so-called “golden parachute” payments, and authorizing the SEC to promulgate rules that would allow shareholders to nominate and solicit voters for their own candidates using a company’s proxy materials. The Dodd-Frank Act also directed the Federal Reserve, together with the other federal banking and financial services agencies, to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded. Supervision and Regulation of the Bank General. The Bank is an Illinois-chartered bank. The deposit accounts of the Bank are insured by the FDIC’s DIF to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category. As an Illinois-chartered FDIC-insured bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the DFPR, the chartering authority for Illinois banks, and, as a bank that is a member of the Federal Reserve System, the Federal Reserve. Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification. For institutions like the Bank that are not considered large and 13 Table of Contents highly complex banking organizations, assessments are now based on examination ratings and financial ratios. The total base assessment rates, effective as of January 1, 2023, currently range from 2.5 basis points to 32 basis points. At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. For this purpose, the reserve ratio is the DIF balance divided by estimated insured deposits. In response to the global financial crisis, the Dodd-Frank Act increased the minimum reserve ratio from 1.15% to 1.35% of the estimated amount of total insured deposits. In its October 2024 semiannual update, the FDIC stated that the reserve ratio likely will reach the statutory minimum by the September 30, 2028 deadline; and no adjustments to the base assessment rates is currently projected. In addition, because the total cost of the failures of Silicon Valley Bank and Signature Bank to the DIF was approximately $24.1 billion, the FDIC adopted a special assessment for banking organizations with assets of $5 billion or more, at an annual rate of 13.4 basis points beginning with the first quarterly assessment period of 2024, and an invoice payment date of June 28, 2024. The FDIC will continue to collect special assessments for an anticipated total of eight quarterly assessment periods. The base for the special assessment is equal to an insured depository institution’s estimated uninsured deposits for the December 31, 2022 reporting period, adjusted to exclude the first $5 billion in estimated uninsured deposits. Although the Bank was technically subject to the FDIC special assessment as part of a banking organization with assets of $5 billion or more, the Bank does not have to pay this assessment. Supervisory Assessments . All Illinois-chartered banks are required to pay supervisory assessments to the DFPR to fund the operations of that agency. The amount of the assessment is calculated on the basis of the Bank’s total assets. During the year ended December 31, 2024, the Bank paid supervisory assessments to the DFPR totaling approximately $0.5 million . Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “The Role of Capital” above. Liquidity Requirements. Liquidity is a measure of the ability and ease with which bank assets may be converted to cash to meet financial obligations, such as deposits or other funding sources. Banks are required to implement liquidity risk management frameworks that ensure they maintain sufficient liquidity, including a cushion of unencumbered, high quality liquid assets, to withstand a range of stress events. The level and speed of deposit outflows contributing to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first half of 2023 was unprecedented and contributed to acute liquidity and funding strain. These events have further underscored the importance of liquidity risk management and contingency funding planning by insured depository institutions like the Bank, as highlighted in a 2023 addendum to existing interagency guidance on funding and liquidity risk management. The primary roles of liquidity risk management are to: (i) prospectively assess the need for funds to meet financial obligations; and (ii) ensure the availability of cash or collateral to fulfill those needs at the appropriate time by coordinating the various sources of funds available to the institution under normal and stressed conditions. Because the global financial crisis was in part a liquidity crisis, the Basel III Rule includes a liquidity framework that requires the largest FDIC-insured institutions to measure their liquidity against specific liquidity tests. One test, referred to as the liquidity coverage ratio, or LCR, is designed to ensure that the banking organization has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario. The other test, known as the net stable funding ratio, or NSFR, is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon. These tests provide an incentive for banks and bank holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source and rely on stable funding like core deposits (in lieu of brokered deposits). In addition to liquidity guidelines already in place, the federal banking agencies implemented the Basel III LCR in September 2014, which requires large financial firms to hold levels of liquid assets sufficient to protect against constraints on their funding during times of financial turmoil, and in 2016 proposed implementation of the NSFR. While these rules do not, apply to the Bank, it continues to review its liquidity risk management policies in light of developments. For instance, in July 2024, the FDIC released a request for information on deposits, soliciting information on whether and to what extent certain types of deposits may behave differently from each other (particularly during periods of economic or financial stress), the results of which may impact liquidity monitoring and risk management requirements going forward. Dividend Payments. The primary source of funds for the Company is dividends from the Bank. Under Illinois banking law, Illinois-chartered banks generally may pay dividends only out of undivided profits. The DFPR may restrict the declaration 14 Table of Contents or payment of a dividend by an Illinois-chartered bank, such as the Bank. The Federal Reserve Act also imposes limitations on the amount of dividends paid by state member banks, such as the Bank. Without Federal Reserve approval, a state member bank may not pay dividends in any calendar year that, in the aggregate, exceed that bank’s calendar year-to-date net income plus the bank’s retained income for the two preceding calendar years. The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2024. Notwithstanding the availability of funds for dividends, however, the Federal Reserve, the FDIC, and the DFPR may prohibit the payment of dividends by the Bank any of them determine such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Rule, institutions that want to pay unrestricted dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “The Role of Capital” above. State Bank Investments, Activities and Acquisitions. The Bank is permitted to make investments and engage in activities directly or through subsidiaries as authorized by Illinois law. However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF. These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank. The Bank may be required to seek approval from the DFPR and the Federal Reserve (or in some cases, the FDIC) before engaging in certain acquisitions or mergers under applicable state and federal law. In 2024, each of the OCC and the FDIC separately released updated policy statements—and in the case of the OCC, a final rule—regarding how each banking agency reviews applications submitted pursuant to the Bank Merger Act based on statutory factors. In March 2025, the FDIC issued a notice of proposed rulemaking to repeal its 2024 policy statement and reinstate its prior policy statement on bank mergers, while it considers wider changes to its bank merger review practices. Although the Federal Reserve, the Bank’s primary federal regulator, did not release any updated policy statement or rules regarding its review process under the Bank Merger Act in recent years, management of the Company has considered the impact that the OCC’s and FDIC’s rules and guidance may have on the review of any relevant transactions that the Bank undertakes. Insider Transactions. The Bank is subject to certain restrictions imposed by federal law on “covered transactions” between the Bank and its “affiliates.” The Company is an affiliate of the Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by the Bank. The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained. Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal shareholders of the Company and to “related interests” of such directors, officers and principal shareholders. In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or the Bank, or a principal shareholder of the Company, may obtain credit from banks with which the Bank maintains a correspondent relationship. Safety and Soundness Standards/Risk Management. The federal banking agencies have adopted operational and managerial standards to promote the safety and soundness of FDIC-insured institutions. The standards apply to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. Although regulatory standards do not have the force of law, if an institution operates in an unsafe and unsound manner, the FDIC-insured institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the banking agency is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the agency’s order is cured, the agency may restrict the FDIC-insured institution’s rate of growth, require 15 Table of Contents the FDIC-insured institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the agency deems appropriate under the circumstances. Noncompliance with safety and soundness may also constitute grounds for other enforcement action by the federal banking agencies, including cease and desist orders and civil money penalty assessments. During the past decade, the banking agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions they supervise. Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets. The banking agencies have identified a spectrum of risks facing a banking organization including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk. The key risk themes identified for 2024 are: (i) elevated operational risk as banks adapt to an evolving technology environment and persistent cybersecurity risks, (ii) the need for banks to prepare for a cyclical change in credit risk while credit performance is strong, (iii) elevated interest rate risk due to lower rates continuing to compress net interest margins, and (iv) strategic risks from non-depository financial institutions, use of innovative and evolving technology, and progressive data analysis capabilities. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls. The federal banking agencies also have released specific risk management guidance on certain topics, including third-party relationships, in response to the proliferation of relationships between banking organizations and financial technology companies (although the guidance applies more broadly). Privacy and Cybersecurity . The Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public personal and confidential information of their customers. These laws require the Bank to periodically disclose its privacy policies and practices relating to sharing such information and permit consumers to opt out of their ability to share information with unaffiliated third parties under certain circumstances. They also impact the Bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. In addition, the Bank is required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures, for the protection of personal and confidential information, are in effect across all businesses and geographic locations. The Bank and the Company also are subject to a number of federal and state laws and regulations requiring notifications and disclosures regarding certain cybersecurity incidents. The Bank must also consider and address cybersecurity considerations as part of its risk management processes. Branching Authority. Illinois banks, such as the Bank, have the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. The establishment of new interstate branches has historically been permitted only in those states the laws of which expressly authorize such expansion. The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments. Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. Federal Home Loan Bank System. The Bank is a member of a FHLB, which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances. All advances from the FHLB are required to be fully collateralized as determined by the FHLB. Community Reinvestment Act Requirements. The CRA requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods. The Federal Reserve regularly assess the Bank’s record of meeting the credit needs of its communities. The Bank's CRA ratings derived from these examinations can have significant impacts on the activities in which the Bank and the Company may engage. For example, a low CRA rating may impact the review of applications for acquisitions by the Bank or the Company's financial holding company status. On October 24, 2023, the federal banking agencies issued a final rule to strengthen and modernize the CRA regulations (the “CRA Rule”). Elements of this rule were supposed to become effective on April 1, 2024 (while other elements had much later effective dates). However, the effective date of the CRA Rule was paused because of an order issued as part of ongoing litigation claiming that the federal banking agencies exceeded their statutory authority in promulgating the CRA Rule. 16 Table of Contents Despite the lawsuit, management of the Bank is continuing to assess the impact of the CRA Rule on its CRA lending and investment activities in its respective markets. The CRA Rule is designed to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. More specifically, the federal banking agencies described the goals of the CRA Rule as follows: (i) to expand access to credit, investment, and basic banking services in low and moderate income communities; (ii) to adapt to changes in the banking industry, including mobile and internet banking by modernizing assessment areas while maintaining a focus on branch based areas; (iii) to provide greater clarity, consistency, and transparency in the application of the regulations through the use of standardized metrics as part of CRA evaluation and clarifying eligible CRA activities focused on low and moderate income communities and underserved rural communities; (iv) to tailor CRA rules and data collection to bank size and business model; and (v) to maintain a unified approach among the regulators. In 2022, the Bank, like all Illinois-chartered banks, became subject to the state level CRA standards, following passage of the Illinois CRA. This means that, in addition to the federal CRA review, the Bank will be reviewed by the DFPR to assess the Bank’s record of meeting the credit needs of its communities. Like the potential impact under the federal CRA, applications for additional acquisitions or activities would be affected by the evaluation of the Bank’s effectiveness in meeting its Illinois CRA requirements. Anti-Money Laundering/Sanctions. The Bank Secrecy Act (BSA) is the common name for a series of laws and regulations enacted in the United States to combat money laundering and the financing of terrorism. They are designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and haves significant implications for FDIC-insured institutions, brokers, dealers and other businesses involved in the transfer of money. The so-called Anti-Money Laundering/ Countering the Financing of Terrorism (AML/CFT) regime under the BSA provides a foundation to promote financial transparency and deter and detect those who seek to misuse the U.S. financial system to launder criminal proceeds, financed terrorist acts or move funds for other illicit purposes The laws require financial services companies to have policies and procedures with respect to measures designed to address: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities. The Bank must also comply with stringent economic and trade sanctions regimes administered and enforced by the Office of Foreign Assets Control. Concentrations in CRE. Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate is one example of regulatory concern, which has been subject to additional scrutiny by federal banking agencies as well as the SEC (for publicly-traded banking organizations) in recent years. Interagency CRE Guidance provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny: (i) commercial real estate loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital. The CRE Guidance does not limit banks’ levels of CRE lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their CRE concentrations. On December 18, 2015, and again in recent years, the federal banking agencies issued statements to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards. The federal banking agencies also have reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk. As of December 31, 2024, the Bank did not exceed these guidelines. Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws. The CFPB has broad rule making authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. FDIC-insured institutions with $10 billion or less in assets, like the Bank, continue to be examined by their applicable primary federal banking regulators. Because abuses in connection with residential mortgages were a significant factor contributing to the global financial crisis, many rules issued by the CFPB, as required by the Dodd-Frank Act, addressed mortgage and mortgage-related products, 17 Table of Contents their underwriting, origination, servicing and sales. The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices. In addition to numerous disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The current acting leader of the CFPB has indicated that the CFPB will adopt a deregulatory approach, and the CFPB has recently announced that it plans to roll back certain rulemakings adopted over the last several years. The U.S. Congress is also pursuing Congressional Review Act resolutions or otherwise taking steps to overturn certain recent CFPB rulemaking. While some of the CPFB’s recent rulemakings did not impact the Bank directly, the CFPB’s retreat from the aggressive approach to regulation (and supervision, where applicable) that it has previously adopted may benefit the operations of the Bank. Regulation of Affiliates The Company operates one affiliate that is regulated by functional financial regulatory agencies. Midland Wealth Advisors, LLC is a registered investment advisor. The SEC has supervisory, examination and enforcement authority over its operations. The SEC’s focus is primarily for the protection of investors under the federal securities laws. As a subsidiary of the Company, Midland Wealth Advisors, LLC is also subject to the supervision of the Federal Reserve on a consolidated basis. ITEM 1A – RISK FACTORS The material risks that management believes affect the Company are described below. You should carefully consider the risks, together with all of the information included herein. The risks described below are not the only risks the Company faces. Additional risks not presently known or that the Company believes are immaterial also may have a material adverse effect on the Company’s results of operations and financial condition. Macroeconomic and Credit Risks A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects. Our business and operations are sensitive to business and economic conditions in the United States generally and the state of Illinois and the St. Louis metropolitan area in particular. If the national, regional and local economies experience worsening economic conditions, including as a result of recent changes in U.S. trade policy and U.S. and global tariff rates, our growth and profitability could be harmed. Weak economic conditions are characterized by, among other indicators, elevated levels of unemployment, fluctuations in debt and equity capital markets, increased delinquencies on mortgage, commercial and consumer loans, residential and commercial real estate price declines, and lower home sales and commercial activity. All of these factors are generally detrimental to our business. Our business is significantly affected by monetary and other regulatory policies of the U.S. federal government, its agencies and government-sponsored entities. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and growth prospects. If we do not effectively manage our credit risk, we may experience increased levels of nonperforming loans, charge-offs and delinquencies, which could require increases in our provision for credit losses on loans. There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and cash flows available to service debt, and risks resulting from changes in economic and market conditions. We cannot guarantee that our credit underwriting and monitoring procedures will reduce these credit risks, and they cannot be expected to completely eliminate our credit risks. If the overall economic climate in the United States generally, or our market areas specifically, declines, our borrowers may experience difficulties in repaying their loans, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for credit losses on loans, which would cause our net income, return on equity and capital to decrease. We maintain our allowance for credit losses on loans at a level that management considers adequate to absorb expected credit losses on loans based on an analysis of our portfolio and market environment. As of December 31, 2024, our allowance for credit losses on loans as a percentage of total loans was 2.15% and as a percentage of total nonperforming loans was 73.69%. Although management believed, as of such date, that the allowance for credit losses on loans was adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses on loans in the future to further supplement the allowance for credit losses on loans, either due to management’s decision to do so or because our banking regulators require us to do so. Our bank regulatory agencies will periodica 18 Table of Contents lly review our allowance for credit losses on loans and the value attributed to nonaccrual loans or to real estate acquired through foreclosure and may require us to adjust our determination of the value for these items. These adjustments may adversely affect our business, financial condition and results of operations. A significant portion of our loan portfolio is secured by real estate, the value and liquidity of which can be negatively affected by economic conditions and environmental issues. At December 31, 2024, approximately 63.3% of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral. As a result, adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio. The market value of real estate can fluctuate significantly in a short period of time as a result of interest rate levels and by market conditions in the area in which the real estate is located. Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses, which could result in losses that would adversely affect profitability. Such declines and losses could have a material adverse impact on our business, results of operations and growth prospects. In addition, if hazardous or toxic substances are found on properties pledged as collateral, the value of the real estate could be impaired. If we foreclose on and take title to such properties, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans. Commercial loans represented 82.3% of our total loan portfolio at December 31, 2024. Commercial loans are often larger and involve greater risks than other types of lending. Because payments on such loans often depend on the successful operation or development of the property or business involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate market or the general business climate and economy. Accordingly, a downturn in the real estate market and a challenging business and economic environment may increase our risk related to commercial loans, particularly commercial real estate loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from their employment and other income and which are secured by real property, the value of which tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of the commercial venture. Our operating commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans. Most often, this collateral consists of accounts receivable, inventory and equipment. Inventory and equipment may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired. Due to the larger average size of each commercial loan as compared with other loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on even a small number of commercial loans could have a material adverse impact on our financial condition and results of operations. The small to midsized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower’s ability to repay a loan, and such impairment could adversely affect our results of operations and financial condition. We target our business development and marketing strategy primarily to serve the banking and financial services needs of small to midsized businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan. In addition, the success of a small or midsized business often depends on the management talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loan. If general economic conditions negatively impact the markets in which we operate and small to midsized businesses are adversely affected or our borrowers are otherwise affected by adverse business developments, our business, financial condition and results of operations may be adversely affected. In addition, we have provided an aggregate of $230.2 million of financing to the two third-party buyers that purchased participation interests in consumer loans that were originated through GreenSky's consumer loan origination platform. The ability of each of these buyers to repay the obligations to us will depend significantly on the performance of the consumer loans. 19 Table of Contents Real estate construction loans are based upon estimates of costs and values associated with the complete project. These estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects. Real estate construction loans comprised approximately 5.8% of our total loan portfolio as of December 31, 2024, and such lending involves additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets. Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated or market values or rental rates decline, we may have inadequate security for the repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to a default, we may not be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it. Real estate market volatility and future changes in our disposition strategies could result in net proceeds that differ significantly from our other real estate owned fair value appraisals. As of December 31, 2024, we had $4.9 million of other real estate owned. Our other real estate owned portfolio consists of properties that we obtained through foreclosure or through an in-substance foreclosure in satisfaction of loans. Properties in our other real estate owned portfolio are recorded at the lower of the recorded investment in the loans for which the properties previously served as collateral or the “fair value,” which represents the estimated sales price of the properties on the date acquired less estimated selling costs. In response to market conditions and other economic factors, we may utilize alternative sale strategies other than orderly disposition, such as immediate liquidation sales. In this event, as a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from such sales transactions could differ significantly from appraisals, comparable sales and other estimates used to determine the fair value of our other real estate owned properties, potentially resulting in additional losses. Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition, and could result in further losses in the future. Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or other real estate owned, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs and adversely affecting our efficiency ratio. When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming loans and other real estate owned also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks. The resolution of nonperforming assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities. If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity. Operational, Strategic and Reputational Risks The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition, results of operations and growth prospects. As a bank, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us or our clients, denial or degradation of service attacks and malware or other cyber-attacks. See Item 1C - "Cybersecurity" appearing elsewhere in this Annual Report on Form 10-K for additional information. 20 Table of Contents In recent periods, there continues to be a rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. Moreover, in recent periods, several large corporations, including financial institutions and retail companies, have suffered major data breaches, in some cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their customers and employees and subjecting them to potential fraudulent activity. Some of our clients may have been affected by these breaches, which could increase their risks of identity theft and other fraudulent activity that could involve their accounts with us. Information pertaining to us and our clients is maintained, and transactions are executed, on networks and systems maintained by us and certain third party partners, such as our online banking, mobile banking or accounting systems. The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect us and our clients against fraud and security breaches and to maintain the confidence of our clients. Breaches of information security also may occur through intentional or unintentional acts by those having access to our systems or the confidential information of our clients, including employees. In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our clients and underlying transactions, as well as the technology used by our clients to access our systems. Our third party partners’ inability to anticipate, or failure to adequately mitigate, breaches of security could result in a number of negative events, including losses to us or our clients, loss of business or clients, damage to our reputation, the incurrence of additional expenses, disruption to our business, additional regulatory scrutiny or penalties or our exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. We depend on information technology and telecommunications systems of third parties, and any systems failures, interruptions or data breaches involving these systems could adversely affect our operations and financial condition. Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems, third party servicers, accounting systems, mobile and online banking platforms and financial intermediaries. We outsource to third parties many of our major systems, such as data processing and mobile and online banking. The failure of these systems, or the termination of a third party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third party systems, we could experience service denials if demand for such services exceeds capacity or such third party systems fail or experience interruptions. A system failure or service denial could result in a deterioration of our ability to process loans, gather deposits or provide customer service, compromise our ability to operate effectively, result in potential noncompliance with applicable laws or regulations, damage our reputation, result in a loss of customer business or subject us to regulatory action and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition, failures of third parties to comply with applicable laws and regulations, or fraud or misconduct on the part of employees of any of these third parties, could disrupt our operations or adversely affect our reputation. It may be difficult for us to replace some of our third party vendors, particularly vendors providing our core banking and information services, in a timely manner if they are unwilling or unable to provide us with these services in the future for any reason, and even if we are able to replace them, it may be at higher cost or result in the loss of customers. Any such events could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Our operations rely heavily on the secure processing, storage and transmission of information and the monitoring of a large number of transactions on a minute-by-minute basis, and even a short interruption in service could have significant consequences. We also interact with and rely on retailers, for whom we process transactions, as well as financial counterparties and regulators. Each of these third parties may be targets of the same types of fraudulent activity, computer break-ins and other cyber security breaches described above, and the cyber security measures that they maintain to mitigate the risk of such activity may be different than our own and may be inadequate. As a result of financial entities and technology systems becoming more interdependent and complex, a cyber incident, information breach or loss, or technology failure that compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including ourselves. As a result of the foregoing, our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact. 21 Table of Contents We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors. Employee errors and employee and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence. We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. However, it is possible that these protections may not be sufficient to eliminate the significant and growing risks in this area, including risks relating to the use of artificial intelligence in fraud schemes. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations. Any acquisitions we may engage in could expose us to financial, execution and operational risks that could have a material adverse effect on our business, financial position, results of operations and growth prospects. Any acquisition transactions we engage in could require us to use a substantial amount of cash, or other liquid assets and/or incur debt. There are risks associated with acquisitions, including the following: • We may incur time and expense associated with evaluating potential acquisitions and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our existing business. • We could be exposed to potential asset and credit quality risks and unknown or contingent liabilities of the banks or businesses we acquire. If these issues or liabilities were to exceed our estimates, our earnings, capital and financial condition may be materially and adversely affected. • The acquisition of other entities generally requires integration of systems, procedures and personnel of the acquired entity. This integration process is complicated and time consuming and can also be disruptive to the customers and employees of the acquired business and our business. If the integration process is not conducted successfully, we may not realize the anticipated economic benefits of acquisitions within the expected time frame, or ever, and we may lose customers or employees of the acquired business. We may also experience greater than anticipated customer losses even if the integration process is successful. • To finance an acquisition, we may borrow funds or pursue other forms of financing, such as issuing voting and/or non-voting common stock or preferred stock, which may have high dividend rights or may be highly dilutive to holders of our common stock, thereby increasing our leverage and diminishing our liquidity. • We may be unsuccessful in realizing the anticipated benefits from acquisitions. For example, we may not be successful in realizing anticipated cost savings. We also may not be successful in preventing disruptions in service to existing customer relationships of the acquired institution, which could lead to a loss in revenues. In addition to the foregoing, we may face additional risks in acquisitions to the extent we acquire new lines of business or new products, or enter new geographic areas, in which we have little or no current experience, especially if we lose key employees of the acquired operations. If we choose to engage in an acquisition transaction, we cannot assure you that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions. Our inability to overcome risks associated with acquisitions could have an adverse effect on our ability to grow our business and profitability. We may not be able to continue growing our business, particularly if we cannot increase loans through organic loan growth. While we intend to continue to grow our business through organic loan growth, certain of our market areas are comprised of mature, rural communities with limited population growth, which presents a challenging market for loan origination. Our growth will also depend upon our ability to attract deposits and to identify favorable loan and investment opportunities and on whether we can continue to fund growth while maintaining cost controls and asset quality, as well on other factors beyond our control, such as national, regional and local economic conditions and interest rate trends. We are highly dependent on our management team, and the loss of our senior executive officers or other key employees could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects. Our success is dependent, to a large degree, upon the continued service and skills of our existing executive management team, particularly Mr. Jeffrey G. Ludwig, our President and Chief Executive Officer, and Mr. Eric T. Lemke, our Chief Financial Officer. 22 Table of Contents Our business and growth strategies are built primarily upon our ability to retain employees with experience and business relationships within their respective market areas. The loss of Mr. Ludwig, Mr. Lemke or any of our other key personnel could have an adverse impact on our business and growth because of their skills, years of industry experience, knowledge of our market areas and the difficulty of finding qualified replacement personnel, particularly in light of the fact that we are not headquartered in a major metropolitan area. In addition, although we have non-competition agreements with each of our executive officers and with several others of our senior personnel, we do not have any such agreements with other employees who are important to our business, and in any event the enforceability of non-competition agreements varies across the states in which we do business. While our mortgage originators, loan officers and wealth management professionals are generally subject to non-solicitation provisions as part of their employment, our ability to enforce such agreements may not fully mitigate the injury to our business from the breach of such agreements, as such employees could leave us and immediately begin soliciting our customers. The departure of any of our personnel who are not subject to enforceable non-competition agreements could have a material adverse impact on our business, results of operations and growth prospects. We may be liable to purchasers of mortgage loans and mortgage servicing rights, including as a result of any breach of representations and warranties we make to the purchasers. When we sell or securitize mortgage loans in the ordinary course of business, we are required to make certain representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated. Under these agreements, we may be required to repurchase mortgage loans if we have breached any of these representations or warranties, in which case we may record a loss. In addition, if repurchase and indemnity demands increase on loans that we sell from our portfolios, our liquidity, results of operations and financial condition could be adversely affected. In addition, we have sold residential mortgage servicing rights to third parties pursuant to customary purchase agreements, under which we could be required to indemnify the purchasers for losses resulting from pre-closing servicing errors or breaches of our representations and warranties, which could affect our results of operations. Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our business and the value of our stock. We are a community bank, and our reputation is one of the most valuable components of our business. Similarly, each of our subsidiaries operate in niche markets where reputation is critically important. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results and the value of our stock may be materially adversely affected. We have a continuing need for technological change, and we may not have the resources to effectively implement new technology or we may experience operational challenges when implementing new technology. The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services, such as those using artificial intelligence. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow and expand our market area. We may experience operational challenges as we implement these new technology enhancements, or seek to implement them across all of our offices and business units, which could result in us not fully realizing the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner. Many of our larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage. Accordingly, a risk exists that we will not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers. We depend on the accuracy and completeness of information provided by customers and counterparties. In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information. In deciding whether to extend credit, we may rely upon our customers’ representations that their financial statements conform to GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We also may rely on customer representations and certifications, or other audit or accountants’ reports, 23 Table of Contents with respect to the business and financial condition of our clients. Our financial condition, results of operations, financial reporting and reputation could be negatively affected if we rely on materially misleading, false, inaccurate or fraudulent information. We face strong competition from financial services companies and other companies that offer banking, mortgage, leasing, and wealth management services, which could harm our business. Our operations consist of offering banking and mortgage services, and we also offer trust, wealth management and leasing services to generate noninterest income. Many of our competitors offer the same, or a wider variety of, banking and related financial services within our market areas. These competitors include national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including savings and loan institutions, finance companies, private credit funds, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In addition, a number of out-of-state financial intermediaries have opened production offices or otherwise solicit deposits in our market areas. Additionally, we face growing competition from so-called “online businesses” with few or no physical locations, including online banks, lenders and consumer and commercial lending platforms, and FinTech companies, as well as automated retirement and investment service providers. Increased competition in our markets may result in reduced loans, deposits and commissions and brokers’ fees, as well as reduced net interest margin and profitability. Ultimately, we may not be able to compete successfully against current and future competitors. If we are unable to attract and retain banking, mortgage, leasing and wealth management customers, we may be unable to continue to grow our business and our financial condition and results of operations may be adversely affected. Consumers and businesses are increasingly using non-banks to complete their financial transactions, which could adversely affect our business and results of operations. Technology and other changes are allowing consumers and businesses to complete financial transactions that historically have involved banks through alternative methods. For example, the wide acceptance of internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. Customers can now maintain funds in prepaid debit cards or digital currencies, and pay bills and transfer funds directly without the direct assistance of banks. The diminishing role of banks as financial intermediaries has resulted and could continue to result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the potential loss of lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations. The development of our BaaS platform may expose us to liability for compliance violations by BaaS partners or fall short of its targeted impact on our financial performance. During 2022, we invested in the development of a BaaS platform that will enable us to enter into partnerships with financial technology companies through which we will provide banking services to the customers of these companies. We believe that these partnerships will contribute to loan production, deposit gathering, and fee income generation in future years. We intend to be very selective in our approach to developing BaaS partnerships to ensure that any partners that are added meet our high standards for risk management. However, we are subject to compliance and regulatory risk if partners do not follow our servicing policies, lending laws, and regulations. Our bank regulators may hold us responsible for the activities of our BaaS partners with respect to the marketing or administration of their programs, which may result in increased compliance costs for us or potentially compliance violations as a result of BaaS partner activities. In addition, we may not find enough suitable partnerships for the BaaS platform to have a meaningful impact on our overall financial performance. Legal, Accounting and Compliance Risks We have identified material weaknesses in our internal control over financial reporting, which material weaknesses could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner. Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. As described elsewhere in this Annual Report on Form 10-K, our management identified material weaknesses in our internal control over the risk assessment process for identifying whether third-party loan origination and servicing contracts 24 Table of Contents present unique accounting considerations that should be further evaluated and the financial reporting related to our accounting and financial reporting of third party lending and servicing arrangements. See Item 9A — Controls and Procedures. As a result of these material weaknesses, our independent registered public accounting firm concluded that our internal control over financial reporting was not effective as of December 31, 2024 and December 31, 2023. In addition, we restated our financial statements for the years ended December 31, 2023 and 2022, and the interim quarterly periods in 2024 and 2023 Any failure to maintain adequate internal control over financial reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. We can give no assurance that our plans to remediate these material weaknesses will be successful or prevent any future material weaknesses, or that further restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, our controls and procedures may not be adequate to prevent or identify irregularities or errors, which could affect the fair presentation of our consolidated financial statements. We may incur impairment charges to the goodwill that we recorded in connection with prior business acquisitions, which would negatively impact our business, financial condition and results of operations. Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in connection with the purchase. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying value of the asset might be impaired. We determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment charge is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which they become known. For example, during the first quarter of 2025, Management determined that a triggering event had occurred at its Banking reporting unit as a result of further deteriorated credit quality coupled with the trends in the stock price. The Company performed a quantitative impairment test on its Banking reporting unit as of March 31, 2025, and engaged a third-party service provider to assist Management with the determination of the fair value. The resulting calculation indicated that the carrying amount exceeded the fair value of the Company's Banking reporting unit. As a result of the assessment, the Company expects to recognize goodwill impairment expense between $135.0 million and $154.0 million in the first quarter of 2025. This non-cash impairment expense did not impact our regulatory capital ratios, tangible common equity ratio nor our liquidity position, and will not result in future cash expenditures. There can be no assurance that our future evaluations of our existing goodwill or goodwill we may acquire in the future will not result in additional findings of impairment and related charges, which could adversely affect our business, financial condition and results of operations. Our risk management framework may not be effective in mitigating risks and/or losses to us. Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. Our risk management framework may not be effective under all circumstances or may not adequately mitigate risk or loss to us. If our framework is not effective, we could suffer unexpected losses and our business, financial condition, results of operations or growth prospects could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences. We are and may become involved from time to time in suits, legal proceedings, information-gathering requests, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences. Many aspects of our business and operations involve the risk of legal liability, and in some cases we or our subsidiaries have been named or threatened to be named as defendants in various lawsuits arising from our business activities. For example, some of the services we provide, such as wealth management services, require us to act as fiduciaries for our customers and others. From time to time, third parties make claims and take legal action against us pertaining to the performance of our fiduciary responsibilities. In addition, companies in our industry are frequently the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings. We believe we face an elevated risk of the foregoing proceedings in connection with the matters leading us to restate our financial statements and in connection with LendingPoint's 2023 system conversion and any potential effects on certain loans, as discussed in this Annual Report on Form 10-K. The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions on the way in which we conduct our business, or 25 Table of Contents reputational harm. We are not able to estimate the likelihood of such developments or the likely magnitude or significance of any liability or other outcomes of any such proceedings. Although we establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, we do not have accruals for all legal proceedings where we face a risk of loss. In addition, due to the inherent subjectivity of the assessments and unpredictability of the outcome of legal proceedings, amounts accrued may not represent the ultimate loss to us from the legal proceedings in question. Accordingly, our ultimate losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies, which could adversely affect our financial condition and results of operations. Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations. Compliance with applicable bank regulations by us and our third party vendors has resulted, and may continue to result, in additional operating and compliance costs and restrictions that could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition, new proposals for legislation may continue to be introduced in the U.S. Congress that could further substantially change regulation of the bank and non-bank financial services industries and impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices. Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. Legislation and regulations may be impacted by the political ideologies of the executive branches of the U.S. government as well as the heads of regulatory and administrative agencies, which may change as a result of elections. Certain aspects of current or proposed regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations. We are subject to stringent capital requirements, and failure to comply with these requirements may impact dividend payments and limit our activities. As a result of the implementation of the Basel III Rule, we are required to meet minimum capital requirements. The failure to meet applicable regulatory capital requirements of the Basel III Rule could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to make acquisitions, and our business, results of operations and financial conditions, generally. In addition, banking institutions that do not maintain a capital conservation buffer, comprised of Common Equity Tier 1 Capital, of 2.5% above the regulatory minimum capital requirements face constraints on the payment of dividends, stock repurchases and discretionary bonus payments to executive officers based on the amount of the shortfall, unless prior regulatory approval is obtained. Accordingly, if the Bank or the Company fails to maintain the applicable minimum capital ratios and the capital conservation buffer, distributions by the Bank to the Company, or dividends or stock repurchases by the Company, may be prohibited or limited. Federal and state regulators periodically examine our business, and we may be required to remediate adverse examination findings. The Federal Reserve, the FDIC and the DFPR periodically examine our business, including our compliance with laws and regulations. If, as a result of an examination, a banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship. Any regulatory action against us could have an adverse effect on our business, financial condition and results of operations. 26 Table of Contents We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. The Bank Secrecy Act, the USA PATRIOT Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and to file reports such as suspicious activity reports and currency transaction reports. We are required to comply with these and other anti-money laundering requirements. The federal banking agencies and Financial Crimes Enforcement Network are authorized to impose significant civil money penalties for violations of those requirements and have engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. If our policies, procedures and systems are deemed deficient, including those of our third party vendors, we could be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and growth prospects. We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions. The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations prohibit discriminatory lending practices by financial institutions. The U.S. Department of Justice, federal banking agencies, and other federal agencies are responsible for enforcing these laws and regulations. A challenge to an institution’s compliance with fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations and growth prospects. The Federal Reserve may require us to commit capital resources to support the Bank. As a matter of policy, the Federal Reserve expects a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. The Dodd-Frank Act codified the Federal Reserve’s policy on serving as a source of financial strength. Under the “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may be required to borrow the funds or raise capital. Any loans by a holding company to its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institution’s general unsecured creditors, including the holders of its note obligations. Thus, any borrowing that must be done by the Company to make a required capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations. The financial services industry, as well as the broader economy, may be subject to new legislation, regulation, and government policy. At this time, it is difficult to predict the legislative and regulatory changes that will result from having a new President of the United States. The new administration and Congress may cause broad economic changes due to changes in governing ideology and governing style, included as a result of implementation of proposed policies regarding tariffs, mass deportations and tax regulations. New appointments to the Board of Governors of the Federal Reserve could affect monetary policy and interest rates, and changes in fiscal policy could affect broader patterns of trade and economic growth. Future legislation, regulation, and government policy could affect the banking industry as a whole, including our business and results of operations, in ways that are difficult to predict. In addition, our results of operations also could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies. 27 Table of Contents Market and Interest Rate Risks Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations. In addition to being affected by general economic conditions, our earnings, capital ratios and growth are affected by the policies of the Federal Reserve. The Federal Reserve reduced the federal funds rate several times in 2024 based upon improving economic conditions. These recent reductions have resulted in decreases in asset yields and funding costs. Future rate reductions of the Federal Reserve could continue to have positive effects on our business, by increasing loan demand, decreasing our costs of deposits and other sources of funding, improving the value of our securities portfolio, and increasing the earnings of our wealth management business. Lower interest rates can also positively affect our customers’ businesses and financial condition, and the value of collateral securing loans in our portfolio. Fluctuations in interest rates may reduce net interest income and otherwise negatively impact our financial condition and results of operations. Shifts in short-term interest rates may reduce net interest income, which is the principal component of our earnings. Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us on our interest-bearing liabilities. When interest rates rise, the rate of interest we pay on our liabilities, such as deposits, generally rises more quickly than the rate of interest that we receive on our interest-bearing assets, such as loans, which may cause our profits to decrease. The impact on earnings is more adverse when the slope of the yield curve flattens, that is, when short-term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates. Interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default. At the same time, the marketability of the underlying property may be adversely affected by any reduced demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their mortgages and other indebtedness at lower rates. Changes in interest rates also can affect the value of loans, securities and other assets. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans, or that adversely affects the value of collateral securing those loans, may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. If short-term interest rates remain at low levels for a prolonged period, and assuming longer term interest rates fall, we could experience net interest margin compression as our interest earning assets would continue to reprice downward while our interest-bearing liability rates could fail to decline in tandem. This would have a material adverse effect on our net interest income and our results of operations. We could recognize losses on securities held in our securities portfolio, particularly if interest rates continue to increase or economic and market conditions deteriorate. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. For example, fixed-rate securities acquired by us are generally subject to decreases in market value when interest rates rise. Additional factors include, but are not limited to, rating agency downgrades of the securities or our own analysis of the value of the security, defaults by the issuer or individual mortgagors with respect to the underlying securities, and continued instability in the credit markets. We may be required to record additional credit reserve charges if our investment securities suffer a decline in fair value that has resulted from credit losses or other factors. If we determine that a significant reserve is needed, we would be required to charge against earnings the credit-related portion, which could have a material adverse effect on our results of operations in the periods in which the write-offs occur. In addition, we may determine to sell securities in our available-for-sale investment securities portfolio, and any such sale could cause us to realize currently unrealized losses that resulted from the increases in the prevailing interest rates. Our mortgage banking revenue has been and could continue to be adversely impacted by an elevated interest rate environment. Mortgage production, especially refinancing activity, is adversely affected by high or rising interest rate environments. Though the Federal Reserve reduced the federal funds rate several times in 2024, should interest rates remain elevated, it could adversely affect our mortgage production levels. Because we sell a substantial portion of the mortgage loans we originate, the 28 Table of Contents revenue and profitability of our mortgage banking business also depends in large part on our ability to aggregate a high volume of loans and sell them in the secondary market at a gain. Thus, in addition to our dependence on the interest rate environment, we are dependent upon (i) the existence of an active secondary market and (ii) our ability to profitably sell loans or securities into that market. To the extent we are not able to achieve a high level of mortgage production, our revenue and profitability will depend upon our ability to reduce our costs commensurate with the reduction of revenue from our mortgage operations. Liquidity and Funding Risks Liquidity risks could affect operations and jeopardize our business, financial condition, and results of operations. Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and/or investment securities and from other sources could have a substantial negative effect on our liquidity. Our most important source of funds consists of our customer deposits, including escrow deposits held in connection with our commercial mortgage servicing business. Such deposit balances can decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff, or, in connection with our commercial mortgage servicing business, third parties for whom we provide servicing choose to terminate that relationship with us. If customers move money out of bank deposits and into other investments, we could lose a relatively low cost source of funds, which would require us to seek wholesale funding alternatives in order to continue to grow, thereby increasing our funding costs and reducing our net interest income and net income. Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry. Any decline in available funding could adversely impact our ability to continue to implement our strategic plan, including originate loans, invest in securities, meet our expenses, pay dividends to our shareholders or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations. We may need to raise additional capital in the future, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected. We face significant capital and other regulatory requirements as a financial institution. The Company, on a consolidated basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity. Importantly, regulatory capital requirements could increase from current levels, which could require us to raise additional capital or contract our operations. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. In addition, as a result of the delayed filing of our Annual Report on Form 10-K for the year ended December 31, 2024, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until we have timely filed all periodic reports required under the Exchange Act for at least 12 calendar months, which could negatively affect our ability to raise any additional capital in a timely and efficient manner. We cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to maintain capital to meet regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected. We may be adversely affected by the soundness of other financial institutions. Our ability to engage in routine funding transactions and the perceived strength of our Bank could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and deposit volatility, and could lead to losses or defaults by us or by other institutions. These issues could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Additionally, if our competitors were extending credit on terms we found to pose excessive risks, or at interest rates which we believed did not warrant the credit exposure, we may not be able to maintain our business volume and could experience deteriorating financial performance. 29 Table of Contents ITEM 1B – UNRESOLVED STAFF COMMENTS None. ITEM 1C – CYBERSECURITY We rely extensively on various information systems and other electronic resources to operate our business. In addition, nearly all of our customers, service providers and other business partners on whom we depend, including the providers of our online banking, mobile banking and accounting systems, use these systems and their own electronic information systems. Any of these systems can be compromised, including through intentional acts or carelessness by employees, customers and other individuals who are authorized to use them, and by criminals, who often use sophisticated and constantly evolving set of software, tools and strategies to do so. The nature of our business, as a financial services provider, and our relative size, make us and our business partners high-value targets for these bad actors to pursue, and any intrusion into our systems could result in material financial losses and operational problems. See “Operational, Strategic and Reputational Risks.” Accordingly, we have developed an informational security program and devoted resources for assessing, identifying and managing risks associated with cybersecurity threats, including: • established a dedicated internal cybersecurity team that is responsible for conducting regular assessments of our information systems, existing controls, vulnerabilities and potential improvements; • implemented continuous monitoring tools and a third-party Security Operations Center that can detect and respond to cybersecurity threats in real-time; • perform ongoing due diligence with respect to our third-party service providers, including their cybersecurity practices, and requiring contractual commitments from our service providers to take certain measures to mitigate their cybersecurity risk; • retain third-party cybersecurity consultants who conduct periodic penetration testing, vulnerability assessments and other procedures to identify potential weaknesses in our systems and processes ; • conduct frequent cybersecurity training and testing for our workforce; • provide our board of directors with regular updates regarding threat levels, including analyses that demonstrate the overall cybersecurity posture and health of the organization; • engage in periodic assessments of our cyber resilience with the Cybersecurity and Infrastructure Security Agency (CISA); • conduct scheduled reviews of our Incident Response Plan to assess the responsiveness during a cybersecurity event or Ransomware attack; and • maintain third party vendor management program, which includes requirements for how our partners transmit, store and use Bank information. This information security program is a key part of our overall risk management system, which is administered by our Chief Risk Officer and Chief Information Security Officer. The program includes administrative, technical and physical safeguards to help ensure the security, integrity and confidentiality of customer records and information, and prohibit unauthorized access to our critical operating systems. These security and privacy policies and procedures are in effect across all of our businesses and geographic locations. From time-to-time, we have identified cybersecurity threats and cybersecurity incidents, including with respect to our commercial customers and vendors, that require us to make changes to our processes and implement additional safeguards. While none of these identified threats or incidents have materially affected us , it is possible that future threats and incidents could have a material adverse effect on our business strategy, results of operations and financial condition, even if the threat or incident is promptly identified and countermeasures are implemented. Such events could lead to direct financial loss or require the expenditure of significant amounts to obtain the release of critical data and/or restore our operating systems or those of our customers and/or vendors if the incident was the result of a security breach for which we are held legally responsible. Our management team is responsible for the day-to-day management of risks we face, including our Chief Information Security Officer. Our Chief Information Security Officer has 20 years of information technology and information security experience, and before joining our Company has held the positions of Chief Technology Officer and Director of IT and Information Security Officer at his prior places of employment. 30 Table of Contents In addition, our board of directors, as a whole and through its Risk Policy & Compliance Committee (the “Risk Committee”), is responsible for the oversight of risk management. In that role, our board of directors and Risk Committee, with support from the Company’s cybersecurity advisors, are responsible for ensuring that the risk management processes designed and implemented by management are adequate and functioning as designed. To carry out those duties, both our board of directors and the Risk Committee receive quarterly reports from our management team, including from our Chief Risk Officer and our Chief Information Security Officer regarding cybersecurity risks, and the Company’s efforts to prevent, detect, mitigate and remediate any cybersecurity incidents. ITEM 2 – PROPERTIES Our corporate headquarters office building is located at 1201 Network Centre Drive, Effingham, Illinois 62401. We own our corporate headquarters office building, which was built in 2011 and also houses our primary operations center. We have additional operations centers located in St. Louis, Missouri and Rockford, Illinois, supporting our banking and wealth management businesses. At December 31, 2024, the Bank operated a total of 53 full-service banking centers, including 42 located in Illinois and 11 located in the St. Louis metropolitan area. Of these facilities, 43 are owned, and 10 are leased from unaffiliated third parties. We believe that the leases to which we are subject are generally on terms consistent with prevailing market terms. None of the leases are with our directors, officers, beneficial owners of more than 5% of our voting securities or any affiliates of the foregoing. We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future. ITEM 3 – LEGAL PROCEEDINGS There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries is a party or of which any of our property is the subject. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business, we, like all banking organizations, are subject to various legal proceedings from time to time, including those referenced in "Note 21 - Commitments, Contingencies and Credit Risk " to our consolidated financial statements. ITEM 4 – MINE SAFETY DISCLOSURES Not applicable. P ART II ITEM 5 – MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Shareholders As of June 13, 2025, the Company had 1,051 common stock shareholders of record, and the closing price of the Company’s common stock, traded on the Nasdaq under the ticker symbol MSBI, was $16.62 per share. Stock Performance Graph The following graph compares the Company's five year cumulative shareholder returns with the Nasdaq Composite Index and the S&P U.S. Small Cap Banks Index. The graph assumes an investment of $100.00 in the Company's common stock and each index on December 31, 2019 and reinvestment of all quarterly dividends. Measurement points are the last trading day of the second quarter and fourth quarter of each subsequent year through December 31, 2024. There is no assurance that the Company's common stock performance will continue in the future with the same or similar results as shown in the graph. 31 Table of Contents 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 fourth 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) October 1 - 31, 2024 6,497 $ 25.19 — $ 19,537,960 November 1 - 30, 2024 22,207 27.51 — 19,537,960 December 1 - 31, 2024 — — — — Total 28,704 $ 26.99 — $ — (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 was authorized to repurchase up to $25.0 million of common stock through December 31, 2024. The stock repurchase program became effective on January 1, 2024. Stock repurchases under this program were authorized to 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 were dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market condition. This stock repurchase program expired on December 31, 2024. Unregistered Sales of Equity Securities None. ITEM 6 – [RESERVED] 32 Table of Contents ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto, included in Item 8 - "Financial Statements and Supplementary Data", and other financial data appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Certain risks, uncertainties and other factors, including but not limited to those set forth under “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995,” Item 1A – "Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected in the forward-looking statements. We assume no obligation to update any of these forward-looking statements. Readers of our Annual Report on Form 10-K should therefore consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on forward-looking statements. Overview Midland States Bancorp, Inc. is a diversified financial holding company headquartered in Effingham, Illinois. Its 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, and trust and investment management services and insurance and financial planning services. As of December 31, 2024, we had assets of $7.51 billion, deposits of $6.20 billion and shareholders’ equity of $710.8 million. Our strategic plan focuses on delivering a superior customer experience through a high-tech, high-touch approach, while remaining committed to core community banking and relationship-driven growth. We continue to enhance our regional franchise approach that serves our core customers with a consistent, high-performance culture rooted in our One Midland values and with a strong foundation in Enterprise Risk Management. Our principal lines of business include community banking and wealth management. Our community banking business primarily consists of commercial and retail lending and deposit taking. Our wealth management group provides a comprehensive suite of trust and wealth management products and services, and had $4.15 billion of assets under administration as of December 31, 2024. 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 leases 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; residential mortgage loan originations and sales; 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, provisions for credit losses, income tax expense, and other noninterest expenses. Actions Taken to Address Credit Deterioration in Fourth Quarter 2024 During the fourth quarter of 2024, the Company took several actions to address its credit quality issues. Our deteriorating credit quality issues were primarily within three sectors of our business: non-core consumer loans, Specialty Finance Group and Midland Equipment Financing. The Company decided to accelerate the reduction of our non-core consumer loan portfolio through sales. These loans were originated through our FinTech partners, LendingPoint and GreenSky. In December 2024, we sold our $87.1 million LendingPoint portfolio, recognizing net charge-offs of $17.3 million on the sale. We also committed to a plan to sell our GreenSky consumer loan portfolio and recognized net charge-offs of $35.0 million when these loans were transferred to held for sale. On April 9, 2025, we sold participation interests in $317.5 million of our GreenSky consumer loan portfolio, with the intent to retain the remaining portion of the portfolio. The Specialty Finance Group provides bridge loan financing for commercial real estate projects, primarily multi-family and healthcare. These projects can include construction and seek short term financing in anticipation of obtaining permanent secondary market financing. The loans are typically outside of the Company’s primary market areas. We completed a strategic review of this portfolio including obtaining updated appraisals on loans that had shown elevated credit risk in the third and fourth quarters. As a result of this review, five loans with balances of $57.8 million were moved from substandard to nonperforming with recognized charge-offs of $6.6 million. In addition, updated appraisals were obtained for five non-performing loans with a total balance of $55.8 million which resulted in charge-offs of $18.8 million recognized in the fourth 33 Table of Contents quarter of 2024. In addition, we recognized impairment expense on an OREO property related to a former assisted living loan of $3.6 million in the fourth quarter of 2024. The strategic review also included all criticized loans, construction loans and loans that failed our stress test in all portfolios. In addition, the Company tightened credit standards going forward and will not originate new construction loans in the Specialty Finance Group. We believe that our strategic actions around credit administration will better position the Company going forward. The equipment finance portfolio includes loans and leases originated to customers throughout the United States. During 2024, we experienced elevated charge-offs primarily within the trucking industry. Charge-offs in this portfolio were $15.3 million in the fourth quarter of 2024 as we evaluated equipment values for nonaccrual assets. Nonaccrual loans and leases in the finance portfolio decreased to $11.3 million from $13.7 million at December 31, 2023. Additionally, based on further deterioration in the industry, we evaluated salvage values of the leases and loans related to this industry, along with the carrying values of repossessed and off-lease equipment, and recognized impairment expense of $7.9 million. Additional Factors Affecting Comparability Each factor listed below affects the comparability of our results of operations and financial condition in 2024 and 2023, and may affect the comparability of financial information we report in future fiscal periods. Balance Sheet Repositioning. In 2023, the Company took advantage of certain market conditions to reposition out of lower yielding securities into other structures, which resulted in improved overall margin, liquidity and capital allocations. These transactions resulted in losses of $9.4 million. 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 2024, the Company redeemed $16.0 million of outstanding subordinated notes. The weighted average redemption price was 98.5% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest. The Company recorded net gains totaling $0.2 million on these redemptions. In 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. Results of Operations Restatement of Prior Period Results. The Company has restated its financial statements as of and for the year ended December 31, 2023 and for the year ended December 31, 2022, as presented in these audited financial statements as of and for the period ended December 31, 2024. The errors relate to the Company’s accounting for loans originated pursuant to third-party loan origination and servicing programs, which go back as far as 2012. See Note 25 - Restatement of Prior Period Financial Statements, for additional details. 34 Table of Contents Overview. The following table sets forth condensed income statement information of the Company for the years ended 2024, 2023, and 2022: Years Ended December 31, (dollars in thousands, except per share data) 2024 2023 (Restated) 2022 (Restated) Income Statement Data: Interest income $ 426,128 $ 417,100 $ 312,715 Interest expense 189,782 168,279 56,020 Net interest income 236,346 248,821 256,695 Provision for credit losses 120,332 82,560 76,764 Noninterest income 138,741 114,784 149,867 Noninterest expense 207,855 193,083 198,412 Income before income taxes 46,900 87,962 131,386 Income tax expense 8,856 26,807 31,149 Net income 38,044 61,155 100,237 Preferred dividends 8,913 8,913 3,169 Net income available to common shareholders $ 29,131 $ 52,242 $ 97,068 Per Share Data: Basic earnings per common share $ 1.32 $ 2.33 $ 4.29 Diluted earnings per common share $ 1.32 $ 2.33 $ 4.28 Performance Metrics: Return on average assets 0.49 % 0.77 % 1.33 % Return on average shareholders' equity 4.79 % 7.94 % 14.57 % During the year ended December 31, 2024, we generated net income of $38.0 million, or diluted earnings per common share of $1.32 , compared to net income of $61.2 million, or diluted earnings per common share of $2.33, in the year ended December 31, 2023. Earnings for the year ended December 31, 2024, compared to the year ended December 31, 2023, decreased primarily due to a $12.5 million decrease in net interest income, a $37.8 million increase in provision for credit losses and a $14.8 million increase in noninterest expense. These results were partially offset by a $24.0 million increase in noninterest income and an $18.0 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. In 2024, the Federal Reserve cut its benchmark interest rate three times by a total of 1.00 percentage point, marking the first reductions in four years. These rate cuts lowered the federal funds rate into a range of 4.25% to 4.50%, back to levels in December 2022. The latest rate cut, announced December 18, 2024, was accompanied by Federal Open Market Committee member forecasts, which reflected expectations of fewer and slower additional interest rate cuts through the end of 2025, 2026 and 2027 than the FOMC forecasted in September 2024. On January 29, 2025, the FOMC left unchanged its overnight borrowing rate in a range between 4.25% and 4.50%. The Federal Open Market Committee (FOMC) concluded its May 2025 meeting with the Federal Reserve maintaining its target range for the federal funds rate at 4.25%-4.50%, as expected. This was the third consecutive meeting that the Federal Reserve held interest rates steady, based in part on concerns over the potential impact of tariffs. The FOMC updated its statement to reflect its view that risks to both of its mandates, the potential for higher unemployment and higher inflation, have risen. A healthy labor market, with unemployment low at 4.20%, gives the Federal Reserve some flexibility to assess the potential impact of tariffs on inflation and the economy. Inflation has been approaching the Federal Reserve's 2.0% target, but tariffs are expected to result in at least a one-time rise in prices. The central bank’s preferred gauge, personal consumption expenditure, showed headline inflation at 2.3%. 35 Table of Contents In 2024, net interest income, on a tax-equivalent basis, decreased $12.5 million to $237.2 million with a tax-equivalent net interest margin of 3.35% compared to net interest income, on a tax-equivalent basis, of $249.6 million and a tax-equivalent net interest margin of 3.43% in 2023. 36 Table of Contents Average Balance Sheet, Interest and Yield/Rate Analysis. The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the years ended December 31, 2024 , 2023 and 2022. 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. Years Ended December 31, 2024 2023 (Restated) 2022 (Restated) (tax-equivalent basis, dollars in thousands) Average Balance Interest & Fees Yield/ Rate Average Balance Interest & Fees Yield/ Rate Average Balance Interest & Fees Yield / Rate Interest-earning assets: Federal funds sold and cash investments $ 76,675 $ 3,958 5.16 % $ 77,046 $ 3,922 5.09 % $ 256,221 $ 3,907 1.52 % Investment securities: Taxable investment securities 1,060,514 49,769 4.69 798,579 28,653 3.59 694,269 15,801 2.28 Investment securities exempt from federal income tax (1) 55,672 1,913 3.44 55,997 1,708 3.05 104,949 3,476 3.31 Total securities 1,116,186 51,682 4.63 854,576 30,361 3.55 799,218 19,277 2.41 Loans: Loans (2) 5,794,141 365,892 6.31 6,238,970 378,333 6.06 5,743,525 285,577 4.97 Loans exempt from federal income tax (1) 46,075 1,944 4.22 53,290 2,233 4.19 67,878 2,635 3.88 Total loans 5,840,216 367,836 6.30 6,292,260 380,566 6.05 5,811,403 288,212 4.77 Loans held for sale 7,185 392 5.45 4,034 260 6.45 12,669 404 3.19 Nonmarketable equity securities 39,108 3,070 7.85 43,318 2,819 6.51 38,543 2,198 5.70 Total earning assets 7,079,370 426,938 6.03 % 7,271,234 417,928 5.75 % 6,918,054 313,998 4.54 % Noninterest-earning assets 665,308 635,490 618,593 Total assets $ 7,744,678 $ 7,906,724 $ 7,536,647 Interest-bearing liabilities: Checking and money market deposits $ 3,580,458 $ 118,682 3.31 % $ 3,738,818 $ 109,831 2.94 % $ 3,456,890 $ 31,156 0.90 % Savings deposits 533,104 1,744 0.33 612,243 1,632 0.27 703,341 540 0.08 Time deposits 846,512 30,681 3.62 814,727 21,840 2.68 625,307 4,161 0.67 Brokered deposits 207,713 9,569 4.61 75,935 3,644 4.80 16,592 204 1.23 Total interest-bearing deposits 5,167,787 160,676 3.11 5,241,723 136,947 2.61 4,802,130 36,061 0.75 Short-term borrowings 45,251 1,960 4.33 23,406 68 0.29 58,688 104 0.18 FHLB advances and other borrowings 381,525 16,495 4.32 460,781 20,709 4.49 355,282 9,335 2.63 Subordinated debt 89,028 5,271 5.92 95,986 5,266 5.49 131,203 7,495 5.71 Trust preferred debentures 50,938 5,380 10.56 50,298 5,289 10.52 49,678 3,025 6.09 Total interest-bearing liabilities 5,734,529 189,782 3.31 % 5,872,194 168,279 2.87 % 5,396,981 56,020 1.04 % Noninterest-bearing liabilities: Noninterest-bearing deposits 1,106,388 1,173,873 1,386,251 Other noninterest-bearing liabilities 109,777 90,562 65,539 Total noninterest-bearing liabilities 1,216,165 1,264,435 1,451,790 Shareholders’ equity 793,984 770,095 687,876 Total liabilities and shareholders’ equity $ 7,744,678 $ 7,906,724 $ 7,536,647 Net interest income / net interest margin (3) $ 237,156 3.35 % $ 249,649 3.43 % $ 257,978 3.73 % (1) Interest income and average rates for tax-exempt loans and securities are presented on a tax-equivalent basis, assuming a statutory federal income tax rate of 21%. Tax-equivalent adjustments totaled $0.8 million, $0.8 million and $1.3 million for the years ended December 31, 2024 , 2023 and 2022, respectively. (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. 37 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. Year Ended December 31, 2024 compared with Year Ended December 31, 2023 Year Ended December 31, 2023 compared with Year Ended December 31, 2022 Change due to: Interest Variance Change due to: Interest Variance (tax-equivalent basis, dollars in thousands) Volume Rate Volume Rate Earning assets: Federal funds sold and cash investments $ (19) $ 55 $ 36 $ (5,924) $ 5,939 $ 15 Investment securities: Taxable investment securities 10,845 10,271 21,116 3,059 9,793 12,852 Investment securities exempt from federal income tax (11) 216 205 (1,556) (212) (1,768) Total securities 10,834 10,487 21,321 1,503 9,581 11,084 Loans: Loans (26,458) 14,017 (12,441) 26,357 66,399 92,756 Loans exempt from federal income tax (303) 14 (289) (589) 187 (402) Total loans (26,761) 14,031 (12,730) 25,768 66,586 92,354 Loans held for sale 141 (9) 132 (415) 271 (144) Nonmarketable equity securities (302) 553 251 291 330 621 Total earning assets (16,107) 25,117 9,010 21,223 82,707 103,930 Interest-bearing liabilities: Checking and money market deposits (5,041) 13,892 8,851 5,412 73,263 78,675 Savings deposits (235) 347 112 (156) 1,248 1,092 Time deposits 1,002 7,839 8,841 3,169 14,510 17,679 Brokered time deposits 6,198 (273) 5,925 1,790 1,650 3,440 Total interest-bearing deposits 1,924 21,805 23,729 10,215 90,671 100,886 Short-term borrowings 505 1,387 1,892 (83) 47 (36) FHLB advances and other borrowings (3,494) (720) (4,214) 3,756 7,618 11,374 Subordinated debt (397) 402 5 (1,972) (257) (2,229) Trust preferred debentures 68 23 91 51 2,213 2,264 Total interest-bearing liabilities (1,394) 22,897 21,503 11,967 100,292 112,259 Net interest income $ (14,713) $ 2,220 $ (12,493) $ 9,256 $ (17,585) $ (8,329) 38 Table of Contents Interest Income. For the year ended December 31, 2024, interest income, on a tax-equivalent basis, increased $9.0 million to $426.9 million as compared to the prior year. The yield on earning assets increased 28 basis points to 6.03% from 5.75%, primarily due to the impact of increasing market interest rates. Average earning assets decreased to $7.08 billion in 2024 from $7.27 billion in 2023. Average loans decreased $452.0 million, which was partially offset by an increase in investment securities of $261.6 million. Average loans decreased $452.0 million in 2024 compared to 2023 primarily due to continued reductions in our equipment financing and consumer loan portfolios. Average equipment finance loan and lease balances decreased $192.7 million to $899.7 million in 2024 as the Company continued to reduce its concentration of this product within the overall loan portfolio. Average consumer loans decreased $327.3 million primarily due to loan payoffs and a cessation in loans originated through GreenSky and LendingPoint. Interest Expense. Interest expense increased $21.5 million to $189.8 million in 2024 compared to 2023. The cost of interest-bearing liabilities increased to 3.31% compared to 2.87% for the prior year due to the increase in deposit and short-term borrowing costs as a result of the rate increases previously enacted by the Federal Reserve. I nterest expense on deposits increased $23.7 million to $160.7 million in 2024 compared to 2023, primarily due to increases in interest rates on deposits. Average balances of interest-bearing deposit accounts decreased $73.9 million, or 1.4%, to $5.17 billion for 2024 compared to the same period one year earlier. Decreases in interest checking and savings account balances of $158.4 million and $79.1 million, respectively, were partially offset by increases in time and brokered time deposits of $31.8 million and $131.8 million, respectively. Interest expense on FHLB advances and other borrowings decreased $4.2 million for the year ended December 31, 2024 , from the prior year, due to decreases in both average balances and interest rates. The average balances decreased $79.3 million in 2024 compared to 2023, while the average borrowing rates decreased to 4.32% in 2024 compared to 4.49% in 2023. Provision for Credit Losses. The Company's provision for credit losses was $120.3 million and $82.6 million in 2024 and 2023, respectively . In 2024, the provisions for credit losses on loans and on unfunded commitments were $119.3 million and $1.1 million, respectively. As previously disclosed, the Company recognized charge-offs in its specialty finance and equipment financing units of $25.3 million and $28.8 million, respectively in 2024. These charge-offs, recognized to reduce future credit risk, resulted in the increase in provision expense in 2024. The provision for credit losses on loans recognized during the year ended December 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. 39 Table of Contents Noninterest Income. The following table sets forth the major components of our noninterest income for the years ended December 31, 2024, 2023 and 2022: For the years ended December 31, 2024 Compared to 2023 2023 Compared to 2022 (dollars in thousands) 2024 2023 (Restated) 2022 (Restated) Increase (decrease) Increase (decrease) Noninterest income: Wealth management revenue $ 28,697 $ 25,572 $ 25,708 $ 3,125 12.2 % $ (136) (0.5) % Service charges on deposit accounts 13,154 11,990 10,237 1,164 9.7 1,753 17.1 Interchange revenue 13,955 14,302 13,879 (347) (2.4) 423 3.0 Residential mortgage banking revenue 2,418 1,903 1,509 515 27.1 394 26.1 Income on company-owned life insurance 7,683 4,439 3,584 3,244 73.1 855 23.9 Loss on sales of investment securities, net (230) (9,372) (230) 9,142 (97.5) (9,142) 3,974.8 Gain on termination of hedged interest rate swaps — — 17,531 — — (17,531) (100.0) Impairment on commercial mortgage servicing rights — — (1,263) — — 1,263 (100.0) Credit enhancement income 60,998 48,194 69,976 12,804 26.6 (21,782) (31.1) Other income 12,066 17,756 8,936 (5,690) (32.0) 8,820 98.7 Total noninterest income $ 138,741 $ 114,784 $ 149,867 $ 23,957 20.9 % $ (35,083) (23.4) % Wealth management revenue . Wealth management revenue increased $3.1 million, or 12.2% for 2024, as compared to 2023. Assets under administration increased to $4.15 billion at December 31, 2024 from $3.73 billion at December 31, 2023, primarily due to improved sales activity and an increase in market performance. Income on company-owned life insurance. Income on company-owned life insurance increased $3.2 million, or 73.1%, for 2024, as compared to 2023. As previously discussed, the Company surrendered certain low-yielding life insurance policies and purchased additional policies in the third quarter of 2023, resulting in the increase in revenue. Credit enhancement income. The Company recognized $61.0 million of credit enhancement income in 2024 compared to $48.2 million in 2023. The increase in income was primarily related to an increase in LendingPoint program charge-offs which were reimbursed by the program servicer as part of the credit enhancement provided to the Company by the servicing agreement. Other noninterest income. Other income decreased $5.7 million for 2024, as compared to 2023. Several one-time transactions were recognized in other noninterest income in 2023, including incremental servicing revenues of $2.2 million and $1.6 million related to our commercial FHA servicing portfolio and the GreenSky portfolio, respectively. In addition, the Company recognized a $1.1 million one-time gain from the sale of Visa B stock, a gain of $0.7 million on the redemption of subordinated debt and a gain of $0.8 million on the sale of OREO. 40 Table of Contents Noninterest Expense. The following table sets forth the major components of noninterest expense for the years ended December 31, 2024, 2023 and 2022: Years Ended December 31, 2024 Compared to 2023 2023 Compared to 2022 (dollars in thousands) 2024 2023 (Restated) 2022 (Restated) Increase (decrease) Increase (decrease) Noninterest expense: Salaries and employee benefits $ 93,639 $ 93,438 $ 90,305 $ 201 0.2 % $ 3,133 3.5 % Occupancy and equipment 16,785 15,986 14,842 799 5.0 1,144 7.7 Data processing 28,160 26,286 24,350 1,874 7.1 1,936 8.0 FDIC insurance 5,278 4,779 3,336 499 10.4 1,443 43.3 Professional services 7,822 7,049 6,907 773 11.0 142 2.1 Marketing 3,926 3,158 3,318 768 24.3 (160) (4.8) Communications 1,364 1,741 2,382 (377) (21.7) (641) (26.9) Loan expense 5,954 4,206 4,586 1,748 41.6 (380) (8.3) Loan servicing fees 12,864 19,181 22,750 (6,317) (32.9) (3,569) (15.7) Amortization of intangible assets 4,008 4,758 5,410 (750) (15.8) (652) (12.1) Other real estate owned 5,569 333 5,188 5,236 1,572.4 (4,855) (93.6) Loss on mortgage servicing rights held for sale — — 3,250 — — (3,250) (100.0) Impairment on leased assets and surrendered assets 7,858 — — 7,858 N/A — — Other expense 14,628 12,168 11,788 2,460 20.2 380 3.2 Total noninterest expense $ 207,855 $ 193,083 $ 198,412 $ 14,772 7.7 % $ (5,329) (2.7) % Data processing fees. The $1.9 million increase in data processing fees for the year ended December 31, 2024, was primarily the result of our continuing investments in technology to better serve our growing customer base and increased transaction volumes. Loan expense. Loan collection expenses were $3.7 million in 2024 compared to $2.1 million in 2023 due to the increased volume of nonperforming loans and assets. Loan servicing fees. Loan servicing fees expense represents servicing fees paid to third parties associated with our third party lending programs. Servicing fees in 2024 and 2023 were $12.9 million and $19.2 million, respectively, as these loan programs continued to pay down. Other real estate owned. The Company recorded impairment expense of $4.9 million in 2024, related to a single assisted living facility. Impairment on leased assets and surrendered assets. Impairment on leased assets and surrendered assets totaled $7.9 million in 2024, primarily related to assets associated with the trucking industry. Other expense. The Company recognized $3.1 million in expenses related to various legal actions in 2024. Income Tax Expense. The Company recognized income tax expense of $8.9 million in 2024 compared to $26.8 million in 2023. Effective tax rates for 2024 and 2023 were 18.9% and 30.5%, respectively. Income tax expense for 2023 included tax charges of $4.5 million associated with the surrender of certain company-owned life insurance policies, as previously discussed. Financial Condition Assets. Total assets were $7.51 billion at December 31, 2024, as compared to $7.79 billion at December 31, 2023. 41 Table of Contents Loans. The loan portfolio is the largest category of our assets. 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, skilled nursing 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. 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 December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 (dollars in thousands) Balance Percent Balance Percent Multi-Family $ 547,016 18.9 % $ 516,295 18.1 % Skilled Nursing 400,902 13.8 469,096 16.4 Retail 460,283 15.9 454,589 15.9 Industrial/Warehouse 235,674 8.2 217,956 7.6 Hotel/Motel 228,764 7.9 159,707 5.6 Office 146,295 5.1 153,756 5.4 All other 872,572 30.2 888,039 31.0 Total commercial real estate and construction and land development loans $ 2,891,506 100.0 % $ 2,859,438 100.0 % Loans secured by office space totaled $146.3 million and $153.8 million at December 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 are 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. 42 Table of Contents The following table presents the balance and associated percentage of each major category in our loan portfolio at December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 (Restated) (dollars in thousands) Balance Percent Balance Percent Loans: Commercial $ 1,359,820 26.3 % $ 1,505,454 24.7 % Commercial real estate 2,591,664 50.1 2,406,845 39.4 Construction and land development 299,842 5.8 452,593 7.4 Residential real estate 380,557 7.4 380,583 6.2 Consumer 144,301 2.8 884,767 14.5 Lease financing 391,390 7.6 473,350 7.8 Total loans, gross 5,167,574 100.0 % 6,103,592 100.0 % Allowance for credit losses on loans (111,204) (159,319) Total loans, net $ 5,056,370 $ 5,944,273 The following tables present our outstanding loans by business sector at December 31, 2024 and 2023: 2024 (dollars in thousands) Community bank Specialty finance Equipment finance Non-core consumer and other Total Commercial $ 578,191 $ 281,415 $ 416,969 $ 83,245 $ 1,359,820 Commercial real estate 1,950,498 641,166 — — 2,591,664 Construction and land development 184,185 115,657 — — 299,842 Residential real estate 380,557 — — — 380,557 Consumer 109,120 — — 35,181 144,301 Lease financing — — 391,390 — 391,390 Total $ 3,202,551 $ 1,038,238 $ 808,359 $ 118,426 $ 5,167,574 2023 (restated) (dollars in thousands) Community bank Specialty finance Equipment finance Non-core consumer and other Total Commercial $ 567,637 $ 283,032 $ 531,143 $ 123,642 $ 1,505,454 Commercial real estate 1,755,408 651,437 — — 2,406,845 Construction and land development 273,865 178,728 — — 452,593 Residential real estate 380,583 — — — 380,583 Consumer 110,737 — — 774,030 884,767 Lease financing — — 473,350 — 473,350 Total $ 3,088,230 $ 1,113,197 $ 1,004,493 $ 897,672 $ 6,103,592 Total loans decreased $936.0 million, or 15.3%, to $5.17 billion at December 31, 2024, as compared to December 31, 2023. The decrease is primarily due to the Company’s strategic reduction in its non-core consumer loan portfolios, and the continuation of the Company’s plan to decrease its equipment financing portfolio. Consumer loans decreased $740.5 million to $144.3 million at December 31, 2024, primarily due to the loan portfolio sale, transfer to held for sale and loan paydowns. Equipment finance loan and lease balances decreased $196.1 million to $808.4 million at December 31, 2024, as the Company continued to reduce its concentration of this product within the overall loan portfolio. Equipment financing and consumer loans comprised 15.6% and 2.8%, respectively, of the loan portfolio at December 31, 2024, compared to 16.5% and 14.5%, respectively, at 43 Table of Contents December 31, 2023. The following table shows the contractual maturities of our loan portfolio and the distribution between fixed and adjustable interest rate loans at December 31, 2024: December 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 $ 91,232 $ 471,409 $ 494,254 $ 60,753 $ 101,217 $ 97,021 $ — $ 43,934 $ 1,359,820 Commercial real estate 436,249 376,593 1,003,259 277,785 270,741 204,516 5,728 16,793 2,591,664 Construction and land development 65,653 112,823 65,968 33,291 2,196 18,709 91 1,111 299,842 Total commercial loans 593,134 960,825 1,563,481 371,829 374,154 320,246 5,819 61,838 4,251,326 Residential real estate 3,729 5,733 8,055 18,962 22,054 37,283 182,863 101,878 380,557 Consumer 5,112 585 101,389 1 34,551 2,663 — — 144,301 Lease financing 25,015 — 295,964 — 70,411 — — — 391,390 Total loans $ 626,990 $ 967,143 $ 1,968,889 $ 390,792 $ 501,170 $ 360,192 $ 188,682 $ 163,716 $ 5,167,574 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. Analysis of the Allowance for Credit Losses on Loans. The allowance for credit losses on loans was $111.2 million, or 2.15% of total loans, at December 31, 2024, compared to $159.3 million, or 2.61% of total loans, at December 31, 2023. The following table allocates the allowance for credit losses on loans by loan category: December 31, 2024 December 31, 2023 (Restated) (dollars in thousands) Allowance Percent (1) Allowance Percent (1) Commercial $ 42,776 3.15 % $ 29,672 1.97 % Commercial real estate 36,837 1.42 20,229 0.84 Construction and land development 3,550 1.18 4,163 0.92 Total commercial loans 83,163 1.96 54,064 1.24 Residential real estate 8,002 2.10 5,553 1.46 Consumer 5,400 3.74 86,762 9.81 Lease financing 14,639 3.74 12,940 2.73 Total allowance for credit losses on loans $ 111,204 2.15 % $ 159,319 2.61 % (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 December 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 2.5% to 2.6% over the next four quarters; (ii) the 10-year treasury rate ranging from 4.2% to 4.3% over the next four quarters; and (iii) Illinois unemployment rate averaging 5.5% through the fourth 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- 44 Table of Contents 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 December 31, 2024, was approximately 67 basis points of total loans, increasing from 41 basis points at December 31, 2023. The Q-Factor adjustment at December 31, 2024 was based primarily on declining credit quality indicators and increased collateral valuation risks within the commercial real estate secured loan segments. The allowance allocated to commercial loans totaled $42.8 million, or 3.15% of total commercial loans, at December 31, 2024, compared to $29.7 million, or 1.97%, at December 31, 2023. Modeled expected credit losses increased $13.6 million primarily related to one third-party loan program. Qualitative factor adjustments related to commercial loans increased $1.2 million due to increases in the credit quality factor as a result of the deteriorating credit quality metrics. Specific allocations for commercial loans that were individually evaluated for expected credit losses on an individual basis decreased $1.8 million from December 31, 2023, as these loans were charged-off in 2024. The allowance allocated to commercial real estate loans totaled $36.8 million, or 1.42% of total commercial real estate loans, at December 31, 2024, increasing $16.6 million, from $20.2 million, or 0.84% of total commercial real estate loans, at December 31, 2023. Modeled expected credit losses increased $0.6 million. Qualitative factor adjustments increased $5.5 million due to increases in the credit quality and collateral adequacy factors. Specific allocations for loans that were individually evaluated increased $10.5 million related to two relationships in our Specialty Finance Group. The commercial real estate portfolio does not include significant exposure to urban office properties. The allowance allocated to construction and land development loans totaled $3.6 million, or 1.18% of total construction and land development loans, at December 31, 2024, decreasing $0.6 million, from $4.2 million, or 0.92% of total constructions loans, at December 31, 2023. Modeled expected credit losses decreased $1.2 million and qualitative factor adjustments related to construction loans increased $0.6 million. There were no specific allocations for construction loans that were evaluated for expected credit losses on an individual basis at December 31, 2024. The allowance allocated to residential real estate loans totaled $8.0 million, or 2.10% of total residential real estate loans, at December 31, 2024, increasing $2.4 million, from $5.6 million, or 1.46% of total residential real estate loans, at December 31, 2023. Modeled expected credit losses and qualitative factor adjustments increased $2.0 million and $0.4 million, respectively. Recent charge-off activity resulted in the increase in modeled expected losses. There were no specific allocations for residential real estate loans that were evaluated for expected credit losses on an individual basis at December 31, 2024. The allowance allocated to consumer loans totaled $5.4 million, or 3.74% of total consumer loans, at December 31, 2024, compared to $86.8 million, or 9.81%, at December 31, 2023. Consumer loans at December 31, 2024, totaled $144.3 million, a decrease of $740.5 million from December 31, 2023, as a result of the sale of the LendingPoint portfolio and the transfer of a significant portion of the GreenSky portfolio to held for sale. The related allowances for credit losses for both portfolios were eliminated at December 31, 2024, due to the these actions. Specific allocations for consumer loans that were evaluated for expected credit losses on an individual basis decreased $0.1 million. The allowance allocated to the lease portfolio totaled $14.6 million, or 3.74% of total commercial leases, at December 31, 2024, increasing $1.7 million, from $12.9 million, or 2.73% of total commercial leases at December 31, 2023. Modeled expected credit losses increased $1.4 million as recent charge-off activity led to an increase in loss given default factors in the model. Qualitative factor adjustments and specific allocation reserves increased $0.1 million and $0.2 million, respectively. 45 Table of Contents 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 years ended 2024, 2023, and 2022: Years Ended December 31, (dollars in thousands) 2024 2023 (Restated) 2022 (Restated) Balance, beginning of period $ 159,319 $ 128,889 $ 89,444 Charge-offs: Commercial 30,453 13,703 8,441 Commercial real estate 9,998 5,000 4,106 Construction and land development 17,991 1,601 6 Residential real estate 817 271 344 Consumer 98,051 33,149 24,091 Lease financing 14,323 5,026 1,297 Total charge-offs 171,633 58,750 38,285 Recoveries: Commercial 947 1,785 401 Commercial real estate 2,240 4,006 7 Construction and land development 3 33 30 Residential real estate 238 138 252 Consumer 274 288 457 Lease financing 554 370 1,148 Total recoveries 4,256 6,620 2,295 Net charge-offs 167,377 52,130 35,990 Provision for credit losses on loans 119,262 82,560 75,435 Balance, end of period $ 111,204 $ 159,319 $ 128,889 Gross loans, end of period $ 5,167,574 $ 6,103,592 $ 6,277,810 Average total loans $ 5,840,216 $ 6,292,260 $ 5,811,403 Net charge-offs to average loans 2.87 % 0.83 % 0.62 % Allowance for credit losses to total loans 2.15 % 2.61 % 2.05 % 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 when the collectability of a loan balance is unlikely. Recoveries on loans previously charged-off are added to the allowance. 46 Table of Contents The following tables present charge-offs by business sector for the years ended 2024 and 2023: 2024 (dollars in thousands) Community bank Specialty finance Equipment finance Non-core consumer and other Total charge-offs Commercial $ 8,210 $ 121 $ 14,457 $ 7,665 $ 30,453 Commercial real estate 2,846 7,152 — — 9,998 Construction and land development — 17,991 — — 17,991 Residential real estate 817 — — — 817 Consumer 927 — — 97,124 98,051 Lease financing — — 14,323 — 14,323 Total $ 12,800 $ 25,264 $ 28,780 $ 104,789 $ 171,633 2023 (Restated) (dollars in thousands) Community bank Specialty finance Equipment finance Non-core consumer and other Total charge-offs Commercial $ 2,664 $ 93 $ 4,600 $ 6,346 $ 13,703 Commercial real estate 2,371 2,629 — — 5,000 Construction and land development 1,601 — — — 1,601 Residential real estate 271 — — — 271 Consumer 1,046 — — 32,103 33,149 Lease financing — — 5,026 — 5,026 Total $ 7,953 $ 2,722 $ 9,626 $ 38,449 $ 58,750 Charge-offs in 2024 increased to $171.6 million from $58.8 million in 2023. Charge-offs related to our Specialty Finance Group totaled $25.3 million in 2024 based on updated appraisals of all substandard relationships. Consumer loan charge-offs totaled $98.1 million in 2024, increasing $64.9 million from 2023, primarily due to the recognition of charge-offs of $17.3 million in connection with the sale of our Lending Point portfolio and $35.0 million in connection with the planned sale and transfer of the GreenSky portfolio to held for sale. Our equipment finance business saw charge-offs increase to $28.8 million in 2024 from $9.6 million in 2023, due primarily to continued weakness within the trucking sector. Nonperforming Loans . The following table presents the change in our non-performing loans for the year ended December 31, 2024: (dollars in thousands) Year Ended December 31, 2024 Balance, beginning of period $ 56,351 New nonperforming loans 158,722 Return to performing status (1,902) Payments received (8,402) Transfer to OREO and other repossessed assets (1,234) Charge-offs (52,628) Balance, end of period $ 150,907 Non-performing loans increased $94.5 million to $150.9 million at December 31, 2024, compared to $56.4 million at December 31, 2023. The majority of the increase is attributable to multi-family construction or multi-family project nonperforming loans of $57.6 million and health care related loans, including assisted living and skilled nursing, which increased $15.5 million. These loans are outside of the Company’s core market. 47 Table of Contents 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) December 31, 2024 December 31, 2023 December 31, 2022 Nonperforming loans: Commercial $ 23,960 $ 9,282 $ 7,853 Commercial real estate 106,919 33,891 29,602 Construction and land development 8,438 39 229 Residential real estate 3,438 3,869 8,449 Consumer 20 137 921 Lease financing 8,132 9,133 2,369 Total nonperforming loans 150,907 56,351 49,423 Other real estate owned and other repossessed assets 6,502 11,350 8,401 Nonperforming assets $ 157,409 $ 67,701 $ 57,824 Nonperforming loans to total loans 2.92 % 0.92 % 0.78 % Nonperforming assets to total assets 2.10 % 0.87 % 0.74 % Allowance for credit losses to nonperforming loans 73.69 % 282.73 % 260.79 % We did not recognize interest income on nonaccrual loans during the years ended December 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 $9.6 million and $3.4 million for the years ended December 31, 2024 and 2023, respectively. 48 Table of Contents 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. The following table sets forth the book value and associated percentage of each category of investment securities at December 31, 2024, 2023 and 2022. December 31, 2024 December 31, 2023 December 31, 2022 (dollars in thousands) Balance Percent Balance Percent Balance Percent Investment securities available for sale: U.S. Treasury securities $ — — % $ 1,097 0.1 % $ 81,230 10.6 % U.S. government sponsored entities and U.S. agency securities 20,141 1.7 72,572 7.9 37,509 4.9 Mortgage-backed securities - agency 847,056 70.1 574,500 62.7 448,150 58.3 Mortgage-backed securities - non-agency 101,012 8.4 83,529 9.1 20,754 2.7 State and municipal securities 69,061 5.7 57,460 6.3 94,636 12.3 Corporate securities 79,881 6.6 99,172 10.9 85,955 11.2 Other securities 90,423 7.5 27,565 3.0 — — Total investment securities, available for sale, at fair value $ 1,207,574 100.0 % $ 915,895 100.0 % $ 768,234 100.0 % 49 Table of Contents The following table sets forth the book value, maturities and weighted average yields for our investment portfolio at December 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 13,488 1.1 2.84 Maturing in five to ten years 4,973 0.4 5.53 Maturing after ten years 1,680 0.2 6.85 Total U.S. government sponsored entities and U.S. agency securities $ 20,141 1.7 % 3.84 % Mortgage-backed securities - agency: Maturing within one year $ — — % — % Maturing in one to five years 32,625 2.7 1.94 Maturing in five to ten years 7,260 0.6 3.47 Maturing after ten years 807,171 66.8 4.44 Total mortgage-backed securities - agency $ 847,056 70.1 % 4.34 % Mortgage-backed securities - non-agency: Maturing within one year $ — — % — % Maturing in one to five years — — — Maturing in five to ten years 12,805 1.1 6.07 Maturing after ten years 88,207 7.3 4.86 Total mortgage-backed securities - non-agency $ 101,012 8.4 % 5.01 % State and municipal securities (1) : Maturing within one year $ 315 — % 6.16 % Maturing in one to five years 7,944 0.7 2.52 Maturing in five to ten years 25,907 2.1 2.43 Maturing after ten years 34,895 2.9 4.90 Total state and municipal securities $ 69,061 5.7 % 3.71 % Corporate securities: Maturing within one year $ — — % — % Maturing in one to five years 35,309 2.9 5.58 Maturing in five to ten years 44,572 3.7 3.67 Maturing after ten years — — — Total corporate securities $ 79,881 6.6 % 4.51 % Other securities: Maturing within one year $ 3,873 0.3 % 5.34 % Maturing in one to five years — — — Maturing in five to ten years 13,282 1.1 6.13 Maturing after ten years 73,268 6.1 5.90 Total other securities $ 90,423 7.5 % 5.91 % Total investment securities, available for sale $ 1,207,574 100.0 % 4.48 % (1) Weighted average yield for tax-exempt securities are presented on a tax-equivalent basis assuming a federal income tax rate of 21%. 50 Table of Contents The table below presents the credit ratings for our investment securities classified as available for sale, at fair value, at December 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 $ 21,655 $ 20,141 $ — $ 20,141 $ — $ — $ — $ — Mortgage-backed securities - agency 940,508 847,056 — 847,056 — — — — Mortgage-backed securities - non-agency 103,051 101,012 — 101,012 — — — — State and municipal securities 75,597 69,061 8,330 54,989 334 130 — 5,278 Corporate securities 85,602 79,881 — — 15,546 54,737 7,167 2,431 Other securities 90,372 90,423 42,580 47,843 — — — — Total investment securities, available for sale $ 1,316,785 $ 1,207,574 $ 50,910 $ 1,071,041 $ 15,880 $ 54,867 $ 7,167 $ 7,709 Liabilities. At December 31, 2024, liabilities totaled $6.80 billion compared to $7.07 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 decreased $112.3 million to $6.20 billion at December 31, 2024, as compared to December 31, 2023. Decreases in noninterest-bearing demand account, interest-bearing checking account, and savings account balances of $89.8 million, $133.6 million and $52.0 million, respectively, during this period, were partially offset by increases in money market account and time deposit account balances. Brokered time deposit account balances increased to $259.5 million at December 31, 2024 from $94.5 million at December 31, 2023, accounting for the increase in time deposit account balances. Deposit outflows were primarily related to certain larger commercial clients moving funds to the Company's wealth management business. (dollars in thousands) December 31, 2024 December 31, 2023 December 31, 2022 Balance Percent Balance Percent Balance Percent Noninterest-bearing demand $ 1,055,564 17.0 % $ 1,145,395 18.1 % $ 1,362,158 21.4 % Interest-bearing: Checking 2,378,256 38.4 2,511,840 39.8 2,494,073 39.2 Money market 1,173,630 18.9 1,135,629 18.0 1,184,101 18.6 Savings 507,305 8.2 559,267 8.9 661,932 10.4 Time 1,082,488 17.5 957,398 15.2 662,388 10.4 Total deposits $ 6,197,243 100.0 % $ 6,309,529 100.0 % $ 6,364,652 100.0 % The following table sets forth the maturity of uninsured time deposits as of December 31, 2024: (dollars in thousands) Amount Three months or less $ 51,086 Three to six months 18,399 Six to 12 months 13,975 After 12 months 5,098 Total $ 88,558 51 Table of Contents 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, fair value hedges and cash flow hedges. Shareholders’ equity decreased $4.3 million to $710.8 million at December 31, 2024, as compared to December 31, 2023. The change in shareholders’ equity was the primarily the result of net income of $38.0 million, less dividends to common shareholders of $27.1 million, dividends to preferred shareholders of $8.9 million, the repurchases of common stock of $5.5 million and increase in accumulated other comprehensive losses of $5.2 million. On December 5, 2023, the Company’s board of directors authorized a share repurchase program, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2024. During the year ended December 31, 2024, the Company repurchased 228,266 shares of its common stock at a weighted average price of $23.93 under its stock repurchase program. The program terminated effective December 31, 2024. 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 $15.0 million and $20.9 million at December 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 December 31, 2024 and December 31, 2023: (dollars in thousands) December 31, 2024 December 31, 2023 Cash and cash equivalents $ 114,766 $ 135,061 Unpledged securities 672,399 346,843 FHLB committed liquidity 1,290,246 935,977 FRB discount window availability 538,835 699,896 Total Estimated Liquidity $ 2,616,246 $ 2,117,777 Conditional Funding Based on Market Conditions Additional credit facility $ 360,000 $ 419,000 Brokered CDs (additional capacity) $ 350,000 $ 500,000 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 December 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 52 Table of Contents 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. The Company adopted the five-year CECL transition option in 2020 provided for by the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC in March 2020. At the end of 2024 this transition will be complete. At December 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 December 31, 2024: Ratio Actual Minimum Regulatory Requirements (1) Well Capitalized Total risk-based capital ratio Midland States Bancorp, Inc. 13.07 % 10.50 % N/A Midland States Bank 12.43 10.50 10.00 % Tier 1 risk-based capital ratio Midland States Bancorp, Inc. 10.75 8.50 N/A Midland States Bank 11.18 8.50 8.00 Common equity tier 1 risk-based capital ratio Midland States Bancorp, Inc. 8.00 7.00 N/A Midland States Bank 11.18 7.00 6.50 Tier 1 leverage ratio Midland States Bancorp, Inc. 9.03 4.00 N/A Midland States Bank 9.38 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%. Off-Balance Sheet Arrangements We have limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets. Most of these commitments mature within two years and are expected to expire without being drawn upon. Standby letters of credit are included in the determination of the amount of risk-based capital that the Company and the Bank are required to hold. We enter into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers maintaining specific credit standards until the time of loan funding. We decrease our exposure to losses under these commitments by subjecting them to credit approval and monitoring procedures. We assess the credit risk associated with certain commitments to extend credit and establish a liability for probable credit losses. Standby letters of credit are written conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event that the customer does not perform in accordance with the terms of the agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the customer. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements. We guarantee the distributions and payments for redemption or liquidation of the trust preferred securities issued by our wholly owned subsidiary business trusts to the extent of funds held by the trusts. Although this guarantee is not separately 53 Table of Contents recorded, the obligation underlying the guarantee is fully reflected on our consolidated balance sheets as junior subordinated debentures held by subsidiary trusts. The junior subordinated debentures currently qualify as Tier 1 capital under the Federal Reserve capital adequacy guidelines. 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. 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 (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). Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment, funding and hedging 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. 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 a stable net interest income profile 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. 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 various ad-hoc reports to continuously refine, stress and validate these 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. 54 Table of Contents 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 December 31, 2024: Dollar change $ 2,395 $ 1,395 $ (2,727) $ (5,596) Percent change 1.1 % 0.6 % (1.2) % (2.5) % 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. We were within board policy limits for all scenarios at December 31, 2024. 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 December 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 2024, the bank exhibited similar trends to the industry concerning its beta assumptions related to its non-maturity deposit portfolio. Coupled with the Federal Reserve lowering rates in the second half of 2024, the Bank continued its strategy of layering on protection to lower short-term rates through deposit pricing, securities purchase selection and hedging. These aspects are reflective of the bank becoming more biased to lower rates year over year. 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 investment securities, derivative instruments, and equity investments. 55 Table of Contents Critical Accounting Estimates Our most significant accounting policies are described in Note 1 to the consolidated financial statements. Certain of these accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities, and we consider these policies to be our critical accounting estimates. The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances. Because of the nature of the judgment and assumptions, actual results could differ from estimates, which could have a material effect on our financial condition and results of operations. The following accounting estimates materially affect our reported earnings and financial condition and requires significant judgments and assumptions. Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee. Allowance for Credit Losses on Loans . Management’s evaluation process used to determine the appropriateness of the allowance for credit losses on loans is subject to the use of estimates, assumptions, and judgments. The evaluation process combines many factors: management’s ongoing review and grading of the loan portfolio leveraging probability of default and loss given default, consideration of historical loan loss and delinquency experience, trends in past due and nonaccrual loans, risk characteristics of the various classifications of loans, concentrations of loans to specific borrowers or industries, existing economic conditions and forecasts, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect future credit losses. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the allowance for credit losses on loans, could change significantly. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. As an integral part of their examination process, various regulatory agencies also review the allowance for credit losses on loans. Such agencies may require additions to the allowance for credit losses on loans or may require that certain loan balances be charged-off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. The Company believes the level of the allowance for credit losses on loans is appropriate. See Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans of the notes to consolidated financial statements. Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is subject to impairment testing, which must be conducted at least annually or upon the occurrence of a triggering event. Various factors, such as the Company’s results of operations, the trading price of the Company’s common stock relative to the book value per share, macroeconomic conditions and conditions in the banking sector, inform whether a triggering event for an interim goodwill impairment test has occurred. Goodwill is recorded and evaluated for impairment at its reporting units, Banking and Wealth Management. The Company's policy is to test goodwill for impairment annually as of August 31, or on an interim basis if an event triggering an impairment assessment is determined to have occurred. Testing of goodwill impairment comprises a two-step process. First, the Company performs a qualitative assessment to evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that an impairment has occurred, it proceeds to the quantitative impairment test, whereby it calculates the fair value of the reporting unit and compares it with its carrying amount, including goodwill. In its performance of impairment testing, the Company has the unconditional option to proceed directly to the quantitative impairment test, bypassing the qualitative assessment. If the carrying amount of the reporting unit exceeds the fair value, the amount by which the carrying amount exceeds fair value, up to the carrying value of goodwill, is recorded through earnings as an impairment charge. If the results of the qualitative assessment indicate that it is not more likely than not that an impairment has occurred, or if the quantitative impairment test results in a fair value of the reporting unit that is greater than the carrying amount, then no impairment charge is recorded. The Company performed a quantitative impairment test on its Banking reporting unit as of December 31, 2024, and engaged a third-party service provider to assist Management with the determination of the fair value. The resulting calculation indicated that the fair value exceeded the carrying amount of the Company's Banking reporting unit by approximately 7% as of December 31, 2024, which resulted in a determination of no impairment loss. The method employed was a discounted cash flow analysis. Significant judgment is necessary in the determination of the fair value of a reporting unit. The income valuation methodology requires an estimation of future cash flows, considering 56 Table of Contents the after-tax results of operations, the extent and timing of credit losses, and appropriate discount and growth rates. Actual future cash flows may differ from forecasted results based on the assumptions used. In performing the discounted cash flow analysis, the Company utilized multi-year cash projections that rely on internal forecasts of loan and deposit growth, bond mix, financing composition, market pricing of securities, credit performance, forward interest rates, future returns driven by net interest margin, fee generation and expense incurrence, industry and economic trends, and other relevant considerations. The long-term growth rate used in the calculation of fair value was derived from published projections of the inflation rate, along with Management estimates. The discount rate was calculated as the cost of equity capital using the modified capital asset pricing model, which includes variables including the risk-free interest rate, beta, equity risk premium, size premium and company-specific risk premium. Subsequently, during the first quarter of 2025, Management determined that a triggering event had occurred at its Banking reporting unit as a result of further deteriorated credit quality coupled with the trends in the stock price. The Company performed a quantitative impairment test on its Banking reporting unit as of March 31, 2025, and engaged a third-party service provider to assist Management with the determination of the fair value. The resulting calculation indicated that the carrying amount exceeded the fair value of the Company's Banking reporting unit. As a result of the assessment, the Company expects to recognize goodwill impairment expense between $135.0 million and $154.0 million in the first quarter of 2025. This non-cash impairment expense will not impact our regulatory capital ratios, tangible common equity ratio nor our liquidity position, and will not result in future cash expenditures. Management has evaluated and will continue to evaluate economic conditions in interim periods for triggering events. Third-party loan origination and servicing programs. The Company operated three significant programs to originate and service unsecured commercial and consumer loans. Loan options under the programs include traditional fully-amortizing loans and promotional loans with no interest, or “same-as-cash”, features if the loan is fully repaid in the promotional window. The loans are originated at par in the Company’s name and have terms ranging from five months to 25 years with a much shorter effective life due to amortization and prepayments. Two programs are governed by multiple interrelated agreements including the loan agreement between the Company and the customer and agreements with the servicer. The structures of these programs are intended to generate loans that yield a targeted return to the Company on a portfolio basis while also providing credit enhancement from the servicer. Key characteristics of these programs include: • The servicer guarantees a targeted return which is paid first by customer payments and, if necessary, supplemented by the servicer. • The servicer contributes funds to a reserve account at the time of origination to be used for future charge-offs, if necessary. • Excess yield on the portfolio after realized charge-offs and above an agreed upon target rate due to the Company is paid to the servicer as a “performance fee.” • In the event charge-offs exceed the amount available as a performance fee, they roll over to future periods to offset potential performance fees and subsequent reserve account fundings related to the portfolio. The third program is governed by multiple interrelated agreements including the loan agreements between the Company and the customer, the Company and the program sponsor, and the Company and the servicer. Key characteristics of the program with a sponsor include: • The program sponsor guarantees a targeted return which is paid first by customer payments and, if necessary, supplemented by the program sponsor. • Excess yield on the portfolio after realized charge-offs and above an agreed upon target rate due to the Company is paid to the program sponsor as a “performance fee.” • In the event charge-offs exceed the amount available as a performance fee the program sponsor reimburses the Company for all excess charge-offs. Under U.S. GAAP, agreements with multiple counterparties, such as the customer, servicer and program sponsor, are generally required to be accounted for separately even if the agreements are highly interrelated. As a result, we account for the programs as multiple units of account with the following impacts: 57 Table of Contents • The loans are accounted for as one unit of account under U.S. GAAP including revenue recognition and inclusion in our CECL allowance methodology. • The agreement that governs the yield maintenance or credit enhancement from the servicer or program sponsor is a separate unit of account and meets the definition of a derivative under U.S. GAAP and is accounted for at fair value in our financial statements. The primary drivers of the derivative value include estimated prepayment activity on promotional loans that would trigger reimbursement from the third-party servicer or program sponsor to us and estimated excess yield above projected credit losses that would lead to performance fee payments from us to the third-party servicer or program sponsor. The credit risk of the third-party and discount rates used in the calculation also impact the value of the derivative. Changes in the fair value of the derivative are recorded as gains or losses in noninterest income. • Noninterest income each period includes actual amounts received during the period for interest reimbursement and amounts paid by the servicer or program sponsor under the credit enhancement described above. • Noninterest expense each period includes actual amounts paid during the period for performance fees and servicing fees as defined in our agreement with the servicer or program sponsor. At December 31, 2024 and 2023, loans outstanding in these programs were $110.4 million and $853.4 million, respectively. As of December 31, 2024, $336.7 million is included in loans held for sale at lower of cost or market as a result of our decision to pursue a sale of that portion of the portfolio. ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The quantitative and qualitative disclosures about market risk are included under Item 7 – "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk.” 58 Table of Contents ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm (PCAOB ID 173 ) 60 Consolidated Balance Sheets 61 Consolidated Statements of Income 62 Consolidated Statements of Comprehensive Income 63 Consolidated Statements of Shareholders' Equity 64 Consolidated Statements of Cash Flows 65 Note 1. Summary of Significant Accounting Policies 66 Note 2. Investment Securities 76 Note 3. Loans 78 Note 4. Premises, Equipment and Leases 94 Note 5: Operating Leases - Lessor 95 Note 6. Loan Servicing Rights 95 Note 7. Goodwill and Intangible Assets 96 Note 8. Derivative Instruments 97 Note 9. Deposits 100 Note 10. FHLB Advances and Other Borrowings 101 Note 11. Subordinated Debt 102 Note 12. Trust Preferred Debentures 102 Note 13. Accumulated Other Comprehensive Income (Loss) 104 Note 14. Income Taxes 105 Note 15. Retirement Plans 107 Note 16. Share-Based Compensation 109 Note 17. Preferred Stock 110 Note 18. Earnings Per Common Share 111 Note 19. Capital Requirements 111 Note 20. Fair Value of Financial Instruments 113 Note 21. Commitments, Contingencies and Credit Risk 117 Note 22. Segment Information 118 Note 23. Revenue from Contracts with Customers 121 Note 24. Parent Company Only Financial Information 122 Note 25. Restatement of Prior Period Financial Statements 124 Note 26. Subsequent Events 135 59 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of Midland States Bancorp, Inc. Effingham, Illinois Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Midland Sates Bancorp, Inc. (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, because of the effects of the material weaknesses discussed in the following paragraphs, the Company has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management's report: • The Company did not design and maintain controls to assess the risk of material misstatement with contracts related to non-routine transactions. • The Company did not design and maintain an effective internal control activities for evaluating the accounting and financial reporting related to third-party credit enhancement contracts. • The Company did not design and maintain effective internal controls over loan data, including the activities performed by certain third-party service organizations that perform core lending functions. The loan data control deficiencies affect the allowance for credit losses, loan balances, accrued interest, interest income, servicing fees, and the fair value of the credit enhancement derivative. We considered these material weaknesses identified above in determining the nature, timing, and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and our opinion on Internal Control over Financial Reporting does not affect our opinion on the financial statements. Restatement of Previously Issued Financial Statements As discussed in Note 1 to the consolidated financial statements, the 2023 and 2022 consolidated financial statements have been restated to correct misstatements. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Credit Losses on Loans – Qualitative Factors As described in Notes 1 and 3 to the consolidated financial statements, the Allowance for Credit Losses on Loans (“ACL”) represents the Company’s estimate of amounts that are not expected to be collected over the contractual life of the Company’s held for investment loan portfolio. The estimate of the ACL is based on historical experience, current conditions, and reasonable and supportable forecasts. As of December 31, 2024, the Company’s ACL was $111.2 million, and the provision for credit losses on loans was $119.3 million for the year then ended. The Company measures expected credit losses by utilizing a probability of default, loss given default, and exposure at default model to estimate the quantitative component of the allowance for credit losses for loans. Management qualitatively adjusts the quantitative model results for risk factors that are not considered within the modeling process but are relevant in assessing the expected credit losses. These qualitative factors are based upon management judgment and current assessment as to the impact of risks related to actual and expected changes in economic and business conditions and developments that affect the collectability of the loan pools, changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, changes in the value of the underlying collateral for loans that are non-collateral dependent, and other internal and external factors. We have identified auditing the qualitative factors as a critical audit matter as management’s determination of the qualitative factors is subjective and involves significant management judgments; and our audit procedures related to certain of the qualitative factors involved a high degree of auditor judgment and required significant audit effort, including the need to involve more experienced audit personnel. The primary audit procedures we performed to address this critical audit matter included: • Tested the operating effectiveness of the Company’s controls over the: ▪ Review over the appropriateness of the framework for the qualitative factors. ▪ Completeness and accuracy of internal data used in the qualitative factors. ▪ Review over the relevance and reliability of external data used in the qualitative factors. ▪ Mathematical accuracy of the qualitative factors. • Substantive tests included: ◦ Testing the completeness and accuracy of internal data and relevance and reliability of external data used in the qualitative factors ◦ Assessing the appropriateness and reasonableness of the framework developed for the qualitative factors including evaluating management’s judgments as to which factors impacted the qualitative analysis for each portfolio segment. ◦ Performing testing over the accuracy of inputs utilized in the calculation of qualitative factors for each portfolio segment. ◦ Testing the mathematical accuracy of the calculation of the qualitative factors. Goodwill Impairment Assessment As described in Notes 1 and 7 to the consolidated financial statements, goodwill is the excess of the purchase price over the fair value of the net assets of the business acquired and is periodically evaluated for impairment. The Company’s goodwill balance was $161.9 million as of December 31, 2024, of which $157.2 million is allocated to the Company’s banking segment. The Company tests for impairment at least annually or, more frequently, if an event occurs or circumstances change that indicate that the fair value of the reporting unit may be below its carrying amount (triggering event). The Company determined that a triggering event occurred and performed a quantitative assessment of goodwill for the Company’s bank reporting unit as of December 31, 2024. The Company engaged a third-party service provider in performing its quantitative impairment assessment. The Company's impairment assessment estimated fair value using an income approach that incorporated a discounted cash flow model that involves management assumptions based upon internal forecasts. We identified the auditing of the impairment assessment of goodwill as of December 31, 2024 as a critical audit matter due to the significant management judgments related to determining the fair value of the reporting unit, which in turn led to a high degree of auditor judgment and subjectivity in evaluating the fair value of the reporting unit, specifically the significant assumptions related to the multi-year cash projections that rely on internal forecasts and the discount rate. In addition, we used auditor employed specialists to assist in evaluating the significant assumptions. The primary audit procedures we performed to address this critical audit matter included: • Tested the operating effectiveness of the Company’s controls over the: ◦ Review for completeness and accuracy of internal data and evaluation of the relevance and reliability of external data used in the impairment assessment. ◦ Review of the reasonableness of the Company’s internal forecasts utilized in the impairment assessment. ◦ Evaluation of the reasonableness of the valuation methodologies and the significant assumptions, including discount rate. • Substantive tests included: ◦ Evaluating the reasonableness of the valuation methodologies used to determine the fair value of the reporting unit. ◦ Testing the completeness and accuracy of internal data, and evaluating the relevance and reliability of external data. ◦ Evaluating the reasonableness of the internal forecasts utilized in the impairment assessment. ◦ Utilization of auditor employed specialists to assist with the evaluation of the appropriateness of the valuation methodologies, reasonableness of the discount rate, and overall reasonableness of the fair value of the reporting unit. Credit Enhancements Contained Within Third-Party Agreements The Company has agreements with third parties to originate and service consumer and commercial loans that are included in the Company’s loan portfolio as described in Notes 1 and 3 to the consolidated financial statements. As part of these programs, the third-party provider offered various credit enhancements with respect to loans originated under the programs, including contributions to reserve accounts, yield maintenance and certain other payments. The Company has determined that the borrower payments and credit enhancement payments under the programs should be accounted for on a separate unit of account or gross basis, with loan yields and interest income recorded at the gross borrower loan rate, and credit losses and associated provisions for credit losses recorded on a gross basis over the life of the loans, and with all credit enhancement payments accounted for separately as a credit enhancement derivative. As of December 31, 2024, the Company recorded a credit enhancement asset of $16.8 million, which represents the fair value of the credit enhancement derivative associated with the agreements related to loans recorded on the consolidated balance sheet as of the same date. We identified auditing the accounting associated with the credit enhancement contained within the third-party agreements as a critical audit matter due to the nature and extent of audit effort required, including the need for individuals with specialized knowledge. Additionally, material weaknesses were identified by the Company related to the accounting and financial reporting associated with the credit enhancement contained within the third-party agreements and its impact on consolidated financial statements. The primary procedure we performed to address this critical audit matter included engaging our internal specialists to evaluate the third-party agreements and the related accounting treatment. Crowe LLP We have served as the Company’s auditor since 2017. Oakbrook Terrace, Illinois July 1, 2025 60 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) December 31, 2024 December 31, 2023 (Restated) Assets Cash and due from banks $ 114,055 $ 134,212 Federal funds sold 711 849 Cash and cash equivalents 114,766 135,061 Investment securities available for sale, at fair value 1,207,574 915,895 Equity securities, at fair value 4,792 4,501 Loans 5,167,574 6,103,592 Allowance for credit losses on loans ( 111,204 ) ( 159,319 ) Total loans, net 5,056,370 5,944,273 Loans held for sale 344,947 3,811 Premises and equipment, net 85,710 82,814 Other real estate owned 4,941 9,112 Nonmarketable equity securities 33,723 43,421 Accrued interest receivable 25,329 34,133 Loan servicing rights, at lower of cost or fair value 17,842 20,253 Goodwill 161,904 161,904 Other intangible assets, net 12,100 16,108 Company-owned life insurance 211,168 203,485 Credit enhancement asset 16,804 15,389 Other assets 208,839 199,886 Total assets $ 7,506,809 $ 7,790,046 Liabilities and Shareholders’ Equity Liabilities: Deposits: Noninterest-bearing demand deposits $ 1,055,564 $ 1,145,395 Interest-bearing deposits 5,141,679 5,164,134 Total deposits 6,197,243 6,309,529 Short-term borrowings 87,499 34,865 Federal Home Loan Bank advances and other borrowings 258,000 476,000 Subordinated debt 77,749 93,546 Trust preferred debentures 51,205 50,616 Accrued interest payable and other liabilities 124,266 110,377 Total liabilities 6,795,962 7,074,933 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 December 31, 2024 and 2023, respectively 110,548 110,548 Common stock, $ 0.01 par value; 40,000,000 shares authorized; 21,494,485 and 21,551,402 shares issued and outstanding at December 31, 2024 and 2023, respectively 215 216 Capital surplus 434,346 435,463 Retained earnings 247,698 245,639 Accumulated other comprehensive loss, net of tax ( 81,960 ) ( 76,753 ) Total shareholders’ equity 710,847 715,113 Total liabilities and shareholders’ equity $ 7,506,809 $ 7,790,046 The accompanying notes are an integral part of the consolidated financial statements. 61 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) Years Ended December 31, 2024 2023 (Restated) 2022 (Restated) Interest income: Loans including fees: Taxable $ 365,892 $ 378,333 $ 285,577 Tax exempt 1,536 1,764 2,082 Loans held for sale 392 260 404 Investment securities: Taxable 49,769 28,653 15,801 Tax exempt 1,511 1,349 2,746 Nonmarketable equity securities 3,070 2,819 2,198 Federal funds sold and cash investments 3,958 3,922 3,907 Total interest income 426,128 417,100 312,715 Interest expense: Deposits 160,676 136,947 36,061 Short-term borrowings 1,960 68 104 Federal Home Loan Bank advances and other borrowings 16,495 20,709 9,335 Subordinated debt 5,271 5,266 7,495 Trust preferred debentures 5,380 5,289 3,025 Total interest expense 189,782 168,279 56,020 Net interest income 236,346 248,821 256,695 Provision for credit losses: Provision for credit losses on loans 119,262 82,560 75,435 Provision for credit losses on unfunded commitments 1,070 — 1,550 Recapture of other credit losses — — ( 221 ) Total provision for credit losses 120,332 82,560 76,764 Net interest income after provision for credit losses 116,014 166,261 179,931 Noninterest income: Wealth management revenue 28,697 25,572 25,708 Service charges on deposit accounts 13,154 11,990 10,237 Interchange revenue 13,955 14,302 13,879 Residential mortgage banking revenue 2,418 1,903 1,509 Income on company-owned life insurance 7,683 4,439 3,584 Loss on sales of investment securities, net ( 230 ) ( 9,372 ) ( 230 ) Gain on termination of hedged interest rate swaps — — 17,531 Impairment on commercial mortgage servicing rights — — ( 1,263 ) Credit enhancement income 60,998 48,194 69,976 Other income 12,066 17,756 8,936 Total noninterest income 138,741 114,784 149,867 Noninterest expense: Salaries and employee benefits 93,639 93,438 90,305 Occupancy and equipment 16,785 15,986 14,842 Data processing 28,160 26,286 24,350 FDIC insurance 5,278 4,779 3,336 Professional services 7,822 7,049 6,907 Marketing 3,926 3,158 3,318 Communications 1,364 1,741 2,382 Loan expense 5,954 4,206 4,586 Loan servicing fees 12,864 19,181 22,750 Amortization of intangible assets 4,008 4,758 5,410 Other real estate owned 5,569 333 5,188 Loss on mortgage servicing rights held for sale — — 3,250 Impairment on leased assets and surrendered assets 7,858 — — Other expense 14,628 12,168 11,788 Total noninterest expense 207,855 193,083 198,412 Income before income taxes 46,900 87,962 131,386 Income tax expense 8,856 26,807 31,149 Net income 38,044 61,155 100,237 Preferred dividends 8,913 8,913 3,169 Net income available to common shareholders $ 29,131 $ 52,242 $ 97,068 Per common share data: Basic earnings per common share $ 1.32 $ 2.33 $ 4.29 Diluted earnings per common share $ 1.32 $ 2.33 $ 4.28 Weighted average common shares outstanding 21,731,689 22,115,869 22,341,498 Weighted average diluted common shares outstanding 21,737,958 22,124,402 22,395,698 The accompanying notes are an integral part of the consolidated financial statements. 62 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) Years Ended December 31, 2024 2023 (Restated) 2022 (Restated) Net income $ 38,044 $ 61,155 $ 100,237 Other comprehensive (loss) income: Investment securities available for sale: Unrealized losses that occurred during the period ( 9,278 ) ( 2,536 ) ( 106,927 ) Recapture of credit loss expense — — ( 221 ) Reclassification adjustment for realized net losses on sales of investment securities included in net income 230 9,372 230 Reclassification adjustment for gains on fair value hedges included in net income ( 142 ) — — Income tax effect 1,677 ( 1,845 ) 28,876 Change in investment securities available for sale, net of tax ( 7,513 ) 4,991 ( 78,042 ) Cash flow hedges: Net unrealized derivative losses on cash flow hedges ( 1,692 ) ( 2,452 ) 2,551 Reclassification adjustment for net losses (gains) realized in net income 4,891 5,264 ( 17,644 ) Income tax effect ( 893 ) ( 759 ) 4,101 Change in cash flow hedges, net of tax 2,306 2,053 ( 10,992 ) Other comprehensive (loss) income, net of tax ( 5,207 ) 7,044 ( 89,034 ) Total comprehensive income $ 32,837 $ 68,199 $ 11,203 The accompanying notes are an integral part of the consolidated financial statements . 63 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands, except per share data) Preferred stock Common stock Capital surplus Retained earnings Accumulated other comprehensive income (loss) Total shareholders' equity Balances, December 31, 2021 $ — $ 221 $ 445,907 $ 212,472 $ 5,237 $ 663,837 Prior period adjustment from restatement — — — ( 63,647 ) — ( 63,647 ) Balances, January 1, 2022 (Restated) — 221 445,907 148,825 5,237 600,190 Net income — — — 100,237 — 100,237 Other comprehensive loss — — — — ( 89,034 ) ( 89,034 ) Issuance of preferred stock, net of offering costs 110,548 — — — — 110,548 Common dividends declared ($ 1.16 per share) — — — ( 25,923 ) — ( 25,923 ) Preferred dividends — — — ( 3,169 ) — ( 3,169 ) Common stock repurchased — ( 1 ) ( 1,108 ) — — ( 1,109 ) Share-based compensation expense — — 2,211 — — 2,211 Issuance of common stock under employee benefit plans — 2 2,186 — — 2,188 Balances, December 31, 2022 (Restated) $ 110,548 $ 222 $ 449,196 $ 219,970 $ ( 83,797 ) $ 696,139 Net income — — — 61,155 — 61,155 Other comprehensive income — — — — 7,044 7,044 Common dividends declared ($ 1.20 per share) — — — ( 26,573 ) — ( 26,573 ) Preferred dividends — — — ( 8,913 ) — ( 8,913 ) Common stock repurchased — ( 8 ) ( 17,890 ) — — ( 17,898 ) Share-based compensation expense — — 2,489 — — 2,489 Issuance of common stock under employee benefit plans — 2 1,668 — — 1,670 Balances, December 31, 2023 (Restated) $ 110,548 $ 216 $ 435,463 $ 245,639 $ ( 76,753 ) $ 715,113 Net income — — — 38,044 — 38,044 Other comprehensive loss — — — — ( 5,207 ) ( 5,207 ) Common dividends declared ($ 1.24 per share) — — — ( 27,072 ) — ( 27,072 ) Preferred dividends — — — ( 8,913 ) — ( 8,913 ) Common stock repurchased — ( 2 ) ( 5,473 ) — — ( 5,475 ) Share-based compensation expense — — 3,031 — — 3,031 Issuance of common stock under employee benefit plans — 1 1,325 — — 1,326 Balances, December, 31, 2024 $ 110,548 $ 215 $ 434,346 $ 247,698 $ ( 81,960 ) $ 710,847 The accompanying notes are an integral part of the consolidated financial statements. 64 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Years Ended December 31, 2024 2023 (Restated) 2022 (Restated) Cash flows from operating activities: Net income $ 38,044 $ 61,155 $ 100,237 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 120,332 82,560 76,764 Depreciation on premises and equipment 4,993 4,778 4,842 Amortization of intangible assets 4,008 4,758 5,410 Amortization of operating lease right-of-use asset 1,657 1,635 1,831 Amortization of loan servicing rights 2,498 1,550 2,294 Share-based compensation expense 3,031 2,489 2,211 Increase in cash surrender value of life insurance ( 7,683 ) ( 4,439 ) ( 3,320 ) Gain on proceeds from company-owned life insurance — — ( 264 ) Investment securities (accretion) amortization, net ( 6,789 ) ( 2,414 ) 2,311 Gain on termination of hedged interest rate swaps — — ( 17,531 ) Loss on sales of investment securities, net 230 9,372 230 Gain on repurchase of subordinated debt ( 231 ) ( 676 ) — (Gain) loss on sales of other real estate owned ( 26 ) ( 819 ) 118 Impairment on other real estate owned 4,866 — 4,277 Origination of loans held for sale ( 81,077 ) ( 58,953 ) ( 134,612 ) Proceeds from sales of loans and leases held for sale 78,514 57,952 269,958 Gain on sale of loans held for sale ( 2,307 ) ( 2,395 ) ( 844 ) Impairment on commercial mortgage servicing rights — — 1,263 Loss on mortgage servicing rights held for sale — — 3,250 Impairment on leased assets and surrendered assets 7,858 — — Net change in operating assets and liabilities: Accrued interest receivable 8,804 ( 4,360 ) ( 1,448 ) Credit enhancement asset ( 1,415 ) ( 2,376 ) ( 18,792 ) Other assets ( 16,783 ) ( 24,038 ) 1,213 Accrued expenses and other liabilities 18,022 27,579 ( 13,579 ) Net cash provided by operating activities 176,546 153,358 285,819 Cash flows from investing activities: Purchases of investment securities available for sale ( 605,169 ) ( 412,799 ) ( 192,349 ) Proceeds from sales of investment securities available for sale 74,116 191,733 136,403 Maturities and payments on investment securities available for sale 233,563 74,531 85,077 Purchases of equity securities ( 268 ) ( 286 ) ( 511 ) Proceeds from sales of equity securities — 5,148 — Net decrease (increase) in loans 346,883 72,877 ( 1,216,352 ) Proceeds from loans held for sale previously classified as portfolio loans 84,283 40,899 — Purchases of premises and equipment ( 6,901 ) ( 8,731 ) ( 3,470 ) Proceeds from sale of premises and equipment 37 104 175 Purchases of nonmarketable equity securities ( 172,057 ) ( 239,597 ) ( 24,787 ) Proceeds from redemptions of nonmarketable equity securities 181,755 242,377 14,927 Proceeds from sales of other real estate owned 466 7,547 1,453 (Purchases of) proceeds from company-owned life insurance, net — ( 48,603 ) 1,518 Net cash acquired in acquisitions — — 60,275 Net cash provided by (used in) investing activities 136,708 ( 74,800 ) ( 1,137,641 ) Cash flows from financing activities: Net (decrease) increase in deposits ( 112,286 ) ( 55,123 ) 174,210 Net increase (decrease) in short-term borrowings 52,634 ( 7,446 ) ( 34,492 ) Net (decrease) increase in short-term FHLB borrowings ( 166,000 ) ( 174,000 ) 250,000 Proceeds from long-term FHLB borrowings 263,000 215,000 — Payments made on long-term FHLB borrowings and other borrowings ( 315,000 ) ( 25,000 ) ( 100,171 ) Payments made on subordinated debt ( 15,763 ) ( 5,845 ) ( 40,000 ) Proceeds from issuance of preferred stock — — 110,548 Cash dividends paid on preferred stock ( 8,913 ) ( 8,913 ) ( 3,169 ) Cash dividends paid on common stock ( 27,072 ) ( 26,573 ) ( 25,923 ) Common stock repurchased ( 5,475 ) ( 17,898 ) ( 1,109 ) Proceeds from issuance of common stock under employee benefit plans 1,326 1,670 2,188 Net cash (used in) provided by financing activities ( 333,549 ) ( 104,128 ) 332,082 Net decrease in cash and cash equivalents ( 20,295 ) ( 25,570 ) ( 519,740 ) Cash and cash equivalents: Beginning of period 135,061 160,631 680,371 End of period $ 114,766 $ 135,061 $ 160,631 The accompanying notes are an integral part of the consolidated financial statements . 65 Table of Contents MIDLAND STATES BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED) 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 consolidated financial statements of the Company have been prepared in accordance with GAAP and conform to predominant practices within the banking industry. Management of the Company has made a number of estimates and assumptions related to the reporting assets and liabilities to prepare the consolidated financial statements in conformity with GAAP. Actual results may differ from these estimates. Certain reclassifications of 2023 or 2022 amounts may have been made to conform to the 2024 presentation, but do not have an effect on net income or shareholders' equity. The accompanying consolidated financial statements include a restatement of the financial statements (i) as of and for the year ended December 31, 2023 and (ii) for the year ended December 31, 2022 as referenced below. Subsequent Events Management has evaluated subsequent events for recognition and disclosure through July 1, 2025, which is the date the financial statements were available to be issued. Business Combinations The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations . Under the acquisition method of accounting, tangible and intangible identifiable assets acquired, liabilities assumed and any noncontrolling interests in the acquiree are recorded at fair value as of the acquisition date. The Company includes the results of operations of the acquired company in the consolidated statements of income from the date of acquisition. Transaction costs and costs to restructure the acquired company are expensed as incurred. Goodwill is recognized as the excess of the acquisition price over the estimated fair value of the net assets acquired. If the fair value of the net assets acquired is greater than the acquisition price, a bargain purchase gain is recognized and recorded in noninterest income. Restatement of prior period Financial Statements In connection with the preparation of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, the Audit Committee, after discussion with management and the Company's independent registered public accounting firm, Crowe LLP, concluded that the Company's audited consolidated financial statements for the Restated Financial Periods should no longer be relied upon because of errors identified in such financial statements, as described below. The errors relate to the Company’s accounting for loans originated pursuant to third-party loan origination programs. These programs go back as far as 2012. As part of these programs, the third-party providers offered various credit enhancements with respect to loans originated under the programs, including contributions to reserve accounts, yield maintenance and certain other payments. Historically, the Company accounted for all borrower payments and credit enhancement payments under these programs on a single unit, or net basis, with all such payments presented as interest income representing the Company’s effective yield on the portfolios. The Company has determined that these payments should instead 66 Table of Contents be accounted for on a separate unit of account, or gross basis, with loan yields and interest income recorded at the gross borrower loan rate, credit losses and associated provisions for credit losses recorded on a gross basis over the life of the loans, and with all credit enhancement payments recorded separately as a credit enhancement derivative. As a result of the above, the Company is restating the financial statements (i) as of and for the year ended December 31, 2023 and (ii) for the year ended December 31, 2022, as presented in the audited financial statements as of and for the period ended December 31, 2024 in this Annual Report on Form 10-K. The impact of the errors for years prior to January 1, 2022 have been adjusted through opening equity as of January 1, 2022 in the audited consolidated financial statements presented herein. See Note 25 - Restatement of Prior Period Financial Statements for additional information, including the impact on the specific accounts. Cash and Cash Equivalents and Cash Flows For the presentation in the accompanying consolidated statement of cash flows, cash and cash equivalents are defined as cash on hand, amounts due from banks, which includes amounts on deposit with the Federal Reserve, interest-bearing deposits with banks or other financial institutions and federal funds sold. Generally, federal funds are sold for one-day periods, but not longer than 30 days . The following table summarizes supplemental cash flow information: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Supplemental disclosures of cash flow information: Cash payments for: Interest paid on deposits and borrowed funds $ 189,599 $ 159,139 $ 55,069 Income tax paid (net of refunds) 22,543 25,120 36,514 Supplemental disclosures of noncash investing and financing activities: Transfer of loans to loans held for sale 406,561 — 103,357 Transfer of loans to other real estate owned 1,031 9,112 517 Transfer of loan servicing rights, at lower of cost or market to loan servicing rights held for sale — — 23,995 Transfer of loan servicing rights held for sale to loan servicing rights, at lower of cost or market — 20,745 — Right of use assets obtained in exchange for lease obligations 2,889 2,470 502 Investment Securities The Company classifies its debt investment securities as available for sale or held to maturity at the time of purchase. Securities held to maturity are those debt instruments which the Company has the positive intent and ability to hold until maturity. Securities held to maturity are recorded at cost, adjusted for the amortization of premiums or accretion of discounts. All other debt securities are classified as available for sale. As of December 31, 2024 and 2023, all investment securities were classified as available for sale. Investment securities available for sale are recorded at fair value with the unrealized gains and losses, net of the related tax effect, included in other comprehensive income. The related accumulated unrealized holding gains and losses are reported as a separate component of shareholders’ equity until realized. Purchase premiums are amortized over the estimated life or to the earliest call date and purchase discounts are accreted over the estimated life of the related investment security as an adjustment to yield using the effective interest method. Unamortized premiums, unaccreted discounts, and early payment premiums are recognized in interest income upon disposition of the related security. Interest and dividend income are recognized when earned. Realized gains and losses from the sale of investment securities available for sale are determined using the specific identification method and are included in noninterest income. Also, when applicable, realized gains and losses are reported as a reclassification adjustment, net of tax, in other comprehensive income. Available-for-sale debt securities in an unrealized loss position are evaluated, at least quarterly, for impairment related to credit losses. The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any 67 Table of Contents changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, and the present value of cash flows expected to be collected from the security is less than the amortized cost basis, an allowance for credit losses is recorded. Any impairment that has not been recorded through an allowance for credit losses is recorded in other comprehensive income. Accrued interest receivable on investment securities available for sale totaled $ 5.1 million and $ 4.3 million at December 31, 2024 and 2023, respectively, and was reported in accrued interest receivable on the consolidated balance sheets. The estimate of credit losses excludes this accrued interest receivable. There was no allowance for credit losses recorded on investment securities available for sale at December 31, 2024 and 2023. Equity Securities Investments in stock of a publicly traded company or in mutual funds are classified as equity securities. Equity securities are recorded at fair value with unrealized gains and losses recognized in noninterest income. Nonmarketable Equity Securities Nonmarketable equity securities include the Bank’s required investments in the stock of the FHLB and the FRB. The Bank is a member of the FHLB system as well as its regional FRB. Members of the FHLB are required to own a certain amount of stock based on the level of borrowings and other factors. FHLB stock and FRB stock are both carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash dividends and stock dividends are reported as interest income. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are classified as portfolio loans. Portfolio loans are carried at the principal balance outstanding, net of purchase premiums and discounts, and deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Accrued interest receivable on loans totaled $ 20.2 million and $ 29.9 million at December 31, 2024 and 2023, respectively, and was reported in accrued interest receivable on the consolidated balance sheets. Interest income on mortgage and commercial loans is discontinued and the loan is placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection. Mortgage loans are charged-off at 180 days past due, and commercial loans are charged-off to the extent principal or interest is deemed uncollectible. Consumer loans continue to accrue interest until they are charged-off or at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cost-recovery or cash-basis method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Leases. The Company provides financing leases to small businesses for purchases of business equipment. Under the direct financing method of accounting, the minimum lease payments to be received under the lease contract, together with the guaranteed residual values, which range from 1 % to 45 % of the cost of related equipment which average 3 %, are recorded as lease receivables when the lease is signed and the leased property is delivered to the customer. The excess of the minimum lease payments and residual values over the cost of the equipment is recorded as unearned lease income. Unearned lease income is recognized over the term of the lease on a basis that results in an approximately level rate of return on the unrecovered lease investment. PCD Loans. In the past the Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Purchased credit deteriorated loans are recorded at the amount paid. An allowance for credit losses on loans is determined using the same methodology as other loans held for investment. The initial allowance for credit losses on loans determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses on loans becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses on loans are recorded through provision expense for credit losses. 68 Table of Contents Nonperforming Loans. A loan is considered nonperforming when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Nonperforming loans include loans on nonaccrual status and loans past due 90 days or more and still accruing interest. Allowance for Credit Losses on Loans The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. Management estimates the allowance balance using relevant information, from internal and external sources, relating to historical credit loss experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current loan-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses on loans is measured on a collective basis and reflects impairment in groups of loans aggregated on the basis of similar risk characteristics. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles and measured on a collective basis. Common characteristics and risk profiles may include internal credit ratings, risk ratings or classification, financial asset type, collateral type, size, industry of the borrower, historical or expected credit loss patterns, and reasonable and supportable forecast periods. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. The table below identifies the Company’s loan portfolio segments and classes. Segment Class Commercial Commercial Commercial Other Commercial Real Estate Commercial Real Estate Non-Owner Occupied Commercial Real Estate Owner Occupied Multi-Family Farmland Construction and Land Development Construction and Land Development Residential Real Estate Residential First Lien Other Residential Consumer Consumer Consumer Other Lease Financing Lease Financing For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of models which measure (i) probability of default, the likelihood that loan will stop performing or default, (ii) loss given default, the expected loss rate for loans in default, (iii) assumed prepayment speed, the likelihood that a loan will prepay or pay-off prior to maturity, and (iv) exposure at default, the estimated outstanding principal balance of the loans upon default, including the expected funding of unfunded commitments outstanding as of the measurement date. Expected credit losses are calculated as the product of probability of default (adjusted for prepayment), loss given default and exposure at default. This methodology builds on default probabilities already incorporated into our risk grading process by utilizing pool-specific historical loss rates to calculate expected credit losses. These pool-specific historical loss rates may be adjusted for current macroeconomic assumptions, as further discussed below, and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets being evaluated as of the measurement date. Each time we measure expected credit losses, we assess the relevancy of historical loss information and consider any necessary adjustments to address any differences in asset-specific characteristics. 69 Table of Contents The measurement of expected credit losses is impacted by loan and borrower attributes and certain macroeconomic variables. Significant loan and borrower attributes utilized in our modeling processes include, among other things, (i) origination date, (ii) maturity date, (iii) payment type, (iv) collateral type and amount, (v) current risk grade, (vi) current unpaid balance and commitment utilization rate, (vii) payment status and delinquency history and (viii) expected recoveries of previously charged-off amounts. Significant macroeconomic variables utilized in our modeling processes include, among other things, (i) Gross Domestic Product, (ii) Consumer Price Index, (iii) selected market interest rates including U.S. Treasury rates, (iv) commercial and residential property prices and unemployment rates in Illinois and the U.S. as a whole, and (v) Retail Sales for the State of Illinois. We have determined that we are reasonably able to forecast the macroeconomic variables used in our modeling processes with an acceptable degree of confidence for a total of two years with the last twelve months of the forecast period encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a straight line basis. The macroeconomic variables utilized as inputs in our modeling processes were subjected to a variety of analysis procedures and were selected primarily based on statistical relevancy and correlation to our historical credit losses. By reverting these modeling inputs to their historical mean and considering loan and borrower specific attributes, our models are intended to yield a measurement of expected credit losses that reflects our average historical loss rates for periods subsequent to the twelve-month reversion period. The LGD is based on historical recovery averages for each loan pool, adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a two-year forecast period, with the final twelve months of the forecast period encompassing a reversion process, which management considers to be both reasonable and supportable. The same forecast and reversion periods are used for all macroeconomic variables in our models. Management qualitatively adjusts model results for 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 may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, charge-offs, and recoveries, (ii) actual and expected changes in economic and business conditions and developments that affect the collectability of the loan pools, (iii) changes in the nature and volume of the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics. In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. Specific reserves reflect expected credit losses on loans identified for evaluation or individually considered nonperforming. These loans no longer have similar risk characteristics to collectively evaluated loans due to changes in credit risk, borrower circumstances, recognition of write-offs, or cash collections that have been fully applied to principal on the basis of nonaccrual policies. At a minimum, the population of loans subject to individual evaluation include individual loans where it is probable we will be unable to collect all amounts due, according to the original contractual terms. These include nonaccrual loans with a balance greater than $ 500,000 , accruing loans 90 days past due or greater with a balance greater than $ 100,000 , specialty lending relationships and other loans as determined by management. Allowance for credit losses for consumer and residential loans are, primarily, determined by meaningful pools of similar loans and are evaluated on a quarterly basis. Loans Held for Sale Loans held for sale consist of residential mortgage loans originated with the intent to sell as well as the GreenSky portfolio which the Company had committed to a plan to sell at December 31, 2024. Prior to 2023, loans held for sale also 70 Table of Contents included commercial FHA mortgage loans originated with the intent to sell. Loans held for sale are carried at fair value, determined individually, as of the balance sheet date. The Company believes the fair value method better reflects the economic risks associated with these loans. Fair value measurements on loans held for sale are based on quoted market prices for similar loans in the secondary market, market quotes from anticipated sales contracts and commitments, or contract prices from firm sales commitments. The changes in the fair value of loans held for sale are reflected in noninterest income on the consolidated statements of income. Mortgage Repurchase Reserve The Company sells residential mortgage loans to investors in the normal course of business. Residential mortgage loans sold to investors are predominantly conventional residential first lien mortgages originated under our usual underwriting procedures, and are sold on a nonrecourse basis. The Company’s agreements to sell residential mortgage loans usually require general representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability, which if subsequently untrue or breached, could require the Company to indemnify or repurchase certain loans affected. The balance in the repurchase reserve at the balance sheet date reflects the estimated amount of potential loss the Company could incur from repurchasing a loan, as well as loss reimbursements, indemnification, and other “make whole” settlement resolutions. There were no losses as a result of make-whole requests and loan repurchases for the years ended December 31, 2024, 2023 and 2022. The liability for unresolved repurchase demands totaled $ 0.1 million at December 31, 2024 and 2023. Premises and Equipment Premises, furniture and equipment, and leasehold improvements are stated at cost less accumulated depreciation. Depreciation expense is computed principally on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the asset or the lease term. Estimated useful lives for premises range from 10 to 40 years and for equipment range from 3 to 10 years. Maintenance and repairs are charged to operating expenses as incurred, while improvements that extend the useful life of assets are capitalized and depreciated over the estimated remaining life. We periodically review the carrying value of our long-lived assets to determine if impairment has occurred or whether changes in circumstances have occurred that would require a revision to the remaining useful life. In making such determination, we evaluate the performance, on an undiscounted basis, of the underlying operations or assets which give rise to such amount. Operating Lease Right of Use Assets and Liabilities The Company determines if a lease is present at the inception of an agreement. Operating leases are capitalized at commencement and are discounted using the Company’s FHLB borrowing rate for a similar term borrowing unless the lease defines an implicit rate within the contract. The operating lease right of use assets represent the Company’s right to use an underlying asset for the lease term, and the operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right of use assets and operating lease liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Company’s operating lease liabilities largely represent future rental expenses associated with operating leases and the borrowing rates are based on publicly available interest rates. Other Real Estate Owned OREO represents properties acquired through foreclosure or other proceedings and 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. Any write-down to fair value at the time of transfer to OREO is charged to the allowance for credit losses on loans. Fair value for OREO is based on an appraisal performed upon foreclosure. 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. Revenue from the operations of OREO is included in other income in the consolidated statements of income, and expense and decreases in valuations are included in other real estate owned expense in the consolidated statements of income. 71 Table of Contents Goodwill and Intangible Assets Goodwill resulting from a business combination is generally determined as the excess of the fair value of consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. Testing of goodwill impairment comprises a two-step process. The testing is performed on each of the two reporting units, the Banking reporting unit and the Wealth Management reporting unit. First, the Company performs a qualitative assessment to evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that an impairment has occurred, it proceeds to the quantitative impairment test, whereby it calculates the fair value of the reporting unit and compares it with its carrying amount, including goodwill. In its performance of impairment testing, the Company has the unconditional option to proceed directly to the quantitative impairment test, bypassing the qualitative assessment. If the carrying amount of the reporting unit exceeds the fair value, the amount by which the carrying amount exceeds fair value, up to the carrying value of goodwill, is recorded through earnings as an impairment charge. If the results of the qualitative assessment indicate that it is not more likely than not that an impairment has occurred, or if the quantitative impairment test results in a fair value of the reporting unit that is greater than the carrying amount, then no impairment charge is recorded. Annually, the Company performs an impairment test of goodwill as of August 31. During the year ended December 31, 2024, management performed quarterly qualitative assessments and an annual qualitative impairment test, as a result of the economic uncertainty and increased market volatility resulting from the elevated interest rate environment. The Company's annual impairment test of goodwill and other intangible assets did not identify any impairment. The Company performed a quantitative impairment test on its Banking reporting unit as of December 31, 2024. The Company engaged a third-party service provider to assist Management with the determination of the fair value of the Company in the fourth quarter of 2024. The resulting calculation indicated that the fair value exceeded the carrying amount of the Company's Banking reporting unit by approximately 7 % as of December 31, 2024, which resulted in a determination of no impairment loss. Significant judgment is necessary in the determination of the fair value of a reporting unit. The income valuation methodology requires an estimation of future cash flows, considering the after-tax results of operations, the extent and timing of credit losses, and appropriate discount and growth rates. Actual future cash flows may differ from forecasted results based on the assumptions used. In performing the discounted cash flow analysis, the Company utilized multi-year cash projections that rely on internal forecasts of loan and deposit growth, bond mix, financing composition, market pricing of securities, credit performance, forward interest rates, future returns driven by net interest margin, fee generation and expense incurrence, industry and economic trends, and other relevant considerations. The long-term growth rate used in the calculation of fair value was derived from published projections of the inflation rate, along with Management estimates. The discount rate was calculated as the cost of equity capital using the modified capital asset pricing model, which includes variables including the risk-free interest rate, beta, equity risk premium, size premium, and company-specific risk premium. Other intangible assets, which consist of core deposit and acquired customer relationship intangible assets, are typically amortized over a period ranging from 1 to 20 years using an accelerated method of amortization. On a periodic basis, we evaluate events and circumstances that may indicate a change in the recoverability of the carrying value. Loan Servicing Rights When loans are sold with servicing retained, a servicing rights asset is capitalized, which represents the, then current, fair value of future net cash flows expected to be realized for performing servicing activities. Loan servicing rights are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. Loan servicing rights do not trade in an active market with readily observable prices. The fair value of loan servicing rights and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of distinct portfolios of government-insured residential and commercial mortgages, conventional residential mortgages and SBA loans. The Company periodically evaluates 72 Table of Contents its loan servicing rights asset for impairment. Impairment is assessed based on the fair value of net servicing cash flows at each reporting date using estimated prepayment speeds of the underlying loans serviced and stratifications based on the risk characteristics of the underlying loans. To the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification, the Company records an impairment expense and reduces the carrying value of the loan servicing rights. We recognize revenue from servicing residential mortgages, commercial FHA mortgages, and SBA loans as earned based on the specific contractual terms. This revenue, along with amortization of and changes in impairment on servicing rights, is reported in residential mortgage banking revenue and other noninterest income, respectively, in the consolidated statements of income. Cash Surrender Value of Life Insurance Policies We have purchased life insurance policies on the lives of certain officers and key employees and are the owner and beneficiary of the policies. These policies provide an efficient form of funding for long-term retirement and other employee benefits costs. These policies are recorded as cash surrender value of life insurance policies in the consolidated balance sheets at each policy’s respective cash surrender value, adjusted for other charges or other amounts due that are probable at settlement, with changes in value recorded in noninterest income in the consolidated statements of income. Credit Enhancement Asset The Company is party to third-party loan origination programs. As part of these programs the third-party providers offer various credit enhancements with respect to loans originated under the programs, including contributions to reserve accounts, yield maintenance and certain other payments. In accordance with accounting guidance, we estimate and record an allowance for expected losses for these loans. When the allowance for credit losses on loans is recorded, a credit enhancement derivative is also recorded on the balance sheet with a corresponding entry to noninterest income in recognition of the partner's legal commitment to indemnify or reimburse the Company. The credit enhancement asset is relieved as credit enhancement payments and recoveries are received from the partner or taken from the partner's cash reserve account. Derivative Financial Instruments At the inception of a derivative contract, the Company designates the derivative as one of three types based on the intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), or (3) instruments that do not meet the accounting definition of a hedge. For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during with the hedged transaction affects earnings. All derivatives are recognized on the consolidated balance sheet as a component of other assets or other liabilities at their fair value. On the date the derivative contract is entered into, the derivative is designated as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability cash flow hedge. Changes in the fair value of a derivative that is highly effective as, and that is designated and qualifies as, a cash flow hedge are recorded in accumulated other comprehensive income, until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedged transactions. This process includes linking all derivatives that are designated as cash flow hedges to specific assets and liabilities on the balance sheet or forecasted transactions. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows or fair value of hedged items. Hedge accounting is prospectively discontinued when (a) it is determined that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item (including forecasted transactions); (b) the derivative expires or is sold, terminated, or exercised; (c) the derivative is no longer designated as a hedge instrument because it is unlikely that a forecasted transaction will occur; or (d) management determines that designation of the derivative as a hedge instrument is no longer appropriate. 73 Table of Contents When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the consolidated balance sheet at its fair value, and gains and losses that were in accumulated other comprehensive income will be recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the consolidated balance sheet, with subsequent changes in its fair value recognized in current-period earnings. The Company also enters into interest rate lock commitments, which are agreements to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. Interest rate lock commitments for mortgage loans that will be held for sale are carried at fair value on the consolidated balance sheet with changes in fair value reflected in residential mortgage banking revenue. The Company also has forward loan sales commitments related to its interest rate lock commitments and its loans held for sale. Forward loan sales commitments that meet the definition of a derivative are recorded at fair value in the consolidated balance sheet with changes in fair value reflected in residential mortgage banking revenue. Allowance for Credit Losses on Unfunded Commitments In the ordinary course of business, the Company has entered into credit-related financial instruments consisting of commitments to extend credit, commercial letters of credit and standby letters of credit. The notional amount of these commitments is not reflected in the consolidated financial statements until they are funded. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments is adjusted as a provision for credit loss expense on the consolidated income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Expected utilization rates are compared to the current funded portion of the total commitment amount as a practical expedient for funded exposure at default. The allowance for credit losses on unfunded commitments totaled $ 4.6 million and $ 3.5 million at December 31, 2024 and 2023, respectively. Income Taxes We file consolidated federal and state income tax returns, with each organization computing its taxes on a separate return basis. The provision for income taxes is based on income as reported in the consolidated financial statements. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. The deferred tax assets and liabilities are computed based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in other income or expense. The Company evaluated its tax positions and concluded that it had taken no uncertain tax positions that require adjustment in the consolidated financial statements. Share-Based Compensation Plans Compensation cost for share-based payment awards is based on the fair value of the award at the date of grant. The fair value of stock options is estimated at the date of grant using a Black-Scholes option pricing model. The fair value of restricted stock is determined based on the Company’s current market price on the date of grant. Compensation cost is recognized in the consolidated financial statements on a straight-line basis over the requisite service period, which is generally defined as the vesting period. Additionally, the Company accounts for forfeitures as they occur. 74 Table of Contents Comprehensive Income Comprehensive income is defined as net income plus transactions and other occurrences that are the result of non-owner changes in equity. Non-owner equity changes include unrealized gains and losses on available for sale securities and changes in the fair value of cash flow hedges. These are components of comprehensive income and do not have an impact on the Company’s net income. Earnings per Share Earnings per share are calculated utilizing the two-class method. Basic earnings per share are 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 share are 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. Principles of Consolidation The consolidated financial statements include the accounts of the parent company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Assets held for customers in a fiduciary or agency capacity, other than trust cash on deposit with the Bank, are not assets of the Company and, accordingly, are not included in the accompanying consolidated financial statements. 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. 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 has updated the related disclosures for the current fiscal year. Accounting Guidance Not Yet Adopted 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. FASB ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses - In November 2024, the FASB issued ASU 2024-03 in order to improve the disclosures about a public business entity's expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions. The amendments in ASU 2024-03 require disclosure, in the notes to the financial statements, of specified information about certain costs and expenses in interim and year-end reporting periods. The amendments in this ASU apply to all public business entities and are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments are to be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements. The Company will update the related disclosures upon adoption. 75 Table of Contents NOTE 2 – INVESTMENT SECURITIES Investment Securities Available for Sale Investment securities available for sale at December 31, 2024 and December 31, 2023 were as follows: December 31, 2024 (dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Basis Adjustments (2) Fair value Investment securities available for sale U.S. government sponsored entities and U.S. agency securities $ 21,655 $ 25 $ ( 1,539 ) $ — $ 20,141 Mortgage-backed securities - agency 940,508 1,558 ( 94,868 ) ( 142 ) 847,056 Mortgage-backed securities - non-agency 103,051 1,410 ( 3,449 ) — 101,012 State and municipal securities 75,597 96 ( 6,632 ) — 69,061 Corporate securities 85,602 42 ( 5,763 ) — 79,881 Other securities (1) 90,372 158 ( 107 ) — 90,423 Total available for sale securities $ 1,316,785 $ 3,289 $ ( 112,358 ) $ ( 142 ) $ 1,207,574 (1) The fair value of other securities includes student loan asset backed securities of $ 50.0 million and structured financial products of $ 40.4 million. (2) Basis adjustments represent the amount of fair value hedging adjustments included in the carrying amount of fixed-rate investment securities designated in fair value hedging arrangements. See Note 8 - Derivative Instruments for additional information regarding these derivative financial instruments. 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 Corporate securities 109,598 41 ( 10,467 ) 99,172 Other securities (1) 27,646 3 ( 84 ) 27,565 Total available for sale securities $ 1,012,592 $ 3,217 $ ( 99,914 ) $ 915,895 (1) The fair value of other securities includes structured financial products of $ 27.6 million. Investment securities with a carrying amount of $ 283.7 million and $ 320.5 million were pledged for public deposits at December 31, 2024 and 2023 , respectively. Excluding securities issued or backed by U.S. government or its sponsored entities and agencies, there were no investments in securities from one issuer that exceeded 10% of shareholders' equity as of December 31, 2024 and 2023. The table below shows the amortized cost and fair value of the investment securities portfolio by contractual maturity for all securities other than mortgage-backed securities, at December 31, 2024. Expected maturities may differ from 76 Table of Contents contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. (dollars in thousands) Amortized cost Fair value Investment securities available for sale Within one year $ 4,210 $ 4,188 After one year through five years 60,412 56,741 After five years through ten years 97,151 88,734 After ten years 111,453 109,843 Mortgage-backed securities 1,043,559 948,068 Total available for sale securities $ 1,316,785 $ 1,207,574 Proceeds and gross realized gains and losses on sales of investment securities available for sale for the years ended December 31, 2024, 2023 and 2022 are summarized as follows: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Investment securities available for sale Proceeds from sales $ 74,116 $ 191,733 $ 136,403 Gross realized gains on sales 420 338 829 Gross realized losses on sales ( 650 ) ( 9,710 ) ( 1,059 ) Unrealized losses and fair values for investment securities available for sale as of December 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: December 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 $ 4,973 $ 27 $ 8,488 $ 1,512 $ 13,461 $ 1,539 Mortgage-backed securities - agency 300,427 9,735 385,332 85,133 685,759 94,868 Mortgage-backed securities - non-agency 12,433 33 24,153 3,416 36,586 3,449 State and municipal securities 21,209 365 43,131 6,267 64,340 6,632 Corporate securities 23,833 1,910 52,271 3,853 76,104 5,763 Other securities 25,202 106 2,130 1 27,332 107 Total available for sale securities $ 388,077 $ 12,176 $ 515,505 $ 100,182 $ 903,582 $ 112,358 77 Table of Contents 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. 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 Corporate securities 4,688 53 84,662 10,414 89,350 10,467 Other securities 14,763 84 — — 14,763 84 Total available for sale securities $ 252,732 $ 13,713 $ 460,879 $ 86,201 $ 713,611 $ 99,914 At December 31, 2024, 295 investment securities available for sale had unrealized losses with aggregate depreciation of 10.82 % 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 and principal is paid back in full. 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. NOTE 3 – LOANS The following table presents total loans outstanding by portfolio class, as of December 31, 2024 and December 31, 2023: (dollars in thousands) December 31, 2024 December 31, 2023 (Restated) Commercial: Commercial $ 818,496 $ 825,938 Commercial other 541,324 679,516 Commercial real estate: Commercial real estate non-owner occupied 1,628,961 1,622,668 Commercial real estate owner occupied 440,806 436,857 Multi-family 454,249 279,904 Farmland 67,648 67,416 Construction and land development 299,842 452,593 Total commercial loans 4,251,326 4,364,892 Residential real estate: Residential first lien 315,775 317,388 Other residential 64,782 63,195 Consumer: Consumer 96,202 107,743 Consumer other 48,099 777,024 Lease financing 391,390 473,350 Total loans $ 5,167,574 $ 6,103,592 Total loans include net deferred loan costs of $ 1.4 million and $ 3.8 million at December 31, 2024 and December 31, 2023, respectively, and unearned discounts of $ 56.7 million and $ 66.4 million within the lease financing portfolio at December 31, 2024 and December 31, 2023, respectively. 78 Table of Contents 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 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. 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 leasing business provides financing leases to varying types of businesses, nationwide, for purchases of business equipment. 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 as comparable transactions with non-insiders, including collateralization and interest rates prevailing at the time. The new loans, other additions, repayments and other reductions for the years ended December 31, 2024 and 2023, are summarized as follows: Years Ended December 31, (dollars in thousands) 2024 2023 Beginning balance $ 20,990 $ 19,776 New loans and other additions 22,325 2,368 Repayments and other reductions ( 2,905 ) ( 1,154 ) Ending balance $ 40,410 $ 20,990 79 Table of Contents The following table represents, by loan portfolio segment, a summary of changes in the allowance for credit losses on loans for the years ended December 31, 2024, 2023 and 2022: 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 year ended December 31, 2024: Balance, beginning of period $ 29,672 $ 20,229 $ 4,163 $ 5,553 $ 86,762 $ 12,940 $ 159,319 Provision for credit losses on loans 42,610 24,366 17,375 3,028 16,415 15,468 119,262 Charge-offs ( 30,453 ) ( 9,998 ) ( 17,991 ) ( 817 ) ( 98,051 ) ( 14,323 ) ( 171,633 ) Recoveries 947 2,240 3 238 274 554 4,256 Balance, end of period $ 42,776 $ 36,837 $ 3,550 $ 8,002 $ 5,400 $ 14,639 $ 111,204 Changes in allowance for credit losses on loans for the year ended December 31, 2023 (restated) : Balance, beginning of period $ 26,035 $ 29,290 $ 2,435 $ 4,301 $ 60,041 $ 6,787 $ 128,889 Provision for credit losses on loans 15,555 ( 8,067 ) 3,296 1,385 59,582 10,809 82,560 Charge-offs ( 13,703 ) ( 5,000 ) ( 1,601 ) ( 271 ) ( 33,149 ) ( 5,026 ) ( 58,750 ) Recoveries 1,785 4,006 33 138 288 370 6,620 Balance, end of period $ 29,672 $ 20,229 $ 4,163 $ 5,553 $ 86,762 $ 12,940 $ 159,319 Changes in allowance for credit losses on loans for the year ended December 31, 2022 (restated) : Balance, beginning of period $ 24,768 $ 22,993 $ 972 $ 2,695 $ 30,547 $ 7,469 $ 89,444 Provision for credit losses on loans 9,307 10,396 1,439 1,698 53,128 ( 533 ) 75,435 Charge-offs ( 8,441 ) ( 4,106 ) ( 6 ) ( 344 ) ( 24,091 ) ( 1,297 ) ( 38,285 ) Recoveries 401 7 30 252 457 1,148 2,295 Balance, end of period $ 26,035 $ 29,290 $ 2,435 $ 4,301 $ 60,041 $ 6,787 $ 128,889 The Company utilizes a combination of models which measure probability of default and loss given default in determining expected future credit losses. 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 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. 80 Table of Contents 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. 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 similar risk characteristics with other loans in the pool. 81 Table of Contents The following table presents the amortized cost basis of individually evaluated loans on nonaccrual status as of December 31, 2024 and December 31, 2023: December 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 $ 2,678 $ 7,074 $ 9,752 $ 3,560 $ — $ 3,560 Commercial other 3,439 — 3,439 4,941 — 4,941 Commercial real estate: Commercial real estate non-owner occupied 9,173 24,187 33,360 1,614 14,098 15,712 Commercial real estate owner occupied 1,407 16,871 18,278 4,276 6,500 10,776 Multi-family 2,363 51,770 54,133 240 6,015 6,255 Farmland 1,148 — 1,148 1,148 — 1,148 Construction and land development 39 8,399 8,438 39 — 39 Total commercial loans 20,247 108,301 128,548 15,818 26,613 42,431 Residential real estate: Residential first lien 2,501 491 2,992 2,583 490 3,073 Other residential 446 — 446 635 — 635 Consumer: Consumer 20 — 20 134 — 134 Lease financing 8,132 — 8,132 9,097 36 9,133 Total loans $ 31,346 $ 108,792 $ 140,138 $ 28,267 $ 27,139 $ 55,406 There was no interest income recognized on nonaccrual loans during the years ended December 31, 2024, 2023 and 2022 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 $ 9.6 million, $ 3.4 million and $ 2.8 million for the years ended December 31, 2024, 2023 and 2022, respectively. Collateral Dependent Financial Assets A collateral dependent financial asset is a loan that 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 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. 82 Table of Contents The table below presents the amortized cost basis of individually evaluated, collateral dependent loans by loan class, for borrowers experiencing financial difficulty, as of December 31, 2024 and December 31, 2023: Type of Collateral (dollars in thousands) Real Estate Blanket Lien Equipment Total December 31, 2024 Commercial: Commercial $ — $ 7,074 $ — $ 7,074 Commercial real estate: Non-owner occupied 24,188 — — 24,188 Owner occupied 9,284 7,587 — 16,871 Multi-family 54,133 — — 54,133 Construction and land development 8,399 — — 8,399 Residential real estate Residential first lien — — — — Other residential — — — — Lease financing — — 465 465 Total collateral dependent loans $ 96,004 $ 14,661 $ 465 $ 111,130 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 83 Table of Contents The aging status of the recorded investment in loans by portfolio as of December 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 $ 4,562 $ 349 $ — $ 4,911 $ 9,752 $ 803,833 $ 818,496 Commercial other 9,578 6,284 10,769 26,631 3,439 511,254 541,324 Commercial real estate: Commercial real estate non-owner occupied 11,732 — — 11,732 33,360 1,583,869 1,628,961 Commercial real estate owner occupied 985 — — 985 18,278 421,543 440,806 Multi-family — — — — 54,133 400,116 454,249 Farmland 48 — — 48 1,148 66,452 67,648 Construction and land development — — — — 8,438 291,404 299,842 Total commercial loans 26,905 6,633 10,769 44,307 128,548 4,078,471 4,251,326 Residential real estate: Residential first lien 21 650 — 671 2,992 312,112 315,775 Other residential 91 38 — 129 446 64,207 64,782 Consumer: Consumer 314 40 — 354 20 95,828 96,202 Consumer other 345 211 — 556 — 47,543 48,099 Lease financing 4,679 3,754 — 8,433 8,132 374,825 391,390 Total loans $ 32,355 $ 11,326 $ 10,769 $ 54,450 $ 140,138 $ 4,972,986 $ 5,167,574 The aging status of the recorded investment in loans by portfolio as of December 31, 2023 (restated) 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 11,686 6,109 784 18,579 4,941 655,996 679,516 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 36,127 25,466 784 62,377 42,431 4,260,084 4,364,892 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 6,695 4,442 — 11,137 — 765,887 777,024 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 $ 5,964,463 $ 6,103,592 84 Table of Contents Loan Restructurings The Company may offer various types of concessions when a borrower is experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows including principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Commercial 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. 85 Table of Contents The following table represents, by loan portfolio segment, a summary of the loan restructuring for the years ended December 31, 2024 and 2023: Years Ended December 31, 2024 2023 (dollars in thousands) Balance Count Balance Count Commercial: Commercial $ 61,729 8 $ 40 1 Commercial other 1,790 17 1,447 6 Commercial real estate: Commercial real estate non-owner occupied 31,550 5 — — Commercial real estate owner occupied 6,131 3 — — Multi-family 27,354 2 — — Construction and land development 17,033 3 — — Total commercial loans 145,587 38 1,487 7 Residential real estate: Residential first lien 402 3 57 2 Other residential 82 2 — — Consumer: Consumer 44 3 22 1 Lease financing 3,301 18 763 2 Total loan restructurings $ 149,416 64 $ 2,329 12 Balance Count Balance Count Interest Rate Reduction $ 10,037 2 $ — — Term Extension 75,365 33 1,191 8 Payment Deferral 8,153 15 — — Forgiveness of Principal or Interest 213 1 — — Interest Rate Reduction and Term Extension 49,051 5 1,138 4 Interest Rate Reduction and Payment Deferral 312 2 — — Interest Rate Reduction and Principal Forgiveness 77 1 — — Term Extension and Payment Deferral 6,208 5 — — Total loan restructurings $ 149,416 64 $ 2,329 12 The Company has not committed to lend any additional amounts to the borrowers that have been granted a loan modification. 86 Table of Contents The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following table presents the performance of such loans that have been modified in the last twelve months for the year ended December 31, 2024: (dollars in thousands) 30-59 days past due 60-89 days past due Total past due Nonaccrual Current Total Commercial: Commercial $ 2,722 $ — $ 2,722 $ — $ 59,007 $ 61,729 Commercial other 116 36 152 688 950 1,790 Commercial real estate: Commercial real estate non-owner occupied — — — 6,301 25,249 31,550 Commercial real estate owner occupied — — — — 6,131 6,131 Multi-family — — — 27,354 — 27,354 Construction and land development — — — — 17,033 17,033 Total commercial loans 2,838 36 2,874 34,343 108,370 145,587 Residential real estate: Residential first lien — — — 337 65 402 Other residential — — — 45 37 82 Consumer: Consumer — — — — 44 44 Lease financing — — — 950 2,351 3,301 Total loan restructurings $ 2,838 $ 36 $ 2,874 $ 35,675 $ 110,867 $ 149,416 The following table presents the performance of such loans that have been modified in the last twelve months for the year ended December 31, 2023: (dollars in thousands) 30-59 days past due 60-89 days past due Total past due Nonaccrual Current Total Commercial: Commercial $ — $ — $ — $ — $ 40 $ 40 Commercial other 395 — 395 298 754 1,447 Total commercial loans 395 — 395 298 794 1,487 Residential real estate: Residential first lien — — — 57 — 57 Consumer: Consumer — — — — 22 22 Lease financing — — — — 763 763 Total loan restructurings $ 395 $ — $ 395 $ 355 $ 1,579 $ 2,329 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. 87 Table of Contents 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. 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. As discussed previously in Loan Restructurings, the Company does provide various types of concessions when a borrower is experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows. Modified loans with terms at least as favorable to the lender as the terms for other customers with similar collection risks and with terms that are more than minor compared to the original terms are treated as a new loan to the borrower. 88 Table of Contents The following tables present the recorded investment of the commercial loan portfolio by risk category as of December 31, 2024 and December 31, 2023: December 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 $ 103,345 $ 100,478 $ 66,135 $ 59,613 $ 28,661 $ 39,895 $ 343,577 $ 741,704 Special mention 54,838 — — — — 60 277 55,175 Substandard 464 2,964 626 1,311 196 1,239 5,065 11,865 Substandard – nonaccrual — 635 4,601 514 12 3,202 788 9,752 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 158,647 104,077 71,362 61,438 28,869 44,396 349,707 818,496 Commercial other Acceptable credit quality 101,877 94,515 133,745 59,701 25,688 14,016 103,794 533,336 Special mention 1 2,132 1,100 964 197 94 — 4,488 Substandard — 31 — — — — 30 61 Substandard – nonaccrual 119 646 1,406 682 93 394 99 3,439 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 101,997 97,324 136,251 61,347 25,978 14,504 103,923 541,324 Commercial real estate Non-owner occupied Acceptable credit quality 404,475 179,499 460,447 261,886 79,830 130,160 6,729 1,523,026 Special mention 12,392 4,079 — 178 3,988 274 — 20,911 Substandard 62 2,061 8,149 4,190 4,463 32,739 — 51,664 Substandard – nonaccrual 80 7,737 7,861 4,509 — 13,173 — 33,360 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 417,009 193,376 476,457 270,763 88,281 176,346 6,729 1,628,961 Owner occupied Acceptable credit quality 61,613 43,344 95,334 101,717 46,914 62,723 629 412,274 Special mention 849 — — — — 214 — 1,063 Substandard 469 5,469 381 — — 2,872 — 9,191 Substandard – nonaccrual 317 — 16,971 264 1 421 304 18,278 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 63,248 48,813 112,686 101,981 46,915 66,230 933 440,806 Multi-family Acceptable credit quality 49,292 14,682 224,849 60,428 27,417 9,519 978 387,165 Special mention — 7,650 — — — — — 7,650 Substandard — — — 5,258 — 43 — 5,301 Substandard – nonaccrual 27,354 8,890 — 899 — 16,990 — 54,133 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 76,646 31,222 224,849 66,585 27,417 26,552 978 454,249 Farmland Acceptable credit quality 4,157 9,540 4,557 16,794 10,046 19,588 1,690 66,372 Special mention — — — — — — — — Substandard — — — 13 — 115 — 128 Substandard – nonaccrual — — — — — 1,100 48 1,148 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 4,157 9,540 4,557 16,807 10,046 20,803 1,738 67,648 Construction and land development Acceptable credit quality 71,889 27,121 106,277 25,780 — 1,153 38,829 271,049 Special mention 11,409 — — — — — — 11,409 Substandard 5,848 — — — — — — 5,848 Substandard – nonaccrual — — — 8,399 — 39 — 8,438 Doubtful — — — — — — — — Not graded 2,232 470 374 — — 22 — 3,098 Subtotal 91,378 27,591 106,651 34,179 — 1,214 38,829 299,842 Total Acceptable credit quality 796,648 469,179 1,091,344 585,919 218,556 277,054 496,226 3,934,926 Special mention 79,489 13,861 1,100 1,142 4,185 642 277 100,696 Substandard 6,843 10,525 9,156 10,772 4,659 37,008 5,095 84,058 Substandard – nonaccrual 27,870 17,908 30,839 15,267 106 35,319 1,239 128,548 Doubtful — — — — — — — — Not graded 2,232 470 374 — — 22 — 3,098 Total commercial loans $ 913,082 $ 511,943 $ 1,132,813 $ 613,100 $ 227,506 $ 350,045 $ 502,837 $ 4,251,326 89 Table of Contents December 31, 2023 (Restated) 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 139,057 195,726 111,273 68,224 35,720 29,839 90,928 670,767 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 140,987 198,396 112,121 68,522 36,188 29,937 93,365 679,516 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 1,454,885 732,203 304,454 171,227 306,040 499,434 4,115,110 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 $ 754,986 $ 306,746 $ 198,647 $ 368,931 $ 524,039 $ 4,364,892 90 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 years ended December 31, 2024 and 2023: Term Loans by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Total For the year ended December 31, 2024 Commercial Commercial $ — $ 677 $ 5,174 $ 827 $ 90 $ 967 $ 342 $ 8,077 Commercial Other — 4,796 15,102 1,544 149 785 — 22,376 Commercial Real Estate Non-owner occupied — — 2,610 — 138 1,018 — 3,766 Owner occupied — — — — — 33 — 33 Multi-family — — 4,545 — — 1,539 — 6,084 Farmland — — — 115 — — — 115 Construction and land development — — — 17,991 — — — 17,991 Total gross commercial charge-offs $ — $ 5,473 $ 27,431 $ 20,477 $ 377 $ 4,342 $ 342 $ 58,442 Term Loans by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Loans Total For the year ended December 31, 2023 (restated) Commercial Commercial $ — $ — $ — $ 70 $ 126 $ 224 $ 2,211 $ 2,631 Commercial Other 258 5,432 2,351 1,273 773 985 — 11,072 Commercial Real Estate Non-owner occupied — — — — — 2,630 — 2,630 Owner occupied — — — — 48 1,510 — 1,558 Multi-family — — — — — 812 — 812 Construction and land development — — — — 42 1,559 — 1,601 Total gross commercial charge-offs $ 258 $ 5,432 $ 2,351 $ 1,343 $ 989 $ 7,720 $ 2,211 $ 20,304 91 Table of Contents 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 December 31, 2024 and December 31, 2023: December 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 $ 29,754 $ 41,263 $ 69,334 $ 35,539 $ 27,282 $ 109,572 $ 39 $ 312,783 Nonperforming — 137 196 312 139 2,208 — 2,992 Subtotal 29,754 41,400 69,530 35,851 27,421 111,780 39 315,775 Other residential Performing 2,620 2,218 874 257 308 1,822 56,237 64,336 Nonperforming — — — — — 148 298 446 Subtotal 2,620 2,218 874 257 308 1,970 56,535 64,782 Consumer Consumer Performing 22,405 21,182 16,636 23,632 3,542 7,874 911 96,182 Nonperforming — — 5 — — 12 3 20 Subtotal 22,405 21,182 16,641 23,632 3,542 7,886 914 96,202 Consumer other Performing — 536 29,939 7,510 3,677 6,437 — 48,099 Nonperforming — — — — — — — — Subtotal — 536 29,939 7,510 3,677 6,437 — 48,099 Leases financing Performing 94,432 96,171 106,809 44,213 24,774 16,859 — 383,258 Nonperforming 77 3,720 3,017 992 239 87 — 8,132 Subtotal 94,509 99,891 109,826 45,205 25,013 16,946 — 391,390 Total Performing 149,211 161,370 223,592 111,151 59,583 142,564 57,187 904,658 Nonperforming 77 3,857 3,218 1,304 378 2,455 301 11,590 Total other loans $ 149,288 $ 165,227 $ 226,810 $ 112,455 $ 59,961 $ 145,019 $ 57,488 $ 916,248 92 Table of Contents December 31, 2023 (Restated) 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 185,591 378,077 133,847 52,428 20,269 6,812 — 777,024 Nonperforming — — — — — — — — Subtotal 185,591 378,077 133,847 52,428 20,269 6,812 — 777,024 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 405,468 635,052 277,538 138,755 73,493 139,181 56,077 1,725,564 Nonperforming 1,675 5,157 1,823 323 751 2,959 448 13,136 Total other loans $ 407,143 $ 640,209 $ 279,361 $ 139,078 $ 74,244 $ 142,140 $ 56,525 $ 1,738,700 The following table presents the gross charge-offs by class of loan and year of origination on the other loan portfolio for the years ended December 31, 2024 and 2023: Term Loans by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Total For the year ended December 31, 2024 Residential real estate Residential first lien $ — $ 128 $ 11 $ 25 $ — $ 483 $ — $ 647 Other residential — — 16 — — 7 147 170 Consumer Consumer 13 73 36 11 17 27 10 187 Consumer other 5 28,143 47,205 12,567 5,413 4,531 — 97,864 Lease financing — 3,735 6,986 2,291 544 767 — 14,323 Total gross other charge-offs $ 18 $ 32,079 $ 54,254 $ 14,894 $ 5,974 $ 5,815 $ 157 $ 113,191 Term Loans by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Loans Total For the year ended December 31, 2023 (restated) Residential real estate Residential first lien $ — $ — $ 8 $ 35 $ 108 $ 53 $ — $ 204 Other residential — — — — — 10 57 67 Consumer Consumer — 49 23 22 37 36 — 167 Consumer other 1,216 14,786 7,982 4,313 2,499 2,186 — 32,982 Lease financing 669 2,156 1,172 213 542 274 — 5,026 Total gross other charge-offs $ 1,885 $ 16,991 $ 9,185 $ 4,583 $ 3,186 $ 2,559 $ 57 $ 38,446 93 Table of Contents NOTE 4 – PREMISES, EQUIPMENT AND LEASES A summary of premises, equipment and leases at December 31, 2024 and December 31, 2023 is as follows: December 31, December 31, (dollars in thousands) 2024 2023 Land $ 15,986 $ 15,968 Buildings and improvements 83,296 78,104 Furniture and equipment 36,526 35,797 Lease right-of-use assets 8,830 7,673 Total 144,638 137,542 Accumulated depreciation ( 58,928 ) ( 54,728 ) Premises and equipment, net $ 85,710 $ 82,814 Depreciation expense for the years ended December 31, 2024, 2023 and 2022 was $ 5.0 million, $ 4.8 million, and $ 4.8 million, respectively. The Company has entered into operating leases, primarily for banking offices and operating facilities, which have remaining lease terms of 3 months to 13 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 $ 8.8 million and $ 7.7 million as of December 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 $ 10.1 million and $ 9.3 million as of December 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 years ended December 31, 2024 and 2023 was as follows: Years Ended December 31, (dollars in thousands) 2024 2023 Operating lease cost $ 1,989 $ 1,919 Operating cash flows from leases 2,373 2,256 Right-of-use assets obtained in exchange for lease obligations 2,889 2,470 Weighted average remaining lease term 6.9 years 7.8 years Weighted average discount rate 3.66 % 3.41 % Net rent expense under operating leases, included in occupancy and equipment expense, was $ 1.4 million , $ 1.4 million and $ 1.5 million for the years ended December 31, 2024, 2023 and 2022 , respectively. The projected minimum rental payments under the terms of the leases as of December 31, 2024 were as follows: (dollars in thousands) Amount Year ending December 31: 2025 $ 1,768 2026 1,824 2027 1,708 2028 1,659 2029 1,445 Thereafter 3,103 Total future minimum lease payments 11,507 Less imputed interest ( 1,395 ) Total operating lease liabilities $ 10,112 94 Table of Contents NOTE 5 - OPERATING LEASES - LESSOR The Company provides financing for various types of equipment through operating leasing arrangements. The equipment leased to others is carried at cost less accumulated depreciation in other assets on our consolidated balance sheets. The Company had equipment leased to others of $ 30.7 million and $ 58.0 million at December 31, 2024 and December 31, 2023, respectively, net of accumulated depreciation of $ 18.1 million and $ 21.2 million at December 31, 2024 and December 31, 2023, respectively. The Company recorded lease income of $ 16.1 million and $ 18.0 million related to lease payments for operating leases in other income on our consolidated statements of income for the years ended December 31, 2024 and 2023, respectively. Depreciation expense related to leased equipment was $ 12.6 million and $ 14.7 million for the years ended December 31, 2024 and 2023, respectively. The Company performs assessment of the recoverability of long-lived assets when events or changes in circumstances indicate their carrying values may not be recoverable. During the year ended December 31, 2024, the Company recognized impairment losses of $ 6.0 million associated with equipment leased to others in other expenses on our consolidated statements of income. The future lease payments receivable from operating leases as of December 31, 2024 are as follows: (dollars in thousands) Amount Year ending December 31: 2025 $ 9,043 2026 3,730 2027 2,401 2028 1,254 2029 698 Thereafter 48 Total future minimum lease payments 17,174 NOTE 6 – LOAN SERVICING RIGHTS A summary of loan servicing rights at December 31, 2024 and December 31, 2023 is as follows: December 31, 2024 December 31, 2023 (dollars in thousands) Serviced Loans Carrying Value Serviced Loans Carrying Value Commercial FHA $ 1,904,843 $ 17,053 $ 2,084,961 $ 19,273 SBA 42,152 451 42,685 549 Residential 197,161 338 225,067 431 Total $ 2,144,156 $ 17,842 $ 2,352,713 $ 20,253 95 Table of Contents Commercial FHA Mortgage Loan Servicing The fair value of commercial FHA loan servicing rights is determined using key assumptions, representing both general economic and other published information, including the assumed earnings rates related to escrow and replacement reserves, and the weighted average characteristics of the commercial portfolio, including the prepayment rate and discount rate. The prepayment rate considered many factors as appropriate, including lockouts, balloons, prepayment penalties, interest rate ranges, delinquencies, and geographic location. The discount rate was based on an average pre-tax internal rate of return utilized by market participants in pricing the servicing portfolio. Significant increases or decreases in any one of these assumptions would result in a significantly lower or higher fair value measurement. The weighted average prepayment rate and weighted average discount rate was 10.00 % and 8.18 % at December 31, 2024. Changes in our commercial FHA loan servicing rights for the years ended December 31, 2024, 2023 and 2022 are summarized as follows: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Loan servicing rights: Balance, beginning of period $ 19,273 $ — $ 27,386 Servicing rights transferred from (to) held for sale — 20,473 ( 23,995 ) Amortization ( 2,220 ) ( 1,200 ) ( 1,907 ) Refinancing fee received from third party — — ( 221 ) Permanent impairment — — ( 1,263 ) Balance, end of period $ 17,053 $ 19,273 $ — Fair value: At beginning of period $ 32,469 $ — $ 28,368 At end of period 25,916 32,469 — NOTE 7 – GOODWILL AND INTANGIBLE ASSETS The carrying amount of goodwill by segment at December 31, 2024 and December 31, 2023 is summarized as follows: (dollars in thousands) 2024 2023 Banking $ 157,158 $ 157,158 Wealth management 4,746 4,746 Total goodwill $ 161,904 $ 161,904 The Company’s intangible assets, consisting of core deposit and customer relationship intangibles, as of December 31, 2024 and December 31, 2023 are summarized as follows: December 31, 2024 December 31, 2023 (dollars in thousands) Gross carrying amount Accumulated amortization Total Gross carrying amount Accumulated amortization Total Core deposit intangibles $ 58,914 $ ( 51,186 ) $ 7,728 $ 58,914 $ ( 48,287 ) $ 10,627 Customer relationship intangibles 15,918 ( 11,546 ) 4,372 15,918 ( 10,437 ) 5,481 Total intangible assets $ 74,832 $ ( 62,732 ) $ 12,100 $ 74,832 $ ( 58,724 ) $ 16,108 Amortization of intangible assets was $ 4.0 million, $ 4.8 million and $ 5.4 million for the years ended December 31, 2024, 2023 and 2022, respectively. 96 Table of Contents Estimated amortization expense for future years is as follows: (dollars in thousands) Amount Year ending December 31, 2025 $ 3,224 2026 2,672 2027 2,101 2028 1,582 2029 1,066 Thereafter 1,455 Total $ 12,100 NOTE 8 – DERIVATIVE INSTRUMENTS The Company enters into derivative instruments, which may include interest rate swaps and interest rate options, in connection with our risk-management activities. Our primary objective for using derivative financial instruments is to manage interest rate risk associated with our fixed-rate and variable-rate assets and liabilities. Interest Rate Risk We monitor our mix of fixed-rate and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, and options to achieve a more desired mix of fixed-rate and variable-rate assets and liabilities. We execute these trades to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges that do not qualify for hedge accounting treatment. Derivatives qualifying for hedge accounting treatment can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances, and pay-fixed swaps designated as fair value hedges of securities within our available-for-sale portfolio. Other derivatives qualifying for hedge accounting consist of interest rate floor contracts designated as cash flow hedges of the expected future cash flows in the form of interest receipts on a portion of our commercial and commercial real estate loans. Both the fair value hedges and cash flow hedges were determined to be effective during all periods presented and the Company expects the hedges to remain effective during the remaining terms of the swaps. We have the ability to execute economic hedges, which could consist of interest rate swaps, interest rate caps, forwards, and options to mitigate interest rate risk. We also enter into interest rate lock commitments and forward commitments that are executed as part of our mortgage business that do not meet the accounting definition of hedges, as well as 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. Balance Sheet Presentation The following table summarizes the fair value of derivative instruments reported on our consolidated balance sheet. The amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories. Derivative assets and derivative liabilities are included in other assets and other liabilities, respectively, on the consolidated balance sheet. Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk. 97 Table of Contents December 31, 2024 December 31, 2023 (restated) Fair Value Fair Value (dollars in thousands) Assets Liabilities Notional amount Assets Liabilities Notional amount Derivatives designated as accounting hedges Interest rate contracts Fixed-rate mortgage-backed securities $ 2,653 $ 654 $ 167,363 $ — $ 1,324 $ 150,000 Pools of commercial and commercial real estate loans — 4,502 200,000 — 6,654 200,000 FHLB advances, brokered CDs and other borrowings 863 281 75,000 — 465 50,000 Total derivatives designated as accounting hedges $ 3,516 $ 5,437 $ 442,363 $ — $ 8,443 $ 400,000 Derivatives not designated as accounting hedges Interest rate contracts Swaps $ 218 $ 218 $ 54,390 $ 310 $ 310 $ 13,832 Interest rate lock commitments 71 — 3,907 62 — 2,405 Forward commitments to sell mortgage-backed securities 32 — 10,198 — 83 5,000 Total derivatives not designated as accounting hedges $ 321 $ 218 $ 68,495 $ 372 $ 393 $ 21,237 The following table presents amounts recorded in the consolidated balance sheets related to cumulative basis adjustments for fair value hedges. Carrying amount of the hedged items Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items (dollars in thousands) December 31, 2024 December 31, 2023 (restated) December 31, 2024 December 31, 2023 (restated) Investment securities available for sale $ 286,982 $ 220,501 $ 3,323 $ ( 1,324 ) Statement of Income Presentation The following table summarizes the effect of derivative instruments in fair value hedging relationships on the consolidated statements of income. Location of gain (loss) recognized in income on derivative Gain (loss) recognized in income on derivative Location of gain (loss) recognized in income on related hedged item Gain (loss) recognized in income on related hedged items (dollars in thousands) 2024 2023 2024 2023 Years Ended December 31, Gain (loss) on fair value hedging relationships Interest rate contracts Fixed-rate mortgage-backed securities Interest income on investment securities available for sale $ 9,341 $ — Interest income on investment securities available for sale $ ( 9,484 ) $ — 98 Table of Contents The following table summarizes the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income. Gain (loss) recognized in AOCI on derivative Location of gain (loss) recognized in income on derivative Gain (loss) reclassified from AOCI into income (dollars in thousands) 2024 2023 (restated) 2022 (restated) 2024 2023 (restated) 2022 (restated) Years Ended December 31, Gain (loss) on cash flow hedging relationships Interest rate contracts Pools of commercial and commercial real estate loans $ ( 3,705 ) $ ( 2,242 ) $ 2,551 Interest income on loans $ ( 5,857 ) $ ( 5,588 ) $ 113 Other noninterest income — — 17,531 FHLB advances, brokered CDs and other borrowings 2,013 ( 210 ) — Interest expense 966 324 — Total gain (loss) on cash flow hedging relationships $ ( 1,692 ) $ ( 2,452 ) $ 2,551 $ ( 4,891 ) $ ( 5,264 ) $ 17,644 During the next 12 months, we estimate $ 1.9 million of losses will be reclassified into pretax earnings from derivatives designated as cash flow hedges. The following table summarizes the effect of derivative instruments not designated as accounting hedges on the consolidated statements of income. (dollars in thousands) Location of gain (loss) recognized in income on derivative 2024 2023 (restated) 2022 (restated) Years Ended December 31, Gain (loss) on derivative instruments not designated as accounting hedges Interest rate contracts Residential mortgage banking revenue $ 123 $ ( 70 ) $ ( 269 ) Other income — 15 ( 88 ) Total gain (loss) on derivative instruments not designated as accounting hedges $ 123 $ ( 55 ) $ ( 357 ) Credit Enhancement Derivatives The Company has recognized derivative instruments associated with agreements entered into with third-party providers that support loan programs for which the Company originates and holds loans on its balance sheet. These third-party agreements include contractual credit enhancements that transfer certain risks and benefits to or from the Company, resulting in recognition of a derivative. The value of these derivatives consists primarily of two components: (1) the credit loss reimbursement value, representing the present value of expected future payments from the third party for loan losses, and (2) the interest yield guarantee value, representing the present value of cash flows the Company expects to receive to ensure a minimum yield (e.g., Prime + 2%) on the portfolio when actual borrower payments fall short. Under certain programs, additional features such as reimbursement for waived promotional interest are also included in the derivative valuation. The fair value of these derivative instruments was $ 16.8 million and $ 15.4 million as of December 31, 2024 and 2023, respectively. The Company utilizes a third-party valuation specialist to estimate fair value using the income approach, based on the present value of expected future cash flows. The valuation relies on Level 3 unobservable inputs, including assumptions regarding credit loss rates, borrower prepayments, program yield performance, and discount rates. Changes in fair value are recorded in noninterest income, and the Company does not apply hedge accounting to these instruments 99 Table of Contents The following table summarizes the most significant inputs and assumptions in determining the value of the credit enhancement derivatives as well as the resulting fair value as of December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 MacTools commercial portfolio Greensky consumer portfolio LendingPoint consumer portfolio MacTools commercial portfolio Weighted average interest rate 9.50 % 10.47 % 14.62 % 10.50 % Implied/selected cohort default rate (CDR) 15.00 % 4.02 % 17.50 % 15.00 % Selected LGD 85.00 % 85.00 % 85.00 % 85.00 % Annual expected loss 12.75 % 3.42 % 14.88 % 12.75 % Credit mark ( 20.66 ) % ( 7.18 ) % ( 23.82 ) % ( 23.32 ) % Interest mark 10.04 % 3.29 % 13.23 % 13.01 % Fair value of derivative 10.61 % 1.56 % ( 0.34 ) % 10.31 % The LendingPoint consumer portfolio was sold during the fourth quarter of 2024. The GreenSky consumer portfolio was written down to net realiz