What changed in this filing

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Item 1. Business

2025-07-01 compared with 2024-02-23 · 165 added, 132 removed, 310 unchanged (49% of the section changed)

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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 is focused on building a performance-based, customer-centric culture, creating revenue diversification, seeking accretive acquisitions, achieving operational excellence and maintaining a robust enterprise-wide risk management program.

Over the past several years, we have grown organically and through a series of acquisitions, with an over-arching focus on enhancing shareholder value and building a platform for scalability.

Most recently, in June 2022, the Company completed its branch acquisition from FNBC, whereby we acquired $79.8 million of deposits and $16.6 million of loans as well as other assets and liabilities associated with FNBC's branches in Mokena and Yorkville, Illinois.

In June 2021, the Company completed its acquisition of substantially all of the trust assets of ATG Trust, a trust company based in Chicago, Illinois.

Additional information on recent acquisitions is presented in Note 2 to the consolidated financial statements in Item 8 of this Form 10-K.

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

Traditional Community Banking.

Our traditional community banking business primarily consists of commercial and retail lending and deposit taking.

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.

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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 LIBOR or a successor index.

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:

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Multi-Family $ 547,016 18.9 % $ 516,295 18.1 %

Skilled Nursing 469,096 16.4 485,456 17.6

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

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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 on primarily owner occupied 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.

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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.

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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, 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.

FHA Servicing.

Prior to August 28, 2020, we provided multifamily and healthcare facility FHA financing through Love Funding Corporation, our non-bank subsidiary.

Love Funding Corporation originated commercial mortgage loans under FHA insurance programs, and sold those loans into the secondary market through mortgage-backed securities guaranteed by Ginnie Mae.

On August 28, 2020, the Company completed the sale of Love Funding Corporation's commercial FHA origination platform to Dwight Capital, a nationwide mortgage banking firm headquartered in New York.

The transaction was part of the Company’s ongoing effort to enhance efficiency.

At December 31, 2023, we continued to service approximately $2.08 billion of originated commercial FHA loans.

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.

We compete in a number of areas, including commercial and retail banking, residential mortgages, wealth management and commercial equipment leasing.

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County State Deposits Market Share # of Banking Offices

Effingham IL $ 1,060,572 37.66 % 1

Charles MO 993,953 9.87 2

Winnebago IL 874,694 11.76 7

Effingham IL 1,123,957 41.51 1

Kankakee IL 819,476 32.21 8

LaSalle IL 354,256 9.93 4

Louis MO 286,174 0.64 6

La Salle IL 309,863 8.21 4

Will IL 285,690 1.33 4

Louis MO 276,933 0.62 6

Lee IL 251,061 29.61 1

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Grundy IL 101,530 6.31 1

Marion IL 83,934 7.66 1

Monroe IL 85,578 7.43 2

Marion IL 76,452 7.01 1

Champaign IL 48,844 0.70 1

Clair IL 45,373 0.83 1

Fayette IL 43,509 7.81 2

Jefferson MO 42,476 1.11 1

Louis (City) MO 33,079 0.06 1

Clair IL 51,007 0.93 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

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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 and non-discrimination, etc.).

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 is also supported through our MASTERS high-potentials program as well as Midland WOMEN and African American affinity groups.

Our MASTERS programs, Midland’s Advanced Study for Talent Enrichment and Resource Strengthening, were created to accelerate the career development of employees exhibiting the growth potential and qualities necessary to ensure the continued success of our Company.

A total of 110 employees have participated in this high potential training program since its inception in 2016.

Midland WOMEN is an affinity group that focuses on leadership development of women throughout all levels of the organization.

Midland WOMEN currently has more than 39 employees participating on various activity committees and offers programs that engage hundreds of Midland employees annually.

The African American Affinity Group focuses on personal and professional development and advancement initiatives for African American and Black employees.

There are currently 3 employees participating on the activity committee and 29 regularly active members of the African American affinity group.

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

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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 bank regulatory 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 enforced by the Treasury have an impact on the Company’s business.

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 bank regulatory agencies issued under them, affect, among other things, the scope of the Company’s business, the kinds and amounts of investments 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 to merge, consolidate and acquire, dealings with the Company’s and the Bank’s insiders and affiliates and the Company’s payment of dividends.

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 systemically important financial service providers, 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.

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.

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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 regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business.

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,

liquidity, and various other factors.

The regulatory 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 following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and its subsidiary bank.

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.

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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 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 regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress.

Certain provisions of the Dodd-Frank Act and Basel III, discussed below, establish capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously.

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.

Banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983.

The minimums 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 risk of assets.

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 holding companies on a consolidated basis as stringent as those required for FDIC-insured institutions.

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.

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The risk-based capital guidelines for U.S.

banks 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.

bank regulatory agencies on an interagency basis.

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.

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Because most banks were not subject to Basel II, the U.S.

bank regulators worked to improve the risk sensitivity of 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% risk weight.

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 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.

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.

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.

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 regulatory agencies.

The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including federal 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.

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.

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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 institution’s Common Equity Tier 1 Capital.

The Basel III Rule requires minimum capital ratios as follows:

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;

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• A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.

In addition, institutions that seek the freedom 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 institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress.

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.

The federal bank regulators released a joint statement in response to the COVID pandemic reminding the industry that capital and liquidity buffers were meant to give banks the means to support the economy in adverse situations, and that the agencies would support banks that use the buffers for that purpose if undertaken in a safe and sound manner.

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 ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks 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.

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:

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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 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.

For example, the Federal Reserve’s capital guidelines

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.

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As of December 31, 2024:

(i) the Bank was not subject to a directive from the Federal Reserve to increase its capital;

(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.

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Prompt Corrective Action .

The concept of an institution being “well-capitalized” is part of a regulatory enforcement regime that provides the federal banking regulators with broad power to take “prompt corrective action” to resolve the problems of institutions based on the capital level of each particular institution.

The extent of the regulators’ powers depends on whether the institution 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 an institution is assigned, the regulators’ corrective powers include:

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;

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Community Bank Capital Simplification .

Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule.

In response, Congress provided an “off-ramp” for institutions, like the Company, with total consolidated assets of less than $10 billion.

Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single CBLR of between 8% and 10%.

Under the final rule, a community banking organization is eligible to elect the new framework if it has less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.

The bank regulatory agencies temporarily lowered the CBLR to 8% as a result of the COVID pandemic.

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

The Company, as the sole shareholder of the Bank, is a bank holding company.

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 strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so.

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.

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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 holding company to acquire banks located in any state of the United States.

Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank

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.

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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 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

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 ...

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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.

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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 bank regulator.

“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.

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Dividend Payments.

The Company’s ability to pay dividends to the Company’s shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.

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.

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or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

These factors have come into consideration as a result of the COVID pandemic.

The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.

The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to

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, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.

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 bank regulatory agencies and Congress that flawed incentive compensation practices in the financial industry were one of many factors contributing to the global financial crisis.

Layered on top of that are the abuses in the headlines dealing with product cross-selling incentive plans.

The result is interagency guidance on sound incentive compensation practices.

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.

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and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

Much of the guidance addresses large banking organizations and, because of the size and complexity of their operations, the

regulators 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.

Smaller banking organizations like the Company that use incentive compensation arrangements are expected to be less extensive, formalized, and detailed than those of the larger banks.

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 financial or bank holding companies and their subsidiaries.

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.

Federal Securities Regulation.

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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 legislation also directed the Federal Reserve to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded.

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

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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 member bank, the Federal Reserve.

Deposit Insurance.

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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 highly complex banking organizations, assessments are now based on examination ratings and financial ratios.

The total base assessment rates currently range from 2.5 basis points to 32 basis points.

For institutions like the Bank that are not considered large and

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.

The assessment base against which an FDIC-insured institution’s deposit insurance premiums paid to the DIF has been calculated since effectiveness of the Dodd-Frank Act based on its average consolidated total assets less its average tangible equity.

This method shifted the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than U.S.

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 the semiannual update in June 2022, the FDIC projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35% by September 30, 2028, the statutory deadline.

Based on this update, the FDIC approved an increase in initial base deposit insurance assessment rate schedules by two basis points, applicable to all insured depository institutions.

The increase was effective on January 1, 2023, applicable to the first quarterly assessment of the 2023 assessment (January 1 through March 31, 2023).

In addition, because the total cost of the failures of Silicon Valley Bank and Signature Bank was approximately $16.3 billion, the FDIC adopted a special assessment for banks having deposits above $5 billion, at an annual rate of 13.4 basis points beginning with the first quarterly assessment period of 2024 (January 1 through March 31, 2024) with an invoice payment date of June 28, 2024, and will continue to collect special assessments for an anticipated total of eight quarterly assessment periods.

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 .

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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.

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:

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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, Basel III 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 entity 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.

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 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 bank regulatory 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, and will not, apply to the Bank, it continues to review its liquidity risk management policies in light of developments.

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.

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Under Illinois banking law, Illinois-chartered banks generally may pay dividends only out of undivided profits.

The DFPR may restrict the declaration or payment of a dividend by an Illinois-chartered bank, such as the Bank.

The DFPR may restrict the declaration

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 and the DFPR may prohibit the payment of dividends by the Bank if either or both determine such payment would constitute an unsafe or unsound practice.

In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.

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 and Activities.

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.

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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.

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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.

While 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 regulator is required to issue an order directing the institution to cure the deficiency.

Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require 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 regulator deems appropriate under the circumstances.

Noncompliance with safety and soundness may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.

During the past decade, the bank regulatory 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.

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

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 agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk.

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:

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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 confidential information of their customers.

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.

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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.

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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.

Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities.

Applications for acquisitions would also be affected by the evaluation of the Bank’s effectiveness in meeting its CRA requirements.

On October 24, 2023, the bank regulatory agencies issued a final rule to strengthen and modernize the CRA regulations (the “CRA Rule”), portions of which become effective on April 1, 2024.

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.

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 bank regulatory agencies described the goals of the CRA Rule as follows:

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;

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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.

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 has significant implications for FDIC-insured institutions, brokers, dealers and other businesses involved in the transfer of money.

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:

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;

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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.

The interagency CRE Guidance provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny:

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 commercial real estate 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 commercial real estate concentrations.

On December 18, 2015, the federal banking agencies issued a statement 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 bank agencies 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.

(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.

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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 bank regulators.

Because abuses in connection with residential mortgages were a significant factor contributing to the financial crisis, many rules issued by the CFPB, as required by the Dodd-Frank Act, addressed mortgage and mortgage-related products, their underwriting, origination, servicing and sales.

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,

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 CFPB’s rules have not had a significant impact on the Bank’s operations, except for higher compliance costs.

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.

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

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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.

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

What changed 10-K

Item 1. Business