What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-07-01 compared with 2024-02-23 · 302 added, 261 removed, 511 unchanged (52% of the section changed)

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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 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.

Our principal lines of business include traditional community banking and wealth management.

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

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.

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wealth management services;

commercial FHA mortgage loan servicing;

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 and other noninterest expenses, provisions for credit losses and income tax expense.

Material Trends and Developments

Community Banking.

We believe the most important trends affecting community banks in the United States over the foreseeable future will be related to heightened regulatory capital requirements, increasing regulatory burdens generally, including the implementation of the Dodd-Frank Act and the regulations promulgated and to be promulgated thereunder, and net interest margin compression.

We expect that community banks will face increased competition for lower cost capital as a result of regulatory policies that may offer larger financial institutions greater access to government assistance than is available for smaller institutions, including community banks.

We expect that troubled community banks will continue to face significant challenges when attempting to raise capital.

We also believe that heightened regulatory capital requirements will make it more difficult for even well-capitalized, healthy community banks to grow in their communities.

We believe these trends will favor community banks that have sufficient capital, a diversified business model and a strong deposit franchise, and we believe we possess these characteristics.

We also believe that increased regulatory burdens will have a significant adverse effect on smaller community banks, which often lack the personnel, experience and technology to efficiently comply with new regulations in a variety of areas in the banking industry, including in the areas of deposits, lending, compensation, information security and overdraft protection.

We believe the increased costs to smaller community banks from a more complex regulatory environment, coupled with challenges in the real estate lending area, present attractive acquisition opportunities for larger community banks that have already made significant investments in regulatory compliance and risk management and can acquire and quickly integrate these smaller institutions into their existing platform.

Furthermore, we believe that, as a result of our significant operational investments and our experience acquiring other institutions and quickly integrating them into our organization, we are well positioned to capitalize on the challenges facing smaller community banks.

We continue to believe we have significant opportunities for further growth through additional acquisitions of banks, branches, wealth management firms and trust departments of community banks, selective de novo opportunities, continued expansion of our wealth management operations, the hiring of commercial banking and wealth management professionals from other organizations and organic growth within our existing branch network.

We also believe we have the necessary experience, management and infrastructure to take advantage of these growth opportunities.

Credit Reserves.

One of our key operating objectives has been, and continues to be, maintenance of an appropriate level of reserve protection against estimated losses in our loan portfolio.

Our allowance for credit losses on loans totaled $68.5 million, or 1.12% of total loans, and $61.1 million, or 0.97% of total loans, at December 31, 2023 and 2022, respectively.

Regulatory Environment.

As a result of regulatory changes, including the Dodd-Frank Act and the Basel III Rule, we expect to be subject to more restrictive capital requirements, more stringent asset concentration and growth limitations and new and potentially heightened examination and reporting requirements.

We also expect to face a more challenging environment for customer loan demand due to the increased costs that could be ultimately borne by borrowers, and to incur higher costs to comply with these new regulations.

This uncertain regulatory environment could have a detrimental impact on our ability to manage our business consistent with historical practices and cause difficulty in executing our growth plan.

See Item 1A - "Risk Factors—Legal, Accounting and Compliance Risks” and Item 1 - "Business—Supervision and Regulation.”

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

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

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Balance Sheet Repositioning.

In 2023, the Company took advantage of certain market conditions to reposition out of lower yielding securities into other structures, which are expected to result in improved overall margin, liquidity and capital allocations.

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.

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Redemption of Subordinated Notes.

In the second quarter of 2023, the Company redeemed $6.6 million of outstanding 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.

On October 15, 2022, the Company redeemed the outstanding Fixed-to-Floating Rate Subordinated Notes due October 15, 2027, having an aggregate principal amount of $40.0 million, in accordance with the terms of the notes.

The aggregate redemption price was 100% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest.

Preferred Stock Issuance.

On August 24, 2022, the Company issued and sold 4,600,000 depositary shares, each representing a 1/40th ownership interest in a share of the Company’s 7.75% fixed rate reset non-cumulative, non-convertible, perpetual preferred stock, Series A.

The net proceeds were $110.5 million.

Commercial FHA Mortgage Loan Servicing Rights.

During the third quarter of 2022, we committed to a plan to sell the commercial servicing rights asset and transferred $24.0 million of commercial FHA loan servicing rights to held for sale.

At June 30, 2023, the Company abandoned its plans to sell this servicing asset and removed this asset from held for sale at lower of cost or fair value with no gain or loss recognized.

Termination of Hedged Interest Rate Swaps.

On October 24, 2022, the Company terminated the $140.0 million notional amount of future starting pay-fixed, receive-variable interest rate swaps on certain FHLB or other fixed-rate advances.

The Company realized a $17.5 million net gain upon termination.

Recent Acquisitions.

On June 17, 2022, the Company completed its acquisition of the deposits and certain loans and other assets associated with FNBC's branches in Mokena and Yorkville, Illinois.

The Company acquired $79.8 million in assets, including $60.3 million in cash and $16.6 million in loans, and assumed $79.8 million in deposits.

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.

The following table sets forth condensed income statement information of the Company for the years ended 2024, 2023, and 2022:

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Income before income taxes 46,900 87,962 131,386

Income taxes 32,113 30,813 17,795

Income tax expense 8,856 26,807 31,149

Net income 38,044 61,155 100,237

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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 2023 compared to 2022 decreased primarily due to a $9.7 million decrease in net interest income, a $1.0 million increase in provision for credit losses, a $13.3 million decrease in noninterest income, and a $1.3 million increase in income tax expense.

These results were partially offset by a $1.8 million decrease in noninterest expense.

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.

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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.

The Federal Reserve left interest rates unchanged at its meeting in December 2023 but signaled that it was no longer expecting further interest rate increases in its historic inflation fight, and that it could also cut interest rates three times in 2024.

In 2023, the Federal Reserve increased the federal funds rate 100 basis points to a target range of 5.25%-5.50%, the highest since August 2007.

This compares to rate increases totaling 425 basis points in 2022.

The benchmark federal funds rate remains at a target range between 5.25%-5.50%, compared to a target range of 0.00%-0.25% at the beginning of 2022.

In 2023, net interest income, on a tax-equivalent basis, decreased to $236.8 million with a tax-equivalent net interest margin of 3.26% compared to net interest income, on a tax-equivalent basis, of $247.0 million and a tax-equivalent net interest margin of 3.57% in 2022.

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%.

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.

Average Balance Sheet, Interest and Yield/Rate Analysis.

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Years Ended December 31,

2023 2022 2021

(tax-equivalent basis, dollars in thousands) Average

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Time deposits 846,512 30,681 3.62 814,727 21,840 2.68 625,307 4,161 0.67

Brokered time deposits 75,935 3,644 4.80 16,592 204 1.23 32,419 400 1.23

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

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$ 237,156 3.35 % $ 249,649 3.43 % $ 257,978 3.73 %

(1) Interest income and average rates for tax-exempt loans and investment securities are presented on a tax-equivalent basis, assuming a statutory federal income tax rate of 21%.

(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.

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Interest Income.

For the year ended December 31, 2023, interest income, on a tax-equivalent basis, increased $102.1 million to $405.1 million as compared to the prior year, due to both improved yields on earning assets and growth in earning assets.

The yield on earning assets increased 119 points to 5.57% from 4.38%, primarily due to the impact of increasing market interest rates.

Average earning assets increased to $7.27 billion in 2023 from $6.92 billion in 2022.

An increase in average loans and investment securities of $480.9 million and $55.4 million, respectively, were partially offset by a $179.2 million decrease in federal funds sold and cash investments.

Average loans increased $480.9 million in 2023 compared to 2022 across all loan categories.

Average commercial loans increased $71.2 million.

Included in this category are commercial FHA warehouse lines, which decreased $44.3 million to $18.4 million in 2023.

Excluding the changes in the commercial FHA warehouse line portfolio, average commercial loans increased $115.5 million in 2023 compared to the prior year.

Average commercial real estate loans, construction loans, and leases also increased $173.3 million, $155.7 million and $50.5 million, respectively, in 2023 compared to 2022.

The increase in average construction loans was primarily due to funding draws on existing multifamily project lines.

Average balances in our consumer loan portfolio remained flat year over year.

During the fourth quarter of 2023, the Company ceased originating consumer loans through both Greensky and LendingPoint.

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 2.87% compared to 1.04% for the prior year due to the increase in deposit costs as a result of the rate increases announced by the Federal Reserve.

I nterest expense on deposits increased to $136.9 million in 2023 from $36.1 million in 2022, primarily due to increases in interest rates on deposits.

Average balances of interest-bearing deposit accounts increased $439.6 million, or 9.15%, to $5.24 billion for 2023 compared to the same period one year earlier.

The increase in volume was attributable to increases in retail deposits and brokered deposits of $98.7 million and $96.6 million, respectively.

In addition, our Insured Cash Sweep product average balances increased $352.6 million.

Interest expense on FHLB advances and other borrowings increased $11.4 million for the year ended December 31, 2023 , from the prior year, due to increases in both average balances and interest rates.

The average balances increased $105.5 million in 2023 compared to 2022, while interest rate increases in 2023 pushed the average cost to 4.49% in 2023 compared to 2.63% in 2022.

Interest expense on subordinated debt decreased $2.2 million in 2023 from 2022.

The Company redeemed $6.6 million of subordinated debt in the second quarter of 2023 and $40.0 million of subordinated debt on October 15, 2022.

Interest expense on trust preferred debentures increased $2.3 million in 2023 compared to 2022 due to interest rate increases, as these debt instruments reprice quarterly.

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 on loans and unfunded commitments was $21.1 million and $0 in 2023, respectively .

In 2022, the provision for credit losses on loans and unfunded commitments was $18.8 million and $1.6 million, respectively, partially offset by the recognition of expense reversal of $0.2 million related to investment securities.

The increase in the provision for credit losses on loans was primarily a result of an increase in net charge-offs in 2023 compared to the prior year.

The provision for credit losses on loans recognized during 2023 and 2022 was made at a level deemed necessary by management to absorb estimated losses in the loan portfolio.

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.

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The following table sets forth the major components of our noninterest income for the years ended December 31, 2024, 2023 and 2022:

Years Ended December 31, 2023 Compared to 2022 2022 Compared to 2021

(dollars in thousands) 2023 2022 2021 Increase (decrease) Increase (decrease)

For the years ended December 31, 2024 Compared to 2023 2023 Compared to 2022

(dollars in thousands) 2024 2023

Increase (decrease) Increase (decrease)

Noninterest income:

Wealth management revenue $ 28,697 $ 25,572 $ 25,708 $ 3,125 12.2 % $ (136) (0.5) %

Residential mortgage banking revenue 1,903 1,509 5,526 394 26.1 (4,017) (72.7)

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

(Loss) gain on sales of investment securities, net (9,372) (230) 537 (9,142) 3,974.8 (767) (142.8)

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)

Income on company-owned life insurance 4,439 3,584 4,496 855 23.9 (912) (20.3)

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) %

Service charges on deposit accounts.

Service charges on deposit accounts increased $1.8 million, or 17.1%, in 2023 compared to 2022, due to increases in business account analysis fees and overdraft-related fees.

Loss on sale of investment securities .

The Company took advantage of certain market conditions during the year ended December 31, 2023 to reposition out of lower yielding securities into other structures, which are expected to result in improved overall margin, liquidity and capital allocations.

These transactions resulted in losses of $9.4 million.

Gain on termination of hedged interest rate swaps.

As previously stated, on October 24, 2022, the Company terminated $140.0 million notional amount of future starting pay-fixed, receive-variable interest rate swaps on certain FHLB or other fixed-rate advances.

The Company realized a $17.5 million net gain upon termination.

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 increased $8.8 million for 2023, as compared to 2022.

Other noninterest income in 2023 included incremental servicing revenues of $2.2 million and $1.6 million related to our commercial FHA servicing portfolio and the Greensky portfolio, respectively.

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.

During the third quarter of 2023, the Company recognized an enhancement fee of $6.6 million related to the surrender and purchase of company-owned life insurance policies.

In the fourth quarter of 2023, the Company revised its accounting for the one-time enhancement fee and reversed the fee.

The financial reporting periods affected by this revision include the Company’s previously reported interim unaudited consolidated financial statements as of and for the three months and nine months ended September 30, 2023.

The Company concluded this revision was not material to the Company’s previously reported interim financial statements and would not be material to the current period financial statements;

however the Company has elected to voluntarily revise its previously reported consolidated financial statements as of and for the three and nine month period ended September 30, 2023.

The revision affects the Company’s quarter-to-date and year-to-date income on company-owned life insurance.

Additionally, the revision impacts the company-owned life insurance asset for the applicable period.

The Company expects to present the corrected interim 2023 amounts in its 2024 consolidated interim financial statements upon the filing of its Quarterly Report on Form 10-Q and Quarterly Earnings Release on Form 8-K as of and for the period ended September 30, 2024 as a voluntary immaterial revision to all applicable 2023 periods.

The following tables present the impact of the revision to the Company’s previously reported financial statements.

Consolidated Income Statement

(dollars in thousands, except per share data)

Period Ended September 30, 2023 (Unaudited)

As Reported Immaterial

Revision Three Months

Revised Nine Months

As Reported Immaterial

Revision Nine Months

Income on company owned life insurance $ 7,558 $ (6,640) $ 918 $ 9,325 $ (6,640) $ 2,685

Net income 18,042 (6,640) 11,402 64,389 (6,640) 57,749

Net income available to common shareholders 15,813 (6,640) 9,173 54,704 (6,640) 48,064

Diluted earnings per common share 0.71 (0.30) 0.41 2.43 (0.29) 2.14

Consolidated Balance Sheet

(dollars in thousands)

Period Ended September 30, 2023 (Unaudited)

As Reported Immaterial

Revision Period End

Company owned life insurance $ 208,390 $ (6,640) $ 201,750

Total assets 7,975,925 (6,640) 7,969,285

Shareholders' equity 764,250 (6,640) 757,610

Noninterest Expense.

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Years Ended December 31, 2024 Compared to 2023 2023 Compared to 2022

(dollars in thousands) 2023 2022 2021 Increase (decrease) Increase (decrease)

(dollars in thousands) 2024 2023

Increase (decrease) Increase (decrease)

Noninterest expense:

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FDIC insurance 5,278 4,779 3,336 499 10.4 1,443 43.3

Professional 7,049 6,907 10,971 142 2.1 (4,064) (37.0)

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)

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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)

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Loss on mortgage servicing rights held for sale — — 3,250 — — (3,250) (100.0)

Federal Home Loan Bank advances prepayment fees — — 8,536 — — (8,536) (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) %

Salaries and employee benefits.

For the year ended December 31, 2023, salaries and employee benefits expense increased $3.1 million as compared to 2022.

The decline in loan production in 2023 resulted in a decline in the deferral of loan origination costs compared to the prior year, resulting in an increase in expense.

The Company employed 914 employees at December 31, 2023 compared to 935 employees at December 31, 2022.

Occupancy and Equipment Expense.

For the year ended December 31, 2023, occupancy and equipment expense increased $1.1 million as compared to the same period in 2022.

The Company transitioned to an outsourced facilities management program and incurred increased repair expenses as a result of deferred maintenance.

The Company operated 53 full-service banking centers at December 31, 2023 and 2022.

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.

FDIC Insurance Expense.

For the year ended December 31, 2023, FDIC insurance expense increased $1.4 million, as compared to the prior year, primarily as a result of the FDIC increasing the base assessment rate by 2 basis points, effective January 1, 2023.

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 charges on two properties totaling $4.3 million in 2022.

Loss on mortgage servicing rights held for sale.

During the third quarter of 2022, the Company committed to a plan to sell the servicing rights asset associated with this portfolio and transferred $24.0 million of commercial FHA loan servicing rights to held for sale.

We recognized a loss of $3.3 million on this asset at that time.

At June 30, 2023, the Company abandoned its plans to sell this servicing asset and removed this asset from held for sale at lower of cost or fair value with no gain or loss recognized.

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.

Income tax expense was $32.1 million in 2023 compared to $30.8 million in 2022.

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.

The Company's income tax expense and related effective tax rate for 2023 included tax charges of $4.5 million associated with the surrender of certain company-owned life insurance policies, as previously discussed.

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

1 unchanged sentence

The loan portfolio is the largest category of our assets.

The following table presents the balance and associated percentage of each major category in our loan portfolio at December 31, 2023, 2022 and 2021:

2023 2022 2021

(dollars in thousands) Balance Percent Balance Percent Balance Percent

Equipment finance loans $ 531,143 8.7 % $ 616,751 9.8 % $ 521,973 10.0 %

Equipment finance leases 473,350 7.7 491,744 7.8 423,280 8.1

Commercial FHA lines — — 25,029 0.4 91,927 1.8

SBA PPP loans — — 1,916 — 52,477 1.0

Other commercial loans 951,387 15.5 870,878 13.8 783,811 14.9

Total commercial loans and leases 1,955,880 31.9 2,006,318 31.8 1,873,468 35.8

Commercial real estate 2,406,845 39.3 2,433,159 38.6 1,816,828 34.8

Construction and land development 452,593 7.4 320,882 5.1 193,749 3.7

Residential real estate 380,583 6.2 366,094 5.8 338,151 6.5

Consumer 935,178 15.2 1,180,014 18.7 1,002,605 19.2

Total loans, gross 6,131,079 100.0 % 6,306,467 100.0 % 5,224,801 100.0 %

Allowance for credit losses on loans (68,502) (61,051) (51,062)

Total loans, net $ 6,062,577 $ 6,245,416 $ 5,173,739

Total loans decreased $175.4 million to $6.13 billion at December 31, 2023, as compared to December 31, 2022, as the Company originated loans in a more selective and deliberate approach to balance liquidity and funding costs.

Increases in construction and land development loans, and residential real estate loans of $131.7 million and $14.5 million, respectively, were offset by decreases in all other loan categories.

The increase in our construction and land development portfolio was primarily driven by draws on existing lines.

Consumer loans decreased $244.8 million at December 31, 2023 compared to December 31, 2022, due to loan payoffs and a cessation in loans originated through GreenSky.

Our Greensky-originated loan balances decreased $251.1 million during 2023 to $683.5 million at December 31, 2023.

In addition, during the fourth quarter, the Company ceased originating loans through LendingPoint.

At December 31, 2023, the Company had $121.0 million in loans outstanding that were originated through LendingPoint, which will continue to be serviced by LendingPoint.

The principal segments of our loan portfolio are discussed below:

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Our commercial real estate loans consist of both real estate occupied by the borrower for ongoing operations and non-owner occupied real estate properties.

The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner occupied offices, warehouses and production facilities, office buildings, hotels, mixed-use residential and commercial facilities, retail centers, multifamily properties and assisted living facilities.

Our commercial real estate loan portfolio also includes farmland loans.

Farmland loans are generally made to a borrower actively involved in farming rather than to passive investors.

Loans secured by office space totaled $153.8 million and $155.7 million at December 31, 2023 and 2022, respectively, primarily located in Illinois and Missouri.

Construction and land development loans.

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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, 2023 and 2022:

(dollars in thousands) Balance % Balance %

December 31, 2024 December 31, 2023

(dollars in thousands) Balance Percent Balance Percent

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

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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 consist of residential properties that generally do not qualify for secondary market sale.

Our residential real estate loans are loans secured by residential properties that generally do not qualify for secondary market sale.

Consumer loans.

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The financing is secured by a first priority interest in the financed asset and generally requires monthly payments.

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

(dollars in thousands) Balance Percent Balance Percent

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:

(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

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:

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The following table allocates the allowance for credit losses on loans by loan category:

2023 2022 2021

December 31, 2024 December 31, 2023

(dollars in thousands) Allowance Percent (1)

Allowance Percent (1)

Commercial $ 42,776 3.15 % $ 29,672 1.97 %

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gross domestic product ranging from 2.5% to 2.6% over the next four quarters;

(ii) the 10-year treasury rate decreasing from 4.5% in the fourth quarter of 2023 to 4.0% by the fourth quarter of 2024;

(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-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures;

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;

2 unchanged sentences

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.

As a result of this assessment as of December 31, 2023, modeled expected credit losses were positively adjusted with a qualitative factor adjustment of approximately 41 basis points of total loans, decreasing from 50 basis points at December 31, 2022.

The Q-Factor adjustment at December 31, 2023 was based primarily on declining credit quality conditions within the equipment financing segment.

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 $7.0 million and qualitative factor adjustments related to commercial loans decreased $1.6 million.

Specific allocations for commercial loans that were evaluated for expected credit losses on an individual basis increased $1.8 million.

There were no specific allocation reserves for commercial loans in the prior period.

The weighted average risk grade for commercial and industrial loans at December 31, 2023, weakened to 4.62 from 4.42 at December 31, 2022.

The allowance allocated to commercial real estate loans totaled $20.2 million, or 0.84% to total commercial real estate loans, at December 31, 2023, decreasing $9.1 million, from $29.3 million, or 1.20% of total commercial real estate loans, at December 31, 2022.

Modeled expected credit losses decreased $2.7 million, due to an improvement in our LDG, primarily as a result of a $3.4 million recovery on a loan previously charged off.

The qualitative factor adjustments decreased $5.5 million as a result of improving economic forecasts, as the Federal Reserve signaled an expectation of rate decreases beginning in 2024.

In addition, the qualitative factor for collateral values decreased based upon our mix of collateral-based loans, which does not include significant exposure to urban office properties.

Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis decreased from $1.5 million at December 31, 2022, to $0.7 million at

December 31, 2023.

The weighted average risk grade for commercial real estate loans remained relatively unchanged at 4.83 at December 31, 2023, from 4.84 at December 31, 2022.

The allowance allocated to construction and land development loans totaled $4.2 million, or 0.92% to total construction loans, at December 31, 2023, increasing $1.7 million, from $2.4 million, or 0.76% of total constructions loans, at December 31, 2022.

Modeled expected credit losses increased $1.4 million and qualitative factor adjustments related to construction loans increased $0.3 million.

There were no specific allocation reserves for construction loans in either period.

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 related to commercial leases increased $6.8 million and qualitative factor adjustments decreased $0.6 million.

There were no specific allocation reserves for commercial leases in either period.

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.

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:

26 unchanged sentences

Collateral value is determined using updated appraisals and/or other market comparable information.

Charge-offs are generally taken on loans once the impairment is determined to be other-than-temporary.

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.

The following tables present charge-offs by business sector for the years ended 2024 and 2023:

(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

(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.

Our equipment finance business saw charge-offs increase to $9.6 million in 2023 from $2.0 million in 2022, due primarily to weakness within the trucking and transportation sector.

The Company recognized a $3.4 million recovery on a commercial real estate loan, which was charged-off in 2017.

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.

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, including deductions for purchase discounts.

(dollars in thousands) 2023 2022 2021

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:

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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.

The following table presents the change in our non-performing loans for the year ended December 31, 2023:

(dollars in thousands) Year Ended

December 31, 2023

Balance, beginning of period $ 49,423

New nonperforming loans 46,615

Return to performing status (6,085)

Payments received (26,048)

Charge-offs (7,554)

Balance, end of period $ 56,351

Investment Securities.

3 unchanged sentences

The following table sets forth the book value and associated percentage of each category of investment securities at December 31, 2024, 2023 and 2022.

2023 2022 2021

December 31, 2024 December 31, 2023 December 31, 2022

(dollars in thousands) Balance Percent Balance Percent Balance Percent

6 unchanged sentences

State and municipal securities 69,061 5.7 57,460 6.3 94,636 12.3

Collateralized loan obligations 27,565 3.0 — — — —

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 %

2 unchanged sentences

Investment securities available for sale:

Treasury securities:

Maturing within one year $ 1,097 0.1 % 5.35 %

Maturing in one to five years — — —

Maturing in five to ten years — — —

Maturing after ten years — — —

Treasury securities $ 1,097 0.1 % 5.35 %

government sponsored entities and U.S.

24 unchanged sentences

Total state and municipal securities $ 69,061 5.7 % 3.71 %

Collateralized loan obligations:

Corporate securities:

Maturing within one year $ — — % — %

2 unchanged sentences

Maturing after ten years — — —

Total collateralized loan obligations $ 27,565 3.0 % 7.17 %

Corporate securities:

Total corporate securities $ 79,881 6.6 % 4.51 %

Other securities:

Maturing within one year $ 3,873 0.3 % 5.34 %

2 unchanged sentences

Maturing after ten years 73,268 6.1 5.90

Total corporate securities $ 99,172 10.9 % 4.32 %

Total other securities $ 90,423 7.5 % 5.91 %

Total investment securities, available for sale $ 1,207,574 100.0 % 4.48 %

4 unchanged sentences

Investment securities available for sale:

Treasury securities $ 1,097 $ 1,097 $ — $ 1,097 $ — $ — $ — $ —

government sponsored entities and U.S.

3 unchanged sentences

State and municipal securities 75,597 69,061 8,330 54,989 334 130 — 5,278

Collateralized loan obligations 27,646 27,565 20,216 7,349 — — — —

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

3 unchanged sentences

Total deposits decreased $112.3 million to $6.20 billion at December 31, 2024, as compared to December 31, 2023.

Increases in interest-bearing checking and time deposits of $17.8 million and $295.0 million, respectively, during this period, were partially offset by decreases in noninterest-bearing demand, money market and savings account balances.

Noninterest-bearing demand accounts decreased $216.8 million to $1.15 billion at December 31, 2023, compared to December 31, 2022, as a result of increasing deposit rates in response to the rate increases announced by the Federal Reserve.

Interest rate promotions offered in 2023 on time deposit products resulted in an increase in balances of non-brokered time deposits of $213.3 million over the same period.

Brokered time deposits increased to $94.5 million at December 31, 2023 from $12.8 million at December 31, 2022.

Our noninterest-bearing deposits decreased to 18.1% of total deposits at December 31, 2023 compared to 21.4% at December 31, 2022.

(dollars in thousands) 2023 2022 2021

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

6 unchanged sentences

Total deposits $ 6,197,243 100.0 % $ 6,309,529 100.0 % $ 6,364,652 100.0 %

The Company estimates that uninsured deposits (1) totaled $1.22 billion, or 19% of total deposits, at December 31, 2023 compared to $1.55 billion, or 24%, at December 31, 2022.

The following table sets forth the maturity of uninsured time deposits as of December 31, 2024:

5 unchanged sentences

Total $ 88,558

(1) Uninsured deposits include the Call Report estimate of uninsured deposits less affiliate deposits, estimated insured portion of servicing deposits, additional structured FDIC coverage and collateralized deposits.

Capital Resources and Liquidity Management

Capital Resources.

Shareholders’ equity is influenced primarily by earnings, dividends, issuances and redemptions of common and preferred stock and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on available-for-sale investment securities and cash flow hedges.

Shareholders’ equity increased $33.3 million to $791.9 million at December 31, 2023 as compared to December 31, 2022.

The increase in shareholders’ equity was due primarily to the generation of net income of $75.5 million, and an increase in accumulated other comprehensive income of $7.0 million.

Offsetting these increases to shareholders’ equity were dividends to common shareholders of $26.6 million, dividends to preferred shareholders of $8.9 million and repurchases of common stock of $17.9 million.

On December 5, 2023, the Company’s board of directors authorized a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2024.

The new stock repurchase program became effective on January 1, 2024.

The Company’s previous stock repurchase program expired on December 31, 2023.

As of December 31, 2023, $74.2 million, or 3,836,331 shares of the Company’s common stock, had been repurchased under prior programs.

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.

24 unchanged sentences

We are subject to various regulatory capital requirements administered by the federal and state banking regulators.

Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.

Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by

regulators that, if undertaken, could have a direct material effect on our financial statements.

Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.

In December 2018, the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL.

The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the CECL accounting standard.

In March 2020, the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL.

The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

The Company is adopting the capital transition relief over the permissible five-year period.

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.

36 unchanged sentences

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 recorded, the obligation underlying the guarantee is fully reflected on our consolidated balance sheets as junior subordinated debentures held by subsidiary trusts.

Although this guarantee is not separately

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.

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We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads.

are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price risk from investments in securities backed by mortgage loans.

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.

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Treasuries and SOFR (basis risk).

We actively manage interest rate risk, as changes in market interest rates may have a significant impact on reported earnings.

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 consistent growth in net interest income while managing volatility arising from shifts in market interest rates.

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.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.

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.

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To the extent that actual performance is different than what was assumed, actual net interest earnings sensitivity may be different than projected.

We use a data warehouse to study interest rate risk at a transactional level and use various ad-hoc reports to continuously refine assumptions.

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.

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Percent change 0.2 % (0.1) % (0.6) % (1.3) %

December 31, 2021:

Dollar change $ — $ (13,499) $ 23,513 $ 47,028

Percent change — % (6.1) % 10.6 % 21.2 %

We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities.

The NII at Risk results included in the table above reflect the analysis used quarterly by management.

It models -200, −100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next twelve months.

In 2023, we added a -200 basis point scenario as the Federal Reserve has indicated the rate increases may have run their course.

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, 2023 projects that our earnings exhibit increasing profitability in a declining rate environment, compared to December 31, 2022.

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 a market shift to slowing rate increases or even rate cuts into 2024, the bank did start to position its investment strategy to protect against lower rates in the future.

These two aspects are the primary drivers of moving to a virtually neutral position as measured in the +/- 100 basis point rate shocks.

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 represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting.

We have price risk from mortgage-backed securities, derivative instruments, and equity investments.

We have price risk from investment securities, derivative instruments, and equity investments.

Critical Accounting Estimates

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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 estimate materially affects our reported earnings and financial condition and requires significant judgments and assumptions.

Management has reviewed this critical accounting estimate and related disclosures with our Audit Committee.

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 .

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See Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans of the notes to consolidated financial statements.

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

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.

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:

• 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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis