Midland States Bancorp, Inc. 10-K

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm (PCAOB ID 173 ) 60 Consolidated Balance Sheets 61 Consolidated Statements of Income 62 Consolidated Statements of Comprehensive Income 63 Consolidated Statements of Shareholders' Equity 64 Consolidated Statements of Cash Flows 65 Note 1. Summary of Significant Accounting Policies 66 Note 2. Investment Securities 76 Note 3. Loans 78 Note 4. Premises, Equipment and Leases 94 Note 5: Operating Leases - Lessor 95 Note 6. Loan Servicing Rights 95 Note 7. Goodwill and Intangible Assets 96 Note 8. Derivative Instruments 97 Note 9. Deposits 100 Note 10. FHLB Advances and Other Borrowings 101 Note 11. Subordinated Debt 102 Note 12. Trust Preferred Debentures 102 Note 13. Accumulated Other Comprehensive Income (Loss) 104 Note 14. Income Taxes 105 Note 15. Retirement Plans 107 Note 16. Share-Based Compensation 109 Note 17. Preferred Stock 110 Note 18. Earnings Per Common Share 111 Note 19. Capital Requirements 111 Note 20. Fair Value of Financial Instruments 113 Note 21. Commitments, Contingencies and Credit Risk 117 Note 22. Segment Information 118 Note 23. Revenue from Contracts with Customers 121 Note 24. Parent Company Only Financial Information 122 Note 25. Restatement of Prior Period Financial Statements 124 Note 26. Subsequent Events 135 59 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of Midland States Bancorp, Inc. Effingham, Illinois Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Midland Sates Bancorp, Inc. (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, because of the effects of the material weaknesses discussed in the following paragraphs, the Company has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management's report: • The Company did not design and maintain controls to assess the risk of material misstatement with contracts related to non-routine transactions. • The Company did not design and maintain an effective internal control activities for evaluating the accounting and financial reporting related to third-party credit enhancement contracts. • The Company did not design and maintain effective internal controls over loan data, including the activities performed by certain third-party service organizations that perform core lending functions. The loan data control deficiencies affect the allowance for credit losses, loan balances, accrued interest, interest income, servicing fees, and the fair value of the credit enhancement derivative. We considered these material weaknesses identified above in determining the nature, timing, and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and our opinion on Internal Control over Financial Reporting does not affect our opinion on the financial statements. Restatement of Previously Issued Financial Statements As discussed in Note 1 to the consolidated financial statements, the 2023 and 2022 consolidated financial statements have been restated to correct misstatements. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Credit Losses on Loans – Qualitative Factors As described in Notes 1 and 3 to the consolidated financial statements, the Allowance for Credit Losses on Loans (“ACL”) represents the Company’s estimate of amounts that are not expected to be collected over the contractual life of the Company’s held for investment loan portfolio. The estimate of the ACL is based on historical experience, current conditions, and reasonable and supportable forecasts. As of December 31, 2024, the Company’s ACL was $111.2 million, and the provision for credit losses on loans was $119.3 million for the year then ended. The Company measures expected credit losses by utilizing a probability of default, loss given default, and exposure at default model to estimate the quantitative component of the allowance for credit losses for loans. Management qualitatively adjusts the quantitative model results for risk factors that are not considered within the modeling process but are relevant in assessing the expected credit losses. These qualitative factors are based upon management judgment and current assessment as to the impact of risks related to actual and expected changes in economic and business conditions and developments that affect the collectability of the loan pools, changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, changes in the value of the underlying collateral for loans that are non-collateral dependent, and other internal and external factors. We have identified auditing the qualitative factors as a critical audit matter as management’s determination of the qualitative factors is subjective and involves significant management judgments; and our audit procedures related to certain of the qualitative factors involved a high degree of auditor judgment and required significant audit effort, including the need to involve more experienced audit personnel. The primary audit procedures we performed to address this critical audit matter included: • Tested the operating effectiveness of the Company’s controls over the: ▪ Review over the appropriateness of the framework for the qualitative factors. ▪ Completeness and accuracy of internal data used in the qualitative factors. ▪ Review over the relevance and reliability of external data used in the qualitative factors. ▪ Mathematical accuracy of the qualitative factors. • Substantive tests included: ◦ Testing the completeness and accuracy of internal data and relevance and reliability of external data used in the qualitative factors ◦ Assessing the appropriateness and reasonableness of the framework developed for the qualitative factors including evaluating management’s judgments as to which factors impacted the qualitative analysis for each portfolio segment. ◦ Performing testing over the accuracy of inputs utilized in the calculation of qualitative factors for each portfolio segment. ◦ Testing the mathematical accuracy of the calculation of the qualitative factors. Goodwill Impairment Assessment As described in Notes 1 and 7 to the consolidated financial statements, goodwill is the excess of the purchase price over the fair value of the net assets of the business acquired and is periodically evaluated for impairment. The Company’s goodwill balance was $161.9 million as of December 31, 2024, of which $157.2 million is allocated to the Company’s banking segment. The Company tests for impairment at least annually or, more frequently, if an event occurs or circumstances change that indicate that the fair value of the reporting unit may be below its carrying amount (triggering event). The Company determined that a triggering event occurred and performed a quantitative assessment of goodwill for the Company’s bank reporting unit as of December 31, 2024. The Company engaged a third-party service provider in performing its quantitative impairment assessment. The Company's impairment assessment estimated fair value using an income approach that incorporated a discounted cash flow model that involves management assumptions based upon internal forecasts. We identified the auditing of the impairment assessment of goodwill as of December 31, 2024 as a critical audit matter due to the significant management judgments related to determining the fair value of the reporting unit, which in turn led to a high degree of auditor judgment and subjectivity in evaluating the fair value of the reporting unit, specifically the significant assumptions related to the multi-year cash projections that rely on internal forecasts and the discount rate. In addition, we used auditor employed specialists to assist in evaluating the significant assumptions. The primary audit procedures we performed to address this critical audit matter included: • Tested the operating effectiveness of the Company’s controls over the: ◦ Review for completeness and accuracy of internal data and evaluation of the relevance and reliability of external data used in the impairment assessment. ◦ Review of the reasonableness of the Company’s internal forecasts utilized in the impairment assessment. ◦ Evaluation of the reasonableness of the valuation methodologies and the significant assumptions, including discount rate. • Substantive tests included: ◦ Evaluating the reasonableness of the valuation methodologies used to determine the fair value of the reporting unit. ◦ Testing the completeness and accuracy of internal data, and evaluating the relevance and reliability of external data. ◦ Evaluating the reasonableness of the internal forecasts utilized in the impairment assessment. ◦ Utilization of auditor employed specialists to assist with the evaluation of the appropriateness of the valuation methodologies, reasonableness of the discount rate, and overall reasonableness of the fair value of the reporting unit. Credit Enhancements Contained Within Third-Party Agreements The Company has agreements with third parties to originate and service consumer and commercial loans that are included in the Company’s loan portfolio as described in Notes 1 and 3 to the consolidated financial statements. As part of these programs, the third-party provider offered various credit enhancements with respect to loans originated under the programs, including contributions to reserve accounts, yield maintenance and certain other payments. The Company has determined that the borrower payments and credit enhancement payments under the programs should be accounted for on a separate unit of account or gross basis, with loan yields and interest income recorded at the gross borrower loan rate, and credit losses and associated provisions for credit losses recorded on a gross basis over the life of the loans, and with all credit enhancement payments accounted for separately as a credit enhancement derivative. As of December 31, 2024, the Company recorded a credit enhancement asset of $16.8 million, which represents the fair value of the credit enhancement derivative associated with the agreements related to loans recorded on the consolidated balance sheet as of the same date. We identified auditing the accounting associated with the credit enhancement contained within the third-party agreements as a critical audit matter due to the nature and extent of audit effort required, including the need for individuals with specialized knowledge. Additionally, material weaknesses were identified by the Company related to the accounting and financial reporting associated with the credit enhancement contained within the third-party agreements and its impact on consolidated financial statements. The primary procedure we performed to address this critical audit matter included engaging our internal specialists to evaluate the third-party agreements and the related accounting treatment. Crowe LLP We have served as the Company’s auditor since 2017. Oakbrook Terrace, Illinois July 1, 2025 60 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) December 31, 2024 December 31, 2023 (Restated) Assets Cash and due from banks $ 114,055 $ 134,212 Federal funds sold 711 849 Cash and cash equivalents 114,766 135,061 Investment securities available for sale, at fair value 1,207,574 915,895 Equity securities, at fair value 4,792 4,501 Loans 5,167,574 6,103,592 Allowance for credit losses on loans ( 111,204 ) ( 159,319 ) Total loans, net 5,056,370 5,944,273 Loans held for sale 344,947 3,811 Premises and equipment, net 85,710 82,814 Other real estate owned 4,941 9,112 Nonmarketable equity securities 33,723 43,421 Accrued interest receivable 25,329 34,133 Loan servicing rights, at lower of cost or fair value 17,842 20,253 Goodwill 161,904 161,904 Other intangible assets, net 12,100 16,108 Company-owned life insurance 211,168 203,485 Credit enhancement asset 16,804 15,389 Other assets 208,839 199,886 Total assets $ 7,506,809 $ 7,790,046 Liabilities and Shareholders’ Equity Liabilities: Deposits: Noninterest-bearing demand deposits $ 1,055,564 $ 1,145,395 Interest-bearing deposits 5,141,679 5,164,134 Total deposits 6,197,243 6,309,529 Short-term borrowings 87,499 34,865 Federal Home Loan Bank advances and other borrowings 258,000 476,000 Subordinated debt 77,749 93,546 Trust preferred debentures 51,205 50,616 Accrued interest payable and other liabilities 124,266 110,377 Total liabilities 6,795,962 7,074,933 Shareholders’ Equity: Preferred stock, $ 2.00 par value; 4,000,000 shares authorized; 115,000 Series A shares, $ 1,000 per share liquidation preference, issued and outstanding at December 31, 2024 and 2023, respectively 110,548 110,548 Common stock, $ 0.01 par value; 40,000,000 shares authorized; 21,494,485 and 21,551,402 shares issued and outstanding at December 31, 2024 and 2023, respectively 215 216 Capital surplus 434,346 435,463 Retained earnings 247,698 245,639 Accumulated other comprehensive loss, net of tax ( 81,960 ) ( 76,753 ) Total shareholders’ equity 710,847 715,113 Total liabilities and shareholders’ equity $ 7,506,809 $ 7,790,046 The accompanying notes are an integral part of the consolidated financial statements. 61 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) Years Ended December 31, 2024 2023 (Restated) 2022 (Restated) Interest income: Loans including fees: Taxable $ 365,892 $ 378,333 $ 285,577 Tax exempt 1,536 1,764 2,082 Loans held for sale 392 260 404 Investment securities: Taxable 49,769 28,653 15,801 Tax exempt 1,511 1,349 2,746 Nonmarketable equity securities 3,070 2,819 2,198 Federal funds sold and cash investments 3,958 3,922 3,907 Total interest income 426,128 417,100 312,715 Interest expense: Deposits 160,676 136,947 36,061 Short-term borrowings 1,960 68 104 Federal Home Loan Bank advances and other borrowings 16,495 20,709 9,335 Subordinated debt 5,271 5,266 7,495 Trust preferred debentures 5,380 5,289 3,025 Total interest expense 189,782 168,279 56,020 Net interest income 236,346 248,821 256,695 Provision for credit losses: Provision for credit losses on loans 119,262 82,560 75,435 Provision for credit losses on unfunded commitments 1,070 — 1,550 Recapture of other credit losses — — ( 221 ) Total provision for credit losses 120,332 82,560 76,764 Net interest income after provision for credit losses 116,014 166,261 179,931 Noninterest income: Wealth management revenue 28,697 25,572 25,708 Service charges on deposit accounts 13,154 11,990 10,237 Interchange revenue 13,955 14,302 13,879 Residential mortgage banking revenue 2,418 1,903 1,509 Income on company-owned life insurance 7,683 4,439 3,584 Loss on sales of investment securities, net ( 230 ) ( 9,372 ) ( 230 ) Gain on termination of hedged interest rate swaps — — 17,531 Impairment on commercial mortgage servicing rights — — ( 1,263 ) Credit enhancement income 60,998 48,194 69,976 Other income 12,066 17,756 8,936 Total noninterest income 138,741 114,784 149,867 Noninterest expense: Salaries and employee benefits 93,639 93,438 90,305 Occupancy and equipment 16,785 15,986 14,842 Data processing 28,160 26,286 24,350 FDIC insurance 5,278 4,779 3,336 Professional services 7,822 7,049 6,907 Marketing 3,926 3,158 3,318 Communications 1,364 1,741 2,382 Loan expense 5,954 4,206 4,586 Loan servicing fees 12,864 19,181 22,750 Amortization of intangible assets 4,008 4,758 5,410 Other real estate owned 5,569 333 5,188 Loss on mortgage servicing rights held for sale — — 3,250 Impairment on leased assets and surrendered assets 7,858 — — Other expense 14,628 12,168 11,788 Total noninterest expense 207,855 193,083 198,412 Income before income taxes 46,900 87,962 131,386 Income tax expense 8,856 26,807 31,149 Net income 38,044 61,155 100,237 Preferred dividends 8,913 8,913 3,169 Net income available to common shareholders $ 29,131 $ 52,242 $ 97,068 Per common share data: Basic earnings per common share $ 1.32 $ 2.33 $ 4.29 Diluted earnings per common share $ 1.32 $ 2.33 $ 4.28 Weighted average common shares outstanding 21,731,689 22,115,869 22,341,498 Weighted average diluted common shares outstanding 21,737,958 22,124,402 22,395,698 The accompanying notes are an integral part of the consolidated financial statements. 62 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) Years Ended December 31, 2024 2023 (Restated) 2022 (Restated) Net income $ 38,044 $ 61,155 $ 100,237 Other comprehensive (loss) income: Investment securities available for sale: Unrealized losses that occurred during the period ( 9,278 ) ( 2,536 ) ( 106,927 ) Recapture of credit loss expense — — ( 221 ) Reclassification adjustment for realized net losses on sales of investment securities included in net income 230 9,372 230 Reclassification adjustment for gains on fair value hedges included in net income ( 142 ) — — Income tax effect 1,677 ( 1,845 ) 28,876 Change in investment securities available for sale, net of tax ( 7,513 ) 4,991 ( 78,042 ) Cash flow hedges: Net unrealized derivative losses on cash flow hedges ( 1,692 ) ( 2,452 ) 2,551 Reclassification adjustment for net losses (gains) realized in net income 4,891 5,264 ( 17,644 ) Income tax effect ( 893 ) ( 759 ) 4,101 Change in cash flow hedges, net of tax 2,306 2,053 ( 10,992 ) Other comprehensive (loss) income, net of tax ( 5,207 ) 7,044 ( 89,034 ) Total comprehensive income $ 32,837 $ 68,199 $ 11,203 The accompanying notes are an integral part of the consolidated financial statements . 63 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands, except per share data) Preferred stock Common stock Capital surplus Retained earnings Accumulated other comprehensive income (loss) Total shareholders' equity Balances, December 31, 2021 $ — $ 221 $ 445,907 $ 212,472 $ 5,237 $ 663,837 Prior period adjustment from restatement — — — ( 63,647 ) — ( 63,647 ) Balances, January 1, 2022 (Restated) — 221 445,907 148,825 5,237 600,190 Net income — — — 100,237 — 100,237 Other comprehensive loss — — — — ( 89,034 ) ( 89,034 ) Issuance of preferred stock, net of offering costs 110,548 — — — — 110,548 Common dividends declared ($ 1.16 per share) — — — ( 25,923 ) — ( 25,923 ) Preferred dividends — — — ( 3,169 ) — ( 3,169 ) Common stock repurchased — ( 1 ) ( 1,108 ) — — ( 1,109 ) Share-based compensation expense — — 2,211 — — 2,211 Issuance of common stock under employee benefit plans — 2 2,186 — — 2,188 Balances, December 31, 2022 (Restated) $ 110,548 $ 222 $ 449,196 $ 219,970 $ ( 83,797 ) $ 696,139 Net income — — — 61,155 — 61,155 Other comprehensive income — — — — 7,044 7,044 Common dividends declared ($ 1.20 per share) — — — ( 26,573 ) — ( 26,573 ) Preferred dividends — — — ( 8,913 ) — ( 8,913 ) Common stock repurchased — ( 8 ) ( 17,890 ) — — ( 17,898 ) Share-based compensation expense — — 2,489 — — 2,489 Issuance of common stock under employee benefit plans — 2 1,668 — — 1,670 Balances, December 31, 2023 (Restated) $ 110,548 $ 216 $ 435,463 $ 245,639 $ ( 76,753 ) $ 715,113 Net income — — — 38,044 — 38,044 Other comprehensive loss — — — — ( 5,207 ) ( 5,207 ) Common dividends declared ($ 1.24 per share) — — — ( 27,072 ) — ( 27,072 ) Preferred dividends — — — ( 8,913 ) — ( 8,913 ) Common stock repurchased — ( 2 ) ( 5,473 ) — — ( 5,475 ) Share-based compensation expense — — 3,031 — — 3,031 Issuance of common stock under employee benefit plans — 1 1,325 — — 1,326 Balances, December, 31, 2024 $ 110,548 $ 215 $ 434,346 $ 247,698 $ ( 81,960 ) $ 710,847 The accompanying notes are an integral part of the consolidated financial statements. 64 Table of Contents MIDLAND STATES BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Years Ended December 31, 2024 2023 (Restated) 2022 (Restated) Cash flows from operating activities: Net income $ 38,044 $ 61,155 $ 100,237 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 120,332 82,560 76,764 Depreciation on premises and equipment 4,993 4,778 4,842 Amortization of intangible assets 4,008 4,758 5,410 Amortization of operating lease right-of-use asset 1,657 1,635 1,831 Amortization of loan servicing rights 2,498 1,550 2,294 Share-based compensation expense 3,031 2,489 2,211 Increase in cash surrender value of life insurance ( 7,683 ) ( 4,439 ) ( 3,320 ) Gain on proceeds from company-owned life insurance — — ( 264 ) Investment securities (accretion) amortization, net ( 6,789 ) ( 2,414 ) 2,311 Gain on termination of hedged interest rate swaps — — ( 17,531 ) Loss on sales of investment securities, net 230 9,372 230 Gain on repurchase of subordinated debt ( 231 ) ( 676 ) — (Gain) loss on sales of other real estate owned ( 26 ) ( 819 ) 118 Impairment on other real estate owned 4,866 — 4,277 Origination of loans held for sale ( 81,077 ) ( 58,953 ) ( 134,612 ) Proceeds from sales of loans and leases held for sale 78,514 57,952 269,958 Gain on sale of loans held for sale ( 2,307 ) ( 2,395 ) ( 844 ) Impairment on commercial mortgage servicing rights — — 1,263 Loss on mortgage servicing rights held for sale — — 3,250 Impairment on leased assets and surrendered assets 7,858 — — Net change in operating assets and liabilities: Accrued interest receivable 8,804 ( 4,360 ) ( 1,448 ) Credit enhancement asset ( 1,415 ) ( 2,376 ) ( 18,792 ) Other assets ( 16,783 ) ( 24,038 ) 1,213 Accrued expenses and other liabilities 18,022 27,579 ( 13,579 ) Net cash provided by operating activities 176,546 153,358 285,819 Cash flows from investing activities: Purchases of investment securities available for sale ( 605,169 ) ( 412,799 ) ( 192,349 ) Proceeds from sales of investment securities available for sale 74,116 191,733 136,403 Maturities and payments on investment securities available for sale 233,563 74,531 85,077 Purchases of equity securities ( 268 ) ( 286 ) ( 511 ) Proceeds from sales of equity securities — 5,148 — Net decrease (increase) in loans 346,883 72,877 ( 1,216,352 ) Proceeds from loans held for sale previously classified as portfolio loans 84,283 40,899 — Purchases of premises and equipment ( 6,901 ) ( 8,731 ) ( 3,470 ) Proceeds from sale of premises and equipment 37 104 175 Purchases of nonmarketable equity securities ( 172,057 ) ( 239,597 ) ( 24,787 ) Proceeds from redemptions of nonmarketable equity securities 181,755 242,377 14,927 Proceeds from sales of other real estate owned 466 7,547 1,453 (Purchases of) proceeds from company-owned life insurance, net — ( 48,603 ) 1,518 Net cash acquired in acquisitions — — 60,275 Net cash provided by (used in) investing activities 136,708 ( 74,800 ) ( 1,137,641 ) Cash flows from financing activities: Net (decrease) increase in deposits ( 112,286 ) ( 55,123 ) 174,210 Net increase (decrease) in short-term borrowings 52,634 ( 7,446 ) ( 34,492 ) Net (decrease) increase in short-term FHLB borrowings ( 166,000 ) ( 174,000 ) 250,000 Proceeds from long-term FHLB borrowings 263,000 215,000 — Payments made on long-term FHLB borrowings and other borrowings ( 315,000 ) ( 25,000 ) ( 100,171 ) Payments made on subordinated debt ( 15,763 ) ( 5,845 ) ( 40,000 ) Proceeds from issuance of preferred stock — — 110,548 Cash dividends paid on preferred stock ( 8,913 ) ( 8,913 ) ( 3,169 ) Cash dividends paid on common stock ( 27,072 ) ( 26,573 ) ( 25,923 ) Common stock repurchased ( 5,475 ) ( 17,898 ) ( 1,109 ) Proceeds from issuance of common stock under employee benefit plans 1,326 1,670 2,188 Net cash (used in) provided by financing activities ( 333,549 ) ( 104,128 ) 332,082 Net decrease in cash and cash equivalents ( 20,295 ) ( 25,570 ) ( 519,740 ) Cash and cash equivalents: Beginning of period 135,061 160,631 680,371 End of period $ 114,766 $ 135,061 $ 160,631 The accompanying notes are an integral part of the consolidated financial statements . 65 Table of Contents MIDLAND STATES BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED) Nature of Operations Midland States Bancorp, Inc. is a diversified financial holding company headquartered in Effingham, Illinois. Our wholly owned banking subsidiary, Midland States Bank, has branches across Illinois and in Missouri, and provides a full range of commercial and consumer banking products and services, business equipment financing, merchant credit card services, trust and investment management services, and insurance and financial planning services. Our principal business activity has been lending to and accepting deposits from individuals, businesses, municipalities and other entities. We have derived income principally from interest charged on loans and, to a lesser extent, from interest and dividends earned on investment securities. We have also derived income from noninterest sources, such as: fees received in connection with various lending and deposit services; wealth management services; mortgage loan originations, sales and servicing; and, from time to time, gains on sales of assets. Our principal expenses include interest expense on deposits and borrowings, operating expenses, such as salaries and employee benefits, occupancy and equipment expenses, data processing costs, professional fees and other noninterest expenses, provisions for credit losses and income tax expense. Basis of Presentation The accompanying consolidated financial statements of the Company have been prepared in accordance with GAAP and conform to predominant practices within the banking industry. Management of the Company has made a number of estimates and assumptions related to the reporting assets and liabilities to prepare the consolidated financial statements in conformity with GAAP. Actual results may differ from these estimates. Certain reclassifications of 2023 or 2022 amounts may have been made to conform to the 2024 presentation, but do not have an effect on net income or shareholders' equity. The accompanying consolidated financial statements include a restatement of the financial statements (i) as of and for the year ended December 31, 2023 and (ii) for the year ended December 31, 2022 as referenced below. Subsequent Events Management has evaluated subsequent events for recognition and disclosure through July 1, 2025, which is the date the financial statements were available to be issued. Business Combinations The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations . Under the acquisition method of accounting, tangible and intangible identifiable assets acquired, liabilities assumed and any noncontrolling interests in the acquiree are recorded at fair value as of the acquisition date. The Company includes the results of operations of the acquired company in the consolidated statements of income from the date of acquisition. Transaction costs and costs to restructure the acquired company are expensed as incurred. Goodwill is recognized as the excess of the acquisition price over the estimated fair value of the net assets acquired. If the fair value of the net assets acquired is greater than the acquisition price, a bargain purchase gain is recognized and recorded in noninterest income. Restatement of prior period Financial Statements In connection with the preparation of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, the Audit Committee, after discussion with management and the Company's independent registered public accounting firm, Crowe LLP, concluded that the Company's audited consolidated financial statements for the Restated Financial Periods should no longer be relied upon because of errors identified in such financial statements, as described below. The errors relate to the Company’s accounting for loans originated pursuant to third-party loan origination programs. These programs go back as far as 2012. As part of these programs, the third-party providers offered various credit enhancements with respect to loans originated under the programs, including contributions to reserve accounts, yield maintenance and certain other payments. Historically, the Company accounted for all borrower payments and credit enhancement payments under these programs on a single unit, or net basis, with all such payments presented as interest income representing the Company’s effective yield on the portfolios. The Company has determined that these payments should instead 66 Table of Contents be accounted for on a separate unit of account, or gross basis, with loan yields and interest income recorded at the gross borrower loan rate, credit losses and associated provisions for credit losses recorded on a gross basis over the life of the loans, and with all credit enhancement payments recorded separately as a credit enhancement derivative. As a result of the above, the Company is restating the financial statements (i) as of and for the year ended December 31, 2023 and (ii) for the year ended December 31, 2022, as presented in the audited financial statements as of and for the period ended December 31, 2024 in this Annual Report on Form 10-K. The impact of the errors for years prior to January 1, 2022 have been adjusted through opening equity as of January 1, 2022 in the audited consolidated financial statements presented herein. See Note 25 - Restatement of Prior Period Financial Statements for additional information, including the impact on the specific accounts. Cash and Cash Equivalents and Cash Flows For the presentation in the accompanying consolidated statement of cash flows, cash and cash equivalents are defined as cash on hand, amounts due from banks, which includes amounts on deposit with the Federal Reserve, interest-bearing deposits with banks or other financial institutions and federal funds sold. Generally, federal funds are sold for one-day periods, but not longer than 30 days . The following table summarizes supplemental cash flow information: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Supplemental disclosures of cash flow information: Cash payments for: Interest paid on deposits and borrowed funds $ 189,599 $ 159,139 $ 55,069 Income tax paid (net of refunds) 22,543 25,120 36,514 Supplemental disclosures of noncash investing and financing activities: Transfer of loans to loans held for sale 406,561 — 103,357 Transfer of loans to other real estate owned 1,031 9,112 517 Transfer of loan servicing rights, at lower of cost or market to loan servicing rights held for sale — — 23,995 Transfer of loan servicing rights held for sale to loan servicing rights, at lower of cost or market — 20,745 — Right of use assets obtained in exchange for lease obligations 2,889 2,470 502 Investment Securities The Company classifies its debt investment securities as available for sale or held to maturity at the time of purchase. Securities held to maturity are those debt instruments which the Company has the positive intent and ability to hold until maturity. Securities held to maturity are recorded at cost, adjusted for the amortization of premiums or accretion of discounts. All other debt securities are classified as available for sale. As of December 31, 2024 and 2023, all investment securities were classified as available for sale. Investment securities available for sale are recorded at fair value with the unrealized gains and losses, net of the related tax effect, included in other comprehensive income. The related accumulated unrealized holding gains and losses are reported as a separate component of shareholders’ equity until realized. Purchase premiums are amortized over the estimated life or to the earliest call date and purchase discounts are accreted over the estimated life of the related investment security as an adjustment to yield using the effective interest method. Unamortized premiums, unaccreted discounts, and early payment premiums are recognized in interest income upon disposition of the related security. Interest and dividend income are recognized when earned. Realized gains and losses from the sale of investment securities available for sale are determined using the specific identification method and are included in noninterest income. Also, when applicable, realized gains and losses are reported as a reclassification adjustment, net of tax, in other comprehensive income. Available-for-sale debt securities in an unrealized loss position are evaluated, at least quarterly, for impairment related to credit losses. The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any 67 Table of Contents changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, and the present value of cash flows expected to be collected from the security is less than the amortized cost basis, an allowance for credit losses is recorded. Any impairment that has not been recorded through an allowance for credit losses is recorded in other comprehensive income. Accrued interest receivable on investment securities available for sale totaled $ 5.1 million and $ 4.3 million at December 31, 2024 and 2023, respectively, and was reported in accrued interest receivable on the consolidated balance sheets. The estimate of credit losses excludes this accrued interest receivable. There was no allowance for credit losses recorded on investment securities available for sale at December 31, 2024 and 2023. Equity Securities Investments in stock of a publicly traded company or in mutual funds are classified as equity securities. Equity securities are recorded at fair value with unrealized gains and losses recognized in noninterest income. Nonmarketable Equity Securities Nonmarketable equity securities include the Bank’s required investments in the stock of the FHLB and the FRB. The Bank is a member of the FHLB system as well as its regional FRB. Members of the FHLB are required to own a certain amount of stock based on the level of borrowings and other factors. FHLB stock and FRB stock are both carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash dividends and stock dividends are reported as interest income. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are classified as portfolio loans. Portfolio loans are carried at the principal balance outstanding, net of purchase premiums and discounts, and deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Accrued interest receivable on loans totaled $ 20.2 million and $ 29.9 million at December 31, 2024 and 2023, respectively, and was reported in accrued interest receivable on the consolidated balance sheets. Interest income on mortgage and commercial loans is discontinued and the loan is placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection. Mortgage loans are charged-off at 180 days past due, and commercial loans are charged-off to the extent principal or interest is deemed uncollectible. Consumer loans continue to accrue interest until they are charged-off or at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cost-recovery or cash-basis method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Leases. The Company provides financing leases to small businesses for purchases of business equipment. Under the direct financing method of accounting, the minimum lease payments to be received under the lease contract, together with the guaranteed residual values, which range from 1 % to 45 % of the cost of related equipment which average 3 %, are recorded as lease receivables when the lease is signed and the leased property is delivered to the customer. The excess of the minimum lease payments and residual values over the cost of the equipment is recorded as unearned lease income. Unearned lease income is recognized over the term of the lease on a basis that results in an approximately level rate of return on the unrecovered lease investment. PCD Loans. In the past the Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Purchased credit deteriorated loans are recorded at the amount paid. An allowance for credit losses on loans is determined using the same methodology as other loans held for investment. The initial allowance for credit losses on loans determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses on loans becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses on loans are recorded through provision expense for credit losses. 68 Table of Contents Nonperforming Loans. A loan is considered nonperforming when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Nonperforming loans include loans on nonaccrual status and loans past due 90 days or more and still accruing interest. Allowance for Credit Losses on Loans The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. Management estimates the allowance balance using relevant information, from internal and external sources, relating to historical credit loss experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current loan-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses on loans is measured on a collective basis and reflects impairment in groups of loans aggregated on the basis of similar risk characteristics. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles and measured on a collective basis. Common characteristics and risk profiles may include internal credit ratings, risk ratings or classification, financial asset type, collateral type, size, industry of the borrower, historical or expected credit loss patterns, and reasonable and supportable forecast periods. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. The table below identifies the Company’s loan portfolio segments and classes. Segment Class Commercial Commercial Commercial Other Commercial Real Estate Commercial Real Estate Non-Owner Occupied Commercial Real Estate Owner Occupied Multi-Family Farmland Construction and Land Development Construction and Land Development Residential Real Estate Residential First Lien Other Residential Consumer Consumer Consumer Other Lease Financing Lease Financing For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of models which measure (i) probability of default, the likelihood that loan will stop performing or default, (ii) loss given default, the expected loss rate for loans in default, (iii) assumed prepayment speed, the likelihood that a loan will prepay or pay-off prior to maturity, and (iv) exposure at default, the estimated outstanding principal balance of the loans upon default, including the expected funding of unfunded commitments outstanding as of the measurement date. Expected credit losses are calculated as the product of probability of default (adjusted for prepayment), loss given default and exposure at default. This methodology builds on default probabilities already incorporated into our risk grading process by utilizing pool-specific historical loss rates to calculate expected credit losses. These pool-specific historical loss rates may be adjusted for current macroeconomic assumptions, as further discussed below, and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets being evaluated as of the measurement date. Each time we measure expected credit losses, we assess the relevancy of historical loss information and consider any necessary adjustments to address any differences in asset-specific characteristics. 69 Table of Contents The measurement of expected credit losses is impacted by loan and borrower attributes and certain macroeconomic variables. Significant loan and borrower attributes utilized in our modeling processes include, among other things, (i) origination date, (ii) maturity date, (iii) payment type, (iv) collateral type and amount, (v) current risk grade, (vi) current unpaid balance and commitment utilization rate, (vii) payment status and delinquency history and (viii) expected recoveries of previously charged-off amounts. Significant macroeconomic variables utilized in our modeling processes include, among other things, (i) Gross Domestic Product, (ii) Consumer Price Index, (iii) selected market interest rates including U.S. Treasury rates, (iv) commercial and residential property prices and unemployment rates in Illinois and the U.S. as a whole, and (v) Retail Sales for the State of Illinois. We have determined that we are reasonably able to forecast the macroeconomic variables used in our modeling processes with an acceptable degree of confidence for a total of two years with the last twelve months of the forecast period encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a straight line basis. The macroeconomic variables utilized as inputs in our modeling processes were subjected to a variety of analysis procedures and were selected primarily based on statistical relevancy and correlation to our historical credit losses. By reverting these modeling inputs to their historical mean and considering loan and borrower specific attributes, our models are intended to yield a measurement of expected credit losses that reflects our average historical loss rates for periods subsequent to the twelve-month reversion period. The LGD is based on historical recovery averages for each loan pool, adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a two-year forecast period, with the final twelve months of the forecast period encompassing a reversion process, which management considers to be both reasonable and supportable. The same forecast and reversion periods are used for all macroeconomic variables in our models. Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factor adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, charge-offs, and recoveries, (ii) actual and expected changes in economic and business conditions and developments that affect the collectability of the loan pools, (iii) changes in the nature and volume of the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics. In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. Specific reserves reflect expected credit losses on loans identified for evaluation or individually considered nonperforming. These loans no longer have similar risk characteristics to collectively evaluated loans due to changes in credit risk, borrower circumstances, recognition of write-offs, or cash collections that have been fully applied to principal on the basis of nonaccrual policies. At a minimum, the population of loans subject to individual evaluation include individual loans where it is probable we will be unable to collect all amounts due, according to the original contractual terms. These include nonaccrual loans with a balance greater than $ 500,000 , accruing loans 90 days past due or greater with a balance greater than $ 100,000 , specialty lending relationships and other loans as determined by management. Allowance for credit losses for consumer and residential loans are, primarily, determined by meaningful pools of similar loans and are evaluated on a quarterly basis. Loans Held for Sale Loans held for sale consist of residential mortgage loans originated with the intent to sell as well as the GreenSky portfolio which the Company had committed to a plan to sell at December 31, 2024. Prior to 2023, loans held for sale also 70 Table of Contents included commercial FHA mortgage loans originated with the intent to sell. Loans held for sale are carried at fair value, determined individually, as of the balance sheet date. The Company believes the fair value method better reflects the economic risks associated with these loans. Fair value measurements on loans held for sale are based on quoted market prices for similar loans in the secondary market, market quotes from anticipated sales contracts and commitments, or contract prices from firm sales commitments. The changes in the fair value of loans held for sale are reflected in noninterest income on the consolidated statements of income. Mortgage Repurchase Reserve The Company sells residential mortgage loans to investors in the normal course of business. Residential mortgage loans sold to investors are predominantly conventional residential first lien mortgages originated under our usual underwriting procedures, and are sold on a nonrecourse basis. The Company’s agreements to sell residential mortgage loans usually require general representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability, which if subsequently untrue or breached, could require the Company to indemnify or repurchase certain loans affected. The balance in the repurchase reserve at the balance sheet date reflects the estimated amount of potential loss the Company could incur from repurchasing a loan, as well as loss reimbursements, indemnification, and other “make whole” settlement resolutions. There were no losses as a result of make-whole requests and loan repurchases for the years ended December 31, 2024, 2023 and 2022. The liability for unresolved repurchase demands totaled $ 0.1 million at December 31, 2024 and 2023. Premises and Equipment Premises, furniture and equipment, and leasehold improvements are stated at cost less accumulated depreciation. Depreciation expense is computed principally on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the asset or the lease term. Estimated useful lives for premises range from 10 to 40 years and for equipment range from 3 to 10 years. Maintenance and repairs are charged to operating expenses as incurred, while improvements that extend the useful life of assets are capitalized and depreciated over the estimated remaining life. We periodically review the carrying value of our long-lived assets to determine if impairment has occurred or whether changes in circumstances have occurred that would require a revision to the remaining useful life. In making such determination, we evaluate the performance, on an undiscounted basis, of the underlying operations or assets which give rise to such amount. Operating Lease Right of Use Assets and Liabilities The Company determines if a lease is present at the inception of an agreement. Operating leases are capitalized at commencement and are discounted using the Company’s FHLB borrowing rate for a similar term borrowing unless the lease defines an implicit rate within the contract. The operating lease right of use assets represent the Company’s right to use an underlying asset for the lease term, and the operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right of use assets and operating lease liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Company’s operating lease liabilities largely represent future rental expenses associated with operating leases and the borrowing rates are based on publicly available interest rates. Other Real Estate Owned OREO represents properties acquired through foreclosure or other proceedings and is initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost basis. After foreclosure, OREO is held for sale and is carried at the lower of cost or fair value less estimated costs of disposal. Any write-down to fair value at the time of transfer to OREO is charged to the allowance for credit losses on loans. Fair value for OREO is based on an appraisal performed upon foreclosure. Property is evaluated regularly to ensure the recorded amount is supported by its fair value less estimated costs to dispose. After the initial foreclosure appraisal, fair value is generally determined by an annual appraisal unless known events warrant adjustments to the recorded value. Revenue from the operations of OREO is included in other income in the consolidated statements of income, and expense and decreases in valuations are included in other real estate owned expense in the consolidated statements of income. 71 Table of Contents Goodwill and Intangible Assets Goodwill resulting from a business combination is generally determined as the excess of the fair value of consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. Testing of goodwill impairment comprises a two-step process. The testing is performed on each of the two reporting units, the Banking reporting unit and the Wealth Management reporting unit. First, the Company performs a qualitative assessment to evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that an impairment has occurred, it proceeds to the quantitative impairment test, whereby it calculates the fair value of the reporting unit and compares it with its carrying amount, including goodwill. In its performance of impairment testing, the Company has the unconditional option to proceed directly to the quantitative impairment test, bypassing the qualitative assessment. If the carrying amount of the reporting unit exceeds the fair value, the amount by which the carrying amount exceeds fair value, up to the carrying value of goodwill, is recorded through earnings as an impairment charge. If the results of the qualitative assessment indicate that it is not more likely than not that an impairment has occurred, or if the quantitative impairment test results in a fair value of the reporting unit that is greater than the carrying amount, then no impairment charge is recorded. Annually, the Company performs an impairment test of goodwill as of August 31. During the year ended December 31, 2024, management performed quarterly qualitative assessments and an annual qualitative impairment test, as a result of the economic uncertainty and increased market volatility resulting from the elevated interest rate environment. The Company's annual impairment test of goodwill and other intangible assets did not identify any impairment. The Company performed a quantitative impairment test on its Banking reporting unit as of December 31, 2024. The Company engaged a third-party service provider to assist Management with the determination of the fair value of the Company in the fourth quarter of 2024. The resulting calculation indicated that the fair value exceeded the carrying amount of the Company's Banking reporting unit by approximately 7 % as of December 31, 2024, which resulted in a determination of no impairment loss. Significant judgment is necessary in the determination of the fair value of a reporting unit. The income valuation methodology requires an estimation of future cash flows, considering the after-tax results of operations, the extent and timing of credit losses, and appropriate discount and growth rates. Actual future cash flows may differ from forecasted results based on the assumptions used. In performing the discounted cash flow analysis, the Company utilized multi-year cash projections that rely on internal forecasts of loan and deposit growth, bond mix, financing composition, market pricing of securities, credit performance, forward interest rates, future returns driven by net interest margin, fee generation and expense incurrence, industry and economic trends, and other relevant considerations. The long-term growth rate used in the calculation of fair value was derived from published projections of the inflation rate, along with Management estimates. The discount rate was calculated as the cost of equity capital using the modified capital asset pricing model, which includes variables including the risk-free interest rate, beta, equity risk premium, size premium, and company-specific risk premium. Other intangible assets, which consist of core deposit and acquired customer relationship intangible assets, are typically amortized over a period ranging from 1 to 20 years using an accelerated method of amortization. On a periodic basis, we evaluate events and circumstances that may indicate a change in the recoverability of the carrying value. Loan Servicing Rights When loans are sold with servicing retained, a servicing rights asset is capitalized, which represents the, then current, fair value of future net cash flows expected to be realized for performing servicing activities. Loan servicing rights are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. Loan servicing rights do not trade in an active market with readily observable prices. The fair value of loan servicing rights and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of distinct portfolios of government-insured residential and commercial mortgages, conventional residential mortgages and SBA loans. The Company periodically evaluates 72 Table of Contents its loan servicing rights asset for impairment. Impairment is assessed based on the fair value of net servicing cash flows at each reporting date using estimated prepayment speeds of the underlying loans serviced and stratifications based on the risk characteristics of the underlying loans. To the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification, the Company records an impairment expense and reduces the carrying value of the loan servicing rights. We recognize revenue from servicing residential mortgages, commercial FHA mortgages, and SBA loans as earned based on the specific contractual terms. This revenue, along with amortization of and changes in impairment on servicing rights, is reported in residential mortgage banking revenue and other noninterest income, respectively, in the consolidated statements of income. Cash Surrender Value of Life Insurance Policies We have purchased life insurance policies on the lives of certain officers and key employees and are the owner and beneficiary of the policies. These policies provide an efficient form of funding for long-term retirement and other employee benefits costs. These policies are recorded as cash surrender value of life insurance policies in the consolidated balance sheets at each policy’s respective cash surrender value, adjusted for other charges or other amounts due that are probable at settlement, with changes in value recorded in noninterest income in the consolidated statements of income. Credit Enhancement Asset The Company is party to third-party loan origination programs. As part of these programs the third-party providers offer various credit enhancements with respect to loans originated under the programs, including contributions to reserve accounts, yield maintenance and certain other payments. In accordance with accounting guidance, we estimate and record an allowance for expected losses for these loans. When the allowance for credit losses on loans is recorded, a credit enhancement derivative is also recorded on the balance sheet with a corresponding entry to noninterest income in recognition of the partner's legal commitment to indemnify or reimburse the Company. The credit enhancement asset is relieved as credit enhancement payments and recoveries are received from the partner or taken from the partner's cash reserve account. Derivative Financial Instruments At the inception of a derivative contract, the Company designates the derivative as one of three types based on the intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), or (3) instruments that do not meet the accounting definition of a hedge. For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during with the hedged transaction affects earnings. All derivatives are recognized on the consolidated balance sheet as a component of other assets or other liabilities at their fair value. On the date the derivative contract is entered into, the derivative is designated as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability cash flow hedge. Changes in the fair value of a derivative that is highly effective as, and that is designated and qualifies as, a cash flow hedge are recorded in accumulated other comprehensive income, until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedged transactions. This process includes linking all derivatives that are designated as cash flow hedges to specific assets and liabilities on the balance sheet or forecasted transactions. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows or fair value of hedged items. Hedge accounting is prospectively discontinued when (a) it is determined that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item (including forecasted transactions); (b) the derivative expires or is sold, terminated, or exercised; (c) the derivative is no longer designated as a hedge instrument because it is unlikely that a forecasted transaction will occur; or (d) management determines that designation of the derivative as a hedge instrument is no longer appropriate. 73 Table of Contents When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the consolidated balance sheet at its fair value, and gains and losses that were in accumulated other comprehensive income will be recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the consolidated balance sheet, with subsequent changes in its fair value recognized in current-period earnings. The Company also enters into interest rate lock commitments, which are agreements to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. Interest rate lock commitments for mortgage loans that will be held for sale are carried at fair value on the consolidated balance sheet with changes in fair value reflected in residential mortgage banking revenue. The Company also has forward loan sales commitments related to its interest rate lock commitments and its loans held for sale. Forward loan sales commitments that meet the definition of a derivative are recorded at fair value in the consolidated balance sheet with changes in fair value reflected in residential mortgage banking revenue. Allowance for Credit Losses on Unfunded Commitments In the ordinary course of business, the Company has entered into credit-related financial instruments consisting of commitments to extend credit, commercial letters of credit and standby letters of credit. The notional amount of these commitments is not reflected in the consolidated financial statements until they are funded. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments is adjusted as a provision for credit loss expense on the consolidated income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Expected utilization rates are compared to the current funded portion of the total commitment amount as a practical expedient for funded exposure at default. The allowance for credit losses on unfunded commitments totaled $ 4.6 million and $ 3.5 million at December 31, 2024 and 2023, respectively. Income Taxes We file consolidated federal and state income tax returns, with each organization computing its taxes on a separate return basis. The provision for income taxes is based on income as reported in the consolidated financial statements. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. The deferred tax assets and liabilities are computed based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in other income or expense. The Company evaluated its tax positions and concluded that it had taken no uncertain tax positions that require adjustment in the consolidated financial statements. Share-Based Compensation Plans Compensation cost for share-based payment awards is based on the fair value of the award at the date of grant. The fair value of stock options is estimated at the date of grant using a Black-Scholes option pricing model. The fair value of restricted stock is determined based on the Company’s current market price on the date of grant. Compensation cost is recognized in the consolidated financial statements on a straight-line basis over the requisite service period, which is generally defined as the vesting period. Additionally, the Company accounts for forfeitures as they occur. 74 Table of Contents Comprehensive Income Comprehensive income is defined as net income plus transactions and other occurrences that are the result of non-owner changes in equity. Non-owner equity changes include unrealized gains and losses on available for sale securities and changes in the fair value of cash flow hedges. These are components of comprehensive income and do not have an impact on the Company’s net income. Earnings per Share Earnings per share are calculated utilizing the two-class method. Basic earnings per share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of shares adjusted for the dilutive effect of common stock awards. Principles of Consolidation The consolidated financial statements include the accounts of the parent company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Assets held for customers in a fiduciary or agency capacity, other than trust cash on deposit with the Bank, are not assets of the Company and, accordingly, are not included in the accompanying consolidated financial statements. Accounting Guidance Adopted in 2024 FASB ASU No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method – In March 2023, the FASB issued ASU No. 2023-02, which allows for reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the type of program the tax credits are related to. The ASU is effective for fiscal years beginning after December 15, 2023. The Company adopted this guidance on January 1, 2024 on a prospective basis. The adoption of this accounting pronouncement did not have a material impact on the consolidated financial statements. FASB ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures - In December 2023, the FASB issued ASU No. 2023-07, which requires public entities to disclose significant segment expenses, an amount and description for other segment items, the title and position of the entity's chief operating decision maker and an explanation of how the chief operating decision maker uses the reported measures of profit or loss to assess segment performance, and, on an interim basis, certain segment related disclosures that previously were required only on an annual basis. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company has updated the related disclosures for the current fiscal year. Accounting Guidance Not Yet Adopted FASB ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures - In December 2023, the FASB issued ASU No. 2023-09, which requires public entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. The pronouncement also requires entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company will update the related disclosures upon adoption. FASB ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses - In November 2024, the FASB issued ASU 2024-03 in order to improve the disclosures about a public business entity's expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions. The amendments in ASU 2024-03 require disclosure, in the notes to the financial statements, of specified information about certain costs and expenses in interim and year-end reporting periods. The amendments in this ASU apply to all public business entities and are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments are to be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements. The Company will update the related disclosures upon adoption. 75 Table of Contents NOTE 2 – INVESTMENT SECURITIES Investment Securities Available for Sale Investment securities available for sale at December 31, 2024 and December 31, 2023 were as follows: December 31, 2024 (dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Basis Adjustments (2) Fair value Investment securities available for sale U.S. government sponsored entities and U.S. agency securities $ 21,655 $ 25 $ ( 1,539 ) $ — $ 20,141 Mortgage-backed securities - agency 940,508 1,558 ( 94,868 ) ( 142 ) 847,056 Mortgage-backed securities - non-agency 103,051 1,410 ( 3,449 ) — 101,012 State and municipal securities 75,597 96 ( 6,632 ) — 69,061 Corporate securities 85,602 42 ( 5,763 ) — 79,881 Other securities (1) 90,372 158 ( 107 ) — 90,423 Total available for sale securities $ 1,316,785 $ 3,289 $ ( 112,358 ) $ ( 142 ) $ 1,207,574 (1) The fair value of other securities includes student loan asset backed securities of $ 50.0 million and structured financial products of $ 40.4 million. (2) Basis adjustments represent the amount of fair value hedging adjustments included in the carrying amount of fixed-rate investment securities designated in fair value hedging arrangements. See Note 8 - Derivative Instruments for additional information regarding these derivative financial instruments. December 31, 2023 (dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investment securities available for sale U.S. Treasury securities $ 1,097 $ — $ — $ 1,097 U.S. government sponsored entities and U.S. agency securities 74,161 176 ( 1,765 ) 72,572 Mortgage-backed securities - agency 650,119 2,325 ( 77,944 ) 574,500 Mortgage-backed securities - non-agency 87,019 414 ( 3,904 ) 83,529 State and municipal securities 62,952 258 ( 5,750 ) 57,460 Corporate securities 109,598 41 ( 10,467 ) 99,172 Other securities (1) 27,646 3 ( 84 ) 27,565 Total available for sale securities $ 1,012,592 $ 3,217 $ ( 99,914 ) $ 915,895 (1) The fair value of other securities includes structured financial products of $ 27.6 million. Investment securities with a carrying amount of $ 283.7 million and $ 320.5 million were pledged for public deposits at December 31, 2024 and 2023 , respectively. Excluding securities issued or backed by U.S. government or its sponsored entities and agencies, there were no investments in securities from one issuer that exceeded 10% of shareholders' equity as of December 31, 2024 and 2023. The table below shows the amortized cost and fair value of the investment securities portfolio by contractual maturity for all securities other than mortgage-backed securities, at December 31, 2024. Expected maturities may differ from 76 Table of Contents contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. (dollars in thousands) Amortized cost Fair value Investment securities available for sale Within one year $ 4,210 $ 4,188 After one year through five years 60,412 56,741 After five years through ten years 97,151 88,734 After ten years 111,453 109,843 Mortgage-backed securities 1,043,559 948,068 Total available for sale securities $ 1,316,785 $ 1,207,574 Proceeds and gross realized gains and losses on sales of investment securities available for sale for the years ended December 31, 2024, 2023 and 2022 are summarized as follows: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Investment securities available for sale Proceeds from sales $ 74,116 $ 191,733 $ 136,403 Gross realized gains on sales 420 338 829 Gross realized losses on sales ( 650 ) ( 9,710 ) ( 1,059 ) Unrealized losses and fair values for investment securities available for sale as of December 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as follows: December 31, 2024 Less than 12 Months 12 Months or more Total (dollars in thousands) Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Investment securities available for sale U.S. government sponsored entities and U.S. agency securities $ 4,973 $ 27 $ 8,488 $ 1,512 $ 13,461 $ 1,539 Mortgage-backed securities - agency 300,427 9,735 385,332 85,133 685,759 94,868 Mortgage-backed securities - non-agency 12,433 33 24,153 3,416 36,586 3,449 State and municipal securities 21,209 365 43,131 6,267 64,340 6,632 Corporate securities 23,833 1,910 52,271 3,853 76,104 5,763 Other securities 25,202 106 2,130 1 27,332 107 Total available for sale securities $ 388,077 $ 12,176 $ 515,505 $ 100,182 $ 903,582 $ 112,358 77 Table of Contents December 31, 2023 Less than 12 Months 12 Months or more Total (dollars in thousands) Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Investment securities available for sale U.S. government sponsored entities and U.S. agency securities $ 42,826 $ 87 $ 8,323 $ 1,678 $ 51,149 $ 1,765 Mortgage-backed securities - agency 130,106 7,386 348,476 70,558 478,582 77,944 Mortgage-backed securities - non-agency 8,852 353 19,418 3,551 28,270 3,904 State and municipal securities 51,497 5,750 — — 51,497 5,750 Corporate securities 4,688 53 84,662 10,414 89,350 10,467 Other securities 14,763 84 — — 14,763 84 Total available for sale securities $ 252,732 $ 13,713 $ 460,879 $ 86,201 $ 713,611 $ 99,914 At December 31, 2024, 295 investment securities available for sale had unrealized losses with aggregate depreciation of 10.82 % from their amortized cost basis. For all of the above investment securities, the unrealized losses were generally due to changes in interest rates and other market conditions, and unrealized losses were considered to be temporary as the fair value is expected to recover as the securities approach their respective maturity dates and principal is paid back in full. The Company does not intend to sell and it is likely that the Company will not be required to sell the securities prior to their anticipated recovery. NOTE 3 – LOANS The following table presents total loans outstanding by portfolio class, as of December 31, 2024 and December 31, 2023: (dollars in thousands) December 31, 2024 December 31, 2023 (Restated) Commercial: Commercial $ 818,496 $ 825,938 Commercial other 541,324 679,516 Commercial real estate: Commercial real estate non-owner occupied 1,628,961 1,622,668 Commercial real estate owner occupied 440,806 436,857 Multi-family 454,249 279,904 Farmland 67,648 67,416 Construction and land development 299,842 452,593 Total commercial loans 4,251,326 4,364,892 Residential real estate: Residential first lien 315,775 317,388 Other residential 64,782 63,195 Consumer: Consumer 96,202 107,743 Consumer other 48,099 777,024 Lease financing 391,390 473,350 Total loans $ 5,167,574 $ 6,103,592 Total loans include net deferred loan costs of $ 1.4 million and $ 3.8 million at December 31, 2024 and December 31, 2023, respectively, and unearned discounts of $ 56.7 million and $ 66.4 million within the lease financing portfolio at December 31, 2024 and December 31, 2023, respectively. 78 Table of Contents Classifications of Loan Portfolio The Company monitors and assesses the credit risk of its loan portfolio using the classes set forth below. These classes also represent the segments by which the Company monitors the performance of its loan portfolio and estimates its allowance for credit losses on loans. Commercial —Loans to varying types of businesses, including municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital, operational needs and term financing of equipment. Repayment of such loans is generally provided through operating cash flows of the business. Commercial loans are predominately secured by equipment, inventory, accounts receivable, and other sources of repayment. Commercial real estate —Loans secured by real estate occupied by the borrower for ongoing operations, including loans to borrowers engaged in agricultural production, and non-owner occupied real estate leased to one or more tenants, including commercial office, industrial, special purpose, retail and multi-family residential real estate loans. Construction and land development —Secured loans for the construction of business and residential properties. Real estate construction loans often convert to a real estate commercial loan at the completion of the construction period. Secured development loans are made to borrowers for the purpose of infrastructure improvements to vacant land to create finished marketable residential and commercial lots/land. Most land development loans are originated with the intention that the loans will be paid through the sale of developed lots/land by the developers within twelve months of the completion date. Interest reserves may be established on real estate construction loans. Residential real estate —Loans, secured by residential properties, that generally do not qualify for secondary market sale; however, the risk to return and/or overall relationship are considered acceptable to the Company. This category also includes loans whereby consumers utilize equity in their personal residence, generally through a second mortgage, as collateral to secure the loan. Consumer —Loans to consumers primarily for the purpose of home improvements or acquiring automobiles, recreational vehicles and boats. Consumer loans consist of relatively small amounts that are spread across many individual borrowers. Lease financing —Our leasing business provides financing leases to varying types of businesses, nationwide, for purchases of business equipment. The financing is secured by a first priority interest in the financed assets and generally requires monthly payments. Commercial, commercial real estate, and construction and land development loans are collectively referred to as the Company’s commercial loan portfolio, while residential real estate, consumer loans and lease financing receivables are collectively referred to as the Company’s other loan portfolio. We have extended loans to certain of our directors, executive officers, principal shareholders and their affiliates. These loans were made in the ordinary course of business upon substantially the same terms as comparable transactions with non-insiders, including collateralization and interest rates prevailing at the time. The new loans, other additions, repayments and other reductions for the years ended December 31, 2024 and 2023, are summarized as follows: Years Ended December 31, (dollars in thousands) 2024 2023 Beginning balance $ 20,990 $ 19,776 New loans and other additions 22,325 2,368 Repayments and other reductions ( 2,905 ) ( 1,154 ) Ending balance $ 40,410 $ 20,990 79 Table of Contents The following table represents, by loan portfolio segment, a summary of changes in the allowance for credit losses on loans for the years ended December 31, 2024, 2023 and 2022: Commercial Loan Portfolio Other Loan Portfolio (dollars in thousands) Commercial Commercial real estate Construction and land development Residential real estate Consumer Lease financing Total Changes in allowance for credit losses on loans for the year ended December 31, 2024: Balance, beginning of period $ 29,672 $ 20,229 $ 4,163 $ 5,553 $ 86,762 $ 12,940 $ 159,319 Provision for credit losses on loans 42,610 24,366 17,375 3,028 16,415 15,468 119,262 Charge-offs ( 30,453 ) ( 9,998 ) ( 17,991 ) ( 817 ) ( 98,051 ) ( 14,323 ) ( 171,633 ) Recoveries 947 2,240 3 238 274 554 4,256 Balance, end of period $ 42,776 $ 36,837 $ 3,550 $ 8,002 $ 5,400 $ 14,639 $ 111,204 Changes in allowance for credit losses on loans for the year ended December 31, 2023 (restated) : Balance, beginning of period $ 26,035 $ 29,290 $ 2,435 $ 4,301 $ 60,041 $ 6,787 $ 128,889 Provision for credit losses on loans 15,555 ( 8,067 ) 3,296 1,385 59,582 10,809 82,560 Charge-offs ( 13,703 ) ( 5,000 ) ( 1,601 ) ( 271 ) ( 33,149 ) ( 5,026 ) ( 58,750 ) Recoveries 1,785 4,006 33 138 288 370 6,620 Balance, end of period $ 29,672 $ 20,229 $ 4,163 $ 5,553 $ 86,762 $ 12,940 $ 159,319 Changes in allowance for credit losses on loans for the year ended December 31, 2022 (restated) : Balance, beginning of period $ 24,768 $ 22,993 $ 972 $ 2,695 $ 30,547 $ 7,469 $ 89,444 Provision for credit losses on loans 9,307 10,396 1,439 1,698 53,128 ( 533 ) 75,435 Charge-offs ( 8,441 ) ( 4,106 ) ( 6 ) ( 344 ) ( 24,091 ) ( 1,297 ) ( 38,285 ) Recoveries 401 7 30 252 457 1,148 2,295 Balance, end of period $ 26,035 $ 29,290 $ 2,435 $ 4,301 $ 60,041 $ 6,787 $ 128,889 The Company utilizes a combination of models which measure probability of default and loss given default in determining expected future credit losses. The probability of default is the risk that the borrower will be unable or unwilling to repay its debt in full or on time. The risk of default is derived by analyzing the obligor’s capacity to repay the debt in accordance with contractual terms. Probability of default is generally associated with financial characteristics such as inadequate cash flow to service debt, declining revenues or operating margins, high leverage, declining or marginal liquidity, and the inability to successfully implement a business plan. In addition to these quantifiable factors, the borrower’s willingness to repay also must be evaluated. The probability of default is forecasted, for most commercial and retail loans, using a regression model that determines the likelihood of default within the twelve month time horizon. The regression model uses forward-looking economic forecasts including variables such as gross domestic product, housing price index, and real disposable income to predict default rates. The loss given default component is the percentage of defaulted loan balance that is ultimately charged off. As a method for estimating the allowance, a form of migration analysis is used that combines the estimated probability of loans experiencing default events and the losses ultimately associated with the loans experiencing those defaults. Multiplying one by the other gives the Company its loss rate, which is then applied to the loan portfolio balance to determine expected future losses. Within the model, the loss given default approach produces segmented loss given default estimates using a loss curve methodology, which is based on historical net losses from charge-off and recovery information. The main principle of a loss curve model is that the loss follows a steady timing schedule based on how long the defaulted loan has been on the books. The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look-back period includes January 2012 through the current period on a monthly basis. When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data. 80 Table of Contents Historical data is evaluated in multiple components of the expected credit loss, including the reasonable and supportable forecast and the post-reversion period of each loan segment. The historical experience is used to infer probability of default and loss given default in the reasonable and supportable forecast period. In the post-reversion period, long-term average loss rates are segmented by loan pool. Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration other analytics performed within the organization, such as enterprise and concentration management, along with other credit-related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible. The Company segments the loan portfolio into pools based on the following risk characteristics: financial asset type, collateral type, loan characteristics, credit characteristics, outstanding loan balances, contractual terms and prepayment assumptions, industry of borrower and concentrations, historical or expected credit loss patterns, and reasonable and supportable forecast periods. Within the probability of default segmentation, credit metrics are identified to further segment the financial assets. The Company utilizes risk ratings for the commercial portfolios and days past due for the consumer and the lease financing portfolios. The Company has defined five transitioning risk states for each asset pool within the expected credit loss model. The below table illustrates the transition matrix: Risk state Commercial loans risk rating Consumer loans and equipment finance loans and leases days past due 1 0-5 0 - 14 2 6 15 - 29 3 7 30 - 59 4 8 60 - 89 Default 9+ and nonaccrual 90 + and nonaccrual Expected Credit Losses In calculating expected credit losses, the Company individually evaluates loans on nonaccrual status with a balance greater than $ 500,000 , loans past due 90 days or more and still accruing interest, and loans that do not share similar risk characteristics with other loans in the pool. 81 Table of Contents The following table presents the amortized cost basis of individually evaluated loans on nonaccrual status as of December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 (dollars in thousands) Nonaccrual with allowance Nonaccrual with no allowance Total nonaccrual Nonaccrual with allowance Nonaccrual with no allowance Total nonaccrual Commercial: Commercial $ 2,678 $ 7,074 $ 9,752 $ 3,560 $ — $ 3,560 Commercial other 3,439 — 3,439 4,941 — 4,941 Commercial real estate: Commercial real estate non-owner occupied 9,173 24,187 33,360 1,614 14,098 15,712 Commercial real estate owner occupied 1,407 16,871 18,278 4,276 6,500 10,776 Multi-family 2,363 51,770 54,133 240 6,015 6,255 Farmland 1,148 — 1,148 1,148 — 1,148 Construction and land development 39 8,399 8,438 39 — 39 Total commercial loans 20,247 108,301 128,548 15,818 26,613 42,431 Residential real estate: Residential first lien 2,501 491 2,992 2,583 490 3,073 Other residential 446 — 446 635 — 635 Consumer: Consumer 20 — 20 134 — 134 Lease financing 8,132 — 8,132 9,097 36 9,133 Total loans $ 31,346 $ 108,792 $ 140,138 $ 28,267 $ 27,139 $ 55,406 There was no interest income recognized on nonaccrual loans during the years ended December 31, 2024, 2023 and 2022 while the loans were in nonaccrual status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $ 9.6 million, $ 3.4 million and $ 2.8 million for the years ended December 31, 2024, 2023 and 2022, respectively. Collateral Dependent Financial Assets A collateral dependent financial asset is a loan that relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral’s value increases and the loan may become collateral dependent. 82 Table of Contents The table below presents the amortized cost basis of individually evaluated, collateral dependent loans by loan class, for borrowers experiencing financial difficulty, as of December 31, 2024 and December 31, 2023: Type of Collateral (dollars in thousands) Real Estate Blanket Lien Equipment Total December 31, 2024 Commercial: Commercial $ — $ 7,074 $ — $ 7,074 Commercial real estate: Non-owner occupied 24,188 — — 24,188 Owner occupied 9,284 7,587 — 16,871 Multi-family 54,133 — — 54,133 Construction and land development 8,399 — — 8,399 Residential real estate Residential first lien — — — — Other residential — — — — Lease financing — — 465 465 Total collateral dependent loans $ 96,004 $ 14,661 $ 465 $ 111,130 December 31, 2023 Commercial: Commercial $ — $ — $ 1,972 $ 1,972 Commercial other — — 1,232 1,232 Commercial real estate: Non-owner occupied 14,147 — — 14,147 Owner occupied 9,275 — — 9,275 Multi-family 5,143 — — 5,143 Total collateral dependent loans $ 28,565 $ — $ 3,204 $ 31,769 83 Table of Contents The aging status of the recorded investment in loans by portfolio as of December 31, 2024 was as follows: Accruing loans (dollars in thousands) 30-59 days past due 60-89 days past due Past due 90 days or more Total past due Nonaccrual Current Total Commercial: Commercial $ 4,562 $ 349 $ — $ 4,911 $ 9,752 $ 803,833 $ 818,496 Commercial other 9,578 6,284 10,769 26,631 3,439 511,254 541,324 Commercial real estate: Commercial real estate non-owner occupied 11,732 — — 11,732 33,360 1,583,869 1,628,961 Commercial real estate owner occupied 985 — — 985 18,278 421,543 440,806 Multi-family — — — — 54,133 400,116 454,249 Farmland 48 — — 48 1,148 66,452 67,648 Construction and land development — — — — 8,438 291,404 299,842 Total commercial loans 26,905 6,633 10,769 44,307 128,548 4,078,471 4,251,326 Residential real estate: Residential first lien 21 650 — 671 2,992 312,112 315,775 Other residential 91 38 — 129 446 64,207 64,782 Consumer: Consumer 314 40 — 354 20 95,828 96,202 Consumer other 345 211 — 556 — 47,543 48,099 Lease financing 4,679 3,754 — 8,433 8,132 374,825 391,390 Total loans $ 32,355 $ 11,326 $ 10,769 $ 54,450 $ 140,138 $ 4,972,986 $ 5,167,574 The aging status of the recorded investment in loans by portfolio as of December 31, 2023 (restated) was as follows: Accruing loans (dollars in thousands) 30-59 days past due 60-89 days past due Past due 90 days or more Total past due Nonaccrual Current Total Commercial: Commercial $ 9,340 $ 504 $ — $ 9,844 $ 3,560 $ 812,534 $ 825,938 Commercial other 11,686 6,109 784 18,579 4,941 655,996 679,516 Commercial real estate: Commercial real estate non-owner occupied 384 — — 384 15,712 1,606,572 1,622,668 Commercial real estate owner occupied — — — — 10,776 426,081 436,857 Multi-family 14,506 8,140 — 22,646 6,255 251,003 279,904 Farmland — 120 — 120 1,148 66,148 67,416 Construction and land development 211 10,593 — 10,804 39 441,750 452,593 Total commercial loans 36,127 25,466 784 62,377 42,431 4,260,084 4,364,892 Residential real estate: Residential first lien 69 299 161 529 3,073 313,786 317,388 Other residential 100 50 — 150 635 62,410 63,195 Consumer: Consumer 62 20 — 82 134 107,527 107,743 Consumer other 6,695 4,442 — 11,137 — 765,887 777,024 Lease financing 7,622 1,826 — 9,448 9,133 454,769 473,350 Total loans $ 50,675 $ 32,103 $ 945 $ 83,723 $ 55,406 $ 5,964,463 $ 6,103,592 84 Table of Contents Loan Restructurings The Company may offer various types of concessions when a borrower is experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows including principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Commercial loans modified in a loan restructuring often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Loans modified in a loan restructuring for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for loans that have been modified in a loan restructuring is measured based on the probability of default and loss given default model, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. Commercial and consumer loans modified in a loan restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a loan restructuring subsequently default, the Company evaluates the loan for possible further loss. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. 85 Table of Contents The following table represents, by loan portfolio segment, a summary of the loan restructuring for the years ended December 31, 2024 and 2023: Years Ended December 31, 2024 2023 (dollars in thousands) Balance Count Balance Count Commercial: Commercial $ 61,729 8 $ 40 1 Commercial other 1,790 17 1,447 6 Commercial real estate: Commercial real estate non-owner occupied 31,550 5 — — Commercial real estate owner occupied 6,131 3 — — Multi-family 27,354 2 — — Construction and land development 17,033 3 — — Total commercial loans 145,587 38 1,487 7 Residential real estate: Residential first lien 402 3 57 2 Other residential 82 2 — — Consumer: Consumer 44 3 22 1 Lease financing 3,301 18 763 2 Total loan restructurings $ 149,416 64 $ 2,329 12 Balance Count Balance Count Interest Rate Reduction $ 10,037 2 $ — — Term Extension 75,365 33 1,191 8 Payment Deferral 8,153 15 — — Forgiveness of Principal or Interest 213 1 — — Interest Rate Reduction and Term Extension 49,051 5 1,138 4 Interest Rate Reduction and Payment Deferral 312 2 — — Interest Rate Reduction and Principal Forgiveness 77 1 — — Term Extension and Payment Deferral 6,208 5 — — Total loan restructurings $ 149,416 64 $ 2,329 12 The Company has not committed to lend any additional amounts to the borrowers that have been granted a loan modification. 86 Table of Contents The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following table presents the performance of such loans that have been modified in the last twelve months for the year ended December 31, 2024: (dollars in thousands) 30-59 days past due 60-89 days past due Total past due Nonaccrual Current Total Commercial: Commercial $ 2,722 $ — $ 2,722 $ — $ 59,007 $ 61,729 Commercial other 116 36 152 688 950 1,790 Commercial real estate: Commercial real estate non-owner occupied — — — 6,301 25,249 31,550 Commercial real estate owner occupied — — — — 6,131 6,131 Multi-family — — — 27,354 — 27,354 Construction and land development — — — — 17,033 17,033 Total commercial loans 2,838 36 2,874 34,343 108,370 145,587 Residential real estate: Residential first lien — — — 337 65 402 Other residential — — — 45 37 82 Consumer: Consumer — — — — 44 44 Lease financing — — — 950 2,351 3,301 Total loan restructurings $ 2,838 $ 36 $ 2,874 $ 35,675 $ 110,867 $ 149,416 The following table presents the performance of such loans that have been modified in the last twelve months for the year ended December 31, 2023: (dollars in thousands) 30-59 days past due 60-89 days past due Total past due Nonaccrual Current Total Commercial: Commercial $ — $ — $ — $ — $ 40 $ 40 Commercial other 395 — 395 298 754 1,447 Total commercial loans 395 — 395 298 794 1,487 Residential real estate: Residential first lien — — — 57 — 57 Consumer: Consumer — — — — 22 22 Lease financing — — — — 763 763 Total loan restructurings $ 395 $ — $ 395 $ 355 $ 1,579 $ 2,329 Credit Quality Monitoring The Company maintains loan policies and credit underwriting standards as part of the process of managing credit risk. These standards include making loans generally within the Company’s four geographic regions. In addition, our specialty finance division does nationwide bridge lending for FHA and HUD developments and originates loans for multifamily, assisted and senior living and multi-use properties. Our equipment leasing business provides financing to business customers across the country. The Company has a loan approval process involving underwriting and individual and group loan approval authorities to consider credit quality and loss exposure at loan origination. The loans in the Company’s commercial loan portfolio are risk rated at origination based on the grading system set forth below. All loan authority is based on the aggregate credit to a borrower and its related entities. 87 Table of Contents The Company’s consumer loan portfolio is primarily comprised of both secured and unsecured loans that are relatively small and are evaluated at origination on a centralized basis against standardized underwriting criteria. The ongoing measurement of credit quality of the consumer loan portfolio is largely done on an exception basis. If payments are made on schedule, as agreed, then no further monitoring is performed. However, if delinquency occurs, the delinquent loans are turned over to the Company’s Consumer Collections Group for resolution. Credit quality for the entire consumer loan portfolio is measured by the periodic delinquency rate, nonaccrual amounts and actual losses incurred. Loans in the commercial loan portfolio tend to be larger and more complex than those in the other loan portfolio, and therefore, are subject to more intensive monitoring. All loans in the commercial loan portfolio have an assigned relationship manager, and most borrowers provide periodic financial and operating information that allows the relationship managers to stay abreast of credit quality during the life of the loans. The risk ratings of loans in the commercial loan portfolio are reassessed at least annually, with loans below an acceptable risk rating reassessed more frequently and reviewed by various individuals within the Company at least quarterly. The Company maintains a centralized independent loan review function that monitors the approval process and ongoing asset quality of the loan portfolio, including the accuracy of loan grades. The Company also maintains an independent appraisal review function that participates in the review of all appraisals obtained by the Company. Credit Quality Indicators The Company uses a ten grade risk rating system to monitor the ongoing credit quality of its commercial loan portfolio. These loan grades rank the credit quality of a borrower by measuring liquidity, debt capacity, and coverage and payment behavior as shown in the borrower’s financial statements. The risk grades also measure the quality of the borrower’s management and the repayment support offered by any guarantors. The Company considers all loans with Risk Grades 1 - 6 as acceptable credit risks and structures and manages such relationships accordingly. Periodic financial and operating data combined with regular loan officer interactions are deemed adequate to monitor borrower performance. Loans with Risk Grades of 7 are considered "watch credits" categorized as special mention and the frequency of loan officer contact and receipt of financial data is increased to stay abreast of borrower performance. Loans with Risk Grades of 8 - 10 are considered problematic and require special care. Risk Grade 8 is categorized as substandard, 9 as substandard - nonaccrual and 10 as doubtful. Further, loans with Risk Grades of 7 - 10 are managed regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive and senior management of the Company, which includes highly structured reporting of financial and operating data, intensive loan officer intervention and strategies to exit, as well as potential management by the Company's Special Assets Group. Loans not graded in the commercial loan portfolio are monitored by aging status and payment activity. As discussed previously in Loan Restructurings, the Company does provide various types of concessions when a borrower is experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows. Modified loans with terms at least as favorable to the lender as the terms for other customers with similar collection risks and with terms that are more than minor compared to the original terms are treated as a new loan to the borrower. 88 Table of Contents The following tables present the recorded investment of the commercial loan portfolio by risk category as of December 31, 2024 and December 31, 2023: December 31, 2024 Term Loans Amortized Cost Basis by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving loans Total Commercial Commercial Acceptable credit quality $ 103,345 $ 100,478 $ 66,135 $ 59,613 $ 28,661 $ 39,895 $ 343,577 $ 741,704 Special mention 54,838 — — — — 60 277 55,175 Substandard 464 2,964 626 1,311 196 1,239 5,065 11,865 Substandard – nonaccrual — 635 4,601 514 12 3,202 788 9,752 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 158,647 104,077 71,362 61,438 28,869 44,396 349,707 818,496 Commercial other Acceptable credit quality 101,877 94,515 133,745 59,701 25,688 14,016 103,794 533,336 Special mention 1 2,132 1,100 964 197 94 — 4,488 Substandard — 31 — — — — 30 61 Substandard – nonaccrual 119 646 1,406 682 93 394 99 3,439 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 101,997 97,324 136,251 61,347 25,978 14,504 103,923 541,324 Commercial real estate Non-owner occupied Acceptable credit quality 404,475 179,499 460,447 261,886 79,830 130,160 6,729 1,523,026 Special mention 12,392 4,079 — 178 3,988 274 — 20,911 Substandard 62 2,061 8,149 4,190 4,463 32,739 — 51,664 Substandard – nonaccrual 80 7,737 7,861 4,509 — 13,173 — 33,360 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 417,009 193,376 476,457 270,763 88,281 176,346 6,729 1,628,961 Owner occupied Acceptable credit quality 61,613 43,344 95,334 101,717 46,914 62,723 629 412,274 Special mention 849 — — — — 214 — 1,063 Substandard 469 5,469 381 — — 2,872 — 9,191 Substandard – nonaccrual 317 — 16,971 264 1 421 304 18,278 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 63,248 48,813 112,686 101,981 46,915 66,230 933 440,806 Multi-family Acceptable credit quality 49,292 14,682 224,849 60,428 27,417 9,519 978 387,165 Special mention — 7,650 — — — — — 7,650 Substandard — — — 5,258 — 43 — 5,301 Substandard – nonaccrual 27,354 8,890 — 899 — 16,990 — 54,133 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 76,646 31,222 224,849 66,585 27,417 26,552 978 454,249 Farmland Acceptable credit quality 4,157 9,540 4,557 16,794 10,046 19,588 1,690 66,372 Special mention — — — — — — — — Substandard — — — 13 — 115 — 128 Substandard – nonaccrual — — — — — 1,100 48 1,148 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 4,157 9,540 4,557 16,807 10,046 20,803 1,738 67,648 Construction and land development Acceptable credit quality 71,889 27,121 106,277 25,780 — 1,153 38,829 271,049 Special mention 11,409 — — — — — — 11,409 Substandard 5,848 — — — — — — 5,848 Substandard – nonaccrual — — — 8,399 — 39 — 8,438 Doubtful — — — — — — — — Not graded 2,232 470 374 — — 22 — 3,098 Subtotal 91,378 27,591 106,651 34,179 — 1,214 38,829 299,842 Total Acceptable credit quality 796,648 469,179 1,091,344 585,919 218,556 277,054 496,226 3,934,926 Special mention 79,489 13,861 1,100 1,142 4,185 642 277 100,696 Substandard 6,843 10,525 9,156 10,772 4,659 37,008 5,095 84,058 Substandard – nonaccrual 27,870 17,908 30,839 15,267 106 35,319 1,239 128,548 Doubtful — — — — — — — — Not graded 2,232 470 374 — — 22 — 3,098 Total commercial loans $ 913,082 $ 511,943 $ 1,132,813 $ 613,100 $ 227,506 $ 350,045 $ 502,837 $ 4,251,326 89 Table of Contents December 31, 2023 (Restated) Term Loans Amortized Cost Basis by Origination Year (dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving loans Total Commercial Commercial Acceptable credit quality $ 157,498 $ 96,295 $ 71,366 $ 36,680 $ 14,688 $ 42,827 $ 369,297 $ 788,651 Special mention 3,015 450 4 — 181 43 983 4,676 Substandard 4,485 13,651 420 342 253 4,961 4,940 29,052 Substandard – nonaccrual 1,238 — 1,321 25 79 360 536 3,559 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 166,236 110,396 73,111 37,047 15,201 48,191 375,756 825,938 Commercial other Acceptable credit quality 139,057 195,726 111,273 68,224 35,720 29,839 90,928 670,767 Special mention — 532 399 114 107 4 1,682 2,838 Substandard 37 220 — — — — 639 896 Substandard – nonaccrual 1,819 1,918 449 184 361 94 116 4,941 Doubtful — — — — — — — — Not graded 74 — — — — — — 74 Subtotal 140,987 198,396 112,121 68,522 36,188 29,937 93,365 679,516 Commercial real estate Non-owner occupied Acceptable credit quality 237,215 653,057 309,013 110,743 82,563 124,430 6,328 1,523,349 Special mention 4,480 — 181 457 — 274 — 5,392 Substandard 35,811 1,658 — — 17,835 22,911 — 78,215 Substandard – nonaccrual 5,573 — 154 999 7,597 1,389 — 15,712 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 283,079 654,715 309,348 112,199 107,995 149,004 6,328 1,622,668 Owner occupied Acceptable credit quality 32,972 100,893 113,264 48,415 23,671 77,854 1,803 398,872 Special mention 5,750 — 129 — 149 177 8 6,213 Substandard — 7,716 265 — 705 12,310 — 20,996 Substandard – nonaccrual 126 9,431 28 171 27 689 304 10,776 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 38,848 118,040 113,686 48,586 24,552 91,030 2,115 436,857 Multi-family Acceptable credit quality 4,483 170,519 25,835 28,137 10,185 11,538 254 250,951 Special mention — — — — — — — — Substandard 8,140 — — — — 14,558 — 22,698 Substandard – nonaccrual 1,700 — 899 — 104 3,552 — 6,255 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 14,323 170,519 26,734 28,137 10,289 29,648 254 279,904 Farmland Acceptable credit quality 10,104 4,735 13,405 12,255 3,723 18,636 1,439 64,297 Special mention — — 1,451 — — 96 — 1,547 Substandard — — 133 — 22 269 — 424 Substandard – nonaccrual — — — — — 1,100 48 1,148 Doubtful — — — — — — — — Not graded — — — — — — — — Subtotal 10,104 4,735 14,989 12,255 3,745 20,101 1,487 67,416 Construction and land development Acceptable credit quality 65,538 233,660 88,047 — 677 916 29,385 418,223 Special mention — — — — — 40 — 40 Substandard — — 16,594 — — — 15,349 31,943 Substandard – nonaccrual — — — — — 39 — 39 Doubtful — — — — — — — — Not graded 1,535 432 356 — — 25 — 2,348 Subtotal 67,073 234,092 104,997 — 677 1,020 44,734 452,593 Total Acceptable credit quality 646,867 1,454,885 732,203 304,454 171,227 306,040 499,434 4,115,110 Special mention 13,245 982 2,164 571 437 634 2,673 20,706 Substandard 48,473 23,245 17,412 342 18,815 55,009 20,928 184,224 Substandard – nonaccrual 10,456 11,349 2,851 1,379 8,168 7,223 1,004 42,430 Doubtful — — — — — — — — Not graded 1,609 432 356 — — 25 — 2,422 Total commercial loans $ 720,650 $ 1,490,893 $ 754,986 $ 306,746 $ 198,647 $ 368,931 $ 524,039 $ 4,364,892 90 Table of Contents The following table presents the gross charge-offs by class of loan and year of origination on the commercial loan portfolio for the years ended December 31, 2024 and 2023: Term Loans by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Total For the year ended December 31, 2024 Commercial Commercial $ — $ 677 $ 5,174 $ 827 $ 90 $ 967 $ 342 $ 8,077 Commercial Other — 4,796 15,102 1,544 149 785 — 22,376 Commercial Real Estate Non-owner occupied — — 2,610 — 138 1,018 — 3,766 Owner occupied — — — — — 33 — 33 Multi-family — — 4,545 — — 1,539 — 6,084 Farmland — — — 115 — — — 115 Construction and land development — — — 17,991 — — — 17,991 Total gross commercial charge-offs $ — $ 5,473 $ 27,431 $ 20,477 $ 377 $ 4,342 $ 342 $ 58,442 Term Loans by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Loans Total For the year ended December 31, 2023 (restated) Commercial Commercial $ — $ — $ — $ 70 $ 126 $ 224 $ 2,211 $ 2,631 Commercial Other 258 5,432 2,351 1,273 773 985 — 11,072 Commercial Real Estate Non-owner occupied — — — — — 2,630 — 2,630 Owner occupied — — — — 48 1,510 — 1,558 Multi-family — — — — — 812 — 812 Construction and land development — — — — 42 1,559 — 1,601 Total gross commercial charge-offs $ 258 $ 5,432 $ 2,351 $ 1,343 $ 989 $ 7,720 $ 2,211 $ 20,304 91 Table of Contents The Company evaluates the credit quality of its other loan portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity. Accordingly, loans on nonaccrual status and loans past due 90 days or more and still accruing interest are considered to be nonperforming for purposes of credit quality evaluation. The following tables present the recorded investment of our other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming as of December 31, 2024 and December 31, 2023: December 31, 2024 Term Loans Amortized Cost Basis by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Total Residential real estate Residential first lien Performing $ 29,754 $ 41,263 $ 69,334 $ 35,539 $ 27,282 $ 109,572 $ 39 $ 312,783 Nonperforming — 137 196 312 139 2,208 — 2,992 Subtotal 29,754 41,400 69,530 35,851 27,421 111,780 39 315,775 Other residential Performing 2,620 2,218 874 257 308 1,822 56,237 64,336 Nonperforming — — — — — 148 298 446 Subtotal 2,620 2,218 874 257 308 1,970 56,535 64,782 Consumer Consumer Performing 22,405 21,182 16,636 23,632 3,542 7,874 911 96,182 Nonperforming — — 5 — — 12 3 20 Subtotal 22,405 21,182 16,641 23,632 3,542 7,886 914 96,202 Consumer other Performing — 536 29,939 7,510 3,677 6,437 — 48,099 Nonperforming — — — — — — — — Subtotal — 536 29,939 7,510 3,677 6,437 — 48,099 Leases financing Performing 94,432 96,171 106,809 44,213 24,774 16,859 — 383,258 Nonperforming 77 3,720 3,017 992 239 87 — 8,132 Subtotal 94,509 99,891 109,826 45,205 25,013 16,946 — 391,390 Total Performing 149,211 161,370 223,592 111,151 59,583 142,564 57,187 904,658 Nonperforming 77 3,857 3,218 1,304 378 2,455 301 11,590 Total other loans $ 149,288 $ 165,227 $ 226,810 $ 112,455 $ 59,961 $ 145,019 $ 57,488 $ 916,248 92 Table of Contents December 31, 2023 (Restated) Term Loans Amortized Cost Basis by Origination Year (dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving loans Total Residential real estate Residential first lien Performing $ 42,550 $ 74,613 $ 37,009 $ 29,628 $ 19,647 $ 110,703 $ 4 $ 314,154 Nonperforming 179 50 335 — 139 2,531 — 3,234 Subtotal 42,729 74,663 37,344 29,628 19,786 113,234 4 317,388 Other residential Performing 3,245 1,113 377 409 836 2,009 54,571 62,560 Nonperforming — 9 — — — 178 448 635 Subtotal 3,245 1,122 377 409 836 2,187 55,019 63,195 Consumer Consumer Performing 30,748 24,190 31,946 6,116 2,313 10,794 1,502 107,609 Nonperforming 11 55 6 6 — 56 — 134 Subtotal 30,759 24,245 31,952 6,122 2,313 10,850 1,502 107,743 Consumer other Performing 185,591 378,077 133,847 52,428 20,269 6,812 — 777,024 Nonperforming — — — — — — — — Subtotal 185,591 378,077 133,847 52,428 20,269 6,812 — 777,024 Leases financing Performing 143,334 157,059 74,359 50,174 30,428 8,863 — 464,217 Nonperforming 1,485 5,043 1,482 317 612 194 — 9,133 Subtotal 144,819 162,102 75,841 50,491 31,040 9,057 — 473,350 Total Performing 405,468 635,052 277,538 138,755 73,493 139,181 56,077 1,725,564 Nonperforming 1,675 5,157 1,823 323 751 2,959 448 13,136 Total other loans $ 407,143 $ 640,209 $ 279,361 $ 139,078 $ 74,244 $ 142,140 $ 56,525 $ 1,738,700 The following table presents the gross charge-offs by class of loan and year of origination on the other loan portfolio for the years ended December 31, 2024 and 2023: Term Loans by Origination Year (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Total For the year ended December 31, 2024 Residential real estate Residential first lien $ — $ 128 $ 11 $ 25 $ — $ 483 $ — $ 647 Other residential — — 16 — — 7 147 170 Consumer Consumer 13 73 36 11 17 27 10 187 Consumer other 5 28,143 47,205 12,567 5,413 4,531 — 97,864 Lease financing — 3,735 6,986 2,291 544 767 — 14,323 Total gross other charge-offs $ 18 $ 32,079 $ 54,254 $ 14,894 $ 5,974 $ 5,815 $ 157 $ 113,191 Term Loans by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Loans Total For the year ended December 31, 2023 (restated) Residential real estate Residential first lien $ — $ — $ 8 $ 35 $ 108 $ 53 $ — $ 204 Other residential — — — — — 10 57 67 Consumer Consumer — 49 23 22 37 36 — 167 Consumer other 1,216 14,786 7,982 4,313 2,499 2,186 — 32,982 Lease financing 669 2,156 1,172 213 542 274 — 5,026 Total gross other charge-offs $ 1,885 $ 16,991 $ 9,185 $ 4,583 $ 3,186 $ 2,559 $ 57 $ 38,446 93 Table of Contents NOTE 4 – PREMISES, EQUIPMENT AND LEASES A summary of premises, equipment and leases at December 31, 2024 and December 31, 2023 is as follows: December 31, December 31, (dollars in thousands) 2024 2023 Land $ 15,986 $ 15,968 Buildings and improvements 83,296 78,104 Furniture and equipment 36,526 35,797 Lease right-of-use assets 8,830 7,673 Total 144,638 137,542 Accumulated depreciation ( 58,928 ) ( 54,728 ) Premises and equipment, net $ 85,710 $ 82,814 Depreciation expense for the years ended December 31, 2024, 2023 and 2022 was $ 5.0 million, $ 4.8 million, and $ 4.8 million, respectively. The Company has entered into operating leases, primarily for banking offices and operating facilities, which have remaining lease terms of 3 months to 13 years, some of which may include options to extend the lease terms for up to an additional 10 years. The options to extend are included in the remaining lease term if they are reasonably certain to be exercised. The Company had operating lease right-of-use assets of $ 8.8 million and $ 7.7 million as of December 31, 2024 and December 31, 2023, respectively, included in premises and equipment on our consolidated balance sheets. The operating lease liabilities of the Company were $ 10.1 million and $ 9.3 million as of December 31, 2024 and December 31, 2023, respectively, and are included in accrued interest payable and other liabilities on our consolidated balance sheets. Information related to operating leases for the years ended December 31, 2024 and 2023 was as follows: Years Ended December 31, (dollars in thousands) 2024 2023 Operating lease cost $ 1,989 $ 1,919 Operating cash flows from leases 2,373 2,256 Right-of-use assets obtained in exchange for lease obligations 2,889 2,470 Weighted average remaining lease term 6.9 years 7.8 years Weighted average discount rate 3.66 % 3.41 % Net rent expense under operating leases, included in occupancy and equipment expense, was $ 1.4 million , $ 1.4 million and $ 1.5 million for the years ended December 31, 2024, 2023 and 2022 , respectively. The projected minimum rental payments under the terms of the leases as of December 31, 2024 were as follows: (dollars in thousands) Amount Year ending December 31: 2025 $ 1,768 2026 1,824 2027 1,708 2028 1,659 2029 1,445 Thereafter 3,103 Total future minimum lease payments 11,507 Less imputed interest ( 1,395 ) Total operating lease liabilities $ 10,112 94 Table of Contents NOTE 5 - OPERATING LEASES - LESSOR The Company provides financing for various types of equipment through operating leasing arrangements. The equipment leased to others is carried at cost less accumulated depreciation in other assets on our consolidated balance sheets. The Company had equipment leased to others of $ 30.7 million and $ 58.0 million at December 31, 2024 and December 31, 2023, respectively, net of accumulated depreciation of $ 18.1 million and $ 21.2 million at December 31, 2024 and December 31, 2023, respectively. The Company recorded lease income of $ 16.1 million and $ 18.0 million related to lease payments for operating leases in other income on our consolidated statements of income for the years ended December 31, 2024 and 2023, respectively. Depreciation expense related to leased equipment was $ 12.6 million and $ 14.7 million for the years ended December 31, 2024 and 2023, respectively. The Company performs assessment of the recoverability of long-lived assets when events or changes in circumstances indicate their carrying values may not be recoverable. During the year ended December 31, 2024, the Company recognized impairment losses of $ 6.0 million associated with equipment leased to others in other expenses on our consolidated statements of income. The future lease payments receivable from operating leases as of December 31, 2024 are as follows: (dollars in thousands) Amount Year ending December 31: 2025 $ 9,043 2026 3,730 2027 2,401 2028 1,254 2029 698 Thereafter 48 Total future minimum lease payments 17,174 NOTE 6 – LOAN SERVICING RIGHTS A summary of loan servicing rights at December 31, 2024 and December 31, 2023 is as follows: December 31, 2024 December 31, 2023 (dollars in thousands) Serviced Loans Carrying Value Serviced Loans Carrying Value Commercial FHA $ 1,904,843 $ 17,053 $ 2,084,961 $ 19,273 SBA 42,152 451 42,685 549 Residential 197,161 338 225,067 431 Total $ 2,144,156 $ 17,842 $ 2,352,713 $ 20,253 95 Table of Contents Commercial FHA Mortgage Loan Servicing The fair value of commercial FHA loan servicing rights is determined using key assumptions, representing both general economic and other published information, including the assumed earnings rates related to escrow and replacement reserves, and the weighted average characteristics of the commercial portfolio, including the prepayment rate and discount rate. The prepayment rate considered many factors as appropriate, including lockouts, balloons, prepayment penalties, interest rate ranges, delinquencies, and geographic location. The discount rate was based on an average pre-tax internal rate of return utilized by market participants in pricing the servicing portfolio. Significant increases or decreases in any one of these assumptions would result in a significantly lower or higher fair value measurement. The weighted average prepayment rate and weighted average discount rate was 10.00 % and 8.18 % at December 31, 2024. Changes in our commercial FHA loan servicing rights for the years ended December 31, 2024, 2023 and 2022 are summarized as follows: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Loan servicing rights: Balance, beginning of period $ 19,273 $ — $ 27,386 Servicing rights transferred from (to) held for sale — 20,473 ( 23,995 ) Amortization ( 2,220 ) ( 1,200 ) ( 1,907 ) Refinancing fee received from third party — — ( 221 ) Permanent impairment — — ( 1,263 ) Balance, end of period $ 17,053 $ 19,273 $ — Fair value: At beginning of period $ 32,469 $ — $ 28,368 At end of period 25,916 32,469 — NOTE 7 – GOODWILL AND INTANGIBLE ASSETS The carrying amount of goodwill by segment at December 31, 2024 and December 31, 2023 is summarized as follows: (dollars in thousands) 2024 2023 Banking $ 157,158 $ 157,158 Wealth management 4,746 4,746 Total goodwill $ 161,904 $ 161,904 The Company’s intangible assets, consisting of core deposit and customer relationship intangibles, as of December 31, 2024 and December 31, 2023 are summarized as follows: December 31, 2024 December 31, 2023 (dollars in thousands) Gross carrying amount Accumulated amortization Total Gross carrying amount Accumulated amortization Total Core deposit intangibles $ 58,914 $ ( 51,186 ) $ 7,728 $ 58,914 $ ( 48,287 ) $ 10,627 Customer relationship intangibles 15,918 ( 11,546 ) 4,372 15,918 ( 10,437 ) 5,481 Total intangible assets $ 74,832 $ ( 62,732 ) $ 12,100 $ 74,832 $ ( 58,724 ) $ 16,108 Amortization of intangible assets was $ 4.0 million, $ 4.8 million and $ 5.4 million for the years ended December 31, 2024, 2023 and 2022, respectively. 96 Table of Contents Estimated amortization expense for future years is as follows: (dollars in thousands) Amount Year ending December 31, 2025 $ 3,224 2026 2,672 2027 2,101 2028 1,582 2029 1,066 Thereafter 1,455 Total $ 12,100 NOTE 8 – DERIVATIVE INSTRUMENTS The Company enters into derivative instruments, which may include interest rate swaps and interest rate options, in connection with our risk-management activities. Our primary objective for using derivative financial instruments is to manage interest rate risk associated with our fixed-rate and variable-rate assets and liabilities. Interest Rate Risk We monitor our mix of fixed-rate and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, and options to achieve a more desired mix of fixed-rate and variable-rate assets and liabilities. We execute these trades to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges that do not qualify for hedge accounting treatment. Derivatives qualifying for hedge accounting treatment can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances, and pay-fixed swaps designated as fair value hedges of securities within our available-for-sale portfolio. Other derivatives qualifying for hedge accounting consist of interest rate floor contracts designated as cash flow hedges of the expected future cash flows in the form of interest receipts on a portion of our commercial and commercial real estate loans. Both the fair value hedges and cash flow hedges were determined to be effective during all periods presented and the Company expects the hedges to remain effective during the remaining terms of the swaps. We have the ability to execute economic hedges, which could consist of interest rate swaps, interest rate caps, forwards, and options to mitigate interest rate risk. We also enter into interest rate lock commitments and forward commitments that are executed as part of our mortgage business that do not meet the accounting definition of hedges, as well as interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by contracts simultaneously purchased by the Company from other financial dealer institutions with mirror-image terms. Because of the mirror-image terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in the fair value subsequent to initial recognition have a minimal effect on earnings. Balance Sheet Presentation The following table summarizes the fair value of derivative instruments reported on our consolidated balance sheet. The amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories. Derivative assets and derivative liabilities are included in other assets and other liabilities, respectively, on the consolidated balance sheet. Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk. 97 Table of Contents December 31, 2024 December 31, 2023 (restated) Fair Value Fair Value (dollars in thousands) Assets Liabilities Notional amount Assets Liabilities Notional amount Derivatives designated as accounting hedges Interest rate contracts Fixed-rate mortgage-backed securities $ 2,653 $ 654 $ 167,363 $ — $ 1,324 $ 150,000 Pools of commercial and commercial real estate loans — 4,502 200,000 — 6,654 200,000 FHLB advances, brokered CDs and other borrowings 863 281 75,000 — 465 50,000 Total derivatives designated as accounting hedges $ 3,516 $ 5,437 $ 442,363 $ — $ 8,443 $ 400,000 Derivatives not designated as accounting hedges Interest rate contracts Swaps $ 218 $ 218 $ 54,390 $ 310 $ 310 $ 13,832 Interest rate lock commitments 71 — 3,907 62 — 2,405 Forward commitments to sell mortgage-backed securities 32 — 10,198 — 83 5,000 Total derivatives not designated as accounting hedges $ 321 $ 218 $ 68,495 $ 372 $ 393 $ 21,237 The following table presents amounts recorded in the consolidated balance sheets related to cumulative basis adjustments for fair value hedges. Carrying amount of the hedged items Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items (dollars in thousands) December 31, 2024 December 31, 2023 (restated) December 31, 2024 December 31, 2023 (restated) Investment securities available for sale $ 286,982 $ 220,501 $ 3,323 $ ( 1,324 ) Statement of Income Presentation The following table summarizes the effect of derivative instruments in fair value hedging relationships on the consolidated statements of income. Location of gain (loss) recognized in income on derivative Gain (loss) recognized in income on derivative Location of gain (loss) recognized in income on related hedged item Gain (loss) recognized in income on related hedged items (dollars in thousands) 2024 2023 2024 2023 Years Ended December 31, Gain (loss) on fair value hedging relationships Interest rate contracts Fixed-rate mortgage-backed securities Interest income on investment securities available for sale $ 9,341 $ — Interest income on investment securities available for sale $ ( 9,484 ) $ — 98 Table of Contents The following table summarizes the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income. Gain (loss) recognized in AOCI on derivative Location of gain (loss) recognized in income on derivative Gain (loss) reclassified from AOCI into income (dollars in thousands) 2024 2023 (restated) 2022 (restated) 2024 2023 (restated) 2022 (restated) Years Ended December 31, Gain (loss) on cash flow hedging relationships Interest rate contracts Pools of commercial and commercial real estate loans $ ( 3,705 ) $ ( 2,242 ) $ 2,551 Interest income on loans $ ( 5,857 ) $ ( 5,588 ) $ 113 Other noninterest income — — 17,531 FHLB advances, brokered CDs and other borrowings 2,013 ( 210 ) — Interest expense 966 324 — Total gain (loss) on cash flow hedging relationships $ ( 1,692 ) $ ( 2,452 ) $ 2,551 $ ( 4,891 ) $ ( 5,264 ) $ 17,644 During the next 12 months, we estimate $ 1.9 million of losses will be reclassified into pretax earnings from derivatives designated as cash flow hedges. The following table summarizes the effect of derivative instruments not designated as accounting hedges on the consolidated statements of income. (dollars in thousands) Location of gain (loss) recognized in income on derivative 2024 2023 (restated) 2022 (restated) Years Ended December 31, Gain (loss) on derivative instruments not designated as accounting hedges Interest rate contracts Residential mortgage banking revenue $ 123 $ ( 70 ) $ ( 269 ) Other income — 15 ( 88 ) Total gain (loss) on derivative instruments not designated as accounting hedges $ 123 $ ( 55 ) $ ( 357 ) Credit Enhancement Derivatives The Company has recognized derivative instruments associated with agreements entered into with third-party providers that support loan programs for which the Company originates and holds loans on its balance sheet. These third-party agreements include contractual credit enhancements that transfer certain risks and benefits to or from the Company, resulting in recognition of a derivative. The value of these derivatives consists primarily of two components: (1) the credit loss reimbursement value, representing the present value of expected future payments from the third party for loan losses, and (2) the interest yield guarantee value, representing the present value of cash flows the Company expects to receive to ensure a minimum yield (e.g., Prime + 2%) on the portfolio when actual borrower payments fall short. Under certain programs, additional features such as reimbursement for waived promotional interest are also included in the derivative valuation. The fair value of these derivative instruments was $ 16.8 million and $ 15.4 million as of December 31, 2024 and 2023, respectively. The Company utilizes a third-party valuation specialist to estimate fair value using the income approach, based on the present value of expected future cash flows. The valuation relies on Level 3 unobservable inputs, including assumptions regarding credit loss rates, borrower prepayments, program yield performance, and discount rates. Changes in fair value are recorded in noninterest income, and the Company does not apply hedge accounting to these instruments 99 Table of Contents The following table summarizes the most significant inputs and assumptions in determining the value of the credit enhancement derivatives as well as the resulting fair value as of December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 MacTools commercial portfolio Greensky consumer portfolio LendingPoint consumer portfolio MacTools commercial portfolio Weighted average interest rate 9.50 % 10.47 % 14.62 % 10.50 % Implied/selected cohort default rate (CDR) 15.00 % 4.02 % 17.50 % 15.00 % Selected LGD 85.00 % 85.00 % 85.00 % 85.00 % Annual expected loss 12.75 % 3.42 % 14.88 % 12.75 % Credit mark ( 20.66 ) % ( 7.18 ) % ( 23.82 ) % ( 23.32 ) % Interest mark 10.04 % 3.29 % 13.23 % 13.01 % Fair value of derivative 10.61 % 1.56 % ( 0.34 ) % 10.31 % The LendingPoint consumer portfolio was sold during the fourth quarter of 2024. The GreenSky consumer portfolio was written down to net realizable value and classified as held for sale as of December 31, 2024. NOTE 9 – DEPOSITS The following table summarizes the classification of deposits as of December 31, 2024 and December 31, 2023: (dollars in thousands) December 31, 2024 December 31, 2023 Noninterest-bearing demand $ 1,055,564 $ 1,145,395 Interest-bearing: Checking 2,378,256 2,511,840 Money market 1,173,630 1,135,629 Savings 507,305 559,267 Time 1,082,488 957,398 Total deposits $ 6,197,243 $ 6,309,529 Included in time deposits are time certificates of $250,000 or more of $ 166.8 million and $ 179.2 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024, the scheduled maturities of time deposits were as follows: (dollars in thousands) Amount Year Ending December 31, 2025 $ 928,416 2026 106,061 2027 36,460 2028 8,781 2029 2,770 Total $ 1,082,488 100 Table of Contents NOTE 10 – FHLB ADVANCES AND OTHER BORROWINGS The following table summarizes our FHLB advances and other borrowings as of December 31, 2024 and December 31, 2023: (dollars in thousands) December 31, 2024 December 31, 2023 FHLB advances – fixed rate, fixed term at rates averaging 4.50 % and 4.94 % at December 31, 2024 and December 31, 2023 - maturing through October 2029 $ 133,000 $ 150,000 FHLB advances – putable fixed rate at rates averaging 3.69 % and 3.07 % at December 31, 2024 and December 31, 2023, respectively – maturing through July 2034 with call provisions through February 2025 125,000 160,000 FHLB advances – Short term fixed rate at rates of 5.45 % at December 31, 2023 — 166,000 Total FHLB advances and other borrowings $ 258,000 $ 476,000 The Company’s advances from the FHLB are collateralized by a blanket collateral agreement of qualifying mortgage and home equity line of credit loans and certain commercial real estate loans totaling approximately $ 3.23 billion and $ 2.98 billion at December 31, 2024 and December 31, 2023, respectively. Based on this collateral, the Company was eligible to borrow $ 1.29 billion from the FHLB at December 31, 2024. Contractual payments over the next five years for FHLB advances and other borrowings were as follows: (dollars in thousands) Amount Year Ending December 31, 2025 $ 40,000 2026 35,000 2027 — 2028 45,000 2029 113,000 Thereafter 25,000 Total $ 258,000 101 Table of Contents NOTE 11 – SUBORDINATED DEBT The following table summarizes the Company’s subordinated debt at December 31, 2024 and December 31, 2023: Subordinated debt Fixed to Float (dollars in thousands) Issued September 2019 Issued September 2019 Total At December 31, 2024 Outstanding amount $ 50,750 $ 27,250 $ 78,000 Carrying amount 50,750 26,999 77,749 Current rate 7.94 % 5.50 % At December 31, 2023 Outstanding amount $ 66,750 $ 27,250 $ 94,000 Carrying amount 66,573 26,973 93,546 Current rate 5.00 % 5.50 % Maturity date 9/30/2029 9/30/2034 Optional redemption date 9/30/2024 9/30/2029 Fixed to variable conversion date 9/30/2024 9/30/2029 Variable rate 3-month SOFR plus 3.61 % 3-month SOFR plus 4.05 % Interest payment terms Semiannually through 9/30/2024; Quarterly for all subsequent periods Semiannually through 9/30/2029; Quarterly for all subsequent periods The value of subordinated debentures have been reduced by the debt issuance costs, which are being amortized on a straight line basis through the earlier of the redemption option or maturity date. All of the subordinated debentures above may be included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations. NOTE 12 – TRUST PREFERRED DEBENTURES The Company formed Midland Trust, a statutory trust under the Delaware Statutory Trust Act. Midland Trust issued a pool of $ 10.0 million of floating rate cumulative trust preferred securities with a liquidation amount of $ 1,000 per security. The Company issued $ 10.3 million of subordinated debentures to the Midland Trust in exchange for ownership of all the common securities of the Midland Trust. In addition, the Company assumed the obligations of subordinated debentures in conjunction with the acquisitions of Grant Park Bancshares, Inc., Love Savings Holding Company, and Centrue Financial Corporation. The subordinated debentures were issued to Grant Park Statutory Trust I, Love Savings/Heartland Capital Trust III, Love Savings/Heartland Capital Trust IV and Centrue Statutory Trust II and were recorded by the Company at fair value at the acquisition date with the discount amortizing into interest expense over the life of the liability. The Company is not considered the primary beneficiary of the trusts; therefore, the trusts are not consolidated in the Company’s financial statements, but rather the subordinated debentures, net of unamortized purchase discount, are shown as liabilities. The Company’s investments in the common stock of the trusts, totaling $ 1.9 million, are included in other assets. 102 Table of Contents The following table summarizes the terms of each issuance: At December 31, 2024 At December 31, 2023 (dollars in thousands) Date of issuance Issuance Amount Shares Issued Variable Rate Maturity Date Carrying Amount Rate Carrying Amount Rate Grant Park Statutory Trust I 12/19/2003 $ 3,093 3,000 SOFR plus 2.85 % 1/23/2034 $ 2,493 7.70 % $ 2,454 8.52 % Midland States Preferred Securities Trust 3/26/2004 10,310 10,000 SOFR plus 2.75 % 4/23/2034 10,286 7.64 % 10,284 8.42 % Centrue Statutory Trust II 4/22/2004 10,310 10,000 SOFR plus 2.65 % 6/17/2034 8,577 7.26 % 8,468 8.32 % Love Savings/Heartland Capital Trust III 11/30/2006 20,619 20,000 SOFR plus 1.75 % 12/31/2036 15,328 6.37 % 15,110 7.42 % Love Savings/Heartland Capital Trust IV 6/6/2007 20,619 20,000 SOFR plus 1.47 % 9/6/2037 14,521 6.18 % 14,300 7.13 % Total trust preferred debentures $ 64,951 $ 51,205 $ 50,616 For all of the debentures mentioned above, interest is payable quarterly. The debentures and the common securities issued by each of the trusts are redeemable in whole or in part on dates each quarter at the redemption price plus interest accrued to the redemption date, as specified in the trust indenture document. The debentures are also redeemable in whole or in part from time to time upon the occurrence of “special events” defined within the indenture document. Subject to certain exceptions and limitations, the Company may, from time to time, defer subordinated debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities, and, with certain exceptions, prevent the Company from declaring or paying cash distributions on common stock or debt securities that rank pari passu or junior to the subordinated debentures. All of the trust preferred debentures above may be included in Tier 1 capital (with certain limitations applicable) under current regulatory guidelines and interpretations. 103 Table of Contents NOTE 13 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table summarizes the changes within each classification of AOCI, net of tax: (dollars in thousands) Unrealized gains and losses on investment securities available for sale Unrealized gains and losses on cash flow hedges Total Changes in AOCI for the year ended December 31, 2024 Balance, beginning of period $ ( 71,508 ) $ ( 5,245 ) $ ( 76,753 ) Other comprehensive income (loss) before reclassifications ( 7,577 ) ( 1,276 ) ( 8,853 ) Amounts reclassified from AOCI to income (1) 64 3,582 3,646 Balance, end of period $ ( 79,021 ) $ ( 2,939 ) $ ( 81,960 ) Changes in AOCI for the year ended December 31, 2023 Balance, beginning of period $ ( 76,499 ) $ ( 7,298 ) $ ( 83,797 ) Other comprehensive income (loss) before reclassifications ( 1,900 ) ( 1,740 ) ( 3,640 ) Amounts reclassified from AOCI to income (1) 6,891 3,793 10,684 Balance, end of period $ ( 71,508 ) $ ( 5,245 ) $ ( 76,753 ) Changes in AOCI for the year ended December 31, 2022 Balance, beginning of period $ 1,543 $ 3,694 $ 5,237 Other comprehensive income (loss) before reclassifications ( 78,048 ) 1,887 ( 76,161 ) Amounts reclassified from AOCI to income (1) 6 ( 12,879 ) ( 12,873 ) Balance, end of period $ ( 76,499 ) $ ( 7,298 ) $ ( 83,797 ) (1) See table below for details about reclassifications to income . The following table summarizes the significant amounts reclassified out of each component of AOCI: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Details about AOCI components Amounts reclassified from AOCI Affected line item in the statement of income Unrealized gains and losses on investment securities available for sale $ 142 $ — $ — Interest income (expense) — — 221 Recapture of credit losses ( 230 ) ( 9,372 ) ( 230 ) Loss on sales of investment securities, net 24 2,481 3 Income tax (expense) benefit $ ( 64 ) $ ( 6,891 ) $ ( 6 ) Net income Gains and losses on cash flow hedges $ ( 4,891 ) $ ( 5,264 ) $ 113 Interest income (expense) — — 17,531 Other noninterest income 1,309 1,471 ( 4,765 ) Income tax (expense) benefit $ ( 3,582 ) $ ( 3,793 ) $ 12,879 Net income 104 Table of Contents NOTE 14 – INCOME TAXES The components of income taxes for the years ended December 31, 2024, 2023 and 2022 were as follows: (dollars in thousands) 2024 2023 (Restated) 2022 (Restated) Federal: Current $ 13,592 $ 25,420 $ 25,270 Deferred ( 6,249 ) ( 5,805 ) ( 2,201 ) State: Current ( 201 ) 9,296 11,986 Deferred 1,714 ( 2,104 ) ( 3,906 ) Total income tax expense $ 8,856 $ 26,807 $ 31,149 The Company’s income tax expense differed from the statutory federal rate of 21% for the years ended December 31, 2024, 2023 and 2022 as follows: (dollars in thousands) 2024 2023 (Restated) 2022 (Restated) Expected income taxes $ 9,849 $ 18,472 $ 27,591 Less income tax effect of: Tax-exempt income, net ( 2,116 ) ( 1,762 ) ( 2,014 ) State tax, net of federal benefit 1,192 5,666 6,372 Equity-based compensation benefit ( 120 ) ( 21 ) ( 186 ) Surrender of company-owned life insurance policies — 3,756 — Valuation allowance 44 69 58 Other 7 627 ( 672 ) Actual income tax expense $ 8,856 $ 26,807 $ 31,149 105 Table of Contents Deferred tax assets, net in the accompanying consolidated balance sheets at December 31, 2024 and 2023 include the following amounts of deferred tax assets and liabilities: (dollars in thousands) 2024 2023 (Restated) Assets: Allowance for credit losses on loans $ 29,191 $ 43,016 Deferred compensation 2,050 2,108 Loans 877 1,069 Tax credits 8,796 580 Unrealized loss on securities 28,547 26,022 Unrealized loss on derivatives 504 2,280 Net operating losses 7,290 8,090 Operating lease liabilities 2,654 2,521 Other, net 6,644 2,826 Deferred tax assets 86,553 88,512 Valuation allowance ( 287 ) ( 244 ) Deferred tax assets, net of valuation allowance 86,266 88,268 Liabilities: Premises and equipment 1,177 786 Mortgage servicing rights 3,524 3,870 Fair value adjustment on trust preferred debentures 3,593 3,853 Deferred loan costs, net of fees 1,457 2,410 Intangible assets 2,783 3,577 Leased equipment 15,981 23,824 Operating lease right-of-use assets 2,318 2,072 Other, net 7,414 5,142 Deferred tax liabilities 38,247 45,534 Deferred tax assets, net $ 48,019 $ 42,734 At December 31, 2024 and 2023, the accumulation of the prior year’s earnings representing tax bad debt deductions was approximately $ 3.1 million for both years. If these tax bad debt reserves were charged for losses other than bad debt losses, the Company would be required to recognize taxable income in the amount of the charge. It is not expected that such tax-restricted retained earnings will be used in a manner that would create federal income tax liabilities. The Company had $ 29.7 million of federal net operating loss carryforwards expiring 2025 through 2035, $ 13.3 million of Illinois post-apportioned net operating loss carryforwards expiring 2029 and 2030, $ 29.7 million of Missouri pre-apportioned net operating loss carryforwards expiring 2025 through 2035, and $ 5.2 million of other state net operating loss carryforwards expiring 2029 through 2044, at December 31, 2024. The utilization of the federal and Missouri net operating losses are subject to the limitations of Internal Revenue Code Section 382. The utilization of the Illinois net operating loss is limited to $100,000 per year for years 2021 through 2023 and $500,000 in 2024, and years under which net operating losses are suspended do not count toward the number of carryforward years. The Company has state tax credit carryforwards of $ 0.9 million with a five year carryforward period, expiring between 2025 and 2029. Any amounts that are expected to expire before being fully utilized have been accounted for through a valuation allowance as discussed below. The deferred tax asset associated with the unrealized losses on securities is mainly a result of changes in interest rates, and the unrealized losses are considered to be temporary as the fair value is expected to recover as the securities approach their respective maturity dates. We had no unrecognized tax benefits as of December 31, 2024 and 2023, and did not recognize any increase of unrecognized benefits during 2024 relative to any tax positions taken during the year. 106 Table of Contents Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in other income or expense; no such accruals existed as of December 31, 2024 and 2023. Future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback or carryforward period available under the tax law. All available evidence, both positive and negative, should be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. At December 31, 2024, the Company concluded, based on all available evidence, a valuation allowance was needed for the Company’s deferred tax asset related to capital loss carry forwards. An addition was made to the $ 244,000 valuation allowance from December 31, 2023 in the amount of $ 43,000 , resulting in a valuation allowance of $ 287,000 at December 31, 2024 for the estimated capital losses that will not be able to be utilized in the future. For the Company's remaining deferred tax assets, based on our taxpaying history and estimates of taxable income over the years in which the items giving rise to the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences. The Company is subject to U.S. federal income tax as well as income tax of various states. Years that remain open for potential review by the Internal Revenue Service are 2021 through 2023 and by state taxing authorities are 2020 through 2023. NOTE 15 – RETIREMENT PLANS Profit Sharing Plan We sponsor the Midland States Bank 401(k) Profit Sharing Plan, which provides retirement benefits to substantially all of our employees. The 401(k) component of the plan allows participants to defer a portion of their compensation ranging from 1 % to 100 %. Such deferrals accumulate on a tax deferred basis until the participant withdraws the funds. The Company matches 50 % of participant contributions up to 6 % of their compensation. Total expense recorded for the Company match was $ 1.9 million, $ 1.8 million and $ 1.6 million for the years ended December 31, 2024, 2023, and 2022, respectively. There were no employer discretionary profit sharing contributions made to the 401(k) plan in 2024, 2023 and 2022. Deferred Compensation Arrangements Certain executive officers participate in a nonqualified deferred compensation arrangement. The plan is fully funded in a trust controlled by the Company with the gains and losses recognized in other noninterest income. The trust asset is reflected in the Company's equity securities with the offsetting deferred compensation liability reflected in other liabilities. The change in value associated with the gains and losses, which are due to the employee upon distribution, is recognized in salaries and employee benefits. The following table summarizes the activity in the asset and liability balances of the executive officer nonqualified deferred compensation arrangement for the years ended December 31, 2024, 2023, and 2022: (dollars in thousands) 2024 2023 2022 Beginning balance, trust asset $ 3,580 $ 3,294 $ 3,714 Contributions 268 255 446 Gain (loss) on trust assets 529 427 ( 474 ) Distributions ( 504 ) ( 396 ) ( 392 ) Ending balance, trust asset $ 3,873 $ 3,580 $ 3,294 Beginning balance, deferred compensation liability $ 3,580 $ 3,294 $ 3,714 Employee deferrals 268 255 446 Expense (benefit) on deferred compensation liability 529 427 ( 474 ) Distributions ( 504 ) ( 396 ) ( 392 ) Ending balance, deferred compensation liability $ 3,873 $ 3,580 $ 3,294 Certain directors also participate in a nonqualified deferred compensation arrangement. The deferred compensation liability is reflected in other liabilities with the associated expense recognized in other noninterest expense. 107 Table of Contents The following table summarizes the activity in the liability balance of the director nonqualified deferred compensation arrangement for the years ended December 31, 2024, 2023, and 2022: (dollars in thousands) 2024 2023 2022 Beginning balance, deferred compensation liability $ 6,053 $ 6,137 $ 5,372 Deferred compensation 484 396 532 Expense on deferred compensation liability 345 323 296 Distributions ( 324 ) ( 803 ) ( 63 ) Ending balance, deferred compensation liability $ 6,558 $ 6,053 $ 6,137 Defined Benefit Pension Plan The Bank participated in the Pentegra Defined Benefit Plan for Financial Institutions, a non-contributory defined benefit pension plan for certain former employees of Heartland Bank who met prescribed eligibility requirements. Benefits under the plan were frozen July 1, 2004. Effective October 1, 2021, the Bank withdrew from the multiple-employer plan by transferring assets and liabilities to a qualified successor plan under actuarial assumptions and methodology determined appropriate by Pentegra. Assets of $ 16.6 million were transferred to the successor plan on November 30, 2021. Transferred liability excludes the previously allocated orphan liability. On June 30, 2023, we terminated the plan and notified the IRS, seeking a final determination letter. The final determination letter was received in January 2025 and we expect to begin distributing assets to plan participants in early 2025. The following table details the components of the net periodic benefit cost for the years ended December 31, 2024 and 2023: (dollars in thousands) 2024 2023 Service cost $ — $ — Interest cost 625 635 Expected return on plan assets ( 464 ) ( 511 ) Amortization of transition obligation — — Net periodic benefit cost $ 161 $ 124 Assumptions used to determine net periodic benefit cost: 2024 2023 Discount rate 4.85 % 5.05 % Expected long-term return on plan assets 4.85 % 4.75 % Rate of compensation increase N/A N/A Previously, costs for administration, shortfalls in funds to maintain the frozen level of benefit coverage and differences of actuarial assumptions related to the frozen benefits were expensed as incurred. The following table provides a comparison of obligations to plan assets: (dollars in thousands) December 31, 2024 December 31, 2023 Projected benefit obligation $ 12,482 $ 13,353 Accumulated benefit obligation 12,482 13,353 Fair value of plan assets 11,791 12,768 The minimum required contribution for 2024 is expected to be zero. 108 Table of Contents NOTE 16 – SHARE-BASED COMPENSATION The Company awards select employees and directors certain forms of share-based incentives under the 2019 Incentive Plan. The 2019 Incentive Plan made 1,000,000 shares available to be issued to selected employees and directors of, and service providers to, the Company or its subsidiaries. The granting of awards under this plan can be in the form of stock options, stock appreciation rights, stock awards and cash incentive awards. The awards are granted by the compensation committee, which is comprised of members of the board of directors. Total compensation cost that has been charged against income under the plans was $ 3.0 million, $ 2.5 million and $ 2.2 million for the years ended December 31, 2024, 2023, and 2022, respectively. Restricted Stock Restricted stock awards require certain service requirements and have a vesting period of four years . Compensation expense is recognized on a straight-line basis over the vesting period of the award based on the fair value of the stock at the date of grant. A summary of the activity for restricted stock awards and restricted stock unit awards for the year follows: Number outstanding Weighted average grant due fair value Nonvested, beginning of year 341,014 $ 24.25 Granted 208,657 26.10 Vested ( 116,374 ) 23.51 Forfeited ( 34,717 ) 24.80 Nonvested, end of year 398,580 $ 25.39 As of December 31, 2024, there was $ 9.3 million of total unrecognized compensation cost related to nonvested restricted stock awards. The cost is expected to be recognized over a weighted average period of 3.04 years. The total fair value of shares vested during the years ended December 31, 2024, 2023, and 2022 was $ 3.0 million, $ 2.1 million and $ 2.4 million, respectively. Stock Options The Company awards stock options to employees with an exercise price equal to the market price of the Company's common stock at the date of the grant and those awards, typically have a vesting period of four years and a ten-year contractual term. The fair value of each option award is estimated on the date of grant using the Black-Scholes model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Nasdaq ABA Community Bank Index. The Company has elected to use the practical expedient of one-half the weighted average time to vest plus the contractual life to estimate the expected term. The Company estimates the impact of forfeitures based on historical experience. Should the Company's current estimate change, additional expense could be recognized or reversed in future periods. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company did not grant stock options in the years ended December 31, 2024 and 2023. The fair value of options granted during the year ended December 31, 2022 was determined using the following weighted-average assumptions as of the grant date. 2022 Dividend yield 4.24 % Expected volatility 23.81 % Risk free interest rate 4.23 % Expected life 6.25 years 109 Table of Contents The weighted average fair value of stock options granted during the year ended December 31, 2022 was $ 4.92 . The summary of our stock option activity for the year ended December 31, 2024 is as follows: 2024 Shares Weighted average exercise price Weighted average remaining contractual life Option outstanding, beginning of year 342,956 $ 26.49 Options granted — N/A Options exercised ( 60,961 ) 21.51 Options forfeited ( 2,602 ) 28.43 Options expired ( 4,532 ) 28.59 Options outstanding, end of year 274,861 27.54 5.7 years Options exercisable 182,190 27.08 4.6 years Options vested and expected to vest 274,861 27.54 5.7 years The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2024 was $ 0.1 million. As of December 31, 2024, there was $ 0.4 million of total unrecognized compensation cost related to nonvested stock options granted under our 2019 Incentive Plan. This cost is expected to be recognized over a period of 1.8 years. The following table includes information related to stock option exercises for the years ended December 31, 2024, 2023, and 2022. (dollars in thousands) 2024 2023 2022 Cash received from options exercised $ 692 $ 783 $ 2,061 Intrinsic value from options exercised 195 230 943 Tax benefit from options exercised 41 48 198 NOTE 17 – PREFERRED STOCK On August 24, 2022, the Company issued and sold 4,600,000 depositary shares (the "Depositary Shares"), each representing a 1/40th ownership interest in a share of the Company's 7.75 % fixed-rate reset non-cumulative perpetual preferred stock, Series A, par value $ 2.00 per share (the "Series A preferred stock"), with a liquidation preference of $ 25 per depositary share (equivalent to $ 1,000 per share of Series A Preferred Stock). The Series A preferred stock qualifies as Tier 1 capital for purposes of regulatory capital calculations. The gross proceeds were $ 115.0 million while net proceeds from the issuance of the Series A preferred stock, after deducting $ 4.5 million of offering costs, including the underwriting discount and other expenses, were $ 110.5 million. Dividends on the Series A preferred stock are not cumulative or mandatory, and will be paid when, as, and if declared by the Company’s board of directors. If declared, dividends will accrue and be payable, quarterly in arrears, (i) from and including the date of original issuance to, but excluding September 30, 2027 or the date of earlier redemption, at a rate of 7.75 % per annum, on March 30, June 30, September 30 and December 30 of each year, commencing on December 30, 2022, and (ii) from and including September 30, 2027, during each reset period, at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 4.713 %, on March 30, June 30, September 30 and December 30 of each year, beginning on December 30, 2027, except in each case where such day is not a business day. Neither the holders of the Series A preferred stock nor holders of the Depositary Shares will have the right to require the redemption or repurchase of the Series A preferred stock. 110 Table of Contents NOTE 18 – EARNINGS PER COMMON SHARE Earnings per common share is calculated utilizing the two-class method. Basic earnings per common share is calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of shares adjusted for the dilutive effect of common stock awards. Presented below are the calculations for basic and diluted earnings per common share for the years ended 2024, 2023, and 2022: Years Ended December 31, (dollars in thousands, except per share data) 2024 2023 (Restated) 2022 (Restated) Net income $ 38,044 $ 61,155 $ 100,237 Preferred dividends declared ( 8,913 ) ( 8,913 ) ( 3,169 ) Net income available to common shareholders 29,131 52,242 97,068 Common shareholder dividends ( 26,622 ) ( 26,234 ) ( 25,628 ) Unvested restricted stock award dividends ( 450 ) ( 339 ) ( 295 ) Undistributed earnings to unvested restricted stock awards ( 33 ) ( 311 ) ( 823 ) Undistributed earnings to common shareholders $ 2,026 $ 25,358 $ 70,322 Basic Distributed earnings to common shareholders $ 26,622 $ 26,234 $ 25,628 Undistributed earnings to common shareholders 2,026 25,358 70,322 Total common shareholders earnings, basic $ 28,648 $ 51,592 $ 95,950 Diluted Distributed earnings to common shareholders $ 26,622 $ 26,234 $ 25,628 Undistributed earnings to common shareholders 2,026 25,358 70,322 Total common shareholders earnings 28,648 51,592 95,950 Add back: Undistributed earnings reallocated from unvested restricted stock awards — — 2 Total common shareholders earnings, diluted $ 28,648 $ 51,592 $ 95,952 Weighted average common shares outstanding, basic 21,731,689 22,115,869 22,341,498 Dilutive effect of options 6,269 8,533 54,200 Weighted average common shares outstanding, diluted 21,737,958 22,124,402 22,395,698 Basic earnings per common share $ 1.32 $ 2.33 $ 4.29 Diluted earnings per common share 1.32 2.33 4.28 Antidilutive stock options (1) 274,861 302,020 265,831 (1) The diluted earnings per common share computation excludes antidilutive stock options because the exercise prices of these stock options exceeded the average market prices of the Company's common shares for those respective periods. NOTE 19 – CAPITAL REQUIREMENTS The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. 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. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. The Bank is also restricted by Illinois law and regulations of the Illinois Department of Financial and Professional Regulation and the FDIC as to the maximum amount of dividends the Bank can pay the Company. As a practical matter, the Bank restricts dividends to a lesser amount because of the need to maintain an adequate capital structure. 111 Table of Contents At December 31, 2024, the Company and the Bank exceeded the regulatory minimums and the Bank met the regulatory definition of "well-capitalized" based on the most recent regulatory notification. There have been no conditions or events since that notification that management believes have changed the Bank's category. At December 31, 2024 and 2023, the Company’s and the Bank’s actual and required capital ratios were as follows: Actual Fully Phased-In Regulatory Guidelines Minimum Required to be Well Capitalized Under Prompt Corrective Action Requirements (dollars in thousands) Amount Ratio Amount Ratio (1) Amount Ratio December 31, 2024 Total risk-based capital ratio Midland States Bancorp, Inc. $ 833,709 13.07 % $ 669,998 10.50 % N/A N/A Midland States Bank 792,327 12.43 669,052 10.50 $ 637,192 10.00 % Tier 1 risk-based capital ratio Midland States Bancorp, Inc. 685,934 10.75 542,379 8.50 N/A N/A Midland States Bank 712,263 11.18 541,614 8.50 509,754 8.00 Common equity tier 1 risk-based capital ratio Midland States Bancorp, Inc. 510,435 8.00 446,665 7.00 N/A N/A Midland States Bank 712,263 11.18 446,035 7.00 414,175 6.50 Tier 1 leverage ratio Midland States Bancorp, Inc. 685,934 9.03 255,237 4.00 N/A N/A Midland States Bank 712,263 9.38 254,877 4.00 318,596 5.00 December 31, 2023 (restated) Total risk-based capital ratio Midland States Bancorp, Inc. $ 866,878 12.37 % $ 735,539 10.50 % N/A N/A Midland States Bank 809,596 11.57 734,781 10.50 $ 699,791 10.00 % Tier 1 risk-based capital ratio Midland States Bancorp, Inc. 685,767 9.79 595,437 8.50 N/A N/A Midland States Bank 722,122 10.32 594,823 8.50 559,833 8.00 Common equity tier 1 risk-based capital ratio Midland States Bancorp, Inc. 510,269 7.28 490,360 7.00 N/A N/A Midland States Bank 722,122 10.32 489,854 7.00 454,864 6.50 Tier 1 leverage ratio Midland States Bancorp, Inc. 685,767 8.73 280,206 4.00 N/A N/A Midland States Bank 722,122 9.20 279,917 4.00 349,896 5.00 (1) Total risk-based capital ratio, Tier 1 risk-based capital ratio and Common equity tier 1 risk-based capital ratio include the capital conservation buffer of 2.5%. In December 2018, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, 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 new accounting standard. In March 2020, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, 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 adopted the capital transition relief over the permissible five-year period. 112 Table of Contents NOTE 20 – FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows: • Level 1: Unadjusted quoted prices for identical assets or liabilities traded in active markets. • Level 2: Significant other observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. • Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument: Investment securities. The fair value of investment securities available for sale are determined by quoted market prices, if available (Level 1). For investment securities available for sale where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For investment securities available for sale where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Securities classified as Level 3 are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. There were no transfers between Levels 1, 2 or 3 during the period presented for assets measured at fair value on a recurring basis. The fair value of equity securities is determined using quoted prices or market prices for similar securities (Level 2). Residential loans held for sale. The fair value of residential loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2). Credit enhancement asset. The fair value of the credit enhancement asset is calculated using the Income Approach Valuation Method (Level 3). Derivative instruments. The fair value of derivative instruments are determined based on derivative valuation models using observable market data as of the measurement date (Level 2). Nonperforming loans. All of our nonaccrual loans are considered nonperforming and are reviewed individually for the amount of impairment, if any. We measure collateral dependent nonperforming loans based on the estimated fair value of such collateral. In cases where the Company has an agreed upon selling price for the collateral, the fair value is set at the selling price (Level 1). The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral (Level 2). When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable (Level 3). The nonperforming loans categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, cash flows discounted at the effective loan rate, and management’s judgment. Consumer loans held for sale. The fair value of consumer loans held for sale was derived from a purchase agreement with a third party (Level 3). 113 Table of Contents Other Real Estate Owned. OREO is initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost basis. After foreclosure, OREO is held for sale and is carried at the lower of cost or fair value less estimated costs of disposal. Fair value for OREO is based on an appraisal performed upon foreclosure. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Property is evaluated regularly to ensure the recorded amount is supported by its fair value less estimated costs to dispose. After the initial foreclosure appraisal, fair value is generally determined by an annual appraisal unless known events warrant adjustments to the recorded value (Level 2). When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable (Level 3). Appraisals for both collateral-dependent loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal. Assets and liabilities measured and recorded at fair value, including financial assets for which the Company has elected the fair value option, on a recurring and nonrecurring basis at December 31, 2024 and December 31, 2023, are summarized below: December 31, 2024 (dollars in thousands) Carrying amount Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets and liabilities measured at fair value on a recurring basis: Assets Investment securities available for sale: U.S. government sponsored entities and U.S. agency securities $ 20,141 $ — $ 20,141 $ — Mortgage-backed securities - agency 847,056 — 847,056 — Mortgage-backed securities - non-agency 101,012 — 101,012 — State and municipal securities 69,061 — 69,061 — Corporate securities 79,881 — 79,881 — Other securities 90,423 — 90,423 — Equity securities 4,792 4,792 — — Residential loans held for sale 8,228 — 8,228 — Derivative assets 3,837 — 3,837 — Total $ 1,224,431 $ 4,792 $ 1,219,639 $ — Liabilities Derivative liabilities $ 5,655 $ — $ 5,655 $ — Total $ 5,655 $ — $ 5,655 $ — Assets measured at fair value on a non-recurring basis: Nonperforming loans $ 120,222 $ — $ — $ 120,222 Consumer loans held for sale 336,719 — — 336,719 Other real estate owned 4,941 — — 4,941 Credit enhancement asset 16,804 — — 16,804 114 Table of Contents December 31, 2023 (Restated) (dollars in thousands) Carrying amount Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets and liabilities measured at fair value on a recurring basis: Assets Investment securities available for sale: U.S. Treasury securities $ 1,097 $ 1,097 $ — $ — U.S. government sponsored entities and U.S. agency securities 72,572 — 72,572 — Mortgage-backed securities - agency 574,500 — 574,500 — Mortgage-backed securities - non-agency 83,529 — 83,529 — State and municipal securities 57,460 — 57,460 — Corporate securities 99,172 — 99,172 — Other securities 27,565 — 27,565 — Equity securities 4,501 4,501 — — Residential loans held for sale 3,811 — 3,811 — Derivative assets 372 — 372 — Total $ 924,579 $ 5,598 $ 918,981 $ — Liabilities Derivative liabilities $ 8,836 $ — $ 8,836 $ — Total $ 8,836 $ — $ 8,836 $ — Assets measured at fair value on a non-recurring basis: Nonperforming loans $ 4,633 $ — $ — $ 4,633 Other real estate owned 9,112 — — 9,112 Credit enhancement asset 15,389 — — 15,389 The following table presents losses recognized on assets measured on a nonrecurring basis for the years ended December 31, 2024, 2023 and 2022: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Commercial mortgage servicing rights $ — $ — $ 1,263 Loan servicing rights held for sale — — 3,250 Nonperforming loans 21,317 19,421 8,892 Other real estate owned 4,866 — 4,276 Total losses on assets measured on a nonrecurring basis $ 26,183 $ 19,421 $ 17,681 115 Table of Contents The following tables present quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured on a nonrecurring basis at December 31, 2024 and December 31, 2023: (dollars in thousands) Fair value Valuation technique Unobservable input / assumptions Range (weighted average) (1) December 31, 2024 Nonperforming loans $ 120,222 Fair value of collateral Discount for type of property, age of appraisal, and/or current status 0.00 % - 34.15 % ( 0.67 %) Other real estate loans 4,941 Fair value of collateral Discount for type of property, age of appraisal, and/or current status 0.00 % - 43.54 % ( 10.68 %) Consumer loans held for sale (2) 336,719 Discounted cash flow Discount rate 8.98 % Credit enhancement asset 16,804 Income approach Discount rate 10.61 % December 31, 2023 (restated) Nonperforming loans $ 4,633 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 24.38 % - 100.00 % ( 27.46 %) Other real estate loans 9,112 Fair value of collateral Discount for type of property, age of appraisal, and/or current status Credit enhancement asset 15,389 Income approach Discount rate ( 0.34 )% - 10.31 % ( 1.80 %) (1) Unobservable inputs were weighted by the relative fair value of the instruments. (2) There was one pool of loans at December 31, 2024 with write-downs during 2024, so no range or weighted average is reported. ASC Topic 825, Financial Instruments , requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements. The Company has elected the fair value option for newly originated residential loans held for sale. These loans are intended for sale and are hedged with derivative instruments. We have elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification. The following table presents the difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected as of December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 (dollars in thousands) Aggregate fair value Difference Contractual principal Aggregate fair value Difference Contractual principal Residential loans held for sale $ 8,228 $ 282 $ 7,946 $ 3,811 $ 203 $ 3,608 The following table presents the amount of gains (losses) from fair value changes included in income before income taxes for financial assets carried at fair value for the years ended December 31, 2024, 2023 and 2022: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Residential loans held for sale $ 47 $ 163 $ ( 425 ) 116 Table of Contents The carrying values and estimated fair value of certain financial instruments not carried at fair value at December 31, 2024 and December 31, 2023 were as follows: December 31, 2024 (dollars in thousands) Carrying amount Fair value Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Cash and due from banks $ 114,055 $ 114,055 $ 114,055 $ — $ — Federal funds sold 711 711 711 — — Loans 5,167,574 4,979,885 — — 4,979,885 Accrued interest receivable 25,329 25,329 — 25,329 — Liabilities Deposits $ 6,197,243 $ 6,183,807 $ — $ 6,183,807 $ — Short-term borrowings 87,499 87,499 75,000 12,499 — FHLB and other borrowings 258,000 253,520 — 253,520 — Subordinated debt 77,749 69,827 — 69,827 — Trust preferred debentures 51,205 49,056 — 49,056 — December 31, 2023 (Restated) (dollars in thousands) Carrying amount Fair value Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Cash and due from banks $ 134,212 $ 134,212 $ 134,212 $ — $ — Federal funds sold 849 849 849 — — Loans 6,103,592 6,129,244 — — 6,129,244 Accrued interest receivable 34,133 34,133 — 34,133 — Liabilities Deposits $ 6,309,529 $ 6,294,979 $ — $ 6,294,979 $ — Short-term borrowings 34,865 34,865 25,000 9,865 — FHLB and other borrowings 476,000 475,240 — 475,240 — Subordinated debt 93,546 90,253 — 90,253 — Trust preferred debentures 50,616 51,626 — 51,626 — The methods utilized to measure fair value of financial instruments at December 31, 2024 and December 31, 2023 represent an approximation of exit price; however, an actual exit price may differ. NOTE 21 – COMMITMENTS, CONTINGENCIES AND CREDIT RISK In the normal course of business, there are outstanding various contingent liabilities such as claims and legal actions, which are not reflected in the consolidated financial statements. During the second quarter of 2024, the Company recorded an accrual related to various legal actions. No other material losses are anticipated as a result of these actions or claims. We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance 117 Table of Contents sheet. The contract amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank used the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The commitments are principally tied to variable rates. Loan commitments as of December 31, 2024 and December 31, 2023 were as follows: (dollars in thousands) December 31, 2024 December 31, 2023 Commitments to extend credit $ 754,202 $ 855,489 Financial guarantees – standby letters of credit 22,298 22,745 NOTE 22 – SEGMENT INFORMATION The Company's reportable segments are determined by the Chief Executive Officer, who is the designated chief operating decision maker, based upon information provided about the Company's products and services offered, primarily distinguished between Banking, Wealth Management and Corporate. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products and services, and customers are similar. The chief operating decision maker analyzes the financial performance of the Company's segments, allocates resources and assesses compensation of certain employees by evaluating revenue streams, significant expenses and budget to actual results. The performance of the Banking segment is assessed by monitoring the margin between interest income and interest expense related to loans, investments, deposits and other borrowings. Pretax profit and loss is used to assess the performance of the Wealth Management segment. Interest expense, provisions for credit losses and payroll provide the significant expenses in the Banking segment, while payroll provides the significant expenses in the Wealth Management segment. The Banking segment provides a wide range of financial products and services to consumers and businesses, including commercial, commercial real estate, mortgage and other consumer loan products; commercial equipment financing; mortgage loan sales and servicing; letters of credit; various types of deposit products, including checking, savings and time deposit accounts; merchant services; and corporate treasury management services. The Wealth Management segment consists of trust and fiduciary services, brokerage and retirement planning services. The Corporate segment includes the holding company financing and investment activities, administrative expenses, as well as the elimination of intercompany transactions. The Corporate segment also included our captive insurance business unit for the year ended December 31, 2023. This business was dissolved as of December 31, 2023. Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially the same as those described in the “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2023 Annual Report on Form 10-K. Transactions between segments consist primarily of borrowed funds and servicing fees. Noninterest income and expense directly attributable to a segment are assigned to it with various shared service costs such as human resources, accounting, finance, risk management and information technology expense assigned to the Banking segment. 118 Table of Contents Selected business segment financial information for the years ended December 31, 2024, 2023 and 2022 were as follows: (dollars in thousands) Banking Wealth Management Corporate Total Year Ended December 31, 2024 Interest income $ 426,113 $ — $ 15 $ 426,128 Interest expense 180,643 51 9,088 189,782 Net interest income (expense) 245,470 ( 51 ) ( 9,073 ) 236,346 Provision for credit losses 120,332 — — 120,332 Wealth management revenue — 28,697 — 28,697 Credit enhancement income 60,998 — — 60,998 Other noninterest income 49,123 — ( 77 ) 49,046 Total noninterest income 110,121 28,697 ( 77 ) 138,741 Salaries and employee benefits 79,011 14,628 — 93,639 Depreciation expense 4,950 43 — 4,993 Amortization of intangible assets 2,900 1,108 — 4,008 Other noninterest expense (1) 101,855 6,111 ( 2,751 ) 105,215 Total noninterest expense 188,716 21,890 ( 2,751 ) 207,855 Income (loss) before income taxes (benefit) 46,543 6,756 ( 6,399 ) 46,900 Income taxes (benefit) 10,037 3,257 ( 4,438 ) 8,856 Net income (loss) $ 36,506 $ 3,499 $ ( 1,961 ) $ 38,044 Total assets $ 7,486,121 $ 32,303 $ ( 11,615 ) $ 7,506,809 Year Ended December 31, 2023 (restated) Interest income $ 416,997 $ — $ 103 $ 417,100 Interest expense 159,316 12 8,951 168,279 Net interest income (expense) 257,681 ( 12 ) ( 8,848 ) 248,821 Provision for credit losses 82,560 — — 82,560 Wealth management revenue — 25,572 — 25,572 Credit enhancement income 48,194 — — 48,194 Other noninterest income 40,830 — 188 41,018 Total noninterest income 89,024 25,572 188 114,784 Salaries and employee benefits 79,584 13,854 — 93,438 Depreciation expense 4,722 56 — 4,778 Amortization of intangible assets 3,564 1,194 — 4,758 Other noninterest expense (1) 86,798 5,143 ( 1,832 ) 90,109 Total noninterest expense 174,668 20,247 ( 1,832 ) 193,083 Income (loss) before income taxes (benefit) 89,477 5,313 ( 6,828 ) 87,962 Income taxes (benefit) 27,348 2,309 ( 2,850 ) 26,807 Net income (loss) $ 62,129 $ 3,004 $ ( 3,978 ) $ 61,155 Total assets $ 7,768,201 $ 31,437 $ ( 9,592 ) $ 7,790,046 119 Table of Contents (dollars in thousands) Banking Wealth Management Corporate Total Year Ended December 31, 2022 (restated) Interest income $ 312,701 $ — $ 14 $ 312,715 Interest expense 45,515 — 10,505 56,020 Net interest income (expense) 267,186 — ( 10,491 ) 256,695 Provision for credit losses 76,764 — — 76,764 Wealth management revenue — 25,708 — 25,708 Credit enhancement income 69,976 — — 69,976 Other noninterest income 54,179 — 4 54,183 Total noninterest income 124,155 25,708 4 149,867 Salaries and employee benefits 77,822 12,483 — 90,305 Depreciation expense 4,784 58 — 4,842 Amortization of intangible assets 4,121 1,289 — 5,410 Other noninterest expense (1) 93,703 4,189 ( 37 ) 97,855 Total noninterest expense 180,430 18,019 ( 37 ) 198,412 Income (loss) before income taxes (benefit) 134,147 7,689 ( 10,450 ) 131,386 Income taxes (benefit) 35,391 2,136 ( 6,378 ) 31,149 Net income (loss) $ 98,756 $ 5,553 $ ( 4,072 ) $ 100,237 Total assets $ 7,779,531 $ 29,332 $ ( 15,797 ) $ 7,793,066 (1) Other noninterest expense for Banking includes occupancy and equipment, data processing, FDIC insurance, professional services, marketing, communications, loan expense and other miscellaneous expenses. Other noninterest expense for Wealth Management includes occupancy and equipment, data processing, professional services, marketing, communications and other miscellaneous expenses. Other noninterest expense for Corporate includes data processing, professional services, marketing and other miscellaneous expenses. 120 Table of Contents NOTE 23 – REVENUE FROM CONTRACTS WITH CUSTOMERS The Company’s revenue from contracts with customers in the scope of Topic 606 is recognized within noninterest income in the consolidated statements of income. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended December 31, 2024, 2023 and 2022. Years Ended December 31, (dollars in thousands) 2024 2023 (Restated) 2022 (Restated) Noninterest income - in-scope of Topic 606 Wealth management revenue: Trust management/administration fees $ 25,004 $ 22,208 $ 21,704 Investment advisory and brokerage fees 1,971 1,726 2,068 Other 1,722 1,638 1,936 Service charges on deposit accounts: Nonsufficient fund fees 7,849 7,325 6,404 Other 5,305 4,665 3,833 Interchange revenues 13,955 14,302 13,879 Other income: Merchant services revenue 1,391 1,592 1,590 Other 938 1,726 2,282 Noninterest income - out-of-scope of Topic 606 80,606 59,602 96,171 Total noninterest income $ 138,741 $ 114,784 $ 149,867 Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and investment securities. In addition, certain noninterest income streams such as commercial FHA revenue, residential mortgage banking revenue, credit enhancement income, and gain on sales of investment securities, net, are also not in scope of Topic 606. Topic 606 is applicable to noninterest income streams such as wealth management revenue, service charges on deposit accounts, interchange revenue, gain on sales of other real estate owned, and certain other noninterest income streams. The noninterest income streams considered in-scope by Topic 606 are discussed below. Wealth Management Revenue Wealth management revenue is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company also earns investment advisory fees through its SEC registered investment advisory subsidiary. The Company’s performance obligation in both of these instances is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and contractually determined fee schedules. Payment is generally received a few days after month end through a direct charge to each customer’s account. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Fees generated from transactions executed by the Company’s third party broker dealer are remitted to the Company on a monthly basis for that month’s transactional activity. Service Charges on Deposit Accounts Service charges on deposit accounts consist of fees received under depository agreements with customers to provide access to deposited funds, serve as custodian of deposited funds, and when applicable, pay interest on deposits. These service charges primarily include non-sufficient fund fees and other account related service charges. Non-sufficient fund fees are earned when a depositor presents an item for payment in excess of available funds, and the Company, at its discretion, provides the necessary funds to complete the transaction. The Company generates other account related service charge revenue by providing depositors proper safeguard and remittance of funds as well as by delivering optional services for depositors, such as check imaging or treasury management, that are performed upon the depositor’s request. The Company’s performance obligation for the proper safeguard and remittance of funds, monthly account analysis and any other monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is typically received immediately or in the following month through a direct charge to a customer’s account. 121 Table of Contents Interchange Revenue Interchange revenue includes debit / credit card income and ATM user fees. Card income is primarily comprised of interchange fees earned for standing ready to authorize and providing settlement on card transactions processed through the MasterCard interchange network. The levels and structure of interchange rates are set by MasterCard and can vary based on cardholder purchase volumes. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with completion of the Company’s performance obligation, the transaction processing services provided to the cardholder. Payment is typically received immediately or in the following month. ATM fees are primarily generated when a Company cardholder withdraws funds from a non-Company ATM or a non-Company cardholder withdraws funds from a Company ATM. The Company satisfies its performance obligation for each transaction at the point in time when the ATM withdrawal is processed. Other Noninterest Income The other noninterest income revenue streams within the scope of Topic 606 consist of merchant services revenue, safe deposit box rentals, wire transfer fees, paper statement fees, check printing commissions, gain on sales of other real estate owned and other noninterest related fees. Revenue from the Company’s merchant services business consists principally of transaction and account management fees charged to merchants for the electronic processing of transactions. These fees are net of interchange fees paid to the credit card issuing bank, card company assessments, and revenue sharing amounts. Account management fees are considered earned at the time the merchant’s transactions are processed or other services are performed. Fees related to the other components of other noninterest income within the scope of Topic 606 are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at the point in time the customer uses the selected service to execute a transaction. NOTE 24 – PARENT COMPANY ONLY FINANCIAL INFORMATION The condensed financial statements of Midland States Bancorp, Inc. are presented below: Condensed Balance Sheets (dollars in thousands) December 31, 2024 2023 (Restated) Assets: Cash $ 5,166 $ 7,763 Investment in subsidiaries 800,487 816,041 Note receivable due from bank subsidiary 24,500 30,000 Other assets 10,828 8,010 Total assets $ 840,981 $ 861,814 Liabilities: Subordinated debt $ 77,749 $ 93,546 Trust preferred debentures 51,205 50,616 Other liabilities 1,180 2,539 Total liabilities 130,134 146,701 Shareholders’ equity 710,847 715,113 Total liabilities and shareholders’ equity $ 840,981 $ 861,814 122 Table of Contents Condensed Statements of Income (dollars in thousands) Years Ended December 31, 2024 2023 (Restated) 2022 (Restated) Income Dividends from subsidiaries $ 54,000 $ 54,000 $ 14,765 (Loss) earnings of consolidated subsidiaries, net of dividends ( 10,347 ) 13,981 91,233 Interest income on note due from bank subsidiary 1,512 1,578 10 Other (loss) income ( 11 ) 323 4 Total income 45,154 69,882 106,012 Interest expense 10,651 10,555 10,534 Other expense 897 1,044 1,625 Total expense 11,548 11,599 12,159 Income before income tax benefit 33,606 58,283 93,853 Income tax benefit 4,438 2,872 6,384 Net income $ 38,044 $ 61,155 $ 100,237 123 Table of Contents Condensed Statements of Cash Flows (dollars in thousands) Years Ended December 31, 2024 2023 (Restated) 2022 (Restated) Cash flows from operating activities: Net income $ 38,044 $ 61,155 $ 100,237 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed loss (income) of subsidiaries 10,347 ( 13,981 ) ( 91,233 ) Share-based compensation expense 3,031 2,489 2,211 Change in other assets ( 2,468 ) 462 ( 373 ) Change in other liabilities ( 804 ) ( 198 ) 1,639 Net cash provided by operating activities 48,150 49,927 12,481 Cash flows from investing activities: Capital injection to bank subsidiary — — ( 50,000 ) Change in note receivable due from bank subsidiary 5,150 10,000 ( 40,000 ) Net cash received in dissolution of subsidiary — 2,674 — Net cash provided by (used in) investing activities 5,150 12,674 ( 90,000 ) Cash flows from financing activities: Payments on other borrowings — — ( 171 ) Payments made on subordinated debt ( 15,763 ) ( 5,845 ) ( 40,000 ) Common stock repurchased ( 5,475 ) ( 17,898 ) ( 1,109 ) Cash dividends paid on common stock ( 27,072 ) ( 26,573 ) ( 25,923 ) Cash dividends paid on preferred stock ( 8,913 ) ( 8,913 ) ( 3,169 ) Proceeds from issuance of preferred stock — — 110,548 Proceeds from issuance of common stock under employee benefit plans 1,326 1,670 2,188 Net cash (used in) provided by financing activities ( 55,897 ) ( 57,559 ) 42,364 Net (decrease) increase in cash ( 2,597 ) 5,042 ( 35,155 ) Cash: Beginning of period 7,763 2,721 37,876 End of period $ 5,166 $ 7,763 $ 2,721 The Bank has $ 24.5 million of borrowings from the parent as part of its strategy to manage FDIC insurance premiums. The note has a rolling 13 month maturity, and the interest rate is a variable rate equal to the one year treasury rate. NOTE 25 - RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS The Company has restated herein the impacted line items to the Consolidated Balance Sheet as of December 31, 2023 and the Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Shareholders' Equity and Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022. In addition, the Company has restated the impacted line items to its unaudited quarterly Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Shareholders' Equity and Consolidated Statements of Cash Flows as of and for the three months ended March 31, 2024 and 2023, for the three and six months ended June 30, 2024 and 2023, and for the three and nine months ended September 30, 2024 and 2023. Description of Misstatements The errors relate to the Company’s accounting for loans originated pursuant to third-party loan origination programs. As part of these programs, the third-party providers offered various credit enhancements with respect to loans originated under the programs, including contributions to reserve accounts, yield maintenance and certain other payments. Historically, the Company accounted for all borrower payments and credit enhancement payments under these programs on a single unit, or net 124 Table of Contents basis, with all such payments presented as interest income representing the Company’s effective yield on the portfolios. The Company has determined that these payments should instead be accounted for on a separate unit of account, or gross basis, with loan yields and interest income recorded at the gross borrower loan rate, credit losses and associated provisions for credit losses recorded on a gross basis over the life of the loans, and with all credit enhancement payments recorded separately as a credit enhancement derivative. Description of Restated Tables The following tables present the amounts previously reported and a reconciliation of the restated amounts reported on the restated Consolidated Balance Sheets, the restated Consolidated Statements of Income and the restated Consolidated Statements of Cash Flows for the periods presented. Restated Audited Financial Statements Restated Consolidated Balance Sheet December 31, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated Loans $ 6,131,079 $ ( 27,487 ) $ 6,103,592 Allowance for credit losses on loans ( 68,502 ) ( 90,817 ) ( 159,319 ) Total loans, net 6,062,577 ( 118,304 ) 5,944,273 Accrued interest receivable 24,934 9,199 34,133 Credit enhancement asset — 15,389 15,389 Other assets 182,992 16,894 199,886 Total assets $ 7,866,868 $ ( 76,822 ) $ 7,790,046 Accrued interest payable and other liabilities $ 110,459 $ ( 82 ) $ 110,377 Total liabilities 7,075,015 ( 82 ) 7,074,933 Retained earnings 322,379 ( 76,740 ) 245,639 Total shareholders' equity 791,853 ( 76,740 ) 715,113 Total liabilities and shareholders' equity $ 7,866,868 $ ( 76,822 ) $ 7,790,046 125 Table of Contents Restated Consolidated Statements of Income Years Ended December 31, 2023 2022 (dollars in thousands. except per share data) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Interest income: Loans including fees: Taxable $ 365,529 $ 12,804 $ 378,333 $ 274,617 $ 10,960 $ 285,577 Total interest income 404,296 12,804 417,100 301,755 10,960 312,715 Net interest income 236,017 12,804 248,821 245,735 10,960 256,695 Provision for credit losses: Provision for credit losses on loans 21,132 61,428 82,560 18,797 56,638 75,435 Total provision for credit losses 21,132 61,428 82,560 20,126 56,638 76,764 Net interest income after provision for credit losses 214,885 ( 48,624 ) 166,261 225,609 ( 45,678 ) 179,931 Noninterest income: Credit enhancement income — 48,194 48,194 — 69,976 69,976 Total noninterest income 66,590 48,194 114,784 79,891 69,976 149,867 Noninterest expense: Loan servicing fees — 19,181 19,181 — 22,750 22,750 Total noninterest expense 173,902 19,181 193,083 175,662 22,750 198,412 Income before income taxes 107,573 ( 19,611 ) 87,962 129,838 1,548 131,386 Income tax expense 32,113 ( 5,306 ) 26,807 30,813 336 31,149 Net income 75,460 ( 14,305 ) 61,155 99,025 1,212 100,237 Net income available to common shareholders $ 66,547 $ ( 14,305 ) $ 52,242 $ 95,856 $ 1,212 $ 97,068 Restated Consolidated Statement of Comprehensive Income Years Ended December 31, 2023 2022 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net income $ 75,460 $ ( 14,305 ) $ 61,155 $ 99,025 $ 1,212 $ 100,237 Other comprehensive income (loss) 7,044 — 7,044 ( 89,034 ) — ( 89,034 ) Total comprehensive income $ 82,504 $ ( 14,305 ) $ 68,199 $ 9,991 $ 1,212 $ 11,203 Restated Consolidated Statements of Shareholders' Equity Retained earnings Total shareholders' equity (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Balances, December 31, 2021 $ 212,472 $ ( 63,647 ) $ 148,825 $ 663,837 $ ( 63,647 ) $ 600,190 Net income 99,025 1,212 100,237 99,025 1,212 100,237 Balances, December 31, 2022 282,405 ( 62,435 ) 219,970 758,574 ( 62,435 ) 696,139 Net income 75,460 ( 14,305 ) 61,155 75,460 ( 14,305 ) 61,155 Balances, December 31, 2023 $ 322,379 $ ( 76,740 ) $ 245,639 $ 791,853 $ ( 76,740 ) $ 715,113 126 Table of Contents Restated Consolidated Statements of Cash Flows Years Ended December 31, 2023 2022 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net income $ 75,460 $ ( 14,305 ) $ 61,155 $ 99,025 $ 1,212 $ 100,237 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 21,132 61,428 82,560 20,126 56,638 76,764 Proceeds from sales of loans held for sale 98,851 ( 40,899 ) 57,952 269,958 — 269,958 Net change in operating assets and liabilities: Accrued interest receivable ( 4,621 ) 261 ( 4,360 ) ( 807 ) ( 641 ) ( 1,448 ) Credit enhancement asset — ( 2,376 ) ( 2,376 ) — ( 18,792 ) ( 18,792 ) Other assets ( 18,731 ) ( 5,307 ) ( 24,038 ) 876 337 1,213 Accrued expenses and other liabilities 27,661 ( 82 ) 27,579 ( 13,579 ) — ( 13,579 ) Net cash provided by operating activities 154,638 ( 1,280 ) 153,358 247,065 38,754 285,819 Cash flows from investing activities: Net decrease (increase) in loans 112,496 ( 39,619 ) 72,877 ( 1,177,598 ) ( 38,754 ) ( 1,216,352 ) Proceeds from loans held for sale previously classified as portfolio loans — 40,899 40,899 — — — Net cash (used in) provided by investing activities $ ( 76,080 ) $ 1,280 $ ( 74,800 ) $ ( 1,098,887 ) $ ( 38,754 ) $ ( 1,137,641 ) Restated Unaudited Quarterly Financial Statements Restated Consolidated Balance Sheets (unaudited) September 30, 2024 June 30, 2024 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Loans $ 5,748,819 $ ( 20,582 ) $ 5,728,237 $ 5,851,994 $ ( 22,937 ) $ 5,829,057 Allowance for credit losses on loans ( 85,804 ) ( 65,263 ) ( 151,067 ) ( 92,183 ) ( 63,260 ) ( 155,443 ) Total loans, net 5,663,015 ( 85,845 ) 5,577,170 5,759,811 ( 86,197 ) 5,673,614 Accrued interest receivable 27,099 7,938 35,037 25,756 8,359 34,115 Credit enhancement asset — 20,633 20,633 — 18,202 18,202 Other assets 177,663 9,980 187,643 199,487 10,436 209,923 Total assets $ 7,751,483 $ ( 47,294 ) $ 7,704,189 $ 7,757,274 $ ( 49,200 ) $ 7,708,074 Accrued interest payable and other liabilities $ 103,737 $ ( 256 ) $ 103,481 $ 103,694 $ ( 207 ) $ 103,487 Total liabilities 6,933,224 $ ( 256 ) 6,932,968 6,971,502 ( 207 ) 6,971,295 Retained earnings 334,522 ( 47,038 ) 287,484 325,022 ( 48,993 ) 276,029 Total shareholders' equity 818,259 ( 47,038 ) 771,221 785,772 ( 48,993 ) 736,779 Total liabilities and shareholders' equity $ 7,751,483 $ ( 47,294 ) $ 7,704,189 $ 7,757,274 $ ( 49,200 ) $ 7,708,074 127 Table of Contents Restated Consolidated Balance Sheets (unaudited) (continued) March 31, 2024 September 30, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Loans $ 5,958,462 $ ( 25,304 ) $ 5,933,158 $ 6,280,883 $ ( 27,448 ) $ 6,253,435 Allowance for credit losses on loans ( 78,057 ) ( 82,787 ) ( 160,844 ) ( 66,669 ) ( 91,146 ) ( 157,815 ) Total loans, net 5,880,405 ( 108,091 ) 5,772,314 6,214,214 ( 118,594 ) 6,095,620 Credit enhancement asset — 16,369 16,369 — 15,111 15,111 Other assets 182,201 14,850 197,051 222,966 17,593 240,559 Total assets $ 7,831,809 $ ( 68,101 ) $ 7,763,708 $ 7,969,285 $ ( 76,176 ) $ 7,893,109 Accrued interest payable and other liabilities $ 102,966 $ ( 139 ) $ 102,827 $ 106,743 $ ( 39 ) $ 106,704 Total liabilities 7,040,803 ( 139 ) 7,040,664 7,211,675 ( 39 ) 7,211,636 Retained earnings 327,264 ( 67,962 ) 259,302 310,461 ( 76,137 ) 234,324 Total shareholders' equity 791,006 ( 67,962 ) 723,044 757,610 ( 76,137 ) 681,473 Total liabilities and shareholders' equity $ 7,831,809 $ ( 68,101 ) $ 7,763,708 $ 7,969,285 $ ( 76,176 ) $ 7,893,109 June 30, 2023 March 31, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Loans $ 6,367,344 $ ( 27,922 ) $ 6,339,422 $ 6,354,271 $ ( 27,347 ) $ 6,326,924 Allowance for credit losses on loans ( 64,950 ) ( 86,465 ) ( 151,415 ) ( 62,067 ) ( 78,797 ) ( 140,864 ) Total loans, net 6,302,394 ( 114,387 ) 6,188,007 6,292,204 ( 106,144 ) 6,186,060 Credit enhancement asset — 14,720 14,720 — 13,959 13,959 Other assets 175,821 16,404 192,225 160,272 14,195 174,467 Total assets $ 8,034,721 $ ( 73,425 ) $ 7,961,296 $ 7,930,174 $ ( 68,385 ) $ 7,861,789 Retained earnings $ 307,888 $ ( 73,425 ) $ 234,463 $ 295,200 $ ( 68,385 ) $ 226,815 Total shareholders' equity 776,821 $ ( 73,425 ) 703,396 775,643 ( 68,385 ) 707,258 Total liabilities and shareholders' equity $ 8,034,721 $ ( 73,425 ) $ 7,961,296 $ 7,930,174 $ ( 68,385 ) $ 7,861,789 128 Table of Contents Restated Consolidated Statements of Income (unaudited) Three Months Ended Nine Months Ended September 30, 2024 September 30, 2024 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Interest income: Loans including fees: Taxable $ 88,860 $ 4,160 $ 93,020 $ 266,107 $ 11,854 $ 277,961 Total interest income 104,834 4,160 108,994 309,804 11,854 321,658 Net interest income 54,950 4,160 59,110 165,922 11,854 177,776 Provision for credit losses: Provision for credit losses on loans 5,000 12,925 17,925 36,000 10,349 46,349 Total provision for credit losses 5,000 12,925 17,925 35,800 10,349 46,149 Net interest income after provision for credit losses 49,950 ( 8,765 ) 41,185 130,122 1,505 131,627 Noninterest income: Credit enhancement income — 14,206 14,206 — 45,188 45,188 Total noninterest income 19,339 14,206 33,545 58,182 45,188 103,370 Noninterest expense: Loan servicing fees — 3,031 3,031 — 10,077 10,077 Total noninterest expense 46,733 3,031 49,764 139,079 10,077 149,156 Income before income taxes 22,556 2,410 24,966 49,225 36,616 85,841 Income tax expense 4,080 455 4,535 10,114 6,914 17,028 Net income 18,476 1,955 20,431 39,111 29,702 68,813 Net income available to common shareholders $ 16,247 $ 1,955 $ 18,202 $ 32,426 $ 29,702 $ 62,128 Three Months Ended Six Months Ended June 30, 2024 June 30, 2024 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Interest income: Loans including fees: Taxable $ 88,252 $ 3,843 $ 92,095 $ 177,247 $ 7,694 $ 184,941 Total interest income 103,295 3,843 107,138 204,970 7,694 212,664 Net interest income 55,052 3,843 58,895 110,972 7,694 118,666 Provision for credit losses: Provision for credit losses on loans 17,000 ( 8,518 ) 8,482 31,000 ( 2,576 ) 28,424 Total provision for credit losses 16,800 ( 8,518 ) 8,282 30,800 ( 2,576 ) 28,224 Net interest income after provision for credit losses 38,252 12,361 50,613 80,172 10,270 90,442 Noninterest income: Credit enhancement income — 14,328 14,328 — 30,982 30,982 Total noninterest income 17,656 14,328 31,984 38,843 30,982 69,825 Noninterest expense: Loan servicing fees — 3,305 3,305 — 7,046 7,046 Total noninterest expense 47,479 3,305 50,784 92,346 7,046 99,392 Income before income taxes 8,429 23,384 31,813 26,669 34,206 60,875 Income tax expense 1,679 4,415 6,094 6,034 6,459 12,493 Net income 6,750 18,969 25,719 20,635 27,747 48,382 Net income available to common shareholders $ 4,522 $ 18,969 $ 23,491 $ 16,179 $ 27,747 $ 43,926 129 Table of Contents Restated Consolidated Statement of Income (unaudited) (continued) Three Months Ended March 31, 2024 (dollars in thousands) As Previously Reported Adjustment As Restated Interest income: Loans including fees: Taxable $ 88,995 $ 3,851 $ 92,846 Total interest income 101,675 3,851 105,526 Net interest income 55,920 3,851 59,771 Provision for credit losses: Provision for credit losses on loans 14,000 5,942 19,942 Total provision for credit losses 14,000 5,942 19,942 Net interest income after provision for credit losses 41,920 ( 2,091 ) 39,829 Noninterest income: Credit enhancement income — 16,654 16,654 Total noninterest income 21,187 16,654 37,841 Noninterest expense: Loan servicing fees — 3,741 3,741 Total noninterest expense 44,867 3,741 48,608 Income before income taxes 18,240 10,822 29,062 Income tax expense 4,355 2,044 6,399 Net income 13,885 8,778 22,663 Net income available to common shareholders $ 11,657 $ 8,778 $ 20,435 Three Months Ended Nine Months Ended September 30, 2023 September 30, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Interest income: Loans including fees: Taxable $ 93,488 $ 3,029 $ 96,517 $ 272,297 $ 9,188 $ 281,485 Total interest income 103,585 3,029 106,614 299,615 9,188 308,803 Net interest income 58,596 3,029 61,625 177,940 9,188 187,128 Provision for credit losses: Provision for credit losses on loans 5,168 17,194 22,362 14,182 52,278 66,460 Total provision for credit losses 5,168 17,194 22,362 14,182 52,278 66,460 Net interest income after provision for credit losses 53,428 ( 14,165 ) 39,263 163,758 ( 43,090 ) 120,668 Noninterest income: Credit enhancement income — 14,918 14,918 — 38,380 38,380 Total noninterest income 11,545 14,918 26,463 46,077 38,380 84,457 Noninterest expense: Loan servicing fees — 4,654 4,654 — 14,998 14,998 Total noninterest expense 42,038 4,654 46,692 129,414 14,998 144,412 Income before income taxes 22,935 ( 3,901 ) 19,034 80,421 ( 19,708 ) 60,713 Income tax expense 11,533 ( 1,189 ) 10,344 25,672 ( 6,006 ) 19,666 Net income 11,402 ( 2,712 ) 8,690 54,749 ( 13,702 ) 41,047 Net income available to common shareholders $ 9,173 $ ( 2,712 ) $ 6,461 $ 48,064 $ ( 13,702 ) $ 34,362 130 Table of Contents Restated Consolidated Statements of Income (unaudited) (continued) Three Months Ended Six Months Ended June 30, 2023 June 30, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Interest income: Loans including fees: Taxable $ 91,350 $ 3,614 $ 94,964 $ 178,809 $ 6,159 $ 184,968 Total interest income 100,491 3,614 104,105 196,030 6,159 202,189 Net interest income 58,840 3,614 62,454 119,344 6,159 125,503 Provision for credit losses: Provision for credit losses on loans 5,879 15,937 21,816 9,014 35,084 44,098 Total provision for credit losses 5,879 15,937 21,816 9,014 35,084 44,098 Net interest income after provision for credit losses 52,961 ( 12,323 ) 40,638 110,330 ( 28,925 ) 81,405 Noninterest income: Credit enhancement income — 10,082 10,082 — 23,462 23,462 Total noninterest income 18,753 10,082 28,835 34,532 23,462 57,994 Noninterest expense: Loan servicing fees — 5,008 5,008 — 10,344 10,344 Total noninterest expense 42,894 5,008 47,902 87,376 10,344 97,720 Income before income taxes 28,820 ( 7,249 ) 21,571 57,486 ( 15,807 ) 41,679 Income tax expense 7,245 ( 2,209 ) 5,036 14,139 ( 4,817 ) 9,322 Net income 21,575 ( 5,040 ) 16,535 43,347 ( 10,990 ) 32,357 Net income available to common shareholders $ 19,347 $ ( 5,040 ) $ 14,307 $ 38,891 $ ( 10,990 ) $ 27,901 Three Months Ended March 31, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated Interest income: Loans including fees: Taxable $ 87,459 $ 2,545 $ 90,004 Total interest income 95,539 2,545 98,084 Net interest income 60,504 2,545 63,049 Provision for credit losses: Provision for credit losses on loans 3,135 19,147 22,282 Total provision for credit losses 3,135 19,147 22,282 Net interest income after provision for credit losses 57,369 ( 16,602 ) 40,767 Noninterest income: Credit enhancement income — 13,380 13,380 Total noninterest income 15,779 13,380 29,159 Noninterest expense: Loan servicing fees — 5,336 5,336 Total noninterest expense 44,482 5,336 49,818 Income before income taxes 28,666 ( 8,558 ) 20,108 Income tax expense 6,894 ( 2,608 ) 4,286 Net income 21,772 ( 5,950 ) 15,822 Net income available to common shareholders $ 19,544 $ ( 5,950 ) $ 13,594 131 Table of Contents Restated Consolidated Statement of Comprehensive Income (unaudited) Three Months Ended Nine Months Ended September 30, 2024 September 30, 2024 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net income 18,476 1,955 20,431 39,111 29,702 68,813 Other comprehensive income 21,941 — 21,941 16,113 — 16,113 Total comprehensive income 40,417 1,955 42,372 55,224 29,702 84,926 Three Months Ended Six Months Ended June 30, 2024 June 30, 2024 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net income 6,750 18,969 25,719 20,635 27,747 48,382 Other comprehensive loss ( 1,162 ) — ( 1,162 ) ( 5,828 ) — ( 5,828 ) Total comprehensive income 5,588 18,969 24,557 14,807 27,747 42,554 Three Months Ended March 31, 2024 (dollars in thousands) As Previously Reported Adjustment As Restated Net income 13,885 8,778 22,663 Other comprehensive loss ( 4,666 ) — ( 4,666 ) Total comprehensive income 9,219 8,778 17,997 Three Months Ended Nine Months Ended September 30, 2023 September 30, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net income 11,402 ( 2,712 ) 8,690 54,749 ( 13,702 ) 41,047 Other comprehensive loss ( 16,462 ) — ( 16,462 ) ( 17,384 ) — ( 17,384 ) Total comprehensive (loss) income ( 5,060 ) ( 2,712 ) ( 7,772 ) 37,365 ( 13,702 ) 23,663 Three Months Ended Six Months Ended June 30, 2023 June 30, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net income 21,575 ( 5,040 ) 16,535 43,347 ( 10,990 ) 32,357 Other comprehensive loss ( 6,922 ) — ( 6,922 ) ( 922 ) — ( 922 ) Total comprehensive income 14,653 ( 5,040 ) 9,613 42,425 ( 10,990 ) 31,435 Three Months Ended March 31, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated Net income 21,772 ( 5,950 ) 15,822 Other comprehensive income 6,000 — 6,000 Total comprehensive income 27,772 ( 5,950 ) 21,822 132 Table of Contents Restated Consolidated Statements of Shareholders' Equity (unaudited) Retained earnings Total shareholders' equity (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated For the three months ended September 30, 2024 Balances, June 30, 2024 $ 325,022 $ ( 48,993 ) $ 276,029 $ 785,772 $ ( 48,993 ) $ 736,779 Net income 18,476 1,955 20,431 18,476 1,955 20,431 Balances, September 30, 2024 $ 334,522 $ ( 47,038 ) $ 287,484 $ 818,259 $ ( 47,038 ) $ 771,221 For the nine months ended September 30, 2024 Balances, December 31, 2023 $ 322,379 $ ( 76,740 ) $ 245,639 $ 791,853 $ ( 76,740 ) $ 715,113 Net income 39,111 29,702 68,813 39,111 29,702 68,813 Balances, September 30, 2024 $ 334,522 $ ( 47,038 ) $ 287,484 $ 818,259 $ ( 47,038 ) $ 771,221 For the three months ended June 30, 2024 Balances, March 31, 2024 $ 327,264 $ ( 67,962 ) $ 259,302 $ 791,006 $ ( 67,962 ) $ 723,044 Net income 6,750 18,969 25,719 6,750 18,969 25,719 Balances, June 30, 2024 $ 325,022 $ ( 48,993 ) $ 276,029 $ 785,772 $ ( 48,993 ) $ 736,779 For the six months ended June 30, 2024 Balances, December 31, 2023 $ 322,379 $ ( 76,740 ) $ 245,639 $ 791,853 $ ( 76,740 ) $ 715,113 Net income 20,635 27,747 48,382 20,635 27,747 48,382 Balances, June 30, 2024 $ 325,022 $ ( 48,993 ) $ 276,029 $ 785,772 $ ( 48,993 ) $ 736,779 For the three months ended March 31, 2024 Balances, December 31, 2023 $ 322,379 $ ( 76,740 ) $ 245,639 $ 791,853 $ ( 76,740 ) $ 715,113 Net income 13,885 8,778 22,663 13,885 8,778 22,663 Balances, March 31, 2024 $ 327,264 $ ( 67,962 ) $ 259,302 $ 791,006 $ ( 67,962 ) $ 723,044 For the three months ended September 30, 2023 Balances, June 30, 2023 $ 307,888 $ ( 73,425 ) $ 234,463 $ 776,821 $ ( 73,425 ) $ 703,396 Net income 11,402 ( 2,712 ) 8,690 11,402 ( 2,712 ) 8,690 Balances, September 30, 2023 $ 310,461 $ ( 76,137 ) $ 234,324 $ 757,610 $ ( 76,137 ) $ 681,473 For the nine months ended September 30, 2023 Balances, December 31, 2022 $ 282,405 $ ( 62,435 ) $ 219,970 $ 758,574 $ ( 62,435 ) $ 696,139 Net income 54,749 ( 13,702 ) 41,047 54,749 ( 13,702 ) 41,047 Balances, September 30, 2023 $ 310,461 $ ( 76,137 ) $ 234,324 $ 757,610 $ ( 76,137 ) $ 681,473 For the three months ended June 30, 2023 Balances, March 31, 2023 $ 295,200 $ ( 68,385 ) $ 226,815 $ 775,643 $ ( 68,385 ) $ 707,258 Net income 21,575 ( 5,040 ) 16,535 21,575 ( 5,040 ) 16,535 Balances, June 30, 2023 $ 307,888 $ ( 73,425 ) $ 234,463 $ 776,821 $ ( 73,425 ) $ 703,396 For the six months ended June 30, 2023 Balances, December 31, 2022 $ 282,405 $ ( 62,435 ) $ 219,970 $ 758,574 $ ( 62,435 ) $ 696,139 Net income 43,347 ( 10,990 ) 32,357 43,347 ( 10,990 ) 32,357 Balances, June 30, 2023 $ 307,888 $ ( 73,425 ) $ 234,463 $ 776,821 $ ( 73,425 ) $ 703,396 For the three months ended March 31, 2023 Balances, December 31, 2022 282,405 ( 62,435 ) 219,970 758,574 ( 62,435 ) 696,139 Net income 21,772 ( 5,950 ) 15,822 21,772 ( 5,950 ) 15,822 Balances, March 31, 2023 295,200 ( 68,385 ) 226,815 775,643 ( 68,385 ) 707,258 133 Table of Contents Restated Consolidated Statements of Cash Flows (unaudited) Nine Months Ended Six Months Ended September 30, 2024 June 30, 2024 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net income $ 39,111 $ 29,702 $ 68,813 $ 20,635 $ 27,747 $ 48,382 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 35,800 10,349 46,149 30,800 ( 2,576 ) 28,224 Net change in operating assets and liabilities: Accrued interest receivable ( 2,165 ) 1,261 ( 904 ) ( 822 ) 840 18 Credit enhancement asset — ( 5,244 ) ( 5,244 ) — ( 2,813 ) ( 2,813 ) Other assets 5,203 6,914 12,117 ( 16,278 ) 6,458 ( 9,820 ) Accrued expenses and other liabilities ( 13,501 ) ( 174 ) ( 13,675 ) ( 4,676 ) ( 125 ) ( 4,801 ) Net cash provided by operating activities 78,214 42,808 121,022 44,983 29,531 74,514 Cash flows from investing activities: Net decrease in loans 348,351 ( 42,808 ) 305,543 257,249 ( 29,531 ) 227,718 Net cash provided by (used in) investing activities $ 75,020 $ ( 42,808 ) $ 32,212 $ 63,892 $ ( 29,531 ) $ 34,361 Three Months Ended Nine Months Ended March 31, 2024 September 30, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net income $ 13,885 $ 8,778 $ 22,663 $ 54,749 $ ( 13,702 ) $ 41,047 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 14,000 5,942 19,942 14,182 52,278 66,460 Net change in operating assets and liabilities: Accrued interest receivable ( 997 ) 428 ( 569 ) ( 3,970 ) ( 254 ) ( 4,224 ) Credit enhancement asset — ( 980 ) ( 980 ) — ( 2,098 ) ( 2,098 ) Other assets 1,034 2,044 3,078 ( 58,408 ) ( 6,005 ) ( 64,413 ) Accrued expenses and other liabilities ( 5,100 ) ( 57 ) ( 5,157 ) 30,874 ( 40 ) 30,834 Net cash provided by operating activities 26,917 16,155 43,072 67,283 30,179 97,462 Cash flows from investing activities: Net decrease (increase) in loans 163,694 ( 16,155 ) 147,539 ( 6,195 ) ( 30,179 ) ( 36,374 ) Net cash provided by (used in) investing activities $ 43,069 $ ( 16,155 ) $ 26,914 $ ( 143,849 ) $ ( 30,179 ) $ ( 174,028 ) Six Months Ended Three Months Ended June 30, 2023 March 31, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net income $ 43,347 $ ( 10,990 ) $ 32,357 $ 21,772 $ ( 5,950 ) $ 15,822 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 9,014 35,084 44,098 3,135 19,147 22,282 Net change in operating assets and liabilities: Accrued interest receivable ( 687 ) ( 378 ) ( 1,065 ) ( 221 ) ( 145 ) ( 366 ) Credit enhancement asset — ( 1,707 ) ( 1,707 ) — ( 946 ) ( 946 ) Other assets ( 11,380 ) ( 4,817 ) ( 16,197 ) 4,423 ( 2,608 ) 1,815 Accrued expenses and other liabilities 9,995 — 9,995 ( 14,949 ) — ( 14,949 ) Net cash provided by operating activities 60,803 17,192 77,995 16,008 9,498 25,506 Cash flows from investing activities: Net increase in loans ( 76,502 ) ( 17,192 ) ( 93,694 ) ( 49,923 ) ( 9,498 ) ( 59,421 ) Net cash used in investing activities $ ( 185,892 ) $ ( 17,192 ) $ ( 203,084 ) $ ( 98,412 ) $ ( 9,498 ) $ ( 107,910 ) 134 Table of Contents NOTE 26 – SUBSEQUENT EVENTS 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. Impairment will not impact our regulatory capital ratios, tangible common equity ratio nor our liquidity position. The Company continues to take steps in 2025 to resolve nonperforming assets and improve its overall credit profile. These steps include foreclosures, short sales, pursuit of guarantors and sales of notes. The Company has continued to monitor credit actions and subsequent losses in order to determining the appropriate time period for recognition. Notable credit actions and subsequent losses are presented in the table below, in thousands. Losses taken by period Asset Type of property Action taken Balance December 31, 2024 2024 First quarter 2025 Second quarter 2025 Total Losses taken Reduction in nonperforming assets OREO Assisted living Property sold May 2025 $ 5,434 $ ( 1,472 ) $ — $ — $ ( 1,472 ) $ (1,472) $ ( 5,434 ) Loans Multi-Family Collateral sold May 2025 3,722 ( 337 ) ( 1,113 ) — ( 1,450 ) ( 3,722 ) Loans Memory care Note sale June 2025 7,737 — — ( 3,675 ) ( 3,675 ) ( 7,737 ) Loans Assisted living Charge off May 2025 7,798 ( 7,798 ) — — ( 7,798 ) ( 7,798 ) Loans Multi-Family Note sale agreement June 2025 Expected close third quarter 2025 27,354 ( 2,354 ) — — ( 2,354 ) ( 2,354 ) Loans C&I Operating Charge off May 2025 11,292 — — ( 5,847 ) ( 5,847 ) ( 5,847 ) Total $ 63,337 $ ( 11,961 ) $ ( 1,113 ) $ ( 9,522 ) $ ( 22,596 ) $ ( 32,892 ) 135 Table of Contents ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.