What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-02 compared with 2025-07-01 · 224 added, 228 removed, 585 unchanged (44% of the section changed)

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is a diversified financial holding company headquartered in Effingham, Illinois.

Its wholly-owned banking subsidiary, Midland States Bank, has branches across Illinois and in Missouri, and provides a full range of commercial and consumer banking products and services, business equipment financing, merchant credit card services, and trust and investment management services and insurance and financial planning services.

Its wholly owned banking subsidiary, Midland States Bank, has branches across Illinois and in Missouri, and provides a full range of commercial and consumer banking products and services, merchant credit card services, trust and investment management services and insurance and financial planning services.

As of December 31, 2025, we had assets of $6.51 billion, deposits of $5.42 billion and shareholders’ equity of $565.5 million.

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Our principal expenses include interest expense on deposits and borrowings, operating expenses, such as salaries and employee benefits, occupancy and equipment expenses, data processing costs, professional fees, provisions for credit losses, income tax expense, and other noninterest expenses.

Actions Taken to Address Credit Deterioration in Fourth Quarter 2024

During the fourth quarter of 2024, the Company took several actions to address its credit quality issues.

Our deteriorating credit quality issues were primarily within three sectors of our business:

non-core consumer loans, Specialty Finance Group and Midland Equipment Financing.

The Company decided to accelerate the reduction of our non-core consumer loan portfolio through sales.

These loans were originated through our FinTech partners, LendingPoint and GreenSky.

In December 2024, we sold our $87.1 million LendingPoint portfolio, recognizing net charge-offs of $17.3 million on the sale.

We also committed to a plan to sell our GreenSky consumer loan portfolio and recognized net charge-offs of $35.0 million when these loans were transferred to held for sale.

On April 9, 2025, we sold participation interests in $317.5 million of our GreenSky consumer loan portfolio, with the intent to retain the remaining portion of the portfolio.

The Specialty Finance Group provides bridge loan financing for commercial real estate projects, primarily multi-family and healthcare.

These projects can include construction and seek short term financing in anticipation of obtaining permanent secondary market financing.

The loans are typically outside of the Company’s primary market areas.

We completed a strategic review of this portfolio including obtaining updated appraisals on loans that had shown elevated credit risk in the third and fourth quarters.

As a result of this review, five loans with balances of $57.8 million were moved from substandard to nonperforming with recognized charge-offs of $6.6 million.

In addition, updated appraisals were obtained for five non-performing loans with a total balance of $55.8 million which resulted in charge-offs of $18.8 million recognized in the fourth

quarter of 2024.

In addition, we recognized impairment expense on an OREO property related to a former assisted living loan of $3.6 million in the fourth quarter of 2024.

The strategic review also included all criticized loans, construction loans and loans that failed our stress test in all portfolios.

In addition, the Company tightened credit standards going forward and will not originate new construction loans in the Specialty Finance Group.

We believe that our strategic actions around credit administration will better position the Company going forward.

The equipment finance portfolio includes loans and leases originated to customers throughout the United States.

During 2024, we experienced elevated charge-offs primarily within the trucking industry.

Charge-offs in this portfolio were $15.3 million in the fourth quarter of 2024 as we evaluated equipment values for nonaccrual assets.

Nonaccrual loans and leases in the finance portfolio decreased to $11.3 million from $13.7 million at December 31, 2023.

Additionally, based on further deterioration in the industry, we evaluated salvage values of the leases and loans related to this industry, along with the carrying values of repossessed and off-lease equipment, and recognized impairment expense of $7.9 million.

Additional Factors Affecting Comparability

Factors Affecting Comparability

Each factor listed below affects the comparability of our results of operations and financial condition in 2025 and 2024, and may affect the comparability of financial information we report in future fiscal periods.

Balance Sheet Repositioning.

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

These transactions resulted in losses of $9.4 million.

In addition, in the third quarter of 2023, the Company surrendered certain low-yielding life insurance policies and purchased additional policies.

The Company recognized a $4.5 million tax charge related to the surrender of the policies.

Sale of non-core consumer loan portfolios .

During the fourth quarter of 2024, we sold our LendingPoint portfolio of $87.1 million, recognizing net charge-offs of $17.3 million on the sale.

As of December 31, 2024, we also had committed to a plan to sell our GreenSky consumer loan portfolio and recognized net charge-offs of $35.0 million when these loans were transferred to held for sale.

On April 9, 2025, we sold participation interests in $317.5 million of our GreenSky consumer loan portfolio, while retaining the remaining $53.6 million of the portfolio.

Sale of equipment finance portfolio.

As a continuation of steps taken to address credit quality issues, including the sales of non-core loan portfolios, we sold substantially all of our equipment finance portfolio during the fourth quarter of 2025 resulting in a loss on sale of $21.4 million.

As previously disclosed, we ceased originating new equipment finance loans and leases effective as of September 30, 2025.

As a result of that decision, we recognized $1.0 million of severance expense in the third quarter of 2025.

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Goodwill impairment.

During the first quarter of 2025, we determined that a triggering event had occurred at our Banking reporting unit as a result of further deteriorated credit quality coupled with trends in our stock price.

We performed a quantitative impairment test on our 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 our Banking reporting unit.

As a result of the assessment, we recognized $154.0 million of goodwill impairment expense.

The impairment expense did not impact our regulatory capital ratios, tangible common equity ratio or our liquidity position.

Redemption of Subordinated Notes.

In 2024, the Company redeemed $16.0 million of outstanding subordinated notes.

The weighted average redemption price was 98.5% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest.

The Company recorded net gains totaling $0.2 million on these redemptions.

In 2023, the Company redeemed $6.6 million of outstanding subordinated notes.

On September 30, 2025, we redeemed all of our outstanding Fixed-to-Floating Rate Subordinated Notes due September 30, 2029, with an interest rate of 7.91%, which had an aggregate principal amount of $50.8 million.

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

In 2024, we redeemed $16.0 million of outstanding subordinated notes.

The weighted average redemption price was 98.5% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest.

The Company recorded gains totaling $0.7 million on these redemptions.

We recorded net gains totaling $0.2 million on these redemptions.

Results of Operations

Restatement of Prior Period Results.

The Company has restated its financial statements as of and for the year ended December 31, 2023 and for the year ended December 31, 2022, as presented in these audited financial statements as of and for the period ended December 31, 2024.

The errors relate to the Company’s accounting for loans originated pursuant to third-party loan origination and servicing programs, which go back as far as 2012.

See Note 25 - Restatement of Prior Period Financial Statements, for additional details.

The following table sets forth condensed income statement information of the Company for the years ended 2025, 2024, and 2023:

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Noninterest expense 380,003 207,855 193,083

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

Income (loss) before income taxes (114,868) 46,900 87,962

Income tax expense 9,413 8,856 26,807

Net income 38,044 61,155 100,237

Net income (loss) (124,281) 38,044 61,155

Preferred dividends 8,913 8,913 8,913

Net income available to common shareholders $ 29,131 $ 52,242 $ 97,068

Net income (loss) available to common shareholders $ (133,194) $ 29,131 $ 52,242

Per Share Data:

Basic earnings per common share $ 1.32 $ 2.33 $ 4.29

Diluted earnings per common share $ 1.32 $ 2.33 $ 4.28

Basic earnings (loss) per common share $ (6.12) $ 1.32 $ 2.33

Diluted earnings (loss) per common share $ (6.12) $ 1.32 $ 2.33

Performance Metrics:

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Return on average shareholders' equity (20.33) % 4.79 % 7.94 %

During the year ended December 31, 2024, we generated net income of $38.0 million, or diluted earnings per common share of $1.32 , compared to net income of $61.2 million, or diluted earnings per common share of $2.33, in the year ended December 31, 2023.

Earnings for the year ended December 31, 2024, compared to the year ended December 31, 2023, decreased primarily due to a $12.5 million decrease in net interest income, a $37.8 million increase in provision for credit losses and a $14.8 million increase in noninterest expense.

These results were partially offset by a $24.0 million increase in noninterest income and an $18.0 million decrease in income tax expense.

During the year ended December 31, 2025, we generated a net loss of $124.3 million, or diluted loss per common share of $6.12 , compared to net income of $38.0 million, or diluted earnings per common share of $1.32, in the year ended December 31, 2024.

The results in 2025 included a $21.4 million loss on the sale of substantially all of our equipment finance portfolio during the fourth quarter of 2025.

Earnings for the year ended December 31, 2025 compared to the year ended December 31, 2024 included a $0.5 million increase in net interest income, a $60.5 million decrease in provision for credit losses, a $50.6 million decrease in noninterest income, a $172.1 million increase in noninterest expense (primarily as a result of $154.0 million of goodwill impairment in the first quarter of 2025) and a $0.6 million increase in income tax expense.

Net Interest Income and Margin.

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Net interest income is influenced by many factors, primarily the volume and mix of interest-earning assets, funding sources and interest rate fluctuations.

Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets.

Noninterest-bearing sources of funds, such as

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demand deposits and shareholders’ equity, also support interest-earning assets.

Net interest margin is calculated as net interest income divided by average interest-earning assets.

Net interest margin is presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to a pretax-equivalent income, assuming a federal income tax rate of 21% for 2025 and 2024.

At its December 2025 meeting, the Federal Open Market Committee (FOMC) cut its benchmark interest rate by 0.25 percentage points, marking the third such reduction in 2025.

Following the rate cut, the borrowing rate was in a range between 3.50%-3.75%.

The FOMC concluded its January 2026 meeting by maintaining the federal funds target range at 3.50%-3.75%.

FOMC upgraded its assessment of the economy, noting that activity is expanding at a solid pace, aided by resilient consumer spending and growing business investment.

The assessment further reflected the committee's view that, while job gains remain low, the labor market has improved, showing signs of stabilization, though inflation remains elevated.

This suggests the Federal Reserve is shifting toward a more patient stance after three consecutive rate cuts in late 2025.

The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditure (PCE) price index, has moderated, aided by cooling services inflation.

Partially offsetting that progress, goods inflation has risen, in part due to tariffs.

Overall, inflation remains above the 2% target, and the pace of disinflation has slowed.

In 2024, the Federal Reserve cut its benchmark interest rate three times by a total of 1.00 percentage point, marking the first reductions in four years.

These rate cuts lowered the federal funds rate into a range of 4.25% to 4.50%, back to levels in December 2022.

The latest rate cut, announced December 18, 2024, was accompanied by Federal Open Market Committee member forecasts, which reflected expectations of fewer and slower additional interest rate cuts through the end of 2025, 2026 and 2027 than the FOMC forecasted in September 2024.

On January 29, 2025, the FOMC left unchanged its overnight borrowing rate in a range between 4.25% and 4.50%.

The Federal Open Market Committee (FOMC) concluded its May 2025 meeting with the Federal Reserve maintaining its target range for the federal funds rate at 4.25%-4.50%, as expected.

This was the third consecutive meeting that the Federal Reserve held interest rates steady, based in part on concerns over the potential impact of tariffs.

The FOMC updated its statement to reflect its view that risks to both of its mandates, the potential for higher unemployment and higher inflation, have risen.

A healthy labor market, with unemployment low at 4.20%, gives the Federal Reserve some flexibility to assess the potential impact of tariffs on inflation and the economy.

Inflation has been approaching the Federal Reserve's 2.0% target, but tariffs are expected to result in at least a one-time rise in prices.

The central bank’s preferred gauge, personal consumption expenditure, showed headline inflation at 2.3%.

In 2024, net interest income, on a tax-equivalent basis, decreased $12.5 million to $237.2 million with a tax-equivalent net interest margin of 3.35% compared to net interest income, on a tax-equivalent basis, of $249.6 million and a tax-equivalent net interest margin of 3.43% in 2023.

These rate cuts lowered the federal funds rate into a range of 4.25% to 4.50%.

In 2025, net interest income, on a tax-equivalent basis, totaled $237.7 million with a tax-equivalent net interest margin of 3.64% compared to net interest income, on a tax-equivalent basis, of $237.2 million and a tax-equivalent net interest margin of 3.35% in 2024.

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Average Balance Sheet, Interest and Yield/Rate Analysis.

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Years Ended December 31,

2025 2024 2023

(tax-equivalent basis, dollars in thousands) Average

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The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities.

The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate.

The effect of changes in volume is determined by multiplying

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the change in volume by the previous period’s average rate.

Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume.

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Time deposits (1,367) (2,863) (4,230) 1,002 7,839 8,841

Brokered time deposits 6,198 (273) 5,925 1,790 1,650 3,440

Brokered deposits (3,358) (747) (4,105) 6,198 (273) 5,925

Total interest-bearing deposits (12,609) (23,796) (36,405) 1,924 21,805 23,729

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Net interest income $ (25,582) $ 26,135 $ 553 $ (14,713) $ 2,220 $ (12,493)

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Interest Income.

For the year ended December 31, 2024, interest income, on a tax-equivalent basis, increased $9.0 million to $426.9 million as compared to the prior year.

The yield on earning assets increased 28 basis points to 6.03% from 5.75%, primarily due to the impact of increasing market interest rates.

For the year ended December 31, 2025, interest income, on a tax-equivalent basis, decreased $38.2 million to $388.8 million as compared to the same period in 2024, primarily due to a decline in earning assets.

The yield on earning assets decreased seven basis points to 5.96% from 6.03%.

Average earning assets decreased to $6.53 billion in 2025 from $7.08 billion in 2024.

Average loans decreased $452.0 million, which was partially offset by an increase in investment securities of $261.6 million.

Average loans decreased $452.0 million in 2024 compared to 2023 primarily due to continued reductions in our equipment financing and consumer loan portfolios.

Average equipment finance loan and lease balances decreased $192.7 million to $899.7 million in 2024 as the Company continued to reduce its concentration of this product within the overall loan portfolio.

Average consumer loans decreased $327.3 million primarily due to loan payoffs and a cessation in loans originated through GreenSky and LendingPoint.

Average loans decreased $891.3 million.

This decrease was partially offset by increases in investment securities and loans held for sale of $253.1 million and $89.6 million, respectively.

Average loans decreased $891.3 million in 2025 compared to 2024.

Average consumer loans decreased $633.4 million due to the sale of non-core consumer loan portfolios in 2025.

During the fourth quarter of 2025, the Company sold substantially all of its equipment finance portfolio.

As a result, equipment finance loan and lease average balances decreased $249.7 million to $650.0 million by the end of 2025.

Proceeds from the sale of the loan portfolios were used to purchase investment securities and reduce higher-cost funding for the Company.

Average loans held for sale in 2025 primarily reflected the GreenSky consumer loans, which were transferred to held for sale in December 2024.

The Company completed the sale of this portfolio in April 2025.

Interest Expense.

Interest expense increased $21.5 million to $189.8 million in 2024 compared to 2023.

The cost of interest-bearing liabilities increased to 3.31% compared to 2.87% for the prior year due to the increase in deposit and short-term borrowing costs as a result of the rate increases previously enacted by the Federal Reserve.

I nterest expense on deposits increased $23.7 million to $160.7 million in 2024 compared to 2023, primarily due to increases in interest rates on deposits.

Interest expense decreased $38.7 million to $151.1 million in 2025 compared to 2024.

The cost of interest-bearing liabilities decreased to 2.85% compared to 3.31% for the prior year primarily due to decreases in interest rates on deposits.

I nterest expense on deposits was $124.3 million in 2025 compared to $160.7 million in 2024, as a result of the rate cuts enacted by the Federal Reserve Bank beginning in late 2024.

Average balances of interest-bearing deposit accounts decreased $402.7 million, or 7.79%, to $4.77 billion for 2025 compared to the same period one year earlier.

Decreases in interest checking and savings account balances of $158.4 million and $79.1 million, respectively, were partially offset by increases in time and brokered time deposits of $31.8 million and $131.8 million, respectively.

Servicing deposits decreased $433.7 million to $665.3 million due to the loss of a customer in July 2025.

In addition, brokered deposits decreased $76.5 million.

Interest expense on FHLB advances and other borrowings decreased $1.9 million for the year ended December 31, 2025 from the prior year, due to decreases in both average balances and interest rates.

The average balances decreased $29.0 million in 2025 compared to 2024, while the average borrowing rates decreased to 4.15% in 2025 compared to 4.32% in 2024.

Interest expense on subordinated debt decreased $0.7 million for the year ended December 31, 2025 , from the prior year, due to a decrease in average balances.

The average balance decreased $24.2 million in 2025 compared to 2024, due the redemption of $50.8 million of de bt at September 30, 2025 and $16.0 million in 2024.

Provision for Credit Losses.

The Company's provision for credit losses was $120.3 million and $82.6 million in 2024 and 2023, respectively .

In 2024, the provisions for credit losses on loans and on unfunded commitments were $119.3 million and $1.1 million, respectively.

As previously disclosed, the Company recognized charge-offs in its specialty finance and equipment financing units of $25.3 million and $28.8 million, respectively in 2024.

The Company's provision for credit losses on loans totaled $60.5 million and $119.3 million in 2025 and 2024, respectively.

The Company charged off $29.8 million of the allowance for credit losses related to its equipment finance portfolio in connection with the loan and lease sale during the fourth quarter of 2025.

The provision for credit losses in 2025 was driven by the replenishment of reserve balances following higher charge offs and a modest reserve build related to loan growth in the community banking portfolio during the fourth quarter of 2025.

The Company recognized charge-offs in its specialty finance and equipment financing units of $25.3 million and $28.8 million, respectively in 2024.

These charge-offs, recognized to reduce future credit risk, resulted in the increase in provision expense in 2024.

In addition, the Company recognized $0.7 million recapture of credit losses related to unfunded commitments in 2025 compared to provision expense of $1.1 million in 2024.

The provision for credit losses on loans recognized during the year ended December 31, 2025 was made at a level deemed necessary by Management to absorb estimated losses in the loan portfolio.

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Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.

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Noninterest Income.

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For the years ended December 31, 2025 Compared to 2024 2024 Compared to 2023

(dollars in thousands) 2024 2023

Increase (decrease) Increase (decrease)

(dollars in thousands) 2025 2024 2023 Increase (decrease) Increase (decrease)

Noninterest income:

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Income on company-owned life insurance 8,564 7,683 4,439 881 11.5 3,244 73.1

Loss on sales of investment securities, net (230) (9,372) (230) 9,142 (97.5) (9,142) 3,974.8

Gain on termination of hedged interest rate swaps — — 17,531 — — (17,531) (100.0)

Impairment on commercial mortgage servicing rights — — (1,263) — — 1,263 (100.0)

Gain (loss) on sales of investment securities, net 14 (230) (9,372) 244 (106.1) 9,142 (97.5)

Credit enhancement income 9,904 60,998 48,194 (51,094) (83.8) 12,804 26.6

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Wealth management revenue .

Wealth management revenue increased $3.1 million, or 12.2% for 2024, as compared to 2023.

Assets under administration increased to $4.15 billion at December 31, 2024 from $3.73 billion at December 31, 2023, primarily due to improved sales activity and an increase in market performance.

Income on company-owned life insurance.

Income on company-owned life insurance increased $3.2 million, or 73.1%, for 2024, as compared to 2023.

As previously discussed, the Company surrendered certain low-yielding life insurance policies and purchased additional policies in the third quarter of 2023, resulting in the increase in revenue.

Wealth management revenue increased $2.3 million, or 8.09%, in 2025 as compared to 2024, driven by the growth in assets under management.

Assets under administration increased 7.85% to $4.48 billion at December 31, 2025 from $4.15 billion at December 31, 2024.

Credit enhancement income.

The Company recognized $61.0 million of credit enhancement income in 2024 compared to $48.2 million in 2023.

The increase in income was primarily related to an increase in LendingPoint program charge-offs which were reimbursed by the program servicer as part of the credit enhancement provided to the Company by the servicing agreement.

Prior to 2025, the Company was party to three 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.

In 2025, the Company operated only one such program due to the previous sales of the LendingPoint and GreenSky portfolios.

Effective December 31, 2025, the Company modified its third-party lending and servicing arrangements with its sole partner.

The new agreements provide a credit enhancement by the partner which protects the Company by indemnifying or reimbursing incurred losses.

We estimate and record a provision for expected losses and a corresponding credit enhancement asset on the balance sheet through credit enhancement income.

Credit enhancement income declined $51.1 million for the year ended December 31, 2025 compared to the same period of 2024 as a result of loan payoffs and a cessation in loans originated through the LendingPoint and GreenSky programs.

The Company recognized $6.6 million of additional credit enhancement income during the fourth quarter of 2025, resulting from the contractual changes with its sole partner referenced above.

Other noninterest income.

Other income decreased $5.7 million for 2024, as compared to 2023.

Several one-time transactions were recognized in other noninterest income in 2023, including incremental servicing revenues of $2.2 million and $1.6 million related to our commercial FHA servicing portfolio and the GreenSky portfolio, respectively.

In addition, the Company recognized a $1.1 million one-time gain from the sale of Visa B stock, a gain of $0.7 million on the redemption of subordinated debt and a gain of $0.8 million on the sale of OREO.

Other income decreased $3.6 million for the year ended December 31, 2025, as compared to the same period in 2024.

The Company recognized incremental servicing revenues related to the GreenSky portfolio of $0.3 million in the 2025 compared to $3.7 million in 2024.

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Noninterest Expense.

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Years Ended December 31, 2025 Compared to 2024 2024 Compared to 2023

(dollars in thousands) 2024 2023

Increase (decrease) Increase (decrease)

(dollars in thousands) 2025 2024 2023 Increase (decrease) Increase (decrease)

Noninterest expense:

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Loan servicing fees 4,578 12,864 19,181 (8,286) (64.4) (6,317) (32.9)

Impairment on goodwill 153,977 — — 153,977 100.0 — —

Amortization of intangible assets 3,224 4,008 4,758 (784) (19.6) (750) (15.8)

Other real estate owned 281 5,569 333 (5,288) (95.0) 5,236 1,572.4

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

Loss on sale of loans 23,051 — — 23,051 100.0 — —

Impairment on leased assets and surrendered assets 684 7,858 — (7,174) 100.0 7,858 N/A

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Total noninterest expense $ 380,003 $ 207,855 $ 193,083 $ 172,148 82.8 % $ 14,772 7.7 %

Data processing fees.

The $1.9 million increase in data processing fees for the year ended December 31, 2024, was primarily the result of our continuing investments in technology to better serve our growing customer base and increased transaction volumes.

Loan expense.

Loan collection expenses were $3.7 million in 2024 compared to $2.1 million in 2023 due to the increased volume of nonperforming loans and assets.

Salaries and employee benefits.

S alaries and employee benefits expense increased $10.8 million in 2025 as compared to 2024, primarily due to increases of $3.2 million in severance expense, and $4.8 million in variable compensation expense, including commissions and annual bonuses.

The Company employed 861 employees at December 31, 2025 compared to 896 employees at December 31, 2024.

FDIC insurance expense.

The Company recognized $1.7 million in additional FDIC assessments in 2025 related to prior years’ amended call reports due to the restatements of prior years’ financial statements.

Professional services expense.

The increase in professional services expense for the year ended December 31, 2025, as compared to 2024, was primarily the result of increased audit and consulting fees related to restatements of prior years' financial statements and the evaluation of the accounting and reporting of the Company's third-party lending and servicing programs.

Marketing expense.

The increase in marketing expense for the year ended December 31, 2025, as compared to 2024, was primarily the result of increased brand marketing and program expenses related to deposit account acquisition.

Loan servicing fees.

Loan servicing fees expense represents servicing fees paid to third parties associated with our third party lending programs.

Servicing fees in 2024 and 2023 were $12.9 million and $19.2 million, respectively, as these loan programs continued to pay down.

The decline in servicing fees was a result of loan payoffs and a cessation in loans originated through the GreenSky and LendingPoint programs.

Impairment on goodwill.

As mentioned previously, the Company recognized $154.0 million of goodwill impairment expense during the first quarter of 2025 in its Banking reporting unit.

Other real estate owned.

The Company recorded impairment expense of $4.9 million in 2024 related to a single assisted living facility.

This asset was sold in 2025.

Loss on sale of loan portfolios.

The Company recognized losses of $23.1 million on the sale of loan portfolios, including $21.4 million related to the sale of substantially all of its equipment finance portfolio.

Impairment on leased assets and surrendered assets.

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The Company recognized $3.1 million in expenses related to various legal actions in 2024.

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Income Tax Expense.

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Effective tax rates for 2025 and 2024 were 24.1% and 18.9%, respectively.

Income tax expense for 2023 included tax charges of $4.5 million associated with the surrender of certain company-owned life insurance policies, as previously discussed.

The effective tax rate calculation for the year ended December 31, 2025, excludes the goodwill impairment charge of $154.0 million, as this item is not deductible for tax purposes.

Financial Condition

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The loans are generally made with business operations as the primary source of repayment, but may also include collateralization by inventory, accounts receivable and equipment, and generally include personal guarantees.

The commercial loan category also includes loans originated by the equipment financing business that are secured by the underlying equipment.

The commercial loan category also includes loans originated by the equipment financing business that are secured by the underlying equipment, of which we sold substantially all of our equipment finance portfolio during the fourth quarter of 2025.

Commercial real estate loans.

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Total commercial real estate and construction and land development loans $ 2,628,804 100.0 % $ 2,891,506 100.0 %

Loans secured by office space totaled $146.3 million and $153.8 million at December 31, 2024 and December 31, 2023, respectively, primarily located in suburban locations in Illinois and Missouri.

Loans secured by office space totaled $140.1 million and $146.3 million at December 31, 2025 and December 31, 2024, respectively, are primarily located in suburban locations in Illinois and Missouri.

Residential real estate loans.

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Personal loans are generally secured by automobiles, boats and other types of personal property and are made on an installment basis.

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Lease financing.

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

The Company sold substantially all of our equipment finance portfolio during the fourth quarter of 2025.

The following table presents the balance and associated percentage of each major category in our loan portfolio at December 31, 2025 and December 31, 2024:

December 31, 2025 December 31, 2024

(dollars in thousands) Balance Percent Balance Percent

(dollars in thousands) Book Value % Book Value %

Commercial $ 1,178,521 27.1 % $ 1,359,820 26.3 %

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Total loans, net $ 4,282,785 $ 5,056,370

The following tables present our outstanding loans by business sector at December 31, 2024 and 2023:

(dollars in thousands) Community bank Specialty finance Equipment finance Non-core consumer and other Total

Total loans decreased $815.6 million, or 15.8%, to $4.35 billion at December 31, 2025, as compared to December 31, 2024.

In 2025, the Company sold participation interests of $317.5 million related to our GreenSky consumer loan portfolio, and we also completed the sale of substantially all of our equipment finance portfolio, which included $316.1 million of commercial loans and $239.7 million of leases.

The Company's loan portfolio is assigned to the following internal business sectors:

• Community bank represents predominately in-market loans originated through our banking center network.

• Specialty finance provides bridge loan financing for commercial real estate projects, primarily multi-family and healthcare.

These projects can include construction and short term financing in anticipation of obtaining permanent secondary market financing.

The loans are typically outside of the Company’s primary market areas.

• Equipment finance portfolio includes loans and leases originated to varying types of businesses throughout the United States for purchases of business equipment and software.

The Company sold substantially all of our equipment finance portfolio during the fourth quarter of 2025.

• Non-core and other includes our third-party origination and servicing programs, and capital market credits, including loans to finance the sale of the GreenSky portfolio.

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The following tables present our outstanding loans by business sector at December 31, 2025 and December 31, 2024:

December 31, 2025

(dollars in thousands) Community bank Specialty finance Equipment finance Non-core and other Total

Commercial $ 688,277 $ 248,112 $ 8,781 $ 233,351 $ 1,178,521

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Total $ 3,328,227 $ 668,183 $ 59,762 $ 295,832 $ 4,352,004

2023 (restated)

(dollars in thousands) Community bank Specialty finance Equipment finance Non-core consumer and other Total

December 31, 2024

(dollars in thousands) Community bank Specialty finance Equipment finance Non-core and other Total

Commercial $ 587,785 $ 269,620 $ 416,969 $ 85,446 $ 1,359,820

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Total loans decreased $815.6 million, or 15.8%, to $4.35 billion at December 31, 2025, as compared to December 31, 2024.

The decrease is primarily due to the Company’s strategic reduction in its non-core consumer loan portfolios, and the continuation of the Company’s plan to decrease its equipment financing portfolio.

Consumer loans decreased $740.5 million to $144.3 million at December 31, 2024, primarily due to the loan portfolio sale, transfer to held for sale and loan paydowns.

Equipment finance loan and lease balances decreased $196.1 million to $808.4 million at December 31, 2024, as the Company continued to reduce its concentration of this product within the overall loan portfolio.

Equipment financing and consumer loans comprised 15.6% and 2.8%, respectively, of the loan portfolio at December 31, 2024, compared to 16.5% and 14.5%, respectively, at

December 31, 2023.

Community bank portfolio increased $150.3 million, or 4.7%, in 2025.

This growth partially offset the strategic declines in the Specialty finance and Equipment finance sectors of $358.3 million and $748.6 million, respectively, as of December 31, 2025.

The increase in our Non-core and other business sector is primarily due to the financing we provided related to the sale of the GreenSky portfolio.

The following table shows the contractual maturities of our loan portfolio and the distribution between fixed and adjustable interest rate loans at December 31, 2025:

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We also have what we believe to be a comprehensive methodology to monitor these credit quality standards, including a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level.

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Analysis of the Allowance for Credit Losses on Loans.

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gross domestic product ranging from 1.7% to 2.3% over the next four quarters;

(ii) the 10-year treasury rate ranging from 4.2% to 4.3% over the next four quarters;

(ii) the 10-year treasury rate averaging 4.2% over the next four quarters;

and (iii) Illinois unemployment rate averaging 4.9% through the fourth quarter of 2026.

We qualitatively adjust the model results based on this scenario for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools.

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

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

economic and business conditions;

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Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment.

The qualitative factor adjustment at December 31, 2024, was approximately 67 basis points of total loans, increasing from 41 basis points at December 31, 2023.

The Q-Factor adjustment at December 31, 2024 was based primarily on declining credit quality indicators and increased collateral valuation risks within the commercial real estate secured loan segments.

The qualitative factor adjustment at December 31, 2025, was approximately 57 basis points of total loans, decreasing slightly from 67 basis points at December 31, 2024.

The allowance allocated to commercial loans totaled $23.7 million, or 2.01% of total commercial loans, at December 31, 2025, compared to $42.8 million, or 3.15%, at December 31, 2024.

Modeled expected credit losses increased $13.6 million primarily related to one third-party loan program.

Qualitative factor adjustments related to commercial loans increased $1.2 million due to increases in the credit quality factor as a result of the deteriorating credit quality metrics.

Specific allocations for commercial loans that were individually evaluated for expected credit losses on an individual basis decreased $1.8 million from December 31, 2023, as these loans were charged-off in 2024.

The allowance allocated to commercial real estate loans totaled $36.8 million, or 1.42% of total commercial real estate loans, at December 31, 2024, increasing $16.6 million, from $20.2 million, or 0.84% of total commercial real estate loans, at December 31, 2023.

Modeled expected credit losses increased $0.6 million.

Qualitative factor adjustments increased $5.5 million due to increases in the credit quality and collateral adequacy factors.

Specific allocations for loans that were individually evaluated increased $10.5 million related to two relationships in our Specialty Finance Group.

Outstanding loan balances decreased $181.3 million, or 13.3%, during 2025, primarily as a result of the sale of substantially all of our equipment finance portfolio.

Charge-offs related to the non-core loan program of $11.1 million during the first quarter of 2025 coupled with charge-offs related to the sale of the equipment finance portfolio of $14.2 million during the fourth quarter of 2025 resulted in a significant decrease in the allowance allocated to commercial loans.

Excluding these charge-offs, modeled expected credit losses increased $8.5 million.

Qualitative factor adjustments decreased $2.3 million.

There were no specific allocations for commercial loans that were evaluated for expected credit losses on an individual basis at December 31, 2025 or December 31, 2024.

The allowance allocated to commercial real estate loans totaled $28.3 million, or 1.21% of total commercial real estate loans, at December 31, 2025, decreasing $8.5 million, from $36.8 million, or 1.42% of total commercial real estate loans, at December 31, 2024.

Outstanding loan balances decreased $249.0 million, or 9.6%, during 2025.

Specific allocations for loans that were individually evaluated decreased $9.1 million as three relationships totaling $10.9 million were charged-off in the second quarter of 2025.

Modeled expected credit losses increased $0.8 million and qualitative factor adjustments decreased $0.3 million.

The commercial real estate portfolio does not include significant exposure to urban office properties.

The allowance allocated to construction and land development loans totaled $2.6 million, or 0.92% of total construction and land development loans, at December 31, 2025, decreasing $1.0 million from $3.6 million, or 1.18% of total constructions loans, at December 31, 2024.

Modeled expected credit losses decreased $1.2 million and qualitative factor adjustments related to construction loans increased $0.6 million.

There were no specific allocations for construction loans that were evaluated for expected credit losses on an individual basis at December 31, 2024.

The allowance allocated to residential real estate loans totaled $8.0 million, or 2.10% of total residential real estate loans, at December 31, 2024, increasing $2.4 million, from $5.6 million, or 1.46% of total residential real estate loans, at December 31, 2023.

Modeled expected credit losses and qualitative factor adjustments increased $2.0 million and $0.4 million, respectively.

Recent charge-off activity resulted in the increase in modeled expected losses.

There were no specific allocations for residential real estate loans that were evaluated for expected credit losses on an individual basis at December 31, 2024.

Modeled expected credit losses decreased $0.3 million and qualitative factor adjustments related to construction loans decreased $0.6 million.

There were no specific allocations for construction loans that were evaluated for expected credit losses on an individual basis at December 31, 2025 or December 31, 2024.

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The allowance allocated to residential real estate loans totaled $6.7 million, or 1.90% of total residential real estate loans, at December 31, 2025, decreasing $1.3 million, from $8.0 million, or 2.10% of total residential real estate loans, at December 31, 2024.

Modeled expected credit losses and qualitative factor adjustments decreased $1.2 million and $0.1 million, respectively.

There were no specific allocations for residential real estate loans that were evaluated for expected credit losses on an individual basis at December 31, 2025, or December 31, 2024.

The allowance allocated to consumer loans totaled $4.8 million, or 3.33% of total consumer loans, at December 31, 2025, compared to $5.4 million, or 3.74%, at December 31, 2024.

Consumer loans at December 31, 2024, totaled $144.3 million, a decrease of $740.5 million from December 31, 2023, as a result of the sale of the LendingPoint portfolio and the transfer of a significant portion of the GreenSky portfolio to held for sale.

The related allowances for credit losses for both portfolios were eliminated at December 31, 2024, due to the these actions.

Specific allocations for consumer loans that were evaluated for expected credit losses on an individual basis decreased $0.1 million.

The allowance allocated to the lease portfolio totaled $14.6 million, or 3.74% of total commercial leases, at December 31, 2024, increasing $1.7 million, from $12.9 million, or 2.73% of total commercial leases at December 31, 2023.

Modeled expected credit losses increased $1.4 million as recent charge-off activity led to an increase in loss given default factors in the model.

Qualitative factor adjustments and specific allocation reserves increased $0.1 million and $0.2 million, respectively.

Modeled expected credit losses increased $1.4 million while qualitative factor adjustments decreased $2.0 million.

The allowance allocated to the lease portfolio totaled $3.2 million, or 6.25% of total commercial leases, at December 31, 2025, decreasing $11.4 million, from $14.6 million, or 3.74% of total commercial leases at December 31, 2024.

Outstanding lease balances decreased $340.4 million, or 87.0%, during 2025 due to the sale of substantially all of our equipment finance portfolio.

The following table provides an analysis of the allowance for credit losses on loans, provision for credit losses on loans and net charge-offs for the years ended 2025, 2024, and 2023:

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Recoveries on loans previously charged-off are added to the allowance.

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The following tables present charge-offs by business sector for the years ended 2025 and 2024:

(dollars in thousands) Community bank Specialty finance Equipment finance Non-core consumer and other Total charge-offs

(dollars in thousands) Community bank Specialty finance Equipment finance Non-core and other Total charge-offs

Commercial $ 1,048 $ 152 $ 21,284 $ 19,639 $ 42,123

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Total $ 17,369 $ 19,067 $ 52,618 $ 21,870 $ 110,924

(dollars in thousands) Community bank Specialty finance Equipment finance Non-core consumer and other Total charge-offs

(dollars in thousands) Community bank Specialty finance Equipment finance Non-core and other Total charge-offs

Commercial $ 8,210 $ 121 $ 14,457 $ 7,665 $ 30,453

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Total $ 12,800 $ 25,264 $ 28,780 $ 104,789 $ 171,633

Charge-offs in 2024 increased to $171.6 million from $58.8 million in 2023.

Charge-offs related to our Specialty Finance Group totaled $25.3 million in 2024 based on updated appraisals of all substandard relationships.

Consumer loan charge-offs totaled $98.1 million in 2024, increasing $64.9 million from 2023, primarily due to the recognition of charge-offs of $17.3 million in connection with the sale of our Lending Point portfolio and $35.0 million in connection with the planned sale and transfer of the GreenSky portfolio to held for sale.

Our equipment finance business saw charge-offs increase to $28.8 million in 2024 from $9.6 million in 2023, due primarily to continued weakness within the trucking sector.

Charge-offs in 2025 were $110.9 million compared to $171.6 million in 2024.

Charge-offs in the equipment finance sector increased $23.8 million to $52.6 million in 2025 compared to 2024.

The Company recognized charge-offs of $29.8 million as a result of the sale of substantially all of the portfolio in 2025.

Consumer loan charge-offs totaled $3.1 million in 2025 compared to $98.1 million in 2024.

In 2024, the Company recognized charge-offs of $17.3 million in connection with the sale of our LendingPoint portfolio and $35.0 million in connection with the planned sale and transfer of the GreenSky portfolio to held for sale.

As of December 31, 2025, we had one active non-core loan program.

Nonperforming Loans .

The following table presents the change in our non-performing loans for the year ended December 31, 2024:

The following table presents the change in our nonperforming loans for the year ended December 31, 2025:

(dollars in thousands) Year Ended December 31, 2025

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Transfer to OREO and other repossessed assets (12)

Transfer to loans held for sale (29,400)

Charge-offs (54,172)

Balance, end of period $ 65,483

Non-performing loans increased $94.5 million to $150.9 million at December 31, 2024, compared to $56.4 million at December 31, 2023.

The majority of the increase is attributable to multi-family construction or multi-family project nonperforming loans of $57.6 million and health care related loans, including assisted living and skilled nursing, which increased $15.5 million.

These loans are outside of the Company’s core market.

The following table sets forth our nonperforming assets by asset categories as of the dates indicated.

Beginning in 2024 and continuing throughout 2025, the Company prioritized improving its credit quality by tightening its loan underwriting standards and pursuing opportunities to resolve nonperforming loans, which included the sale of specific loans or portfolios.

The Company ceased originations of new construction loans in the Specialty Finance Group in the fourth quarter of 2024.

In the third quarter of 2025, the Company ceased originations in the equipment finance portfolio, selling substantially all of the portfolio during the fourth quarter of 2025.

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Loan portfolios originated through our FinTech partners, LendingPoint and GreenSky, were sold in the fourth quarter of 2024 and in the second quarter of 2025, respectively.

These actions resulted in nonperforming loans decreasing to $65.5 million, or 1.50% of total loans, at December 31, 2025, compared to $150.9 million, or 2.92% of total loans at December 31, 2024.

The following table sets forth our nonperforming assets by asset category as of the dates presented.

Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest.

The balances of nonperforming loans reflect the net investment in these assets.

The balance of nonperforming loans reflect the net investment in these assets.

(dollars in thousands) December 31, 2025 December 31, 2024 December 31, 2023

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Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $11.3 million and $9.6 million for the years ended December 31, 2025 and 2024, respectively.

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Investment Securities.

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In the periods presented, all investment securities of the Company are classified as available for sale and, therefore, the book value of investment securities is equal to the fair market value.

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

The following table sets forth the book value and percentage of each category of investment securities at December 31, 2025, 2024 and 2023.

December 31, 2025 December 31, 2024 December 31, 2023

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Mortgage-backed securities - non-agency 97,089 6.4 101,012 8.4 83,529 9.1

Asset-backed student loans 34,215 2.2 49,973 4.1 — —

State and municipal securities 73,458 4.8 69,061 5.7 57,460 6.3

Collateralized loan obligations 46,854 3.1 40,450 3.4 27,565 3.0

Corporate securities 57,812 3.8 79,881 6.6 99,172 10.9

Other securities 90,423 7.5 27,565 3.0 — —

Total investment securities, available for sale, at fair value $ 1,523,001 100.0 % $ 1,207,574 100.0 % $ 915,895 100.0 %

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The following table sets forth the book value, maturities and weighted average yields for our investment portfolio at December 31, 2025.

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Total mortgage-backed securities - non-agency $ 97,089 6.4 % 4.94 %

Asset-backed student loans:

Maturing within one year $ — — % — %

Maturing in one to five years — — —

Maturing in five to ten years 684 — 4.74

Maturing after ten years 33,531 2.2 4.65

Total asset-backed student loans $ 34,215 2.2 % 4.65 %

State and municipal securities (1) :

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Total state and municipal securities $ 73,458 4.8 % 3.68 %

Corporate securities:

Collateralized loan obligations:

Maturing within one year $ — — % — %

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Maturing after ten years 33,054 2.2 5.70

Total corporate securities $ 79,881 6.6 % 4.51 %

Other securities:

Total collateralized loan obligations $ 46,854 3.1 % 5.66 %

Corporate securities:

Maturing within one year $ — — % — %

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Maturing after ten years 5,025 0.3 6.84

Total other securities $ 90,423 7.5 % 5.91 %

Total corporate securities $ 57,812 3.8 % 4.62 %

Total investment securities, available for sale $ 1,523,001 100.0 % 4.42 %

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(1) Weighted average yield for tax-exempt securities are presented on a tax-equivalent basis assuming a federal income tax rate of 21%.

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Mortgage-backed securities - non-agency 97,921 97,089 — 97,089 — — — —

Asset-backed student loans 34,262 34,215 — 34,215 — — — —

State and municipal securities 77,054 73,458 7,458 62,330 871 — — 2,799

Collateralized loan obligations 46,800 46,854 46,854 — — — — —

Corporate securities 60,075 57,812 — — 11,440 41,434 — 4,938

Other securities 90,372 90,423 42,580 47,843 — — — —

Total investment securities, available for sale $ 1,602,810 $ 1,523,001 $ 54,312 $ 1,407,207 $ 12,311 $ 41,434 $ — $ 7,737

Loans Held for Sale.

Loans held for sale totaled $7.8 million at December 31, 2025, comprised entirely of residential real estate loans.

Loans held for sale totaled $344.9 million at December 31, 2024, comprised of $336.7 million of consumer loans and $8.2 million of residential real estate loans.

At December 31, 2024, we committed to a plan to sell our GreenSky consumer loan portfolio and transferred these loans to held for sale.

The sale was completed in the second quarter of 2025.

At December 31, 2025, liabilities totaled $5.95 billion compared to $6.80 billion at December 31, 2024.

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Total deposits decreased $772.9 million to $5.42 billion at December 31, 2025, as compared to December 31, 2024.

Decreases in noninterest-bearing demand account, interest-bearing checking account, and savings account balances of $89.8 million, $133.6 million and $52.0 million, respectively, during this period, were partially offset by increases in money market account and time deposit account balances.

Brokered time deposit account balances increased to $259.5 million at December 31, 2024 from $94.5 million at December 31, 2023, accounting for the increase in time deposit account balances.

Deposit outflows were primarily related to certain larger commercial clients moving funds to the Company's wealth management business.

Interest-bearing checking account and time deposit account balances decreased $523.0 million and $290.4 million, respectively, during this period.

Brokered time deposit account balances decreased to $43.1 million at December 31, 2025 from $259.5 million at December 31, 2024, accounting for the decrease in time deposit account balances.

(dollars in thousands) December 31, 2025 December 31, 2024 December 31, 2023

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Total $ 69,566

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Subordinated Debt.

Subordinated debt totaled $27.0 million and $77.7 million as of December 31, 2025 and December 31, 2024, respectively.

On September 30, 2025, the Company redeemed the outstanding Fixed-to-Floating Rate Subordinated Notes due September 30, 2029, having an aggregate principal amount of $50.8 million.

The interest rate on the subordinated notes was 7.91%, equating to approximately $4.0 million of annual interest expense.

Capital Resources and Liquidity Management

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Shareholders’ equity decreased $145.3 million to $565.5 million at December 31, 2025, as compared to December 31, 2024.

The change in shareholders’ equity was the primarily the result of net income of $38.0 million, less dividends to common shareholders of $27.1 million, dividends to preferred shareholders of $8.9 million, the repurchases of common stock of $5.5 million and increase in accumulated other comprehensive losses of $5.2 million.

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

During the year ended December 31, 2024, the Company repurchased 228,266 shares of its common stock at a weighted average price of $23.93 under its stock repurchase program.

The program terminated effective December 31, 2024.

The change in shareholders’ equity was the result of the net loss of $124.3 million, dividends to common shareholders of $27.7 million, dividends to preferred shareholders of $8.9 million and repurchases of common stock of $9.7 million, partially offset by an increase in accumulated other comprehensive losses of $21.6 million.

On November 3, 2025, the Company’s board of directors authorized a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through November 2, 2026.

The new stock repurchase program became effective on November 3, 2025.

The Company’s previous stock repurchase program expired on December 31, 2024.

As of December 31, 2025, $9.6 million, or 457,222 shares of the Company’s common stock, had been repurchased under the current program.

Liquidity Management.

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Brokered CDs (additional capacity) 450,000 350,000

ICS One Way Buy (additional capacity) 600,000 —

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The Company is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity.

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

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

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

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

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

The Company adopted the five-year CECL transition option in 2020 provided for by the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC in March 2020.

At the end of 2024 this transition will be complete.

At December 31, 2025, the Company and the Bank exceeded the regulatory minimums and met the regulatory definition of well capitalized.

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The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment.

If the commitment is funded, we would be entitled to seek recovery from the customer.

If the commitment is funded, we would be entitled to seek

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recovery from the customer.

Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.

We guarantee the distributions and payments for redemption or liquidation of the trust preferred securities issued by our wholly owned subsidiary business trusts to the extent of funds held by the trusts.

Although this guarantee is not separately

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

Although this guarantee is not separately recorded, the obligation underlying the guarantee is fully reflected on our consolidated balance sheets as junior subordinated debentures held by subsidiary trusts.

The junior subordinated debentures currently qualify as Tier 1 capital under the Federal Reserve capital adequacy guidelines.

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Assumptions and methodologies regarding administered rate liabilities (e.g., savings accounts, money market accounts and interest-bearing checking accounts), balance trends, and repricing relationships reflect our best estimate of expected behavior and these assumptions are reviewed periodically.

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The following table shows NII at Risk at the dates indicated:

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NII at Risk reported at December 31, 2025 projects that our earnings exhibit increasing profitability in a declining rate environment, consistent with our modeling at December 31, 2024.

Throughout the course of 2024, the bank exhibited similar trends to the industry concerning its beta assumptions related to its non-maturity deposit portfolio.

Coupled with the Federal Reserve lowering rates in the second half of 2024, the Bank continued its strategy of layering on protection to lower short-term rates through deposit pricing, securities purchase selection and hedging.

Throughout the course of 2025, the Bank has been holding to its non-maturity beta assumptions and lowering rates along with the industry overall.

Coupled with market expectations, the Bank continued its strategy of layering on protection to lower short-term rates through deposit pricing, securities purchase selection and hedging.

These aspects are reflective of the Bank becoming more biased to lower rates year over year.

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

Critical Accounting Estimates

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our most significant accounting policies are described in Note 1 to the consolidated financial statements.

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As an integral part of their examination process, various regulatory agencies also review the allowance for credit losses on loans.

Such agencies may require additions to the allowance for credit losses on loans or may require that certain loan balances be charged-off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination.

Such agencies may require additions to the allowance for credit losses on loans or may require that

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certain loan balances be charged-off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination.

The Company believes the level of the allowance for credit losses on loans is appropriate.

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

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired.

Goodwill is subject to impairment testing, which must be conducted at least annually or upon the occurrence of a triggering event.

Various factors, such as the Company’s results of operations, the trading price of the Company’s common stock relative to the book value per share, macroeconomic conditions and conditions in the banking sector, inform whether a triggering event for an interim goodwill impairment test has occurred.

Goodwill is recorded and evaluated for impairment at its reporting units, Banking and Wealth Management.

The Company's policy is to test goodwill for impairment annually as of August 31, or on an interim basis if an event triggering an impairment assessment is determined to have occurred.

Testing of goodwill impairment comprises a two-step process.

First, the Company performs a qualitative assessment to evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If the Company determines that it is more likely than not that an impairment has occurred, it proceeds to the quantitative impairment test, whereby it calculates the fair value of the reporting unit and compares it with its carrying amount, including goodwill.

In its performance of impairment testing, the Company has the unconditional option to proceed directly to the quantitative impairment test, bypassing the qualitative assessment.

If the carrying amount of the reporting unit exceeds the fair value, the amount by which the carrying amount exceeds fair value, up to the carrying value of goodwill, is recorded through earnings as an impairment charge.

If the results of the qualitative assessment indicate that it is not more likely than not that an impairment has occurred, or if the quantitative impairment test results in a fair value of the reporting unit that is greater than the carrying amount, then no impairment charge is recorded.

The Company performed a quantitative impairment test on its Banking reporting unit as of December 31, 2024, and engaged a third-party service provider to assist Management with the determination of the fair value.

The resulting calculation indicated that the fair value exceeded the carrying amount of the Company's Banking reporting unit by approximately 7% as of December 31, 2024, which resulted in a determination of no impairment loss.

The method employed was a discounted cash flow analysis.

Significant judgment is necessary in the determination of the fair value of a reporting unit.

The income valuation methodology requires an estimation of future cash flows, considering

the after-tax results of operations, the extent and timing of credit losses, and appropriate discount and growth rates.

Actual future cash flows may differ from forecasted results based on the assumptions used.

In performing the discounted cash flow analysis, the Company utilized multi-year cash projections that rely on internal forecasts of loan and deposit growth, bond mix, financing composition, market pricing of securities, credit performance, forward interest rates, future returns driven by net interest margin, fee generation and expense incurrence, industry and economic trends, and other relevant considerations.

The long-term growth rate used in the calculation of fair value was derived from published projections of the inflation rate, along with Management estimates.

The discount rate was calculated as the cost of equity capital using the modified capital asset pricing model, which includes variables including the risk-free interest rate, beta, equity risk premium, size premium and company-specific risk premium.

Subsequently, during the first quarter of 2025, Management determined that a triggering event had occurred at its Banking reporting unit as a result of further deteriorated credit quality coupled with the trends in the stock price.

The Company performed a quantitative impairment test on its Banking reporting unit as of March 31, 2025, and engaged a third-party service provider to assist Management with the determination of the fair value.

The resulting calculation indicated that the carrying amount exceeded the fair value of the Company's Banking reporting unit.

As a result of the assessment, the Company expects to recognize goodwill impairment expense between $135.0 million and $154.0 million in the first quarter of 2025.

This non-cash impairment expense will not impact our regulatory capital ratios, tangible common equity ratio nor our liquidity position, and will not result in future cash expenditures.

Management has evaluated and will continue to evaluate economic conditions in interim periods for triggering events.

Third-party loan origination and servicing programs.

The Company operated three significant programs to originate and service unsecured commercial and consumer loans.

Loan options under the programs include traditional fully-amortizing loans and promotional loans with no interest, or “same-as-cash”, features if the loan is fully repaid in the promotional window.

The loans are originated at par in the Company’s name and have terms ranging from five months to 25 years with a much shorter effective life due to amortization and prepayments.

Two programs are governed by multiple interrelated agreements including the loan agreement between the Company and the customer and agreements with the servicer.

The structures of these programs are intended to generate loans that yield a targeted return to the Company on a portfolio basis while also providing credit enhancement from the servicer.

Key characteristics of these programs include:

• The servicer guarantees a targeted return which is paid first by customer payments and, if necessary, supplemented by the servicer.

• The servicer contributes funds to a reserve account at the time of origination to be used for future charge-offs, if necessary.

• Excess yield on the portfolio after realized charge-offs and above an agreed upon target rate due to the Company is paid to the servicer as a “performance fee.”

• In the event charge-offs exceed the amount available as a performance fee, they roll over to future periods to offset potential performance fees and subsequent reserve account fundings related to the portfolio.

The third program is governed by multiple interrelated agreements including the loan agreements between the Company and the customer, the Company and the program sponsor, and the Company and the servicer.

Key characteristics of the program with a sponsor include:

• The program sponsor guarantees a targeted return which is paid first by customer payments and, if necessary, supplemented by the program sponsor.

• Excess yield on the portfolio after realized charge-offs and above an agreed upon target rate due to the Company is paid to the program sponsor as a “performance fee.”

• In the event charge-offs exceed the amount available as a performance fee the program sponsor reimburses the Company for all excess charge-offs.

GAAP, agreements with multiple counterparties, such as the customer, servicer and program sponsor, are generally required to be accounted for separately even if the agreements are highly interrelated.

As a result, we account for the programs as multiple units of account with the following impacts:

• The loans are accounted for as one unit of account under U.S.

GAAP including revenue recognition and inclusion in our CECL allowance methodology.

• The agreement that governs the yield maintenance or credit enhancement from the servicer or program sponsor is a separate unit of account and meets the definition of a derivative under U.S.

GAAP and is accounted for at fair value in our financial statements.

The primary drivers of the derivative value include estimated prepayment activity on promotional loans that would trigger reimbursement from the third-party servicer or program sponsor to us and estimated excess yield above projected credit losses that would lead to performance fee payments from us to the third-party servicer or program sponsor.

The credit risk of the third-party and discount rates used in the calculation also impact the value of the derivative.

Changes in the fair value of the derivative are recorded as gains or losses in noninterest income.

• Noninterest income each period includes actual amounts received during the period for interest reimbursement and amounts paid by the servicer or program sponsor under the credit enhancement described above.

• Noninterest expense each period includes actual amounts paid during the period for performance fees and servicing fees as defined in our agreement with the servicer or program sponsor.

At December 31, 2024 and 2023, loans outstanding in these programs were $110.4 million and $853.4 million, respectively.

As of December 31, 2024, $336.7 million is included in loans held for sale at lower of cost or market as a result of our decision to pursue a sale of that portion of the portfolio.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are included under “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk”.

Table of C ontents

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What changed 10-K

Item 7. Management’s Discussion and Analysis