~~0001466026us-gaap:ServiceOtherMember2022-04-012022-06-30~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2022

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission File Number 001-35272

MIDLAND STATES BANCORP, INC.

(Exact name of registrant as specified in its charter)

Illinois

37-1233196

(State of other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1201 Network Centre Drive

62401

Effingham, IL

(Zip Code)

(Address of principal executive offices)

(217) 342-7321

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	MSBI	The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/40th interest in a share of 7.75% fixed rate reset non-cumulative perpetual preferred stock, Series A	MSBIP	The Nasdaq~~Global Select~~ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

As of ~~July 22,~~October 21, 2022, the Registrant had ~~22,067,424~~22,149,470 shares of outstanding common stock, $0.01 par value.

Table of Contents

MIDLAND STATES BANCORP, INC.

TABLE OF CONTENTS


		Page
PART I.FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Balance Sheets at ~~June~~September 30, 2022 (Unaudited) and December 31, 2021	3

	Consolidated Statements of Income (Unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	4

	Consolidated Statements of Comprehensive Income (Unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	5

	Consolidated Statements of Shareholders’ Equity (Unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	6

	Consolidated Statements of Cash Flows (Unaudited) for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	7

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4344

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6465

Item 4.	Controls and Procedures	6566

PART II.OTHER INFORMATION

Item 1.	Legal Proceedings	6566

Item 1A.	Risk Factors	6566

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6667

Item 6.	Exhibits	6768

SIGNATURES

Table of Contents

PART I – FINANCIAL INFORMATION


Consolidated Balance Sheets			3
Consolidated Statements of Income			4
Consolidated Statements of Comprehensive Income			5
Consolidated Statements of Shareholders' Equity			6
Consolidated Statements of Cash Flows			7
Note 1: Business Description			8
Note 2: Basis of Presentation and Summary of Significant Accounting Policies			8
Note 3: Acquisitions			9
Note 4: I n ~~vestment~~Investment Securities			10
Note 5: Loans			13
Note 6: Premises, Equipment and ~~Leas~~eLeases			26
Note 7: Loan Servicing Rights			28
Note 8: Goodwill and Intangible Assets			28
Note 9: Derivative Instruments			29
Note 10 ~~: Deposits~~10: Deposits			3031
Note 11: Short-Term Borrowings			31
Note 12: FHLB Advances and Other Borrowings			3132
Note 1 3 :13: Subordinated Debt			32
Note 1 4 ~~: Earnings Per~~ ~~Common~~ S ~~hare~~14: Preferred Stock			32
Note 1 5 ~~: Fair Value of Financial Instruments~~15: Earnings Per Common Share			33
Note 1 6 ~~: Commitments, Contingencies and Credit Risk~~16: Fair Value of Financial Instruments			3834
Note 1 7 ~~: Segment Information~~17: Commitments, Contingencies and Credit Risk			39
Note 1 8 ~~: Revenue~~ Fr ~~om Contracts with Customers~~18: Segment Information			4140
Note 19: Revenue From Contracts with Customers			42
N ote 20: Subsequent Events			43

Table of Contents

ITEM 1 – FINANCIAL STATEMENTS

MIDLAND STATES BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(unaudited)					(unaudited)
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	264,173	$	673,297	Cash and due from banks	$	309,531	$	673,297
Federal funds sold	Federal funds sold	5,944		7,074		Federal funds sold	3,657		7,074
Cash and cash equivalents	Cash and cash equivalents	270,117		680,371		Cash and cash equivalents	313,188		680,371
Investment securities available for sale, at fair value (allowance for credit losses of $0 and $221 at June 30, 2022 and December 31, 2021, respectively)		760,540		906,603
Investment securities available for sale, at fair value (allowance for credit losses of $0 and $221 at September 30, 2022 and December 31, 2021, respectively)						Investment securities available for sale, at fair value (allowance for credit losses of $0 and $221 at September 30, 2022 and December 31, 2021, respectively)	681,889		906,603
Equity securities, at fair value	Equity securities, at fair value	8,738		9,529		Equity securities, at fair value	8,615		9,529
Loans	Loans	5,795,544		5,224,801		Loans	6,198,451		5,224,801
Allowance for credit losses on loans	Allowance for credit losses on loans	(54,898)		(51,062)		Allowance for credit losses on loans	(58,639)		(51,062)
Total loans, net	Total loans, net	5,740,646		5,173,739		Total loans, net	6,139,812		5,173,739
Loans held for sale	Loans held for sale	5,298		32,045		Loans held for sale	4,338		32,045
Premises and equipment, net	Premises and equipment, net	77,668		79,220		Premises and equipment, net	77,519		79,220

Other real estate owned	Other real estate owned	11,131		12,059		Other real estate owned	11,141		12,059
Nonmarketable equity securities	Nonmarketable equity securities	35,701		36,341		Nonmarketable equity securities	39,696		36,341
Accrued interest receivable	Accrued interest receivable	16,552		19,470		Accrued interest receivable	17,537		19,470
Loan servicing rights, at lower of cost or fair value	Loan servicing rights, at lower of cost or fair value	25,879		28,865		Loan servicing rights, at lower of cost or fair value	1,297		28,865
Commercial FHA mortgage loan servicing rights held for sale						Commercial FHA mortgage loan servicing rights held for sale	23,995		—
Goodwill	Goodwill	161,904		161,904		Goodwill	161,904		161,904
Other intangible assets, net	Other intangible assets, net	23,559		24,374		Other intangible assets, net	22,198		24,374
Company-owned life insurance	Company-owned life insurance	148,900		148,378		Company-owned life insurance	149,648		148,378
Other assets	Other assets	149,179		130,907		Other assets	169,100		130,907
Total assets	Total assets	$	7,435,812	$	7,443,805	Total assets	$	7,821,877	$	7,443,805
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	$	1,972,261	$	2,245,701	Noninterest-bearing demand deposits	$	2,025,237	$	2,245,701
Interest-bearing deposits	Interest-bearing deposits	4,212,177		3,864,947		Interest-bearing deposits	4,370,015		3,864,947
Total deposits	Total deposits	6,184,438		6,110,648		Total deposits	6,395,252		6,110,648
Short-term borrowings	Short-term borrowings	67,689		76,803		Short-term borrowings	58,518		76,803
Federal Home Loan Bank advances and other borrowings	Federal Home Loan Bank advances and other borrowings	285,000		310,171		Federal Home Loan Bank advances and other borrowings	360,000		310,171
Subordinated debt	Subordinated debt	139,277		139,091		Subordinated debt	139,370		139,091
Trust preferred debentures	Trust preferred debentures	49,674		49,374		Trust preferred debentures	49,824		49,374

Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	73,546		93,881		Accrued interest payable and other liabilities	79,634		93,881
Total liabilities	Total liabilities	6,799,624		6,779,968		Total liabilities	7,082,598		6,779,968

Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Common stock, $0.01 par value; 40,000,000 shares authorized; 22,060,255 and 22,050,537 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		221		221
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 September 30, 2022						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 September 30, 2022	110,548		—
Common stock, $0.01 par value; 40,000,000 shares authorized; 22,074,740 and 22,050,537 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively						Common stock, $0.01 par value; 40,000,000 shares authorized; 22,074,740 and 22,050,537 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	221		221
Capital surplus	Capital surplus	446,894		445,907		Capital surplus	447,672		445,907
Retained earnings	Retained earnings	242,170		212,472		Retained earnings	259,221		212,472
Accumulated other comprehensive (loss) income, net of tax	Accumulated other comprehensive (loss) income, net of tax	(53,097)		5,237		Accumulated other comprehensive (loss) income, net of tax	(78,383)		5,237
Total shareholders’ equity	Total shareholders’ equity	636,188		663,837		Total shareholders’ equity	739,279		663,837
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,435,812	$	7,443,805	Total liabilities and shareholders’ equity	$	7,821,877	$	7,443,805

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME—(UNAUDITED)

(dollars in thousands, except per share data)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Interest income:	Interest income:									Interest income:
Loans including fees:	Loans including fees:									Loans including fees:
Taxable	Taxable	$	62,943	$	52,490	$	119,529	$	107,044	Taxable	$	72,901	$	52,699	$	192,430	$	159,743
Tax exempt	Tax exempt	514		650		1,062		1,320		Tax exempt	527		615		1,589		1,935
Loans held for sale	Loans held for sale	77		261		297		703		Loans held for sale	60		107		357		810
Investment securities:	Investment securities:									Investment securities:
Taxable	Taxable	4,055		3,451		7,952		6,731		Taxable	3,765		3,396		11,717		10,127
Tax exempt	Tax exempt	692		794		1,534		1,575		Tax exempt	628		899		2,162		2,474
Nonmarketable equity securities	Nonmarketable equity securities	487		609		971		1,289		Nonmarketable equity securities	550		558		1,521		1,847
Federal funds sold and cash investments	Federal funds sold and cash investments	468		142		639		238		Federal funds sold and cash investments	1,125		216		1,764		454
Total interest income	Total interest income	69,236		58,397		131,984		118,900		Total interest income	79,556		58,490		211,540		177,390
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	3,810		2,992		5,971		6,175		Deposits	10,249		2,584		16,220		8,759
Short-term borrowings	Short-term borrowings	22		20		45		44		Short-term borrowings	28		21		73		65
Federal Home Loan Bank advances and other borrowings	Federal Home Loan Bank advances and other borrowings	1,435		2,470		2,647		5,040		Federal Home Loan Bank advances and other borrowings	2,424		1,993		5,071		7,033
Subordinated debt	Subordinated debt	2,011		2,316		4,022		4,683		Subordinated debt	2,010		2,011		6,032		6,694
Trust preferred debentures	Trust preferred debentures	624		489		1,138		980		Trust preferred debentures	821		485		1,959		1,465
Total interest expense	Total interest expense	7,902		8,287		13,823		16,922		Total interest expense	15,532		7,094		29,355		24,016
Net interest income	Net interest income	61,334		50,110		118,161		101,978		Net interest income	64,024		51,396		182,185		153,374
Provision for credit losses:	Provision for credit losses:									Provision for credit losses:
Provision for credit losses on loans	Provision for credit losses on loans	4,741		—		8,873		3,950		Provision for credit losses on loans	6,974		—		15,847		3,950
Provision for credit losses on unfunded commitments	Provision for credit losses on unfunded commitments	700		(265)		956		(800)		Provision for credit losses on unfunded commitments	—		—		956		(800)
Recapture of provision for other credit losses	Recapture of provision for other credit losses	—		(190)		(221)		(40)		Recapture of provision for other credit losses	—		(184)		(221)		(224)
Total provision for credit losses	Total provision for credit losses	5,441		(455)		9,608		3,110		Total provision for credit losses	6,974		(184)		16,582		2,926
Net interest income after provision for credit losses	Net interest income after provision for credit losses	55,893		50,565		108,553		98,868		Net interest income after provision for credit losses	57,050		51,580		165,603		150,448
Noninterest income:	Noninterest income:									Noninterest income:
Wealth management revenue	Wealth management revenue	6,143		6,529		13,282		12,460		Wealth management revenue	6,199		7,175		19,481		19,635

Residential mortgage banking revenue	Residential mortgage banking revenue	384		1,562		983		3,136		Residential mortgage banking revenue	210		1,287		1,193		4,423
Service charges on deposit accounts	Service charges on deposit accounts	2,304		1,916		4,372		3,742		Service charges on deposit accounts	2,597		2,268		6,969		6,010
Interchange revenue	Interchange revenue	3,590		3,797		6,870		7,172		Interchange revenue	3,531		3,651		10,401		10,823
(Loss) gain on sales of investment securities, net	(Loss) gain on sales of investment securities, net	(101)		377		(101)		377		(Loss) gain on sales of investment securities, net	(129)		160		(230)		537
Impairment on commercial mortgage servicing rights	Impairment on commercial mortgage servicing rights	(869)		(1,148)		(1,263)		(2,423)		Impairment on commercial mortgage servicing rights	—		(3,037)		(1,263)		(5,460)
Company-owned life insurance	Company-owned life insurance	840		863		1,859		1,723		Company-owned life insurance	929		869		2,788		2,592
Other income	Other income	2,322		3,521		4,224		6,046		Other income	2,489		2,770		6,713		8,816
Total noninterest income	Total noninterest income	14,613		17,417		30,226		32,233		Total noninterest income	15,826		15,143		46,052		47,376
Noninterest expense:	Noninterest expense:									Noninterest expense:
Salaries and employee benefits	Salaries and employee benefits	22,645		22,071		44,515		42,599		Salaries and employee benefits	22,889		22,175		67,404		64,774
Occupancy and equipment	Occupancy and equipment	3,489		3,796		7,244		7,736		Occupancy and equipment	3,850		3,701		11,094		11,437
Data processing	Data processing	6,082		6,288		11,955		12,281		Data processing	6,093		6,495		18,048		18,776
Professional	Professional	1,516		5,549		3,488		7,734		Professional	1,693		1,738		5,181		9,472
Marketing	Marketing	733		700		1,421		1,177		Marketing	1,026		860		2,447		2,037
Communications	Communications	635		824		1,347		1,646		Communications	587		689		1,934		2,335
Amortization of intangible assets	Amortization of intangible assets	1,318		1,470		2,716		2,985		Amortization of intangible assets	1,361		1,445		4,077		4,430

Federal Home Loan Bank advances prepayment fees	Federal Home Loan Bank advances prepayment fees	—		3,669		—		3,677		Federal Home Loan Bank advances prepayment fees	—		—		—		3,677
Other expense	Other expense	4,921		4,574		9,537		8,185		Other expense	5,997		4,189		15,534		12,374
Total noninterest expense	Total noninterest expense	41,339		48,941		82,223		88,020		Total noninterest expense	43,496		41,292		125,719		129,312
Income before income taxes	Income before income taxes	29,167		19,041		56,556		43,081		Income before income taxes	29,380		25,431		85,936		68,512
Income taxes	Income taxes	7,284		(1,083)		13,924		4,419		Income taxes	5,859		5,883		19,783		10,302
Net income	Net income	$	21,883	$	20,124	$	42,632	$	38,662	Net income	$	23,521	$	19,548	$	66,153	$	58,210
Per common share data:	Per common share data:									Per common share data:
Basic earnings per common share	Basic earnings per common share	$	0.97	$	0.88	$	1.89	$	1.70	Basic earnings per common share	$	1.04	$	0.86	$	2.93	$	2.56
Diluted earnings per common share	Diluted earnings per common share	$	0.97	$	0.88	$	1.89	$	1.69	Diluted earnings per common share	$	1.04	$	0.86	$	2.92	$	2.55
Weighted average common shares outstanding	Weighted average common shares outstanding	22,305,590		22,591,127		22,290,486		22,557,728		Weighted average common shares outstanding	22,338,828		22,520,499		22,306,323		22,544,898
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	22,360,819		22,677,515		22,355,936		22,633,040		Weighted average diluted common shares outstanding	22,390,438		22,577,880		22,367,095		22,613,972

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME—(UNAUDITED)

(dollars in thousands)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net income	Net income	$	21,883	$	20,124	$	42,632	$	38,662	Net income	$	23,521	$	19,548	$	66,153	$	58,210
Other comprehensive loss:
Other comprehensive (loss) income:										Other comprehensive (loss) income:
Investment securities available for sale:	Investment securities available for sale:									Investment securities available for sale:
Unrealized (losses) gains that occurred during the period	Unrealized (losses) gains that occurred during the period	(32,659)		565		(83,435)		(6,176)		Unrealized (losses) gains that occurred during the period	(31,764)		662		(115,199)		(5,514)
Recapture of provision for credit loss expense	Recapture of provision for credit loss expense	—		(190)		(221)		(40)		Recapture of provision for credit loss expense	—		(184)		(221)		(224)
Reclassification adjustment for realized net (gains) losses on sales of investment securities included in net income		101		(377)		101		(377)
Reclassification adjustment for realized net losses (gains) on sales of investment securities included in net income										Reclassification adjustment for realized net losses (gains) on sales of investment securities included in net income	129		(160)		230		(537)
Income tax effect	Income tax effect	8,953		—		22,977		1,813		Income tax effect	8,134		(87)		31,111		1,726
Change in investment securities available for sale, net of tax	Change in investment securities available for sale, net of tax	(23,605)		(2)		(60,578)		(4,780)		Change in investment securities available for sale, net of tax	(23,501)		231		(84,079)		(4,549)
Cash flow hedges:	Cash flow hedges:									Cash flow hedges:
Net unrealized derivative (losses) gains on cash flow hedges	Net unrealized derivative (losses) gains on cash flow hedges	(2,010)		(2,797)		3,095		4,838		Net unrealized derivative (losses) gains on cash flow hedges	(2,501)		729		594		5,567
Reclassification adjustment for gains realized in net income	Reclassification adjustment for gains realized in net income	—		—		—		314		Reclassification adjustment for gains realized in net income	—		—		—		314
Income tax effect	Income tax effect	553		770		(851)		(1,417)		Income tax effect	716		(201)		(135)		(1,618)
Change in cash flow hedges, net of tax	Change in cash flow hedges, net of tax	(1,457)		(2,027)		2,244		3,735		Change in cash flow hedges, net of tax	(1,785)		528		459		4,263
Other comprehensive loss, net of tax		(25,062)		(2,029)		(58,334)		(1,045)
Other comprehensive (loss) income, net of tax										Other comprehensive (loss) income, net of tax	(25,286)		759		(83,620)		(286)
Total comprehensive (loss) income	Total comprehensive (loss) income	$	(3,179)	$	18,095	$	(15,702)	$	37,617	Total comprehensive (loss) income	$	(1,765)	$	20,307	$	(17,467)	$	57,924

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY—(UNAUDITED)

(dollars in thousands, except per share data)


		Common stock		Capital surplus		Retained earnings		Accumulated other comprehensive (loss) income		Total shareholders' equity			Preferred stock		Common stock		Capital surplus		Retained earnings		Accumulated other comprehensive (loss) income		Total shareholders' equity
Balances, March 31, 2022		$	220	$	446,044	$	226,757	$	(28,035)	$	644,986
Balances, June 30, 2022												Balances, June 30, 2022	$	—	$	221	$	446,894	$	242,170	$	(53,097)	$	636,188
Net income	Net income	—		—		21,883		—		21,883		Net income	—		—		—		23,521		—		23,521
Other comprehensive loss	Other comprehensive loss	—		—		—		(25,062)		(25,062)		Other comprehensive loss	—		—		—		—		(25,286)		(25,286)
Issuance of preferred stock, net of offering costs												Issuance of preferred stock, net of offering costs	110,548		—		—		—		—		110,548
Common dividends declared ($0.29 per share)	Common dividends declared ($0.29 per share)	—		—		(6,470)		—		(6,470)		Common dividends declared ($0.29 per share)	—		—		—		(6,470)		—		(6,470)

Share-based compensation expense	Share-based compensation expense	—		519		—		—		519		Share-based compensation expense	—		—		501		—		—		501
Issuance of common stock under employee benefit plans	Issuance of common stock under employee benefit plans	1		331		—		—		332		Issuance of common stock under employee benefit plans	—		—		277		—		—		277
Balances, June 30, 2022		$	221	$	446,894	$	242,170	$	(53,097)	$	636,188
Balances, September 30, 2022												Balances, September 30, 2022	$	110,548	$	221	$	447,672	$	259,221	$	(78,383)	$	739,279

Balances, December 31, 2021	Balances, December 31, 2021	$	221	$	445,907	$	212,472	$	5,237	$	663,837	Balances, December 31, 2021	$	—	$	221	$	445,907	$	212,472	$	5,237	$	663,837
Net income	Net income	—		—		42,632		—		42,632		Net income	—		—		—		66,153		—		66,153
Other comprehensive loss	Other comprehensive loss	—		—		—		(58,334)		(58,334)		Other comprehensive loss	—		—		—		—		(83,620)		(83,620)
Common dividends declared ($0.58 per share)		—		—		(12,934)		—		(12,934)
Issuance of preferred stock, net of offering costs												Issuance of preferred stock, net of offering costs	110,548		—		—		—		—		110,548
Common dividends declared ($0.87 per share)												Common dividends declared ($0.87 per share)	—		—		—		(19,404)		—		(19,404)
Common stock repurchased	Common stock repurchased	(1)		(1,108)		—		—		(1,109)		Common stock repurchased	—		(1)		(1,108)		—		—		(1,109)
Share-based compensation expense	Share-based compensation expense	—		1,046		—		—		1,046		Share-based compensation expense	—		—		1,547		—		—		1,547
Issuance of common stock under employee benefit plans	Issuance of common stock under employee benefit plans	1		1,049		—		—		1,050		Issuance of common stock under employee benefit plans	—		1		1,326		—		—		1,327
Balances, June 30, 2022		$	221	$	446,894	$	242,170	$	(53,097)	$	636,188
Balances, September 30, 2022												Balances, September 30, 2022	$	110,548	$	221	$	447,672	$	259,221	$	(78,383)	$	739,279

Balances, March 31, 2021		$	224	$	454,264	$	168,564	$	12,415	$	635,467
Balances, June 30, 2021												Balances, June 30, 2021	$	—	$	224	$	455,215	$	182,361	$	10,386	$	648,186
Net income	Net income	—		—		20,124		—		20,124		Net income	—		—		—		19,548		—		19,548
Other comprehensive loss		—		—		—		(2,029)		(2,029)
Other comprehensive income												Other comprehensive income	—		—		—		—		759		759
Common dividends declared ($0.28 per share)	Common dividends declared ($0.28 per share)	—		—		(6,327)		—		(6,327)		Common dividends declared ($0.28 per share)	—		—		—		(6,299)		—		(6,299)

Common stock repurchased												Common stock repurchased	—		(2)		(5,238)		—		—		(5,240)
Share-based compensation expense	Share-based compensation expense	—		484		—		—		484		Share-based compensation expense	—		—		438		—		—		438
Issuance of common stock under employee benefit plans	Issuance of common stock under employee benefit plans	—		467		—		—		467		Issuance of common stock under employee benefit plans	—		—		452		—		—		452
Balances, June 30, 2021		$	224	$	455,215	$	182,361	$	10,386	$	648,186
Balances, September 30, 2021												Balances, September 30, 2021	$	—	$	222	$	450,867	$	195,610	$	11,145	$	657,844

Balances, December 31, 2020	Balances, December 31, 2020	$	223	$	453,410	$	156,327	$	11,431	$	621,391	Balances, December 31, 2020	$	—	$	223	$	453,410	$	156,327	$	11,431	$	621,391

Net income	Net income	—		—		38,662		—		38,662		Net income	—		—		—		58,210		—		58,210
Other comprehensive loss	Other comprehensive loss	—		—		—		(1,045)		(1,045)		Other comprehensive loss	—		—		—		—		(286)		(286)
Common dividends declared ($0.56 per share)		—		—		(12,628)		—		(12,628)
Common dividends declared ($0.84 per share)												Common dividends declared ($0.84 per share)	—		—		—		(18,927)		—		(18,927)
Common stock repurchased	Common stock repurchased	(1)		(1,207)		—		—		(1,208)		Common stock repurchased	—		(3)		(6,445)		—		—		(6,448)
Share-based compensation expense	Share-based compensation expense	—		986		—		—		986		Share-based compensation expense	—		—		1,424		—		—		1,424
Issuance of common stock under employee benefit plans	Issuance of common stock under employee benefit plans	2		2,026		—		—		2,028		Issuance of common stock under employee benefit plans	—		2		2,478		—		—		2,480
Balances, June 30, 2021		$	224	$	455,215	$	182,361	$	10,386	$	648,186
Balances, September 30, 2021												Balances, September 30, 2021	$	—	$	222	$	450,867	$	195,610	$	11,145	$	657,844

The accompanying notes are an integral part of the consolidated financial statements.

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MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS—(UNAUDITED)

(dollars in thousands)


		Six months ended June 30,					Nine months ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	42,632	$	38,662	Net income	$	66,153	$	58,210
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	Provision for credit losses	9,608		3,110		Provision for credit losses	16,582		2,926
Depreciation on premises and equipment	Depreciation on premises and equipment	2,445		2,851		Depreciation on premises and equipment	3,665		4,223
Amortization of intangible assets	Amortization of intangible assets	2,716		2,985		Amortization of intangible assets	4,077		4,430
Amortization of operating lease right-of-use asset	Amortization of operating lease right-of-use asset	904		845		Amortization of operating lease right-of-use asset	1,373		1,281
Amortization of loan servicing rights	Amortization of loan servicing rights	1,507		1,708		Amortization of loan servicing rights	2,202		2,497
Share-based compensation expense	Share-based compensation expense	1,046		986		Share-based compensation expense	1,547		1,424
Increase in cash surrender value of life insurance	Increase in cash surrender value of life insurance	(1,671)		(1,723)		Increase in cash surrender value of life insurance	(2,524)		(2,592)
Gain on proceeds from company-owned life insurance	Gain on proceeds from company-owned life insurance	(188)		—		Gain on proceeds from company-owned life insurance	(264)		—
Investment securities amortization, net	Investment securities amortization, net	1,440		2,148		Investment securities amortization, net	1,923		3,141
Loss (gain) on sales of investment securities, net	Loss (gain) on sales of investment securities, net	101		(377)		Loss (gain) on sales of investment securities, net	230		(537)
Loss (gain) on sales of other real estate owned	Loss (gain) on sales of other real estate owned	120		(450)		Loss (gain) on sales of other real estate owned	131		(418)
Impairment on other real estate owned	Impairment on other real estate owned	404		417		Impairment on other real estate owned	743		426
Origination of loans held for sale	Origination of loans held for sale	(100,806)		(317,350)		Origination of loans held for sale	(123,602)		(394,905)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	203,545		494,541		Proceeds from sales of loans held for sale	252,078		634,445
Gain on sale of loans held for sale	Gain on sale of loans held for sale	(799)		(2,728)		Gain on sale of loans held for sale	(1,035)		(3,799)
Impairment on commercial mortgage servicing rights	Impairment on commercial mortgage servicing rights	1,263		2,423		Impairment on commercial mortgage servicing rights	1,263		5,460

Impairment on mortgage servicing rights held for sale						Impairment on mortgage servicing rights held for sale	—		222

Net change in operating assets and liabilities:	Net change in operating assets and liabilities:					Net change in operating assets and liabilities:
Accrued interest receivable	Accrued interest receivable	2,954		922		Accrued interest receivable	1,969		1,502
Other assets	Other assets	(17,160)		(12,094)		Other assets	(37,534)		(21,279)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	4,416		(223)		Accrued expenses and other liabilities	17,095		4,436
Net cash provided by operating activities	Net cash provided by operating activities	154,477		216,653		Net cash provided by operating activities	206,072		301,093
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of investment securities available for sale	Purchases of investment securities available for sale	(99,882)		(206,033)		Purchases of investment securities available for sale	(100,115)		(338,456)
Proceeds from sales of investment securities available for sale	Proceeds from sales of investment securities available for sale	107,740		12,617		Proceeds from sales of investment securities available for sale	136,403		14,777
Maturities and payments on investment securities available for sale	Maturities and payments on investment securities available for sale	53,329		114,808		Maturities and payments on investment securities available for sale	71,305		164,213
Purchases of equity securities	Purchases of equity securities	(379)		(186)		Purchases of equity securities	(441)		(232)

Net (increase) decrease in loans	Net (increase) decrease in loans	(634,229)		212,886		Net (increase) decrease in loans	(1,065,192)		55,487
Purchases of premises and equipment	Purchases of premises and equipment	(928)		(1,000)		Purchases of premises and equipment	(2,088)		(1,853)
Proceeds from sale of premises and equipment	Proceeds from sale of premises and equipment	143		590		Proceeds from sale of premises and equipment	158		646
Purchases of nonmarketable equity securities	Purchases of nonmarketable equity securities	(1,860)		—		Purchases of nonmarketable equity securities	(6,360)		—
Proceeds from sales of nonmarketable equity securities	Proceeds from sales of nonmarketable equity securities	2,500		7,923		Proceeds from sales of nonmarketable equity securities	3,005		14,405

Proceeds from sales of other real estate owned	Proceeds from sales of other real estate owned	505		8,069		Proceeds from sales of other real estate owned	561		9,089
Purchases of company-owned life insurance	Purchases of company-owned life insurance	—		(550)		Purchases of company-owned life insurance	—		(550)
Proceeds from settlements of company-owned life insurance	Proceeds from settlements of company-owned life insurance	1,337		—		Proceeds from settlements of company-owned life insurance	1,518		—
Net cash received (paid) on acquisition	Net cash received (paid) on acquisition	60,275		(2,797)		Net cash received (paid) on acquisition	60,275		(2,715)
Net cash (used in) provided by investing activities		(511,449)		146,327
Net cash used in investing activities						Net cash used in investing activities	(900,971)		(85,189)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net (decrease) increase in deposits		(6,004)		95,335
Net (decrease) increase in short-term borrowings		(9,114)		7,028
Net increase in deposits						Net increase in deposits	204,810		500,360
Net decrease in short-term borrowings						Net decrease in short-term borrowings	(18,285)		(2,291)
Proceeds from FHLB borrowings	Proceeds from FHLB borrowings	700,000		300,000		Proceeds from FHLB borrowings	1,900,000		350,000
Payments made on FHLB borrowings and other borrowings	Payments made on FHLB borrowings and other borrowings	(725,000)		(639,000)		Payments made on FHLB borrowings and other borrowings	(1,850,000)		(689,000)
Payments made on subordinated debt	Payments made on subordinated debt	—		(31,075)		Payments made on subordinated debt	—		(31,075)

Redemption of Series G preferred stock	Redemption of Series G preferred stock	(171)		—		Redemption of Series G preferred stock	(171)		—
Proceeds from Series A preferred stock offering						Proceeds from Series A preferred stock offering	110,548		—
Cash dividends paid on common stock	Cash dividends paid on common stock	(12,934)		(12,628)		Cash dividends paid on common stock	(19,404)		(18,927)
Common stock repurchased	Common stock repurchased	(1,109)		(1,208)		Common stock repurchased	(1,109)		(6,448)
Proceeds from issuance of common stock under employee benefit plans	Proceeds from issuance of common stock under employee benefit plans	1,050		2,028		Proceeds from issuance of common stock under employee benefit plans	1,327		2,480
Net cash used in financing activities		(53,282)		(279,520)
Net cash provided by financing activities						Net cash provided by financing activities	327,716		105,099
Net (decrease) increase in cash and cash equivalents	Net (decrease) increase in cash and cash equivalents	(410,254)		83,460		Net (decrease) increase in cash and cash equivalents	(367,183)		321,003
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Beginning of period	Beginning of period	680,371		341,640		Beginning of period	680,371		341,640
End of period	End of period	$	270,117	$	425,100	End of period	$	313,188	$	662,643
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash payments for:	Cash payments for:					Cash payments for:
Interest paid on deposits and borrowed funds	Interest paid on deposits and borrowed funds	$	13,746	$	17,369	Interest paid on deposits and borrowed funds	$	29,449	$	25,561
Income tax paid, net of refunds	Income tax paid, net of refunds	16,606		12,907		Income tax paid, net of refunds	22,014		(6,648)
Supplemental disclosures of noncash investing and financing activities:	Supplemental disclosures of noncash investing and financing activities:					Supplemental disclosures of noncash investing and financing activities:
Transfer of loans to loans held for sale	Transfer of loans to loans held for sale	74,997		48,494		Transfer of loans to loans held for sale	99,505		123,117
Transfer of loans to other real estate owned	Transfer of loans to other real estate owned	102		485		Transfer of loans to other real estate owned	517		583
Transfer of loan servicing rights, at lower of cost or market to loan servicing rights held for sale						Transfer of loan servicing rights, at lower of cost or market to loan servicing rights held for sale	23,995		—

Pending settlements on securities purchased						Pending settlements on securities purchased	—		(62,923)

The accompanying notes are an integral part of the consolidated financial statements.

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MIDLAND STATES BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(UNAUDITED)

NOTE 1 – BUSINESS DESCRIPTION

Midland States Bancorp, Inc. (the “Company,” “we,” “our,” or “us”) is a diversified financial holding company headquartered in Effingham, Illinois. Our wholly owned banking subsidiary, Midland States Bank (the “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; commercial Federal Housing Administration ("FHA") mortgage loan servicing; residential 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.

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements of the Company are unaudited and should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2022. The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) and conform to predominant practices within the banking industry. A discussion of these policies can be found in Note 1 – Summary of Significant Accounting Policies included in the Company's 2021 Annual Report on Form 10-K. Certain reclassifications of 2021 amounts have been made to conform to the 2022 presentation. Management has evaluated subsequent events for potential recognition or disclosure. Operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other period.

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 are not assets of the Company and, accordingly, other than trust cash on deposit with the Bank, are not included in the accompanying unaudited balance sheets.

Accounting Guidance Issued But Not Yet Adopted

FASB ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting – In March 2020, the FASB issued ASU No. 2020-04 which provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate ~~reform and do~~reform; it does not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, ~~that~~for which an entity has elected certain optional expedients ~~for~~ and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

The Company has been monitoring its volume of commercial loans tied to LIBOR. In 2021, the Company began prioritizing SOFR as the preferred alternative reference rate with plans to cease booking LIBOR based commitments after the end of 2021. Loans with a maturity after June 2023 are being reviewed and monitored to ensure there is appropriate fallback language in place when LIBOR is no longer published. Loans with a maturity date before that time should naturally mature and be re-underwritten with the alternative index rate.

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In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which addresses questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is expected to be modified as a result of reference rate reform, commonly referred to as the "discounting transition". The amendments clarify that certain optional expedients and exceptions in Topic 848 do apply to derivatives that are affected by the discounting transition. The amendments in ASU 2021-01 are effective immediately.

The Company believes the adoption of this guidance on activities subsequent to December 31, 2021 through December 31, 2022 will not have a material impact on the consolidated financial statements.

FASB ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures – In March 2022, the FASB issued ASU No. 2022-02, which 1) eliminates the accounting guidance for troubled debt restructurings ("TDRs") by creditors while enhancing the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty; and 2) requires that an entity disclose current-period gross ~~writeoffs~~write-offs by year of origination for financing receivables and net investments in leases. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022 and the amendments should be applied prospectively, although the entity has the option to apply a modified retrospective transition method for the recognition and measurement of TDRs, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

NOTE 3 – ACQUISITIONS

FNBC Bank & Trust

On June 17, 2022, the Company completed its branch acquisition from FNBC Bank & Trust ("FNBC"), whereby we acquired $79.8 million of deposits and $16.6 million of loans as well as other assets and liabilities associated with FNBC's branches in Mokena and Yorkville, Illinois. The acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identified tangible and intangible assets acquired and liabilities assumed at their estimated acquisition date fair values, while ~~$0.5~~$0.4 million of transaction and integration costs were expensed as incurred.

A summary of the fair value of the assets acquired and liabilities assumed are included in the table below.


(dollars in thousands)	FNBC
Assets acquired:
Cash and cash equivalents	$	60,275
Loans	16,632
Premises and equipment, net	950
Accrued interest receivable	36
Intangible assets	1,901
Total assets acquired	$	79,794
Liabilities assumed:
Deposits	$	79,794
Total liabilities assumed	$	79,794
Intangible assets:
Core deposit intangible	$	1,901
Estimated useful life	10 years

ATG Trust Company

On June 1, 2021, the Company completed its acquisition of substantially all of the trust assets of ATG Trust Company (“ATG Trust”), a trust company based in Chicago, Illinois, with approximately $399.7 million in assets under management. In aggregate, the Company acquired the assets of ATG Trust for $2.7 million in cash. The acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identifiable assets acquired at their estimated acquisition date fair values, while $0.4 million of transaction and integration costs associated with the acquisition ~~have been~~were expensed ~~during~~in 2021.

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NOTE 4 – INVESTMENT SECURITIES

Investment Securities Available for Sale

Investment securities available for sale at ~~June~~September 30, 2022 and December 31, 2021 were as follows:


		June 30, 2022											September 30, 2022
(dollars in thousands)	(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Allowance for credit losses		Fair value		(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Allowance for credit losses		Fair value
Investment securities available for sale	Investment securities available for sale											Investment securities available for sale
U.S. Treasury securities	U.S. Treasury securities	$	68,390	$	—	$	4,394	$	—	$	63,996	U.S. Treasury securities	$	66,369	$	—	$	5,873	$	—	$	60,496
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	33,756		66		3,519		—		30,303		U.S. government sponsored entities and U.S. agency securities	32,267		78		4,480		—		27,865
Mortgage-backed securities - agency	Mortgage-backed securities - agency	480,408		17		56,587		—		423,838		Mortgage-backed securities - agency	469,822		5		78,212		—		391,615
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	26,118		—		3,341		—		22,777		Mortgage-backed securities - non-agency	25,341		—		4,183		—		21,158
State and municipal securities	State and municipal securities	113,920		525		7,757		—		106,688��		State and municipal securities	105,838		128		10,905		—		95,061
Corporate securities	Corporate securities	119,374		56		6,492		—		112,938		Corporate securities	95,313		—		9,619		—		85,694
Total available for sale securities	Total available for sale securities	$	841,966	$	664	$	82,090	$	—	$	760,540	Total available for sale securities	$	794,950	$	211	$	113,272	$	—	$	681,889


	December 31, 2021
(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Allowance for credit losses		Fair value
Investment securities available for sale
U.S. Treasury securities	$	65,347	$	—	$	430	$	—	$	64,917
U.S. government sponsored entities and U.S. agency securities	34,569		79		831		—		33,817
Mortgage-backed securities - agency	444,484		2,687		6,901		—		440,270
Mortgage-backed securities - non-agency	29,037		50		381		—		28,706
State and municipal securities	137,904		5,561		366		—		143,099
Corporate securities	193,354		3,128		467		221		195,794
Total available for sale securities	$	904,695	$	11,505	$	9,376	$	221	$	906,603

The following is a summary of the amortized cost and fair value of the investment securities available for sale, by maturity, at ~~June~~September 30, 2022. Expected maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be prepaid without penalties. The maturities of all other investment securities available for sale are based on final contractual maturity.


(dollars in thousands)	(dollars in thousands)	Amortized cost		Fair value		(dollars in thousands)	Amortized cost		Fair value
Investment securities available for sale	Investment securities available for sale					Investment securities available for sale
Within one year	Within one year	$	12,828	$	12,898	Within one year	$	9,766	$	9,793
After one year through five years	After one year through five years	134,666		127,807		After one year through five years	123,074		113,574
After five years through ten years	After five years through ten years	156,446		145,497		After five years through ten years	135,520		119,588
After ten years	After ten years	31,500		27,723		After ten years	31,427		26,161
Mortgage-backed securities	Mortgage-backed securities	506,526		446,615		Mortgage-backed securities	495,163		412,773
Total available for sale securities	Total available for sale securities	$	841,966	$	760,540	Total available for sale securities	$	794,950	$	681,889

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Proceeds and gross realized gains on sales of investment securities available for sale for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, are summarized as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Investment securities available for sale	Investment securities available for sale									Investment securities available for sale
Proceeds from sales	Proceeds from sales	$	107,740	$	12,617	$	107,740	$	12,617	Proceeds from sales	$	28,663	$	2,160	$	136,403	$	14,777
Gross realized gains on sales	Gross realized gains on sales	716		377		716		377		Gross realized gains on sales	113		160		829		537
Gross realized losses on sales	Gross realized losses on sales	(817)		—		(817)		—		Gross realized losses on sales	(242)		—		(1,059)		—

The table below presents a rollforward by security type for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 of the allowance for credit losses on investment securities available for sale held at period end:


(dollars in thousands)	(dollars in thousands)	Mortgage-backed securities - non-agency		State and municipal securities		Corporate securities		Total		(dollars in thousands)	Mortgage-backed securities - non-agency		State and municipal securities		Corporate securities		Total
Changes in allowance for credit losses on investment securities available for sale:	Changes in allowance for credit losses on investment securities available for sale:									Changes in allowance for credit losses on investment securities available for sale:
For the three months ended June 30, 2022
For the three months ended September 30, 2022										For the three months ended September 30, 2022
Balance, beginning of period	Balance, beginning of period	$	—	$	—	$	—	$	—	Balance, beginning of period	$	—	$	—	$	—	$	—
Current-period provision for expected credit losses	Current-period provision for expected credit losses	—		—		—		—		Current-period provision for expected credit losses	—		—		—		—
Balance, end of period	Balance, end of period	$	—	$	—	$	—	$	—	Balance, end of period	$	—	$	—	$	—	$	—
For the six months ended June 30, 2022
For the nine months ended September 30, 2022										For the nine months ended September 30, 2022
Balance, beginning of period	Balance, beginning of period	$	—	$	—	$	221	$	221	Balance, beginning of period	$	—	$	—	$	221	$	221
Current-period provision for expected credit losses	Current-period provision for expected credit losses	—		—		(221)		(221)		Current-period provision for expected credit losses	—		—		(221)		(221)
Balance, end of period	Balance, end of period	$	—	$	—	$	—	$	—	Balance, end of period	$	—	$	—	$	—	$	—
For the three months ended June 30, 2021
For the three months ended September 30, 2021										For the three months ended September 30, 2021
Balance, beginning of period	Balance, beginning of period	$	28	$	28	$	460	$	516	Balance, beginning of period	$	113	$	—	$	213	$	326
Current-period provision for expected credit losses	Current-period provision for expected credit losses	85		(28)		(247)		(190)		Current-period provision for expected credit losses	(113)		—		(71)		(184)
Balance, end of period	Balance, end of period	$	113	$	—	$	213	$	326	Balance, end of period	$	—	$	—	$	142	$	142
For the six months ended June 30, 2021
For the nine months ended September 30, 2021										For the nine months ended September 30, 2021
Balance, beginning of period	Balance, beginning of period	$	—	$	29	$	337	$	366	Balance, beginning of period	$	—	$	29	$	337	$	366
Current-period provision for expected credit losses	Current-period provision for expected credit losses	113		(29)		(124)		(40)		Current-period provision for expected credit losses	—		(29)		(195)		(224)
Balance, end of period	Balance, end of period	$	113	$	—	$	213	$	326	Balance, end of period	$	—	$	—	$	142	$	142

Unrealized losses and fair values for investment securities available for sale as of ~~June~~September 30, 2022 and December 31, 2021, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as follows:


		June 30, 2022													September 30, 2022
		Less than 12 Months				12 Months or more				Total					Less than 12 Months				12 Months or more				Total
(dollars in thousands)	(dollars in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss		(dollars in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss
Investment securities available for sale	Investment securities available for sale													Investment securities available for sale
U.S. Treasury securities	U.S. Treasury securities	$	63,996	$	4,394	$	—	$	—	$	63,996	$	4,394	U.S. Treasury securities	$	37,689	$	3,305	$	22,807	$	2,568	$	60,496	$	5,873
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	13,042		1,296		12,777		2,223		25,819		3,519		U.S. government sponsored entities and U.S. agency securities	333		19		23,289		4,461		23,622		4,480
Mortgage-backed securities - agency	Mortgage-backed securities - agency	319,343		35,977		103,015		20,610		422,358		56,587		Mortgage-backed securities - agency	168,562		21,838		222,652		56,374		391,214		78,212
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	17,947		2,297		4,830		1,044		22,777		3,341		Mortgage-backed securities - non-agency	6,228		879		14,930		3,304		21,158		4,183
State and municipal securities	State and municipal securities	58,112		6,667		6,118		1,090		64,230		7,757		State and municipal securities	56,578		5,879		22,193		5,026		78,771		10,905
Corporate securities	Corporate securities	100,250		6,383		2,869		109		103,119		6,492		Corporate securities	57,401		4,767		28,293		4,852		85,694		9,619
Total available for sale securities	Total available for sale securities	$	572,690	$	57,014	$	129,609	$	25,076	$	702,299	$	82,090	Total available for sale securities	$	326,791	$	36,687	$	334,164	$	76,585	$	660,955	$	113,272

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	December 31, 2021
	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. Treasury securities	$	64,917	$	430	$	—	$	—	$	64,917	$	430
U.S. government sponsored entities and U.S. agency securities	17,487		263		9,432		568		26,919		831
Mortgage-backed securities - agency	317,372		6,633		9,051		268		326,423		6,901
Mortgage-backed securities - non-agency	24,095		381		—		—		24,095		381
State and municipal securities	27,324		270		2,538		96		29,862		366
Corporate securities	—		—		—		—		—		—
Total available for sale securities	$	451,195	$	7,977	$	21,021	$	932	$	472,216	$	8,909

At September 30, 2022, 393 investment securities available for sale had unrealized losses with aggregate depreciation of 14.63% from their amortized cost basis. For all of the above investment securities, the unrealized losses were generally due to changes in interest rates, and unrealized losses were considered to be temporary as the fair value is expected to recover as the securities approach their respective maturity dates.

~~At June 30, 2022, 326 investment~~ The issuers are of high credit quality and all principal amounts are expected to be paid when securities available for sale had unrealized losses with aggregate depreciation of 10.47% from their amortized cost basis. The unrealized losses related principally to the fluctuations in the current interest rate environment. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies and whether downgrades by bond rating agencies have occurred.mature. 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.

Equity Securities

Equity securities are recorded at fair value and totaled ~~$8.7~~$8.6 million and $9.5 million at ~~June~~September 30, 2022 and December 31, 2021, respectively.

During both the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, there were no sales of equity securities. Net unrealized gains and losses on equity securities for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 are summarized below:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Equity securities	Equity securities									Equity securities

Net unrealized (losses) gains	Net unrealized (losses) gains	$	(425)	$	145	$	(947)	$	226	Net unrealized (losses) gains	$	(118)	$	112	$	(1,065)	$	338

Net unrealized gains and losses on equity securities were recorded in other income in the consolidated statements of income.

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NOTE 5 – LOANS

The following table presents total loans outstanding by portfolio class, as of ~~June~~September 30, 2022 and December 31, 2021:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Commercial:	Commercial:					Commercial:
Commercial	Commercial	$	747,782	$	770,670	Commercial	$	852,930	$	770,670
Commercial other	Commercial other	643,476		679,518		Commercial other	683,353		679,518
Commercial real estate:	Commercial real estate:					Commercial real estate:
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	1,480,030		1,105,333		Commercial real estate non-owner occupied	1,567,308		1,105,333
Commercial real estate owner occupied	Commercial real estate owner occupied	524,587		469,658		Commercial real estate owner occupied	505,174		469,658
Multi-family	Multi-family	265,749		171,875		Multi-family	328,473		171,875
Farmland	Farmland	65,289		69,962		Farmland	65,348		69,962
Construction and land development	Construction and land development	203,955		193,749		Construction and land development	225,549		193,749
Total commercial loans	Total commercial loans	3,930,868		3,460,765		Total commercial loans	4,228,135		3,460,765
Residential real estate:	Residential real estate:					Residential real estate:
Residential first lien	Residential first lien	279,628		274,412		Residential first lien	294,432		274,412
Other residential	Other residential	60,475		63,739		Other residential	61,793		63,739
Consumer:	Consumer:					Consumer:
Consumer	Consumer	98,558		106,008		Consumer	110,226		106,008
Consumer other	Consumer other	986,813		896,597		Consumer other	1,046,254		896,597
Lease financing	Lease financing	439,202		423,280		Lease financing	457,611		423,280
Total loans, gross	Total loans, gross	$	5,795,544	$	5,224,801	Total loans, gross	$	6,198,451	$	5,224,801

Total loans include net deferred loan costs of ~~$3.8~~$4.2 million and $4.6 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, and unearned discounts of ~~$49.7~~$54.0 million and $46.1 million within the lease financing portfolio at ~~June~~September 30, 2022 and December 31, 2021, respectively.

At ~~June~~September 30, 2022, the Company had residential real estate loans held for sale totaling ~~$5.3~~$4.3 million, compared to commercial real estate and residential real estate loans held for sale totaling $32.0 million at December 31, 2021. The Company sold commercial real estate, residential real estate and consumer loans with proceeds totaling ~~$100.4~~$48.5 million and ~~$203.5~~$252.1 million during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and ~~$161.9~~$139.9 million and ~~$494.5~~$634.4 million during the comparable periods in 2021, respectively.

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. Paycheck Protection Program ("PPP") loans of ~~$6.4~~$2.8 million and $52.5 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively, and commercial FHA warehouse lines of ~~$23.9~~$51.3 million and $91.9 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively, were included in this classification.

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

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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.

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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 equipment leasing business provides financing leases to varying types of businesses, nationwide, for purchases of business equipment and software. The financing is secured by a first priority interest in the financed 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 ~~normal~~substantially the same terms, including collateralization and interest rates prevailing at the time. The aggregate loans outstanding to the Company's directors, executive officers, principal shareholders and their affiliates totaled ~~$23.1~~$20.0 million and $13.9 million at ~~June~~September 30, 2022 and December 31, 2021, respectively. The new loans, other additions, repayments and other reductions for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, are summarized as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Beginning balance	Beginning balance	$	23,374	$	19,372	$	13,869	$	19,693	Beginning balance	$	23,097	$	18,762	$	13,869	$	19,693
New loans and other additions	New loans and other additions	—		404		9,805		1,024		New loans and other additions	—		21		9,804		1,045
Repayments and other reductions	Repayments and other reductions	(277)		(1,014)		(577)		(1,955)		Repayments and other reductions	(3,081)		(3,424)		(3,657)		(5,379)
Ending balance	Ending balance	$	23,097	$	18,762	$	23,097	$	18,762	Ending balance	$	20,016	$	15,359	$	20,016	$	15,359

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The following table represents, by loan portfolio segment, a summary of changes in the allowance for credit losses on loans for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Commercial Loan Portfolio						Other Loan Portfolio									Commercial Loan Portfolio						Other Loan Portfolio
(dollars in thousands)	(dollars in thousands)	Commercial		Commercial real estate		Construction and land development		Residential real estate		Consumer		Lease financing		Total		(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 three months ended June 30, 2022:
Changes in allowance for credit losses on loans for the three months ended September 30, 2022:																Changes in allowance for credit losses on loans for the three months ended September 30, 2022:
Balance, beginning of period	Balance, beginning of period	$	12,621	$	26,277	$	816	$	3,288	$	2,672	$	7,264	$	52,938	Balance, beginning of period	$	12,748	$	27,874	$	1,101	$	3,416	$	2,994	$	6,765	$	54,898
Provision for credit losses on loans	Provision for credit losses on loans	(111)		4,284		279		133		415		(259)		4,741		Provision for credit losses on loans	3,226		1,787		472		852		606		31		6,974
Charge-offs	Charge-offs	(60)		(2,625)		—		(46)		(191)		(499)		(3,421)		Charge-offs	(1,655)		(1,232)		—		(166)		(316)		(485)		(3,854)
Recoveries	Recoveries	298		(62)		6		41		98		259		640		Recoveries	45		1		18		69		121		367		621
Balance, end of period	Balance, end of period	$	12,748	$	27,874	$	1,101	$	3,416	$	2,994	$	6,765	$	54,898	Balance, end of period	$	14,364	$	28,430	$	1,591	$	4,171	$	3,405	$	6,678	$	58,639

Changes in allowance for credit losses on loans for the six months ended June 30, 2022:
Changes in allowance for credit losses on loans for the nine months ended September 30, 2022:																Changes in allowance for credit losses on loans for the nine months ended September 30, 2022:
Balance, beginning of period	Balance, beginning of period	$	14,375	$	22,993	$	972	$	2,695	$	2,558	$	7,469	$	51,062	Balance, beginning of period	$	14,375	$	22,993	$	972	$	2,695	$	2,558	$	7,469	$	51,062
Provision for credit losses on loans	Provision for credit losses on loans	278		7,728		123		717		672		(645)		8,873		Provision for credit losses on loans	3,504		9,515		595		1,569		1,278		(614)		15,847
Charge-offs	Charge-offs	(2,214)		(2,852)		(6)		(150)		(496)		(705)		(6,423)		Charge-offs	(3,869)		(4,084)		(6)		(315)		(812)		(1,190)		(10,276)
Recoveries	Recoveries	309		5		12		154		260		646		1,386		Recoveries	354		6		30		222		381		1,013		2,006
Balance, end of period	Balance, end of period	$	12,748	$	27,874	$	1,101	$	3,416	$	2,994	$	6,765	$	54,898	Balance, end of period	$	14,364	$	28,430	$	1,591	$	4,171	$	3,405	$	6,678	$	58,639

Changes in allowance for credit losses on loans for the three months ended June 30, 2021:
Changes in allowance for credit losses on loans for the three months ended September 30, 2021:																Changes in allowance for credit losses on loans for the three months ended September 30, 2021:
Balance, beginning of period	Balance, beginning of period	$	17,339	$	31,821	$	1,239	$	3,981	$	2,271	$	6,036	$	62,687	Balance, beginning of period	$	14,849	$	30,718	$	1,733	$	3,683	$	2,292	$	5,389	$	58,664
Provision for credit losses on loans	Provision for credit losses on loans	5		(168)		414		(177)		84		(158)		—		Provision for credit losses on loans	(75)		(2,105)		(538)		(697)		292		3,123		—
Charge-offs	Charge-offs	(2,634)		(946)		(1)		(141)		(218)		(516)		(4,456)		Charge-offs	(317)		(1,663)		(138)		(35)		(280)		(1,227)		(3,660)
Recoveries	Recoveries	139		11		81		20		155		27		433		Recoveries	134		3		74		66		93		301		671
Balance, end of period	Balance, end of period	$	14,849	$	30,718	$	1,733	$	3,683	$	2,292	$	5,389	$	58,664	Balance, end of period	$	14,591	$	26,953	$	1,131	$	3,017	$	2,397	$	7,586	$	55,675

Changes in allowance for credit losses on loans for the six months ended June 30, 2021:
Changes in allowance for credit losses on loans for the nine months ended September 30, 2021:																Changes in allowance for credit losses on loans for the nine months ended September 30, 2021:
Balance, beginning of period	Balance, beginning of period	$	19,851	$	25,465	$	1,433	$	3,929	$	2,338	$	7,427	$	60,443	Balance, beginning of period	$	19,851	$	25,465	$	1,433	$	3,929	$	2,338	$	7,427	$	60,443

Provision for credit losses on loans	Provision for credit losses on loans	(2,016)		6,959		425		(109)		137		(1,446)		3,950		Provision for credit losses on loans	(2,091)		4,854		(113)		(806)		429		1,677		3,950
Charge-offs	Charge-offs	(3,140)		(1,719)		(272)		(251)		(460)		(769)		(6,611)		Charge-offs	(3,457)		(3,382)		(410)		(286)		(740)		(1,996)		(10,271)
Recoveries	Recoveries	154		13		147		114		277		177		882		Recoveries	288		16		221		180		370		478		1,553
Balance, end of period	Balance, end of period	$	14,849	$	30,718	$	1,733	$	3,683	$	2,292	$	5,389	$	58,664	Balance, end of period	$	14,591	$	26,953	$	1,131	$	3,017	$	2,397	$	7,586	$	55,675

The Company utilizes a combination of models which measure probability of default and loss given default methodology 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 forecasting method for the equipment financing portfolio assumes a rolling ~~twelve month~~twelve-month average of the through-the-cycle default ~~mean,~~rate, to predict default rates for the twelve month time horizon.

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

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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.

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 risk characteristics

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with other loans in the pool. The following table presents amortized cost basis of individually evaluated loans on nonaccrual status as of ~~June~~September 30, 2022 and December 31, 2021:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
(dollars in thousands)	(dollars in thousands)	Nonaccrual with allowance		Nonaccrual with no allowance		Total nonaccrual		Nonaccrual with allowance		Nonaccrual with no allowance		Total nonaccrual		(dollars in thousands)	Nonaccrual with allowance		Nonaccrual with no allowance		Total nonaccrual		Nonaccrual with allowance		Nonaccrual with no allowance		Total nonaccrual
Commercial:	Commercial:													Commercial:
Commercial	Commercial	$	4,528	$	2,275	$	6,803	$	4,681	$	2,275	$	6,956	Commercial	$	4,179	$	508	$	4,687	$	4,681	$	2,275	$	6,956
Commercial other	Commercial other	2,950		—		2,950		4,467		—		4,467		Commercial other	2,104		—		2,104		4,467		—		4,467
Commercial real estate:	Commercial real estate:													Commercial real estate:
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	1,848		19,003		20,851		1,914		9,912		11,826		Commercial real estate non-owner occupied	1,590		12,118		13,708		1,914		9,912		11,826
Commercial real estate owner occupied	Commercial real estate owner occupied	2,627		1,340		3,967		2,164		1,340		3,504		Commercial real estate owner occupied	2,882		1,340		4,222		2,164		1,340		3,504
Multi-family	Multi-family	177		9,056		9,233		201		1,967		2,168		Multi-family	164		9,003		9,167		201		1,967		2,168
Farmland	Farmland	150		—		150		155		—		155		Farmland	25		—		25		155		—		155
Construction and land development	Construction and land development	251		—		251		83		—		83		Construction and land development	245		—		245		83		—		83
Total commercial loans	Total commercial loans	12,531		31,674		44,205		13,665		15,494		29,159		Total commercial loans	11,189		22,969		34,158		13,665		15,494		29,159
Residential real estate:	Residential real estate:													Residential real estate:
Residential first lien	Residential first lien	3,685		639		4,324		3,116		832		3,948		Residential first lien	2,884		633		3,517		3,116		832		3,948
Other residential	Other residential	933		—		933		836		—		836		Other residential	798		—		798		836		—		836
Consumer:	Consumer:													Consumer:
Consumer	Consumer	97		—		97		110		—		110		Consumer	72		—		72		110		—		110

Lease financing	Lease financing	1,399		—		1,399		1,510		—		1,510		Lease financing	1,506		—		1,506		1,510		—		1,510
Total loans	Total loans	$	18,645	$	32,313	$	50,958	$	19,237	$	16,326	$	35,563	Total loans	$	16,449	$	23,602	$	40,051	$	19,237	$	16,326	$	35,563

There was no interest income recognized on nonaccrual loans during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 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 ~~$0.5~~$0.8 million and ~~$1.3~~$1.9 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and ~~$0.7~~$0.6 million and ~~$1.4~~$2.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

Collateral Dependent Financial Assets

A collateral dependent financial loan 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

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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.

The table below presents the value of individually evaluated, collateral dependent loans by loan class, for borrowers experiencing financial difficulty, as of ~~June~~September 30, 2022 and December 31, 2021:


		Type of Collateral						Type of Collateral
(dollars in thousands)	(dollars in thousands)	Real Estate		Blanket Lien		Equipment			Total		(dollars in thousands)	Real Estate		Blanket Lien		Equipment		Total
June 30, 2022
Commercial
September 30, 2022											September 30, 2022
Commercial:											Commercial:
Commercial	Commercial	$	—	$	4,890	$	—		$	4,890	Commercial	$	—	$	3,244	$	—	$	3,244
Commercial other	Commercial other	—		—		—			—		Commercial other	—		—		278		278
Commercial real estate
Commercial real estate:											Commercial real estate:
Non-owner occupied											Non-owner occupied	12,655		—		—		12,655
Owner occupied											Owner occupied	1,336		—		—		1,336
Multi-family											Multi-family	1,873		—		—		1,873

Lease financing											Lease financing	—		—		110		110
Total collateral dependent loans											Total collateral dependent loans	$	15,864	$	3,244	$	388	$	19,496

December 31, 2021											December 31, 2021
Commercial:											Commercial:
Commercial											Commercial	$	—	$	5,402	$	—	$	5,402
Commercial other											Commercial other	—		—		502		502
Commercial real estate:											Commercial real estate:
Non-owner occupied	Non-owner occupied	20,062		—		—			20,062		Non-owner occupied	11,604		—		—		11,604
Owner occupied	Owner occupied	1,336		—		—			1,336		Owner occupied	1,336		—		—		1,336
Multi-family	Multi-family	1,905		—		—			1,905		Multi-family	1,969		—		—		1,969

Total collateral dependent loans	Total collateral dependent loans	$	23,303	$	4,890	$	—		$	28,193	Total collateral dependent loans	$	14,909	$	5,402	$	502	$	20,813

December 31, 2021
Commercial
Commercial		$	—	$	5,402	$	—		$	5,402
Commercial other		—		—		502			502
Commercial real estate
Non-owner occupied		11,604		—		—			11,604
Owner occupied		1,336		—		—			1,336
Multi-family		1,969		—		—			1,969

Total collateral dependent loans		$	14,909	$	5,402	$	502		$	20,813

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The aging status of the recorded investment in loans by portfolio as of ~~June~~September 30, 2022 was as follows:


		Accruing loans															Accruing loans
(dollars in thousands)	(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		(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:															Commercial:
Commercial	Commercial	$	143	$	92	$	—	$	235	$	6,803	$	740,744	$	747,782	Commercial	$	7,609	$	518	$	—	$	8,127	$	4,687	$	840,116	$	852,930
Commercial other	Commercial other	3,136		2,425		—		5,561		2,950		634,965		643,476		Commercial other	3,510		2,189		281		5,980		2,104		675,269		683,353
Commercial real estate:	Commercial real estate:															Commercial real estate:
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	741		26		—		767		20,851		1,458,412		1,480,030		Commercial real estate non-owner occupied	771		265		—		1,036		13,708		1,552,564		1,567,308
Commercial real estate owner occupied	Commercial real estate owner occupied	76		338		—		414		3,967		520,206		524,587		Commercial real estate owner occupied	481		—		—		481		4,222		500,471		505,174
Multi-family	Multi-family	162		—		—		162		9,233		256,354		265,749		Multi-family	—		—		—		—		9,167		319,306		328,473
Farmland	Farmland	190		—		—		190		150		64,949		65,289		Farmland	88		—		—		88		25		65,235		65,348
Construction and land development	Construction and land development	—		—		—		—		251		203,704		203,955		Construction and land development	—		—		—		—		245		225,304		225,549
Total commercial loans	Total commercial loans	4,448		2,881		—		7,329		44,205		3,879,334		3,930,868		Total commercial loans	12,459		2,972		281		15,712		34,158		4,178,265		4,228,135
Residential real estate:	Residential real estate:															Residential real estate:
Residential first lien	Residential first lien	64		318		—		382		4,324		274,922		279,628		Residential first lien	30		209		77		316		3,517		290,599		294,432
Other residential	Other residential	109		41		—		150		933		59,392		60,475		Other residential	197		50		—		247		798		60,748		61,793
Consumer:	Consumer:															Consumer:
Consumer	Consumer	121		6		—		127		97		98,334		98,558		Consumer	109		50		—		159		72		109,995		110,226
Consumer other	Consumer other	3,711		2,258		—		5,969		—		980,844		986,813		Consumer other	5,020		3,159		142		8,321		—		1,037,933		1,046,254
Lease financing	Lease financing	1,654		601		—		2,255		1,399		435,548		439,202		Lease financing	3,033		987		193		4,213		1,506		451,892		457,611
Total loans	Total loans	$	10,107	$	6,105	$	—	$	16,212	$	50,958	$	5,728,374	$	5,795,544	Total loans	$	20,848	$	7,427	$	693	$	28,968	$	40,051	$	6,129,432	$	6,198,451

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The aging status of the recorded investment in loans by portfolio as of December 31, 2021 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	$	283	$	1,082	$	—	$	1,365	$	6,956	$	762,349	$	770,670
Commercial other	2,402		2,110		5		4,517		4,467		670,534		679,518
Commercial real estate:
Commercial real estate non-owner occupied	585		243		—		828		11,826		1,092,679		1,105,333
Commercial real estate owner occupied	232		730		—		962		3,504		465,192		469,658
Multi-family	—		—		—		—		2,168		169,707		171,875
Farmland	—		26		—		26		155		69,781		69,962
Construction and land development	195		195		—		390		83		193,276		193,749
Total commercial loans	3,697		4,386		5		8,088		29,159		3,423,518		3,460,765
Residential real estate:
Residential first lien	113		285		—		398		3,948		270,066		274,412
Other residential	456		151		—		607		836		62,296		63,739
Consumer:
Consumer	127		20		—		147		110		105,751		106,008
Consumer other	4,423		2,358		1		6,782		—		889,815		896,597
Lease financing	1,253		245		—		1,498		1,510		420,272		423,280
Total loans	$	10,069	$	7,445	$	6	$	17,520	$	35,563	$	5,171,718	$	5,224,801

Troubled Debt Restructurings ("TDRs")

Loans modified as TDRs for commercial and commercial real estate loans generally consist of allowing commercial borrowers to defer scheduled principal payments and make interest only payments for a specified period of time at the stated interest rate of the original loan agreement or lower payments due to a modification of the loans’ contractual terms. TDRs are transferred to nonaccrual status when it is probable that any remaining principal and interest payments due on the loan will not be collected in accordance with the contractual terms of the loan. TDRs that subsequently default are individually evaluated for impairment at the time of default. The outstanding balance of modifications made as a result of COVID, that were not considered TDRs under the ~~Cornavirus~~Coronavirus Aid, Relief, and Economic Security Act, as amended by Section 541 of the Consolidated Appropriations Act, were $0 at September 30, 2022 and totaled $13.3 million at December 31, 2021. ~~There were no such TDRs at June 30, 2022.~~

The Company’s TDRs are identified on a case-by-case basis in connection with the ongoing loan collection processes. The following table presents TDRs by loan portfolio as of ~~June~~September 30, 2022 and December 31, 2021:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
(dollars in thousands)	(dollars in thousands)	Accruing (1)		Non-accrual (2)		Total		Accruing (1)		Non-accrual (2)		Total		(dollars in thousands)	Accruing (1)		Non-accrual (2)		Total		Accruing (1)		Non-accrual (2)		Total
Commercial	Commercial	$	1,826	$	550	$	2,376	$	833	$	1,422	$	2,255	Commercial	$	1,727	$	511	$	2,238	$	833	$	1,422	$	2,255
Commercial real estate	Commercial real estate	115		2,851		2,966		1,522		3,302		4,824		Commercial real estate	113		2,627		2,740		1,522		3,302		4,824
Construction and land development	Construction and land development	32		—		32		37		—		37		Construction and land development	29		—		29		37		—		37
Residential real estate	Residential real estate	2,917		1,188		4,105		3,128		784		3,912		Residential real estate	3,384		702		4,086		3,128		784		3,912
Consumer	Consumer	157		—		157		98		—		98		Consumer	59		—		59		98		—		98
Lease financing	Lease financing	878		84		962		1,394		241		1,635		Lease financing	824		21		845		1,394		241		1,635
Total loans	Total loans	$	5,925	$	4,673	$	10,598	$	7,012	$	5,749	$	12,761	Total loans	$	6,136	$	3,861	$	9,997	$	7,012	$	5,749	$	12,761

(1)These loans are still accruing interest.

(2)These loans are included in non-accrual loans in the preceding tables.

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The allowance for credit losses on TDRs totaled $0.5 million and $0.7 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively. The Company had no unfunded commitments in connection with TDRs at ~~June~~September 30, 2022 and December 31, 2021.

The following table presents a summary of loans by portfolio that were restructured during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. There were no loans modified as TDRs within the previous twelve months that subsequently defaulted during the three and ~~six~~nine months ended ~~June~~September 30, 2022 or 2021:


		Commercial loan portfolio						Other loan portfolio									Commercial loan portfolio						Other loan portfolio
(dollars in thousands)	(dollars in thousands)	Commercial		Commercial real estate		Construction and land development		Residential real estate		Consumer		Lease financing		Total		(dollars in thousands)	Commercial		Commercial real estate		Construction and land development		Residential real estate		Consumer		Lease financing		Total
For the three months ended June 30, 2022
For the three months ended September 30, 2022																For the three months ended September 30, 2022
Troubled debt restructurings:	Troubled debt restructurings:															Troubled debt restructurings:
Number of loans	Number of loans	2		1		—		2		1		—		6		Number of loans	—		—		—		2		—		—		2
Pre-modification outstanding balance	Pre-modification outstanding balance	$	705	$	6	$	—	$	176	$	66	$	—	$	953	Pre-modification outstanding balance	$	—	$	—	$	—	$	56	$	—	$	—	$	56
Post-modification outstanding balance	Post-modification outstanding balance	705		6		—		176		66		—		953		Post-modification outstanding balance	—		—		—		56		—		—		56

For the six months ended June 30, 2022
For the nine months ended September 30, 2022																For the nine months ended September 30, 2022
Troubled debt restructurings:	Troubled debt restructurings:															Troubled debt restructurings:
Number of loans	Number of loans	4		1		—		5		3		2		15		Number of loans	4		1		—		7		3		2		17
Pre-modification outstanding balance	Pre-modification outstanding balance	$	1,324	$	6	$	—	$	204	$	107	$	84	$	1,725	Pre-modification outstanding balance	$	1,324	$	6	$	—	$	260	$	107	$	84	$	1,781
Post-modification outstanding balance	Post-modification outstanding balance	1,324		6		—		204		105		84		1,723		Post-modification outstanding balance	1,324		6		—		260		105		84		1,779

For the three months ended June 30, 2021
For the three months ended September 30, 2021																For the three months ended September 30, 2021
Troubled debt restructurings:	Troubled debt restructurings:															Troubled debt restructurings:
Number of loans	Number of loans	5		1		—		1		1		1		9		Number of loans	2		1		—		—		—		3		6
Pre-modification outstanding balance	Pre-modification outstanding balance	$	609	$	1,432	$	—	$	136	$	19	$	505	$	2,701	Pre-modification outstanding balance	$	114	$	152	$	—	$	—	$	—	$	234	$	500
Post-modification outstanding balance	Post-modification outstanding balance	609		1,432		—		139		19		505		2,704		Post-modification outstanding balance	114		130		—		—		—		234		478

For the six months ended June 30, 2021
For the nine months ended September 30, 2021																For the nine months ended September 30, 2021
Troubled debt restructurings:	Troubled debt restructurings:															Troubled debt restructurings:
Number of loans	Number of loans	5		1		1		3		3		1		14		Number of loans	7		2		1		3		3		4		20
Pre-modification outstanding balance	Pre-modification outstanding balance	$	609	$	1,432	$	49	$	191	$	50	$	505	$	2,836	Pre-modification outstanding balance	$	723	$	1,584	$	49	$	191	$	50	$	739	$	3,336
Post-modification outstanding balance	Post-modification outstanding balance	609		1,432		40		195		50		505		2,831		Post-modification outstanding balance	723		1,562		40		195		50		739		3,309

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 4four main regions, which include eastern, northern and southern Illinois and the St. Louis metropolitan area. 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.

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.

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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.

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The following tables present the recorded investment of the commercial loan portfolio by risk category as of ~~June~~September 30, 2022 and December 31, 2021:


				June 30, 2022																			September 30, 2022
				Term Loans Amortized Cost Basis by Origination Year																			Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)	(dollars in thousands)			2022		2021		2020		2019		2018		Prior		Revolving loans		Total		(dollars in thousands)			2022		2021		2020		2019		2018		Prior		Revolving loans		Total
Commercial	Commercial		Acceptable credit quality	$	42,773	$	104,834	$	72,395	$	30,577	$	19,403	$	53,815	$	394,649	$	718,446	Commercial		Acceptable credit quality	$	83,501	$	107,645	$	72,269	$	29,183	$	13,578	$	50,113	$	482,069	$	838,358
			Special mention	—		113		—		325		1,279		282		1,887		3,886				Special mention	—		48		—		314		926		267		1,928		3,483
			Substandard	—		364		—		631		1,822		4,260		11,570		18,647				Substandard	—		—		—		—		1,385		4,142		875		6,402
			Substandard – nonaccrual	—		340		—		370		174		383		5,536		6,803				Substandard – nonaccrual	—		340		—		99		112		259		3,877		4,687
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	42,773		105,651		72,395		31,903		22,678		58,740		413,642		747,782				Subtotal	83,501		108,033		72,269		29,596		16,001		54,781		488,749		852,930

		Commercial other	Acceptable credit quality	132,949		182,457		131,480		77,820		20,303		359		79,421		624,789			Commercial other	Acceptable credit quality	207,903		168,275		116,826		73,659		18,985		311		90,558		676,517
			Special mention	—		210		1,818		9,055		3,185		—		—		14,268				Special mention	—		—		797		2,285		485		—		55		3,622
			Substandard	—		—		—		61		—		—		1,408		1,469				Substandard	250		—		—		12		—		—		848		1,110
			Substandard – nonaccrual	422		712		26		1,216		574		—		—		2,950				Substandard – nonaccrual	343		770		24		473		494		—		—		2,104
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	133,371		183,379		133,324		88,152		24,062		359		80,829		643,476				Subtotal	208,496		169,045		117,647		76,429		19,964		311		91,461		683,353

Commercial real estate	Commercial real estate	Non-owner occupied	Acceptable credit quality	453,041		433,844		143,804		113,828		19,577		187,187		3,203		1,354,484		Commercial real estate	Non-owner occupied	Acceptable credit quality	580,648		437,901		141,562		93,945		18,964		177,967		3,807		1,454,794
			Special mention	1,439		26		3,476		15,341		313		7,211		—		27,806				Special mention	1,423		187		482		10,670		198		9,396		—		22,356
			Substandard	663		109		—		37,065		1,641		37,161		250		76,889				Substandard	593		106		—		36,858		1,611		37,282		—		76,450
			Substandard – nonaccrual	—		744		859		5,879		10,246		3,123		—		20,851				Substandard – nonaccrual	—		744		—		49		10,246		2,669		—		13,708
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	455,143		434,723		148,139		172,113		31,777		234,682		3,453		1,480,030				Subtotal	582,664		438,938		142,044		141,522		31,019		227,314		3,807		1,567,308

		Owner occupied	Acceptable credit quality	97,287		138,775		68,158		45,755		34,857		115,714		4,548		505,094			Owner occupied	Acceptable credit quality	105,981		131,950		66,624		40,949		29,247		108,957		4,667		488,375
			Special mention	—		141		—		175		160		1,824		27		2,327				Special mention	—		135		—		168		159		1,680		24		2,166
			Substandard	47		4,187		585		2,901		—		5,182		297		13,199				Substandard	45		4,186		575		2,026		—		3,579		—		10,411
			Substandard – nonaccrual	—		402		320		157		333		2,755		—		3,967				Substandard – nonaccrual	—		385		309		156		333		2,735		304		4,222
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	97,334		143,505		69,063		48,988		35,350		125,475		4,872		524,587				Subtotal	106,026		136,656		67,508		43,299		29,739		116,951		4,995		505,174

		Multi-family	Acceptable credit quality	138,000		52,078		19,800		475		24,927		16,031		1,597		252,908			Multi-family	Acceptable credit quality	188,990		51,461		33,440		445		24,604		15,768		1,020		315,728
			Special mention	—		—		—		—		—		—		—		—				Special mention	—		—		—		—		—		—		—		—
			Substandard	—		—		—		—		—		3,608		—		3,608				Substandard	—		—		—		—		—		3,578		—		3,578
			Substandard – nonaccrual	—		969		—		114		—		8,150		—		9,233				Substandard – nonaccrual	—		949		—		114		—		8,104		—		9,167
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	138,000		53,047		19,800		589		24,927		27,789		1,597		265,749				Subtotal	188,990		52,410		33,440		559		24,604		27,450		1,020		328,473

		Farmland	Acceptable credit quality	3,337		16,384		13,958		4,126		3,158		21,255		1,751		63,969			Farmland	Acceptable credit quality	5,303		16,267		14,099		4,228		3,250		20,222		1,227		64,596
			Special mention	—		—		—		—		—		162		—		162				Special mention	—		—		—		—		—		161		—		161
			Substandard	—		15		—		166		13		633		181		1,008				Substandard	—		15		—		23		13		348		167		566
			Substandard – nonaccrual	—		—		—		—		101		—		49		150				Substandard – nonaccrual	—		—		—		—		—		25		—		25
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	3,337		16,399		13,958		4,292		3,272		22,050		1,981		65,289				Subtotal	5,303		16,282		14,099		4,251		3,263		20,756		1,394		65,348

Construction and land development	Construction and land development		Acceptable credit quality	49,052		67,643		46,495		8,052		4,102		2,363		24,033		201,740		Construction and land development		Acceptable credit quality	81,438		67,959		31,357		8,051		489		1,446		29,913		220,653
			Special mention	—		—		—		—		—		220		—		220				Special mention	—		—		—		—		2,415		210		—		2,625
			Substandard	—		—		—		—		—		—		—		—				Substandard	—		—		—		—		—		—		—		—
			Substandard – nonaccrual	—		—		—		222		—		29		—		251				Substandard – nonaccrual	—		—		—		218		—		27		—		245
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	189		1,516		35		—		—		4		—		1,744				Not graded	1,649		339		34		—		—		4		—		2,026
			Subtotal	49,241		69,159		46,530		8,274		4,102		2,616		24,033		203,955				Subtotal	83,087		68,298		31,391		8,269		2,904		1,687		29,913		225,549

Total	Total		Acceptable credit quality	916,439		996,015		496,090		280,633		126,327		396,724		509,202		3,721,430		Total		Acceptable credit quality	1,253,764		981,458		476,177		250,460		109,117		374,784		613,261		4,059,021
			Special mention	1,439		490		5,294		24,896		4,937		9,699		1,914		48,669				Special mention	1,423		370		1,279		13,437		4,183		11,714		2,007		34,413
			Substandard	710		4,675		585		40,824		3,476		50,844		13,706		114,820				Substandard	888		4,307		575		38,919		3,009		48,929		1,890		98,517
			Substandard – nonaccrual	422		3,167		1,205		7,958		11,428		14,440		5,585		44,205				Substandard – nonaccrual	343		3,188		333		1,109		11,185		13,819		4,181		34,158
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	189		1,516		35		—		—		4		—		1,744				Not graded	1,649		339		34		—		—		4		—		2,026
Total commercial loans	Total commercial loans			$	919,199	$	1,005,863	$	503,209	$	354,311	$	146,168	$	471,711	$	530,407	$	3,930,868	Total commercial loans			$	1,258,067	$	989,662	$	478,398	$	303,925	$	127,494	$	449,250	$	621,339	$	4,228,135

Table of Contents


			December 31, 2021
			Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)			2021		2020		2019		2018		2017		Prior		Revolving loans		Total
Commercial	Commercial	Acceptable credit quality	$	108,490	$	78,071	$	50,458	$	20,045	$	27,405	$	35,856	$	417,920	$	738,245
		Special mention	186		57		198		6,154		2		316		1,517		8,430
		Substandard	380		372		1,934		1,868		64		4,322		8,099		17,039
		Substandard – nonaccrual	52		—		612		177		242		169		5,704		6,956
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	109,108		78,500		53,202		28,244		27,713		40,663		433,240		770,670

	Commercial other	Acceptable credit quality	264,282		167,326		101,083		29,981		303		341		88,198		651,514
		Special mention	—		1,929		10,676		3,966		—		—		3,252		19,823
		Substandard	688		—		62		341		—		—		2,623		3,714
		Substandard – nonaccrual	10		158		3,894		384		—		—		21		4,467
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	264,980		169,413		115,715		34,672		303		341		94,094		679,518

Commercial real estate	Non-owner occupied	Acceptable credit quality	441,483		154,379		134,507		20,524		55,207		182,465		5,258		993,823
		Special mention	26		6,341		14,177		2,296		711		2,272		—		25,823
		Substandard	6,196		817		8,825		20,572		14,857		22,344		250		73,861
		Substandard – nonaccrual	169		992		6,206		—		195		4,264		—		11,826
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	447,874		162,529		163,715		43,392		70,970		211,345		5,508		1,105,333

	Owner occupied	Acceptable credit quality	141,084		69,415		47,187		35,974		30,583		98,442		1,886		424,571
		Special mention	150		24		187		161		13,087		4,540		32		18,181
		Substandard	4,192		1,127		10,810		205		297		6,466		305		23,402
		Substandard – nonaccrual	—		318		129		336		72		2,649		—		3,504
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	145,426		70,884		58,313		36,676		44,039		112,097		2,223		469,658

	Multi-family	Acceptable credit quality	88,329		20,080		1,973		25,450		1,414		18,642		2,241		158,129
		Special mention	—		451		—		—		—		—		—		451
		Substandard	988		—		—		—		—		10,139		—		11,127
		Substandard – nonaccrual	—		—		123		—		—		2,045		—		2,168
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	89,317		20,531		2,096		25,450		1,414		30,826		2,241		171,875

	Farmland	Acceptable credit quality	15,689		14,966		3,931		3,162		7,996		19,305		1,196		66,245
		Special mention	—		66		1,236		145		153		240		—		1,840
		Substandard	371		76		166		211		—		898		—		1,722
		Substandard – nonaccrual	—		—		—		105		—		—		50		155
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	16,060		15,108		5,333		3,623		8,149		20,443		1,246		69,962

Construction and land development		Acceptable credit quality	65,053		65,274		19,269		10,029		2,511		3,841		19,452		185,429
		Special mention	—		—		5,014		—		—		221		—		5,235
		Substandard	—		1,336		—		—		—		—		—		1,336
		Substandard – nonaccrual	—		—		43		—		—		40		—		83
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	1,465		37		—		—		—		164		—		1,666
		Subtotal	66,518		66,647		24,326		10,029		2,511		4,266		19,452		193,749

Total		Acceptable credit quality	1,124,410		569,511		358,408		145,165		125,419		358,892		536,151		3,217,956
		Special mention	362		8,868		31,488		12,722		13,953		7,589		4,801		79,783
		Substandard	12,815		3,728		21,797		23,197		15,218		44,169		11,277		132,201
		Substandard – nonaccrual	231		1,468		11,007		1,002		509		9,167		5,775		29,159
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	1,465		37		—		—		—		164		—		1,666
Total commercial loans			$	1,139,283	$	583,612	$	422,700	$	182,086	$	155,099	$	419,981	$	558,004	$	3,460,765

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, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings 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 ~~June~~September 30, 2022 and December 31, 2021:


				June 30, 2022																			September 30, 2022
				Term Loans Amortized Cost Basis by Origination Year																			Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)	(dollars in thousands)			2022		2021		2020		2019		2018		Prior		Revolving Loans		Total		(dollars in thousands)			2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Residential real estate	Residential real estate	Residential first lien	Performing	$	30,586	$	41,338	$	32,385	$	21,765	$	23,865	$	122,619	$	758	$	273,316	Residential real estate	Residential first lien	Performing	$	57,217	$	39,570	$	31,875	$	21,340	$	22,376	$	115,686	$	298	$	288,362
			Nonperforming	—		—		106		260		942		5,004		—		6,312				Nonperforming	102		—		105		195		870		4,798		—		6,070
			Subtotal	30,586		41,338		32,491		22,025		24,807		127,623		758		279,628				Subtotal	57,319		39,570		31,980		21,535		23,246		120,484		298		294,432

		Other residential	Performing	857		549		613		1,209		1,668		1,999		51,718		58,613			Other residential	Performing	1,381		517		556		1,147		1,568		1,772		53,146		60,087
			Nonperforming	—		—		—		9		10		222		1,621		1,862				Nonperforming	—		—		—		8		10		214		1,474		1,706
			Subtotal	857		549		613		1,218		1,678		2,221		53,339		60,475				Subtotal	1,381		517		556		1,155		1,578		1,986		54,620		61,793

Consumer	Consumer		Performing	9,605		44,947		11,083		5,994		6,097		18,226		2,352		98,304		Consumer		Performing	30,643		42,722		10,102		4,397		3,676		16,128		2,426		110,094
			Nonperforming	91		61		12		2		37		51		—		254				Nonperforming	22		36		8		1		14		50		1		132
			Subtotal	9,696		45,008		11,095		5,996		6,134		18,277		2,352		98,558				Subtotal	30,665		42,758		10,110		4,398		3,690		16,178		2,427		110,226

		Consumer other	Performing	371,625		369,572		174,852		45,799		8,814		7,050		9,101		986,813			Consumer other	Performing	568,209		300,430		117,490		39,291		7,488		6,188		7,017		1,046,113
			Nonperforming	—		—		—		—		—		—		—		—				Nonperforming	141		—		—		—		—		—		—		141
			Subtotal	371,625		369,572		174,852		45,799		8,814		7,050		9,101		986,813				Subtotal	568,350		300,430		117,490		39,291		7,488		6,188		7,017		1,046,254

Leases financing	Leases financing		Performing	88,299		127,755		104,682		70,913		31,261		14,015		—		436,925		Leases financing		Performing	149,392		118,613		94,940		63,175		20,649		8,319		—		455,088
			Nonperforming	—		656		797		273		472		79		—		2,277				Nonperforming	—		646		883		676		300		18		—		2,523
			Subtotal	88,299		128,411		105,479		71,186		31,733		14,094		—		439,202				Subtotal	149,392		119,259		95,823		63,851		20,949		8,337		—		457,611

Total	Total		Performing	500,972		584,161		323,615		145,680		71,705		163,909		63,929		1,853,971		Total		Performing	806,842		501,852		254,963		129,350		55,757		148,093		62,887		1,959,744
			Nonperforming	91		717		915		544		1,461		5,356		1,621		10,705				Nonperforming	265		682		996		880		1,194		5,080		1,475		10,572
Total other loans	Total other loans			$	501,063	$	584,878	$	324,530	$	146,224	$	73,166	$	169,265	$	65,550	$	1,864,676	Total other loans			$	807,107	$	502,534	$	255,959	$	130,230	$	56,951	$	153,173	$	64,362	$	1,970,316

Table of Contents


			December 31, 2021
			Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)			2021		2020		2019		2018		2017		Prior		Revolving loans		Total
Residential real estate	Residential first lien	Performing	$	38,508	$	31,920	$	24,311	$	30,842	$	48,276	$	93,462	$	888	$	268,207
		Nonperforming	—		108		173		780		764		4,380		—		6,205
		Subtotal	38,508		32,028		24,484		31,622		49,040		97,842		888		274,412

	Other residential	Performing	888		679		1,520		1,950		1,211		1,559		54,225		62,032
		Nonperforming	—		—		10		16		128		100		1,453		1,707
		Subtotal	888		679		1,530		1,966		1,339		1,659		55,678		63,739

Consumer	Consumer	Performing	65,915		14,955		7,874		8,728		3,025		2,582		2,721		105,800
		Nonperforming	89		5		3		14		24		71		2		208
		Subtotal	66,004		14,960		7,877		8,742		3,049		2,653		2,723		106,008

	Consumer other	Performing	474,385		323,437		63,463		12,635		3,888		5,447		13,341		896,596
		Nonperforming	—		—		—		—		—		—		1		1
		Subtotal	474,385		323,437		63,463		12,635		3,888		5,447		13,342		896,597

Leases financing		Performing	154,803		124,575		86,402		43,536		9,077		1,983		—		420,376
		Nonperforming	—		757		1,001		1,012		95		39		—		2,904
		Subtotal	154,803		125,332		87,403		44,548		9,172		2,022		—		423,280

Total
		Performing	734,499		495,566		183,570		97,691		65,477		105,033		71,175		1,753,011
		Nonperforming	89		870		1,187		1,822		1,011		4,590		1,456		11,025
Total other loans			$	734,588	$	496,436	$	184,757	$	99,513	$	66,488	$	109,623	$	72,631	$	1,764,036

NOTE 6 – PREMISES, EQUIPMENT AND LEASES

A summary of premises and equipment at ~~June~~September 30, 2022 and December 31, 2021 is as follows:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Land	Land	$	15,948	$	15,696	Land	$	15,803	$	15,696
Buildings and improvements	Buildings and improvements	68,625		67,143		Buildings and improvements	69,573		67,143
Furniture and equipment	Furniture and equipment	33,761		33,545		Furniture and equipment	33,946		33,545
Lease right-of-use assets	Lease right-of-use assets	7,670		8,428		Lease right-of-use assets	7,582		8,428
Total	Total	126,004		124,812		Total	126,904		124,812
Accumulated depreciation	Accumulated depreciation	(48,336)		(45,592)		Accumulated depreciation	(49,385)		(45,592)
Premises and equipment, net	Premises and equipment, net	$	77,668	$	79,220	Premises and equipment, net	$	77,519	$	79,220

Depreciation expense for the three and ~~six~~nine months ended ~~June~~September 30, 2022 was $1.2 million and ~~$2.4~~$3.7 million, respectively, and $1.4 million and ~~$2.9~~$4.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

The Company has entered into operating leases, primarily for banking offices and operating facilities, which have remaining lease terms of ~~1 month~~2 months to 1110 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 if they are reasonably certain to be exercised. The operating lease liabilities of the Company were ~~$9.7~~$9.5 million and $10.7 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

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Information related to operating leases for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was as follows:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022			2021			2022			2021			(dollars in thousands)	2022			2021			2022			2021
Operating lease cost	Operating lease cost	$	532		$	514		$	1,040		$	1,037		Operating lease cost	$	533		$	510		$	1,576		$	1,547
Operating cash flows from leases	Operating cash flows from leases	630			603			1,236			1,386			Operating cash flows from leases	638			589			1,874			1,975
Right-of-use assets obtained in exchange for lease obligations	Right-of-use assets obtained in exchange for lease obligations	—			609			121			689			Right-of-use assets obtained in exchange for lease obligations	80			—			502			689
Right-of-use assets derecognized due to terminations or impairment	Right-of-use assets derecognized due to terminations or impairment	—			(88)			—			(210)			Right-of-use assets derecognized due to terminations or impairment	—			—			—			(210)
Weighted average remaining lease term	Weighted average remaining lease term	7.4 years			7.9 years			7.4 years			7.9 years			Weighted average remaining lease term	7.3 years			7.8 years			7.3 years			7.8 years
Weighted average discount rate	Weighted average discount rate	2.89		%	2.86		%	2.89		%	2.86		%	Weighted average discount rate	2.88		%	2.88		%	2.88		%	2.88		%

The projected minimum rental payments under the terms of the leases as of ~~June~~September 30, 2022 were as follows:


(dollars in thousands)	(dollars in thousands)	Amount		(dollars in thousands)	Amount
Year ending December 31:	Year ending December 31:			Year ending December 31:
2022 remaining	2022 remaining	$	1,028	2022 remaining	$	419
2023	2023	2,105		2023	2,185
2024	2024	1,799		2024	1,879
2025	2025	894		2025	975
2026	2026	763		2026	843
Thereafter	Thereafter	4,251		Thereafter	4,296
Total future minimum lease payments	Total future minimum lease payments	10,840		Total future minimum lease payments	10,597
Less imputed interest	Less imputed interest	(1,131)		Less imputed interest	(1,084)
Total operating lease liabilities	Total operating lease liabilities	$	9,709	Total operating lease liabilities	$	9,513

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NOTE 7 – LOAN SERVICING RIGHTS

A summary of loan servicing rights at ~~June~~September 30, 2022 and December 31, 2021 is as follows:


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
		Serviced Loans		Carrying Value		Serviced Loans		Carrying Value			Serviced Loans		Carrying Value		Serviced Loans		Carrying Value
Commercial FHA	Commercial FHA	$	2,456,760	$	24,603	$	2,650,531	$	27,386	Commercial FHA	$	—	$	—	$	2,650,531	$	27,386
SBA	SBA	46,997		660		50,043		774		SBA	46,799		715		50,043		774
Residential	Residential	275,673		616		302,618		705		Residential	264,318		582		302,618		705
Commercial FHA held for sale										Commercial FHA held for sale	2,362,462		23,995		—		—
Total	Total	$	2,779,430	$	25,879	$	3,003,192	$	28,865	Total	$	2,673,579	$	25,292	$	3,003,192	$	28,865

Commercial FHA Mortgage Loan Servicing

Changes in our commercial FHA loan servicing rights for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 are summarized as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Loan servicing rights:	Loan servicing rights:									Loan servicing rights:
Balance, beginning of period	Balance, beginning of period	$	26,111	$	35,997	$	27,386	$	38,322	Balance, beginning of period	$	24,603	$	33,732	$	27,386	$	38,322

Servicing rights transferred to held for sale										Servicing rights transferred to held for sale	(23,995)		—		(23,995)		—
Amortization	Amortization	(639)		(780)		(1,299)		(1,563)		Amortization	(608)		(721)		(1,907)		(2,284)
Refinancing fee received from third party	Refinancing fee received from third party	—		(337)		(221)		(604)		Refinancing fee received from third party	—		165		(221)		(439)
Permanent impairment	Permanent impairment	(869)		(1,148)		(1,263)		(2,423)		Permanent impairment	—		(3,037)		(1,263)		(5,460)
Balance, end of period	Balance, end of period	$	24,603	$	33,732	$	24,603	$	33,732	Balance, end of period	$	—	$	30,139	$	—	$	30,139

Fair value:	Fair value:									Fair value:
At beginning of period	At beginning of period	$	27,941	$	35,997	$	28,368	$	38,322	At beginning of period	$	26,865	$	34,255	$	28,368	$	38,322
At end of period	At end of period	26,865		34,255		26,865		34,255		At end of period	—		31,012		—		31,012

At September 30, 2022, the Company had committed to a plan to sell commercial FHA servicing rights and therefore transferred $24.0 million to commercial FHA servicing rights held for sale. Servicing rights held for sale are recorded at the lower of their carrying amount or fair value less estimated costs to sell. No impairment was recognized in the third quarter of 2022.

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 considers many factors as appropriate, including lockouts, balloons, prepayment penalties, interest rate ranges, delinquencies and geographic location. The discount rate is 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 was 8.21% and 8.24% at ~~June~~September 30, 2022 and December 31, 2021, respectively, while the weighted average discount rate was ~~11.69%~~11.48% and 11.87% for the same periods, respectively.

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill by segment at ~~June~~September 30, 2022 and December 31, 2021 is summarized as follows:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Banking	Banking	$	157,158	$	157,158	Banking	$	157,158	$	157,158

Wealth management	Wealth management	4,746		4,746		Wealth management	4,746		4,746
Total goodwill	Total goodwill	$	161,904	$	161,904	Total goodwill	$	161,904	$	161,904

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The Company’s intangible assets, consisting of core deposit and customer relationship intangibles, as of ~~June~~September 30, 2022 and December 31, 2021 are summarized as follows:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
(dollars in thousands)	(dollars in thousands)	Gross carrying amount		Accumulated amortization		Total		Gross carrying amount		Accumulated amortization		Total		(dollars in thousands)	Gross carrying amount		Accumulated amortization		Total		Gross carrying amount		Accumulated amortization		Total
Core deposit intangibles	Core deposit intangibles	$	58,913	$	(42,664)	$	16,249	$	57,012	$	(40,603)	$	16,409	Core deposit intangibles	$	58,913	$	(43,708)	$	15,205	$	57,012	$	(40,603)	$	16,409
Customer relationship intangibles	Customer relationship intangibles	15,918		(8,608)		7,310		15,918		(7,953)		7,965		Customer relationship intangibles	15,919		(8,926)		6,993		15,918		(7,953)		7,965
Total intangible assets	Total intangible assets	$	74,831	$	(51,272)	$	23,559	$	72,930	$	(48,556)	$	24,374	Total intangible assets	$	74,832	$	(52,634)	$	22,198	$	72,930	$	(48,556)	$	24,374

In conjunction with the FNBC branch acquisition, the Company recorded $1.9 million of core deposit intangibles, which are being amortized on an accelerated basis over an estimated useful life of 10 years.

Amortization of intangible assets was ~~$1.3~~$1.4 million and ~~$2.7~~$4.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and ~~$1.5~~$1.4 million and ~~$3.0~~$4.4 million for the comparable periods in 2021, respectively.

NOTE 9 – DERIVATIVE INSTRUMENTS

As part of the Company’s overall management of interest rate sensitivity, the Company utilizes derivative instruments to minimize significant, unanticipated earnings fluctuations caused by interest rate volatility, including interest rate lock commitments, forward commitments to sell mortgage-backed securities, cash flow hedges and interest rate swap contracts.

Interest Rate Lock Commitments / Forward Commitments to Sell Mortgage-Backed Securities

The Company issues interest rate lock commitments on originated fixed-rate commercial and residential real estate loans to be sold. The interest rate lock commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities. The fair value of the interest rate lock commitments and forward contracts to sell mortgage-backed securities are included in other assets or other liabilities in the consolidated balance sheets. Changes in the fair value of derivative financial instruments are recognized in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income.

The following table summarizes the interest rate lock commitments and forward commitments to sell mortgage-backed securities held by the Company, their notional amount and estimated fair values at ~~June~~September 30, 2022 and December 31, 2021:


		Notional amount				Fair value gain					Notional amount				Fair value gain
(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Derivative instruments (included in other assets):	Derivative instruments (included in other assets):									Derivative instruments (included in other assets):
Interest rate lock commitments	Interest rate lock commitments	$	22,704	$	66,216	$	91	$	410	Interest rate lock commitments	$	4,419	$	66,216	$	(15)	$	410
Forward commitments to sell mortgage-backed securities	Forward commitments to sell mortgage-backed securities	8,213		60,427		—		—		Forward commitments to sell mortgage-backed securities	11,054		60,427		165		—
Total	Total	$	30,917	$	126,643	$	91	$	410	Total	$	15,473	$	126,643	$	150	$	410


		Notional amount				Fair value loss					Notional amount				Fair value loss
(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Derivative instruments (included in other liabilities):	Derivative instruments (included in other liabilities):									Derivative instruments (included in other liabilities):

Interest rate lock commitments										Interest rate lock commitments	$	9,138	$	—	$	317	$	—
Forward commitments to sell mortgage-backed securities	Forward commitments to sell mortgage-backed securities	$	9,500	$	18,362	$	11	$	19	Forward commitments to sell mortgage-backed securities	—		18,362		—		19

Total										Total	$	9,138	$	18,362	$	317	$	19

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized net losses of ~~$0.4~~$0.2 million and ~~$0.3~~$0.6 million, respectively, on derivative instruments in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income.

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During the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company recognized net losses of ~~$0.5~~$0.4 million and ~~$1.0~~$1.3 million, respectively, on derivative instruments in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income.

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Cash Flow Hedges

In the first quarter of 2022, the Company entered into interest rate swap agreements, which qualify as cash flow hedges, to manage the risk of changes in future cash flows due to interest rate fluctuations. The following table summarizes the Company's receive-fixed, pay-variable interest rate swaps on certain pools of loans indexed to prime at ~~June~~September 30, 2022:


(dollars in thousands)	~~June~~September 30, 2022
Notional Amount	$	200,000
Fair value loss included in other liabilities	(10,734)
Tax effected amount included in accumulated other comprehensive (loss) income	(7,836)
Average remaining life ~~in years~~	~~3.79~~3.6 years
Weighted average pay rate	~~0.64~~6.25		%
Weighted average receive rate	5.48		%

Quarterly, the effectiveness evaluation is based on the fluctuation of the variable interest the Company receives from the customers for the loans as compared to the fixed interest rate received from the counterparty.

The Company has ~~$140.0 million notional amount of~~ future-starting receive-fixed, pay-variable interest rate swaps on certain FHLB or other fixed-rate advances. These swaps are effective beginning in April 2023. The Company pays or receives the net interest amount quarterly based on the respective hedge agreement and includes the amount as part of FHLB advances interest expense on the consolidated statements of income.

~~At June 30, 2022,~~


(dollars in thousands)	September 30, 2022		December 31, 2021
Notional Amount	$	140,000	$	140,000
Fair value gain included in other assets	16,422		5,095
Tax effected amount included in accumulated other comprehensive (loss) income	11,988		3,694

Quarterly, the ~~$8.2 million fair value~~effectiveness evaluation of the above cash flow hedges ~~was included in other assets~~is based on the ~~consolidated balance sheets. At December 31, 2021,~~fluctuation of the ~~$5.1 million fair value of cash flow hedges was included in other liabilities on~~variable interest the consolidated balance sheets. The tax effected amounts of $5.9 million and $3.7 million at June 30, 2022 and December 31, 2021, respectively, were included in accumulated other comprehensive (loss) income.Company receives from the customers for the loans as compared to the fixed interest rate received from the counterparty. There were no amounts recorded in the consolidated statements of income for the three and ~~six~~nine months ended ~~June~~September 30, 2022, related to ineffectiveness.

Interest Rate Swap Contracts ~~not~~Not Designated as Hedges

The Company entered into 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. These derivative contracts do not qualify for hedge accounting.

The notional amounts of the customer derivative instruments and the offsetting counterparty derivative instruments were ~~$7.7~~$7.6 million and $7.9 million at ~~June~~September 30, 2022 and December 31, 2021, respectively. The fair value of the customer derivative instruments and the offsetting counterparty derivative instruments was ~~$0.2~~$0.5 million and $0.4 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, which are included in other assets and other liabilities, respectively, on the consolidated balance sheets.

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NOTE 10 – DEPOSITS

The following table summarizes the classification of deposits as of ~~June~~September 30, 2022 and December 31, 2021:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Noninterest-bearing demand	Noninterest-bearing demand	$	1,972,261	$	2,245,701	Noninterest-bearing demand	$	2,025,237	$	2,245,701
Interest-bearing:	Interest-bearing:					Interest-bearing:
Checking	Checking	1,808,885		1,663,021		Checking	1,905,439		1,663,021
Money market	Money market	1,027,547		869,067		Money market	1,125,333		869,067
Savings	Savings	740,364		679,115		Savings	704,245		679,115
Time	Time	635,381		653,744		Time	634,998		653,744
Total deposits	Total deposits	$	6,184,438	$	6,110,648	Total deposits	$	6,395,252	$	6,110,648

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NOTE 11 – SHORT-TERM BORROWINGS

The following table presents the distribution of short-term borrowings and related weighted average interest rates as of ~~June~~September 30, 2022 and December 31, 2021:


		Repurchase agreements							Repurchase agreements
(dollars in thousands)	(dollars in thousands)	As of and for the Six Months Ended June 30, 2022			As of and for the Year Ended December 31, 2021			(dollars in thousands)	As of and for the Nine Months Ended September 30, 2022			As of and for the Year Ended December 31, 2021
Outstanding at period-end	Outstanding at period-end	$	67,689		$	76,803		Outstanding at period-end	$	58,518		$	76,803
Average amount outstanding	Average amount outstanding	64,642			68,986			Average amount outstanding	62,495			68,986
Maximum amount outstanding at any month end	Maximum amount outstanding at any month end	76,807			77,497			Maximum amount outstanding at any month end	76,807			77,497
Weighted average interest rate:	Weighted average interest rate:							Weighted average interest rate:
During period	During period	0.14		%	0.12		%	During period	0.16		%	0.12		%
End of period	End of period	0.14		%	0.13		%	End of period	0.26		%	0.13		%

Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction, which represents the amount of the Bank’s obligation. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. Investment securities with a carrying amount of ~~$63.9~~$61.5 million and $78.3 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, were pledged for securities sold under agreements to repurchase.

The Company had available lines of credit of ~~$22.7~~$13.5 million and $55.9 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, from the Federal Reserve Discount Window. The lines are collateralized by a collateral agreement with respect to a pool of commercial real estate loans totaling ~~$25.4~~$15.7 million and $64.8 million at ~~June~~September 30, 2022 and December 31, 2021, respectively. There were no outstanding borrowings under these lines at ~~June~~September 30, 2022 and December 31, 2021.

At ~~June~~September 30, 2022, the Company had available federal funds lines of credit totaling $45.0 million. These lines of credit were unused at ~~June~~September 30, 2022.

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NOTE 12 – FHLB ADVANCES AND OTHER BORROWINGS

The following table summarizes our FHLB advances and other borrowings as of ~~June~~September 30, 2022 and December 31, 2021:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Midland States Bancorp, Inc.	Midland States Bancorp, Inc.					Midland States Bancorp, Inc.
Revolving line of credit - variable interest rate equivalent to Daily Simple SOFR plus 1.60%	Revolving line of credit - variable interest rate equivalent to Daily Simple SOFR plus 1.60%	$	—	$	—	Revolving line of credit - variable interest rate equivalent to Daily Simple SOFR plus 1.60%	$	—	$	—
Series G redeemable preferred stock - 171 shares at $1,000 per share	Series G redeemable preferred stock - 171 shares at $1,000 per share	—		171		Series G redeemable preferred stock - 171 shares at $1,000 per share	—		171
Midland States Bank	Midland States Bank					Midland States Bank
FHLB advances – putable fixed rate at rates averaging 2.35% and 1.48% at June 30, 2022 and December 31, 2021, respectively – maturing through December 2024		110,000		210,000
FHLB advances –SOFR floater at rates averaging 3.14% and 1.67% at June 30, 2022 and December 31, 2021, respectively – maturing in October 2023		100,000		100,000
FHLB advances – Short term fixed rate at rates averaging 1.63% at June 30, 2022 – maturing in July 2022		75,000		—
FHLB advances – putable fixed rate at rates averaging 2.35% and 1.48% at September 30, 2022 and December 31, 2021, respectively – maturing through December 2024						FHLB advances – putable fixed rate at rates averaging 2.35% and 1.48% at September 30, 2022 and December 31, 2021, respectively – maturing through December 2024	110,000		210,000
FHLB advances –SOFR floater at rates averaging 4.60% and 1.67% at September 30, 2022 and December 31, 2021, respectively – maturing in October 2023						FHLB advances –SOFR floater at rates averaging 4.60% and 1.67% at September 30, 2022 and December 31, 2021, respectively – maturing in October 2023	100,000		100,000
FHLB advances – Short term fixed rate at rates averaging 3.14% at September 30, 2022 – maturing in October 2022						FHLB advances – Short term fixed rate at rates averaging 3.14% at September 30, 2022 – maturing in October 2022	150,000		—
Total FHLB advances and other borrowings	Total FHLB advances and other borrowings	$	285,000	$	310,171	Total FHLB advances and other borrowings	$	360,000	$	310,171

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 ~~$2.59~~$2.71 billion and $2.10 billion at ~~June~~September 30, 2022 and December 31, 2021, respectively.

On October 12, 2021, the Company entered into a loan agreement with another bank for a revolving line of credit in the original principal amount of up to $15.0 million. The loan ~~matures~~matured on October 11, 2022 and has a variable rate of interest equal to the Daily Simple Secured Overnight Financing Rate ("SOFR") plus 1.60%. The Company is required to make quarterly interest payments with the principal balance due at maturity. The loan agreement contains financial covenants that

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require the Company to be well-capitalized at all times, maintain a minimum total capital to risk-weighted assets ratio, a minimum return on average assets and a maximum percentage of nonperforming assets to tangible capital. At June 30, 2022, the Company was in compliance with or has obtained waivers for each of these financial covenants.2022.

NOTE 13 – SUBORDINATED DEBT

The following table summarizes the Company’s subordinated debt as of ~~June~~September 30, 2022 and December 31, 2021:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Subordinated debt issued June 2015 – fixed interest rate of 6.50%, $550 - maturing June 18, 2025	Subordinated debt issued June 2015 – fixed interest rate of 6.50%, $550 - maturing June 18, 2025	$	547	$	546	Subordinated debt issued June 2015 – fixed interest rate of 6.50%, $550 - maturing June 18, 2025	$	547	$	546
Subordinated debt issued October 2017 – fixed interest rate of 6.25% through October 2022 and a variable interest rate equivalent to three month LIBOR plus 4.23% thereafter, $40,000 - maturing October 15, 2027	Subordinated debt issued October 2017 – fixed interest rate of 6.25% through October 2022 and a variable interest rate equivalent to three month LIBOR plus 4.23% thereafter, $40,000 - maturing October 15, 2027	39,658		39,626		Subordinated debt issued October 2017 – fixed interest rate of 6.25% through October 2022 and a variable interest rate equivalent to three month LIBOR plus 4.23% thereafter, $40,000 - maturing October 15, 2027	39,674		39,626
Subordinated debt issued September 2019 – fixed interest rate of 5.00% through September 2024 and a variable interest rate equivalent to three month SOFR plus 3.61% thereafter, $72,750 - maturing September 30, 2029	Subordinated debt issued September 2019 – fixed interest rate of 5.00% through September 2024 and a variable interest rate equivalent to three month SOFR plus 3.61% thereafter, $72,750 - maturing September 30, 2029	72,171		72,042		Subordinated debt issued September 2019 – fixed interest rate of 5.00% through September 2024 and a variable interest rate equivalent to three month SOFR plus 3.61% thereafter, $72,750 - maturing September 30, 2029	72,236		72,042
Subordinated debt issued September 2019 – fixed interest rate of 5.50% through September 2029 and a variable interest rate equivalent to three month SOFR plus 4.05% thereafter, $27,250 - maturing September 30, 2034	Subordinated debt issued September 2019 – fixed interest rate of 5.50% through September 2029 and a variable interest rate equivalent to three month SOFR plus 4.05% thereafter, $27,250 - maturing September 30, 2034	26,901		26,877		Subordinated debt issued September 2019 – fixed interest rate of 5.50% through September 2029 and a variable interest rate equivalent to three month SOFR plus 4.05% thereafter, $27,250 - maturing September 30, 2034	26,913		26,877
Total subordinated debt	Total subordinated debt	$	139,277	$	139,091	Total subordinated debt	$	139,370	$	139,091

The subordinated debentures may be included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

On October 15, 2022, the Company redeemed the outstanding Fixed-to-Floating Rate Subordinated Notes due October 15, 2027, having an aggregate principal amount of $40.0 million, in accordance with the terms of the notes. The aggregate redemption price was 100% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest. The interest rate on the subordinated notes was 6.25%, equating to approximately $2.5 million of interest expense, annually.

NOTE 14 – 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

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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 will not be 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.

If the Company’s board of directors does not declare a dividend on the Series A preferred stock in respect of a dividend period, then no dividend shall be deemed to be payable for such dividend period, or be cumulative, and the Company will have no obligation to pay any dividend for that dividend period, whether or not the board of directors declares a dividend on the Series A preferred stock or any other class or series of the Company's capital stock for any future dividend period. Additionally, so long as any share of Series A preferred stock remains outstanding, unless dividends on all outstanding shares of Series A preferred stock for the most recently completed dividend period have been paid in full or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on the Company’s common stock.

The Series A preferred stock is perpetual and has no maturity date. The Series A preferred stock is not subject to any mandatory redemption, sinking fund, or other similar provisions. The Company, at its option and subject to prior regulatory approval, may redeem the Series A preferred stock (i) in whole or in part, from time to time, on any dividend payment date on or after September 30, 2027, or (ii) in whole but not in part at any time within 90 days following a regulatory capital treatment event, in each case, at a redemption price equal to $1,000 per share of Series A preferred stock (equivalent to $25 per Depositary Share), plus any declared and unpaid dividends, without regard to any undeclared dividends, to but excluding the redemption date. 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.

NOTE 15 – 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. The diluted earnings per common share computation for both the three and ~~six~~nine months ended ~~June~~September 30, 2022 excluded antidilutive stock options of ~~60,698~~45,698 and excluded antidilutive stock options of ~~71,547~~69,145 for the comparable periods in 2021, respectively, because the exercise prices of these stock options exceeded the average market prices of the Company’s common shares for ~~those~~

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those respective periods. Presented below are the calculations for basic and diluted earnings per common share for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2022		2021		2022		2021		(dollars in thousands, except per share data)	2022		2021		2022		2021
Net income	Net income	$	21,883	$	20,124	$	42,632	$	38,662	Net income	$	23,521	$	19,548	$	66,153	$	58,210

Common shareholder dividends	Common shareholder dividends	(6,397)		(6,265)		(12,786)		(12,502)		Common shareholder dividends	(6,400)		(6,239)		(19,186)		(18,741)
Unvested restricted stock award dividends	Unvested restricted stock award dividends	(73)		(62)		(148)		(126)		Unvested restricted stock award dividends	(70)		(60)		(218)		(186)
Undistributed earnings to unvested restricted stock awards	Undistributed earnings to unvested restricted stock awards	(171)		(134)		(334)		(259)		Undistributed earnings to unvested restricted stock awards	(185)		(126)		(519)		(386)
Undistributed earnings to common shareholders	Undistributed earnings to common shareholders	$	15,242	$	13,663	$	29,364	$	25,775	Undistributed earnings to common shareholders	$	16,866	$	13,123	$	46,230	$	38,897
Basic	Basic									Basic
Distributed earnings to common shareholders	Distributed earnings to common shareholders	$	6,397	$	6,265	$	12,786	$	12,502	Distributed earnings to common shareholders	$	6,400	$	6,239	$	19,186	$	18,741
Undistributed earnings to common shareholders	Undistributed earnings to common shareholders	15,242		13,663		29,364		25,775		Undistributed earnings to common shareholders	16,866		13,123		46,230		38,897
Total common shareholders earnings, basic	Total common shareholders earnings, basic	$	21,639	$	19,928	$	42,150	$	38,277	Total common shareholders earnings, basic	$	23,266	$	19,362	$	65,416	$	57,638
Diluted	Diluted									Diluted
Distributed earnings to common shareholders	Distributed earnings to common shareholders	$	6,397	$	6,265	$	12,786	$	12,502	Distributed earnings to common shareholders	$	6,400	$	6,239	$	19,186	$	18,741
Undistributed earnings to common shareholders	Undistributed earnings to common shareholders	15,242		13,663		29,364		25,775		Undistributed earnings to common shareholders	16,866		13,123		46,230		38,897
Total common shareholders earnings	Total common shareholders earnings	21,639		19,928		42,150		38,277		Total common shareholders earnings	23,266		19,362		65,416		57,638
Add back:	Add back:									Add back:
Undistributed earnings reallocated from unvested restricted stock awards	Undistributed earnings reallocated from unvested restricted stock awards	1		—		1		1		Undistributed earnings reallocated from unvested restricted stock awards	—		—		1		1
Total common shareholders earnings, diluted	Total common shareholders earnings, diluted	$	21,640	$	19,928	$	42,151	$	38,278	Total common shareholders earnings, diluted	$	23,266	$	19,362	$	65,417	$	57,639
Weighted average common shares outstanding, basic	Weighted average common shares outstanding, basic	22,305,590		22,591,127		22,290,486		22,557,728		Weighted average common shares outstanding, basic	22,338,828		22,520,499		22,306,323		22,544,898
Options	Options	55,229		86,388		65,450		75,312		Options	51,610		57,381		60,772		69,074
Weighted average common shares outstanding, diluted	Weighted average common shares outstanding, diluted	22,360,819		22,677,515		22,355,936		22,633,040		Weighted average common shares outstanding, diluted	22,390,438		22,577,880		22,367,095		22,613,972
Basic earnings per common share	Basic earnings per common share	$	0.97	$	0.88	$	1.89	$	1.70	Basic earnings per common share	$	1.04	$	0.86	$	2.93	$	2.56
Diluted earnings per common share	Diluted earnings per common share	0.97		0.88		1.89		1.69		Diluted earnings per common share	1.04		0.86		2.92		2.55

NOTE 1516 – 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.

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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 ~~June~~September 30, 2022 and December 31, 2021, are summarized below:


		June 30, 2022									September 30, 2022
(dollars in thousands)	(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)		(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 and liabilities measured at fair value on a recurring basis:									Assets and liabilities measured at fair value on a recurring basis:
Assets	Assets									Assets
Investment securities available for sale:	Investment securities available for sale:									Investment securities available for sale:
U.S. Treasury securities	U.S. Treasury securities	$	63,996	$	63,996	$	—	$	—	U.S. Treasury securities	$	60,496	$	60,496	$	—	$	—
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	30,303		—		30,303		—		U.S. government sponsored entities and U.S. agency securities	27,865		—		27,865		—
Mortgage-backed securities - agency	Mortgage-backed securities - agency	423,838		—		423,838		—		Mortgage-backed securities - agency	391,615		—		391,615		—
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	22,777		—		22,777		—		Mortgage-backed securities - non-agency	21,158		—		21,158		—
State and municipal securities	State and municipal securities	106,688		—		106,688		—		State and municipal securities	95,061		—		95,061		—
Corporate securities	Corporate securities	112,938		—		112,938		—		Corporate securities	85,694		—		85,694		—
Equity securities	Equity securities	8,738		8,738		—		—		Equity securities	8,615		8,615		—		—
Loans held for sale	Loans held for sale	5,298		—		5,298		—		Loans held for sale	4,338		—		4,338		—
Derivative assets	Derivative assets	8,459		—		8,459		—		Derivative assets	17,033		—		17,033		—

Total	Total	$	783,035	$	72,734	$	710,301	$	—	Total	$	711,875	$	69,111	$	642,764	$	—
Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	189	$	—	$	189	$	—	Derivative liabilities	$	11,512	$	—	$	11,512	$	—

Total	Total	$	189	$	—	$	189	$	—	Total	$	11,512	$	—	$	11,512	$	—

Assets measured at fair value on a non-recurring basis:	Assets measured at fair value on a non-recurring basis:									Assets measured at fair value on a non-recurring basis:
Loan servicing rights	Loan servicing rights	$	25,879	$	—	$	—	$	25,879	Loan servicing rights	$	1,297	$	—	$	—	$	1,297

Commercial FHA mortgage servicing rights held for sale										Commercial FHA mortgage servicing rights held for sale	23,995		—		—		23,995
Nonperforming loans	Nonperforming loans	50,958		—		44,599		6,359		Nonperforming loans	46,882		11,516		25,128		10,238
Other real estate owned	Other real estate owned	11,131		—		11,131		—		Other real estate owned	11,141		—		11,141		—
Assets held for sale	Assets held for sale	1,231		—		1,231		—		Assets held for sale	1,271		—		1,271		—

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	December 31, 2021
(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	$	64,917	$	64,917	$	—	$	—
U.S. government sponsored entities and U.S. agency securities	33,817		—		33,817		—
Mortgage-backed securities - agency	440,270		—		440,270		—
Mortgage-backed securities - non-agency	28,706		—		28,706		—
State and municipal securities	143,099		—		143,099		—
Corporate securities	195,794		—		194,859		935
Equity securities	9,529		9,529		—		—
Loans held for sale	32,045		—		32,045		—
Derivative assets	5,883		—		5,883		—

Total	$	954,060	$	74,446	$	878,679	$	935
Liabilities
Derivative liabilities	$	397	$	—	$	397	$	—

Total	$	397	$	—	$	397	$	—

Assets measured at fair value on a non-recurring basis:
Loan servicing rights	$	28,865	$	—	$	—	$	28,865

Nonperforming loans	36,542		24,358		6,129		6,055
Other real estate owned	12,059		—		12,059		—
Assets held for sale	2,284		—		2,284		—

The following table provides a reconciliation of activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Balance, beginning of period	Balance, beginning of period	$	935	$	959	$	935	$	959	Balance, beginning of period	$	—	$	1,008	$	935	$	959
Transferred to level 2	Transferred to level 2	(935)		—		(935)		—		Transferred to level 2	—		—		(935)		—
Total realized in earnings (1)	Total realized in earnings (1)	6		4		11		6		Total realized in earnings (1)	—		4		6		10
Total unrealized in other comprehensive income (2)	Total unrealized in other comprehensive income (2)	—		49		—		49		Total unrealized in other comprehensive income (2)	—		(73)				(24)
Net settlements (principal and interest)	Net settlements (principal and interest)	(6)		(4)		(11)		(6)		Net settlements (principal and interest)	—		(4)		(6)		(10)
Balance, end of period	Balance, end of period	$	—	$	1,008	$	—	$	1,008	Balance, end of period	$	—	$	935	$	—	$	935

(1)Amounts included in interest income from investment securities taxable in the consolidated statements of income.

(2)Represents change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period.

The following table provides quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured at fair value on a recurring basis at December 31, 2021:

(dollars in thousands)

Fair value

Valuation
technique

Unobservable
input / assumptions

Range (weighted average)(1)

December 31, 2021

Corporate securities

935

Consensus pricing

Net market price

0.0% - 7.0% (4.5)%

(1)Unobservable inputs were weighted by the relative fair value of the instruments.

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The significant unobservable inputs used in the fair value measurement of the Company’s corporate securities is net market price. The corporate securities are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. Significant changes in any of the inputs in isolation would result in a significant change to the fair value measurement. Generally, net market price increases when market interest rates decline and declines when market interest rates increase.

The following table presents losses recognized on assets measured on a nonrecurring basis for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Loan servicing rights		$	869	$	1,148	$	1,263	$	2,423
Mortgage servicing rights held for sale		—		143		—		143
Commercial mortgage servicing rights										Commercial mortgage servicing rights	$	—	$	3,037	$	1,263	$	5,460
Residential mortgage servicing rights held for sale										Residential mortgage servicing rights held for sale	—		79		—		222
Nonperforming loans	Nonperforming loans	10,779		4,295		11,366		6,272		Nonperforming loans	1,423		3,405		6,381		9,677
Other real estate owned	Other real estate owned	67		314		404		417		Other real estate owned	339		9		743		426
Assets held for sale	Assets held for sale	—		—		—		—		Assets held for sale	—		—		—		—
Total losses on assets measured on a nonrecurring basis	Total losses on assets measured on a nonrecurring basis	$	11,715	$	5,900	$	13,033	$	9,255	Total losses on assets measured on a nonrecurring basis	$	1,762	$	6,530	$	8,387	$	15,785

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 ~~June~~September 30, 2022 and December 31, 2021:

(dollars in thousands)

Fair value

Valuation
technique

Unobservable
input / assumptions

Range (weighted average)(1)

~~June~~September 30, 2022

Loan servicing rights:

~~Commercial MSR~~SBA servicing rights

~~26,865~~715

Discounted cash flow

Prepayment speed

14.21% - 15.40% (14.95%)

Discount rate

No range (11.50%)

Residential servicing rights

582

Discounted cash flow

Prepayment speed

7.56% -31.14% (8.46%)

Discount rate

9.00% - 11.50% (10.13%)

Commercial FHA servicing rights held for sale

23,995

Discounted cash flow

Prepayment speed

8.00% - 18.00% (8.21%)

Discount rate

10.00% - 27.00% ~~(11.69%~~(11.48%)

~~SBA servicing rights~~

~~660~~

~~Discounted cash flow~~

~~Prepayment speed~~

~~14.06% - 16.58% (16.00%)~~

~~Discount rate~~

~~10.00% - 12.00% (11.00%)~~

~~Residential servicing rights~~

~~616~~

~~Discounted cash flow~~

~~Prepayment speed~~

~~7.86% -26.28% (8.58%)~~

~~Discount rate~~

~~9.00% - 11.50% (10.13%)~~

December 31, 2021

Loan servicing rights:

Commercial MSR

28,368

Discounted cash flow

Prepayment speed

8.00% - 18.00% (8.24%)

Discount rate

10.00% - 27.00% (11.87%)

SBA servicing rights

898

Discounted cash flow

Prepayment speed

12.27% - 14.14% (13.88%)

Discount rate

10.00% - 12.00% (11.00%)

Residential servicing rights

705

Discounted cash flow

Prepayment speed

11.94% - 27.48% (14.94%)

Discount rate

9.00% - 11.50% (10.25%)

(1)Unobservable inputs were weighted by the relative fair value of the instruments.

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 commercial and residential loans held for sale. These loans are intended for sale and are hedged with derivative instruments. We have elected the fair value option

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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 ~~June~~September 30, 2022 and December 31, 2021:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
(dollars in thousands)	(dollars in thousands)	Aggregate fair value		Difference		Contractual principal		Aggregate fair value		Difference		Contractual principal		(dollars in thousands)	Aggregate fair value		Difference		Contractual principal		Aggregate fair value		Difference		Contractual principal
Commercial loans held for sale	Commercial loans held for sale	$	—	$	—	$	—	$	19,230	$	—	$	19,230	Commercial loans held for sale	$	—	$	—	$	—	$	19,230	$	—	$	19,230
Residential loans held for sale	Residential loans held for sale	5,298		212		5,086		12,815		584		12,231		Residential loans held for sale	4,338		(73)		4,411		12,815		584		12,231

Total loans held for sale	Total loans held for sale	$	5,298	$	212	$	5,086	$	32,045	$	584	$	31,461	Total loans held for sale	$	4,338	$	(73)	$	4,411	$	32,045	$	584	$	31,461

The following table presents the amount of ~~gains (losses)~~losses from fair value changes included in income before income taxes for financial assets carried at fair value for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Commercial loans held for sale	Commercial loans held for sale	$	(18)	$	(23)	$	—	$	(67)	Commercial loans held for sale	$	—	$	—	$	—	$	(67)
Residential loans held for sale	Residential loans held for sale	104		320		(277)		(63)		Residential loans held for sale	(280)		(231)		(557)		(294)
Total loans held for sale	Total loans held for sale	$	86	$	297	$	(277)	$	(130)	Total loans held for sale	$	(280)	$	(231)	$	(557)	$	(361)

The carrying values and estimated fair value of certain financial instruments not carried at fair value at ~~June~~September 30, 2022 and December 31, 2021 were as follows:


		June 30, 2022											September 30, 2022
(dollars in thousands)	(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)		(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	Assets											Assets
Cash and due from banks	Cash and due from banks	$	264,173	$	264,173	$	264,173	$	—	$	—	Cash and due from banks	$	309,531	$	309,531	$	309,531	$	—	$	—
Federal funds sold	Federal funds sold	5,944		5,944		5,944		—		—		Federal funds sold	3,657		3,657		3,657		—		—

Loans, net	Loans, net	5,740,646		5,648,295		—		—		5,648,295		Loans, net	6,139,812		6,025,586		—		—		6,025,586
Accrued interest receivable	Accrued interest receivable	16,552		16,552		—		16,552		—		Accrued interest receivable	17,537		17,537		—		17,537		—

Liabilities	Liabilities											Liabilities
Deposits	Deposits	$	6,184,438	$	6,171,119	$	—	$	6,171,119	$	—	Deposits	$	6,395,252	$	6,370,773	$	—	$	6,370,773	$	—
Short-term borrowings	Short-term borrowings	67,689		67,689		—		67,689		—		Short-term borrowings	58,518		58,518		—		58,518		—
FHLB and other borrowings	FHLB and other borrowings	285,000		286,309		—		286,309		—		FHLB and other borrowings	360,000		358,694		—		358,694		—
Subordinated debt	Subordinated debt	139,277		139,063		—		139,063		—		Subordinated debt	139,370		135,279		—		135,279		—
Trust preferred debentures	Trust preferred debentures	49,674		55,348		—		55,348		—		Trust preferred debentures	49,824		54,965		—		54,965		—

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	December 31, 2021
(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	$	673,297	$	673,297	$	673,297	$	—	$	—
Federal funds sold	7,074		7,074		7,074		—		—

Loans, net	5,173,739		5,221,886		—		—		5,221,886
Accrued interest receivable	19,470		19,470		—		19,470		—

Liabilities
Deposits	$	6,110,648	$	6,109,077	$	—	$	6,109,077	$	—
Short-term borrowings	76,803		76,803		—		76,803		—
FHLB and other borrowings	310,171		317,464		—		317,464		—
Subordinated debt	139,091		148,386		—		148,386		—
Trust preferred debentures	49,374		57,827		—		57,827		—

In accordance with our adoption of ASU 2016-1 in 2019, the methods utilized to measure fair value of financial instruments at ~~June~~September 30, 2022 and December 31, 2021 represent an approximation of exit price; however, an actual exit price may differ.

NOTE 1617 – COMMITMENTS, CONTINGENCIES AND CREDIT RISK

The spread of the COVID-19 virus had an impact on our operations as of June 30, 2022 and December 31, 2021, and the Company expects that the virus will continue to have an impact on the business, financial condition, and results of operations of the Company and its customers. The COVID-19 pandemic, and governmental policy responses, caused changes in the behavior of customers, businesses, and their employees, including illness, quarantines, social distancing practices, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Future effects, including additional actions taken by federal, state, and local governments to contain COVID-19 or treat its impact, are unknown. If these effects worsen, it may adversely impact several industries within our geographic footprint and impair the ability of our customers to fulfill their contractual obligations to the Company. This could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on our intangible assets, investments, loans, loan servicing rights, deferred tax assets, or counter-party risk derivatives.

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. No 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 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

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instruments. The commitments are principally tied to variable rates. Loan commitments as of ~~June~~September 30, 2022 and December 31, 2021 were as follows:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Commitments to extend credit	Commitments to extend credit	$	1,206,523	$	994,709	Commitments to extend credit	$	1,280,312	$	994,709
Financial guarantees – standby letters of credit	Financial guarantees – standby letters of credit	26,553		14,325		Financial guarantees – standby letters of credit	31,315		14,325

The Company establishes a mortgage repurchase liability to reflect management’s estimate of losses on loans for which the Company could have a repurchase obligation based on the volume of loans sold in 2022 and years prior, borrower default expectations, historical investor repurchase demand and appeals success rates, and estimated loss severity. Loans repurchased from investors are initially recorded at fair value, which becomes the Company’s new accounting basis. Any difference between the loan’s fair value and the outstanding principal amount is charged or credited to the mortgage repurchase liability, as appropriate. Subsequent to repurchase, such loans are carried in loans receivable. There were no losses as a result of make-whole requests and loan repurchases for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. The liability for unresolved repurchase demands totaled $0.2 million and $0.2 million at ~~June~~September 30, 2022 and December 31, 2021, respectively.

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NOTE 1718 – SEGMENT INFORMATION

Our business segments are defined as Banking, Wealth Management, and Other. The reportable business segments are consistent with the internal reporting and evaluation of the principle lines of business of the Company. 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 leasing; 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 Other segment includes the operating results of the parent company, our captive insurance business unit, and the elimination of intercompany transactions.

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Selected business segment financial information for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 were as follows:


(dollars in thousands)	(dollars in thousands)	Banking		Wealth Management		Other		Total		(dollars in thousands)	Banking		Wealth Management		Other		Total
Three Months Ended June 30, 2022
Three Months Ended September 30, 2022										Three Months Ended September 30, 2022
Net interest income (expense)	Net interest income (expense)	$	63,963	$	—	$	(2,629)	$	61,334	Net interest income (expense)	$	66,846	$	—	$	(2,822)	$	64,024
Provision for credit losses	Provision for credit losses	5,441		—		—		5,441		Provision for credit losses	6,974		—		—		6,974
Noninterest income	Noninterest income	8,495		6,143		(25)		14,613		Noninterest income	9,646		6,199		(19)		15,826
Noninterest expense	Noninterest expense	37,362		4,091		(114)		41,339		Noninterest expense	39,338		4,364		(206)		43,496
Income (loss) before income taxes (benefit)	Income (loss) before income taxes (benefit)	29,655		2,052		(2,540)		29,167		Income (loss) before income taxes (benefit)	30,180		1,835		(2,635)		29,380
Income taxes (benefit)	Income taxes (benefit)	7,545		573		(834)		7,284		Income taxes (benefit)	9,238		498		(3,877)		5,859
Net income (loss)	Net income (loss)	$	22,110	$	1,479	$	(1,706)	$	21,883	Net income (loss)	$	20,942	$	1,337	$	1,242	$	23,521
Total assets	Total assets	$	7,422,518	$	29,042	$	(15,748)	$	7,435,812	Total assets	$	7,809,280	$	29,166	$	(16,569)	$	7,821,877

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022										Nine Months Ended September 30, 2022
Net interest income (expense)	Net interest income (expense)	$	123,316	$	—	$	(5,155)	$	118,161	Net interest income (expense)	$	190,162	$	—	$	(7,977)	$	182,185
Provision for credit losses	Provision for credit losses	9,608		—		—		9,608		Provision for credit losses	16,582		—		—		16,582
Noninterest income	Noninterest income	16,901		13,282		43		30,226		Noninterest income	26,547		19,481		24		46,052
Noninterest expense	Noninterest expense	73,609		8,766		(152)		82,223		Noninterest expense	112,947		13,130		(358)		125,719
Income (loss) before income taxes (benefit)	Income (loss) before income taxes (benefit)	57,000		4,516		(4,960)		56,556		Income (loss) before income taxes (benefit)	87,180		6,351		(7,595)		85,936
Income taxes (benefit)	Income taxes (benefit)	14,260		1,263		(1,599)		13,924		Income taxes (benefit)	23,498		1,761		(5,476)		19,783
Net income (loss)	Net income (loss)	$	42,740	$	3,253	$	(3,361)	$	42,632	Net income (loss)	$	63,682	$	4,590	$	(2,119)	$	66,153
Total assets	Total assets	$	7,422,518	$	29,042	$	(15,748)	$	7,435,812	Total assets	$	7,809,280	$	29,166	$	(16,569)	$	7,821,877

Three Months Ended June 30, 2021
Three Months Ended September 30, 2021										Three Months Ended September 30, 2021
Net interest income (expense)	Net interest income (expense)	$	52,908	$	—	$	(2,798)	$	50,110	Net interest income (expense)	$	53,888	$	—	$	(2,492)	$	51,396
Provision for credit losses	Provision for credit losses	(455)		—		—		(455)		Provision for credit losses	(184)		—		—		(184)
Noninterest income	Noninterest income	10,868		6,529		20		17,417		Noninterest income	7,917		7,175		51		15,143
Noninterest expense	Noninterest expense	45,084		4,164		(307)		48,941		Noninterest expense	37,055		4,507		(270)		41,292
Income (loss) before income taxes (benefit)	Income (loss) before income taxes (benefit)	19,147		2,365		(2,471)		19,041		Income (loss) before income taxes (benefit)	24,934		2,668		(2,171)		25,431
Income taxes (benefit)	Income taxes (benefit)	(913)		663		(833)		(1,083)		Income taxes (benefit)	4,973		764		146		5,883
Net income (loss)	Net income (loss)	$	20,060	$	1,702	$	(1,638)	$	20,124	Net income (loss)	$	19,961	$	1,904	$	(2,317)	$	19,548
Total assets	Total assets	$	6,642,895	$	30,913	$	(43,798)	$	6,630,010	Total assets	$	7,091,180	$	31,274	$	(28,495)	$	7,093,959

Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021										Nine Months Ended September 30, 2021
Net interest income (expense)	Net interest income (expense)	$	107,626	$	—	$	(5,648)	$	101,978	Net interest income (expense)	$	161,514	$	—	$	(8,140)	$	153,374
Provision for credit losses	Provision for credit losses	3,110		—		—		3,110		Provision for credit losses	2,926		—		—		2,926
Noninterest income	Noninterest income	19,732		12,460		41		32,233		Noninterest income	27,649		19,635		92		47,376
Noninterest expense	Noninterest expense	80,600		8,165		(745)		88,020		Noninterest expense	117,655		12,672		(1,015)		129,312
Income (loss) before income taxes (benefit)	Income (loss) before income taxes (benefit)	43,648		4,295		(4,862)		43,081		Income (loss) before income taxes (benefit)	68,582		6,963		(7,033)		68,512
Income taxes (benefit)	Income taxes (benefit)	4,876		1,203		(1,660)		4,419		Income taxes (benefit)	9,849		1,967		(1,514)		10,302
Net income (loss)	Net income (loss)	$	38,772	$	3,092	$	(3,202)	$	38,662	Net income (loss)	$	58,733	$	4,996	$	(5,519)	$	58,210
Total assets	Total assets	$	6,642,895	$	30,913	$	(43,798)	$	6,630,010	Total assets	$	7,091,180	$	31,274	$	(28,495)	$	7,093,959

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NOTE 1819 – 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 three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Noninterest income - in-scope of Topic 606	Noninterest income - in-scope of Topic 606									Noninterest income - in-scope of Topic 606
Wealth management revenue:	Wealth management revenue:									Wealth management revenue:
Trust management/administration fees	Trust management/administration fees	$	5,139	$	4,971	$	11,121	$	9,430	Trust management/administration fees	$	5,241	$	5,623	$	16,362	$	15,054
Investment advisory fees	Investment advisory fees	—		423		—		876		Investment advisory fees	—		577		—		1,462
Investment brokerage fees	Investment brokerage fees	543		485		1,141		886		Investment brokerage fees	482		330		1,623		1,206
Other	Other	461		650		1,020		1,268		Other	476		645		1,496		1,913
Service charges on deposit accounts:	Service charges on deposit accounts:									Service charges on deposit accounts:
Nonsufficient fund fees	Nonsufficient fund fees	1,524		1,202		2,856		2,343		Nonsufficient fund fees	1,775		1,470		4,631		3,814
Other	Other	780		714		1,516		1,399		Other	822		798		2,338		2,196
Interchange revenues	Interchange revenues	3,590		3,797		6,870		7,172		Interchange revenues	3,531		3,651		10,401		10,823
Other income:	Other income:									Other income:
Merchant services revenue	Merchant services revenue	399		396		755		733		Merchant services revenue	448		405		1,203		1,137
Other	Other	671		1,418		1,439		2,209		Other	847		925		2,286		3,135
Noninterest income - out-of-scope of Topic 606	Noninterest income - out-of-scope of Topic 606	1,506		3,361		3,508		5,917		Noninterest income - out-of-scope of Topic 606	2,204		719		5,712		6,636
Total noninterest income	Total noninterest income	$	14,613	$	17,417	$	30,226	$	32,233	Total noninterest income	$	15,826	$	15,143	$	46,052	$	47,376

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 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 by them 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

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charges on deposit accounts is typically received immediately or in the following month through a direct charge to a customer’s account.

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 20 – SUBSEQUENT EVENTS

On October 24, 2022, the Company terminated the $140.0 million notional amount of future starting pay-fixed, receive-variable interest rate swaps on certain FHLB or other fixed-rate advances discussed in Note 9. The Company realized a $17.6 million net gain upon termination.

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ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management's discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of ~~June~~September 30, 2022, as compared to December 31, 2021, and operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. These comments should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes appearing elsewhere herein and our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.

In addition to the historical information contained herein, this Form 10-Q includes “forward-looking statements” within the meaning of such term under the Private Securities Litigation Reform Act of 1995. These statements are subject to many risks and uncertainties, including changes in interest rates and other general economic, business and political conditions, including prevailing interest rates and the rate of inflation; the effects of the COVID-19 pandemic; changes in the financial markets; changes in business plans as circumstances warrant; risks related to mergers and acquisitions and the integration of acquired businesses; developments and uncertainty related to the future use and availability of some reference rates, such as LIBOR, as well as other alternative reference rates, and the adoption of a substitute; changes to U.S. tax laws, regulations and guidance; and other risks detailed from time to time in filings made by the Company with the SEC. Readers should note that the forward-looking statements included herein are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “will,” “propose,” “may,” “plan,” “seek,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” or “continue,” or similar terminology. Any forward-looking statements presented herein are made only as of the date of this document, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Critical Accounting Policies

The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under current circumstances. These estimates form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on the Company’s reported financial position and results of operations are set forth in “Note 1 – Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2021.

Significant Developments and Transactions

Each item listed below affects the comparability of our results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, and our financial condition as of ~~June~~September 30, 2022 and December 31, 2021, and may affect the comparability of financial information we report in future fiscal periods.

Preferred Stock Issuance. On August 24, 2022, the Company issued and sold 4,600,000 depositary shares, each representing a 1/40th ownership interest in a share of the Company’s 7.75% fixed rate reset non-cumulative, non-convertible, perpetual preferred stock, Series A. A total of 115,000 shares of Series A preferred stock was issued. The Series A preferred stock qualifies as Tier 1 capital for purposes of the 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.

Recent Acquisitions. On June 17, 2022, the Company completed its acquisition of the deposits and certain loans and other assets associated with FNBC's branches in Mokena and Yorkville, Illinois. The Company acquired $79.8 million in assets, including $60.3 million in cash and $16.6 million in loans, and assumed $79.8 million in deposits.

On June 1, 2021, the Company completed its acquisition of substantially all of the trust assets of ATG Trust, a trust company based in Chicago, Illinois, with $399.7 million in assets under management.

Commercial FHA Mortgage Loan Servicing Rights.The Company previously originated commercial FHA commercial mortgage loans through its wholly-owned subsidiary, Love Funding Corporation. On August 28, 2020, the Company completed the sale of its commercial FHA origination platform to Dwight Capital but continued to service the loan portfolio. During the third quarter of 2022, we committed to a plan to sell the servicing rights asset associated with this

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portfolio and transferred $24.0 million of commercial FHA loan servicing rights to held for sale. Servicing rights held for sale are recorded at the lower of their carrying amount or fair value less estimated costs to sell. No impairment was recognized in the third quarter of 2022.

Tax Settlement. On June 29, 2021, the Company announced the settlement of a prior tax issue related to the treatment of gains recognized on FDIC-assisted transactions that resulted in a $6.75 million tax benefit that was recognized in the second quarter of 2021. The Company also recognized approximately $3.6 million in consulting and legal expenses related to the settlement of the tax issue, resulting in an after-tax gain of approximately $2.9 million.

FHLB Advance Prepayments. During 2021, the Company pre-paid FHLB advances of $50.0 million in the first quarter, $85.0 million in the second quarter and $130.0 million in the fourth quarter. As a result, we paid prepayment fees of $3.7 million and $4.8 million in the second and fourth quarters of 2021, respectively. Interest expense is significantly lower in the current periods as a result of the reduction in borrowings.

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Redemption of Subordinated Notes. On June 18, 2021, the Company redeemed all of its outstanding fixed-to-floating rate subordinated notes due June 18, 2025, having an aggregate principal amount of $31.1 million, in accordance with the terms of the notes. The aggregate redemption price was 100% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest. The interest rate on the subordinated notes was 4.54%.

Purchased Loans. Our net interest margin benefits from accretion income associated with purchase accounting discounts established on the purchased loans included in our acquisitions. Our reported net interest margin for the three months ended ~~June~~September 30, 2022 and 2021 was ~~3.65%~~3.63% and ~~3.29%~~3.34%, respectively. Accretion income associated with accounting discounts established on loans acquired totaled ~~$0.6~~$0.5 million and ~~$1.3~~$1.0 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, increasing the reported net interest margin by 3 basis points and 97 basis points for each respective period.

The reported net interest margin for the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~2022~~2021 was ~~3.58%~~3.60% and ~~3.37%~~3.36%, respectively. Accretion income associated with accounting discounts established on loans acquired totaled ~~$1.2~~$1.7 million and ~~$2.5~~$3.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, increasing the reported net interest margin by 4 basis points and 8 basis points for each respective period.

Results of Operations

Overview. The following table sets forth condensed income statement information of the Company for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2022		2021		2022		2021		(dollars in thousands, except per share data)	2022		2021		2022		2021
Income Statement Data:	Income Statement Data:									Income Statement Data:
Interest income	Interest income	$	69,236	$	58,397	$	131,984	$	118,900	Interest income	$	79,556	$	58,490	$	211,540	$	177,390
Interest expense	Interest expense	7,902		8,287		13,823		16,922		Interest expense	15,532		7,094		29,355		24,016
Net interest income	Net interest income	61,334		50,110		118,161		101,978		Net interest income	64,024		51,396		182,185		153,374
Provision for credit losses	Provision for credit losses	5,441		(455)		9,608		3,110		Provision for credit losses	6,974		(184)		16,582		2,926
Noninterest income	Noninterest income	14,613		17,417		30,226		32,233		Noninterest income	15,826		15,143		46,052		47,376
Noninterest expense	Noninterest expense	41,339		48,941		82,223		88,020		Noninterest expense	43,496		41,292		125,719		129,312
Income before income taxes	Income before income taxes	29,167		19,041		56,556		43,081		Income before income taxes	29,380		25,431		85,936		68,512
Income taxes	Income taxes	7,284		(1,083)		13,924		4,419		Income taxes	5,859		5,883		19,783		10,302
Net income	Net income	$	21,883	$	20,124	$	42,632	$	38,662	Net income	$	23,521	$	19,548	$	66,153	$	58,210

Basic earnings per common share	Basic earnings per common share	$	0.97	$	0.88	$	1.89	$	1.70	Basic earnings per common share	$	1.04	$	0.86	$	2.93	$	2.56
Diluted earnings per common share	Diluted earnings per common share	$	0.97	$	0.88	$	1.89	$	1.69	Diluted earnings per common share	$	1.04	$	0.86	$	2.92	$	2.55

During the three months ended ~~June~~September 30, 2022, we generated net income of ~~$21.9~~$23.5 million, or diluted earnings per common share of ~~$0.97,~~$1.04, compared to net income of ~~$20.1~~$19.5 million, or diluted earnings per common share of ~~$0.88~~$0.86, in the three months ended ~~June~~September 30, 2021. Earnings for the ~~second~~third quarter of 2022 compared to the ~~second~~third quarter of 2021 increased primarily due to ~~an $11.2~~a $12.6 million increase in net interest income and a ~~$7.6~~$0.7 million increase in noninterest income. These results were partially offset by a $7.2 million increase in provision for credit losses and a $2.2 million increase in noninterest expense.

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During the nine months ended September 30, 2022, we generated net income of $66.2 million, or diluted earnings per common share of $2.92, compared to net income of $58.2 million, or diluted earnings per common share of $2.55, in the nine months ended September 30, 2021. Earnings for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 increased primarily due to a $28.8 million increase in net interest income, and a $3.6 million decrease in noninterest expense. These results were partially offset by a ~~$5.9~~$13.7 million increase in provision for credit losses, a ~~$2.8 million decrease in noninterest income and an $8.4 million increase in income tax expense.~~

During the six months ended June 30, 2022, we generated net income of $42.6 million, or diluted earnings per common share of $1.89, compared to net income of $38.7 million, or diluted earnings per common share of $1.69 in the six months ended June 30, 2021. Earnings for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 increased primarily due to a $16.1 million increase in net interest income, and a $5.8 million decrease in noninterest expense. These results were partially offset by a $6.5 million increase in provision for credit losses, a $2.0$1.3 million decrease in noninterest income and a $9.5 million increase in income tax expense.

Net Interest Income and Margin. Our primary source of revenue is net interest income, which is the difference between interest income from interest-earning assets (primarily loans and securities) and interest expense of funding sources (primarily interest-bearing deposits and borrowings). Net interest income is influenced by many factors, primarily the volume and mix of interest-earning assets, funding sources, and interest rate fluctuations. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. Net interest margin is calculated as net interest income divided by average interest-earning assets. Net interest margin is presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to a pretax-equivalent income, assuming a federal income tax rate of 21% for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

~~Table of Contents~~

On ~~June 15,~~September 21, 2022, the Federal Reserve announced an increase to its benchmark federal-funds rate by 0.75% to a range between ~~1.50%~~3.00% and ~~1.75%~~3.25%, and ~~signaled it would continue lifting rates this~~has indicated that ongoing increases in the target range will be appropriate. This was the fifth rate increase announced in 2022 and the third successive increase of 0.75% since June 16, 2022. The year ~~at the most rapid pace in decades as it races to slow the economy and combat inflation that is running at~~began with a ~~40-year high. This is the second increase in 2022. On March 16, 2022, the Federal Reserve announced an increase to its benchmark~~ federal-funds rate ~~by 0.25%~~range of 0.00%-0.25%.

During the three months ended ~~June~~September 30, 2022, net interest income, on a tax-equivalent basis, increased to ~~$61.7~~$64.3 million compared to ~~$50.5~~$51.8 million for the three months ended ~~June~~September 30, 2021. The tax-equivalent net interest margin increased to ~~3.65%~~3.63% for the ~~second~~third quarter of 2022 compared to ~~3.29%~~3.34% in the ~~second~~third quarter of 2021.

During the ~~six~~nine months ended ~~June~~September 30, 2022, net interest income, on a tax-equivalent basis, increased to ~~$118.9~~$183.2 million with a tax-equivalent net interest margin of ~~3.58%~~3.60% compared to net interest income, on a tax-equivalent basis, of ~~$102.7~~$154.5 million and a tax-equivalent net interest margin of ~~3.37%~~3.36% for the ~~six~~nine months ended ~~June~~September 30, 2021.

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Average Balance Sheet, Interest and Yield/Rate Analysis. The following tables present the average balance sheets, interest income, interest expense and the corresponding average yields earned and rates paid for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments.


		Three Months Ended June 30,													Three Months Ended September 30,
		2022						2021							2022						2021
(tax-equivalent basis, dollars in thousands)	(tax-equivalent basis, dollars in thousands)	Average balance		Interest & fees		Yield/ Rate		Average balance		Interest & fees		Yield/ Rate		(tax-equivalent basis, dollars in thousands)	Average balance		Interest & fees		Yield/ Rate		Average balance		Interest & fees		Yield/ Rate
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Federal funds sold and cash investments	Federal funds sold and cash investments	$	226,517	$	468	0.83	%	$	509,886	$	142	0.11	%	Federal funds sold and cash investments	$	195,657	$	1,125	2.28	%	$	525,848	$	216	0.16	%
Investment securities:	Investment securities:													Investment securities:
Taxable investment securities	Taxable investment securities	714,611		4,055		2.27		610,830		3,451		2.26		Taxable investment securities	653,277		3,765		2.31		632,485		3,396		2.15
Investment securities exempt from federal income tax (1)	Investment securities exempt from federal income tax (1)	104,316		876		3.36		123,632		1,004		3.25		Investment securities exempt from federal income tax (1)	95,745		795		3.32		140,887		1,138		3.23
Total securities	Total securities	818,927		4,931		2.41		734,462		4,455		2.43		Total securities	749,022		4,560		2.44		773,372		4,534		2.34
Loans:	Loans:													Loans:
Loans (2)	Loans (2)	5,609,232		62,943		4.50		4,743,098		52,490		4.44		Loans (2)	5,973,378		72,901		4.84		4,720,466		52,699		4.43
Loans exempt from federal income tax (1)	Loans exempt from federal income tax (1)	68,559		651		3.81		83,136		823		3.97		Loans exempt from federal income tax (1)	66,980		667		3.95		79,597		778		3.88
Total loans	Total loans	5,677,791		63,594		4.49		4,826,234		53,313		4.43		Total loans	6,040,358		73,568		4.83		4,800,063		53,477		4.42
Loans held for sale	Loans held for sale	9,865		77		3.15		36,299		261		2.88		Loans held for sale	6,044		60		3.87		15,204		107		2.79
Nonmarketable equity securities	Nonmarketable equity securities	36,338		487		5.38		49,388		609		4.94		Nonmarketable equity securities	37,765		550		5.78		43,873		558		5.05
Total interest-earning assets	Total interest-earning assets	6,769,438		69,557		4.12		6,156,269		58,780		3.83		Total interest-earning assets	7,028,846		79,863		4.51		6,158,360		58,892		3.79
Noninterest-earning assets	Noninterest-earning assets	615,348						589,336						Noninterest-earning assets	618,138						597,153
Total assets	Total assets	$	7,384,786					$	6,745,605					Total assets	$	7,646,984					$	6,755,513
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Deposits:	Deposits:													Deposits:
Checking and money market deposits	Checking and money market deposits	$	2,800,779	$	2,903	0.42	%	$	2,397,644	$	658	0.11	%	Checking and money market deposits	$	2,961,449	$	9,032	1.21	%	$	2,501,254	$	703	0.11	%
Savings deposits	Savings deposits	719,204		87		0.05		666,000		51		0.03		Savings deposits	718,970		149		0.08		664,354		32		0.02
Time deposits	Time deposits	615,614		770		0.50		723,232		2,165		1.20		Time deposits	630,201		1,018		0.64		704,090		1,767		1.00
Brokered time deposits	Brokered time deposits	17,167		50		1.16		28,303		118		1.67		Brokered time deposits	14,478		50		1.35		26,272		82		1.23
Total interest-bearing deposits	Total interest-bearing deposits	4,152,764		3,810		0.37		3,815,179		2,992		0.31		Total interest-bearing deposits	4,325,098		10,249		0.94		3,895,970		2,584		0.26
Short-term borrowings	Short-term borrowings	59,301		22		0.15		65,727		20		0.12		Short-term borrowings	58,271		28		0.19		68,103		21		0.12
FHLB advances and other borrowings	FHLB advances and other borrowings	307,611		1,435		1.87		519,490		2,470		1.91		FHLB advances and other borrowings	340,163		2,424		2.83		440,171		1,993		1.80
Subordinated debt	Subordinated debt	139,232		2,011		5.78		165,155		2,316		5.61		Subordinated debt	139,324		2,010		5.77		138,954		2,011		5.79
Trust preferred debentures	Trust preferred debentures	49,602		624		5.05		49,026		489		4.00		Trust preferred debentures	49,751		821		6.54		49,167		485		3.92
Total interest-bearing liabilities	Total interest-bearing liabilities	4,708,510		7,902		0.67		4,614,577		8,287		0.72		Total interest-bearing liabilities	4,912,607		15,532		1.25		4,592,365		7,094		0.61
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Noninterest-bearing deposits	Noninterest-bearing deposits	1,967,263						1,411,428						Noninterest-bearing deposits	1,969,873						1,434,193
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	66,009						78,521						Other noninterest-bearing liabilities	63,638						77,204
Total noninterest-bearing liabilities	Total noninterest-bearing liabilities	2,033,272						1,489,949						Total noninterest-bearing liabilities	2,033,511						1,511,397
Shareholders’ equity	Shareholders’ equity	643,004						641,079						Shareholders’ equity	700,866						651,751
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,384,786					$	6,745,605					Total liabilities and shareholders’ equity	$	7,646,984					$	6,755,513
Net interest income / net interest margin (3)	Net interest income / net interest margin (3)			$	61,655	3.65	%			$	50,493	3.29	%	Net interest income / net interest margin (3)			$	64,331	3.63	%			$	51,798	3.34	%

(1)Interest income and average rates for tax-exempt loans and securities are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. Tax-equivalent adjustments totaled ~~$321,000~~$307,000 and ~~$383,000~~$402,000 for the three months ended ~~June~~September 30, 2022 and 2021, respectively.

(2)Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.

(3)Net interest margin during the periods presented represents: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.

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		Six Months Ended June 30,													Nine Months Ended September 30,
		2022						2021							2022						2021
(tax-equivalent basis, dollars in thousands)	(tax-equivalent basis, dollars in thousands)	Average balance		Interest & fees		Yield/ Rate		Average balance		Interest & fees		Yield/ Rate		(tax-equivalent basis, dollars in thousands)	Average balance		Interest & fees		Yield/ Rate		Average balance		Interest & fees		Yield/ Rate
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Federal funds sold and cash investments	Federal funds sold and cash investments	$	304,938	$	639	0.42	%	$	430,415	$	238	0.11	%	Federal funds sold and cash investments	$	268,111	$	1,764	0.88	%	$	462,576	$	454	0.13	%
Investment securities:	Investment securities:													Investment securities:
Taxable investment securities	Taxable investment securities	737,569		7,952		2.16		586,640		6,731		2.29		Taxable investment securities	709,163		11,717		2.20		602,090		10,127		2.24
Investment securities exempt from federal income tax (1)	Investment securities exempt from federal income tax (1)	119,002		1,942		3.26		120,842		1,993		3.30		Investment securities exempt from federal income tax (1)	111,165		2,736		3.28		127,597		3,131		3.27
Total securities	Total securities	856,571		9,894		2.31		707,482		8,724		2.47		Total securities	820,328		14,453		2.35		729,687		13,258		2.42
Loans:	Loans:													Loans:
Loans (2)	Loans (2)	5,406,467		119,529		4.46		4,823,745		107,044		4.48		Loans (2)	5,597,514		192,430		4.60		4,788,940		159,743		4.46
Loans exempt from federal income tax (1)	Loans exempt from federal income tax (1)	70,570		1,344		3.84		85,312		1,671		3.95		Loans exempt from federal income tax (1)	69,360		2,012		3.88		83,387		2,449		3.93
Total loans	Total loans	5,477,037		120,873		4.45		4,909,057		108,715		4.47		Total loans	5,666,874		194,442		4.59		4,872,327		162,192		4.45
Loans held for sale	Loans held for sale	20,501		297		2.93		50,752		703		2.79		Loans held for sale	15,629		357		3.05		38,772		810		2.79
Nonmarketable equity securities	Nonmarketable equity securities	36,358		971		5.39		52,644		1,289		4.94		Nonmarketable equity securities	36,832		1,521		5.52		49,688		1,847		4.97
Total interest-earning assets	Total interest-earning assets	6,695,405		132,674		4.00		6,150,350		119,669		3.92		Total interest-earning assets	6,807,774		212,537		4.17		6,153,050		178,561		3.88
Noninterest-earning assets	Noninterest-earning assets	623,224						595,641						Noninterest-earning assets	621,510						595,733
Total assets	Total assets	$	7,318,629					$	6,745,991					Total assets	$	7,429,284					$	6,748,783
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Deposits:	Deposits:													Deposits:
Checking and money market deposits	Checking and money market deposits	$	2,705,882	$	4,156	0.31	%	$	2,400,540	$	1,321	0.11	%	Checking and money market deposits	$	2,792,007	$	13,188	0.63	%	$	2,434,480	$	2,024	0.11	%
Savings deposits	Savings deposits	707,111		137		0.04		643,190		89		0.03		Savings deposits	711,108		287		0.05		650,323		121		0.02
Time deposits	Time deposits	621,274		1,570		0.51		702,405		4,513		1.30		Time deposits	624,282		2,588		0.55		702,973		6,280		1.19
Brokered time deposits	Brokered time deposits	19,290		108		1.13		40,168		252		1.26		Brokered time deposits	17,668		157		1.19		35,485		334		1.26
Total interest-bearing deposits	Total interest-bearing deposits	4,053,557		5,971		0.30		3,786,303		6,175		0.33		Total interest-bearing deposits	4,145,065		16,220		0.52		3,823,261		8,759		0.31
Short-term borrowings	Short-term borrowings	64,642		45		0.14		70,608		44		0.13		Short-term borrowings	62,495		73		0.16		69,764		65		0.12
FHLB advances and other borrowings	FHLB advances and other borrowings	309,436		2,647		1.72		568,226		5,040		1.79		FHLB advances and other borrowings	319,791		5,071		2.12		525,072		7,033		1.79
Subordinated debt	Subordinated debt	139,186		4,022		5.78		167,486		4,683		5.59		Subordinated debt	139,233		6,032		5.78		157,871		6,694		5.65
Trust preferred debentures	Trust preferred debentures	49,527		1,138		4.64		48,958		980		4.04		Trust preferred debentures	49,603		1,959		5.28		49,028		1,465		4.00
Total interest-bearing liabilities	Total interest-bearing liabilities	4,616,348		13,823		0.60		4,641,581		16,922		0.74		Total interest-bearing liabilities	4,716,187		29,355		0.83		4,624,996		24,016		0.69
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Noninterest-bearing deposits	Noninterest-bearing deposits	1,978,277						1,391,129						Noninterest-bearing deposits	1,975,445						1,405,641
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	73,878						80,366						Other noninterest-bearing liabilities	70,427						78,883
Total noninterest-bearing liabilities	Total noninterest-bearing liabilities	2,052,155						1,471,495						Total noninterest-bearing liabilities	2,045,872						1,484,524
Shareholders’ equity	Shareholders’ equity	650,126						632,915						Shareholders’ equity	667,225						639,263
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,318,629					$	6,745,991					Total liabilities and shareholders’ equity	$	7,429,284					$	6,748,783
Net interest income / net interest margin (3)	Net interest income / net interest margin (3)			$	118,851	3.58	%			$	102,747	3.37	%	Net interest income / net interest margin (3)			$	183,182	3.60	%			$	154,545	3.36	%

(1)Interest income and average rates for tax-exempt loans and securities are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. Tax-equivalent adjustments totaled ~~$690,000~~$1.0 million and ~~$769,000~~$1.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

(2)Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.

Interest Rates and Operating Interest Differential. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning

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assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. Changes that are not due solely to volume or rate have been allocated proportionally to the change due to volume and the change due to rate.


		Three Months Ended June 30, 2022 compared with Three Months Ended June 30, 2021							Six Months Ended June 30, 2022 compared with Six Months Ended June 30, 2021										Three Months Ended September 30, 2022 compared with Three Months Ended September 30, 2021									Nine Months Ended September 30, 2022 compared with Nine Months Ended September 30, 2021
		Change due to:				Interest Variance			Change due to:							Interest Variance			Change due to:						Interest Variance			Change due to:						Interest Variance
(tax-equivalent basis, dollars in thousands)	(tax-equivalent basis, dollars in thousands)	Volume		Rate				Volume			Rate			(tax-equivalent basis, dollars in thousands)	Volume					Rate				Volume				Rate
Interest-earning assets:	Interest-earning assets:																				Interest-earning assets:
Federal funds sold and cash investments	Federal funds sold and cash investments	$	(332)	$	658	$	326		$	(166)		$	567			$	401	Federal funds sold and cash investments	$	(1,017)		$	1,926			$	909		$	(735)		$	2,045		$	1,310
Investment securities:	Investment securities:																	Investment securities:
Taxable investment securities	Taxable investment securities	588		16		604			1,680			(459)				1,221		Taxable investment securities	116			253			369			1,785			(195)			1,590
Investment securities exempt from federal income tax	Investment securities exempt from federal income tax	(160)		32		(128)			(30)			(21)				(51)		Investment securities exempt from federal income tax	(370)			27			(343)			(404)			9			(395)
Total securities	Total securities	428		48		476			1,650			(480)				1,170		Total securities	(254)			280			26			1,381			(186)			1,195
Loans:	Loans:																	Loans:
Loans	Loans	9,652		801		10,453			12,907			(422)				12,485		Loans	14,639			5,563			20,202			27,384			5,303			32,687
Loans exempt from federal income tax	Loans exempt from federal income tax	(141)		(31)		(172)			(285)			(42)				(327)		Loans exempt from federal income tax	(124)			13			(111)			(409)			(28)			(437)
Total loans	Total loans	9,511		770		10,281			12,622			(464)				12,158		Total loans	14,515			5,576			20,091			26,975			5,275			32,250
Loans held for sale	Loans held for sale	(199)		15		(184)			(429)			23				(406)		Loans held for sale	(76)			29			(47)			(505)			52			(453)
Nonmarketable equity securities	Nonmarketable equity securities	(168)		46		(122)			(417)			99				(318)		Nonmarketable equity securities	(83)			75			(8)			(505)			179			(326)
Total interest-earning assets	Total interest-earning assets	$	9,240	$	1,537	$	10,777		$	13,260		$	(255)			$	13,005	Total interest-earning assets	$	13,085		$	7,886		$	20,971		$	26,611		$	7,365		$	33,976
Interest-bearing liabilities:	Interest-bearing liabilities:																	Interest-bearing liabilities:
Deposits:	Deposits:																	Deposits:
Checking and money market deposits	Checking and money market deposits	$	265	$	1,980	$	2,245		$	319		$	2,516			$	2,835	Checking and money market deposits	$	766		$	7,563		$	8,329		$	993		$	10,171		$	11,164
Savings deposits	Savings deposits	5		31		36			11			37				48		Savings deposits	7			110			117			18			148			166
Time deposits	Time deposits	(228)		(1,167)		(1,395)			(363)			(2,580)				(2,943)		Time deposits	(153)			(596)			(749)			(514)			(3,178)			(3,692)
Brokered time deposits	Brokered time deposits	(39)		(29)		(68)			(124)			(20)				(144)		Brokered time deposits	(38)			6			(32)			(164)			(13)			(177)
Total interest-bearing deposits	Total interest-bearing deposits	3		815		818			(157)			(47)				(204)		Total interest-bearing deposits	582			7,083			7,665			333			7,128			7,461
Short-term borrowings	Short-term borrowings	(2)		4		2			(4)			5				1		Short-term borrowings	(3)			10			7			(8)			16			8
FHLB advances and other borrowings	FHLB advances and other borrowings	(998)		(37)		(1,035)			(2,254)			(139)				(2,393)		FHLB advances and other borrowings	(582)			1,013			431			(3,002)			1,040			(1,962)
Subordinated debt	Subordinated debt	(368)		63		(305)			(801)			140				(661)		Subordinated debt	5			(6)			(1)			(798)			136			(662)
Trust preferred debentures	Trust preferred debentures	6		129		135			12			146				158		Trust preferred debentures	8			328			336			20			474			494
Total interest-bearing liabilities	Total interest-bearing liabilities	$	(1,359)	$	974	$	(385)		$	(3,204)		$	105			$	(3,099)	Total interest-bearing liabilities	$	10		$	8,428		$	8,438		$	(3,455)		$	8,794		$	5,339
Net interest income	Net interest income	$	10,599	$	563	$	11,162		$	16,464		$	(360)			$	16,104	Net interest income	$	13,075		$	(542)		$	12,533		$	30,066		$	(1,429)		$	28,637

Interest Income. Interest income, on a tax-equivalent basis, increased ~~$10.8~~$21.0 million to ~~$69.6~~$79.9 million in the three months ended ~~June~~September 30, 2022 as compared to the same quarter in 2021, primarily due to growth in earning assets. The yield on earning assets increased 2972 basis points to ~~4.12%~~4.51% from ~~3.83%~~3.79%, primarily due to the impact of increasing market interest rates.

Average earning assets increased to ~~$6.77~~$7.03 billion in the ~~second~~third quarter of 2022 from $6.16 billion in the same quarter in 2021. ~~Increases~~An increase in average loans of $1.24 billion was partially offset by decreases in federal funds sold and cash investments and investment securities of ~~$851.6~~$330.2 million and ~~$84.5~~$24.4 million, ~~respectively, resulted in the increase in average earning assets.~~respectively.

Average loans increased ~~$851.6 million~~$1.24 billion in the ~~second~~third quarter of 2022 compared to the same quarter ~~one year prior.~~of 2021. Average commercial loans ~~decreased $15.5~~increased $99.3 million. Included in commercial loans are commercial FHA warehouse lines and PPP loans. Commercial FHA warehouse lines decreased ~~$144.4~~$39.7 million to ~~$106.6~~$57.7 million in the ~~second~~third quarter of 2022. PPP loan balances averaged ~~$14.2~~$4.5 million in ~~second~~third quarter of 2022, compared to ~~$195.7~~$114.2 million in the ~~second~~third quarter of 2021. Excluding the changes in the commercial FHA warehouse line and PPP loan portfolios, average commercial loans increased ~~$301.5~~$248.7 million in the ~~second~~third quarter of 2022 compared to the same period one year prior.

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Average commercial real estate loans increased this quarter by ~~$697.5~~$855.8 million, compared to the prior year ~~second~~third quarter. Average balances in our consumer loans, construction loans and lease portfolios also increased this quarter by ~~$191.1~~$230.3 million, $23.1 million and ~~$31.7~~$36.0 million, respectively, compared to the prior year ~~second~~third quarter. Consumer loan growth was primarily the result of our ~~continuing relationship with GreenSky and our~~ new relationship with an additional consumer loan origination ~~firm. These increases were partially offset by payoffs~~firm and ~~repayments~~our continuing relationship with GreenSky. We intend to reduce new originations in the ~~residential real estate portfolio.~~GreenSky portfolio during the fourth quarter of 2022 and would expect to see the portfolio runoff by approximately $50 million by the end of 2022.

For the ~~six~~nine months ended ~~June~~September 30, 2022, interest income, on a tax-equivalent basis, increased ~~$13.0~~$34.0 million to ~~$132.7~~$212.5 million as compared to the same period in 2021, primarily due to growth in earning assets. The yield on earning assets increased 829 basis points to ~~4.00%~~4.17% from ~~3.92%~~3.88%, primarily due to the impact of increasing market interest rates.

Average earning assets increased to ~~$6.70~~$6.81 billion in the first ~~six~~nine months of 2022 from $6.15 billion in the same period in 2021. Average loans and investment securities increased ~~$568.0~~$794.5 million and ~~$149.1 million.~~$90.6 million, respectively. These increases were partially offset by a ~~$125.5~~$194.5 million decrease in federal funds sold and cash investments.

Average commercial loans decreased ~~$126.5 million.~~$50.4 million for the nine months ended September 30, 2022 compared to the same period of 2021. Commercial FHA warehouse lines and PPP loans accounted for ~~$174.2~~$88.3 million and ~~$161.6~~$123.1 million, respectively, of this decrease. Excluding the changes in the commercial FHA warehouse line and PPP loan portfolios, average commercial loans increased ~~$209.4~~$161.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period one year prior.

Average balances in our commercial real estate loans and lease portfolios increased by ~~$561.3~~$660.5 million and ~~$26.2~~$29.5 million, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period of 2021. Average consumer loans also increased ~~$165.8~~$190.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period of 2021. These increases were partially offset by payoffs and repayments in the residential real estate portfolio.

Interest Expense. Interest expense ~~decreased $0.4~~increased $8.4 million to ~~$7.9~~$15.5 million for the three months ended ~~June~~September 30, 2022 compared to the three months ended ~~June~~September 30, 2021. The cost of interest-bearing liabilities ~~decreased~~increased to ~~0.67%~~1.25% for the ~~second~~third quarter of 2022 compared to ~~0.72%~~0.61% for the ~~second~~third quarter of 2021 due to the ~~prepayment~~increase in deposit costs as a result of ~~FHLB advances and redemption of subordinated notes, as discussed previously.~~the rate increases announced by the Federal Reserve.

Interest expense on deposits increased ~~$0.8~~$7.7 million to ~~$3.8~~$10.2 million for the three months ended ~~June~~September 30, 2022 from the comparable period in 2021. The increase was primarily due to an increase in rates paid on deposits. Average balances of interest-bearing deposit accounts increased ~~$337.6~~$429.1 million, or ~~8.8%~~11.0%, to ~~$4.15~~$4.33 billion for the three months ended ~~June~~September 30, 2022 compared to the same period one year earlier. The increase in volume was attributable to increases of retail deposits, commercial deposits and brokered ~~time~~ deposits of ~~$31.3~~$125.8 million, ~~$120.4~~$114.0 million, and ~~$107.2~~$92.3 million, respectively. In addition, our Insured Cash Sweep product balances increased ~~$59.8~~$54.9 million.

For the ~~six~~nine month period ended ~~June~~September 30, 2022, interest expense ~~decreased $3.1~~increased $5.3 million to ~~$13.8~~$29.4 million compared to the ~~six~~nine months ended ~~June~~September 30, 2021. The cost of interest-bearing liabilities ~~decreased~~increased to ~~0.60%~~0.83% for the first ~~six~~nine months of 2022 compared to ~~0.74%~~0.69% for the same period of 2021. Interest expense on deposits ~~decreased~~increased to ~~$6.0~~$16.2 million from ~~$6.2~~$8.8 million for the comparable period in 2021, primarily due to ~~a decrease~~increases in interest rates on deposits.

Interest expense on FHLB advances and other borrowings decreased ~~$1.0 million and $2.4~~$2.0 million for the ~~three and six~~nine months ended ~~June~~September 30, 2022, ~~respectively,~~ from the comparable ~~periods~~period in 2021. Average balances decreased ~~$211.9 million and $258.8~~$205.3 million for the ~~three and six~~nine months ended ~~June~~September 30, 2022, ~~respectively,~~ from the comparable ~~periods~~period in 2021 due to the Company prepaying $265.0 million of longer term FHLB advances during 2021.

Interest expense on subordinated debt decreased $0.3 million and $0.7 million for the three and six months ended June 30, 2022, respectively, from the comparable periods in 2021 primarily due to the redemption of $31.1 million of subordinated debt on June 18, 2021. The interest rate on the redeemed subordinated notes was 4.54%.

Provision for Credit Losses. The Company's provision for credit losses totaled ~~$5.4~~$7.0 million for the three months ended ~~June~~September 30, 2022, ~~with $4.7 million expense~~all of which was attributable to ~~loans and $0.7 million expense related to unfunded loan commitments.~~loans. Provision for credit losses for the three months ended ~~June~~September 30, 2021 was a benefit of ~~$0.5 million for the three months ended June 30, 2021.~~$0.2 million. No provision for credit losses on loans was recorded in the quarter, while ~~negative provision expenses~~a benefit of ~~$0.3 million and~~ $0.2 million ~~were~~was recorded for credit losses related to ~~unfunded loan commitments and~~ investment ~~securities, respectively.~~securities. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the Company recorded provision expense of ~~$9.6~~$16.6 million and ~~$3.1~~$2.9 million, respectively. The increase in the provision for credit losses for the three and ~~six~~nine months ended ~~June~~September 30, 2022 compared to prior year periods was primarily due to the growth and changes in the mix of our loan portfolio.

~~Table of Contents~~

The provision for credit losses on loans made during the three and ~~six~~nine months ended ~~June~~September 30, 2022 was made at a level deemed necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine

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

Noninterest Income. Noninterest income ~~decreased 16.1% and 6.2%~~increased 4.5% for the three ~~and six~~ months ended ~~June~~September 30, 2022, ~~respectively,~~ compared to the same ~~periods~~period one year prior, and decreased 2.8% for the nine months ended September 30, 2022, compared to the same period one year prior. The following table sets forth the major components of our noninterest income for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Increase (decrease)			Six Months Ended June 30,							Increase (decrease)			Three Months Ended September 30,						Increase (decrease)			Nine Months Ended September 30,						Increase (decrease)
(dollars in thousands)	(dollars in thousands)	2022		2021				2022			2021			(dollars in thousands)	2022					2021				2022				2021
Noninterest income:	Noninterest income:																				Noninterest income:
Wealth management revenue	Wealth management revenue	$	6,143	$	6,529	$	(386)		$	13,282		$	12,460			$	822	Wealth management revenue	$	6,199		$	7,175			$	(976)		$	19,481		$	19,635		$	(154)

Residential mortgage banking revenue	Residential mortgage banking revenue	384		1,562		(1,178)			983			3,136				(2,153)		Residential mortgage banking revenue	210			1,287			(1,077)			1,193			4,423			(3,230)
Service charges on deposit accounts	Service charges on deposit accounts	2,304		1,916		388			4,372			3,742				630		Service charges on deposit accounts	2,597			2,268			329			6,969			6,010			959
Interchange revenue	Interchange revenue	3,590		3,797		(207)			6,870			7,172				(302)		Interchange revenue	3,531			3,651			(120)			10,401			10,823			(422)
(Loss) gain on sales of investment securities, net	(Loss) gain on sales of investment securities, net	(101)		377		(478)			(101)			377				(478)		(Loss) gain on sales of investment securities, net	(129)			160			(289)			(230)			537			(767)
Impairment on commercial mortgage servicing rights	Impairment on commercial mortgage servicing rights	(869)		(1,148)		279			(1,263)			(2,423)				1,160		Impairment on commercial mortgage servicing rights	—			(3,037)			3,037			(1,263)			(5,460)			4,197
Company-owned life insurance	Company-owned life insurance	840		863		(23)			1,859			1,723				136		Company-owned life insurance	929			869			60			2,788			2,592			196
Other income	Other income	2,322		3,521		(1,199)			4,224			6,046				(1,822)		Other income	2,489			2,770			(281)			6,713			8,816			(2,103)
Total noninterest income	Total noninterest income	$	14,613	$	17,417	$	(2,804)		$	30,226		$	32,233			$	(2,007)	Total noninterest income	$	15,826		$	15,143		$	683		$	46,052		$	47,376		$	(1,324)

Wealth management revenue. Wealth management revenue decreased ~~$0.4~~$1.0 million and $0.2 million for the three and nine months ended ~~June~~September 30, 2022, respectively, as compared to the same ~~period in 2021, and was $0.8 million higher for the six months ended June 30, 2022 as compared to the same period~~periods in 2021. The Company added $399.7 million of assets under administration from the acquisition of ATG Trust at June 1, 2021. However, market performance in 2022 has resulted in a decrease in assets under administration, and a resulting decrease in revenue. Assets under administration decreased to ~~$3.60~~$3.45 billion at ~~June~~September 30, 2022 from ~~$4.08~~$4.06 billion at ~~June~~September 30, 2021.

Residential mortgage banking revenue. Residential mortgage banking revenue for the three months ended ~~June~~September 30, 2022 totaled ~~$0.4~~$0.2 million, compared to ~~$1.6~~$1.3 million for the same period in 2021, primarily attributable to a decrease in production and the higher interest rate environment. Loans originated for sale into the secondary market in the ~~second~~third quarter of 2022 totaled ~~$19.8~~$20.6 million, with ~~23%~~13% representing refinance transactions versus purchase transactions, compared to loans originated during the same period one year prior, which totaled ~~$52.2~~$47.3 million, with ~~48%~~28% representing refinance transactions.

For the ~~six~~nine months ended ~~June~~September 30, 2022, residential mortgage banking revenue totaled ~~$1.0~~$1.2 million, compared to ~~$3.1~~$4.4 million for the same period in 2021. Loans originated for sale into the secondary market in the first ~~half~~three quarters of 2022 totaled ~~$45.3~~$66.0 million, with ~~27%~~21% representing refinance transactions versus purchase transactions. Loans originated during the same period one year prior totaled ~~$124.9~~$172.2 million, with ~~60%~~50% representing refinance transactions.

Impairment of Commercial Mortgage Servicing Rights. Impairment of commercial mortgage servicing rights was ~~$0.9~~$1.3 million and ~~$1.3~~$5.5 million for the ~~three and six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The impairment resulted from loan prepayments as borrowers refinanced their loans. As previously mentioned, the commercial servicing rights were transferred to held for sale in the third quarter of 2022 at the lower of their carrying value or fair value less estimated costs to sell. No impairment was required with the transfer. Loans serviced for others totaled ~~$2.46~~$2.36 billion and ~~$3.15~~$2.87 billion at ~~June~~September 30, 2022 and 2021, respectively.

Other Income. Other income decreased ~~$1.2~~$0.3 million and ~~$1.9~~$2.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, as compared to the same periods in 2021. Net unrealized gains on our equity securities decreased ~~$0.6~~$0.2 million and ~~$1.1~~$1.4 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, compared to the same periods in 2021. In 2021, the Company recognized a gain of $0.5 million on the sale of OREO in the second quarter and a gain of $0.3 million from the termination of a hedged interest rate swap in the first quarter.

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Noninterest Expense. The following table sets forth the major components of noninterest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Increase (decrease)			Six Months Ended June 30,							Increase (decrease)			Three Months Ended September 30,						Increase (decrease)			Nine Months Ended September 30,						Increase (decrease)
(dollars in thousands)	(dollars in thousands)	2022		2021				2022			2021			(dollars in thousands)	2022					2021				2022				2021
Noninterest expense:	Noninterest expense:																				Noninterest expense:
Salaries and employee benefits	Salaries and employee benefits	$	22,645	$	22,071	$	574		$	44,515		$	42,599			$	1,916	Salaries and employee benefits	$	22,889		$	22,175			$	714		$	67,404		$	64,774		$	2,630
Occupancy and equipment	Occupancy and equipment	3,489		3,796		(307)			7,244			7,736				(492)		Occupancy and equipment	3,850			3,701			149			11,094			11,437			(343)
Data processing	Data processing	6,082		6,288		(206)			11,955			12,281				(326)		Data processing	6,093			6,495			(402)			18,048			18,776			(728)
Professional	Professional	1,516		5,549		(4,033)			3,488			7,734				(4,246)		Professional	1,693			1,738			(45)			5,181			9,472			(4,291)
Marketing	Marketing	733		700		33			1,421			1,177				244		Marketing	1,026			860			166			2,447			2,037			410
Communications	Communications	635		824		(189)			1,347			1,646				(299)		Communications	587			689			(102)			1,934			2,335			(401)
Amortization of intangible assets	Amortization of intangible assets	1,318		1,470		(152)			2,716			2,985				(269)		Amortization of intangible assets	1,361			1,445			(84)			4,077			4,430			(353)

FHLB advances prepayment fees	FHLB advances prepayment fees	—		3,669		(3,669)			—			3,677				(3,677)		FHLB advances prepayment fees	—			—			—			—			3,677			(3,677)
Other expense	Other expense	4,921		4,574		347			9,537			8,185				1,352		Other expense	5,997			4,189			1,808			15,534			12,374			3,160
Total noninterest expense	Total noninterest expense	$	41,339	$	48,941	$	(7,602)		$	82,223		$	88,020			$	(5,797)	Total noninterest expense	$	43,496		$	41,292		$	2,204		$	125,719		$	129,312		$	(3,593)

Salaries and employee benefits. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, salaries and employee benefits expense increased ~~$0.6~~$0.7 million and ~~$1.9~~$2.6 million, respectively, as compared to the same periods in 2021, primarily due to annual salary increases in 2022 and a modest increase in staffing levels. The Company had ~~932~~930 employees at ~~June~~September 30, 2022 compared to ~~914~~905 employees at ~~June~~September 30, 2021.

Professional fees. For the ~~three and six~~nine months ended ~~June~~September 30, 2022, professional fees decreased ~~$4.0~~$4.3 million ~~and $4.2 million, respectively,~~ as compared to the same ~~periods~~period in 2021. In 2021, the Company incurred $3.6 million of consulting and legal expenses ~~incurred~~ related to the settlement of a tax issue, as previously discussed.

Other expense. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, other expense increased ~~$0.4~~$1.8 million and ~~$1.4~~$3.2 million, respectively, as compared to the same periods in 2021, primarily as a result of increased business activities.

Income Tax Expense. Income tax expense was ~~$7.3~~$5.9 million for each of the three months ended September 30, 2022 and 2021. The resulting effective tax rates were 19.9% and 23.1% for the three months ended ~~June~~September 30, 2022 and 2021, respectively. The decrease in the Company’s effective tax rate for the three months ended September 30, 2022 was primarily related to a reduction in the state effective tax rate based on the Company’s geographic footprint.

Income tax expense was $19.8 million for the nine months ended September 30, 2022, as compared to ~~an income tax benefit of $1.1~~$10.3 million for the ~~three~~nine months ended ~~June~~September 30, 2021. The resulting effective tax rates were 23.0% and 15.0% for the nine months ended September 30, 2022 and 2021, respectively. The Company's income tax expense and related effective tax rate for the ~~second quarter of~~nine months ended September 30, 2021 benefited from the $~~6.75~~6.8 million in settlements related to the treatment of gains recognized on FDIC-assisted ~~transactions.~~ For the six months ended June 30, 2022 and 2021, income tax expense was $13.9 million and $4.4 million, respectively. The effective tax rate was 24.6% for the first half of 2022 compared to 10.3% for the comparable period in 2021.transactions discussed earlier.

Financial Condition

Assets. Total assets ~~were~~increased to $7.82 billion at September 30, 2022, as compared to $7.44 billion at ~~both June 30, 2022 and~~ December 31, 2021.

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Loans. The loan portfolio is the largest category of our assets. At ~~June~~September 30, 2022, total loans were ~~$5.80~~$6.20 billion compared to $5.22 billion at December 31, 2021. The following table shows loans by category as of ~~June~~September 30, 2022 and December 31, 2021:


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
(dollars in thousands)	(dollars in thousands)	Book Value		%		Book Value		%		(dollars in thousands)	Book Value		%		Book Value		%
Loans:	Loans:									Loans:
Commercial:	Commercial:									Commercial:
Equipment finance loans	Equipment finance loans	$	546,267	9.4	%	$	521,973	10.0	%	Equipment finance loans	$	577,323	9.3	%	$	521,973	10.0	%
Equipment finance leases	Equipment finance leases	439,202		7.6		423,280		8.1		Equipment finance leases	457,611		7.4		423,280		8.1
Commercial FHA lines	Commercial FHA lines	23,872		0.4		91,927		1.8		Commercial FHA lines	51,309		0.8		91,927		1.8
SBA PPP loans	SBA PPP loans	6,409		0.1		52,477		1.0		SBA PPP loans	2,810		—		52,477		1.0
Other commercial loans	Other commercial loans	814,710		14.1		783,811		14.9		Other commercial loans	904,841		14.6		783,811		14.9
Total commercial loans and leases	Total commercial loans and leases	1,830,460		31.6		1,873,468		35.8		Total commercial loans and leases	1,993,894		32.2		1,873,468		35.8
Commercial real estate	Commercial real estate	2,335,655		40.3		1,816,828		34.8		Commercial real estate	2,466,303		39.8		1,816,828		34.8
Construction and land development	Construction and land development	203,955		3.5		193,749		3.7		Construction and land development	225,549		3.6		193,749		3.7
Residential real estate	Residential real estate	340,103		5.9		338,151		6.5		Residential real estate	356,225		5.7		338,151		6.5
Consumer	Consumer	1,085,371		18.7		1,002,605		19.2		Consumer	1,156,480		18.7		1,002,605		19.2
Total loans, gross	Total loans, gross	5,795,544		100.0	%	5,224,801		100.0	%	Total loans, gross	6,198,451		100.0	%	5,224,801		100.0	%
Allowance for credit losses on loans	Allowance for credit losses on loans	(54,898)				(51,062)				Allowance for credit losses on loans	(58,639)				(51,062)
Total loans, net	Total loans, net	$	5,740,646			$	5,173,739			Total loans, net	$	6,139,812			$	5,173,739

Total loans increased ~~$570.7~~$973.7 million to ~~$5.80~~$6.20 billion at ~~June~~September 30, 2022 as compared to December 31, 2021. The loan growth was primarily reflected in our commercial loans and leases, commercial real estate and consumer portfolios, which increased ~~$518.8~~$120.4 million, $649.5 million and ~~$82.8~~$153.9 million, respectively.

Commercial loans and leases, which includes PPP loans and commercial FHA warehouse lines, ~~decreased $43.0~~increased $120.4 million to ~~$1.83~~$1.99 billion at ~~June~~September 30, 2022 as compared to December 31, 2021. PPP loans at ~~June~~September 30, 2022 totaled ~~$6.4~~$2.8 million, a decrease of ~~$46.1~~$49.7 million from December 31, 2021. Advances on commercial FHA warehouse lines decreased ~~$68.1~~$40.6 million to ~~$23.9~~$51.3 million at ~~June~~September 30, 2022. Excluding the decreases in PPP loans and commercial FHA warehouse lines, commercial loans and leases increased ~~$71.1~~$210.7 million.

The principal segments of our loan portfolio are discussed below:

Commercial loans. We provide a mix of variable and fixed rate commercial loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and farm operations. Commercial loans generally include lines of credit and loans with maturities of five years or less. The loans are generally made with business operations as the primary source of repayment, but may also include collateralization by inventory, accounts receivable and equipment, and generally include personal guarantees. The commercial loan category also includes loans originated by the equipment financing business that are secured by the underlying equipment.

Commercial real estate loans. Our commercial real estate loans consist of both real estate occupied by the borrower for ongoing operations and non-owner occupied real estate properties. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner occupied offices, warehouses and production facilities, office buildings, hotels, mixed-use residential and commercial facilities, retail centers, multifamily properties and assisted living facilities. Our commercial real estate loan portfolio also includes farmland loans. Farmland loans are generally made to a borrower actively involved in farming rather than to passive investors.

Construction and land development loans. Our construction and land development loans are comprised of residential construction, commercial construction and land acquisition and development loans. Interest reserves are generally established on real estate construction loans.

Residential real estate loans. Our residential real estate loans consist of residential properties that generally do not qualify for secondary market sale.

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Consumer loans. Our consumer loans include direct personal loans, indirect automobile loans, lines of credit and installment loans originated through home improvement specialty retailers and contractors. Personal loans are generally secured by automobiles, boats and other types of personal property and are made on an installment basis.

Lease financing. Our equipment leasing business provides financing leases to varying types of businesses nationwide for purchases of business equipment and software. The financing is secured by a first priority interest in the financed asset and generally requires monthly payments.

The following table shows the contractual maturities of our loan portfolio and the distribution between fixed and adjustable interest rate loans at ~~June~~September 30, 2022:


		June 30, 2022																			September 30, 2022
		Within One Year				One Year to Five Years				Five Years to 15 Years				After 15 Years							Within One Year				One Year to Five Years				Five Years to 15 Years				After 15 Years
(dollars in thousands)	(dollars in thousands)	Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Total		(dollars in thousands)	Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Total
Commercial	Commercial	$	35,266	$	380,389	$	580,444	$	113,358	$	180,823	$	93,638	$	2,972	$	4,368	$	1,391,258	Commercial	$	75,162	$	473,053	$	606,770	$	87,295	$	192,833	$	97,036	$	—	$	4,134	$	1,536,283
Commercial real estate	Commercial real estate	220,411		150,954		849,634		463,866		413,015		197,294		5,438		35,043		2,335,655		Commercial real estate	179,868		170,173		953,862		519,247		425,956		183,182		5,727		28,288		2,466,303
Construction and land development	Construction and land development	1,889		62,429		28,723		82,905		8,823		18,104		122		960		203,955		Construction and land development	3,485		58,030		30,473		101,061		9,073		20,635		1,024		1,768		225,549
Total commercial loans	Total commercial loans	257,566		593,772		1,458,801		660,129		602,661		309,036		8,532		40,371		3,930,868		Total commercial loans	258,515		701,256		1,591,105		707,603		627,862		300,853		6,751		34,190		4,228,135
Residential real estate	Residential real estate	1,736		5,898		8,735		18,445		34,203		37,159		137,306		96,621		340,103		Residential real estate	1,878		5,091		8,463		18,272		33,016		39,010		143,508		106,987		356,225
Consumer	Consumer	2,265		1,290		1,074,110		4,941		2,765		—		—		—		1,085,371		Consumer	1,834		4,012		1,130,138		555		19,941		—		—		—		1,156,480
Lease financing	Lease financing	10,161		—		331,152		—		97,889		—		—		—		439,202		Lease financing	10,773		—		344,919		—		101,919		—		—		—		457,611
Total loans	Total loans	$	271,728	$	600,960	$	2,872,798	$	683,515	$	737,518	$	346,195	$	145,838	$	136,992	$	5,795,544	Total loans	$	273,000	$	710,359	$	3,074,625	$	726,430	$	782,738	$	339,863	$	150,259	$	141,177	$	6,198,451

Loan Quality

We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio. Our underwriting policies and practices govern the risk profile, credit and geographic concentration for our loan portfolio. We also have what we believe to be a comprehensive methodology to monitor these credit quality standards, including a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level. In addition to our allowance for credit losses on loans, our purchase discounts on acquired loans provide additional protections against credit losses.

Analysis of the Allowance for Credit Losses on Loans. The allowance for credit losses on loans was ~~$54.9~~$58.6 million, or 0.95% of total loans, at ~~June~~September 30, 2022 compared to $51.1 million, or 0.98% of total loans, at December 31, 2021. The following table allocates the allowance for credit losses on loans, or the allowance, by loan category:


		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
(dollars in thousands)	(dollars in thousands)	Allowance		% (1)	Allowance		% (1)	(dollars in thousands)	Allowance		% (1)	Allowance		% (1)
Commercial	Commercial	$	12,748	0.92%	$	14,375	0.99%	Commercial	$	14,364	0.93%	$	14,375	0.99%
Commercial real estate	Commercial real estate	27,874		1.19	22,993		1.27	Commercial real estate	28,430		1.15	22,993		1.27
Construction and land development	Construction and land development	1,101		0.54	972		0.50	Construction and land development	1,591		0.71	972		0.50
Total commercial loans	Total commercial loans	41,723		1.06	38,340		1.11	Total commercial loans	44,385		1.05	38,340		1.11
Residential real estate	Residential real estate	3,416		1.00	2,695		0.80	Residential real estate	4,171		1.17	2,695		0.80
Consumer	Consumer	2,994		0.28	2,558		0.26	Consumer	3,405		0.29	2,558		0.26
Lease financing	Lease financing	6,765		1.54	7,469		1.76	Lease financing	6,678		1.46	7,469		1.76
Total allowance for credit losses on loans	Total allowance for credit losses on loans	$	54,898	0.95%	$	51,062	0.98%	Total allowance for credit losses on loans	$	58,639	0.95%	$	51,062	0.98%

(1)Represents the percentage of the allowance to total loans in the respective category.

We measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan and borrower attributes and certain macroeconomic variables. Models are adjusted to reflect the impact of certain current macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.

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The allowance allocated to commercial loans totaled ~~$12.7~~$14.4 million, or ~~0.92%~~0.93% of total commercial loans, at ~~June~~September 30, 2022, ~~decreasing $1.7~~compared to $14.4 million, ~~from $14.4 million~~or 0.99%, at December 31, 2021. Modeled expected credit losses decreased ~~$2.1~~$0.3 million and qualitative factor ("Q-Factor") adjustments related to commercial loans increased ~~$1.0~~$1.9 million. Specific allocations for commercial loans that were evaluated for expected credit losses on an individual basis decreased from $2.9 million at December 31, 2021 to ~~$2.4~~$1.3 million at ~~June~~September 30, 2022.

The allowance allocated to commercial real estate loans totaled ~~$27.9~~$28.4 million, or ~~1.19%~~1.15% of total commercial real estate loans, at ~~June~~September 30, 2022, increasing ~~$4.9~~$5.4 million from $23.0 million, or 1.27% of total commercial real estate loans, at December 31, 2021. Modeled expected credit losses related to commercial real estate loans increased ~~$1.7~~$1.0 million and Q-Factor adjustments related to commercial real estate loans increased ~~$3.1~~$4.5 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increased from $0.1 million at December 31, 2021 to $0.3 million at June 30, 2022.

The allowance allocated to the lease portfolio totaled ~~$6.8~~$6.7 million, or ~~1.54%~~1.46% of total commercial leases, at ~~June~~September 30, 2022, decreasing ~~$0.7~~$0.8 million from $7.5 million, or 1.76% of total commercial leases at December 31, 2021. Modeled expected credit losses related to commercial leases decreased ~~$0.5 million and~~$0.7 million. Q-Factor adjustments related to commercial leases ~~decreased $0.2 million.~~were unchanged.

As previously stated, the overall loan portfolio increased ~~$570.7~~$973.7 million, or ~~10.9%~~18.6%, which included a ~~$518.8~~$649.5 million, or ~~28.6%~~35.7%, increase in commercial real estate loans and a ~~$55.1~~$176.4 million, or ~~4.2%~~13.5%, increase in increase in commercial loans, excluding PPP loans and commercial FHA warehouse lines. The weighted average risk grade for commercial and industrial loans of ~~4.35~~4.36 at ~~June~~September 30, 2022, did not change significantly from 4.53 at December 31, 2021. The weighted-average risk grade for commercial real estate loans also decreased slightly to ~~4.93~~4.87 at ~~June~~September 30, 2022 from 5.02 at December 31, 2021.

In estimating expected credit losses as of ~~June~~September 30, 2022, we utilized certain forecasted macroeconomic variables from Oxford Economics ("Oxford") and other sources in our ~~models.~~ models:

•Oxford expects the US economy to experience a mild recession in the first half of 2023. Their forecast for 2022 real GDP growth remains unchanged at 1.7% based on their view that economic momentum will remain resilient in the second half of 2022. However, they cut their 2023 forecast by 1 percentage point to a flat outcome.

•Oxford expects that weaker labor market gains and a softer economic environment will drag on consumption heading into 2023.

•The ~~forecasted projections included, among other things, (i) growth~~FOMC's median interest rate forecast of ~~U.S. gross domestic product (“GDP”) slowing to around 2.3% (previously 2.6%) in~~4.4% for the end of 2022 ~~and pulling back further to 1.3% (previously 1.8%) in 2023.; (ii) Federal Reserve raising the policy rate by 75 basis points~~implies at ~~each of the July and September 2022 meetings and reducing the pace~~least another 125bps of rate hikes ~~to 25 basis points at each of the November and December2022 and January 2023 meetings; and (iii)~~by year end after September’s 75bps increase.

•The Illinois unemployment rate ~~averaging 4.09%~~is estimated to average 4.99% through the ~~second~~third quarter of 2023.

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. 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; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. As a result of this assessment as of ~~June~~September 30, 2022, modeled expected credit losses were adjusted upwards with a Q-Factor adjustment of approximately 4650 basis points of total loans, increasing from 43 basis points at December 31, 2021. The Q-Factor adjustment at ~~June~~September 30, 2022 was based primarily on declining economic conditions, including rising inflation fears and an increasing risk of recession and the impact of rising fuel prices on businesses and consumers.

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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 three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		As of and for the Three Months Ended June 30,						As of and for the Six Months Ended June 30,							As of and for the Three Months Ended September 30,						As of and for the Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022			2021			2022			2021			(dollars in thousands)	2022			2021			2022			2021
Balance, beginning of period	Balance, beginning of period	$	52,938		$	62,687		$	51,062		$	60,443		Balance, beginning of period	$	54,898		$	58,664		$	51,062		$	60,443
Charge-offs:	Charge-offs:													Charge-offs:
Commercial	Commercial	60			2,634			2,214			3,140			Commercial	1,655			317			3,869			3,457
Commercial real estate	Commercial real estate	2,625			946			2,852			1,719			Commercial real estate	1,232			1,663			4,084			3,382
Construction and land development	Construction and land development	—			1			6			272			Construction and land development	—			138			6			410
Residential real estate	Residential real estate	46			141			150			251			Residential real estate	166			35			315			286
Consumer	Consumer	191			218			496			460			Consumer	316			280			812			740
Lease financing	Lease financing	499			516			705			769			Lease financing	485			1,227			1,190			1,996
Total charge-offs	Total charge-offs	3,421			4,456			6,423			6,611			Total charge-offs	3,854			3,660			10,276			10,271
Recoveries:	Recoveries:													Recoveries:
Commercial	Commercial	298			139			309			154			Commercial	45			134			354			288
Commercial real estate	Commercial real estate	(62)			11			5			13			Commercial real estate	1			3			6			16
Construction and land development	Construction and land development	6			81			12			147			Construction and land development	18			74			30			221
Residential real estate	Residential real estate	41			20			154			114			Residential real estate	69			66			222			180
Consumer	Consumer	98			155			260			277			Consumer	121			93			381			370
Lease financing	Lease financing	259			27			646			177			Lease financing	367			301			1,013			478
Total recoveries	Total recoveries	640			433			1,386			882			Total recoveries	621			671			2,006			1,553
Net charge-offs	Net charge-offs	2,781			4,023			5,037			5,729			Net charge-offs	3,233			2,989			8,270			8,718
Provision for credit losses on loans	Provision for credit losses on loans	4,741			—			8,873			3,950			Provision for credit losses on loans	6,974			—			15,847			3,950

Balance, end of period	Balance, end of period	$	54,898		$	58,664		$	54,898		$	58,664		Balance, end of period	$	58,639		$	55,675		$	58,639		$	55,675
Gross loans, end of period	Gross loans, end of period	$	5,795,544		$	4,835,866		$	5,795,544		$	4,835,866		Gross loans, end of period	$	6,198,451		$	4,915,554		$	6,198,451		$	4,915,554
Average total loans	Average total loans	$	5,677,791		$	4,826,234		$	5,477,037		$	4,909,057		Average total loans	$	6,040,358		$	4,800,063		$	5,666,874		$	4,872,327
Net charge-offs to average loans	Net charge-offs to average loans	0.20		%	0.33		%	0.19		%	0.24		%	Net charge-offs to average loans	0.21		%	0.25		%	0.20		%	0.24		%
Allowance to total loans	Allowance to total loans	0.95		%	1.21		%	0.95		%	1.21		%	Allowance to total loans	0.95		%	1.13		%	0.95		%	1.13		%

Individual loans considered to be uncollectible are charged off against the allowance. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Collateral value is determined using updated appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is determined to be other-than-temporary. Recoveries on loans previously charged off are added to the allowance. Net charge-offs for the three months ended ~~June~~September 30, 2022 totaled ~~$2.8~~$3.2 million, compared to ~~$4.0~~$3.0 million for the same period one year ago. For the ~~six~~nine months ended ~~June~~September 30, 2022, net charge-offs totaled ~~$5.0~~$8.3 million, compared to ~~$5.7~~$8.7 million for the same period one year ago.

Nonperforming Loans. The following table sets forth our nonperforming assets by asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings. Deferrals related to COVID-19 are not included as TDRs as of ~~June~~September 30, 2022 ~~and~~

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and December 31, 2021. The balances of nonperforming loans reflect the net investment in these assets, including deductions for purchase discounts.


(dollars in thousands)	(dollars in thousands)	June 30, 2022			December 31, 2021			(dollars in thousands)	September 30, 2022			December 31, 2021
Nonperforming loans:	Nonperforming loans:							Nonperforming loans:
Commercial	Commercial	$	11,579		$	12,261		Commercial	$	8,799		$	12,261
Commercial real estate	Commercial real estate	34,316			19,175			Commercial real estate	27,236			19,175
Construction and land development	Construction and land development	283			120			Construction and land development	275			120
Residential real estate	Residential real estate	8,174			7,912			Residential real estate	7,776			7,912
Consumer	Consumer	254			208			Consumer	273			208
Lease financing	Lease financing	2,277			2,904			Lease financing	2,523			2,904
Total nonperforming loans	Total nonperforming loans	56,883			42,580			Total nonperforming loans	46,882			42,580
Other real estate owned and other repossessed assets	Other real estate owned and other repossessed assets	12,761			14,488			Other real estate owned and other repossessed assets	12,641			14,488
Nonperforming assets	Nonperforming assets	$	69,644		$	57,068		Nonperforming assets	$	59,523		$	57,068
Nonperforming loans to total loans	Nonperforming loans to total loans	0.98		%	0.81		%	Nonperforming loans to total loans	0.76		%	0.81		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.93		%	0.77		%	Nonperforming assets to total assets	0.76		%	0.77		%
Allowance for credit losses to nonperforming loans	Allowance for credit losses to nonperforming loans	96.51		%	119.92		%	Allowance for credit losses to nonperforming loans	125.08		%	119.92		%

Nonperforming loans totaled ~~$56.9~~$46.9 million, or 0.76% of total loans, at ~~June~~September 30, 2022, ~~an increase~~compared to $42.6 million, or 0.81% of ~~$14.3 million from~~total loans at December 31, ~~2021, primarily as a result of two commercial real estate loan relationships, totaling $16.4 million, that were transferred to nonaccrual in 2022.~~2021.

We did not recognize interest income on nonaccrual loans during the three and ~~six~~nine months ended ~~June~~September 30, 2022 or 2021 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 ~~$0.3~~$0.8 million and ~~$1.1~~$1.9 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and ~~$0.7~~$0.6 million and ~~$1.4~~$2.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

We use a ten grade risk rating system to categorize and determine the credit risk of our loans. Potential problem loans include loans with a risk grade of 7, which are "special mention," and loans with a risk grade of 8, which are "substandard" loans that are not considered to be nonperforming. These loans generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance. Potential problem loans are managed and monitored regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive officers and other members of the Bank's senior management team.

The following table presents the recorded investment of potential problem commercial loans by loan category at the dates indicated:


		Commercial				Commercial real estate				Construction & land development							Commercial				Commercial real estate				Construction & land development
		Risk category				Risk category				Risk category							Risk category				Risk category				Risk category
(dollars in thousands)	(dollars in thousands)	7		8 (1)		7		8 (1)		7		8 (1)		Total		(dollars in thousands)	7		8 (1)		7		8 (1)		7		8 (1)		Total
June 30, 2022		$	17,446	$	20,116	$	30,295	$	94,631	$	221	$	—	$	162,709
September 30, 2022																September 30, 2022	$	6,422	$	7,512	$	24,683	$	90,933	$	2,625	$	—	$	132,175
December 31, 2021	December 31, 2021	28,248		20,413		46,295		108,634		5,235		1,336		210,161		December 31, 2021	28,248		20,413		46,295		108,634		5,235		1,336		210,161

(1)Includes only those 8-rated loans that are not included in nonperforming loans.

Commercial loans with a risk rating of 7 or 8 decreased to ~~$37.6~~$13.9 million as of ~~June~~September 30, 2022, compared to $48.7 million as of December 31, 2021. Commercial real estate loans with a risk rating of 7 or 8 decreased ~~$30.0~~$39.3 million to ~~$124.9~~$115.6 million as of ~~June~~September 30, 2022, compared to December 31, 2021, primarily due to risk rating upgrades within the portfolio.

Investment Securities. Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk. The types and maturities of securities purchased are primarily based on our current and projected liquidity and interest rate sensitivity positions.

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The following table sets forth the book value and percentage of each category of investment securities at ~~June~~September 30, 2022 and December 31, 2021. The book value for investment securities classified as available for sale is equal to fair market value.


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
(dollars in thousands)	(dollars in thousands)	Book Value		% of Total		Book Value		% of Total		(dollars in thousands)	Book Value		% of Total		Book Value		% of Total
Investment securities available for sale:	Investment securities available for sale:									Investment securities available for sale:
U.S. Treasury securities	U.S. Treasury securities	$	63,996	8.4	%	$	64,917	7.2	%	U.S. Treasury securities	$	60,496	8.9	%	$	64,917	7.2	%
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	30,303		4.0		33,817		3.7		U.S. government sponsored entities and U.S. agency securities	27,865		4.1		33,817		3.7
Mortgage-backed securities - agency	Mortgage-backed securities - agency	423,838		55.7		440,270		48.5		Mortgage-backed securities - agency	391,615		57.4		440,270		48.5
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	22,777		3.0		28,706		3.2		Mortgage-backed securities - non-agency	21,158		3.1		28,706		3.2
State and municipal securities	State and municipal securities	106,688		14.0		143,099		15.8		State and municipal securities	95,061		13.9		143,099		15.8
Corporate securities	Corporate securities	112,938		14.9		195,794		21.6		Corporate securities	85,694		12.6		195,794		21.6
Total investment securities, available for sale, at fair value	Total investment securities, available for sale, at fair value	$	760,540	100.0	%	$	906,603	100.0	%	Total investment securities, available for sale, at fair value	$	681,889	100.0	%	$	906,603	100.0	%

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The following table sets forth the book value, maturities and weighted average yields for our investment portfolio at ~~June~~September 30, 2022. The book value for investment securities classified as available for sale is equal to fair market value.


(dollars in thousands)	(dollars in thousands)	Book value		% of total		Weighted average yield		(dollars in thousands)	Book value		% of total		Weighted average yield
Investment securities available for sale:	Investment securities available for sale:							Investment securities available for sale:
U.S. Treasury securities:	U.S. Treasury securities:							U.S. Treasury securities:
Maturing within one year	Maturing within one year	$	2,775	0.4	%	0.8	%	Maturing within one year	$	598	0.1	%	1.48	%
Maturing in one to five years	Maturing in one to five years	61,221		8.0		0.9		Maturing in one to five years	59,898		8.8		0.90
Maturing in five to ten years	Maturing in five to ten years	—		—		—		Maturing in five to ten years	—		—		—
Maturing after ten years	Maturing after ten years	—		—		—		Maturing after ten years	—		—		—
Total U.S. Treasury securities	Total U.S. Treasury securities	$	63,996	8.4	%	0.9	%	Total U.S. Treasury securities	$	60,496	8.9	%	0.90	%

U.S. government sponsored entities and U.S. agency securities:	U.S. government sponsored entities and U.S. agency securities:							U.S. government sponsored entities and U.S. agency securities:
Maturing within one year	Maturing within one year	$	1,330	0.2	%	2.4	%	Maturing within one year	$	75	—	%	2.60	%
Maturing in one to five years	Maturing in one to five years	20,709		2.7		1.3		Maturing in one to five years	15,534		2.3		1.18
Maturing in five to ten years	Maturing in five to ten years	8,264		1.1		1.0		Maturing in five to ten years	12,256		1.8		1.70
Maturing after ten years	Maturing after ten years	—		—		—		Maturing after ten years	—		—		—
Total U.S. government sponsored entities and U.S. agency securities	Total U.S. government sponsored entities and U.S. agency securities	$	30,303	4.0	%	1.3	%	Total U.S. government sponsored entities and U.S. agency securities	$	27,865	4.1	%	1.41	%

Mortgage-backed securities - agency:	Mortgage-backed securities - agency:							Mortgage-backed securities - agency:
Maturing within one year	Maturing within one year	$	2,440	0.3	%	2.9	%	Maturing within one year	$	3,163	0.5	%	3.01	%
Maturing in one to five years	Maturing in one to five years	146,255		19.2		2.2		Maturing in one to five years	129,152		18.9		2.19
Maturing in five to ten years	Maturing in five to ten years	193,814		25.5		1.8		Maturing in five to ten years	189,116		27.7		1.90
Maturing after ten years	Maturing after ten years	81,329		10.7		2.3		Maturing after ten years	70,184		10.3		2.18
Total mortgage-backed securities - agency	Total mortgage-backed securities - agency	$	423,838	55.7	%	2.1	%	Total mortgage-backed securities - agency	$	391,615	57.4	%	2.05	%

Mortgage-backed securities - non-agency:	Mortgage-backed securities - non-agency:							Mortgage-backed securities - non-agency:
Maturing within one year	Maturing within one year	$	—	—	%	—	%	Maturing within one year	$	—	—	%	—	%
Maturing in one to five years	Maturing in one to five years	2,485		0.3		3.4		Maturing in one to five years	293		—		3.63
Maturing in five to ten years	Maturing in five to ten years	14,590		1.9		2.3		Maturing in five to ten years	15,529		2.2		2.41
Maturing after ten years	Maturing after ten years	5,702		0.8		2.4		Maturing after ten years	5,336		0.9		2.46
Total mortgage-backed securities - non-agency	Total mortgage-backed securities - non-agency	$	22,777	3.0	%	2.4	%	Total mortgage-backed securities - non-agency	$	21,158	3.1	%	2.44	%

State and municipal securities (1):	State and municipal securities (1):							State and municipal securities (1):
Maturing within one year	Maturing within one year	$	7,397	1.0	%	5.1	%	Maturing within one year	$	9,120	1.3	%	5.47	%
Maturing in one to five years	Maturing in one to five years	35,202		4.6		4.0		Maturing in one to five years	28,511		4.2		3.59
Maturing in five to ten years	Maturing in five to ten years	36,366		4.8		2.8		Maturing in five to ten years	31,269		4.6		2.67
Maturing after ten years	Maturing after ten years	27,723		3.6		2.8		Maturing after ten years	26,161		3.8		2.79
Total state and municipal securities	Total state and municipal securities	$	106,688	14.0	%	3.3	%	Total state and municipal securities	$	95,061	13.9	%	3.20	%

Corporate securities:	Corporate securities:							Corporate securities:
Maturing within one year	Maturing within one year	$	1,500	0.2	%	3.0	%	Maturing within one year	$	—	—	%	—	%
Maturing in one to five years	Maturing in one to five years	15,105		2.0		3.1		Maturing in one to five years	9,631		1.4		2.39
Maturing in five to ten years	Maturing in five to ten years	96,333		12.7		3.8		Maturing in five to ten years	76,063		11.2		3.41
Maturing after ten years	Maturing after ten years	—		—		—		Maturing after ten years	—		—		—
Total corporate securities	Total corporate securities	$	112,938	14.9	%	3.7	%	Total corporate securities	$	85,694	12.6	%	3.30	%
Total investment securities, available for sale	Total investment securities, available for sale	$	760,540	100.0	%	2.3	%	Total investment securities, available for sale	$	681,889	100.0	%	2.24	%

(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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The table below presents the credit ratings for our investment securities classified as available for sale, at fair value, at ~~June~~September 30, 2022.


		Amortized		Estimated		Average credit rating													Amortized		Estimated		Average credit rating
(dollars in thousands)	(dollars in thousands)	cost		fair value		AAA		AA+/-		A+/-		BBB+/-		<BBB-		Not Rated		(dollars in thousands)	cost		fair value		AAA		AA+/-		A+/-		BBB+/-		<BBB-		Not Rated
Investment securities available for sale:	Investment securities available for sale:																	Investment securities available for sale:
U.S. Treasury securities	U.S. Treasury securities	$	68,390	$	63,996	$	62,147	$	1,849	$	—	$	—	$	—	$	—	U.S. Treasury securities	$	66,369	$	60,496	$	60,496	$	—	$	—	$	—	$	—	$	—
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	33,756		30,303		25,246		5,057		—		—		—		—		U.S. government sponsored entities and U.S. agency securities	32,267		27,865		23,289		4,576		—		—		—		—
Mortgage-backed securities - agency	Mortgage-backed securities - agency	480,408		423,838		427		423,411		—		—		—		—		Mortgage-backed securities - agency	469,822		391,615		13		391,602		—		—		—		—
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	26,118		22,777		22,777		—		—		—		—		—		Mortgage-backed securities - non-agency	25,341		21,158		21,158		—		—		—		—		—
State and municipal securities	State and municipal securities	113,920		106,688		7,949		85,764		2,231		949		—		9,795		State and municipal securities	105,838		95,061		7,782		74,730		2,010		986		—		9,553
Corporate securities	Corporate securities	119,374		112,938		—		—		32,096		77,098		—		3,744		Corporate securities	95,313		85,694		—		—		30,926		52,340		—		2,428
Total investment securities, available for sale	Total investment securities, available for sale	$	841,966	$	760,540	$	118,546	$	516,081	$	34,327	$	78,047	$	—	$	13,539	Total investment securities, available for sale	$	794,950	$	681,889	$	112,738	$	470,908	$	32,936	$	53,326	$	—	$	11,981

Cash and Cash Equivalents. Cash and cash equivalents decreased ~~$410.3~~$367.2 million to ~~$270.1~~$313.2 million at ~~June~~September 30, 2022 compared to December 31, 2021, primarily due to funding loan growth in the current quarter.

Loans Held for Sale. Loans held for sale totaled ~~$5.3~~$4.3 million at ~~June~~September 30, 2022, comprised of residential real estate loans, compared to $32.0 million at December 31, 2021, comprised of $19.2 million of commercial real estate and $12.8 million of residential real estate loans.

Liabilities. At ~~June~~September 30, 2022, liabilities totaled ~~$6.80~~$7.08 billion compared to $6.78 billion at December 31, 2021.

Deposits. We emphasize developing total client relationships with our customers in order to increase our retail and commercial core deposit bases, which are our primary funding sources. Our deposits consist of noninterest-bearing and interest-bearing demand, savings and time deposit accounts.

Total deposits increased ~~$73.8~~$284.6 million to ~~$6.18~~$6.40 billion at ~~June~~September 30, 2022, as compared to December 31, 2021. Deposits acquired in the second quarter of 2022 from FNBC ~~during the quarter ended June 30, 2022~~ totaled $79.8 million. Increases in interest-bearing checking and money market accounts of $242.4 million and $256.3 million, respectively, during this period, were partially offset by a decrease in noninterest bearing demand account balances.

Noninterest-bearing demand accounts decreased ~~$273.4~~$220.5 million to ~~$1.97~~$2.03 billion at ~~June~~September 30, 2022 compared to December 31, 2021, as servicing deposits decreased ~~$297.6~~$259.3 million. This decrease was offset by increases in commercial, retail and ~~commercial~~public fund deposits of ~~$110.0~~$29.7 million, $3.6 million and ~~$135.5~~$5.5 million, respectively. Interest-bearing checking accounts increased $242.4 million to $1.91 billion at September 30, 2022 compared to December 31, 2021, and money market accounts increased $256.3 million to $1.13 billion at September 30, 2022 compared to December 31, 2021. These increases were the result of strategic relationships with non-bank financial services companies, consumers' flight to safety from the equities markets and increasing deposit rates in response to the rate increases announced by the Federal Reserve.

At ~~June~~September 30, 2022, total deposits were comprised of ~~31.9%~~31.7% of noninterest-bearing demand accounts, ~~57.8%~~58.4% of interest-bearing transaction accounts and ~~10.3%~~9.9% of time deposits. At December 31, 2021, the composition of total deposits was 36.8% of noninterest-bearing demand accounts, 52.5% of interest-bearing transaction accounts and 10.7% of time deposits.

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The following table summarizes our average deposit balances and weighted average rates for the three months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,									Three Months Ended September 30,
		2022				2021					2022				2021
(dollars in thousands)	(dollars in thousands)	Average balance		Weighted average rate		Average balance		Weighted average rate		(dollars in thousands)	Average balance		Weighted average rate		Average balance		Weighted average rate
Deposits:	Deposits:									Deposits:
Noninterest-bearing demand	Noninterest-bearing demand	$	1,967,263	—		$	1,411,428	—		Noninterest-bearing demand	$	1,969,873	—		$	1,434,193	—
Interest-bearing:	Interest-bearing:									Interest-bearing:
Checking	Checking	1,770,635		0.47	%	1,604,496		0.12	%	Checking	1,850,789		1.42	%	1,672,599		0.12	%
Money market	Money market	1,030,144		0.32		793,148		0.09		Money market	1,110,660		0.86		828,655		0.09
Savings	Savings	719,204		0.05		666,000		0.03		Savings	718,970		0.08		664,354		0.02
Time, insured	Time, insured	476,233		0.47		574,570		1.28		Time, insured	493,351		0.60		554,119		1.04
Time, uninsured	Time, uninsured	139,381		0.59		148,662		0.97		Time, uninsured	136,850		0.81		149,971		0.83
Time, brokered	Time, brokered	17,167		1.16		28,303		1.67		Time, brokered	14,478		1.35		26,272		1.23
Total interest-bearing	Total interest-bearing	$	4,152,764	0.37	%	$	3,815,179	0.31	%	Total interest-bearing	$	4,325,098	0.94	%	$	3,895,970	0.26	%
Total deposits	Total deposits	$	6,120,027	0.25	%	$	5,226,607	0.23	%	Total deposits	$	6,294,971	0.65	%	$	5,330,163	0.19	%

The following table sets forth the maturity of uninsured time deposits as of ~~June~~September 30, 2022:



(dollars in thousands)	Amount
Three months or less	$	~~39,982~~18,841
Three to six months	~~15,008~~13,020
Six to 12 months	~~31,983~~24,498
After 12 months	~~51,364~~62,851
Total	$	~~138,337~~119,210

Capital Resources and Liquidity Management

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

Shareholders’ equity ~~decreased $27.6~~increased $75.4 million to ~~$636.2~~$739.3 million at ~~June~~September 30, 2022 as compared to December 31, 2021. The Company generated net income of ~~$42.6~~$66.2 million during the first ~~six~~nine months of 2022. Offsetting this increase to shareholders’ equity were dividends to common shareholders of ~~$12.9~~$19.4 million, stock repurchases of $1.1 million and a decrease in accumulated other comprehensive loss of ~~$58.3~~$83.6 million. In addition, the Company completed its preferred stock offering in August 2022, generating net proceeds of $110.5 million as described in Note 14. The Company intends to use the net proceeds from the offering for general corporate purposes, which may include providing capital to support its organic growth or growth through strategic acquisitions, repaying or redeeming outstanding indebtedness, financing investments, capital expenditures, repurchasing shares of its common stock and for further investments in the Bank as regulatory capital.

The Company has a stock repurchase program currently in effect, whereby the Board of Directors authorized the Company to repurchase up to $75.0 million of its common stock. This program terminates December 31, 2022. As of ~~June~~September 30, 2022, $56.4 million, or 2,996,778 shares of the Company’s common stock, had been repurchased under the program, with approximately $18.6 million of remaining repurchase authority. The Company did not repurchase any shares under this repurchase program in the ~~most recent quarter.~~third quarter of 2022.

Liquidity Management. Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while

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maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

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Integral to our liquidity management is the administration of short-term borrowings. To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis.

At ~~June~~September 30, 2022, the Company had available federal funds lines of credit totaling $45.0 million, which were unused.

The Company is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. The Company’s main source of funding is dividends declared and paid to usit by the Bank. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to the Company. Management believed at ~~June~~September 30, 2022, that these limitations will not impact our ability to meet our ongoing short-term cash obligations.

Regulatory Capital Requirements

We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.

In December 2018, the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the CECL accounting standard. In March 2020, the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company is adopting the capital transition relief over the permissible five-year period.

At ~~June~~September 30, 2022, the Company and the Bank exceeded the regulatory minimums and met the regulatory definition of well-capitalized.

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The following table presents the Company's and the Bank’s capital ratios and the minimum requirements at ~~June~~September 30, 2022:


Ratio	Ratio	Actual		Minimum Regulatory Requirements (1)		Well Capitalized		Ratio	Actual		Minimum Regulatory Requirements (1)		Well Capitalized
Total risk-based capital ratio	Total risk-based capital ratio							Total risk-based capital ratio
Midland States Bancorp, Inc.	Midland States Bancorp, Inc.	11.44	%	10.50	%	N/A		Midland States Bancorp, Inc.	12.75	%	10.50	%	N/A
Midland States Bank	Midland States Bank	10.60		10.50		10.00	%	Midland States Bank	11.16		10.50		10.00	%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio							Tier 1 risk-based capital ratio
Midland States Bancorp, Inc.	Midland States Bancorp, Inc.	8.63		8.50		N/A		Midland States Bancorp, Inc.	10.02		8.50		N/A
Midland States Bank	Midland States Bank	9.85		8.50		8.00		Midland States Bank	10.39		8.50		8.00
Common equity tier 1 risk-based capital ratio	Common equity tier 1 risk-based capital ratio							Common equity tier 1 risk-based capital ratio
Midland States Bancorp, Inc.	Midland States Bancorp, Inc.	7.66		7.00		N/A		Midland States Bancorp, Inc.	7.54		7.00		N/A
Midland States Bank	Midland States Bank	9.85		7.00		6.50		Midland States Bank	10.39		7.00		6.50
Tier 1 leverage ratio	Tier 1 leverage ratio							Tier 1 leverage ratio
Midland States Bancorp, Inc.	Midland States Bancorp, Inc.	7.98		4.00		N/A		Midland States Bancorp, Inc.	9.40		4.00		N/A
Midland States Bank	Midland States Bank	9.12		4.00		5.00		Midland States Bank	9.75		4.00		5.00

(1)Total risk-based capital ratio, Tier 1 risk-based capital ratio and Common equity tier 1 risk-based capital ratio include the capital conservation buffer of 2.5%.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk. Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price risk from investments in securities backed by mortgage loans.

Interest Rate Risk

Overview. Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR (basis risk).

We actively manage interest rate risk, as changes in market interest rates may have a significant impact on reported earnings. Changes in market interest rates may result in changes in the fair market value of our financial instruments, cash flows, and net interest income. We seek to achieve consistent growth in net interest income and capital while managing volatility arising from shifts in market interest rates. Our Board of Directors’ Risk Policy and Compliance Committee oversees interest rate risk, as well as the establishment of risk measures, limits, and policy guidelines for managing the amount of interest rate risk and mortgage price risk and its effect on net interest income and capital. The Committee meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.

An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.

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Income Simulation and Economic Value Analysis. Interest rate risk measurement is calculated and reported to the Risk Policy and Compliance Committee at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.

We use two approaches to model interest rate risk: Net Interest Income at Risk (“NII at Risk”) and Economic Value of Equity (“EVE”). Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.

NII at risk uses net interest income simulation analysis which involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. The sensitivity of net interest income to changes in interest rates is measured using numerous interest rate scenarios including shocks, gradual ramps, curve flattening, curve steepening as well as forecasts of likely interest rates scenarios. Modeling the sensitivity of net interest earnings to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. To the extent that actual performance is different than what was assumed, actual net interest earnings sensitivity may be different than projected. We use a data warehouse to study interest rate risk at a transactional level and use various ad-hoc reports to continuously refine assumptions. Assumptions and methodologies regarding administered rate liabilities (e.g., savings accounts, money market accounts and interest-bearing checking accounts), balance trends, and repricing relationships reflect our best estimate of expected behavior and these assumptions are reviewed periodically.

We also have longer-term interest rate risk exposure, which may not be appropriately measured by earnings sensitivity analysis. The Risk Policy and Compliance Committee uses EVE to study the impact of long-term cash flows on earnings and on capital. EVE involves discounting present values of all cash flows of on and off-balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents our EVE. The analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base-case measurement and its sensitivity to shifts in the yield curve allow us to measure longer-term repricing and option risk in the balance sheet.

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


		Net interest income sensitivity (Shocks)										Net interest income sensitivity (Shocks)
		Immediate change in rates										Immediate change in rates
(dollars in thousands)	(dollars in thousands)	-100			+100			+200			(dollars in thousands)	-100			+100			+200
June 30, 2022:
September 30, 2022:											September 30, 2022:
Dollar change	Dollar change	$	(12,793)		$	11,974		$	23,823		Dollar change	$	(12,193)		$	11,202		$	22,297
Percent change	Percent change	(4.9)		%	4.6		%	9.1		%	Percent change	(4.6)		%	4.2		%	8.4		%
December 31, 2021:	December 31, 2021:										December 31, 2021:
Dollar change	Dollar change	$	(13,499)		$	23,513		$	47,028		Dollar change	$	(13,499)		$	23,513		$	47,028
Percent change	Percent change	(6.1)		%	10.6		%	21.2		%	Percent change	(6.1)		%	10.6		%	21.2		%

We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The NII at Risk results included in the table above reflect the analysis used quarterly by management. It models −100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next twelve months. We were within board policy limits for the -100, +100 and +200 basis point scenarios at ~~June~~September 30, 2022.

Tolerance levels for risk management require the continuing development of remedial plans to maintain residual risk within approved levels as we adjust the balance sheet. NII at Risk reported at ~~June~~September 30, 2022 projects that our earnings exhibit reduced sensitivity to changes in interest rates for all three scenarios compared to December 31, 2021.

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The following table shows EVE at the dates indicated:


		Economic value of equity sensitivity (Shocks)										Economic value of equity sensitivity (Shocks)
		Immediate change in rates										Immediate change in rates
(dollars in thousands)	(dollars in thousands)	-100			+100			+200			(dollars in thousands)	-100			+100			+200
June 30, 2022:
September 30, 2022:											September 30, 2022:
Dollar change	Dollar change	$	(11,774)		$	8,759		$	19,685		Dollar change	$	6,949		$	7,528		$	16,900
Percent change	Percent change	(1.6)		%	1.2		%	2.7		%	Percent change	(0.7)		%	0.8		%	1.8		%
December 31, 2021:	December 31, 2021:										December 31, 2021:
Dollar change	Dollar change	$	(89,850)		$	51,553		$	96,875		Dollar change	$	(89,850)		$	51,553		$	96,875
Percent change	Percent change	(13.4)		%	7.7		%	14.5		%	Percent change	(13.4)		%	7.7		%	14.5		%

The EVE results included in the table above reflect the analysis used quarterly by management. It models immediate −100, +100 and +200 basis point parallel shifts in market interest rates.

The EVE reported at ~~June~~September 30, 2022 projected that as interest rates increase, the economic value of equity position will increase, and as interest rates decrease, the economic value of equity position will decrease. When interest rates rise, fixed rate assets generally lose economic value; the longer the duration, the greater the value lost. The opposite is true when interest rates fall.

We were within Board policy limits for the -100, +100 and +200 basis point scenarios at ~~June~~September 30, 2022.

Price Risk. Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from mortgage-backed securities, derivative instruments, and equity investments.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are included under “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures About Market Risk”.

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ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. The Company’s management, including our President and

Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

In the normal course of business, we are named or threatened to be named as a defendant in various lawsuits, none of which we expect to have a material effect on the Company. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business (including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security, anti-money laundering and anti-terrorism), we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk. There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

ITEM 1A – RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2021.

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ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the ~~second~~third quarter of 2022.

Period
Total number of shares purchased(1)
Average price paid per share Total number of shares purchased as part of publicly announced plans or programs
Approximate dollar value of shares that may yet be purchased under the plans or programs (2)
April 1 - 30, 2022 — $ — — $ 18,565,174
May 1 - 31, 2022 876 25.99 — 18,565,174
June 1 - 30, 2022 — — — 18,565,174
Total 876 $ 25.99 — $ 18,565,174


Period	Total number of shares purchased(1)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (2)
July 1 - 31, 2022	162	$	24.68	—	$	18,565,174
August 1 - 31, 2022	196	26.88		—	18,565,174
September 1 - 30, 2022	—	—		—	18,565,174
Total	358	$	25.89	—	$	18,565,174

(1)Represents shares of the Company’s common stock repurchased under the employee stock purchase program and shares withheld to satisfy tax withholding obligations upon the vesting of awards of restricted stock.

(2)~~On August 6, 2019,~~As previously disclosed, the board of directors of the Company approved a stock repurchase program authorizing the Company to repurchase up to $25.0 million of its common stock. On March 11, 2020, the Company announced that its Board of Directors authorized the Company to repurchase up to an additional $25.0 million of its common stock in addition to the amount remaining under the prior authorization. On December 2, 2020, the Company announced that the Board had extended the expiration date of the repurchase program from December 31, 2020 to December 31, 2021. At the time of the extension,on August 6, 2019, and has amended the program had approximately $6.4 million of remaining repurchase authority. On September 7, 2021, the Company announced that the Board approved modifications to the Company’s stock repurchase program, which increased the aggregate repurchase authority to $75.0 million from $50.0 million, and extended the expiration date of the program to December 31, 2022. At the time of the extension, the program had approximately $1.3 million of remaining repurchase authority.on several occasions. Stock repurchases under these programs may be made from time to time on the open market, in privately negotiated transactions, or in any manner that complies with applicable securities laws, at the discretion of the Company. The timing of purchases and the number of shares repurchased under the programs are dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market condition. The repurchase program may be suspended or discontinued at any time without notice. As of ~~June~~September 30, 2022, ~~$56.4 million, or~~ 2,996,778 shares of the Company’s common stock ~~had~~have been repurchased under the ~~program.~~program for an aggregate purchase price of $56.4 million.

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ITEM 6 – EXHIBITS

Exhibit No.

Description

~~3.1~~

Articles of Incorporation of Midland States Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-210683), filed with the SEC on April 11, 2016).

~~3.2~~

Articles of Amendment to the Articles of Incorporation of Midland States Bancorp, Inc., effective May 8, 2018 (incorporated by reference to Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2018).

~~3.3~~

Statement of Resolution Establishing Series of Series G Preferred Stock of Midland States Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2017).

~~3.4~~

~~By-laws of Midland States Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-210683), filed with the SEC on April 11, 2016).~~

31.1

Chief Executive Officer’s Certification required by Rule 13(a)-14(a) – filed herewith.

31.2

Chief Financial Officer’s Certification required by Rule 13(a)-14(a) – filed herewith.

32.1

Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.

32.2

Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.

101

Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended ~~June~~September 30, 2022 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements – filed herewith.

104

The cover page from Midland States Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended ~~June~~September 30, 2022 formatted in inline XBRL and contained in Exhibit 101.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Midland States Bancorp, Inc.


Date: ~~August 4,~~November 3, 2022	By:	/s/	Jeffrey G. Ludwig
			Jeffrey G. Ludwig
			President and Chief Executive Officer
			(Principal Executive Officer)


Date: ~~August 4,~~November 3, 2022	By:	/s/	Eric T. Lemke
			Eric T. Lemke
			Chief Financial Officer
			(Principal Financial Officer)

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