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 September 30, ~~2022~~2023

☐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 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 October ~~21, 2022,~~20, 2023, the Registrant had ~~22,149,470~~21,538,434 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 September 30, ~~2022~~2023 (Unaudited) and December 31, ~~2021~~2022	2

	Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2023 and 2022	3

	Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, ~~2022~~ 2023and ~~2021~~2022	4

	Consolidated Statements of ~~Comprehensive Income~~ Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	5

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

	~~Consolidated Statements of~~ Cash Flows (Unaudited) for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	76

	Notes to Consolidated Financial Statements (Unaudited)	87

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4440

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6560

Item 4.	Controls and Procedures	6661

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	6661

Item 1A.	Risk Factors	6661

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6762

Item 5.	Other Information	62

Item 6.	Exhibits	6863

SIGNATURES		64

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: Investment Securities~~			10
~~Note 5: Loans~~			13
~~Note 6: Premises, Equipment and Leases~~			26
~~Note 7: Loan Servicing Rights~~			28
~~Note 8: Goodwill and Intangible Assets~~			28
~~Note 9: Derivative Instruments~~			29
~~Note 10: Deposits~~			31
~~Note 11: Short-Term Borrowings~~			31
~~Note 12: FHLB Advances and Other Borrowings~~			32
~~Note 13: Subordinated Debt~~			32
~~Note 14: Preferred Stock~~			32
~~Note 15: Earnings Per Common Share~~			33
~~Note 16: Fair Value of Financial Instruments~~			34
~~Note 17: Commitments, Contingencies and Credit Risk~~			39
~~Note 18: Segment Information~~			40
~~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)


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
		(unaudited)					(unaudited)
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	309,531	$	673,297	Cash and due from banks	$	131,179	$	153,345
Federal funds sold	Federal funds sold	3,657		7,074		Federal funds sold	953		7,286
Cash and cash equivalents	Cash and cash equivalents	313,188		680,371		Cash and cash equivalents	132,132		160,631
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
Investment securities available for sale, at fair value						Investment securities available for sale, at fair value	835,009		768,234
Equity securities, at fair value	Equity securities, at fair value	8,615		9,529		Equity securities, at fair value	4,335		8,626
Loans	Loans	6,198,451		5,224,801		Loans	6,280,883		6,306,467
Allowance for credit losses on loans	Allowance for credit losses on loans	(58,639)		(51,062)		Allowance for credit losses on loans	(66,669)		(61,051)
Total loans, net	Total loans, net	6,139,812		5,173,739		Total loans, net	6,214,214		6,245,416
Loans held for sale	Loans held for sale	4,338		32,045		Loans held for sale	6,089		1,286
Premises and equipment, net	Premises and equipment, net	77,519		79,220		Premises and equipment, net	82,741		78,293

Other real estate owned	Other real estate owned	11,141		12,059		Other real estate owned	480		6,729
Nonmarketable equity securities	Nonmarketable equity securities	39,696		36,341		Nonmarketable equity securities	45,211		46,201
Accrued interest receivable	Accrued interest receivable	17,537		19,470		Accrued interest receivable	24,283		20,313
Loan servicing rights, at lower of cost or fair value	Loan servicing rights, at lower of cost or fair value	1,297		28,865		Loan servicing rights, at lower of cost or fair value	20,933		1,205
Commercial FHA mortgage loan servicing rights held for sale	Commercial FHA mortgage loan servicing rights held for sale	23,995		—		Commercial FHA mortgage loan servicing rights held for sale	—		20,745
Goodwill	Goodwill	161,904		161,904		Goodwill	161,904		161,904
Other intangible assets, net	Other intangible assets, net	22,198		24,374		Other intangible assets, net	17,238		20,866
Company-owned life insurance	Company-owned life insurance	149,648		148,378		Company-owned life insurance	208,390		150,443
Other assets	Other assets	169,100		130,907		Other assets	222,966		164,609
Total assets	Total assets	$	7,821,877	$	7,443,805	Total assets	$	7,975,925	$	7,855,501

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	$	2,025,237	$	2,245,701	Noninterest-bearing demand deposits	$	1,154,515	$	1,362,158
Interest-bearing deposits	Interest-bearing deposits	4,370,015		3,864,947		Interest-bearing deposits	5,250,487		5,002,494
Total deposits	Total deposits	6,395,252		6,110,648		Total deposits	6,405,002		6,364,652
Short-term borrowings	Short-term borrowings	58,518		76,803		Short-term borrowings	17,998		42,311
Federal Home Loan Bank advances and other borrowings	Federal Home Loan Bank advances and other borrowings	360,000		310,171		Federal Home Loan Bank advances and other borrowings	538,000		460,000
Subordinated debt	Subordinated debt	139,370		139,091		Subordinated debt	93,475		99,772
Trust preferred debentures	Trust preferred debentures	49,824		49,374		Trust preferred debentures	50,457		49,975

Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	79,634		93,881		Accrued interest payable and other liabilities	106,743		80,217
Total liabilities	Total liabilities	7,082,598		6,779,968		Total liabilities	7,211,675		7,096,927

Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Preferred stock, $2.00 par value; 4,000,000 shares authorized; 115,000 Series A shares, $1,000 per share liquidation preference, issued and outstanding at 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		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, 2023 and December 31, 2022, respectively						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, 2023 and December 31, 2022, respectively	110,548		110,548
Common stock, $0.01 par value; 40,000,000 shares authorized; 21,594,546 and 22,214,913 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively						Common stock, $0.01 par value; 40,000,000 shares authorized; 21,594,546 and 22,214,913 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	216		222
Capital surplus	Capital surplus	447,672		445,907		Capital surplus	437,566		449,196
Retained earnings	Retained earnings	259,221		212,472		Retained earnings	317,101		282,405
Accumulated other comprehensive (loss) income, net of tax		(78,383)		5,237
Accumulated other comprehensive loss, net of tax						Accumulated other comprehensive loss, net of tax	(101,181)		(83,797)
Total shareholders’ equity	Total shareholders’ equity	739,279		663,837		Total shareholders’ equity	764,250		758,574
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,821,877	$	7,443,805	Total liabilities and shareholders’ equity	$	7,975,925	$	7,855,501

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Interest income:
Loans including fees:
Taxable	$	93,488	$	72,901	$	272,297	$	192,430
Tax exempt	497		527		1,349		1,589
Loans held for sale	104		60		179		357
Investment securities:
Taxable	7,475		3,765		19,744		11,717
Tax exempt	275		628		1,074		2,162
Nonmarketable equity securities	710		550		2,104		1,521
Federal funds sold and cash investments	1,036		1,125		2,868		1,764
Total interest income	103,585		79,556		299,615		211,540
Interest expense:
Deposits	37,769		10,249		97,791		16,220
Short-term borrowings	14		28		53		73
Federal Home Loan Bank advances and other borrowings	4,557		2,424		15,959		5,071
Subordinated debt	1,280		2,010		3,985		6,032
Trust preferred debentures	1,369		821		3,887		1,959
Total interest expense	44,989		15,532		121,675		29,355
Net interest income	58,596		64,024		177,940		182,185
Provision for credit losses:
Provision for credit losses on loans	5,168		6,974		14,182		15,847
Provision for credit losses on unfunded commitments	—		—		—		956
Recapture of other credit losses	—		—		—		(221)
Total provision for credit losses	5,168		6,974		14,182		16,582
Net interest income after provision for credit losses	53,428		57,050		163,758		165,603
Noninterest income:
Wealth management revenue	6,288		6,199		18,968		19,481

Residential mortgage banking revenue	507		210		1,452		1,193
Service charges on deposit accounts	3,149		2,783		8,744		7,544
Interchange revenue	3,609		3,531		10,717		10,401
Loss on sales of investment securities, net	(4,961)		(129)		(6,478)		(230)


Impairment on commercial mortgage servicing rights	—		—		—		(1,263)
Company-owned life insurance	7,558		929		9,325		2,788
Other income	2,035		2,303		9,989		6,138
Total noninterest income	18,185		15,826		52,717		46,052
Noninterest expense:
Salaries and employee benefits	22,307		22,889		69,407		67,404
Occupancy and equipment	3,730		3,850		12,052		11,094
Data processing	6,468		6,093		19,323		18,048
FDIC insurance	1,107		977		3,632		2,633
Professional	1,554		1,693		4,977		5,181
Marketing	950		1,026		2,323		2,447
Communications	507		587		1,514		1,934
Loan expense	866		1,137		3,104		3,379
Amortization of intangible assets	1,129		1,361		3,628		4,077




Other expense	3,420		3,883		9,454		9,522
Total noninterest expense	42,038		43,496		129,414		125,719
Income before income taxes	29,575		29,380		87,061		85,936
Income taxes	11,533		5,859		25,672		19,783
Net income	18,042		23,521		61,389		66,153
Preferred dividends	2,229		—		6,685		—
Net income available to common shareholders	$	15,813	$	23,521	$	54,704	$	66,153
Per common share data:
Basic earnings per common share	$	0.71	$	1.04	$	2.43	$	2.93
Diluted earnings per common share	$	0.71	$	1.04	$	2.43	$	2.92
Weighted average common shares outstanding	21,970,372		22,338,828		22,214,862		22,306,323
Weighted average diluted common shares outstanding	21,977,196		22,390,438		22,223,986		22,367,095

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

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF ~~INCOME—~~COMPREHENSIVE INCOME — (UNAUDITED)

(dollars in ~~thousands, except per share data)~~thousands)

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Interest income:
Loans including fees:
Taxable $ 72,901 $ 52,699 $ 192,430 $ 159,743
Tax exempt 527 615 1,589 1,935
Loans held for sale 60 107 357 810
Investment securities:
Taxable 3,765 3,396 11,717 10,127
Tax exempt 628 899 2,162 2,474
Nonmarketable equity securities 550 558 1,521 1,847
Federal funds sold and cash investments 1,125 216 1,764 454
Total interest income 79,556 58,490 211,540 177,390
Interest expense:
Deposits 10,249 2,584 16,220 8,759
Short-term borrowings 28 21 73 65
Federal Home Loan Bank advances and other borrowings 2,424 1,993 5,071 7,033
Subordinated debt 2,010 2,011 6,032 6,694
Trust preferred debentures 821 485 1,959 1,465
Total interest expense 15,532 7,094 29,355 24,016
Net interest income 64,024 51,396 182,185 153,374
Provision for credit losses:
Provision for credit losses on loans 6,974 — 15,847 3,950
Provision for credit losses on unfunded commitments — — 956 (800)
Recapture of provision for other credit losses — (184) (221) (224)
Total provision for credit losses 6,974 (184) 16,582 2,926
Net interest income after provision for credit losses 57,050 51,580 165,603 150,448
Noninterest income:
Wealth management revenue 6,199 7,175 19,481 19,635
Residential mortgage banking revenue 210 1,287 1,193 4,423
Service charges on deposit accounts 2,597 2,268 6,969 6,010
Interchange revenue 3,531 3,651 10,401 10,823
(Loss) gain on sales of investment securities, net (129) 160 (230) 537
Impairment on commercial mortgage servicing rights — (3,037) (1,263) (5,460)
Company-owned life insurance 929 869 2,788 2,592
Other income 2,489 2,770 6,713 8,816
Total noninterest income 15,826 15,143 46,052 47,376
Noninterest expense:
Salaries and employee benefits 22,889 22,175 67,404 64,774
Occupancy and equipment 3,850 3,701 11,094 11,437
Data processing 6,093 6,495 18,048 18,776
Professional 1,693 1,738 5,181 9,472
Marketing 1,026 860 2,447 2,037
Communications 587 689 1,934 2,335
Amortization of intangible assets 1,361 1,445 4,077 4,430
Federal Home Loan Bank advances prepayment fees — — — 3,677
Other expense 5,997 4,189 15,534 12,374
Total noninterest expense 43,496 41,292 125,719 129,312
Income before income taxes 29,380 25,431 85,936 68,512
Income taxes 5,859 5,883 19,783 10,302
Net income $ 23,521 $ 19,548 $ 66,153 $ 58,210
Per common share data:
Basic earnings per common share $ 1.04 $ 0.86 $ 2.93 $ 2.56
Diluted earnings per common share $ 1.04 $ 0.86 $ 2.92 $ 2.55
Weighted average common shares outstanding 22,338,828 22,520,499 22,306,323 22,544,898
Weighted average diluted common shares outstanding 22,390,438 22,577,880 22,367,095 22,613,972


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	18,042	$	23,521	$	61,389	$	66,153
Other comprehensive loss:
Investment securities available for sale:
Unrealized losses that occurred during the period	(27,305)		(31,764)		(29,961)		(115,199)
Recapture of credit loss expense	—		—		—		(221)
Reclassification adjustment for realized net losses on sales of investment securities included in net income	4,961		129		6,478		230
Income tax effect	6,032		8,134		6,340		31,111
Change in investment securities available for sale, net of tax	(16,312)		(23,501)		(17,143)		(84,079)
Cash flow hedges:
Net unrealized derivative (losses) gains on cash flow hedges	(205)		(2,501)		(330)		594

Income tax effect	55		716		89		(135)
Change in cash flow hedges, net of tax	(150)		(1,785)		(241)		459
Other comprehensive loss, net of tax	(16,462)		(25,286)		(17,384)		(83,620)
Total comprehensive income (loss)	$	1,580	$	(1,765)	$	44,005	$	(17,467)

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

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME—~~SHAREHOLDERS’ EQUITY — (UNAUDITED)

(dollars in ~~thousands)~~thousands, except per share data)

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Net income $ 23,521 $ 19,548 $ 66,153 $ 58,210
Other comprehensive (loss) income:
Investment securities available for sale:
Unrealized (losses) gains that occurred during the period (31,764) 662 (115,199) (5,514)
Recapture of provision for credit loss expense — (184) (221) (224)
Reclassification adjustment for realized net losses (gains) on sales of investment securities included in net income 129 (160) 230 (537)
Income tax effect 8,134 (87) 31,111 1,726
Change in investment securities available for sale, net of tax (23,501) 231 (84,079) (4,549)
Cash flow hedges:
Net unrealized derivative (losses) gains on cash flow hedges (2,501) 729 594 5,567
Reclassification adjustment for gains realized in net income — — — 314
Income tax effect 716 (201) (135) (1,618)
Change in cash flow hedges, net of tax (1,785) 528 459 4,263
Other comprehensive (loss) income, net of tax (25,286) 759 (83,620) (286)
Total comprehensive (loss) income $ (1,765) $ 20,307 $ (17,467) $ 57,924


	Preferred stock		Common stock		Capital surplus		Retained earnings		Accumulated other comprehensive (loss) income		Total shareholders' equity
Balances, June 30, 2023	$	110,548	$	218	$	442,886	$	307,888	$	(84,719)	$	776,821
Net income	—		—		—		18,042		—		18,042
Other comprehensive loss	—		—		—		—		(16,462)		(16,462)

Common dividends declared ($0.30 per share)	—		—		—		(6,600)		—		(6,600)
Preferred dividends declared ($19.375 per share)	—		—		—		(2,229)		—		(2,229)
Common stock repurchased	—		(3)		(6,055)		—		—		(6,058)
Share-based compensation expense	—		—		604		—		—		604
Issuance of common stock under employee benefit plans	—		1		131		—		—		132
Balances, September 30, 2023	$	110,548	$	216	$	437,566	$	317,101	$	(101,181)	$	764,250

Balances, December 31, 2022	$	110,548	$	222	$	449,196	$	282,405	$	(83,797)	$	758,574
Net income	—		—		—		61,389		—		61,389
Other comprehensive loss	—		—		—		—		(17,384)		(17,384)

Common dividends declared ($0.90 per share)	—		—		—		(20,008)		—		(20,008)
Preferred dividends declared ($58.125 per share)	—		—		—		(6,685)		—		(6,685)
Common stock repurchased	—		(7)		(15,018)		—		—		(15,025)
Share-based compensation expense	—		—		1,796		—		—		1,796
Issuance of common stock under employee benefit plans	—		1		1,592		—		—		1,593
Balances, September 30, 2023	$	110,548	$	216	$	437,566	$	317,101	$	(101,181)	$	764,250

Balances, June 30, 2022	$	—	$	221	$	446,894	$	242,170	$	(53,097)	$	636,188
Net income	—		—		—		23,521		—		23,521
Other comprehensive loss	—		—		—		—		(25,286)		(25,286)
Issuance of preferred stock, net of offering costs	110,548		—		—		—		—		110,548
Common dividends declared ($0.29 per share)	—		—		—		(6,470)		—		(6,470)

Share-based compensation expense	—		—		501		—		—		501
Issuance of common stock under employee benefit plans	—		—		277		—		—		277
Balances, September 30, 2022	$	110,548	$	221	$	447,672	$	259,221	$	(78,383)	$	739,279

Balances, December 31, 2021	$	—	$	221	$	445,907	$	212,472	$	5,237	$	663,837


Net income	—		—		—		66,153		—		66,153
Other comprehensive loss	—		—		—		—		(83,620)		(83,620)
Issuance of preferred stock, net of offering costs	110,548		—		—		—		—		110,548
Common dividends declared ($0.87 per share)	—		—		—		(19,404)		—		(19,404)
Common stock repurchased	—		(1)		(1,108)		—		—		(1,109)
Share-based compensation expense	—		—		1,547		—		—		1,547
Issuance of common stock under employee benefit plans	—		1		1,326		—		—		1,327
Balances, September 30, 2022	$	110,548	$	221	$	447,672	$	259,221	$	(78,383)	$	739,279

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

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS’ EQUITY—(UNAUDITED)~~

~~(dollars in thousands, except per share data)~~

Preferred stock Common
stock Capital
surplus Retained
earnings Accumulated
other
comprehensive
(loss) income Total
shareholders'
equity
Balances, June 30, 2022 $ — $ 221 $ 446,894 $ 242,170 $ (53,097) $ 636,188
Net income — — — 23,521 — 23,521
Other comprehensive loss — — — — (25,286) (25,286)
Issuance of preferred stock, net of offering costs 110,548 — — — — 110,548
Common dividends declared ($0.29 per share) — — — (6,470) — (6,470)
Share-based compensation expense — — 501 — — 501
Issuance of common stock under employee benefit plans — — 277 — — 277
Balances, September 30, 2022 $ 110,548 $ 221 $ 447,672 $ 259,221 $ (78,383) $ 739,279
Balances, December 31, 2021 $ — $ 221 $ 445,907 $ 212,472 $ 5,237 $ 663,837
Net income — — — 66,153 — 66,153
Other comprehensive loss — — — — (83,620) (83,620)
Issuance of preferred stock, net of offering costs 110,548 — — — — 110,548
Common dividends declared ($0.87 per share) — — — (19,404) — (19,404)
Common stock repurchased — (1) (1,108) — — (1,109)
Share-based compensation expense — — 1,547 — — 1,547
Issuance of common stock under employee benefit plans — 1 1,326 — — 1,327
Balances, September 30, 2022 $ 110,548 $ 221 $ 447,672 $ 259,221 $ (78,383) $ 739,279
Balances, June 30, 2021 $ — $ 224 $ 455,215 $ 182,361 $ 10,386 $ 648,186
Net income — — — 19,548 — 19,548
Other comprehensive income — — — — 759 759
Common dividends declared ($0.28 per share) — — — (6,299) — (6,299)
Common stock repurchased — (2) (5,238) — — (5,240)
Share-based compensation expense — — 438 — — 438
Issuance of common stock under employee benefit plans — — 452 — — 452
Balances, September 30, 2021 $ — $ 222 $ 450,867 $ 195,610 $ 11,145 $ 657,844
Balances, December 31, 2020 $ — $ 223 $ 453,410 $ 156,327 $ 11,431 $ 621,391
Net income — — — 58,210 — 58,210
Other comprehensive loss — — — — (286) (286)
Common dividends declared ($0.84 per share) — — — (18,927) — (18,927)
Common stock repurchased — (3) (6,445) — — (6,448)
Share-based compensation expense — — 1,424 — — 1,424
Issuance of common stock under employee benefit plans — 2 2,478 — — 2,480
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.~~

~~Table of Contents~~

~~MIDLAND STATES BANCORP, INC.~~

~~CONSOLIDATED STATEMENTS OF~~ CASH ~~FLOWS—~~FLOWS — (UNAUDITED)

(dollars in thousands)


		Nine months ended September 30,					Nine Months Ended September 30,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	66,153	$	58,210	Net income	$	61,389	$	66,153
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	16,582		2,926		Provision for credit losses	14,182		16,582
Depreciation on premises and equipment	Depreciation on premises and equipment	3,665		4,223		Depreciation on premises and equipment	3,567		3,665
Amortization of intangible assets	Amortization of intangible assets	4,077		4,430		Amortization of intangible assets	3,628		4,077
Amortization of operating lease right-of-use asset	Amortization of operating lease right-of-use asset	1,373		1,281		Amortization of operating lease right-of-use asset	1,241		1,373
Amortization of loan servicing rights	Amortization of loan servicing rights	2,202		2,497		Amortization of loan servicing rights	861		2,202
Share-based compensation expense	Share-based compensation expense	1,547		1,424		Share-based compensation expense	1,796		1,547
Increase in cash surrender value of life insurance	Increase in cash surrender value of life insurance	(2,524)		(2,592)		Increase in cash surrender value of life insurance	(9,325)		(2,524)
Gain on proceeds from company-owned life insurance	Gain on proceeds from company-owned life insurance	(264)		—		Gain on proceeds from company-owned life insurance	—		(264)
Investment securities amortization, net		1,923		3,141
Loss (gain) on sales of investment securities, net		230		(537)
Loss (gain) on sales of other real estate owned		131		(418)
Investment securities (accretion) amortization, net						Investment securities (accretion) amortization, net	(1,424)		1,923

Loss on sales of investment securities, net						Loss on sales of investment securities, net	6,478		230
Gain on repurchase of subordinated debt						Gain on repurchase of subordinated debt	(676)		—
(Loss) gain on sales of other real estate owned						(Loss) gain on sales of other real estate owned	(819)		131
Impairment on other real estate owned	Impairment on other real estate owned	743		426		Impairment on other real estate owned	—		743
Origination of loans held for sale	Origination of loans held for sale	(123,602)		(394,905)		Origination of loans held for sale	(45,690)		(123,602)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	252,078		634,445		Proceeds from sales of loans held for sale	65,291		252,078
Gain on sale of loans held for sale	Gain on sale of loans held for sale	(1,035)		(3,799)		Gain on sale of loans held for sale	(1,712)		(1,035)
Impairment on commercial mortgage servicing rights	Impairment on commercial mortgage servicing rights	1,263		5,460		Impairment on commercial mortgage servicing rights	—		1,263
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	1,969		1,502		Accrued interest receivable	(3,970)		1,969
Other assets	Other assets	(37,534)		(21,279)		Other assets	(58,408)		(37,032)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	17,095		4,436		Accrued expenses and other liabilities	30,874		16,593
Net cash provided by operating activities	Net cash provided by operating activities	206,072		301,093		Net cash provided by operating activities	67,283		206,072
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	(100,115)		(338,456)		Purchases of investment securities available for sale	(305,021)		(100,115)
Proceeds from sales of investment securities available for sale	Proceeds from sales of investment securities available for sale	136,403		14,777		Proceeds from sales of investment securities available for sale	165,871		136,403
Maturities and payments on investment securities available for sale	Maturities and payments on investment securities available for sale	71,305		164,213		Maturities and payments on investment securities available for sale	43,838		71,305
Purchases of equity securities	Purchases of equity securities	(441)		(232)		Purchases of equity securities	(244)		(441)
Proceeds from sales of equity securities						Proceeds from sales of equity securities	5,148		—
Net increase in loans						Net increase in loans	(6,195)		(1,065,192)

Net (increase) decrease in loans		(1,065,192)		55,487
Purchases of premises and equipment	Purchases of premises and equipment	(2,088)		(1,853)		Purchases of premises and equipment	(7,064)		(2,088)
Proceeds from sale of premises and equipment	Proceeds from sale of premises and equipment	158		646		Proceeds from sale of premises and equipment	104		158
Purchases of nonmarketable equity securities	Purchases of nonmarketable equity securities	(6,360)		—		Purchases of nonmarketable equity securities	(157,382)		(6,360)
Proceeds from sales of nonmarketable equity securities		3,005		14,405
Proceeds from redemptions of nonmarketable equity securities						Proceeds from redemptions of nonmarketable equity securities	158,372		3,005

Proceeds from sales of other real estate owned	Proceeds from sales of other real estate owned	561		9,089		Proceeds from sales of other real estate owned	7,346		561
Purchases of company-owned life insurance		—		(550)
Proceeds from settlements of company-owned life insurance		1,518		—
Net cash received (paid) on acquisition		60,275		(2,715)
(Purchases of) proceeds from company-owned life insurance, net						(Purchases of) proceeds from company-owned life insurance, net	(48,622)		1,518
Net cash acquired in acquisitions						Net cash acquired in acquisitions	—		60,275
Net cash used in investing activities	Net cash used in investing activities	(900,971)		(85,189)		Net cash used in investing activities	(143,849)		(900,971)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposits	Net increase in deposits	204,810		500,360		Net increase in deposits	40,350		204,810
Net decrease in short-term borrowings	Net decrease in short-term borrowings	(18,285)		(2,291)		Net decrease in short-term borrowings	(24,313)		(18,285)
Proceeds from FHLB borrowings	Proceeds from FHLB borrowings	1,900,000		350,000		Proceeds from FHLB borrowings	15,996,000		1,900,000
Payments made on FHLB borrowings and other borrowings	Payments made on FHLB borrowings and other borrowings	(1,850,000)		(689,000)		Payments made on FHLB borrowings and other borrowings	(15,918,000)		(1,850,000)

Payments made on subordinated debt	Payments made on subordinated debt	—		(31,075)		Payments made on subordinated debt	(5,845)		—

Proceeds from issuance of preferred stock						Proceeds from issuance of preferred stock	—		110,548
Cash dividends paid on preferred stock						Cash dividends paid on preferred stock	(6,685)		—
Cash dividends paid on common stock						Cash dividends paid on common stock	(20,008)		(19,404)
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		110,548		—
Cash dividends paid on common stock		(19,404)		(18,927)
Common stock repurchased	Common stock repurchased	(1,109)		(6,448)		Common stock repurchased	(15,025)		(1,109)
Proceeds from issuance of common stock under employee benefit plans	Proceeds from issuance of common stock under employee benefit plans	1,327		2,480		Proceeds from issuance of common stock under employee benefit plans	1,593		1,327
Net cash provided by financing activities	Net cash provided by financing activities	327,716		105,099		Net cash provided by financing activities	48,067		327,716
Net (decrease) increase in cash and cash equivalents		(367,183)		321,003
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(28,499)		(367,183)
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	160,631		680,371
End of period	End of period	$	313,188	$	662,643	End of period	$	132,132	$	313,188
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	$	29,449	$	25,561	Interest paid on deposits and borrowed funds	$	114,011	$	29,449
Income tax paid, net of refunds		22,014		(6,648)
Income tax paid (net of refunds)						Income tax paid (net of refunds)	17,762		22,014
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	99,505		123,117		Transfer of loans to loans held for sale	—		99,505
Transfer of loans to other real estate owned	Transfer of loans to other real estate owned	517		583		Transfer of loans to other real estate owned	278		517
Right of use assets obtained in exchange for lease obligations						Right of use assets obtained in exchange for lease obligations	2,459		502

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		—		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		—		(62,923)
Transfer of loan servicing rights held for sale to loan servicing rights, at lower of cost or market						Transfer of loan servicing rights held for sale to loan servicing rights, at lower of cost or market	20,745		—

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

Table of Contents

MIDLAND STATES BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS — (UNAUDITED)


Note 1: Business Description			7
Note 2: Basis of Presentation and Summary of Significant Accounting Policies			7
Note 3: Investment Securities			8
Note 4: Loans			11
Note 5: Premises, Equipment and Leases			25
Note 6: Loan Servicing Rights			26

Note 7: Derivative Instruments			26
Note 8: Deposits			27
Note 9: Short-Term Borrowings			28
Note 10: FHLB Advances and Other Borrowings			28
Note 11: Subordinated Debt			29
Note 12: Earnings Per Common Share			29
Note 13: Fair Value of Financial Instruments			30
Note 14: Commitments, Contingencies and Credit Risk			35
Note 15: Segment Information			36
Note 16: Revenue From Contracts with Customers			38

N
~~OTE~~

NOTE 1 – B~~USINESS~~ D~~ESCRIPTION~~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.

N~~OTE~~NOTE 2 – B~~ASIS~~BASIS OF P~~RESENTATION~~ PRESENTATION AND S~~UMMARY~~ SUMMARY OF S~~IGNIFICANT~~ A~~CCOUNTING~~ P~~OLICIES~~ SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying 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~~Management of ~~these policies can be found~~the Company has made a number of estimates and assumptions related to the reporting of assets and liabilities to prepare the consolidated financial statements in ~~Note 1 – Summary~~conformity with GAAP. Actual results may differ from those estimates. In the opinion of ~~Significant Accounting Policies included in~~management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of the ~~Company's 2021 Annual Report on Form 10-K.~~results of operations for annual periods presented herein, have been included. Certain reclassifications of ~~2021~~2022 amounts have been made to conform to the ~~2022 presentation. Management has evaluated subsequent events for potential recognition~~2023 presentation but do not have an effect on net income or disclosure. Operating results for the three and nine months ended 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.shareholders’ equity.

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 assets of the Company and, accordingly, 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; 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, for which an entity has elected certain optional expedients 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.consolidated financial statements.

Table of Contents

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 exceptionsAccounting Guidance Adopted 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.~~2023

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 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~~adopted this guidance on ~~its~~January 1, 2023 and elected to apply on a prospective basis. The adoption of this accounting pronouncement did not have an impact on the consolidated financial ~~statements.~~statements aside from additional and revised disclosures.

Accounting Guidance Issued But Not Yet Adopted

N~~OTE~~ ~~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 $0.4 million of transaction and integration costs were expensed as incurred.

~~A summary~~FASB ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the ~~fair value~~Effects of Reference Rate Reform on Financial Reporting – In March 2020, the FASB issued ASU No. 2020-04, allowing for optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The objective of the ~~assets acquired and liabilities assumed are~~guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision based on the expectations of when LIBOR would cease being published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of LIBOR to June 30, 2023.

In December 2022, to ensure the relief in Topic 848 covers the ~~table below.~~period of time during which a significant number of modifications may take place, the FASB issued ASU No. 2022-06, which defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.


~~(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~~The Company

~~On June 1,~~ has been monitoring its volume of commercial loans tied to LIBOR. In 2021, the Company ~~completed its acquisition~~began prioritizing SOFR as the preferred alternative reference rate with plans to cease booking LIBOR based commitments after the end of ~~substantially all of the trust assets of ATG Trust Company (“ATG Trust”),~~2021. Loans with a ~~trust company based~~maturity after June 2023 are being reviewed and monitored to ensure there is appropriate fallback language in ~~Chicago, Illinois,~~place when LIBOR is no longer published. Loans 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 acquisitiona maturity date ~~fair values, while $0.4 million of transaction~~before that time should naturally mature and ~~integration costs associated~~be re-underwritten with the ~~acquisition were expensed in 2021.~~alternative index rate.

The Company believes the adoption of this guidance will not have a material impact on the consolidated financial statements.

~~Table of Contents~~

N~~OTE~~ 4NOTE 3 – I~~NVESTMENT~~ S~~ECURITIES~~INVESTMENT SECURITIES

Investment Securities Available for Sale

Investment securities available for sale at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:


		September 30, 2022											September 30, 2023
(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		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	$	66,369	$	—	$	5,873	$	—	$	60,496	U.S. Treasury securities	$	1,582	$	—	$	19	$	1,563
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	32,267		78		4,480		—		27,865		U.S. government sponsored entities and U.S. agency securities	93,291		171		4,424		89,038
Mortgage-backed securities - agency	Mortgage-backed securities - agency	469,822		5		78,212		—		391,615		Mortgage-backed securities - agency	613,484		13		96,106		517,391
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	25,341		—		4,183		—		21,158		Mortgage-backed securities - non-agency	77,617		13		4,965		72,665
State and municipal securities	State and municipal securities	105,838		128		10,905		—		95,061		State and municipal securities	59,521		3		9,787		49,737
Collateralized loan obligations												Collateralized loan obligations	22,662		—		277		22,385
Corporate securities	Corporate securities	95,313		—		9,619		—		85,694		Corporate securities	95,124		—		12,894		82,230
Total available for sale securities	Total available for sale securities	$	794,950	$	211	$	113,272	$	—	$	681,889	Total available for sale securities	$	963,281	$	200	$	128,472	$	835,009

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

Table of Contents


	December 31, 2022
(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale
U.S. Treasury securities	$	86,313	$	113	$	5,196	$	81,230
U.S. government sponsored entities and U.S. agency securities	41,775		71		4,337		37,509
Mortgage-backed securities - agency	522,028		268		74,146		448,150
Mortgage-backed securities - non-agency	24,922		—		4,168		20,754
State and municipal securities	102,719		149		8,232		94,636
Corporate securities	95,266		—		9,311		85,955
Total available for sale securities	$	873,023	$	601	$	105,390	$	768,234

The following is a summary of the amortized cost and fair value of the investment securities available for sale, by maturity, at September 30, ~~2022.~~2023. 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	$	9,766	$	9,793	Within one year	$	23,769	$	23,543
After one year through five years	After one year through five years	123,074		113,574		After one year through five years	108,735		103,973
After five years through ten years	After five years through ten years	135,520		119,588		After five years through ten years	118,486		99,614
After ten years	After ten years	31,427		26,161		After ten years	21,190		17,823
Mortgage-backed securities	Mortgage-backed securities	495,163		412,773		Mortgage-backed securities	691,101		590,056
Total available for sale securities	Total available for sale securities	$	794,950	$	681,889	Total available for sale securities	$	963,281	$	835,009

~~Table of Contents~~

Proceeds and gross realized gains and losses on sales of investment securities available for sale for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022 are summarized as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Investment securities available for sale	Investment securities available for sale									Investment securities available for sale
Proceeds from sales	Proceeds from sales	$	28,663	$	2,160	$	136,403	$	14,777	Proceeds from sales	$	65,911	$	28,663	$	165,871	$	136,403
Gross realized gains on sales	Gross realized gains on sales	113		160		829		537		Gross realized gains on sales	—		113		338		829
Gross realized losses on sales	Gross realized losses on sales	(242)		—		(1,059)		—		Gross realized losses on sales	(4,961)		(242)		(6,816)		(1,059)

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

(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:
For the three months ended September 30, 2022
Balance, beginning of period $ — $ — $ — $ —
Current-period provision for expected credit losses — — — —
Balance, end of period $ — $ — $ — $ —
For the nine months ended September 30, 2022
Balance, beginning of period $ — $ — $ 221 $ 221
Current-period provision for expected credit losses — — (221) (221)
Balance, end of period $ — $ — $ — $ —
For the three months ended September 30, 2021
Balance, beginning of period $ 113 $ — $ 213 $ 326
Current-period provision for expected credit losses (113) — (71) (184)
Balance, end of period $ — $ — $ 142 $ 142
For the nine months ended September 30, 2021
Balance, beginning of period $ — $ 29 $ 337 $ 366
Current-period provision for expected credit losses — (29) (195) (224)
Balance, end of period $ — $ — $ 142 $ 142

Unrealized losses and fair values for investment securities available for sale as of September 30, ~~2022~~2023 and December 31, ~~2021, for which an allowance for credit losses has not been recorded,~~2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as follows:

September 30, 2022
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 $ 37,689 $ 3,305 $ 22,807 $ 2,568 $ 60,496 $ 5,873
U.S. government sponsored entities and U.S. agency securities 333 19 23,289 4,461 23,622 4,480
Mortgage-backed securities - agency 168,562 21,838 222,652 56,374 391,214 78,212
Mortgage-backed securities - non-agency 6,228 879 14,930 3,304 21,158 4,183
State and municipal securities 56,578 5,879 22,193 5,026 78,771 10,905
Corporate securities 57,401 4,767 28,293 4,852 85,694 9,619
Total available for sale securities $ 326,791 $ 36,687 $ 334,164 $ 76,585 $ 660,955 $ 113,272

~~Table of Contents~~


	September 30, 2023
	Less than 12 Months				12 Months or more				Total
(dollars in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss
Investment securities available for sale
U.S. Treasury securities	$	828	$	9	$	735	$	10	$	1,563	$	19
U.S. government sponsored entities and U.S. agency securities	56,835		251		23,787		4,173		80,622		4,424
Mortgage-backed securities - agency	175,194		10,090		337,263		86,016		512,457		96,106
Mortgage-backed securities - non-agency	49,181		359		18,736		4,606		67,917		4,965
State and municipal securities	48,303		9,787		—		—		48,303		9,787
Collateralized loan obligations	22,385		277		—		—		22,385		277
Corporate securities	—		—		82,230		12,894		82,230		12,894
Total available for sale securities	$	352,726	$	20,773	$	462,751	$	107,699	$	815,477	$	128,472


		December 31, 2021													December 31, 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	$	64,917	$	430	$	—	$	—	$	64,917	$	430	U.S. Treasury securities	$	1,839	$	24	$	59,865	$	5,172	$	61,704	$	5,196
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	17,487		263		9,432		568		26,919		831		U.S. government sponsored entities and U.S. agency securities	10,288		40		23,453		4,297		33,741		4,337
Mortgage-backed securities - agency	Mortgage-backed securities - agency	317,372		6,633		9,051		268		326,423		6,901		Mortgage-backed securities - agency	152,657		9,736		273,353		64,410		426,010		74,146
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	24,095		381		—		—		24,095		381		Mortgage-backed securities - non-agency	1,924		270		18,830		3,898		20,754		4,168
State and municipal securities	State and municipal securities	27,324		270		2,538		96		29,862		366		State and municipal securities	35,603		1,662		41,538		6,570		77,141		8,232
Corporate securities	Corporate securities	—		—		—		—		—		—		Corporate securities	39,595		3,400		46,360		5,911		85,955		9,311
Total available for sale securities	Total available for sale securities	$	451,195	$	7,977	$	21,021	$	932	$	472,216	$	8,909	Total available for sale securities	$	241,906	$	15,132	$	463,399	$	90,258	$	705,305	$	105,390

At September 30, ~~2022, 393~~2023, 321 investment securities available for sale had unrealized losses with aggregate depreciation of ~~14.63%~~13.50% 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. The issuers are of high credit quality and all principal amounts are expected to be paid when securities 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 $8.6 million and $9.5 million at~~ ~~September 30, 2022~~ ~~and~~ ~~December 31, 2021, respectively.~~

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

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Equity securities
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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N~~OTE~~ 5NOTE 4 – L~~OANS~~LOANS

The following table presents total loans outstanding by portfolio class, as of September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2023		December 31, 2022
Commercial:	Commercial:					Commercial:
Commercial	Commercial	$	852,930	$	770,670	Commercial	$	874,004	$	786,877
Commercial other	Commercial other	683,353		679,518		Commercial other	697,235		727,697
Commercial real estate:	Commercial real estate:					Commercial real estate:
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	1,567,308		1,105,333		Commercial real estate non-owner occupied	1,636,168		1,591,399
Commercial real estate owner occupied	Commercial real estate owner occupied	505,174		469,658		Commercial real estate owner occupied	439,642		496,786
Multi-family	Multi-family	328,473		171,875		Multi-family	269,708		277,889
Farmland	Farmland	65,348		69,962		Farmland	66,646		67,085
Construction and land development	Construction and land development	225,549		193,749		Construction and land development	416,801		320,882
Total commercial loans	Total commercial loans	4,228,135		3,460,765		Total commercial loans	4,400,204		4,268,615
Residential real estate:	Residential real estate:					Residential real estate:
Residential first lien	Residential first lien	294,432		274,412		Residential first lien	313,638		304,243
Other residential	Other residential	61,793		63,739		Other residential	61,573		61,851
Consumer:	Consumer:					Consumer:
Consumer	Consumer	110,226		106,008		Consumer	111,432		105,880
Consumer other	Consumer other	1,046,254		896,597		Consumer other	908,576		1,074,134
Lease financing	Lease financing	457,611		423,280		Lease financing	485,460		491,744
Total loans, gross		$	6,198,451	$	5,224,801
Total loans						Total loans	$	6,280,883	$	6,306,467

Total loans include net deferred loan costs of ~~$4.2~~$5.1 million and ~~$4.6~~$4.4 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and unearned discounts of ~~$54.0~~$67.1 million and ~~$46.1~~$62.6 million within the lease financing portfolio at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

At September 30, ~~2022,~~2023, the Company had residential real estate loans held for sale totaling ~~$4.3~~$6.1 million, compared to ~~commercial real estate and residential real estate loans held for sale totaling $32.0~~$1.3 million at December 31, ~~2021.~~2022. The Company sold ~~commercial real estate, residential real estate~~loans and ~~consumer loans~~leases with proceeds totaling $28.0 million and $65.3 million during the three and nine months ended September 30, 2023, respectively, and $48.5 million and $252.1 million during the three and nine months ended September 30, 2022, ~~respectively, and $139.9 million and $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~~Commercial FHA warehouse lines of ~~$2.8~~$48.5 million and ~~$52.5~~$25.0 million as of September 30, ~~2022~~2023 and December 31, ~~2021, respectively, and commercial FHA warehouse lines of $51.3 million and $91.9 million as of 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.

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 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 ~~$20.0~~$21.3 million and ~~$13.9~~$19.8 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The new loans, other additions, repayments and other reductions for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, are summarized as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Beginning balance	Beginning balance	$	23,097	$	18,762	$	13,869	$	19,693	Beginning balance	$	21,569	$	23,097	$	19,776	$	13,869
New loans and other additions	New loans and other additions	—		21		9,804		1,045		New loans and other additions	—		—		2,368		9,804
Repayments and other reductions	Repayments and other reductions	(3,081)		(3,424)		(3,657)		(5,379)		Repayments and other reductions	(287)		(3,081)		(862)		(3,657)
Ending balance	Ending balance	$	20,016	$	15,359	$	20,016	$	15,359	Ending balance	$	21,282	$	20,016	$	21,282	$	20,016

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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 nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


		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 September 30, 2023:																Changes in allowance for credit losses on loans for the three months ended September 30, 2023:
Balance, beginning of period																Balance, beginning of period	$	15,290	$	29,425	$	3,189	$	5,551	$	3,953	$	7,542	$	64,950
Provision for credit losses on loans																Provision for credit losses on loans	7,289		(6,176)		385		209		228		3,233		5,168
Charge-offs																Charge-offs	(3,249)		(2,316)		(44)		(95)		(250)		(1,394)		(7,348)
Recoveries																Recoveries	80		3,678		—		33		53		55		3,899
Balance, end of period																Balance, end of period	$	19,410	$	24,611	$	3,530	$	5,698	$	3,984	$	9,436	$	66,669

Changes in allowance for credit losses on loans for the nine months ended September 30, 2023:																Changes in allowance for credit losses on loans for the nine months ended September 30, 2023:
Balance, beginning of period																Balance, beginning of period	$	14,639	$	29,290	$	2,435	$	4,301	$	3,599	$	6,787	$	61,051
Provision for credit losses on loans																Provision for credit losses on loans	9,483		(4,079)		1,441		1,479		932		4,926		14,182
Charge-offs																Charge-offs	(5,289)		(4,606)		(378)		(180)		(773)		(2,555)		(13,781)
Recoveries																Recoveries	577		4,006		32		98		226		278		5,217
Balance, end of period																Balance, end of period	$	19,410	$	24,611	$	3,530	$	5,698	$	3,984	$	9,436	$	66,669

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:															Changes in allowance for credit losses on loans for the three months ended September 30, 2022:
Balance, beginning of period	Balance, beginning of period	$	12,748	$	27,874	$	1,101	$	3,416	$	2,994	$	6,765	$	54,898	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	3,226		1,787		472		852		606		31		6,974		Provision for credit losses on loans	3,226		1,787		472		852		606		31		6,974
Charge-offs	Charge-offs	(1,655)		(1,232)		—		(166)		(316)		(485)		(3,854)		Charge-offs	(1,655)		(1,232)		—		(166)		(316)		(485)		(3,854)
Recoveries	Recoveries	45		1		18		69		121		367		621		Recoveries	45		1		18		69		121		367		621
Balance, end of period	Balance, end of period	$	14,364	$	28,430	$	1,591	$	4,171	$	3,405	$	6,678	$	58,639	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 nine months ended September 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	3,504		9,515		595		1,569		1,278		(614)		15,847		Provision for credit losses on loans	3,504		9,515		595		1,569		1,278		(614)		15,847
Charge-offs	Charge-offs	(3,869)		(4,084)		(6)		(315)		(812)		(1,190)		(10,276)		Charge-offs	(3,869)		(4,084)		(6)		(315)		(812)		(1,190)		(10,276)
Recoveries	Recoveries	354		6		30		222		381		1,013		2,006		Recoveries	354		6		30		222		381		1,013		2,006
Balance, end of period	Balance, end of period	$	14,364	$	28,430	$	1,591	$	4,171	$	3,405	$	6,678	$	58,639	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 September 30, 2021:
Balance, beginning of period		$	14,849	$	30,718	$	1,733	$	3,683	$	2,292	$	5,389	$	58,664
Provision for credit losses on loans		(75)		(2,105)		(538)		(697)		292		3,123		—
Charge-offs		(317)		(1,663)		(138)		(35)		(280)		(1,227)		(3,660)
Recoveries		134		3		74		66		93		301		671
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 nine months ended September 30, 2021:
Balance, beginning of period		$	19,851	$	25,465	$	1,433	$	3,929	$	2,338	$	7,427	$	60,443

Provision for credit losses on loans		(2,091)		4,854		(113)		(806)		429		1,677		3,950
Charge-offs		(3,457)		(3,382)		(410)		(286)		(740)		(1,996)		(10,271)
Recoveries		288		16		221		180		370		478		1,553
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 average of the through-the-cycle default 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 September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		September 30, 2022						December 31, 2021							September 30, 2023						December 31, 2022
(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	$	4,179	$	508	$	4,687	$	4,681	$	2,275	$	6,956	Commercial	$	2,877	$	979	$	3,856	$	1,910	$	1,111	$	3,021
Commercial other	Commercial other	2,104		—		2,104		4,467		—		4,467		Commercial other	4,180		—		4,180		3,169		—		3,169
Commercial real estate:	Commercial real estate:													Commercial real estate:
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	1,590		12,118		13,708		1,914		9,912		11,826		Commercial real estate non-owner occupied	1,427		17,658		19,085		1,345		11,899		13,244
Commercial real estate owner occupied	Commercial real estate owner occupied	2,882		1,340		4,222		2,164		1,340		3,504		Commercial real estate owner occupied	2,168		9,285		11,453		7,118		—		7,118
Multi-family	Multi-family	164		9,003		9,167		201		1,967		2,168		Multi-family	252		2,641		2,893		154		8,949		9,103
Farmland	Farmland	25		—		25		155		—		155		Farmland	172		—		172		25		—		25
Construction and land development	Construction and land development	245		—		245		83		—		83		Construction and land development	2,025		—		2,025		202		—		202
Total commercial loans	Total commercial loans	11,189		22,969		34,158		13,665		15,494		29,159		Total commercial loans	13,101		30,563		43,664		13,923		21,959		35,882
Residential real estate:	Residential real estate:													Residential real estate:
Residential first lien	Residential first lien	2,884		633		3,517		3,116		832		3,948		Residential first lien	2,659		495		3,154		2,925		572		3,497
Other residential	Other residential	798		—		798		836		—		836		Other residential	702		—		702		871		—		871
Consumer:	Consumer:													Consumer:
Consumer	Consumer	72		—		72		110		—		110		Consumer	103		—		103		120		—		120

Lease financing	Lease financing	1,506		—		1,506		1,510		—		1,510		Lease financing	7,558		—		7,558		1,606		—		1,606
Total loans	Total loans	$	16,449	$	23,602	$	40,051	$	19,237	$	16,326	$	35,563	Total loans	$	24,123	$	31,058	$	55,181	$	19,445	$	22,531	$	41,976

There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 while the loans were in nonaccrual status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $0.8 million and $2.5 million for the three and nine months ended September 30, 2023, respectively, and $0.8 million and $1.9 million for the three and nine months ended September 30, 2022, ~~respectively, and $0.6 million and $2.1 million for the three and nine months ended 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 September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		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
September 30, 2022
September 30, 2023											September 30, 2023
Commercial:	Commercial:										Commercial:
Commercial	Commercial	$	—	$	3,244	$	—		$	3,244	Commercial	$	—	$	—	$	1,973	$	1,973
Commercial other	Commercial other	—		—		278			278		Commercial other	—		—		344		344
Commercial real estate:	Commercial real estate:										Commercial real estate:
Non-owner occupied	Non-owner occupied	12,655		—		—			12,655		Non-owner occupied	17,515		—		—		17,515
Owner occupied	Owner occupied	1,336		—		—			1,336		Owner occupied	9,275		—		—		9,275
Multi-family	Multi-family	1,873		—		—			1,873		Multi-family	2,642		—		—		2,642
Construction and land development											Construction and land development	2,021		—		—		2,021

Lease financing		—		—		110			110
Total collateral dependent loans	Total collateral dependent loans	$	15,864	$	3,244	$	388		$	19,496	Total collateral dependent loans	$	31,453	$	—	$	2,317	$	33,770

December 31, 2021
December 31, 2022											December 31, 2022
Commercial:	Commercial:										Commercial:
Commercial	Commercial	$	—	$	5,402	$	—		$	5,402	Commercial	$	—	$	1,604	$	—	$	1,604
Commercial other		—		—		502			502

Commercial real estate:	Commercial real estate:										Commercial real estate:
Non-owner occupied	Non-owner occupied	11,604		—		—			11,604		Non-owner occupied	13,033		—		—		13,033
Owner occupied	Owner occupied	1,336		—		—			1,336		Owner occupied	3,874		—		—		3,874
Multi-family	Multi-family	1,969		—		—			1,969		Multi-family	8,950		—		—		8,950

Residential real estate											Residential real estate
Residential first lien											Residential first lien	220		—		—		220

Total collateral dependent loans	Total collateral dependent loans	$	14,909	$	5,402	$	502		$	20,813	Total collateral dependent loans	$	26,077	$	1,604	$	—	$	27,681

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The aging status of the recorded investment in loans by portfolio as of September 30, ~~2022~~2023 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	$	7,609	$	518	$	—	$	8,127	$	4,687	$	840,116	$	852,930	Commercial	$	188	$	—	$	—	$	188	$	3,856	$	869,960	$	874,004
Commercial other	Commercial other	3,510		2,189		281		5,980		2,104		675,269		683,353		Commercial other	11,615		5,630		800		18,045		4,180		675,010		697,235
Commercial real estate:	Commercial real estate:															Commercial real estate:
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	771		265		—		1,036		13,708		1,552,564		1,567,308		Commercial real estate non-owner occupied	263		5,715		—		5,978		19,085		1,611,105		1,636,168
Commercial real estate owner occupied	Commercial real estate owner occupied	481		—		—		481		4,222		500,471		505,174		Commercial real estate owner occupied	373		—		—		373		11,453		427,816		439,642
Multi-family	Multi-family	—		—		—		—		9,167		319,306		328,473		Multi-family	—		—		—		—		2,893		266,815		269,708
Farmland	Farmland	88		—		—		88		25		65,235		65,348		Farmland	86		122		—		208		172		66,266		66,646
Construction and land development	Construction and land development	—		—		—		—		245		225,304		225,549		Construction and land development	—		—		—		—		2,025		414,776		416,801
Total commercial loans	Total commercial loans	12,459		2,972		281		15,712		34,158		4,178,265		4,228,135		Total commercial loans	12,525		11,467		800		24,792		43,664		4,331,748		4,400,204
Residential real estate:	Residential real estate:															Residential real estate:
Residential first lien	Residential first lien	30		209		77		316		3,517		290,599		294,432		Residential first lien	314		—		—		314		3,154		310,170		313,638
Other residential	Other residential	197		50		—		247		798		60,748		61,793		Other residential	120		—		—		120		702		60,751		61,573
Consumer:	Consumer:															Consumer:
Consumer	Consumer	109		50		—		159		72		109,995		110,226		Consumer	272		84		—		356		103		110,973		111,432
Consumer other	Consumer other	5,020		3,159		142		8,321		—		1,037,933		1,046,254		Consumer other	7,264		4,128		—		11,392		—		897,184		908,576
Lease financing	Lease financing	3,033		987		193		4,213		1,506		451,892		457,611		Lease financing	7,065		3,369		—		10,434		7,558		467,468		485,460
Total loans	Total loans	$	20,848	$	7,427	$	693	$	28,968	$	40,051	$	6,129,432	$	6,198,451	Total loans	$	27,560	$	19,048	$	800	$	47,408	$	55,181	$	6,178,294	$	6,280,883

~~Table of Contents~~

The aging status of the recorded investment in loans by portfolio as of December 31, ~~2021~~2022 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 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.

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 September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021
(dollars in thousands)
Accruing (1)
Non-accrual (2)
Total
Accruing (1)
Non-accrual (2)
Total
Commercial $ 1,727 $ 511 $ 2,238 $ 833 $ 1,422 $ 2,255
Commercial real estate 113 2,627 2,740 1,522 3,302 4,824
Construction and land development 29 — 29 37 — 37
Residential real estate 3,384 702 4,086 3,128 784 3,912
Consumer 59 — 59 98 — 98
Lease financing 824 21 845 1,394 241 1,635
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.~~


	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	$	7	$	112	$	—	$	119	$	3,021	$	783,737	$	786,877
Commercial other	6,035		2,365		—		8,400		3,169		716,128		727,697
Commercial real estate:
Commercial real estate non-owner occupied	1,008		999		—		2,007		13,244		1,576,148		1,591,399
Commercial real estate owner occupied	73		—		—		73		7,118		489,595		496,786
Multi-family	—		—		—		—		9,103		268,786		277,889
Farmland	—		—		—		—		25		67,060		67,085
Construction and land development	—		6,000		—		6,000		202		314,680		320,882
Total commercial loans	7,123		9,476		—		16,599		35,882		4,216,134		4,268,615
Residential real estate:
Residential first lien	82		456		428		966		3,497		299,780		304,243
Other residential	188		13		—		201		871		60,779		61,851
Consumer:
Consumer	139		18		12		169		120		105,591		105,880
Consumer other	5,381		3,559		733		9,673		—		1,064,461		1,074,134
Lease financing	4,415		1,522		—		5,937		1,606		484,201		491,744
Total loans	$	17,328	$	15,044	$	1,173	$	33,545	$	41,976	$	6,230,946	$	6,306,467

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Loan Restructurings

The Company adopted the accounting guidance in ASU No. 2022-02, effective as of January 1, 2023, which eliminated the recognition and measurement of a troubled debt restructuring ("TDR"). Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are for modifications which have a direct impact on cash flows.

The Company may offer various types of concessions when modifying a loan. Commercial and industrial loans modified in a loan restructuring often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested.

Loans modified in a loan restructuring for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for loans that have been modified in a loan restructuring is measured based on the probability of default and loss given default model, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.

Commercial and consumer loans modified in a loan restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a loan restructuring subsequently default, the Company evaluates the loan for possible further loss. The allowance ~~for credit losses on TDRs totaled $0.5 million and $0.7 million~~may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.

In some cases, the Company will modify a loan by providing multiple types of concessions. Typically, one type of concession, such as ofa term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession such as an interest rate reduction or principal forgiveness, may be granted. During the three months ended September 30, ~~2022~~2023 the Company restructured two loans and ~~December 31, 2021, respectively.~~one lease for borrowers experiencing financial difficulties with principal balances totaling $0.5 million. The ~~Company had no unfunded commitments in connection~~restructured loans were provided term extensions and the restructured lease was provided a term extension with ~~TDRs at September 30, 2022 and December 31, 2021.~~

~~The following table presents a summary of loans by portfolio that were restructured during~~an increased interest rate. During the ~~three and~~ nine months ended September 30, ~~2022~~2023 the Company restructured seven loans and ~~2021. There~~one lease for borrowers experiencing financial difficulties with principal balances totaling $1.2 million. Five of the restructured loans were ~~no loans modified as TDRs within~~provided a term extension with the ~~previous twelve months that subsequently defaulted during the three~~other two receiving an interest rate reduction and ~~nine months ended September 30, 2022 or 2021:~~

Commercial loan portfolio Other loan portfolio
(dollars in thousands) Commercial Commercial
real
estate Construction
and land
development Residential
real
estate Consumer Lease
financing Total
For the three months ended September 30, 2022
Troubled debt restructurings:
Number of loans — — — 2 — — 2
Pre-modification outstanding balance $ — $ — $ — $ 56 $ — $ — $ 56
Post-modification outstanding balance — — — 56 — — 56
For the nine months ended September 30, 2022
Troubled debt restructurings:
Number of loans 4 1 — 7 3 2 17
Pre-modification outstanding balance $ 1,324 $ 6 $ — $ 260 $ 107 $ 84 $ 1,781
Post-modification outstanding balance 1,324 6 — 260 105 84 1,779
For the three months ended September 30, 2021
Troubled debt restructurings:
Number of loans 2 1 — — — 3 6
Pre-modification outstanding balance $ 114 $ 152 $ — $ — $ — $ 234 $ 500
Post-modification outstanding balance 114 130 — — — 234 478
For the nine months ended September 30, 2021
Troubled debt restructurings:
Number of loans 7 2 1 3 3 4 20
Pre-modification outstanding balance $ 723 $ 1,584 $ 49 $ 191 $ 50 $ 739 $ 3,336
Post-modification outstanding balance 723 1,562 40 195 50 739 3,309
a term extension. The lease was provided a term extension with an increased interest rate.

Credit Quality Monitoring

The Company maintains loan policies and credit underwriting standards as part of the process of managing credit risk. These standards include making loans generally within the Company’s four 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.

~~Table of Contents~~

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

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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- 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 September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


				September 30, 2022																			September 30, 2023
				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)			2023		2022		2021		2020		2019		Prior		Revolving loans		Total
Commercial	Commercial		Acceptable credit quality	$	83,501	$	107,645	$	72,269	$	29,183	$	13,578	$	50,113	$	482,069	$	838,358	Commercial		Acceptable credit quality	$	143,718	$	103,740	$	87,777	$	45,059	$	15,507	$	44,549	$	391,270	$	831,620
			Special mention	—		48		—		314		926		267		1,928		3,483				Special mention	—		450		8,022		—		193		46		325		9,036
			Substandard	—		—		—		—		1,385		4,142		875		6,402				Substandard	4,056		13,131		970		—		258		5,028		6,049		29,492
			Substandard – nonaccrual	—		340		—		99		112		259		3,877		4,687				Substandard – nonaccrual	1,238		—		1,331		4		80		526		677		3,856
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	83,501		108,033		72,269		29,596		16,001		54,781		488,749		852,930				Subtotal	149,012		117,321		98,100		45,063		16,038		50,149		398,321		874,004

		Commercial other	Acceptable credit quality	207,903		168,275		116,826		73,659		18,985		311		90,558		676,517			Commercial other	Acceptable credit quality	139,732		212,686		113,154		70,132		39,647		33,582		80,837		689,770
			Special mention	—		—		797		2,285		485		—		55		3,622				Special mention	440		—		121		122		118		10		1,183		1,994
			Substandard	250		—		—		12		—		—		848		1,110				Substandard	39		370		—		—		—		—		808		1,217
			Substandard – nonaccrual	343		770		24		473		494		—		—		2,104				Substandard – nonaccrual	928		865		1,159		633		492		103		—		4,180
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	74		—		—		—		—		—		—		74
			Subtotal	208,496		169,045		117,647		76,429		19,964		311		91,461		683,353				Subtotal	141,213		213,921		114,434		70,887		40,257		33,695		82,828		697,235

Commercial real estate	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		Commercial real estate	Non-owner occupied	Acceptable credit quality	165,208		661,014		347,744		128,655		83,459		138,837		6,830		1,531,747
			Special mention	1,423		187		482		10,670		198		9,396		—		22,356				Special mention	10,284		—		183		462		159		229		—		11,317
			Substandard	593		106		—		36,858		1,611		37,282		—		76,450				Substandard	30,358		1,874		—		—		22,764		19,023		—		74,019
			Substandard – nonaccrual	—		744		—		49		10,246		2,669		—		13,708				Substandard – nonaccrual	—		—		359		999		7,599		10,128		—		19,085
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	582,664		438,938		142,044		141,522		31,019		227,314		3,807		1,567,308				Subtotal	205,850		662,888		348,286		130,116		113,981		168,217		6,830		1,636,168

		Owner occupied	Acceptable credit quality	105,981		131,950		66,624		40,949		29,247		108,957		4,667		488,375			Owner occupied	Acceptable credit quality	33,707		99,078		115,574		51,245		24,094		80,766		2,313		406,777
			Special mention	—		135		—		168		159		1,680		24		2,166				Special mention	—		—		130		—		76		181		11		398
			Substandard	45		4,186		575		2,026		—		3,579		—		10,411				Substandard	—		7,729		267		43		723		12,252		—		21,014
			Substandard – nonaccrual	—		385		309		156		333		2,735		304		4,222				Substandard – nonaccrual	142		9,443		338		183		142		901		304		11,453
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	106,026		136,656		67,508		43,299		29,739		116,951		4,995		505,174				Subtotal	33,849		116,250		116,309		51,471		25,035		94,100		2,628		439,642

		Multi-family	Acceptable credit quality	188,990		51,461		33,440		445		24,604		15,768		1,020		315,728			Multi-family	Acceptable credit quality	3,705		159,152		26,037		28,296		10,251		12,828		334		240,603
			Special mention	—		—		—		—		—		—		—		—				Special mention	—		—		—		—		—		14,552		—		14,552
			Substandard	—		—		—		—		—		3,578		—		3,578				Substandard	8,187		—		—		—		—		3,473		—		11,660
			Substandard – nonaccrual	—		949		—		114		—		8,104		—		9,167				Substandard – nonaccrual	—		—		899		—		104		1,890		—		2,893
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	188,990		52,410		33,440		559		24,604		27,450		1,020		328,473				Subtotal	11,892		159,152		26,936		28,296		10,355		32,743		334		269,708

		Farmland	Acceptable credit quality	5,303		16,267		14,099		4,228		3,250		20,222		1,227		64,596			Farmland	Acceptable credit quality	9,256		4,780		13,878		12,449		3,758		18,932		1,483		64,536
			Special mention	—		—		—		—		—		161		—		161				Special mention	—		—		1,451		—		—		96		—		1,547
			Substandard	—		15		—		23		13		348		167		566				Substandard	—		—		14		—		22		355		—		391
			Substandard – nonaccrual	—		—		—		—		—		25		—		25				Substandard – nonaccrual	—		—		—		—		—		124		48		172
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	5,303		16,282		14,099		4,251		3,263		20,756		1,394		65,348				Subtotal	9,256		4,780		15,343		12,449		3,780		19,507		1,531		66,646

Construction and land development	Construction and land development		Acceptable credit quality	81,438		67,959		31,357		8,051		489		1,446		29,913		220,653		Construction and land development		Acceptable credit quality	59,680		201,253		109,569		—		678		1,145		33,660		405,985
			Special mention	—		—		—		—		2,415		210		—		2,625				Special mention	—		—		—		—		—		40		—		40
			Substandard	—		—		—		—		—		—		—		—				Substandard	—		—		6,000		—		—		—		—		6,000
			Substandard – nonaccrual	—		—		—		218		—		27		—		245				Substandard – nonaccrual	—		—		—		—		—		2,025		—		2,025
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	1,649		339		34		—		—		4		—		2,026				Not graded	1,012		1,350		357		6		—		26		—		2,751
			Subtotal	83,087		68,298		31,391		8,269		2,904		1,687		29,913		225,549				Subtotal	60,692		202,603		115,926		6		678		3,236		33,660		416,801

Total	Total		Acceptable credit quality	1,253,764		981,458		476,177		250,460		109,117		374,784		613,261		4,059,021		Total		Acceptable credit quality	555,006		1,441,703		813,733		335,836		177,394		330,639		516,727		4,171,038
			Special mention	1,423		370		1,279		13,437		4,183		11,714		2,007		34,413				Special mention	10,724		450		9,907		584		546		15,154		1,519		38,884
			Substandard	888		4,307		575		38,919		3,009		48,929		1,890		98,517				Substandard	42,640		23,104		7,251		43		23,767		40,131		6,857		143,793
			Substandard – nonaccrual	343		3,188		333		1,109		11,185		13,819		4,181		34,158				Substandard – nonaccrual	2,308		10,308		4,086		1,819		8,417		15,697		1,029		43,664
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	1,649		339		34		—		—		4		—		2,026				Not graded	1,086		1,350		357		6		—		26		—		2,825
Total commercial loans	Total commercial loans			$	1,258,067	$	989,662	$	478,398	$	303,925	$	127,494	$	449,250	$	621,339	$	4,228,135	Total commercial loans			$	611,764	$	1,476,915	$	835,334	$	338,288	$	210,124	$	401,647	$	526,132	$	4,400,204

2320

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				December 31, 2021																			December 31, 2022
				Term Loans Amortized Cost Basis by Origination Year																			Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)	(dollars in thousands)			2021		2020		2019		2018		2017		Prior		Revolving loans		Total		(dollars in thousands)			2022		2021		2020		2019		2018		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	Commercial		Acceptable credit quality	$	111,087	$	102,966	$	61,751	$	28,063	$	12,547	$	45,168	$	404,100	$	765,682
			Special mention	186		57		198		6,154		2		316		1,517		8,430				Special mention	3,559		2,106		—		227		551		3,154		159		9,756
			Substandard	380		372		1,934		1,868		64		4,322		8,099		17,039				Substandard	—		—		—		206		1,722		3,915		2,575		8,418
			Substandard – nonaccrual	52		—		612		177		242		169		5,704		6,956				Substandard – nonaccrual	—		340		—		132		83		246		2,220		3,021
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	109,108		78,500		53,202		28,244		27,713		40,663		433,240		770,670				Subtotal	114,646		105,412		61,751		28,628		14,903		52,483		409,054		786,877

		Commercial other	Acceptable credit quality	264,282		167,326		101,083		29,981		303		341		88,198		651,514			Commercial other	Acceptable credit quality	283,465		153,788		105,980		64,218		15,459		163		96,509		719,582
			Special mention	—		1,929		10,676		3,966		—		—		3,252		19,823				Special mention	—		—		754		2,331		455		—		55		3,595
			Substandard	688		—		62		341		—		—		2,623		3,714				Substandard	250		—		—		12		80		—		848		1,190
			Substandard – nonaccrual	10		158		3,894		384		—		—		21		4,467				Substandard – nonaccrual	524		1,247		444		463		491		—		—		3,169
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	161		—		—		—		—		—		—		161
			Subtotal	264,980		169,413		115,715		34,672		303		341		94,094		679,518				Subtotal	284,400		155,035		107,178		67,024		16,485		163		97,412		727,697

Commercial real estate	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		Commercial real estate	Non-owner occupied	Acceptable credit quality	679,040		403,952		145,235		72,504		18,249		160,992		4,833		1,484,805
			Special mention	26		6,341		14,177		2,296		711		2,272		—		25,823				Special mention	1,407		186		477		10,633		195		8,452		—		21,350
			Substandard	6,196		817		8,825		20,572		14,857		22,344		250		73,861				Substandard	569		—		7,458		32,731		1,587		29,655		—		72,000
			Substandard – nonaccrual	169		992		6,206		—		195		4,264		—		11,826				Substandard – nonaccrual	—		701		—		48		10,246		2,249		—		13,244
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	447,874		162,529		163,715		43,392		70,970		211,345		5,508		1,105,333				Subtotal	681,016		404,839		153,170		115,916		30,277		201,348		4,833		1,591,399

		Owner occupied	Acceptable credit quality	141,084		69,415		47,187		35,974		30,583		98,442		1,886		424,571			Owner occupied	Acceptable credit quality	120,141		122,321		64,720		31,916		29,454		88,928		4,305		461,785
			Special mention	150		24		187		161		13,087		4,540		32		18,181				Special mention	—		1,161		—		7,917		—		12,161		22		21,261
			Substandard	4,192		1,127		10,810		205		297		6,466		305		23,402				Substandard	141		272		79		1,984		—		3,771		375		6,622
			Substandard – nonaccrual	—		318		129		336		72		2,649		—		3,504				Substandard – nonaccrual	155		4,165		225		146		333		1,790		304		7,118
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	145,426		70,884		58,313		36,676		44,039		112,097		2,223		469,658				Subtotal	120,437		127,919		65,024		41,963		29,787		106,650		5,006		496,786

		Multi-family	Acceptable credit quality	88,329		20,080		1,973		25,450		1,414		18,642		2,241		158,129			Multi-family	Acceptable credit quality	163,647		31,605		29,458		208		24,490		14,574		1,101		265,083
			Special mention	—		451		—		—		—		—		—		451				Special mention	—		—		—		—		—		—		—		—
			Substandard	988		—		—		—		—		10,139		—		11,127				Substandard	—		—		—		—		—		3,703		—		3,703
			Substandard – nonaccrual	—		—		123		—		—		2,045		—		2,168				Substandard – nonaccrual	—		927		—		113		—		8,063		—		9,103
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	89,317		20,531		2,096		25,450		1,414		30,826		2,241		171,875				Subtotal	163,647		32,532		29,458		321		24,490		26,340		1,101		277,889

		Farmland	Acceptable credit quality	15,689		14,966		3,931		3,162		7,996		19,305		1,196		66,245			Farmland	Acceptable credit quality	8,659		16,138		13,467		4,117		3,129		19,102		1,593		66,205
			Special mention	—		66		1,236		145		153		240		—		1,840				Special mention	—		—		—		—		—		159		—		159
			Substandard	371		76		166		211		—		898		—		1,722				Substandard	—		14		—		23		113		347		199		696
			Substandard – nonaccrual	—		—		—		105		—		—		50		155				Substandard – nonaccrual	—		—		—		—		—		25		—		25
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	—		—		—		—		—		—		—		—				Not graded	—		—		—		—		—		—		—		—
			Subtotal	16,060		15,108		5,333		3,623		8,149		20,443		1,246		69,962				Subtotal	8,659		16,152		13,467		4,140		3,242		19,633		1,792		67,085

Construction and land development	Construction and land development		Acceptable credit quality	65,053		65,274		19,269		10,029		2,511		3,841		19,452		185,429		Construction and land development		Acceptable credit quality	171,243		79,747		10,676		8,388		98		1,420		37,997		309,569
			Special mention	—		—		5,014		—		—		221		—		5,235				Special mention	—		—		—		—		—		210		—		210
			Substandard	—		1,336		—		—		—		—		—		1,336				Substandard	—		6,000		—		—		2,415		—		—		8,415
			Substandard – nonaccrual	—		—		43		—		—		40		—		83				Substandard – nonaccrual	—		—		—		202		—		—		—		202
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	1,465		37		—		—		—		164		—		1,666				Not graded	2,112		337		8		—		—		29		—		2,486
			Subtotal	66,518		66,647		24,326		10,029		2,511		4,266		19,452		193,749				Subtotal	173,355		86,084		10,684		8,590		2,513		1,659		37,997		320,882

Total	Total		Acceptable credit quality	1,124,410		569,511		358,408		145,165		125,419		358,892		536,151		3,217,956		Total		Acceptable credit quality	1,537,282		910,517		431,287		209,414		103,426		330,347		550,438		4,072,711
			Special mention	362		8,868		31,488		12,722		13,953		7,589		4,801		79,783				Special mention	4,966		3,453		1,231		21,108		1,201		24,136		236		56,331
			Substandard	12,815		3,728		21,797		23,197		15,218		44,169		11,277		132,201				Substandard	960		6,286		7,537		34,956		5,917		41,391		3,997		101,044
			Substandard – nonaccrual	231		1,468		11,007		1,002		509		9,167		5,775		29,159				Substandard – nonaccrual	679		7,380		669		1,104		11,153		12,373		2,524		35,882
			Doubtful	—		—		—		—		—		—		—		—				Doubtful	—		—		—		—		—		—		—		—
			Not graded	1,465		37		—		—		—		164		—		1,666				Not graded	2,273		337		8		—		—		29		—		2,647
Total commercial loans	Total commercial loans			$	1,139,283	$	583,612	$	422,700	$	182,086	$	155,099	$	419,981	$	558,004	$	3,460,765	Total commercial loans			$	1,546,160	$	927,973	$	440,732	$	266,582	$	121,697	$	408,276	$	557,195	$	4,268,615

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The following table presents the gross charge-offs by class of loan and year of origination on the commercial loan portfolio for the three and nine months ended September 30, 2023:


		Term Loans by Origination Year
(dollars in thousands)		2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
For the three months ended September 30, 2023
Commercial	Commercial	$	—	$	—	$	—	$	28	$	49	$	—	$	2,122	$	2,199
	Commercial Other	1		728		106		75		121		19		—		1,050
Commercial Real Estate	Non-owner occupied	—		—		—		—		—		2,292		—		2,292
	Owner occupied	—		—		—		—		—		21		—		21
	Multi-family	—		—		—		—		—		3		—		3
	Farmland	—		—		—		—		—		—		—		—
Construction and land development		—		—		—		—		42		2		—		44
Total gross commercial charge-offs		$	1	$	728	$	106	$	103	$	212	$	2,337	$	2,122	$	5,609

For the nine months ended September 30, 2023
Commercial	Commercial	$	—	$	—	$	—	$	49	$	78	$	21	$	2,122	$	2,270
	Commercial Other	47		1,936		272		180		190		394		—		3,019
Commercial Real Estate	Non-owner occupied	—		—		—		—		—		2,292		—		2,292
	Owner occupied	—		—		—		—		—		1,502		—		1,502
	Multi-family	—		—		—		—		—		812		—		812
	Farmland	—		—		—		—		—		—		—		—
Construction and land development		—		—		—		—		42		336		—		378
Total gross commercial charge-offs		$	47	$	1,936	$	272	$	229	$	310	$	5,357	$	2,122	$	10,273

The Company evaluates the credit quality of its other loan portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity. Accordingly, loans on nonaccrual status and loans past due 90 days or more and still accruing interest ~~and loans modified under troubled debt restructurings~~ are considered to be nonperforming for purposes

Table of Contents

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 September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


				September 30, 2022																			September 30, 2023
				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)			2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Residential real estate	Residential real estate	Residential first lien	Performing	$	57,217	$	39,570	$	31,875	$	21,340	$	22,376	$	115,686	$	298	$	288,362	Residential real estate	Residential first lien	Performing	$	33,360	$	74,199	$	37,744	$	30,017	$	19,931	$	115,228	$	5	$	310,484
			Nonperforming	102		—		105		195		870		4,798		—		6,070				Nonperforming	185		50		—		—		140		2,779		—		3,154
			Subtotal	57,319		39,570		31,980		21,535		23,246		120,484		298		294,432				Subtotal	33,545		74,249		37,744		30,017		20,071		118,007		5		313,638

		Other residential	Performing	1,381		517		556		1,147		1,568		1,772		53,146		60,087			Other residential	Performing	1,992		1,212		428		441		897		2,182		53,719		60,871
			Nonperforming	—		—		—		8		10		214		1,474		1,706				Nonperforming	—		—		—		—		—		181		521		702
			Subtotal	1,381		517		556		1,155		1,578		1,986		54,620		61,793				Subtotal	1,992		1,212		428		441		897		2,363		54,240		61,573

Consumer	Consumer		Performing	30,643		42,722		10,102		4,397		3,676		16,128		2,426		110,094		Consumer		Performing	29,362		25,959		33,375		6,950		2,523		11,714		1,446		111,329
			Nonperforming	22		36		8		1		14		50		1		132				Nonperforming	—		18		13		—		3		67		2		103
			Subtotal	30,665		42,758		10,110		4,398		3,690		16,178		2,427		110,226				Subtotal	29,362		25,977		33,388		6,950		2,526		11,781		1,448		111,432

		Consumer other	Performing	568,209		300,430		117,490		39,291		7,488		6,188		7,017		1,046,113			Consumer other	Performing	241,712		407,370		162,400		62,840		23,906		8,284		2,064		908,576
			Nonperforming	141		—		—		—		—		—		—		141				Nonperforming	—		—		—		—		—		—		—		—
			Subtotal	568,350		300,430		117,490		39,291		7,488		6,188		7,017		1,046,254				Subtotal	241,712		407,370		162,400		62,840		23,906		8,284		2,064		908,576

Leases financing	Leases financing		Performing	149,392		118,613		94,940		63,175		20,649		8,319		—		455,088		Leases financing		Performing	119,863		170,289		82,538		58,436		35,734		11,042		—		477,902
			Nonperforming	—		646		883		676		300		18		—		2,523				Nonperforming	311		3,757		1,969		454		864		203		—		7,558
			Subtotal	149,392		119,259		95,823		63,851		20,949		8,337		—		457,611				Subtotal	120,174		174,046		84,507		58,890		36,598		11,245		—		485,460

Total	Total		Performing	806,842		501,852		254,963		129,350		55,757		148,093		62,887		1,959,744		Total		Performing	426,289		679,029		316,485		158,684		82,991		148,450		57,234		1,869,162
			Nonperforming	265		682		996		880		1,194		5,080		1,475		10,572				Nonperforming	496		3,825		1,982		454		1,007		3,230		523		11,517
Total other loans	Total other loans			$	807,107	$	502,534	$	255,959	$	130,230	$	56,951	$	153,173	$	64,362	$	1,970,316	Total other loans			$	426,785	$	682,854	$	318,467	$	159,138	$	83,998	$	151,680	$	57,757	$	1,880,679

2523

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				December 31, 2021																			December 31, 2022
				Term Loans Amortized Cost Basis by Origination Year																			Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)	(dollars in thousands)			2021		2020		2019		2018		2017		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	$	38,508	$	31,920	$	24,311	$	30,842	$	48,276	$	93,462	$	888	$	268,207	Residential real estate	Residential first lien	Performing	$	75,449	$	38,774	$	31,566	$	20,780	$	21,691	$	109,067	$	336	$	297,663
			Nonperforming	—		108		173		780		764		4,380		—		6,205				Nonperforming	101		—		104		414		987		4,974		—		6,580
			Subtotal	38,508		32,028		24,484		31,622		49,040		97,842		888		274,412				Subtotal	75,550		38,774		31,670		21,194		22,678		114,041		336		304,243

		Other residential	Performing	888		679		1,520		1,950		1,211		1,559		54,225		62,032			Other residential	Performing	1,722		496		534		1,060		1,496		1,515		53,159		59,982
			Nonperforming	—		—		10		16		128		100		1,453		1,707				Nonperforming	17		—		—		7		18		208		1,619		1,869
			Subtotal	888		679		1,530		1,966		1,339		1,659		55,678		63,739				Subtotal	1,739		496		534		1,067		1,514		1,723		54,778		61,851

Consumer	Consumer		Performing	65,915		14,955		7,874		8,728		3,025		2,582		2,721		105,800		Consumer		Performing	32,561		40,374		9,411		3,476		2,768		14,756		2,346		105,692
			Nonperforming	89		5		3		14		24		71		2		208				Nonperforming	33		50		7		1		13		79		5		188
			Subtotal	66,004		14,960		7,877		8,742		3,049		2,653		2,723		106,008				Subtotal	32,594		40,424		9,418		3,477		2,781		14,835		2,351		105,880

		Consumer other	Performing	474,385		323,437		63,463		12,635		3,888		5,447		13,341		896,596			Consumer other	Performing	669,015		260,360		92,148		34,501		6,637		5,430		5,310		1,073,401
			Nonperforming	—		—		—		—		—		—		1		1				Nonperforming	733		—		—		—		—		—		—		733
			Subtotal	474,385		323,437		63,463		12,635		3,888		5,447		13,342		896,597				Subtotal	669,748		260,360		92,148		34,501		6,637		5,430		5,310		1,074,134

Leases financing	Leases financing		Performing	154,803		124,575		86,402		43,536		9,077		1,983		—		420,376		Leases financing		Performing	215,084		110,294		84,458		54,684		21,767		3,088		—		489,375
			Nonperforming	—		757		1,001		1,012		95		39		—		2,904				Nonperforming	—		522		736		818		254		39		—		2,369
			Subtotal	154,803		125,332		87,403		44,548		9,172		2,022		—		423,280				Subtotal	215,084		110,816		85,194		55,502		22,021		3,127		—		491,744

Total	Total																			Total
			Performing	734,499		495,566		183,570		97,691		65,477		105,033		71,175		1,753,011				Performing	993,831		450,298		218,117		114,501		54,359		133,856		61,151		2,026,113
			Nonperforming	89		870		1,187		1,822		1,011		4,590		1,456		11,025				Nonperforming	884		572		847		1,240		1,272		5,300		1,624		11,739
Total other loans	Total other loans			$	734,588	$	496,436	$	184,757	$	99,513	$	66,488	$	109,623	$	72,631	$	1,764,036	Total other loans			$	994,715	$	450,870	$	218,964	$	115,741	$	55,631	$	139,156	$	62,775	$	2,037,852

The following table presents the gross charge-offs by class of loan and year of origination on the other loan portfolio for the three and nine months ended September 30, 2023:


		Term Loans by Origination Year
(dollars in thousands)		2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
For the three months ended September 30, 2023
Residential real estate	Residential first lien	$	—	$	—	$	—	$	33	$	10	$	52	$	—	$	95
	Other residential	—		—		—		—		—		—		—		—
Consumer	Consumer	—		25		8		7		—		1		—		41
	Consumer other	14		13		2		3		3		174		—		209
Lease financing		228		708		14		5		324		115		—		1,394
Total gross other charge-offs		$	242	$	746	$	24	$	48	$	337	$	342	$	—	$	1,739

For the nine months ended September 30, 2023
Residential real estate	Residential first lien	$	—	$	—	$	9	$	36	$	17	$	52	$	—	$	114
	Other residential	—		—		—		—		—		9		57		66
Consumer	Consumer	—		27		17		18		31		34		—		127
	Consumer other	32		96		41		18		35		424		—		646
Lease financing		228		1,101		549		140		346		191		—		2,555
Total gross other charge-offs		$	260	$	1,224	$	616	$	212	$	429	$	710	$	57	$	3,508

NTable of Contents~~OTE~~ 6

NOTE 5 – P~~REMISES,~~ E~~QUIPMENT~~ AND L~~EASES~~PREMISES, EQUIPMENT AND LEASES

A summary of premises and equipment at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 is as follows:


							September 30,		December 31,
(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	2023		2022
Land	Land	$	15,803	$	15,696	Land	$	15,968	$	16,004
Buildings and improvements	Buildings and improvements	69,573		67,143		Buildings and improvements	77,270		71,837
Furniture and equipment	Furniture and equipment	33,946		33,545		Furniture and equipment	34,967		34,081
Lease right-of-use assets	Lease right-of-use assets	7,582		8,428		Lease right-of-use assets	8,057		7,001
Total	Total	126,904		124,812		Total	136,262		128,923
Accumulated depreciation	Accumulated depreciation	(49,385)		(45,592)		Accumulated depreciation	(53,521)		(50,630)
Premises and equipment, net	Premises and equipment, net	$	77,519	$	79,220	Premises and equipment, net	$	82,741	$	78,293

Depreciation expense for the three and nine months ended September 30, ~~2022~~2023 was $1.1 million and $3.6 million, respectively, and $1.2 million and $3.7 ~~million, respectively, and $1.4 million and $4.2~~ million for the three and nine months ended September 30, ~~2021,~~2022, respectively.

The Company has entered into operating leases, primarily for banking offices and operating facilities, which have remaining lease terms of 25 months to 1014 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 Company had operating lease right-of-use assets of $8.1 million and $7.0 million as of September 30, 2023 and December 31, 2022, respectively, included in premises and equipment on our consolidated balance sheets. The operating lease liabilities of the Company were ~~$9.5~~$9.8 million and ~~$10.7~~$8.9 million as of September 30, ~~2022~~2023 and December 31, ~~2021, respectively.~~

2022, respectively, and are included in accrued interest payable and ~~Table of Contents~~other liabilities

on our consolidated balance sheets.

Information related to operating leases for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 was as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022			2021			2022			2021			(dollars in thousands)	2023			2022			2023			2022
Operating lease cost	Operating lease cost	$	533		$	510		$	1,576		$	1,547		Operating lease cost	$	472		$	533		$	1,449		$	1,576
Operating cash flows from leases	Operating cash flows from leases	638			589			1,874			1,975			Operating cash flows from leases	529			638			1,709			1,874
Right-of-use assets obtained in exchange for lease obligations	Right-of-use assets obtained in exchange for lease obligations	80			—			502			689			Right-of-use assets obtained in exchange for lease obligations	1,112			80			2,459			502
Right-of-use assets derecognized due to terminations or impairment		—			—			—			(210)

Weighted average remaining lease term	Weighted average remaining lease term	7.3 years			7.8 years			7.3 years			7.8 years			Weighted average remaining lease term	7.8 years			7.3 years			7.8 years			7.3 years
Weighted average discount rate	Weighted average discount rate	2.88		%	2.88		%	2.88		%	2.88		%	Weighted average discount rate	3.39		%	2.88		%	3.39		%	2.88		%

The projected minimum rental payments under the terms of the leases as of September 30, ~~2022~~2023 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		$	419
2023		2,185
2023 remaining				2023 remaining	$	365
2024	2024	1,879		2024	2,175
2025	2025	975		2025	1,322
2026	2026	843		2026	1,197
2027				2027	1,101
Thereafter	Thereafter	4,296		Thereafter	5,051
Total future minimum lease payments	Total future minimum lease payments	10,597		Total future minimum lease payments	11,211
Less imputed interest	Less imputed interest	(1,084)		Less imputed interest	(1,436)
Total operating lease liabilities	Total operating lease liabilities	$	9,513	Total operating lease liabilities	$	9,775

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Table of Contents

N~~OTE~~ 7NOTE 6 – L~~OAN~~ S~~ERVICING~~ R~~IGHTS~~LOAN SERVICING RIGHTS

A summary of loan servicing rights at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 is as follows:


		September 30, 2022				December 31, 2021					September 30, 2023				December 31, 2022
		Serviced Loans		Carrying Value		Serviced Loans		Carrying Value
(dollars in thousands)										(dollars in thousands)	Serviced Loans		Carrying Value		Serviced Loans		Carrying Value
Commercial FHA	Commercial FHA	$	—	$	—	$	2,650,531	$	27,386	Commercial FHA	$	2,131,126	$	19,873	$	—	$	—
SBA	SBA	46,799		715		50,043		774		SBA	$	45,192	$	600	$	46,081	$	656
Residential	Residential	264,318		582		302,618		705		Residential	232,064		460		255,298		549
Commercial FHA held for sale	Commercial FHA held for sale	2,362,462		23,995		—		—		Commercial FHA held for sale	—		—		2,255,617		20,745
Total	Total	$	2,673,579	$	25,292	$	3,003,192	$	28,865	Total	$	2,408,382	$	20,933	$	2,556,996	$	21,950

Commercial FHA Mortgage Loan Servicing

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

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Loan servicing rights:
Balance, beginning of period $ 24,603 $ 33,732 $ 27,386 $ 38,322
Servicing rights transferred to held for sale (23,995) — (23,995) —
Amortization (608) (721) (1,907) (2,284)
Refinancing fee received from third party — 165 (221) (439)
Permanent impairment — (3,037) (1,263) (5,460)
Balance, end of period $ — $ 30,139 $ — $ 30,139
Fair value:
At beginning of period $ 26,865 $ 34,255 $ 28,368 $ 38,322
At end of period — 31,012 — 31,012

~~At September 30,~~third quarter of 2022, the Company ~~had~~ committed to a plan to sell our commercial FHA servicing ~~rights~~ portfolio and, therefore, transferred $24.0 million to commercial FHA servicing rights held for sale. ~~Servicing rights~~At June 30, 2023, the Company abandoned its plans to sell this servicing asset and removed this asset from held for sale ~~are recorded~~ at ~~the~~ lower of ~~their carrying amount~~cost 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 increaseswith no gain 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 September 30, 2022 and December 31, 2021, respectively, while the weighted average discount rate was 11.48% and 11.87% for the same periods, respectively.loss recognized.

N~~OTE~~ 8NOTE 7 – G~~OODWILL AND~~ I~~NTANGIBLE~~ A~~SSETS~~

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

(dollars in thousands) September 30,
2022 December 31,
2021
Banking $ 157,158 $ 157,158
Wealth management 4,746 4,746
Total goodwill $ 161,904 $ 161,904

~~Table of Contents~~

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

September 30, 2022 December 31, 2021
(dollars in thousands) Gross
carrying
amount Accumulated
amortization Total Gross
carrying
amount Accumulated
amortization Total
Core deposit intangibles $ 58,913 $ (43,708) $ 15,205 $ 57,012 $ (40,603) $ 16,409
Customer relationship intangibles 15,919 (8,926) 6,993 15,918 (7,953) 7,965
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 $1.4 million and $4.1 million for the three and nine months ended September 30, 2022, respectively, and $1.4 million and $4.4 million for the comparable periods in 2021, respectively.

N~~OTE~~ ~~9 – DERIVATIVE~~ I~~NSTRUMENTS~~DERIVATIVE INSTRUMENTS

As part of the Company’s overall ~~management of~~ interest rate ~~sensitivity,~~risk management, 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. The notional amount does not represent amounts exchanged by the parties, rather the amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements.

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 September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		Notional amount				Fair value gain					Notional amount				Fair value gain
(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
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	$	4,419	$	66,216	$	(15)	$	410	Interest rate lock commitments	$	3,712	$	2,078	$	60	$	49
Forward commitments to sell mortgage-backed securities	Forward commitments to sell mortgage-backed securities	11,054		60,427		165		—		Forward commitments to sell mortgage-backed securities	8,299		—		91		—
Total	Total	$	15,473	$	126,643	$	150	$	410	Total	$	12,011	$	2,078	$	151	$	49


		Notional amount				Fair value loss					Notional amount				Fair value loss
(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
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	$	—	Interest rate lock commitments	$	—	$	4,419	$	—	$	15
Forward commitments to sell mortgage-backed securities	Forward commitments to sell mortgage-backed securities	—		18,362		—		19		Forward commitments to sell mortgage-backed securities	—		6,669		—		—
Total	Total	$	9,138	$	18,362	$	317	$	19	Total	$	—	$	11,088	$	—	$	15

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During the nine months ended September 30, 2023, the Company recognized net gains of $0.1 million on derivative instruments in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income.

During the three and nine months ended September 30, 2022, the Company recognized net losses of $0.2 million and $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 nine months ended September 30, 2021, the Company recognized net losses of $0.4 million and $1.3 million, respectively, on derivative instruments in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income.

Cash Flow Hedges

~~In the first quarter of 2022, the~~The Company ~~entered~~periodically enters 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 September 30, 2023 and December 31, 2022:


~~(dollars in thousands)~~	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~~	~~3.6 years~~
~~Weighted average pay rate~~	~~6.25~~		%
~~Weighted average receive rate~~	~~5.48~~		%

The Company has 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.

(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 effectiveness evaluation of the above cash flow hedges 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. There were no amounts recorded in the consolidated statements of income for the three and nine months ended September 30, 2022, related to ineffectiveness.


(dollars in thousands)	September 30, 2023			December 31, 2022
Notional Amount	$	225,000		$	200,000
Fair value loss included in other liabilities	(10,330)			(9,999)
Tax effected amount included in accumulated other comprehensive (loss) income	(7,541)			(7,300)
Average remaining life	2.84			3.37
Weighted average pay rate	7.93		%	7.23		%
Weighted average receive rate	5.46		%	5.48		%

Interest Rate Swap Contracts 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 ~~$7.6~~$7.0 million and ~~$7.9~~$7.4 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The fair value of the customer derivative instruments and the offsetting counterparty derivative instruments was $0.5 million ~~and $0.4 million~~ at both September 30, ~~2022~~2023 and December 31, ~~2021, respectively,~~2022, which are included in other assets and other liabilities, respectively, on the consolidated balance sheets.

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N~~OTE~~ 10NOTE 8 – D~~EPOSITS~~DEPOSITS

The following table summarizes the classification of deposits as of September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2023		December 31, 2022
Noninterest-bearing demand	Noninterest-bearing demand	$	2,025,237	$	2,245,701	Noninterest-bearing demand	$	1,154,515	$	1,362,158
Interest-bearing:	Interest-bearing:					Interest-bearing:
Checking	Checking	1,905,439		1,663,021		Checking	2,572,224		2,494,073
Money market	Money market	1,125,333		869,067		Money market	1,090,962		1,184,101
Savings	Savings	704,245		679,115		Savings	582,359		661,932
Time	Time	634,998		653,744		Time	1,004,942		662,388
Total deposits	Total deposits	$	6,395,252	$	6,110,648	Total deposits	$	6,405,002	$	6,364,652

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NOTE 9 – S~~HORT~~-T~~ERM~~ B~~ORROWINGS~~SHORT-TERM BORROWINGS

The following table presents the distribution of short-term borrowings and related weighted average interest rates as of September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		Repurchase agreements							Repurchase agreements
(dollars in thousands)	(dollars in thousands)	As of and for the Nine Months Ended September 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, 2023			As of and for the year ended December 31,2022
Outstanding at period-end	Outstanding at period-end	$	58,518		$	76,803		Outstanding at period-end	$	17,998		$	42,311
Average amount outstanding	Average amount outstanding	62,495			68,986			Average amount outstanding	26,865			58,688
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	43,718			76,807
Weighted average interest rate:	Weighted average interest rate:							Weighted average interest rate:
During period	During period	0.16		%	0.12		%	During period	0.26		%	0.18		%
End of period	End of period	0.26		%	0.13		%	End of period	0.26		%	0.26		%

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 ~~$61.5~~$27.8 million and ~~$78.3~~$46.1 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, were pledged for securities sold under agreements to repurchase.

The Company had available lines of credit of ~~$13.5~~$759.8 million and ~~$55.9~~$12.2 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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 and investment securities totaling ~~$15.7~~$914.5 million and ~~$64.8~~$14.3 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. There were no outstanding borrowings under these lines at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

At September 30, ~~2022,~~2023, the Company had available federal funds lines of credit totaling ~~$45.0~~$364.0 million. These lines of credit were unused at September 30, ~~2022.~~

2023.

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N~~OTE~~ 12NOTE 10 – FHLB A~~DVANCES~~ADVANCES AND O~~THER~~ B~~ORROWINGS~~ OTHER BORROWINGS

The following table summarizes our FHLB advances and other borrowings as of September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

(dollars in thousands) September 30,
2022 December 31,
2021
Midland States Bancorp, Inc.
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 — 171
Midland States Bank
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 100,000 100,000
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 $ 360,000 $ 310,171


(dollars in thousands)	September 30, 2023		December 31, 2022


FHLB advances – fixed rate, fixed term at rates averaging 4.18% at September 30, 2023 - maturing through February 2028	$	55,000	$	—
FHLB advances – putable fixed rate at rates averaging 2.76% and 2.35% at September 30, 2023 and December 31, 2022, respectively – maturing through August 2028 with call provisions through February 2024	160,000		110,000
FHLB advances –SOFR floater at rates averaging 6.94% and 5.92% at September 30, 2023 and December 31, 2022, respectively – maturing in October 2023	100,000		100,000
FHLB advances – Short term fixed rate at rates averaging 5.46% and 4.31% at September 30, 2023 and December 31, 2022, respectively– maturing in October 2023	223,000		250,000
Total FHLB advances and other borrowings	$	538,000	$	460,000

The Company’s advances from the FHLB are collateralized by a blanket collateral agreement of qualifying mortgage and home equity line of credit loans and certain commercial real estate loans totaling approximately ~~$2.71~~$2.97 billion and ~~$2.10~~$2.90 billion at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

~~On October 12, 2021, the Company entered into a loan agreement with another bank for a revolving line~~

Table of ~~credit in the original principal amount of up to $15.0 million. The loan matured on October~~Contents

NOTE 11 ~~2022.~~

N~~OTE~~ 13 – S~~UBORDINATED~~ D~~EBT~~SUBORDINATED DEBT

The following table summarizes the Company’s subordinated debt ~~as of~~at September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

(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 $ 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 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 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 26,913 26,877
Total subordinated debt $ 139,370 $ 139,091


	Subordinated debt
	Fixed to Float						Fixed
(dollars in thousands)	Issued September 2019			Issued September 2019			Issued June 2015			Total
At September 30, 2023
Outstanding amount	$	66,750		$	27,250		$	—		$	94,000
Carrying amount	66,514			26,961			—			93,475
Current rate	5.00		%	5.50		%	N/A
At December 31, 2022
Outstanding amount	$	72,750		$	27,250		$	550		$	100,550
Carrying amount	72,300			26,925			547			99,772
Current rate	5.00		%	5.50		%	6.50		%
Maturity date	9/30/2029			9/30/2034			6/18/2025
Optional redemption date	9/30/2024			9/30/2029			N/A
Fixed to variable conversion date	9/30/2024			9/30/2029			N/A
Variable rate	3-month SOFR plus 3.61%			3-month SOFR plus 4.05%			N/A
Interest payment terms	Semiannually			Semiannually			Semiannually

During the second quarter of 2023, the Company repurchased $6.0 million of the outstanding Fixed to Float Subordinated Notes due September 30, 2029. The Company recognized a gain of $0.7 million, which included the discount realized on the repurchase, offset by the remaining unamortized debt issuance costs on the repurchase.

The Company also repurchased the outstanding Fixed Rate Subordinated Notes due June 18, 2025, having an aggregate principal amount of $0.6 million, during the second quarter of 2023. The aggregate repurchase price was 100% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest.

The value of subordinated debentures have been reduced by the debt issuance costs, which are being amortized on a straight line basis through the earlier of the redemption option or maturity date. All of the subordinated debentures above may be included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

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.

N~~OTE~~ 14NOTE 12 – P~~REFERRED~~ S~~TOCK~~

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

~~Table of Contents~~

~~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.

N~~OTE~~ ~~15 – EARNINGS~~ PER C~~OMMON~~ S~~HARE~~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 nine months ended September 30, 2022 excluded antidilutive stock options of 45,698 and excluded antidilutive stock options of 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 forPresented

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~~those respective periods. Presented~~ below are the calculations for basic and diluted earnings per common share for the three and nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 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)	2023		2022		2023		2022
Net income	Net income	$	23,521	$	19,548	$	66,153	$	58,210	Net income	$	18,042	$	23,521	$	61,389	$	66,153
Preferred dividends declared										Preferred dividends declared	(2,229)		—		(6,685)		—

Net income available to common shareholders										Net income available to common shareholders	15,813		23,521		54,704		66,153
Common shareholder dividends	Common shareholder dividends	(6,400)		(6,239)		(19,186)		(18,741)		Common shareholder dividends	(6,524)		(6,400)		(19,772)		(19,186)
Unvested restricted stock award dividends	Unvested restricted stock award dividends	(70)		(60)		(218)		(186)		Unvested restricted stock award dividends	(76)		(70)		(236)		(218)
Undistributed earnings to unvested restricted stock awards	Undistributed earnings to unvested restricted stock awards	(185)		(126)		(519)		(386)		Undistributed earnings to unvested restricted stock awards	(105)		(185)		(405)		(519)
Undistributed earnings to common shareholders	Undistributed earnings to common shareholders	$	16,866	$	13,123	$	46,230	$	38,897	Undistributed earnings to common shareholders	$	9,108	$	16,866	$	34,291	$	46,230
Basic	Basic									Basic
Distributed earnings to common shareholders	Distributed earnings to common shareholders	$	6,400	$	6,239	$	19,186	$	18,741	Distributed earnings to common shareholders	$	6,524	$	6,400	$	19,772	$	19,186
Undistributed earnings to common shareholders	Undistributed earnings to common shareholders	16,866		13,123		46,230		38,897		Undistributed earnings to common shareholders	9,108		16,866		34,291		46,230
Total common shareholders earnings, basic	Total common shareholders earnings, basic	$	23,266	$	19,362	$	65,416	$	57,638	Total common shareholders earnings, basic	$	15,632	$	23,266	$	54,063	$	65,416
Diluted	Diluted									Diluted
Distributed earnings to common shareholders	Distributed earnings to common shareholders	$	6,400	$	6,239	$	19,186	$	18,741	Distributed earnings to common shareholders	$	6,524	$	6,400	$	19,772	$	19,186
Undistributed earnings to common shareholders	Undistributed earnings to common shareholders	16,866		13,123		46,230		38,897		Undistributed earnings to common shareholders	9,108		16,866		34,291		46,230
Total common shareholders earnings	Total common shareholders earnings	23,266		19,362		65,416		57,638		Total common shareholders earnings	15,632		23,266		54,063		65,416
Add back:	Add back:									Add back:
Undistributed earnings reallocated from unvested restricted stock awards	Undistributed earnings reallocated from unvested restricted stock awards	—		—		1		1		Undistributed earnings reallocated from unvested restricted stock awards	—		—		—		1
Total common shareholders earnings, diluted	Total common shareholders earnings, diluted	$	23,266	$	19,362	$	65,417	$	57,639	Total common shareholders earnings, diluted	$	15,632	$	23,266	$	54,063	$	65,417
Weighted average common shares outstanding, basic	Weighted average common shares outstanding, basic	22,338,828		22,520,499		22,306,323		22,544,898		Weighted average common shares outstanding, basic	21,970,372		22,338,828		22,214,862		22,306,323
Options	Options	51,610		57,381		60,772		69,074		Options	6,824		51,610		9,124		60,772
Weighted average common shares outstanding, diluted	Weighted average common shares outstanding, diluted	22,390,438		22,577,880		22,367,095		22,613,972		Weighted average common shares outstanding, diluted	21,977,196		22,390,438		22,223,986		22,367,095
Basic earnings per common share	Basic earnings per common share	$	1.04	$	0.86	$	2.93	$	2.56	Basic earnings per common share	$	0.71	$	1.04	$	2.43	$	2.93
Diluted earnings per common share	Diluted earnings per common share	1.04		0.86		2.92		2.55		Diluted earnings per common share	0.71		1.04		2.43		2.92

Antidilutive stock options(1)										Antidilutive stock options(1)	305,051		45,698		305,051		45,698

(1)The diluted earnings per common share computation excludes antidilutive stock options because the exercise prices of these stock options exceeded the average market prices of the Company's common shares for those respective periods.

N~~OTE~~ 16NOTE 13 – F~~AIR~~ V~~ALUE~~FAIR VALUE OF F~~INANCIAL~~ I~~NSTRUMENTS~~ FINANCIAL INSTRUMENTS

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

•Level 1: Unadjusted quoted prices for identical assets or liabilities traded in active markets.

•Level 2: Significant other observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.

•Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment securities. The fair value of investment securities available for sale are determined by quoted market prices, if available (Level 1). For investment securities available for sale where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For investment securities available for sale where quoted

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prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Securities classified as Level 3 are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. There were no transfers between Levels 1, 2 or 3 during the period presented for assets measured at fair value on a recurring basis. The fair value of equity securities is determined using quoted prices or market prices for similar securities (Level 2).

Loans held for sale. The fair value of loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).

Derivative instruments. The fair value of derivative instruments are determined based on derivative valuation models using observable market data as of the measurement date (Level 2).

Loan servicing rights. In accordance with GAAP, the Company records impairment charges on loan servicing rights on a non-recurring basis when the carrying value exceeds the estimated fair value. The fair value of our servicing rights is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs, replacement reserves and other economic factors which are estimated based on current market conditions (Level 3).

Mortgage servicing rights held for sale. Mortgage servicing rights held for sale consist of commercial FHA mortgage servicing rights that management has committed to a plan to sell and has the ability to sell them to a buyer in their present condition. Mortgage servicing rights held for sale are carried at the lower of their carrying value or fair value less estimated costs to sell (Level 2).

Nonperforming loans. Nonperforming loans are measured and recorded at fair value on a non-recurring basis. All of our nonaccrual loans and restructured loans are considered nonperforming and are reviewed individually for the amount of impairment, if any. Most of our loans are collateral dependent and, accordingly, we measure nonperforming loans based on the estimated fair value of such collateral. In cases where the Company has an agreed upon selling price for the collateral, the fair value is set at the selling price (Level 1). The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral (Level 2). When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable (Level 3). The nonperforming loans categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, cash flows discounted at the effective loan rate, and management’s judgment.

Other Real Estate Owned. OREO is initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost basis. After foreclosure, OREO is held for sale and is carried at the lower of cost or fair value less estimated costs of disposal. Fair value for OREO is based on an appraisal performed upon foreclosure. Property is evaluated regularly to ensure the recorded amount is supported by its fair value less estimated costs to dispose. After the initial foreclosure appraisal, fair value is generally determined by an annual appraisal unless known events warrant adjustments to the recorded value.

Assets held for sale. Assets held for sale represent the fair value of the banking facilities that are expected to be sold. The fair value of the assets held for sale was based on estimated market prices from independently prepared current appraisals (Level 2).

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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 September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, are summarized below:


		September 30, 2022									September 30, 2023
(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	$	60,496	$	60,496	$	—	$	—	U.S. Treasury securities	$	1,563	$	1,563	$	—	$	—
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	27,865		—		27,865		—		U.S. government sponsored entities and U.S. agency securities	89,038		—		89,038		—
Mortgage-backed securities - agency	Mortgage-backed securities - agency	391,615		—		391,615		—		Mortgage-backed securities - agency	517,391		—		517,391		—
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	21,158		—		21,158		—		Mortgage-backed securities - non-agency	72,665		—		72,665		—
State and municipal securities	State and municipal securities	95,061		—		95,061		—		State and municipal securities	49,737		—		49,737		—
Collateralized loan obligations										Collateralized loan obligations	22,385		—		22,385		—
Corporate securities	Corporate securities	85,694		—		85,694		—		Corporate securities	82,230		—		82,230		—
Equity securities	Equity securities	8,615		8,615		—		—		Equity securities	4,335		4,335		—		—
Loans held for sale	Loans held for sale	4,338		—		4,338		—		Loans held for sale	6,089		—		6,089		—
Derivative assets	Derivative assets	17,033		—		17,033		—		Derivative assets	646		—		646		—

Total	Total	$	711,875	$	69,111	$	642,764	$	—	Total	$	846,079	$	5,898	$	840,181	$	—
Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	11,512	$	—	$	11,512	$	—	Derivative liabilities	$	10,825	$	—	$	10,825	$	—

Total	Total	$	11,512	$	—	$	11,512	$	—	Total	$	10,825	$	—	$	10,825	$	—

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	$	1,297	$	—	$	—	$	1,297	Loan servicing rights	$	20,933	$	—	$	—	$	20,933
Commercial FHA mortgage servicing rights held for sale		23,995		—		—		23,995

Nonperforming loans	Nonperforming loans	46,882		11,516		25,128		10,238		Nonperforming loans	55,981		—		39,485		16,496
Other real estate owned	Other real estate owned	11,141		—		11,141		—		Other real estate owned	480		201		279		—
Assets held for sale	Assets held for sale	1,271		—		1,271		—		Assets held for sale	182		—		182		—

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		December 31, 2021									December 31, 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	$	64,917	$	64,917	$	—	$	—	U.S. Treasury securities	$	81,230	$	81,230	$	—	$	—
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	33,817		—		33,817		—		U.S. government sponsored entities and U.S. agency securities	37,509		—		37,509		—
Mortgage-backed securities - agency	Mortgage-backed securities - agency	440,270		—		440,270		—		Mortgage-backed securities - agency	448,150		—		448,150		—
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	28,706		—		28,706		—		Mortgage-backed securities - non-agency	20,754		—		20,754		—
State and municipal securities	State and municipal securities	143,099		—		143,099		—		State and municipal securities	94,636		—		94,636		—
Corporate securities	Corporate securities	195,794		—		194,859		935		Corporate securities	85,955		—		85,955		—
Equity securities	Equity securities	9,529		9,529		—		—		Equity securities	8,626		8,626		—		—
Loans held for sale	Loans held for sale	32,045		—		32,045		—		Loans held for sale	1,286		—		1,286		—
Derivative assets	Derivative assets	5,883		—		5,883		—		Derivative assets	481		—		481		—

Total	Total	$	954,060	$	74,446	$	878,679	$	935	Total	$	778,627	$	89,856	$	688,771	$	—
Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	397	$	—	$	397	$	—	Derivative liabilities	$	10,446	$	—	$	10,446	$	—

Total	Total	$	397	$	—	$	397	$	—	Total	$	10,446	$	—	$	10,446	$	—

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	$	28,865	$	—	$	—	$	28,865	Loan servicing rights	$	1,205	$	—	$	—	$	1,205

Mortgage servicing rights held for sale										Mortgage servicing rights held for sale	20,745		—		20,745		—
Nonperforming loans	Nonperforming loans	36,542		24,358		6,129		6,055		Nonperforming loans	49,423		5,478		34,406		9,539
Other real estate owned	Other real estate owned	12,059		—		12,059		—		Other real estate owned	6,729		—		6,729		—
Assets held for sale	Assets held for sale	2,284		—		2,284		—		Assets held for sale	356		—		356		—

~~The following table provides a reconciliation of activity for~~There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022.

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Balance, beginning of period $ — $ 1,008 $ 935 $ 959
Transferred to level 2 — — (935) —
Total realized in earnings (1)
— 4 6 10
Total unrealized in other comprehensive income (2)
— (73) (24)
Net settlements (principal and interest) — (4) (6) (10)
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 nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Commercial mortgage servicing rights	Commercial mortgage servicing rights	$	—	$	3,037	$	1,263	$	5,460	Commercial mortgage servicing rights	$	—	$	—	$	—	$	1,263
Residential mortgage servicing rights held for sale		—		79		—		222

Nonperforming loans	Nonperforming loans	1,423		3,405		6,381		9,677		Nonperforming loans	10,085		1,423		14,761		6,381
Other real estate owned	Other real estate owned	339		9		743		426		Other real estate owned	—		339		—		743
Assets held for sale		—		—		—		—

Total losses on assets measured on a nonrecurring basis	Total losses on assets measured on a nonrecurring basis	$	1,762	$	6,530	$	8,387	$	15,785	Total losses on assets measured on a nonrecurring basis	$	10,085	$	1,762	$	14,761	$	8,387

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 September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

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(dollars in thousands)

Fair value

Valuation
technique

Unobservable
input / assumptions

Range (weighted average)(1)

September 30, ~~2022~~2023

Loan servicing rights:

~~SBA~~Commercial FHA servicing rights

~~715~~30,914

Discounted cash flow

Prepayment speed

~~14.21%~~

4.00% - ~~15.40% (14.95%~~100.00% (8.26%)

Discount rate

8.00% - 15.00% (8.19%)

SBA servicing rights

818

Discounted cash flow

Prepayment speed

15.62% - 16.02% (15.87%)

Discount rate

No range ~~(11.50%~~(14.25%)

Residential servicing rights

~~582~~2,488

Discounted cash flow

Prepayment speed

~~7.56% -31.14% (8.46%~~7.20% -26.28% (7.50%)

Discount rate

~~9.00%~~9.25% - ~~11.50% (10.13%~~11.75% (10.38%)

~~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% (11.48%)~~

December 31, ~~2021~~2022

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~~876

Discounted cash flow

Prepayment speed

~~12.27%~~14.49% - ~~14.14% (13.88%~~15.44% (15.00%)

Discount rate

~~10.00% - 12.00% (11.00%~~No range (13.00%)

Residential servicing rights

~~705~~2,770

Discounted cash flow

Prepayment speed

~~11.94%~~7.56% - ~~27.48% (14.94%~~26.28% (7.92%)

Discount rate

9.00% - 11.50% ~~(10.25%~~(10.13%)

(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

~~Table of Contents~~

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 September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		September 30, 2022						December 31, 2021							September 30, 2023						December 31, 2022
(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		$	—	$	—	$	—	$	19,230	$	—	$	19,230

Residential loans held for sale	Residential loans held for sale	4,338		(73)		4,411		12,815		584		12,231		Residential loans held for sale	$	6,089	$	142	$	5,947	$	1,286	$	42	$	1,244

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

The following table presents the amount of ~~losses~~gains (losses) from fair value changes included in income before income taxes for financial assets carried at fair value for the three and nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2023		2022		2023		2022

Residential loans held for sale	(37)		(280)		112		(557)
Total loans held for sale	$	(37)	$	(280)	$	112	$	(557)

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Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Commercial loans held for sale $ — $ — $ — $ (67)
Residential loans held for sale (280) (231) (557) (294)
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 September 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:


		September 30, 2022											September 30, 2023
(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	$	309,531	$	309,531	$	309,531	$	—	$	—	Cash and due from banks	$	131,179	$	131,179	$	131,179	$	—	$	—
Federal funds sold	Federal funds sold	3,657		3,657		3,657		—		—		Federal funds sold	953		953		953		—		—

Loans, net		6,139,812		6,025,586		—		—		6,025,586
Loans												Loans	6,280,883		6,176,092		—		—		6,176,092
Accrued interest receivable	Accrued interest receivable	17,537		17,537		—		17,537		—		Accrued interest receivable	24,283		24,283		—		24,283		—

Liabilities	Liabilities											Liabilities
Deposits	Deposits	$	6,395,252	$	6,370,773	$	—	$	6,370,773	$	—	Deposits	$	6,405,002	$	6,392,040	$	—	$	6,392,040	$	—
Short-term borrowings	Short-term borrowings	58,518		58,518		—		58,518		—		Short-term borrowings	17,998		17,998		—		17,998		—
FHLB and other borrowings	FHLB and other borrowings	360,000		358,694		—		358,694		—		FHLB and other borrowings	538,000		533,614		—		533,614		—
Subordinated debt	Subordinated debt	139,370		135,279		—		135,279		—		Subordinated debt	93,475		87,263		—		87,263		—
Trust preferred debentures	Trust preferred debentures	49,824		54,965		—		54,965		—		Trust preferred debentures	50,457		50,717		—		50,717		—

~~Table of Contents~~


		December 31, 2021											December 31, 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	$	673,297	$	673,297	$	673,297	$	—	$	—	Cash and due from banks	$	143,035	$	143,035	$	143,035	$	—	$	—
Federal funds sold	Federal funds sold	7,074		7,074		7,074		—		—		Federal funds sold	7,286		7,286		7,286		—		—

Loans, net		5,173,739		5,221,886		—		—		5,221,886
Loans												Loans	6,306,467		6,121,026		—		—		6,121,026
Accrued interest receivable	Accrued interest receivable	19,470		19,470		—		19,470		—		Accrued interest receivable	20,313		20,313		—		20,313		—

Liabilities	Liabilities											Liabilities
Deposits	Deposits	$	6,110,648	$	6,109,077	$	—	$	6,109,077	$	—	Deposits	$	6,364,652	$	6,344,534	$	—	$	6,344,534	$	—
Short-term borrowings	Short-term borrowings	76,803		76,803		—		76,803		—		Short-term borrowings	42,311		42,311		—		42,311		—
FHLB and other borrowings	FHLB and other borrowings	310,171		317,464		—		317,464		—		FHLB and other borrowings	460,000		457,998		—		457,998		—
Subordinated debt	Subordinated debt	139,091		148,386		—		148,386		—		Subordinated debt	99,772		95,301		—		95,301		—
Trust preferred debentures	Trust preferred debentures	49,374		57,827		—		57,827		—		Trust preferred debentures	49,975		54,668		—		54,668		—

~~In accordance with our adoption of ASU 2016-1 in 2019, the~~The methods utilized to measure fair value of financial instruments at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 represent an approximation of exit price; however, an actual exit price may differ.

N~~OTE~~ 17NOTE 14 – C~~OMMITMENTS, CONTINGENCIES~~COMMITMENTS, CONTINGENCIES AND C~~REDIT~~ R~~ISK~~ CREDIT RISK

In the normal course of business, there are outstanding various contingent liabilities such as claims and legal actions, which are not reflected in the consolidated financial statements. 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

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sheet. The contract amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank used the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The commitments are principally tied to variable rates. Loan commitments as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2023		December 31, 2022
Commitments to extend credit	Commitments to extend credit	$	1,280,312	$	994,709	Commitments to extend credit	$	1,001,228	$	1,276,263
Financial guarantees – standby letters of credit	Financial guarantees – standby letters of credit	31,315		14,325		Financial guarantees – standby letters of credit	27,302		23,748

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~~2023 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 nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022. The liability for unresolved repurchase demands totaled $0.2 million ~~and $0.2 million~~ at September 30, ~~2022~~2023 and December 31, ~~2021, respectively.~~

2022.

~~Table of Contents~~

N~~OTE~~ 18NOTE 15 – S~~EGMENT~~ I~~NFORMATION~~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;~~financing; mortgage loan sales and servicing; letters of credit; various types of deposit products, including checking, savings and time deposit accounts; merchant services; and corporate treasury management services. The Wealth Management segment consists of trust and fiduciary services, brokerage and retirement planning services. The Other segment includes the operating results of the parent company, our captive insurance business unit, and the elimination of intercompany transactions.

4036

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Selected business segment financial information for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 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 September 30, 2023										Three Months Ended September 30, 2023
Net interest income (expense)										Net interest income (expense)	$	60,817	$	(3)	$	(2,218)	$	58,596
Provision for credit losses										Provision for credit losses	5,168		—		—		5,168
Noninterest income										Noninterest income	12,007		6,288		(110)		18,185
Noninterest expense										Noninterest expense	37,272		5,023		(257)		42,038
Income (loss) before income taxes (benefit)										Income (loss) before income taxes (benefit)	30,384		1,262		(2,071)		29,575
Income taxes (benefit)										Income taxes (benefit)	11,475		913		(855)		11,533
Net income (loss)										Net income (loss)	$	18,909	$	349	$	(1,216)	$	18,042
Total assets										Total assets	$	7,964,147	$	30,860	$	(19,082)	$	7,975,925

Nine Months Ended September 30, 2023										Nine Months Ended September 30, 2023
Net interest income (expense)										Net interest income (expense)	$	184,460	$	(3)	$	(6,517)	$	177,940
Provision for credit losses										Provision for credit losses	14,182		—		—		14,182
Noninterest income										Noninterest income	33,502		18,968		247		52,717
Noninterest expense										Noninterest expense	115,669		14,539		(794)		129,414
Income (loss) before income taxes (benefit)										Income (loss) before income taxes (benefit)	88,111		4,426		(5,476)		87,061
Income taxes (benefit)										Income taxes (benefit)	26,007		1,797		(2,132)		25,672
Net income (loss)										Net income (loss)	$	62,104	$	2,629	$	(3,344)	$	61,389
Total assets										Total assets	$	7,964,147	$	30,860	$	(19,082)	$	7,975,925

Three Months Ended September 30, 2022	Three Months Ended September 30, 2022									Three Months Ended September 30, 2022
Net interest income (expense)	Net interest income (expense)	$	66,846	$	—	$	(2,822)	$	64,024	Net interest income (expense)	$	66,846	$	—	$	(2,822)	$	64,024
Provision for credit losses	Provision for credit losses	6,974		—		—		6,974		Provision for credit losses	6,974		—		—		6,974
Noninterest income	Noninterest income	9,646		6,199		(19)		15,826		Noninterest income	9,646		6,199		(19)		15,826
Noninterest expense	Noninterest expense	39,338		4,364		(206)		43,496		Noninterest expense	39,338		4,364		(206)		43,496
Income (loss) before income taxes (benefit)	Income (loss) before income taxes (benefit)	30,180		1,835		(2,635)		29,380		Income (loss) before income taxes (benefit)	30,180		1,835		(2,635)		29,380
Income taxes (benefit)	Income taxes (benefit)	9,238		498		(3,877)		5,859		Income taxes (benefit)	9,238		498		(3,877)		5,859
Net income (loss)	Net income (loss)	$	20,942	$	1,337	$	1,242	$	23,521	Net income (loss)	$	20,942	$	1,337	$	1,242	$	23,521
Total assets	Total assets	$	7,809,280	$	29,166	$	(16,569)	$	7,821,877	Total assets	$	7,809,280	$	29,166	$	(16,569)	$	7,821,877

Nine Months Ended September 30, 2022	Nine Months Ended September 30, 2022									Nine Months Ended September 30, 2022
Net interest income (expense)	Net interest income (expense)	$	190,162	$	—	$	(7,977)	$	182,185	Net interest income (expense)	$	190,162	$	—	$	(7,977)	$	182,185
Provision for credit losses	Provision for credit losses	16,582		—		—		16,582		Provision for credit losses	16,582		—		—		16,582
Noninterest income	Noninterest income	26,547		19,481		24		46,052		Noninterest income	26,547		19,481		24		46,052
Noninterest expense	Noninterest expense	112,947		13,130		(358)		125,719		Noninterest expense	112,947		13,130		(358)		125,719
Income (loss) before income taxes (benefit)	Income (loss) before income taxes (benefit)	87,180		6,351		(7,595)		85,936		Income (loss) before income taxes (benefit)	87,180		6,351		(7,595)		85,936
Income taxes (benefit)	Income taxes (benefit)	23,498		1,761		(5,476)		19,783		Income taxes (benefit)	23,498		1,761		(5,476)		19,783
Net income (loss)	Net income (loss)	$	63,682	$	4,590	$	(2,119)	$	66,153	Net income (loss)	$	63,682	$	4,590	$	(2,119)	$	66,153
Total assets	Total assets	$	7,809,280	$	29,166	$	(16,569)	$	7,821,877	Total assets	$	7,809,280	$	29,166	$	(16,569)	$	7,821,877

Three Months Ended September 30, 2021
Net interest income (expense)		$	53,888	$	—	$	(2,492)	$	51,396
Provision for credit losses		(184)		—		—		(184)
Noninterest income		7,917		7,175		51		15,143
Noninterest expense		37,055		4,507		(270)		41,292
Income (loss) before income taxes (benefit)		24,934		2,668		(2,171)		25,431
Income taxes (benefit)		4,973		764		146		5,883
Net income (loss)		$	19,961	$	1,904	$	(2,317)	$	19,548
Total assets		$	7,091,180	$	31,274	$	(28,495)	$	7,093,959

Nine Months Ended September 30, 2021
Net interest income (expense)		$	161,514	$	—	$	(8,140)	$	153,374
Provision for credit losses		2,926		—		—		2,926
Noninterest income		27,649		19,635		92		47,376
Noninterest expense		117,655		12,672		(1,015)		129,312
Income (loss) before income taxes (benefit)		68,582		6,963		(7,033)		68,512
Income taxes (benefit)		9,849		1,967		(1,514)		10,302
Net income (loss)		$	58,733	$	4,996	$	(5,519)	$	58,210
Total assets		$	7,091,180	$	31,274	$	(28,495)	$	7,093,959

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N~~OTE~~ 19NOTE 16 – R~~EVENUE~~ F~~ROM~~ C~~ONTRACTS~~REVENUE FROM CONTRACTS WITH C~~USTOMERS~~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 nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
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	$	5,241	$	5,623	$	16,362	$	15,054	Trust management/administration fees	$	5,470	$	5,241	$	16,462	$	16,362
Investment advisory fees		—		577		—		1,462

Investment brokerage fees	Investment brokerage fees	482		330		1,623		1,206		Investment brokerage fees	420		482		1,281		1,623
Other	Other	476		645		1,496		1,913		Other	398		476		1,225		1,496
Service charges on deposit accounts:	Service charges on deposit accounts:									Service charges on deposit accounts:
Nonsufficient fund fees	Nonsufficient fund fees	1,775		1,470		4,631		3,814		Nonsufficient fund fees	1,950		1,775		5,389		4,631
Other	Other	822		798		2,338		2,196		Other	1,199		1,008		3,355		2,913
Interchange revenues	Interchange revenues	3,531		3,651		10,401		10,823		Interchange revenues	3,609		3,531		10,717		10,401
Other income:	Other income:									Other income:
Merchant services revenue	Merchant services revenue	448		405		1,203		1,137		Merchant services revenue	409		448		1,165		1,203
Other	Other	847		925		2,286		3,135		Other	(66)		661		1,618		1,711
Noninterest income - out-of-scope of Topic 606	Noninterest income - out-of-scope of Topic 606	2,204		719		5,712		6,636		Noninterest income - out-of-scope of Topic 606	4,796		2,204		11,505		5,712
Total noninterest income	Total noninterest income	$	15,826	$	15,143	$	46,052	$	47,376	Total noninterest income	$	18,185	$	15,826	$	52,717	$	46,052

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~~Previously, the Company also ~~earns~~earned 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.

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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.

N~~OTE~~ ~~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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I~~TEM~~ITEM 2 – M~~ANAGEMENT'S~~ D~~ISCUSSION~~MANAGEMENT’S DISCUSSION AND A~~NALYSIS~~ ANALYSIS OF F~~INANCIAL~~ C~~ONDITION~~ FINANCIAL CONDITION AND R~~ESULTS~~ RESULTS OF O~~PERATIONS~~ 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 September 30, ~~2022,~~2023, as compared to December 31, ~~2021,~~2022, and operating results for the three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022. 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,~~2022, filed with the SEC on February ~~25, 2022.~~24, 2023.

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 continuing effects of the ~~COVID-19 pandemic;~~recent failures of Silicon Valley Bank and Signature Bank, including increased deposit volatility and potential regulatory developments; 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 12 – Basis of Presentation and 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.~~2022. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, ~~2021.~~2022.

Significant Developments and Transactions

Each item listed below affects the comparability of our results of operations for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, and our financial condition as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, and may affect the comparability of financial information we report in future fiscal periods.

Balance sheet repositioning. In the third quarter of 2023, the Company recognized a one-time enhancement fee of $6.6 million from surrender and replacement of certain company-owned life insurance policies, which was intended to offset an increase in tax expense related to the surrender. The tax expense associated with the surrender of the policies totaled $4.5 million. In addition, the Company sold $65.9 million of investment securities, recognizing a loss of $4.9 million, and repaid $17.0 million of FHLB advances.

Redemption of Subordinated Notes. In the second quarter of 2023, the Company redeemed $6.6 million of outstanding subordinated notes. The weighted average redemption price was 89.2% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest. The Company recorded gains totaling $0.7 million on these redemptions.

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.

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Commercial FHA Mortgage Loan Servicing Rights.During the third quarter of 2022, we committed to a plan to sell the commercial servicing rights asset and transferred $24.0 million of commercial FHA loan servicing rights to held for sale. At June 30, 2023, the Company abandoned its plans to sell this servicing asset and removed this asset from held for sale at lower of cost or fair value with no gain or loss recognized.

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.

~~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 September 30, 2022 and 2021 was 3.63% and 3.34%, respectively. Accretion income associated with accounting discounts established on loans acquired totaled $0.5 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively, increasing the reported net interest margin by 3 basis points and 7 basis points for each respective period.

The reported net interest margin for the nine months ended September 30, 2022 and 2021 was 3.60% and 3.36%, respectively. Accretion income associated with accounting discounts established on loans acquired totaled $1.7 million and $3.5 million for the nine months ended 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 nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 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)	2023			2022			2023			2022
Income Statement Data:	Income Statement Data:									Income Statement Data:
Interest income	Interest income	$	79,556	$	58,490	$	211,540	$	177,390	Interest income	$	103,585		$	79,556		$	299,615		$	211,540
Interest expense	Interest expense	15,532		7,094		29,355		24,016		Interest expense	44,989			15,532			121,675			29,355
Net interest income	Net interest income	64,024		51,396		182,185		153,374		Net interest income	58,596			64,024			177,940			182,185
Provision for credit losses	Provision for credit losses	6,974		(184)		16,582		2,926		Provision for credit losses	5,168			6,974			14,182			16,582
Noninterest income	Noninterest income	15,826		15,143		46,052		47,376		Noninterest income	18,185			15,826			52,717			46,052
Noninterest expense	Noninterest expense	43,496		41,292		125,719		129,312		Noninterest expense	42,038			43,496			129,414			125,719
Income before income taxes	Income before income taxes	29,380		25,431		85,936		68,512		Income before income taxes	29,575			29,380			87,061			85,936
Income taxes	Income taxes	5,859		5,883		19,783		10,302		Income taxes	11,533			5,859			25,672			19,783
Net income	Net income	$	23,521	$	19,548	$	66,153	$	58,210	Net income	18,042			23,521			61,389			66,153

Preferred dividends										Preferred dividends	2,229			—			6,685			—
Net income available to common shareholders										Net income available to common shareholders	$	15,813		$	23,521		$	54,704		$	66,153
Per Share Data:										Per Share Data:
Basic earnings per common share	Basic earnings per common share	$	1.04	$	0.86	$	2.93	$	2.56	Basic earnings per common share	$	0.71		$	1.04		$	2.43		$	2.93
Diluted earnings per common share	Diluted earnings per common share	$	1.04	$	0.86	$	2.92	$	2.55	Diluted earnings per common share	$	0.71		$	1.04		2.43			2.92
Performance Metrics:										Performance Metrics:
Return on average assets										Return on average assets	0.91		%	1.22		%	1.04		%	1.19		%
Return on average shareholders' equity										Return on average shareholders' equity	9.28		%	13.31		%	10.63		%	13.26		%

During the three months ended September 30, ~~2022,~~2023, we generated net income of $18.0 million, or diluted earnings per common share of $0.71, compared to net income of $23.5 million, or diluted earnings per common share of $1.04, in the three months ended September 30, 2022. Earnings for the third quarter of 2023compared to the third quarter of 2022 decreased primarily due to a $5.4 million decrease in net interest income and a $5.7 million increase in income tax expense. These results were partially offset by a $1.8 million decrease in provision for credit losses, a $2.4 million increase in noninterest income and a $1.5 million decrease in noninterest expense.

During the nine months ended September 30, 2023, we generated net income of ~~$19.5~~$61.4 million, or diluted earnings per common share of ~~$0.86, in the three months ended September 30, 2021. Earnings for the third quarter of 2022~~$2.43, compared to the third quarter of 2021 increased primarily due to a $12.6 million increase in net interest income and a $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.~~2022. Earnings for the nine months ended September 30, ~~2022~~2023 compared to ~~the~~ nine months ended September 30, ~~2021 increased~~2022 decreased primarily due to a ~~$28.8~~$4.2 million ~~increase~~decrease in net interest income, a $3.7 million increase in noninterest expense and a ~~$3.6~~$5.9 million ~~decrease~~increase in ~~noninterest~~income tax expense. These results were partially offset by a ~~$13.7~~$2.4 million ~~increase~~decrease in provision for credit losses ~~a $1.3 million decrease in noninterest income~~ and a ~~$9.5~~$6.7 million increase in ~~income tax expense.~~noninterest income.

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

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interest income has been adjusted to a pretax-equivalent income, assuming a federal income tax rate of 21% for ~~the~~ three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.

On ~~September 21, 2022,~~July 26, 2023, the Federal Reserve ~~announced an~~approved its 11th interest rate increase ~~to its benchmark federal-funds~~in just over a year. The increase moved the federal funds rate ~~by 0.75%~~ to a target range of 5.25%-5.50%, the highest since August 2007. At its September meeting, the Federal Reserve decided to leave interest rates unchanged. Minutes from that meeting indicated that the Federal Reserve officials believed that rates would need to stay elevated until they are convinced inflation is heading back to 2%. The benchmark federal funds rate remains at a target range between ~~3.00% and 3.25%~~5.25%-5.50%, ~~and has indicated that ongoing increases in the~~compared to a 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 began with a federal-funds rate range~~ of 0.00%-0.25%. at the beginning of 2022.

During the three months ended September 30, ~~2022,~~2023, net interest income, on a tax-equivalent basis, ~~increased~~decreased to ~~$64.3~~$58.8 million compared to ~~$51.8~~$64.3 million for the three months ended September 30, ~~2021.~~2022. The tax-equivalent net interest margin ~~increased~~decreased to ~~3.63%~~3.20% for the third quarter of ~~2022~~2023 compared to ~~3.34%~~3.63% in the third quarter of ~~2021.~~2022.

During the nine months ended September 30, ~~2022,~~2023, net interest income, on a tax-equivalent basis, ~~increased~~decreased to ~~$183.2~~$178.6 million with a tax-equivalent net interest margin of ~~3.60%~~3.27% compared to net interest income, on a tax-equivalent basis, of ~~$154.5~~$183.2 million and a tax-equivalent net interest margin of ~~3.36%~~3.60% for the nine months ended September 30, ~~2021.~~2022.

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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 nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022. 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 September 30,
2022 2021
(tax-equivalent basis, dollars in thousands) Average
balance Interest
& fees Yield/
Rate Average
balance Interest
& fees Yield/
Rate
Interest-earning assets:
Federal funds sold and cash investments $ 195,657 $ 1,125 2.28 % $ 525,848 $ 216 0.16 %
Investment securities:
Taxable investment securities 653,277 3,765 2.31 632,485 3,396 2.15
Investment securities exempt from federal income tax (1)
95,745 795 3.32 140,887 1,138 3.23
Total securities 749,022 4,560 2.44 773,372 4,534 2.34
Loans:
Loans (2)
5,973,378 72,901 4.84 4,720,466 52,699 4.43
Loans exempt from federal income tax (1)
66,980 667 3.95 79,597 778 3.88
Total loans 6,040,358 73,568 4.83 4,800,063 53,477 4.42
Loans held for sale 6,044 60 3.87 15,204 107 2.79
Nonmarketable equity securities 37,765 550 5.78 43,873 558 5.05
Total interest-earning assets 7,028,846 79,863 4.51 6,158,360 58,892 3.79
Noninterest-earning assets 618,138 597,153
Total assets $ 7,646,984 $ 6,755,513
Interest-bearing liabilities:
Deposits:
Checking and money market deposits $ 2,961,449 $ 9,032 1.21 % $ 2,501,254 $ 703 0.11 %
Savings deposits 718,970 149 0.08 664,354 32 0.02
Time deposits 630,201 1,018 0.64 704,090 1,767 1.00
Brokered time deposits 14,478 50 1.35 26,272 82 1.23
Total interest-bearing deposits 4,325,098 10,249 0.94 3,895,970 2,584 0.26
Short-term borrowings 58,271 28 0.19 68,103 21 0.12
FHLB advances and other borrowings 340,163 2,424 2.83 440,171 1,993 1.80
Subordinated debt 139,324 2,010 5.77 138,954 2,011 5.79
Trust preferred debentures 49,751 821 6.54 49,167 485 3.92
Total interest-bearing liabilities 4,912,607 15,532 1.25 4,592,365 7,094 0.61
Noninterest-bearing liabilities:
Noninterest-bearing deposits 1,969,873 1,434,193
Other noninterest-bearing liabilities 63,638 77,204
Total noninterest-bearing liabilities 2,033,511 1,511,397
Shareholders’ equity 700,866 651,751
Total liabilities and shareholders’ equity $ 7,646,984 $ 6,755,513
Net interest income / net interest margin (3)
$ 64,331 3.63 % $ 51,798 3.34 %

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	Three Months Ended September 30,
	2023						2022
(tax-equivalent basis, dollars in thousands)	Average balance		Interest & fees		Yield/ Rate		Average balance		Interest & fees		Yield/ Rate
Interest-earning assets:
Federal funds sold and cash investments	$	78,391	$	1,036	5.24	%	$	195,657	$	1,125	2.28	%
Investment securities:
Taxable investment securities	813,582		7,475		3.65		653,277		3,765		2.31
Investment securities exempt from federal income tax (1)	49,416		347		2.79		95,745		795		3.32
Total securities	862,998		7,822		3.60		749,022		4,560		2.44
Loans:
Loans (2)	6,245,179		93,488		5.94		5,973,378		72,901		4.84
Loans exempt from federal income tax (1)	52,389		630		4.77		66,980		667		3.95
Total loans	6,297,568		94,118		5.93		6,040,358		73,568		4.83
Loans held for sale	6,078		104		6.80		6,044		60		3.87
Nonmarketable equity securities	39,347		710		7.16		37,765		550		5.78
Total interest-earning assets	7,284,382		103,790		5.65		7,028,846		79,863		4.51
Noninterest-earning assets	622,969						618,138
Total assets	$	7,907,351					$	7,646,984
Interest-bearing liabilities:
Deposits:
Checking and money market deposits	$	3,770,735	$	29,401	3.09	%	$	3,558,696	$	9,032	1.01	%
Savings deposits	604,475		506		0.33		718,970		149		0.08
Time deposits	865,263		6,441		2.95		630,201		1,018		0.64
Brokered time deposits	113,883		1,421		4.95		14,478		50		1.35
Total interest-bearing deposits	5,354,356		37,769		2.80		4,922,345		10,249		0.83
Short-term borrowings	20,127		14		0.28		58,271		28		0.19
FHLB advances and other borrowings	402,500		4,557		4.49		340,163		2,424		2.83
Subordinated debt	93,441		1,280		5.43		139,324		2,010		5.77
Trust preferred debentures	50,379		1,369		10.78		49,751		821		6.54
Total interest-bearing liabilities	5,920,803		44,989		3.01		5,509,854		15,532		1.12
Noninterest-bearing liabilities:
Noninterest-bearing deposits	1,116,988						1,372,626
Other noninterest-bearing liabilities	97,935						63,638
Total noninterest-bearing liabilities	1,214,923						1,436,264
Shareholders’ equity	771,625						700,866
Total liabilities and shareholders’ equity	$	7,907,351					$	7,646,984
Net interest income / net interest margin (3)			$	58,801	3.20	%			$	64,331	3.63	%

(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 ~~$307,000~~$0.2 million and ~~$402,000~~$0.3 million for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, 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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		Nine Months Ended September 30,													Nine Months Ended September 30,
		2022						2021							2023						2022
(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	$	268,111	$	1,764	0.88	%	$	462,576	$	454	0.13	%	Federal funds sold and cash investments	$	76,939	$	2,868	4.98	%	$	268,111	$	1,764	0.88	%
Investment securities:	Investment securities:													Investment securities:
Taxable investment securities	Taxable investment securities	709,163		11,717		2.20		602,090		10,127		2.24		Taxable investment securities	784,954		19,744		3.35		709,163		11,717		2.20
Investment securities exempt from federal income tax (1)	Investment securities exempt from federal income tax (1)	111,165		2,736		3.28		127,597		3,131		3.27		Investment securities exempt from federal income tax (1)	59,992		1,359		3.02		111,165		2,736		3.28
Total securities	Total securities	820,328		14,453		2.35		729,687		13,258		2.42		Total securities	844,946		21,103		3.33		820,328		14,453		2.35
Loans:	Loans:													Loans:
Loans (2)	Loans (2)	5,597,514		192,430		4.60		4,788,940		159,743		4.46		Loans (2)	6,270,427		272,297		5.81		5,597,514		192,430		4.60
Loans exempt from federal income tax (1)	Loans exempt from federal income tax (1)	69,360		2,012		3.88		83,387		2,449		3.93		Loans exempt from federal income tax (1)	54,151		1,708		4.22		69,360		2,012		3.88
Total loans	Total loans	5,666,874		194,442		4.59		4,872,327		162,192		4.45		Total loans	6,324,578		274,005		5.79		5,666,874		194,442		4.59
Loans held for sale	Loans held for sale	15,629		357		3.05		38,772		810		2.79		Loans held for sale	3,900		179		6.14		15,629		357		3.05
Nonmarketable equity securities	Nonmarketable equity securities	36,832		1,521		5.52		49,688		1,847		4.97		Nonmarketable equity securities	44,034		2,104		6.39		36,832		1,521		5.52
Total interest-earning assets	Total interest-earning assets	6,807,774		212,537		4.17		6,153,050		178,561		3.88		Total interest-earning assets	7,294,397		300,259		5.50		6,807,774		212,537		4.17
Noninterest-earning assets	Noninterest-earning assets	621,510						595,733						Noninterest-earning assets	615,383						621,510
Total assets	Total assets	$	7,429,284					$	6,748,783					Total assets	$	7,909,780					$	7,429,284
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Deposits:	Deposits:													Deposits:
Checking and money market deposits	Checking and money market deposits	$	2,792,007	$	13,188	0.63	%	$	2,434,480	$	2,024	0.11	%	Checking and money market deposits	$	3,743,483	$	79,858	2.85	%	$	3,364,552	$	13,188	0.52	%
Savings deposits	Savings deposits	711,108		287		0.05		650,323		121		0.02		Savings deposits	626,976		1,145		0.24		711,108		287		0.05
Time deposits	Time deposits	624,282		2,588		0.55		702,973		6,280		1.19		Time deposits	791,555		14,694		2.48		624,282		2,588		0.55
Brokered time deposits	Brokered time deposits	17,668		157		1.19		35,485		334		1.26		Brokered time deposits	61,838		2,094		4.53		17,668		157		1.19
Total interest-bearing deposits	Total interest-bearing deposits	4,145,065		16,220		0.52		3,823,261		8,759		0.31		Total interest-bearing deposits	5,223,852		97,791		2.50		4,717,610		16,220		0.46
Short-term borrowings	Short-term borrowings	62,495		73		0.16		69,764		65		0.12		Short-term borrowings	26,865		53		0.26		62,495		73		0.16
FHLB advances and other borrowings	FHLB advances and other borrowings	319,791		5,071		2.12		525,072		7,033		1.79		FHLB advances and other borrowings	471,084		15,959		4.53		319,791		5,071		2.12
Subordinated debt	Subordinated debt	139,233		6,032		5.78		157,871		6,694		5.65		Subordinated debt	96,820		3,985		5.49		139,233		6,032		5.78
Trust preferred debentures	Trust preferred debentures	49,603		1,959		5.28		49,028		1,465		4.00		Trust preferred debentures	50,216		3,887		10.35		49,603		1,959		5.28
Total interest-bearing liabilities	Total interest-bearing liabilities	4,716,187		29,355		0.83		4,624,996		24,016		0.69		Total interest-bearing liabilities	5,868,837		121,675		2.77		5,288,732		29,355		0.74
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Noninterest-bearing deposits	Noninterest-bearing deposits	1,975,445						1,405,641						Noninterest-bearing deposits	1,184,410						1,402,900
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	70,427						78,883						Other noninterest-bearing liabilities	84,650						70,427
Total noninterest-bearing liabilities	Total noninterest-bearing liabilities	2,045,872						1,484,524						Total noninterest-bearing liabilities	1,269,060						1,473,327
Shareholders’ equity	Shareholders’ equity	667,225						639,263						Shareholders’ equity	771,883						667,225
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,429,284					$	6,748,783					Total liabilities and shareholders’ equity	$	7,909,780					$	7,429,284
Net interest income / net interest margin (3)	Net interest income / net interest margin (3)			$	183,182	3.60	%			$	154,545	3.36	%	Net interest income / net interest margin (3)			$	178,584	3.27	%			$	183,182	3.60	%

(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 ~~$1.0~~$0.6 million and ~~$1.2~~$1.0 million for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

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

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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

~~Table of Contents~~

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~~which 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 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										Three Months Ended September 30, 2023 compared with Three Months Ended September 30, 2022							Nine Months Ended September 30, 2023 compared with Nine Months Ended September 30, 2022
		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:
EARNING ASSETS:																		EARNING ASSETS:
Federal funds sold and cash investments	Federal funds sold and cash investments	$	(1,017)	$	1,926	$	909		$	(735)		$	2,045			$	1,310	Federal funds sold and cash investments	$	(1,112)	$	1,023		$	(89)	$	(4,189)	$	5,293		$	1,104
Investment securities:
Investment securities:																		Investment securities:
Taxable investment securities	Taxable investment securities	116		253		369			1,785			(195)				1,590		Taxable investment securities	1,204		2,506			3,710		1,579		6,448		8,027
Investment securities exempt from federal income tax	Investment securities exempt from federal income tax	(370)		27		(343)			(404)			9				(395)		Investment securities exempt from federal income tax	(355)		(93)			(448)		(1,210)		(167)		(1,377)
Total securities	Total securities	(254)		280		26			1,381			(186)				1,195		Total securities	849		2,413			3,262		369		6,281		6,650
Loans:
Loans:																		Loans:
Loans	Loans	14,639		5,563		20,202			27,384			5,303				32,687		Loans	3,693		16,894			20,587		26,178		53,689		79,867
Loans exempt from federal income tax	Loans exempt from federal income tax	(124)		13		(111)			(409)			(28)				(437)		Loans exempt from federal income tax	(160)		123			(37)		(460)		156		(304)
Total loans	Total loans	14,515		5,576		20,091			26,975			5,275				32,250		Total loans	3,533		17,017			20,550		25,718		53,845		79,563
Loans held for sale	Loans held for sale	(76)		29		(47)			(505)			52				(453)		Loans held for sale	—		44			44		(403)		225		(178)
Nonmarketable equity securities	Nonmarketable equity securities	(83)		75		(8)			(505)			179				(326)		Nonmarketable equity securities	26		134			160		321		262		583
Total interest-earning assets		$	13,085	$	7,886	$	20,971		$	26,611		$	7,365			$	33,976
Interest-bearing liabilities:
Deposits:
Total earning assets																		Total earning assets	$	3,296	$	20,631		$	23,927	$	21,816	$	65,906	$	87,722
INTEREST-BEARING LIABILITIES:																		INTEREST-BEARING LIABILITIES:
Checking and money market deposits	Checking and money market deposits	$	766	$	7,563	$	8,329		$	993		$	10,171			$	11,164	Checking and money market deposits	$	1,090	$	19,279		$	20,369	$	4,780	$	61,890	$	66,670
Savings deposits	Savings deposits	7		110		117			18			148				166		Savings deposits	(60)		417			357		(94)		952		858
Time deposits	Time deposits	(153)		(596)		(749)			(514)			(3,178)				(3,692)		Time deposits	1,065		4,358			5,423		1,899		10,207		12,106
Brokered time deposits		(38)		6		(32)			(164)			(13)				(177)
Brokered deposits																		Brokered deposits	789		582			1,371		945		992		1,937
Total interest-bearing deposits	Total interest-bearing deposits	582		7,083		7,665			333			7,128				7,461		Total interest-bearing deposits	2,884		24,636			27,520		7,530		74,041		81,571
Short-term borrowings	Short-term borrowings	(3)		10		7			(8)			16				8		Short-term borrowings	(22)		8			(14)		(55)		35		(20)
FHLB advances and other borrowings	FHLB advances and other borrowings	(582)		1,013		431			(3,002)			1,040				(1,962)		FHLB advances and other borrowings	575		1,558			2,133		3,762		7,126		10,888
Subordinated debt	Subordinated debt	5		(6)		(1)			(798)			136				(662)		Subordinated debt	(637)		(93)			(730)		(1,789)		(258)		(2,047)
Trust preferred debentures	Trust preferred debentures	8		328		336			20			474				494		Trust preferred debentures	13		535			548		36		1,892		1,928
Total interest-bearing liabilities	Total interest-bearing liabilities	$	10	$	8,428	$	8,438		$	(3,455)		$	8,794			$	5,339	Total interest-bearing liabilities	$	2,813	$	26,644		$	29,457	$	9,484	$	82,836	$	92,320
Net interest income	Net interest income	$	13,075	$	(542)	$	12,533		$	30,066		$	(1,429)			$	28,637	Net interest income	$	483	$	(6,013)		$	(5,530)	$	12,332	$	(16,930)	$	(4,598)

Interest Income.Interest income, on a tax-equivalent basis, increased ~~$21.0~~$23.9 million to ~~$79.9~~$103.8 million in the three months ended September 30, ~~2022~~2023 as compared to the same quarter in ~~2021,~~2022, primarily due to ~~growth in~~improved yields on earning assets. The yield on earning assets increased 72114 basis points to ~~4.51%~~5.65% from ~~3.79%,~~4.51% primarily due to the impact of increasing market interest rates.

Average earning assets increased to ~~$7.03~~$7.28 billion in the third quarter of ~~2022~~2023 from ~~$6.16~~$7.03 billion in the same quarter in ~~2021. An increase~~2022. Increases in average loans and investment securities of ~~$1.24 billion was~~$257.2 million and $114.0 million, respectively, were partially offset by ~~decreases~~a decrease in federal funds sold and cash investments ~~and investment securities~~ of ~~$330.2 million and $24.4 million, respectively.~~$117.3 million.

Average loans increased ~~$1.24 billion~~$257.2 million in the third quarter of ~~2022~~2023 compared to the same quarter of ~~2021. Average commercial loans increased $99.3 million. Included in commercial loans are~~2022 across all loan categories, except for commercial FHA warehouse lines and ~~PPP~~consumer loans. ~~Commercial~~Average commercial loans increased $38.5 million. Included in this category are commercial FHA warehouse lines. Average commercial FHA warehouse lines decreased ~~$39.7~~$37.2 million to ~~$57.7~~$20.4 million in the third quarter of ~~2022. PPP loan balances averaged $4.5 million in third quarter of 2022, compared to $114.2 million in the third quarter of 2021.~~2023. Excluding the changes in the commercial FHA warehouse line ~~and PPP loan portfolios,~~portfolio, average commercial loans increased ~~$248.7~~$75.7 million in the third quarter of ~~2022~~2023 compared to the same period one year prior.

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Average ~~commercial real estate~~construction loans increased this quarter by ~~$855.8~~$164.7 million, compared to the prior year's third quarter, primarily due to funding draws on existing multifamily project lines. Average balances in our consumer loan portfolio decreased this quarter by $42.2 million compared to the prior year third ~~quarter. Average balances~~quarter due a decrease in ~~our consumer~~ loans ~~construction loans and lease portfolios also increased this quarter by $230.3 million, $23.1 million and $36.0 million, respectively, compared to~~originated through the ~~prior year third quarter. Consumer loan growth was primarily the result of our new relationship with an additional consumer loan origination firm and our continuing relationship~~program with GreenSky. ~~We intend to reduce new originations in the 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 nine months ended September 30, ~~2022,~~2023, interest income, on a tax-equivalent basis, increased ~~$34.0~~$87.7 million to ~~$212.5~~$300.3 million as compared to the same period in ~~2021,~~2022, primarily due to ~~growth in~~improved yields on earning assets. The yield on earning assets increased ~~29 basis~~133 points to ~~4.17%~~5.50% from ~~3.88%~~4.17%, primarily due to the impact of increasing market interest rates.

Average earning assets increased to ~~$6.81~~$7.29 billion in the first nine months of ~~2022~~2023 from ~~$6.15~~$6.81 billion in the same period in ~~2021. Average~~2022. An increase in average loans ~~and investment securities increased $794.5~~of $657.7 million ~~and $90.6 million, respectively. These increases were~~was partially offset by a ~~$194.5~~$191.2 million decrease in federal funds sold and cash investments.

Average commercial loans ~~decreased $50.4~~increased $99.1 million for the nine months ended September 30, ~~2022~~2023 compared to the same period of ~~2021.~~2022. Commercial FHA warehouse lines ~~and PPP loans accounted for $88.3~~decreased $54.6 million ~~and $123.1~~to $15.7 million ~~respectively, of~~during this ~~decrease.~~period. Excluding the changes in the commercial FHA warehouse line ~~and PPP loan portfolios,~~portfolio, average commercial loans increased ~~$161.0~~$153.7 million for the nine months ended September 30, ~~2022~~2023 compared to the same period one year prior.

Average balances in all of our other loan classifications increased for the nine months ended September 30, 2023 compared to the same period of 2022. Average commercial real estate loans, construction loans, and lease portfolios also increased ~~by $660.5~~$253.2 million, $149.5 million and ~~$29.5~~$64.6 million, respectively, for the nine months ended September 30, ~~2022~~2023 compared to the same period of 2021. Average consumer loans also increased $190.3 million for the nine months ended 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.2022.

Interest Expense.Interest expense increased ~~$8.4~~$29.5 million to ~~$15.5~~$45.0 million for the three months ended September 30, ~~2022~~2023 compared to the three months ended September 30, ~~2021.~~2022. The cost of interest-bearing liabilities increased to ~~1.25%~~3.01% for the third quarter of ~~2022~~2023 compared to ~~0.61%~~1.12% for the third quarter of ~~2021~~2022 due to the increase in deposit costs as a result of the rate increases announced by the Federal Reserve.

Interest expense on deposits increased ~~$7.7~~$27.5 million to ~~$10.2~~$37.8 million for the three months ended September 30, ~~2022~~ 2023 from the comparable period in ~~2021.~~2022. The increase was primarily due to an increase in rates paid on deposits. Average balances of interest-bearing deposit accounts increased ~~$429.1~~$432.0 million, or ~~11.0%~~8.78%, to ~~$4.33~~$5.35 billion for the three months ended September 30, ~~2022~~2023 compared to the same period one year earlier. The increase in volume was attributable to increases of retail deposits ~~commercial deposits~~ and brokered deposits of ~~$125.8 million, $114.0~~$60.2 million and ~~$92.3~~$127.6 million, respectively. In addition, our Insured Cash Sweep product average balances increased ~~$54.9~~$538.0 million.

For the nine month period ended September 30, ~~2022,~~2023, interest expense increased ~~$5.3~~$92.3 million to ~~$29.4~~$121.7 million compared to the nine months ended September 30, ~~2021.~~2022. The cost of interest-bearing liabilities increased to ~~0.83%~~2.77% for the first nine months of ~~2022~~2023 compared to ~~0.69%~~0.74% for the same period of ~~2021.~~2022. Interest expense on deposits increased to ~~$16.2~~$97.8 million from ~~$8.8~~$16.2 million for the comparable period in ~~2021,~~2022, primarily due to increases in interest rates on deposits.

Interest expense on FHLB advances and other borrowings ~~decreased $2.0~~increased $2.1 million and $10.9 million for the three and nine months ended September 30, ~~2022,~~2023, respectively, from the comparable ~~period~~periods in ~~2021.~~2022, due to increases in both average balances and the cost of funds. Average balances ~~decreased $205.3~~increased $62.3 million and $151.3 million for the three and nine months ended September 30, ~~2022,~~2023, respectively, from the comparable ~~period~~periods in ~~2021~~2022. Average costs of funds increased 166 basis points and 241 basis points, respectively, for the three and nine months ended September 30, 2023, from the comparable periods in 2022.

Interest expense on subordinated debt decreased $0.7 million and $2.0 million for the three and nine months ended September 30, 2023, respectively, from the comparable periods in 2022. The Company redeemed $6.6 million of subordinated debt in the second quarter of 2023 and $40.0 million of subordinated debt on October 15, 2022.

Interest expense on trust preferred debentures increased $0.5 million and $1.9 million for the three and nine months ended September 30, 2023, respectively, from the comparable periods in 2022, due to ~~the Company prepaying~~ ~~$265.0 million of longer term FHLB advances during 2021.~~interest rate increases, as these debt instruments reprice quarterly.

Provision for Credit ~~Losses~~Losses.. The Company's provision for credit losses on loans totaled $5.2 million for the three months ended September 30, 2023, compared to $7.0 million for the three months ended September 30, 2022, all of which was attributable to loans. Provision for credit losses for the three months ended September 30, 2021 was a benefit of $0.2 million. No provision for credit losses on loans was recorded in the quarter, while a benefit of $0.2 million was recorded for credit losses related to investment securities.2022. For the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, the Company recorded provision expense of $14.2 million and $16.6 million, ~~and $2.9 million,~~ respectively. ~~The increase in the provision for credit losses for the three and nine months ended September 30, 2022 compared to prior year periods was primarily due to the growth and changes in the mix~~

Table of ~~our loan portfolio.~~Contents

The provision for credit losses on loans ~~made~~recognized during the three and nine months ended September 30, ~~2022~~2023 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

~~Table of Contents~~

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 increased ~~4.5%~~14.91% for the three months ended September 30, ~~2022,~~2023, compared to the same period one year prior, and ~~decreased 2.8%~~increased 14.47% for the nine months ended September 30, ~~2022,~~2023, compared to the same period one year prior. The following table sets forth the major components of our noninterest income for the three and nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Increase (decrease)			Nine Months Ended September 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)	2023					2022				2023				2022
Noninterest income:	Noninterest income:																				Noninterest income:
Wealth management revenue	Wealth management revenue	$	6,199	$	7,175	$	(976)		$	19,481		$	19,635			$	(154)	Wealth management revenue	$	6,288		$	6,199			$	89		$	18,968		$	19,481		$	(513)

Residential mortgage banking revenue	Residential mortgage banking revenue	210		1,287		(1,077)			1,193			4,423				(3,230)		Residential mortgage banking revenue	507			210			297			1,452			1,193			259
Service charges on deposit accounts	Service charges on deposit accounts	2,597		2,268		329			6,969			6,010				959		Service charges on deposit accounts	3,149			2,783			366			8,744			7,544			1,200
Interchange revenue	Interchange revenue	3,531		3,651		(120)			10,401			10,823				(422)		Interchange revenue	3,609			3,531			78			10,717			10,401			316
(Loss) gain on sales of investment securities, net		(129)		160		(289)			(230)			537				(767)
Loss on sales of investment securities, net																		Loss on sales of investment securities, net	(4,961)			(129)			(4,832)			(6,478)			(230)			(6,248)
Impairment on commercial mortgage servicing rights	Impairment on commercial mortgage servicing rights	—		(3,037)		3,037			(1,263)			(5,460)				4,197		Impairment on commercial mortgage servicing rights	—			—			—			—			(1,263)			1,263
Company-owned life insurance	Company-owned life insurance	929		869		60			2,788			2,592				196		Company-owned life insurance	7,558			929			6,629			9,325			2,788			6,537
Other income	Other income	2,489		2,770		(281)			6,713			8,816				(2,103)		Other income	2,035			2,303			(268)			9,989			6,138			3,851
Total noninterest income	Total noninterest income	$	15,826	$	15,143	$	683		$	46,052		$	47,376			$	(1,324)	Total noninterest income	$	18,185		$	15,826		$	2,359		$	52,717		$	46,052		$	6,665

~~Wealth management revenue~~Loss on sale of investment securities. ~~Wealth management revenue decreased $1.0 million and $0.2 million for~~The Company took advantage of certain market conditions during the three and nine months ended September 30, ~~2022, respectively,~~2023 to reposition out of lower yielding securities into other structures, which are expected to result in improved overall margin, liquidity and capital allocations. These transactions resulted in losses of $5.0 million and $6.5 million in the three and nine months ended September 30, 2023, with expected paybacks to occur within a one year period.

Company-owned life insurance income. Company-owned life insurance income increased $6.6 million for each the three and nine months ended September 30, 2023, as compared to the same periods in ~~2021. The~~2022. As previously discussed, the Company ~~added $399.7~~recognized a one-time enhancement fee of $6.6 million ~~of assets under administration~~ from the ~~acquisition~~surrender and replacement 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 $3.45 billion at September 30, 2022 from $4.06 billion at September 30, 2021.certain life insurance policies.

~~Residential mortgage banking revenue.~~

Other noninterest income. Residential mortgage banking revenue for the three months ended September 30, 2022 totaled $0.2 million, compared to $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 third quarter of 2022 totaled $20.6 million, with 13% representing refinance transactions versus purchase transactions, compared to loans originated during the same period one year prior, which totaled $47.3 million, with 28% representing refinance transactions.

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

~~Impairment of Commercial Mortgage Servicing Rights. Impairment of commercial mortgage servicing rights was $1.3 million and $5.5~~Other income increased $3.9 million for the nine months ended 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 $2.36 billion and $2.87 billion at September 30, 2022 and 2021, respectively.

~~Other Income. Other income decreased $0.3 million and $2.1 million for the three and nine months ended September 30, 2022, respectively,~~2023, as compared to the same ~~periods~~period in ~~2021.~~2022. As mentioned previously, the Company recognized a gain of $0.7 million on the redemption of subordinated debt in the second quarter of 2023. Also in the second quarter of 2023, we recognized a gain of $0.8 million on the sale of OREO. Net unrealized gains on our equity securities ~~decreased $0.2 million and~~increased $1.4 million for the ~~three and~~ nine months ended September 30, ~~2022, respectively,~~2023, compared to the same ~~periods~~period in ~~2021. In 2021,~~2022. As a result of designating our commercial FHA loan servicing rights as held for sale, we did not amortize 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~~servicing asset nor record impairment during the first ~~quarter.~~half of 2023. In the nine months ended September 30, 2023 and 2022, amortization expense totaled $0.6 million and $1.9 million, respectively.

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Noninterest Expense. The following table sets forth the major components of noninterest expense for the three and nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Increase (decrease)			Nine Months Ended September 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)	2023					2022				2023				2022
Noninterest expense:	Noninterest expense:																				Noninterest expense:
Salaries and employee benefits	Salaries and employee benefits	$	22,889	$	22,175	$	714		$	67,404		$	64,774			$	2,630	Salaries and employee benefits	$	22,307		$	22,889			$	(582)		$	69,407		$	67,404			$	2,003
Occupancy and equipment	Occupancy and equipment	3,850		3,701		149			11,094			11,437				(343)		Occupancy and equipment	3,730			3,850			(120)			12,052			11,094				958
Data processing	Data processing	6,093		6,495		(402)			18,048			18,776				(728)		Data processing	6,468			6,093			375			19,323			18,048			1,275
FDIC insurance																		FDIC insurance	1,107			977			130			3,632			2,633			999
Professional	Professional	1,693		1,738		(45)			5,181			9,472				(4,291)		Professional	1,554			1,693			(139)			4,977			5,181			(204)
Marketing	Marketing	1,026		860		166			2,447			2,037				410		Marketing	950			1,026			(76)			2,323			2,447			(124)
Communications	Communications	587		689		(102)			1,934			2,335				(401)		Communications	507			587			(80)			1,514			1,934			(420)
Loan expense																		Loan expense	866			1,137			(271)			3,104			3,379			(275)
Amortization of intangible assets	Amortization of intangible assets	1,361		1,445		(84)			4,077			4,430				(353)		Amortization of intangible assets	1,129			1,361			(232)			3,628			4,077			(449)

FHLB advances prepayment fees		—		—		—			—			3,677				(3,677)

Other expense	Other expense	5,997		4,189		1,808			15,534			12,374				3,160		Other expense	3,420			3,883			(463)			9,454			9,522			(68)
Total noninterest expense	Total noninterest expense	$	43,496	$	41,292	$	2,204		$	125,719		$	129,312			$	(3,593)	Total noninterest expense	$	42,038		$	43,496		$	(1,458)		$	129,414		$	125,719		$	3,695

Salaries and employee benefits. For the nine months ended September 30, 2023, salaries and employee benefits expense increased $2.0 million as compared to the same period in 2022, primarily due to annual salary increases and increased medical insurance expense. The Company employed 911 employees at September 30, 2023 compared to 930 employees at September 30, 2022.

Occupancy and Equipment Expense. For the nine months ended September 30, 2023, occupancy and equipment expense increased $1.0 million as compared to the same period in 2022 primarily as a result of the non-controllable seasonal expenses in the first quarter of 2023, including snow removal. In addition, the Company transitioned to an outsourced facilities management program and incurred increased repair expenses as a result of deferred maintenance.

Data processing fees. The $0.4 million and $1.3 million increases in data processing fees for the three and nine months ended September 30, ~~2022, salaries and employee benefits expense increased $0.7 million and $2.6 million,~~2023, respectively, as compared to the same periods in ~~2021,~~2022, were primarily ~~due~~the result of our continuing investments in technology to ~~annual salary increases in 2022~~better serve our growing customer base and ~~a modest increase in staffing levels. The Company had 930 employees at September 30, 2022 compared to 905 employees at September 30, 2021.~~increased transaction volumes.

~~Professional fees.~~FDIC Insurance Expense. For the nine months ended September 30, ~~2022, professional fees decreased $4.3~~2023, FDIC insurance expense increased $1.0 million, as compared to the same period in ~~2021. In 2021,~~2022, primarily as a result of the ~~Company incurred~~ ~~$3.6 million of consulting and legal expenses related to~~FDIC increasing the ~~settlement of a tax issue, as previously discussed.~~base assessment rate by 2 basis points, effective January 1, 2023.

~~Other expense.~~Income Tax Expense. The Company's effective tax rate was 39.0% and 19.9% for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, the Company's effective tax rate was 29.5% and 23.0%, respectively. The increase in the effective tax rate from the three and nine months ended September 30, 2022 ~~other expense increased $1.8 million and $3.2 million, respectively, as compared~~is due primarily to ~~the same periods in 2021, primarily as a result of increased business activities.~~

~~Income Tax Expense.~~ ~~Income~~ tax expense ~~was $5.9~~of $4.5 million ~~for each~~associated with a surrender of ~~the three months ended September 30, 2022~~company-owned life insurance policies, as previously discussed, and ~~2021. The resulting effective tax rates were 19.9% and 23.1% for the three months ended September 30, 2022 and 2021, respectively. The decrease~~a $1.4 million return to provision adjustment recognized 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.~~third quarter of 2023.

Income tax expense was $19.8 million for the nine months ended September 30, 2022, as compared to $10.3 million for the nine months ended 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 nine months ended September 30, 2021 benefited from the ~~$6.8 million in settlements related to the treatment of gains recognized on FDIC-assisted transactions discussed earlier.~~

Financial Condition

Assets. Total assets increased to ~~$7.82~~$7.98 billion at September 30, ~~2022,~~2023, as compared to ~~$7.44~~$7.86 billion at December 31, ~~2021.~~2022.

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Loans. The loan portfolio is the largest category of our assets. At September 30, ~~2022,~~2023, total loans were ~~$6.20~~$6.28 billion as compared to ~~$5.22~~$6.31 billion at December 31, ~~2021.~~2022. The following table shows loans by category as of September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		September 30, 2022				December 31, 2021					September 30, 2023				December 31, 2022
(dollars in thousands)	(dollars in thousands)	Book Value		%		Book Value		%		(dollars in thousands)	Balance		Percent		Balance		Percent
Loans:	Loans:									Loans:
Commercial:	Commercial:									Commercial:
Equipment finance loans	Equipment finance loans	$	577,323	9.3	%	$	521,973	10.0	%	Equipment finance loans	$	578,931	9.2	%	$	616,751	9.8	%
Equipment finance leases	Equipment finance leases	457,611		7.4		423,280		8.1		Equipment finance leases	485,460		7.8		491,744		7.8
Commercial FHA lines	Commercial FHA lines	51,309		0.8		91,927		1.8		Commercial FHA lines	48,547		0.8		25,029		0.4
SBA PPP loans		2,810		—		52,477		1.0

Other commercial loans	Other commercial loans	904,841		14.6		783,811		14.9		Other commercial loans	943,761		15.0		872,794		13.8
Total commercial loans and leases	Total commercial loans and leases	1,993,894		32.2		1,873,468		35.8		Total commercial loans and leases	2,056,699		32.8		2,006,318		31.8
Commercial real estate	Commercial real estate	2,466,303		39.8		1,816,828		34.8		Commercial real estate	2,412,164		38.4		2,433,159		38.6
Construction and land development	Construction and land development	225,549		3.6		193,749		3.7		Construction and land development	416,801		6.6		320,882		5.1
Residential real estate	Residential real estate	356,225		5.7		338,151		6.5		Residential real estate	375,211		6.0		366,094		5.8
Consumer	Consumer	1,156,480		18.7		1,002,605		19.2		Consumer	1,020,008		16.2		1,180,014		18.7
Total loans, gross	Total loans, gross	6,198,451		100.0	%	5,224,801		100.0	%	Total loans, gross	6,280,883		100.0	%	6,306,467		100.0	%
Allowance for credit losses on loans	Allowance for credit losses on loans	(58,639)				(51,062)				Allowance for credit losses on loans	(66,669)				(61,051)
Total loans, net	Total loans, net	$	6,139,812			$	5,173,739			Total loans, net	$	6,214,214			$	6,245,416

Total loans ~~increased $973.7~~decreased $25.6 million to ~~$6.20~~$6.28 billion at September 30, ~~2022~~2023, as compared to December 31, ~~2021.~~2022, as the Company continued to originate loans in a more selective and deliberate approach to balance liquidity and funding costs. The ~~loan growth~~increase in our construction and land development portfolio of $95.9 million was primarily ~~reflected in~~driven by draws on existing lines. In addition, our commercial loans and leases ~~commercial real estate and consumer portfolios, which~~ increased ~~$120.4 million, $649.5 million and $153.9 million, respectively.~~$50.4 million.

~~Commercial~~Consumer loans and leases, which includes PPP loans and commercial FHA warehouse lines, increased $120.4 million to $1.99 billion at September 30, 2022 as compared to December 31, 2021. PPP loans at September 30, 2022 totaled $2.8 million, a decrease of $49.7 million from December 31, 2021. Advances on commercial FHA warehouse lines decreased ~~$40.6 million to $51.3~~$160.0 million at September 30, ~~2022. Excluding~~2023 primarily due to a decrease in loans originated through the ~~decreases~~program with GreenSky, as expected. On January 24, 2023, the Company notified GreenSky that, effective October 21, 2023, the Company would terminate its participation in ~~PPP~~GreenSky’s loan origination program. Following the termination, GreenSky is expected to continue servicing all loans ~~and commercial FHA warehouse lines, commercial loans and leases increased $210.7 million.~~originated through the program.

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 September 30, ~~2022:~~2023:


		September 30, 2022																			September 30, 2023
		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	$	75,162	$	473,053	$	606,770	$	87,295	$	192,833	$	97,036	$	—	$	4,134	$	1,536,283	Commercial	$	92,106	$	476,928	$	654,184	$	43,224	$	160,891	$	95,857	$	—	$	48,049	$	1,571,239
Commercial real estate	Commercial real estate	179,868		170,173		953,862		519,247		425,956		183,182		5,727		28,288		2,466,303		Commercial real estate	157,723		295,113		987,952		382,396		380,537		183,848		5,496		19,099		2,412,164
Construction and land development	Construction and land development	3,485		58,030		30,473		101,061		9,073		20,635		1,024		1,768		225,549		Construction and land development	13,662		67,570		107,525		167,375		15,344		42,529		1,013		1,783		416,801
Total commercial loans	Total commercial loans	258,515		701,256		1,591,105		707,603		627,862		300,853		6,751		34,190		4,228,135		Total commercial loans	263,491		839,611		1,749,661		592,995		556,772		322,234		6,509		68,931		4,400,204
Residential real estate	Residential real estate	1,878		5,091		8,463		18,272		33,016		39,010		143,508		106,987		356,225		Residential real estate	969		3,368		8,530		19,238		26,218		39,106		162,533		115,249		375,211
Consumer	Consumer	1,834		4,012		1,130,138		555		19,941		—		—		—		1,156,480		Consumer	3,314		533		979,100		534		36,526		—		1		—		1,020,008
Lease financing	Lease financing	10,773		—		344,919		—		101,919		—		—		—		457,611		Lease financing	13,930		—		365,602		—		105,928		—		—		—		485,460
Total loans	Total loans	$	273,000	$	710,359	$	3,074,625	$	726,430	$	782,738	$	339,863	$	150,259	$	141,177	$	6,198,451	Total loans	$	281,704	$	843,512	$	3,102,893	$	612,767	$	725,444	$	361,340	$	169,043	$	184,180	$	6,280,883

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 ~~$58.6~~$66.7 million, or ~~0.95%~~1.06% of total loans, at September 30, ~~2022~~2023 compared to ~~$51.1~~$61.1 million, or ~~0.98%~~0.97% of total loans, at December 31, ~~2021.~~2022. The following table allocates the allowance for credit losses on loans ~~or the allowance,~~ by loan category:


		September 30, 2022			December 31, 2021				September 30, 2023				December 31, 2022
(dollars in thousands)	(dollars in thousands)	Allowance		% (1)	Allowance		% (1)	(dollars in thousands)	Allowance		Percent (1)		Allowance		Percent (1)
Commercial	Commercial	$	14,364	0.93%	$	14,375	0.99%	Commercial	$	19,410	1.24	%	$	14,639	0.97	%
Commercial real estate	Commercial real estate	28,430		1.15	22,993		1.27	Commercial real estate	24,611		1.02		29,290		1.20
Construction and land development	Construction and land development	1,591		0.71	972		0.50	Construction and land development	3,530		0.85		2,435		0.76
Total commercial loans	Total commercial loans	44,385		1.05	38,340		1.11	Total commercial loans	47,551		1.08		46,364		1.09
Residential real estate	Residential real estate	4,171		1.17	2,695		0.80	Residential real estate	5,698		1.52		4,301		1.17
Consumer	Consumer	3,405		0.29	2,558		0.26	Consumer	3,984		0.39		3,599		0.30
Lease financing	Lease financing	6,678		1.46	7,469		1.76	Lease financing	9,436		1.94		6,787		1.38
Total allowance for credit losses on loans	Total allowance for credit losses on loans	$	58,639	0.95%	$	51,062	0.98%	Total allowance for credit losses on loans	$	66,669	1.06	%	$	61,051	0.97	%

(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.

The allowance allocated to commercial loans totaled $19.4 million, or 1.24% of total commercial loans, at September 30, 2023, compared to $14.6 million, or 0.97%, at December 31, 2022. Modeled expected credit losses increased

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The allowance allocated to commercial loans totaled $14.4 million, or 0.93% of total commercial loans, at September 30, 2022, compared to $14.4 million, or 0.99%, at December 31, 2021. Modeled expected credit losses decreased $0.3$2.5 million and qualitative factor ~~("Q-Factor")~~ adjustments related to commercial loans increased ~~$1.9~~$0.9 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~~increased $1.3 ~~million at September 30, 2022.~~million. There were no specific allocation reserves for commercial loans in prior period.

The allowance allocated to commercial real estate loans totaled ~~$28.4~~$24.6 million, or ~~1.15% of~~1.02% to total commercial real estate loans, at September 30, ~~2022, increasing $5.4~~2023, decreasing $4.7 million, from ~~$23.0~~$29.3 million, or ~~1.27%~~1.20% of total commercial real estate loans, at December 31, ~~2021.~~2022. Modeled expected credit losses ~~related to commercial real estate loans increased $1.0~~decreased $2.6 million and ~~Q-Factor~~qualitative factor adjustments related to commercial real estate loans ~~increased $4.5~~decreased $0.6 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis decreased from $1.5 million at December 31, 2022 to $0.0 million at September 30, 2023.

The allowance allocated to the lease portfolio totaled ~~$6.7~~$9.4 million, or ~~1.46%~~1.94% of total commercial leases, at September 30, ~~2022, decreasing $0.8~~2023, increasing $2.6 million from ~~$7.5~~$6.8 million, or ~~1.76%~~1.38% of total commercial leases at December 31, ~~2021.~~2022. Modeled expected credit losses ~~related to~~increased $2.1 million and qualitative factor adjustments increased $0.6 million. There were no specific allocation reserves for commercial leases ~~decreased $0.7 million. Q-Factor adjustments related to commercial leases were unchanged.~~

~~As previously stated, the overall loan portfolio increased $973.7 million, or 18.6%, which included a $649.5 million, or 35.7%, increase~~ in commercial real estate loans and a $176.4 million, or 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 4.36 at 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 4.87 at September 30, 2022 from 5.02 at December 31, 2021.either period.

In estimating expected credit losses as of September 30, ~~2022,~~2023, we utilized certain forecasted macroeconomic variables from Oxford Economics ~~("Oxford") and other sources~~ in our ~~models:~~

•~~Oxford expects~~models. The forecasted projections included, among other things, (i) U.S. gross domestic product growth of 1.5% for 2023 and 0.3% for 2024; (ii) Federal Reserve holding the ~~US economy to experience~~policy rate through year end with a ~~mild recession~~gradual decrease 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~~2024; and (iii) unemployment rate averaging 5.6% through 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 FOMC's median interest rate forecast of 4.4% for the end of 2022 implies at least another 125bps of rate hikes by year end after September’s 75bps increase.~~

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

2024.

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~~These "Q-Factor" adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already fully 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 September 30, ~~2022,~~2023, modeled expected credit losses were adjusted upwards with a ~~Q-Factor~~qualitative factor adjustment of approximately 5054 basis points of total loans, increasing from 4350 basis points at December 31, ~~2021.~~2022. The Q-Factor adjustment at September 30, ~~2022~~2023 was based primarily on declining credit quality conditions within the equipment financing segment, economic conditions, including ~~rising~~persistent 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 nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


		As of and for the Three Months Ended September 30,						As of and for the Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022			2021			2022			2021			(dollars in thousands)	2023			2022			2023			2022
Balance, beginning of period	Balance, beginning of period	$	54,898		$	58,664		$	51,062		$	60,443		Balance, beginning of period	$	64,950		$	54,898		$	61,051		$	51,062
Charge-offs:	Charge-offs:													Charge-offs:
Commercial	Commercial	1,655			317			3,869			3,457			Commercial	3,249			1,655			5,289			3,869
Commercial real estate	Commercial real estate	1,232			1,663			4,084			3,382			Commercial real estate	2,316			1,232			4,606			4,084
Construction and land development	Construction and land development	—			138			6			410			Construction and land development	44			—			378			6
Residential real estate	Residential real estate	166			35			315			286			Residential real estate	95			166			180			315
Consumer	Consumer	316			280			812			740			Consumer	250			316			773			812
Lease financing	Lease financing	485			1,227			1,190			1,996			Lease financing	1,394			485			2,555			1,190
Total charge-offs	Total charge-offs	3,854			3,660			10,276			10,271			Total charge-offs	7,348			3,854			13,781			10,276
Recoveries:	Recoveries:													Recoveries:
Commercial	Commercial	45			134			354			288			Commercial	80			45			577			354
Commercial real estate	Commercial real estate	1			3			6			16			Commercial real estate	3,678			1			4,006			6
Construction and land development	Construction and land development	18			74			30			221			Construction and land development	—			18			32			30
Residential real estate	Residential real estate	69			66			222			180			Residential real estate	33			69			98			222
Consumer	Consumer	121			93			381			370			Consumer	53			121			226			381
Lease financing	Lease financing	367			301			1,013			478			Lease financing	55			367			278			1,013
Total recoveries	Total recoveries	621			671			2,006			1,553			Total recoveries	3,899			621			5,217			2,006
Net charge-offs	Net charge-offs	3,233			2,989			8,270			8,718			Net charge-offs	3,449			3,233			8,564			8,270
Provision for credit losses on loans	Provision for credit losses on loans	6,974			—			15,847			3,950			Provision for credit losses on loans	5,168			6,974			14,182			15,847

Balance, end of period	Balance, end of period	$	58,639		$	55,675		$	58,639		$	55,675		Balance, end of period	$	66,669		$	58,639		$	66,669		$	58,639
Gross loans, end of period	Gross loans, end of period	$	6,198,451		$	4,915,554		$	6,198,451		$	4,915,554		Gross loans, end of period	$	6,280,883		$	6,198,451		$	6,280,883		$	6,198,451
Average total loans	Average total loans	$	6,040,358		$	4,800,063		$	5,666,874		$	4,872,327		Average total loans	$	6,297,568		$	6,040,358		$	6,324,577		$	5,666,874
Net charge-offs to average loans	Net charge-offs to average loans	0.21		%	0.25		%	0.20		%	0.24		%	Net charge-offs to average loans	0.22		%	0.21		%	0.18		%	0.20		%
Allowance to total loans		0.95		%	1.13		%	0.95		%	1.13		%
Allowance for credit losses to total loans														Allowance for credit losses to total loans	1.06		%	0.95		%	1.06		%	0.95		%

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.

Charge-offs for the three months ended September 30, 2023 included $2.2 million on a commercial loan and $2.3 million on equipment financing loans and leases. In addition, a commercial real estate loan of $2.3 million was also charged-off in the third quarter. The Company specially reserved for this loss in the second quarter of 2023. The Company recognized a $3.4 million recovery on a commercial real estate loan, which was charged-off in 2017.

Net charge-offs for the three months ended September 30, ~~2022~~2023 totaled ~~$3.2~~$3.4 million, compared to ~~$3.0~~$3.2 million for the same period one year ago. For the nine months ended September 30, ~~2022,~~2023, net charge-offs totaled ~~$8.3~~$8.6 million, compared to ~~$8.7~~$8.2 million for the same period one year ago.

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

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

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

~~Nonperforming loans totaled $46.9 million, or 0.76% of total loans, at September 30, 2022, compared to $42.6 million, or 0.81% of total loans at December 31, 2021.~~




(dollars in thousands)	September 30, 2023			December 31, 2022
Nonperforming loans:
Commercial	$	8,836		$	7,853
Commercial real estate	33,603			29,602
Construction and land development	2,025			229
Residential real estate	3,856			8,449
Consumer	103			921
Lease financing	7,558			2,369
Total nonperforming loans	55,981			49,423
Other real estate owned and other repossessed assets	2,696			8,401
Nonperforming assets	$	58,677		$	57,824
Nonperforming loans to total loans	0.89		%	0.78		%
Nonperforming assets to total assets	0.74		%	0.74		%
Allowance for credit losses to nonperforming loans	119.09		%	123.53		%

We did not recognize interest income on nonaccrual loans during the three ~~and nine~~ months ended September 30, ~~2022~~2023 or ~~2021~~2022 while the loans were in nonaccrual status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $0.8 million and $2.5 million for the three and nine months ended September 30, 2023, respectively, and $0.8 million and $1.9 million for the three and nine months ended September 30, 2022, ~~respectively, and $0.6 million and $2.1 million for the three and nine months ended 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~~change in our non-performing loans ~~by loan category at~~for the ~~dates indicated:~~

Commercial Commercial
real estate Construction &
land development
Risk category Risk category Risk category
(dollars in thousands) 7
8 (1)
7
8 (1)
7
8 (1)
Total
September 30, 2022 $ 6,422 $ 7,512 $ 24,683 $ 90,933 $ 2,625 $ — $ 132,175
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 innonperformingloans.~~

~~Commercial loans with a risk rating of 7 or 8 decreased to $13.9 million as of~~nine months ended 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 $39.3 million to $115.6 million as of September 30, 2022, compared to December 31, 2021, primarily due to risk rating upgrades within the portfolio.2023:


(dollars in thousands)	Nine Months Ended September 30, 2023
Balance, beginning of period	$	49,424
New nonperforming loans	35,071
Return to performing status	(1,097)
Payments received	(20,795)
Transfer to OREO and other repossessed assets	(332)
Charge-offs	(6,290)
Balance, end of period	$	55,981

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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The book value for investment securities classified as available for sale is equal to fair market value.


		September 30, 2022				December 31, 2021					September 30, 2023				December 31, 2022
(dollars in thousands)	(dollars in thousands)	Book Value		% of Total		Book Value		% of Total		(dollars in thousands)	Balance		Percent		Balance		Percent
Investment securities available for sale:	Investment securities available for sale:									Investment securities available for sale:
U.S. Treasury securities	U.S. Treasury securities	$	60,496	8.9	%	$	64,917	7.2	%	U.S. Treasury securities	$	1,563	0.2	%	$	81,230	10.6	%
U.S. government sponsored entities and U.S. agency securities	U.S. government sponsored entities and U.S. agency securities	27,865		4.1		33,817		3.7		U.S. government sponsored entities and U.S. agency securities	89,038		10.6		37,509		4.9
Mortgage-backed securities - agency	Mortgage-backed securities - agency	391,615		57.4		440,270		48.5		Mortgage-backed securities - agency	517,391		62.0		448,150		58.3
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	21,158		3.1		28,706		3.2		Mortgage-backed securities - non-agency	72,665		8.7		20,754		2.7
State and municipal securities	State and municipal securities	95,061		13.9		143,099		15.8		State and municipal securities	49,737		6.0		94,636		12.3
Collateralized loan obligations										Collateralized loan obligations	22,385		2.7		—		—
Corporate securities	Corporate securities	85,694		12.6		195,794		21.6		Corporate securities	82,230		9.8		85,955		11.2
Total investment securities, available for sale, at fair value	Total investment securities, available for sale, at fair value	$	681,889	100.0	%	$	906,603	100.0	%	Total investment securities, available for sale, at fair value	$	835,009	100.0	%	$	768,234	100.0	%

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The following table sets forth the book value, maturities and weighted average yields for our investment portfolio at September 30, ~~2022.~~2023. The book value for investment securities classified as available for sale is equal to fair market value.

(dollars in thousands) Book value % of total Weighted average yield
Investment securities available for sale:
U.S. Treasury securities:
Maturing within one year $ 598 0.1 % 1.48 %
Maturing in one to five years 59,898 8.8 0.90
Maturing in five to ten years — — —
Maturing after ten years — — —
Total U.S. Treasury securities $ 60,496 8.9 % 0.90 %
U.S. government sponsored entities and U.S. agency securities:
Maturing within one year $ 75 — % 2.60 %
Maturing in one to five years 15,534 2.3 1.18
Maturing in five to ten years 12,256 1.8 1.70
Maturing after ten years — — —
Total U.S. government sponsored entities and U.S. agency securities $ 27,865 4.1 % 1.41 %
Mortgage-backed securities - agency:
Maturing within one year $ 3,163 0.5 % 3.01 %
Maturing in one to five years 129,152 18.9 2.19
Maturing in five to ten years 189,116 27.7 1.90
Maturing after ten years 70,184 10.3 2.18
Total mortgage-backed securities - agency $ 391,615 57.4 % 2.05 %
Mortgage-backed securities - non-agency:
Maturing within one year $ — — % — %
Maturing in one to five years 293 — 3.63
Maturing in five to ten years 15,529 2.2 2.41
Maturing after ten years 5,336 0.9 2.46
Total mortgage-backed securities - non-agency $ 21,158 3.1 % 2.44 %
State and municipal securities (1):
Maturing within one year $ 9,120 1.3 % 5.47 %
Maturing in one to five years 28,511 4.2 3.59
Maturing in five to ten years 31,269 4.6 2.67
Maturing after ten years 26,161 3.8 2.79
Total state and municipal securities $ 95,061 13.9 % 3.20 %
Corporate securities:
Maturing within one year $ — — % — %
Maturing in one to five years 9,631 1.4 2.39
Maturing in five to ten years 76,063 11.2 3.41
Maturing after ten years — — —
Total corporate securities $ 85,694 12.6 % 3.30 %
Total investment securities, available for sale $ 681,889 100.0 % 2.24 %

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(dollars in thousands)	Balance		Percent		Weighted average yield
Investment securities available for sale:
U.S. Treasury securities:
Maturing within one year	$	1,274	0.2	%	3.26	%
Maturing in one to five years	289		—		4.21
Maturing in five to ten years	—		—		—
Maturing after ten years	—		—		—
Total U.S. Treasury securities	$	1,563	0.2	%	3.43	%

U.S. government sponsored entities and U.S. agency securities:
Maturing within one year	$	9,981	1.2	%	4.89	%
Maturing in one to five years	65,037		7.8		4.42
Maturing in five to ten years	10,963		1.3		2.08
Maturing after ten years	3,057		0.3		5.77
Total U.S. government sponsored entities and U.S. agency securities	$	89,038	10.6	%	4.19	%

Mortgage-backed securities - agency:
Maturing within one year	$	5,594	0.7	%	2.47	%
Maturing in one to five years	244,137		29.2		3.74
Maturing in five to ten years	154,292		18.5		2.74
Maturing after ten years	113,368		13.6		2.25
Total mortgage-backed securities - agency	$	517,391	62.0	%	3.07	%

Mortgage-backed securities - non-agency:
Maturing within one year	$	—	—	%	—	%
Maturing in one to five years	56,346		6.8		4.56
Maturing in five to ten years	9,239		1.1		2.25
Maturing after ten years	7,080		0.8		2.58
Total mortgage-backed securities - non-agency	$	72,665	8.7	%	3.99	%

State and municipal securities (1):
Maturing within one year	$	1,320	0.2	%	3.21	%
Maturing in one to five years	7,485		0.9		3.07
Maturing in five to ten years	26,166		3.1		2.20
Maturing after ten years	14,766		1.8		2.81
Total state and municipal securities	$	49,737	6.0	%	2.53	%

Collateralized loan obligations:
Maturing within one year	$	10,967	1.3	%	8.36	%
Maturing in one to five years	11,418		1.4		6.79
Maturing in five to ten years	—		—		—
Maturing after ten years	—		—		—
Total collateralized loan obligations	$	22,385	2.7	%	7.56	%

Corporate securities:
Maturing within one year	$	—	—	%	—	%
Maturing in one to five years	19,745		2.4		3.59
Maturing in five to ten years	62,485		7.4		3.61
Maturing after ten years	—		—		—
Total corporate securities	$	82,230	9.8	%	3.60	%
Total investment securities, available for sale	$	835,009	100.0	%	3.37	%

(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 September 30, ~~2022.~~2023.

Amortized Estimated Average credit rating
(dollars in thousands) cost fair value AAA AA+/- A+/- BBB+/- <BBB- Not Rated
Investment securities available for sale:
U.S. Treasury securities $ 66,369 $ 60,496 $ 60,496 $ — $ — $ — $ — $ —
U.S. government sponsored entities and U.S. agency securities 32,267 27,865 23,289 4,576 — — — —
Mortgage-backed securities - agency 469,822 391,615 13 391,602 — — — —
Mortgage-backed securities - non-agency 25,341 21,158 21,158 — — — — —
State and municipal securities 105,838 95,061 7,782 74,730 2,010 986 — 9,553
Corporate securities 95,313 85,694 — — 30,926 52,340 — 2,428
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 $367.2 million to $313.2 million at 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 $4.3 million at 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.


	Amortized		Fair		Average credit rating
(dollars in thousands)	cost		Value		AAA		AA+/-		A+/-		BBB+/-		<BBB-		Not Rated
Investment securities available for sale:
U.S. Treasury securities	$	1,582	$	1,563	$	—	$	1,563	$	—	$	—	$	—	$	—
U.S. government sponsored entities and U.S. agency securities	93,291		89,038		71,119		17,919		—		—		—		—
Mortgage-backed securities - agency	613,484		517,391		6		517,385		—		—		—		—
Mortgage-backed securities - non-agency	77,617		72,665		13,604		59,061		—		—		—		—
State and municipal securities	59,521		49,737		636		48,847		—		254		—		—
Collateralized loan obligations	22,662		22,385		14,155		8,230		—		—		—		—
Corporate securities	95,124		82,230		—		44,593		16,584		14,572		6,481		—
Total investment securities, available for sale	$	963,281	$	835,009	$	99,520	$	697,598	$	16,584	$	14,826	$	6,481	$	—

Liabilities. At September 30, ~~2022,~~2023, liabilities totaled ~~$7.08~~$7.21 billion compared to ~~$6.78~~$7.10 billion at December 31, ~~2021.~~2022.

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 ~~$284.6~~$40.4 million to ~~$6.40~~$6.41 billion at September 30, ~~2022,~~2023, as compared to December 31, ~~2021. Deposits acquired~~2022. Brokered time deposits increased to $119.1 million at September 30, 2023 from $12.8 million at December 31, 2022. In addition, interest rate promotions offered in 2023 on time deposit products resulted in an increases in balances of non-brokered time deposits of $236.3 million over the ~~second quarter of 2022 from FNBC 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,~~same period. These increases were partially offset by a decrease in ~~noninterest bearing~~noninterest-bearing demand account ~~balances.~~

~~Noninterest-bearing demand accounts decreased $220.5~~balances of $207.6 million, ~~to $2.03 billion at September 30, 2022 compared to December 31, 2021,~~ as servicing deposits decreased $259.3 million. This decrease was offset by increases in commercial, retail and public fund deposits of $29.7 million, $3.6 million and $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 thea 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 September 30, 2022, total~~ Our noninterest-bearing deposits ~~were comprised of 31.7% of noninterest-bearing demand accounts, 58.4% of interest-bearing transaction accounts and 9.9% of time deposits. At December 31, 2021, the composition~~decreased to 18.0% 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~~at September 30, ~~2022 and 2021:~~2023 compared to 21.4% at December 31, 2022.


		Three Months Ended September 30,
		2022				2021
(dollars in thousands)	(dollars in thousands)	Average balance		Weighted average rate		Average balance		Weighted average rate		(dollars in thousands)	September 30, 2023				December 31, 2022
Deposits:
											Balance		Percent		Balance		Percent
Noninterest-bearing demand	Noninterest-bearing demand	$	1,969,873	—		$	1,434,193	—		Noninterest-bearing demand	$	1,154,515	18.0	%	$	1,362,158	21.4	%
Interest-bearing:	Interest-bearing:									Interest-bearing:
Checking	Checking	1,850,789		1.42	%	1,672,599		0.12	%	Checking	2,572,224		40.2		2,494,073		39.2
Money market	Money market	1,110,660		0.86		828,655		0.09		Money market	1,090,962		17.0		1,184,101		18.6
Savings	Savings	718,970		0.08		664,354		0.02		Savings	582,359		9.1		661,932		10.4
Time, insured		493,351		0.60		554,119		1.04
Time, uninsured		136,850		0.81		149,971		0.83
Time, brokered		14,478		1.35		26,272		1.23
Total interest-bearing		$	4,325,098	0.94	%	$	3,895,970	0.26	%
Time										Time	1,004,942		15.7		662,388		10.4
Total deposits	Total deposits	$	6,294,971	0.65	%	$	5,330,163	0.19	%	Total deposits	$	6,405,002	100.0	%	$	6,364,652	100.0	%

The Company estimates that uninsured deposits(1) totaled $1.28 billion, or 20% of total deposits, at September 30, 2023 compared to $1.55 billion, or 24%, at December 31, 2022. The following table sets forth the maturity of uninsured time deposits as of September 30, ~~2022:~~2023:



(dollars in thousands)	Amount
Three months or less	$	~~18,841~~48,203
Three to six months	~~13,020~~32,134
Six to 12 months	~~24,498~~20,001
After 12 months	~~62,851~~5,504
Total	$	~~119,210~~105,842

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

Capital Resources and Liquidity Management

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

Shareholders’ equity increased ~~$75.4~~$5.7 million to ~~$739.3~~$764.3 million at September 30, ~~2022~~2023 as compared to December 31, ~~2021.~~2022. The Company generated net income of ~~$66.2~~$61.4 million during ~~the first nine months of 2022.~~2023. Offsetting this increase to shareholders’ equity were dividends to common shareholders of ~~$19.4~~$20.0 million, ~~stock~~dividends to preferred shareholders of $6.7 million, repurchases of ~~$1.1~~common stock of $15.0 million and ~~a decrease~~an increase in accumulated other comprehensive ~~loss~~losses of ~~$83.6~~$17.4 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~~share repurchase program, ~~currently in effect,~~ whereby the Board of Directors authorized the Company to repurchase up to ~~$75.0~~$25.0 million of its common stock. This program terminates December 31, ~~2022.~~2023. As of September 30, ~~2022, $56.4~~2023, $14.9 million, or ~~2,996,778~~703,868 shares of the Company’s common stock, had been repurchased under the program, with approximately ~~$18.6~~$10.1 million of remaining repurchase authority. ~~The Company did not repurchase any shares under this repurchase program in the 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.

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.

The ~~Company had available lines~~table below presents our sources of ~~credit~~liquidity as of ~~$13.5 million and $55.9 million at~~ September 30, ~~2022~~2023 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 $15.7 million and $64.8 million at September 30, 2022 and December 31, 2021, respectively. There were no outstanding borrowings under these lines at September 30, 2022 and December 31, 2021.2022:

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


(dollars in thousands)	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	132,132	$	160,631
Unpledged securities	258,104		209,184
FHLB committed liquidity	883,855		997,388
FRB discount window availability	759,763		12,201
Total Estimated Liquidity	$	2,033,854	$	1,379,404

Conditional Funding Based on Market Conditions
Additional credit facility	$	364,000	$	250,000
Brokered CDs (additional capacity)	$	500,000	$	500,000

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 it 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 September 30, ~~2022,~~2023, that these limitations will not impact our ability to meet our ongoing short-term cash obligations.

Regulatory Capital Requirements

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We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. 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 September 30, ~~2022,~~2023, 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 September 30, ~~2022:~~2023:


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.	12.75	%	10.50	%	N/A		Midland States Bancorp, Inc.	12.84	%	10.50	%	N/A
Midland States Bank	Midland States Bank	11.16		10.50		10.00	%	Midland States Bank	12.13		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.	10.02		8.50		N/A		Midland States Bancorp, Inc.	10.62		8.50		N/A
Midland States Bank	Midland States Bank	10.39		8.50		8.00		Midland States Bank	11.21		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.	7.54		7.00		N/A		Midland States Bancorp, Inc.	8.16		7.00		N/A
Midland States Bank	Midland States Bank	10.39		7.00		6.50		Midland States Bank	11.21		7.00		6.50
Tier 1 leverage ratio	Tier 1 leverage ratio							Tier 1 leverage ratio
Midland States Bancorp, Inc.	Midland States Bancorp, Inc.	9.40		4.00		N/A		Midland States Bancorp, Inc.	9.67		4.00		N/A
Midland States Bank	Midland States Bank	9.75		4.00		5.00		Midland States Bank	10.21		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.~~Risk. 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,

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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.~~income. The Committee meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. 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~~to model interest ~~income is modeled~~rate risk 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~~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)	-200			-100			+100			+200
September 30, 2022:
September 30, 2023:											September 30, 2023:
Dollar change	Dollar change	$	(12,193)		$	11,202		$	22,297		Dollar change	$	13,564		$	4,761		$	(7,540)		$	(15,513)
Percent change	Percent change	(4.6)		%	4.2		%	8.4		%	Percent change	5.9		%	2.1		%	(3.3)		%	(6.7)		%
December 31, 2021:
December 31, 2022:											December 31, 2022:
Dollar change	Dollar change	$	(13,499)		$	23,513		$	47,028		Dollar change	$	—		$	(12,560)		$	10,814		$	21,357
Percent change	Percent change	(6.1)		%	10.6		%	21.2		%	Percent change	—		%	(4.2)		%	3.6		%	7.2		%

We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The NII at Risk results included in the table above reflect the analysis used quarterly by management. It models -200, −100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next twelve months. We added a -200 basis point scenario as the Federal Reserve has indicated the rate increases may have run their course. We were within board policy limits for the -200, -100, +100 and +200 basis point scenarios at September 30, ~~2022.~~2023.

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 September 30, ~~2022~~2023 projects that our earnings exhibit ~~reduced sensitivity to changes~~increasing profitability in ~~interest rates for all three scenarios~~a declining rate environment, compared to December 31, ~~2021.~~2022.

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~~The following table shows EVE at the dates indicated:~~

Economic value of equity sensitivity (Shocks)
Immediate change in rates
(dollars in thousands) -100 +100 +200
September 30, 2022:
Dollar change $ 6,949 $ 7,528 $ 16,900
Percent change (0.7) % 0.8 % 1.8 %
December 31, 2021:
Dollar change $ (89,850) $ 51,553 $ 96,875
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 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 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.

I~~TEM~~ITEM 3 – Q~~UANTITATIVE~~QUANTITATIVE AND Q~~UALITATIVE~~ D~~ISCLOSURES~~ A~~BOUT~~ M~~ARKET~~ R~~ISK~~ 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~~about Market Risk”.

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I~~TEM~~ITEM 4 – C~~ONTROLS~~CONTROLS AND P~~ROCEDURES~~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

I~~TEM~~ ITEM 1–L~~EGAL~~ P~~ROCEEDINGS~~ 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.

I~~TEM~~ 1A–R~~ISK~~ F~~ACTORS~~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.~~2022.

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I~~TEM~~ITEM 2 – U~~NREGISTERED~~ S~~ALES~~UNREGISTERED SALES OF E~~QUITY~~ S~~ECURITIES~~EQUITY SECURITIES AND USEUSE OF P~~ROCEEDS~~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 third quarter of ~~2022.~~2023.

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


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, 2023	114,603	$	22.15	114,500	$	13,559,785
August 1 - 31, 2023	97,496	22.24		97,317	11,395,800
September 1 - 30, 2023	59,282	21.94		59,242	10,096,015
Total	271,381	$	22.14	271,059	$	10,096,015

(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)As previously disclosed, the board of directors of the Company approved a stock repurchase program on ~~August~~December 6, ~~2019, and has amended~~2022, pursuant to which the ~~program on several occasions.~~Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2023. Stock repurchases under ~~these~~this 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 September 30, ~~2022, 2,996,778~~2023, 703,868 shares of the Company’s common stock have been repurchased under the program for an aggregate purchase price of ~~$56.4~~$14.9 million.

ITEM 5 – OTHER INFORMATION

During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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I~~TEM~~ITEM 6 – E~~XHIBITS~~EXHIBITS


Exhibit No.						Description

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 September 30, ~~2022~~2023 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 September 30, ~~2022~~2023 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: November ~~3, 2022~~2, 2023	By:	/s/	Jeffrey G. Ludwig
			Jeffrey G. Ludwig
			President and Chief Executive Officer
			(Principal Executive Officer)


Date: November ~~3, 2022~~2, 2023	By:	/s/	Eric T. Lemke
			Eric T. Lemke
			Chief Financial Officer
			(Principal Financial Officer)

6964


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest income:
Loans including fees:
Taxable	$	72,901	$	52,699	$	192,430	$	159,743
Tax exempt	527		615		1,589		1,935
Loans held for sale	60		107		357		810
Investment securities:
Taxable	3,765		3,396		11,717		10,127
Tax exempt	628		899		2,162		2,474
Nonmarketable equity securities	550		558		1,521		1,847
Federal funds sold and cash investments	1,125		216		1,764		454
Total interest income	79,556		58,490		211,540		177,390
Interest expense:
Deposits	10,249		2,584		16,220		8,759
Short-term borrowings	28		21		73		65
Federal Home Loan Bank advances and other borrowings	2,424		1,993		5,071		7,033
Subordinated debt	2,010		2,011		6,032		6,694
Trust preferred debentures	821		485		1,959		1,465
Total interest expense	15,532		7,094		29,355		24,016
Net interest income	64,024		51,396		182,185		153,374
Provision for credit losses:
Provision for credit losses on loans	6,974		—		15,847		3,950
Provision for credit losses on unfunded commitments	—		—		956		(800)
Recapture of provision for other credit losses	—		(184)		(221)		(224)
Total provision for credit losses	6,974		(184)		16,582		2,926
Net interest income after provision for credit losses	57,050		51,580		165,603		150,448
Noninterest income:
Wealth management revenue	6,199		7,175		19,481		19,635

Residential mortgage banking revenue	210		1,287		1,193		4,423
Service charges on deposit accounts	2,597		2,268		6,969		6,010
Interchange revenue	3,531		3,651		10,401		10,823
(Loss) gain on sales of investment securities, net	(129)		160		(230)		537
Impairment on commercial mortgage servicing rights	—		(3,037)		(1,263)		(5,460)
Company-owned life insurance	929		869		2,788		2,592
Other income	2,489		2,770		6,713		8,816
Total noninterest income	15,826		15,143		46,052		47,376
Noninterest expense:
Salaries and employee benefits	22,889		22,175		67,404		64,774
Occupancy and equipment	3,850		3,701		11,094		11,437
Data processing	6,093		6,495		18,048		18,776
Professional	1,693		1,738		5,181		9,472
Marketing	1,026		860		2,447		2,037
Communications	587		689		1,934		2,335
Amortization of intangible assets	1,361		1,445		4,077		4,430


Federal Home Loan Bank advances prepayment fees	—		—		—		3,677
Other expense	5,997		4,189		15,534		12,374
Total noninterest expense	43,496		41,292		125,719		129,312
Income before income taxes	29,380		25,431		85,936		68,512
Income taxes	5,859		5,883		19,783		10,302
Net income	$	23,521	$	19,548	$	66,153	$	58,210
Per common share data:
Basic earnings per common share	$	1.04	$	0.86	$	2.93	$	2.56
Diluted earnings per common share	$	1.04	$	0.86	$	2.92	$	2.55
Weighted average common shares outstanding	22,338,828		22,520,499		22,306,323		22,544,898
Weighted average diluted common shares outstanding	22,390,438		22,577,880		22,367,095		22,613,972


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


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

U.S. government sponsored entities and U.S. agency securities:
Maturing within one year	$	75	—	%	2.60	%
Maturing in one to five years	15,534		2.3		1.18
Maturing in five to ten years	12,256		1.8		1.70
Maturing after ten years	—		—		—
Total U.S. government sponsored entities and U.S. agency securities	$	27,865	4.1	%	1.41	%

Mortgage-backed securities - agency:
Maturing within one year	$	3,163	0.5	%	3.01	%
Maturing in one to five years	129,152		18.9		2.19
Maturing in five to ten years	189,116		27.7		1.90
Maturing after ten years	70,184		10.3		2.18
Total mortgage-backed securities - agency	$	391,615	57.4	%	2.05	%

Mortgage-backed securities - non-agency:
Maturing within one year	$	—	—	%	—	%
Maturing in one to five years	293		—		3.63
Maturing in five to ten years	15,529		2.2		2.41
Maturing after ten years	5,336		0.9		2.46
Total mortgage-backed securities - non-agency	$	21,158	3.1	%	2.44	%

State and municipal securities (1):
Maturing within one year	$	9,120	1.3	%	5.47	%
Maturing in one to five years	28,511		4.2		3.59
Maturing in five to ten years	31,269		4.6		2.67
Maturing after ten years	26,161		3.8		2.79
Total state and municipal securities	$	95,061	13.9	%	3.20	%

Corporate securities:
Maturing within one year	$	—	—	%	—	%
Maturing in one to five years	9,631		1.4		2.39
Maturing in five to ten years	76,063		11.2		3.41
Maturing after ten years	—		—		—
Total corporate securities	$	85,694	12.6	%	3.30	%
Total investment securities, available for sale	$	681,889	100.0	%	2.24	%


	Amortized		Estimated		Average credit rating
(dollars in thousands)	cost		fair value		AAA		AA+/-		A+/-		BBB+/-		<BBB-		Not Rated
Investment securities available for sale:
U.S. Treasury securities	$	66,369	$	60,496	$	60,496	$	—	$	—	$	—	$	—	$	—
U.S. government sponsored entities and U.S. agency securities	32,267		27,865		23,289		4,576		—		—		—		—
Mortgage-backed securities - agency	469,822		391,615		13		391,602		—		—		—		—
Mortgage-backed securities - non-agency	25,341		21,158		21,158		—		—		—		—		—
State and municipal securities	105,838		95,061		7,782		74,730		2,010		986		—		9,553
Corporate securities	95,313		85,694		—		—		30,926		52,340		—		2,428
Total investment securities, available for sale	$	794,950	$	681,889	$	112,738	$	470,908	$	32,936	$	53,326	$	—	$	11,981