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, 20222023
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)
Illinois37-1233196
(State of other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1201 Network Centre Drive62401
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 classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueMSBIThe 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 AMSBIPThe 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 filerAccelerated filer Non-accelerated filerSmaller 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 22,149,47021,538,434 shares of outstanding common stock, $0.01 par value.


Table of Contents
MIDLAND STATES BANCORP, INC.
TABLE OF CONTENTS
Page
Consolidated Balance Sheets at September 30, 20222023 (Unaudited) and December 31, 20212022
Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2023 and 2022
Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2022 2023and 20212022
Consolidated Statements of Comprehensive Income Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, 20222023 and 20212022
Consolidated Statements of Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, 2022 and 2021
Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 20222023 and 20212022


1

Table of Contents
PART I – FINANCIAL INFORMATION

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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)
AssetsAssetsAssets
Cash and due from banksCash and due from banks$309,531 $673,297 Cash and due from banks$131,179 $153,345 
Federal funds soldFederal funds sold3,657 7,074 Federal funds sold953 7,286 
Cash and cash equivalentsCash and cash equivalents313,188 680,371 Cash and cash equivalents132,132 160,631 
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 valueInvestment securities available for sale, at fair value835,009 768,234 
Equity securities, at fair valueEquity securities, at fair value8,615 9,529 Equity securities, at fair value4,335 8,626 
LoansLoans6,198,451 5,224,801 Loans6,280,883 6,306,467 
Allowance for credit losses on loansAllowance for credit losses on loans(58,639)(51,062)Allowance for credit losses on loans(66,669)(61,051)
Total loans, netTotal loans, net6,139,812 5,173,739 Total loans, net6,214,214 6,245,416 
Loans held for saleLoans held for sale4,338 32,045 Loans held for sale6,089 1,286 
Premises and equipment, netPremises and equipment, net77,519 79,220 Premises and equipment, net82,741 78,293 
Other real estate ownedOther real estate owned11,141 12,059 Other real estate owned480 6,729 
Nonmarketable equity securitiesNonmarketable equity securities39,696 36,341 Nonmarketable equity securities45,211 46,201 
Accrued interest receivableAccrued interest receivable17,537 19,470 Accrued interest receivable24,283 20,313 
Loan servicing rights, at lower of cost or fair valueLoan servicing rights, at lower of cost or fair value1,297 28,865 Loan servicing rights, at lower of cost or fair value20,933 1,205 
Commercial FHA mortgage loan servicing rights held for saleCommercial FHA mortgage loan servicing rights held for sale23,995 — Commercial FHA mortgage loan servicing rights held for sale— 20,745 
GoodwillGoodwill161,904 161,904 Goodwill161,904 161,904 
Other intangible assets, netOther intangible assets, net22,198 24,374 Other intangible assets, net17,238 20,866 
Company-owned life insuranceCompany-owned life insurance149,648 148,378 Company-owned life insurance208,390 150,443 
Other assetsOther assets169,100 130,907 Other assets222,966 164,609 
Total assetsTotal assets$7,821,877 $7,443,805 Total assets$7,975,925 $7,855,501 
Liabilities and Shareholders’ EquityLiabilities and Shareholders’ EquityLiabilities and Shareholders’ Equity
Liabilities:Liabilities:Liabilities:
Deposits:Deposits:Deposits:
Noninterest-bearing demand depositsNoninterest-bearing demand deposits$2,025,237 $2,245,701 Noninterest-bearing demand deposits$1,154,515 $1,362,158 
Interest-bearing depositsInterest-bearing deposits4,370,015 3,864,947 Interest-bearing deposits5,250,487 5,002,494 
Total depositsTotal deposits6,395,252 6,110,648 Total deposits6,405,002 6,364,652 
Short-term borrowingsShort-term borrowings58,518 76,803 Short-term borrowings17,998 42,311 
Federal Home Loan Bank advances and other borrowingsFederal Home Loan Bank advances and other borrowings360,000 310,171 Federal Home Loan Bank advances and other borrowings538,000 460,000 
Subordinated debtSubordinated debt139,370 139,091 Subordinated debt93,475 99,772 
Trust preferred debenturesTrust preferred debentures49,824 49,374 Trust preferred debentures50,457 49,975 
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities79,634 93,881 Accrued interest payable and other liabilities106,743 80,217 
Total liabilitiesTotal liabilities7,082,598 6,779,968 Total liabilities7,211,675 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, 2022110,548 — 
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, respectively221 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, respectivelyPreferred 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, respectively110,548 110,548 
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, respectivelyCommon 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, respectively216 222 
Capital surplusCapital surplus447,672 445,907 Capital surplus437,566 449,196 
Retained earningsRetained earnings259,221 212,472 Retained earnings317,101 282,405 
Accumulated other comprehensive (loss) income, net of tax(78,383)5,237 
Accumulated other comprehensive loss, net of taxAccumulated other comprehensive loss, net of tax(101,181)(83,797)
Total shareholders’ equityTotal shareholders’ equity739,279 663,837 Total shareholders’ equity764,250 758,574 
Total liabilities and shareholders’ equityTotal 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.
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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,
2023202220232022
Interest income:
Loans including fees:
Taxable$93,488 $72,901 $272,297 $192,430 
Tax exempt497 527 1,349 1,589 
Loans held for sale104 60 179 357 
Investment securities:
Taxable7,475 3,765 19,744 11,717 
Tax exempt275 628 1,074 2,162 
Nonmarketable equity securities710 550 2,104 1,521 
Federal funds sold and cash investments1,036 1,125 2,868 1,764 
Total interest income103,585 79,556 299,615 211,540 
Interest expense:
Deposits37,769 10,249 97,791 16,220 
Short-term borrowings14 28 53 73 
Federal Home Loan Bank advances and other borrowings4,557 2,424 15,959 5,071 
Subordinated debt1,280 2,010 3,985 6,032 
Trust preferred debentures1,369 821 3,887 1,959 
Total interest expense44,989 15,532 121,675 29,355 
Net interest income58,596 64,024 177,940 182,185 
Provision for credit losses:
Provision for credit losses on loans5,168 6,974 14,182 15,847 
Provision for credit losses on unfunded commitments— — — 956 
Recapture of other credit losses— — — (221)
Total provision for credit losses5,168 6,974 14,182 16,582 
Net interest income after provision for credit losses53,428 57,050 163,758 165,603 
Noninterest income:
Wealth management revenue6,288 6,199 18,968 19,481 
Residential mortgage banking revenue507 210 1,452 1,193 
Service charges on deposit accounts3,149 2,783 8,744 7,544 
Interchange revenue3,609 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 insurance7,558 929 9,325 2,788 
Other income2,035 2,303 9,989 6,138 
Total noninterest income18,185 15,826 52,717 46,052 
Noninterest expense:
Salaries and employee benefits22,307 22,889 69,407 67,404 
Occupancy and equipment3,730 3,850 12,052 11,094 
Data processing6,468 6,093 19,323 18,048 
FDIC insurance1,107 977 3,632 2,633 
Professional1,554 1,693 4,977 5,181 
Marketing950 1,026 2,323 2,447 
Communications507 587 1,514 1,934 
Loan expense866 1,137 3,104 3,379 
Amortization of intangible assets1,129 1,361 3,628 4,077 
Other expense3,420 3,883 9,454 9,522 
Total noninterest expense42,038 43,496 129,414 125,719 
Income before income taxes29,575 29,380 87,061 85,936 
Income taxes11,533 5,859 25,672 19,783 
Net income18,042 23,521 61,389 66,153 
Preferred dividends2,229 — 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 outstanding21,970,372 22,338,828 22,214,862 22,306,323 
Weighted average diluted common shares outstanding21,977,196 22,390,438 22,223,986 22,367,095 
The accompanying notes are an integral part of the consolidated financial statements.
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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,
2022202120222021
Interest income:
Loans including fees:
Taxable$72,901 $52,699 $192,430 $159,743 
Tax exempt527 615 1,589 1,935 
Loans held for sale60 107 357 810 
Investment securities:
Taxable3,765 3,396 11,717 10,127 
Tax exempt628 899 2,162 2,474 
Nonmarketable equity securities550 558 1,521 1,847 
Federal funds sold and cash investments1,125 216 1,764 454 
Total interest income79,556 58,490 211,540 177,390 
Interest expense:
Deposits10,249 2,584 16,220 8,759 
Short-term borrowings28 21 73 65 
Federal Home Loan Bank advances and other borrowings2,424 1,993 5,071 7,033 
Subordinated debt2,010 2,011 6,032 6,694 
Trust preferred debentures821 485 1,959 1,465 
Total interest expense15,532 7,094 29,355 24,016 
Net interest income64,024 51,396 182,185 153,374 
Provision for credit losses:
Provision for credit losses on loans6,974 — 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 losses6,974 (184)16,582 2,926 
Net interest income after provision for credit losses57,050 51,580 165,603 150,448 
Noninterest income:
Wealth management revenue6,199 7,175 19,481 19,635 
Residential mortgage banking revenue210 1,287 1,193 4,423 
Service charges on deposit accounts2,597 2,268 6,969 6,010 
Interchange revenue3,531 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 insurance929 869 2,788 2,592 
Other income2,489 2,770 6,713 8,816 
Total noninterest income15,826 15,143 46,052 47,376 
Noninterest expense:
Salaries and employee benefits22,889 22,175 67,404 64,774 
Occupancy and equipment3,850 3,701 11,094 11,437 
Data processing6,093 6,495 18,048 18,776 
Professional1,693 1,738 5,181 9,472 
Marketing1,026 860 2,447 2,037 
Communications587 689 1,934 2,335 
Amortization of intangible assets1,361 1,445 4,077 4,430 
Federal Home Loan Bank advances prepayment fees— — — 3,677 
Other expense5,997 4,189 15,534 12,374 
Total noninterest expense43,496 41,292 125,719 129,312 
Income before income taxes29,380 25,431 85,936 68,512 
Income taxes5,859 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 outstanding22,338,828 22,520,499 22,306,323 22,544,898 
Weighted average diluted common shares outstanding22,390,438 22,577,880 22,367,095 22,613,972 
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
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 income4,961 129 6,478 230 
Income tax effect6,032 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 effect55 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.
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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,
2022202120222021
Net income$23,521 $19,548 $66,153 $58,210 
Other comprehensive (loss) income:
Investment securities available for sale:
Unrealized (losses) gains that occurred during the period(31,764)662 (115,199)(5,514)
Recapture of provision for credit loss expense— (184)(221)(224)
Reclassification adjustment for realized net losses (gains) on sales of investment securities included in net income129 (160)230 (537)
Income tax effect8,134 (87)31,111 1,726 
Change in investment securities available for sale, net of tax(23,501)231 (84,079)(4,549)
Cash flow hedges:
Net unrealized derivative (losses) gains on cash flow hedges(2,501)729 594 5,567 
Reclassification adjustment for gains realized in net income— — — 314 
Income tax effect716 (201)(135)(1,618)
Change in cash flow hedges, net of tax(1,785)528 459 4,263 
Other comprehensive (loss) income, net of tax(25,286)759 (83,620)(286)
Total comprehensive (loss) income$(1,765)$20,307 $(17,467)$57,924 
Preferred stockCommon
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— 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— 1,592 — — 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 costs110,548 — — — — 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 costs110,548 — — — — 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— 1,326 — — 1,327 
Balances, September 30, 2022$110,548 $221 $447,672 $259,221 $(78,383)$739,279 
The accompanying notes are an integral part of the consolidated financial statements.statements.
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MIDLAND STATES BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY—(UNAUDITED)
(dollars in thousands, except per share data)
Preferred stockCommon
stock
Capital
surplus
Retained
earnings
Accumulated
other
comprehensive
(loss) income
Total
shareholders'
equity
Balances, June 30, 2022$— $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 costs110,548 — — — — 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 costs110,548 — — — — 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— 1,326 — — 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 ($0.84 per share)— — — (18,927)— (18,927)
Common stock repurchased— (3)(6,445)— — (6,448)
Share-based compensation expense— — 1,424 — — 1,424 
Issuance of common stock under employee benefit plans— 2,478 — — 2,480 
Balances, September 30, 2021$— $222 $450,867 $195,610 $11,145 $657,844 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—FLOWS — (UNAUDITED)
(dollars in thousands)
Nine months ended September 30,Nine Months Ended September 30,
2022202120232022
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net incomeNet 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 lossesProvision for credit losses16,582 2,926 Provision for credit losses14,182 16,582 
Depreciation on premises and equipmentDepreciation on premises and equipment3,665 4,223 Depreciation on premises and equipment3,567 3,665 
Amortization of intangible assetsAmortization of intangible assets4,077 4,430 Amortization of intangible assets3,628 4,077 
Amortization of operating lease right-of-use assetAmortization of operating lease right-of-use asset1,373 1,281 Amortization of operating lease right-of-use asset1,241 1,373 
Amortization of loan servicing rightsAmortization of loan servicing rights2,202 2,497 Amortization of loan servicing rights861 2,202 
Share-based compensation expenseShare-based compensation expense1,547 1,424 Share-based compensation expense1,796 1,547 
Increase in cash surrender value of life insuranceIncrease 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 insuranceGain on proceeds from company-owned life insurance(264)— Gain on proceeds from company-owned life insurance— (264)
Investment securities amortization, net1,923 3,141 
Loss (gain) on sales of investment securities, net230 (537)
Loss (gain) on sales of other real estate owned131 (418)
Investment securities (accretion) amortization, netInvestment securities (accretion) amortization, net(1,424)1,923 
Loss on sales of investment securities, netLoss on sales of investment securities, net6,478 230 
Gain on repurchase of subordinated debtGain 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 ownedImpairment on other real estate owned743 426 Impairment on other real estate owned— 743 
Origination of loans held for saleOrigination 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 saleProceeds from sales of loans held for sale252,078 634,445 Proceeds from sales of loans held for sale65,291 252,078 
Gain on sale of loans held for saleGain 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 rightsImpairment on commercial mortgage servicing rights1,263 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 receivableAccrued interest receivable1,969 1,502 Accrued interest receivable(3,970)1,969 
Other assetsOther assets(37,534)(21,279)Other assets(58,408)(37,032)
Accrued expenses and other liabilitiesAccrued expenses and other liabilities17,095 4,436 Accrued expenses and other liabilities30,874 16,593 
Net cash provided by operating activitiesNet cash provided by operating activities206,072 301,093 Net cash provided by operating activities67,283 206,072 
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Purchases of investment securities available for salePurchases 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 saleProceeds from sales of investment securities available for sale136,403 14,777 Proceeds from sales of investment securities available for sale165,871 136,403 
Maturities and payments on investment securities available for saleMaturities and payments on investment securities available for sale71,305 164,213 Maturities and payments on investment securities available for sale43,838 71,305 
Purchases of equity securitiesPurchases of equity securities(441)(232)Purchases of equity securities(244)(441)
Proceeds from sales of equity securitiesProceeds from sales of equity securities5,148 — 
Net increase in loansNet increase in loans(6,195)(1,065,192)
Net (increase) decrease in loans(1,065,192)55,487 
Purchases of premises and equipmentPurchases of premises and equipment(2,088)(1,853)Purchases of premises and equipment(7,064)(2,088)
Proceeds from sale of premises and equipmentProceeds from sale of premises and equipment158 646 Proceeds from sale of premises and equipment104 158 
Purchases of nonmarketable equity securitiesPurchases of nonmarketable equity securities(6,360)— Purchases of nonmarketable equity securities(157,382)(6,360)
Proceeds from sales of nonmarketable equity securities3,005 14,405 
Proceeds from redemptions of nonmarketable equity securitiesProceeds from redemptions of nonmarketable equity securities158,372 3,005 
Proceeds from sales of other real estate ownedProceeds from sales of other real estate owned561 9,089 Proceeds from sales of other real estate owned7,346 561 
Purchases of company-owned life insurance— (550)
Proceeds from settlements of company-owned life insurance1,518 — 
Net cash received (paid) on acquisition60,275 (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 acquisitionsNet cash acquired in acquisitions— 60,275 
Net cash used in investing activitiesNet 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 depositsNet increase in deposits204,810 500,360 Net increase in deposits40,350 204,810 
Net decrease in short-term borrowingsNet decrease in short-term borrowings(18,285)(2,291)Net decrease in short-term borrowings(24,313)(18,285)
Proceeds from FHLB borrowingsProceeds from FHLB borrowings1,900,000 350,000 Proceeds from FHLB borrowings15,996,000 1,900,000 
Payments made on FHLB borrowings and other borrowingsPayments 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 debtPayments made on subordinated debt— (31,075)Payments made on subordinated debt(5,845)— 
Proceeds from issuance of preferred stockProceeds from issuance of preferred stock— 110,548 
Cash dividends paid on preferred stockCash dividends paid on preferred stock(6,685)— 
Cash dividends paid on common stockCash dividends paid on common stock(20,008)(19,404)
Redemption of Series G preferred stockRedemption of Series G preferred stock(171)— Redemption of Series G preferred stock— (171)
Proceeds from Series A preferred stock offering110,548 — 
Cash dividends paid on common stock(19,404)(18,927)
Common stock repurchasedCommon stock repurchased(1,109)(6,448)Common stock repurchased(15,025)(1,109)
Proceeds from issuance of common stock under employee benefit plansProceeds from issuance of common stock under employee benefit plans1,327 2,480 Proceeds from issuance of common stock under employee benefit plans1,593 1,327 
Net cash provided by financing activitiesNet cash provided by financing activities327,716 105,099 Net cash provided by financing activities48,067 327,716 
Net (decrease) increase in cash and cash equivalents(367,183)321,003 
Net decrease in cash and cash equivalentsNet decrease in cash and cash equivalents(28,499)(367,183)
Cash and cash equivalents:Cash and cash equivalents:Cash and cash equivalents:
Beginning of periodBeginning of period680,371 341,640 Beginning of period160,631 680,371 
End of periodEnd 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 fundsInterest 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 refunds22,014 (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 saleTransfer of loans to loans held for sale99,505 123,117 Transfer of loans to loans held for sale— 99,505 
Transfer of loans to other real estate ownedTransfer of loans to other real estate owned517 583 Transfer of loans to other real estate owned278 517 
Right of use assets obtained in exchange for lease obligationsRight of use assets obtained in exchange for lease obligations2,459 502 
Transfer of loan servicing rights, at lower of cost or market to loan servicing rights held for saleTransfer of loan servicing rights, at lower of cost or market to loan servicing rights held for sale23,995 — 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 marketTransfer of loan servicing rights held for sale to loan servicing rights, at lower of cost or market20,745 — 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—STATEMENTS — (UNAUDITED)
Note 1: Business Description
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Note 3: Investment Securities
Note 4: Loans
Note 5: Premises, Equipment and Leases
Note 6: Loan Servicing Rights
Note 7: Derivative Instruments
Note 8: Deposits
Note 9: Short-Term Borrowings
Note 10: FHLB Advances and Other Borrowings
Note 11: Subordinated Debt
Note 12: Earnings Per Common Share
Note 13: Fair Value of Financial Instruments
Note 14: Commitments, Contingencies and Credit Risk
Note 15: Segment Information
Note 16: Revenue From Contracts with Customers
N
OTE
NOTE 1 – BUSINESS DESCRIPTIONBUSINESS 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.
NOTENOTE 2 – BASISBASIS OF PRESENTATION PRESENTATION AND SUMMARY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 discussionManagement of these policies can be foundthe 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 – Summaryconformity with GAAP. Actual results may differ from those estimates. In the opinion of Significant Accounting Policies included inmanagement, 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 20212022 amounts have been made to conform to the 2022 presentation. Management has evaluated subsequent events for potential recognition2023 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.
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In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which addresses questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is expected to be modified as a result of reference rate reform, commonly referred to as the "discounting transition". The amendments clarify that certain optional expedients and 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 newadopted this guidance on itsJanuary 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
NOTE 3 – ACQUISITIONS
FNBC Bank & Trust
On June 17, 2022, the Company completed its branch acquisition from FNBC Bank & Trust ("FNBC"), whereby we acquired $79.8 million of deposits and $16.6 million of loans as well as other assets and liabilities associated with FNBC's branches in Mokena and Yorkville, Illinois. The acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identified tangible and intangible assets acquired and liabilities assumed at their estimated acquisition date fair values, while $0.4 million of transaction and integration costs were expensed as incurred.
A summaryFASB ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the fair valueEffects 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 areguidance 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 
Loans16,632 
Premises and equipment, net950 
Accrued interest receivable36 
Intangible assets1,901 
Total assets acquired$79,794 
Liabilities assumed:
Deposits$79,794 
Total liabilities assumed$79,794 
Intangible assets:
Core deposit intangible$1,901 
Estimated useful life10 years
ATG TrustThe Company
On June 1, has been monitoring its volume of commercial loans tied to LIBOR. In 2021, the Company completed its acquisitionbegan 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 basedmaturity 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 transactionbefore that time should naturally mature and integration costs associatedbe re-underwritten with the acquisition were expensed in 2021.alternative index rate.
9
The Company believes the adoption of this guidance will not have a material impact on the consolidated financial statements.

Table of Contents
NOTE 4NOTE 3INVESTMENT SECURITIESINVESTMENT SECURITIES
Investment Securities Available for Sale
Investment securities available for sale at September 30, 20222023 and December 31, 20212022 were as follows:
September 30, 2022September 30, 2023
(dollars in thousands)(dollars in thousands)Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Allowance for credit lossesFair
value
(dollars in thousands)Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Investment securities available for saleInvestment securities available for saleInvestment securities available for sale
U.S. Treasury securitiesU.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 securitiesU.S. government sponsored entities and U.S. agency securities32,267 78 4,480 — 27,865 U.S. government sponsored entities and U.S. agency securities93,291 171 4,424 89,038 
Mortgage-backed securities - agencyMortgage-backed securities - agency469,822 78,212 — 391,615 Mortgage-backed securities - agency613,484 13 96,106 517,391 
Mortgage-backed securities - non-agencyMortgage-backed securities - non-agency25,341 — 4,183 — 21,158 Mortgage-backed securities - non-agency77,617 13 4,965 72,665 
State and municipal securitiesState and municipal securities105,838 128 10,905 — 95,061 State and municipal securities59,521 9,787 49,737 
Collateralized loan obligationsCollateralized loan obligations22,662 — 277 22,385 
Corporate securitiesCorporate securities95,313 — 9,619 — 85,694 Corporate securities95,124 — 12,894 82,230 
Total available for sale securitiesTotal 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 lossesFair
value
Investment securities available for sale
U.S. Treasury securities$65,347 $— $430 $— $64,917 
U.S. government sponsored entities and U.S. agency securities34,569 79 831 — 33,817 
Mortgage-backed securities - agency444,484 2,687 6,901 — 440,270 
Mortgage-backed securities - non-agency29,037 50 381 — 28,706 
State and municipal securities137,904 5,561 366 — 143,099 
Corporate securities193,354 3,128 467 221 195,794 
Total available for sale securities$904,695 $11,505 $9,376 $221 $906,603 
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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 securities41,775 71 4,337 37,509 
Mortgage-backed securities - agency522,028 268 74,146 448,150 
Mortgage-backed securities - non-agency24,922 — 4,168 20,754 
State and municipal securities102,719 149 8,232 94,636 
Corporate securities95,266 — 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 saleInvestment securities available for saleInvestment securities available for sale
Within one yearWithin one year$9,766 $9,793 Within one year$23,769 $23,543 
After one year through five yearsAfter one year through five years123,074 113,574 After one year through five years108,735 103,973 
After five years through ten yearsAfter five years through ten years135,520 119,588 After five years through ten years118,486 99,614 
After ten yearsAfter ten years31,427 26,161 After ten years21,190 17,823 
Mortgage-backed securitiesMortgage-backed securities495,163 412,773 Mortgage-backed securities691,101 590,056 
Total available for sale securitiesTotal available for sale securities$794,950 $681,889 Total available for sale securities$963,281 $835,009 
    
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Proceeds and gross realized gains and losses on sales of investment securities available for sale for the three and nine months ended September 30, 20222023 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)2022202120222021(dollars in thousands)2023202220232022
Investment securities available for saleInvestment securities available for saleInvestment securities available for sale
Proceeds from salesProceeds 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 salesGross realized gains on sales113 160 829 537 Gross realized gains on sales— 113 338 829 
Gross realized losses on salesGross realized losses on sales(242)— (1,059)— Gross realized losses on sales(4,961)(242)(6,816)(1,059)
9

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-agencyState and municipal securitiesCorporate securitiesTotal
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, 20222023 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 Months12 Months or moreTotal
(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 securities333 19 23,289 4,461 23,622 4,480 
Mortgage-backed securities - agency168,562 21,838 222,652 56,374 391,214 78,212 
Mortgage-backed securities - non-agency6,228 879 14,930 3,304 21,158 4,183 
State and municipal securities56,578 5,879 22,193 5,026 78,771 10,905 
Corporate securities57,401 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 
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September 30, 2023
Less than 12 Months12 Months or moreTotal
(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 $$735 $10 $1,563 $19 
U.S. government sponsored entities and U.S. agency securities56,835 251 23,787 4,173 80,622 4,424 
Mortgage-backed securities - agency175,194 10,090 337,263 86,016 512,457 96,106 
Mortgage-backed securities - non-agency49,181 359 18,736 4,606 67,917 4,965 
State and municipal securities48,303 9,787 — — 48,303 9,787 
Collateralized loan obligations22,385 277 — — 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, 2021December 31, 2022
Less than 12 Months12 Months or moreTotalLess than 12 Months12 Months or moreTotal
(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 saleInvestment securities available for saleInvestment securities available for sale
U.S. Treasury securitiesU.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 securitiesU.S. government sponsored entities and U.S. agency securities17,487 263 9,432 568 26,919 831 U.S. government sponsored entities and U.S. agency securities10,288 40 23,453 4,297 33,741 4,337 
Mortgage-backed securities - agencyMortgage-backed securities - agency317,372 6,633 9,051 268 326,423 6,901 Mortgage-backed securities - agency152,657 9,736 273,353 64,410 426,010 74,146 
Mortgage-backed securities - non-agencyMortgage-backed securities - non-agency24,095 381 — — 24,095 381 Mortgage-backed securities - non-agency1,924 270 18,830 3,898 20,754 4,168 
State and municipal securitiesState and municipal securities27,324 270 2,538 96 29,862 366 State and municipal securities35,603 1,662 41,538 6,570 77,141 8,232 
Corporate securitiesCorporate securities— — — — — — Corporate securities39,595 3,400 46,360 5,911 85,955 9,311 
Total available for sale securitiesTotal 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, 3932023, 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 $9.5 million at September 30, 2022 and December 31, 2021, respectively.
During both the three and nine months ended September 30, 2022 and 2021, there were no sales of equity securities. Net unrealized gains and losses on equity securities for the three and nine months ended September 30, 2022 and 2021 are summarized below:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2022202120222021
Equity securities
Net unrealized (losses) gains$(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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NOTE 5NOTE 4LOANSLOANS
The following table presents total loans outstanding by portfolio class, as of September 30, 20222023 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:
CommercialCommercial$852,930 $770,670 Commercial$874,004 $786,877 
Commercial otherCommercial other683,353 679,518 Commercial other697,235 727,697 
Commercial real estate:Commercial real estate:Commercial real estate:
Commercial real estate non-owner occupiedCommercial real estate non-owner occupied1,567,308 1,105,333 Commercial real estate non-owner occupied1,636,168 1,591,399 
Commercial real estate owner occupiedCommercial real estate owner occupied505,174 469,658 Commercial real estate owner occupied439,642 496,786 
Multi-familyMulti-family328,473 171,875 Multi-family269,708 277,889 
FarmlandFarmland65,348 69,962 Farmland66,646 67,085 
Construction and land developmentConstruction and land development225,549 193,749 Construction and land development416,801 320,882 
Total commercial loansTotal commercial loans4,228,135 3,460,765 Total commercial loans4,400,204 4,268,615 
Residential real estate:Residential real estate:Residential real estate:
Residential first lienResidential first lien294,432 274,412 Residential first lien313,638 304,243 
Other residentialOther residential61,793 63,739 Other residential61,573 61,851 
Consumer:Consumer:Consumer:
ConsumerConsumer110,226 106,008 Consumer111,432 105,880 
Consumer otherConsumer other1,046,254 896,597 Consumer other908,576 1,074,134 
Lease financingLease financing457,611 423,280 Lease financing485,460 491,744 
Total loans, gross$6,198,451 $5,224,801 
Total loansTotal 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, 20222023 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, 20222023 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 estateloans and consumer loansleases 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") loansCommercial FHA warehouse lines of $2.8$48.5 million and $52.5$25.0 million as of September 30, 20222023 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, 20222023 and December 31, 2021,2022, respectively. The new loans, other additions, repayments and other reductions for the three and nine months ended September 30, 20222023 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)2022202120222021(dollars in thousands)2023202220232022
Beginning balanceBeginning balance$23,097 $18,762 $13,869 $19,693 Beginning balance$21,569 $23,097 $19,776 $13,869 
New loans and other additionsNew loans and other additions— 21 9,804 1,045 New loans and other additions— — 2,368 9,804 
Repayments and other reductionsRepayments and other reductions(3,081)(3,424)(3,657)(5,379)Repayments and other reductions(287)(3,081)(862)(3,657)
Ending balanceEnding 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, 20222023 and 2021:2022:
Commercial Loan PortfolioOther Loan PortfolioCommercial Loan PortfolioOther Loan Portfolio
(dollars in thousands)(dollars in thousands)CommercialCommercial
real
estate
Construction
and land
development
Residential
real
estate
ConsumerLease
financing
Total(dollars in thousands)CommercialCommercial
real
estate
Construction
and land
development
Residential
real
estate
ConsumerLease
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 periodBalance, beginning of period$15,290 $29,425 $3,189 $5,551 $3,953 $7,542 $64,950 
Provision for credit losses on loansProvision for credit losses on loans7,289 (6,176)385 209 228 3,233 5,168 
Charge-offsCharge-offs(3,249)(2,316)(44)(95)(250)(1,394)(7,348)
RecoveriesRecoveries80 3,678 — 33 53 55 3,899 
Balance, end of periodBalance, 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 periodBalance, beginning of period$14,639 $29,290 $2,435 $4,301 $3,599 $6,787 $61,051 
Provision for credit losses on loansProvision for credit losses on loans9,483 (4,079)1,441 1,479 932 4,926 14,182 
Charge-offsCharge-offs(5,289)(4,606)(378)(180)(773)(2,555)(13,781)
RecoveriesRecoveries577 4,006 32 98 226 278 5,217 
Balance, end of periodBalance, 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 periodBalance, 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 loansProvision for credit losses on loans3,226 1,787 472 852 606 31 6,974 Provision for credit losses on loans3,226 1,787 472 852 606 31 6,974 
Charge-offsCharge-offs(1,655)(1,232)— (166)(316)(485)(3,854)Charge-offs(1,655)(1,232)— (166)(316)(485)(3,854)
RecoveriesRecoveries45 18 69 121 367 621 Recoveries45 18 69 121 367 621 
Balance, end of periodBalance, 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 periodBalance, 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 loansProvision for credit losses on loans3,504 9,515 595 1,569 1,278 (614)15,847 Provision for credit losses on loans3,504 9,515 595 1,569 1,278 (614)15,847 
Charge-offsCharge-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)
RecoveriesRecoveries354 30 222 381 1,013 2,006 Recoveries354 30 222 381 1,013 2,006 
Balance, end of periodBalance, 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)
Recoveries134 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)
Recoveries288 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 stateCommercial loans
risk rating
Consumer loans and
equipment finance loans and leases
days past due
10-50-14
2615-29
3730-59
4860-89
Default9+ and nonaccrual90+ 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, 20222023 and December 31, 2021:2022:
September 30, 2022December 31, 2021September 30, 2023December 31, 2022
(dollars in thousands)(dollars in thousands)Nonaccrual with allowanceNonaccrual with no allowanceTotal nonaccrualNonaccrual with allowanceNonaccrual with no allowanceTotal nonaccrual(dollars in thousands)Nonaccrual with allowanceNonaccrual with no allowanceTotal nonaccrualNonaccrual with allowanceNonaccrual with no allowanceTotal nonaccrual
Commercial:Commercial:Commercial:
CommercialCommercial$4,179 $508 $4,687 $4,681 $2,275 $6,956 Commercial$2,877 $979 $3,856 $1,910 $1,111 $3,021 
Commercial otherCommercial other2,104 — 2,104 4,467 — 4,467 Commercial other4,180 — 4,180 3,169 — 3,169 
Commercial real estate:Commercial real estate:Commercial real estate:
Commercial real estate non-owner occupiedCommercial real estate non-owner occupied1,590 12,118 13,708 1,914 9,912 11,826 Commercial real estate non-owner occupied1,427 17,658 19,085 1,345 11,899 13,244 
Commercial real estate owner occupiedCommercial real estate owner occupied2,882 1,340 4,222 2,164 1,340 3,504 Commercial real estate owner occupied2,168 9,285 11,453 7,118 — 7,118 
Multi-familyMulti-family164 9,003 9,167 201 1,967 2,168 Multi-family252 2,641 2,893 154 8,949 9,103 
FarmlandFarmland25 — 25 155 — 155 Farmland172 — 172 25 — 25 
Construction and land developmentConstruction and land development245 — 245 83 — 83 Construction and land development2,025 — 2,025 202 — 202 
Total commercial loansTotal commercial loans11,189 22,969 34,158 13,665 15,494 29,159 Total commercial loans13,101 30,563 43,664 13,923 21,959 35,882 
Residential real estate:Residential real estate:Residential real estate:
Residential first lienResidential first lien2,884 633 3,517 3,116 832 3,948 Residential first lien2,659 495 3,154 2,925 572 3,497 
Other residentialOther residential798 — 798 836 — 836 Other residential702 — 702 871 — 871 
Consumer:Consumer:Consumer:
ConsumerConsumer72 — 72 110 — 110 Consumer103 — 103 120 — 120 
Lease financingLease financing1,506 — 1,506 1,510 — 1,510 Lease financing7,558 — 7,558 1,606 — 1,606 
Total loansTotal 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, 20222023 and 20212022 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 $2.1 million for the three and nine months ended September 30, 2021, respectively.
Collateral Dependent Financial Assets
A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of
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protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral’s value increases and the loan may become collateral dependent.
The table below presents the value of individually evaluated, collateral dependent loans by loan class, for borrowers experiencing financial difficulty, as of September 30, 20222023 and December 31, 2021:2022:
Type of CollateralType of Collateral
(dollars in thousands)(dollars in thousands)Real EstateBlanket LienEquipmentTotal(dollars in thousands)Real EstateBlanket LienEquipmentTotal
September 30, 2022
September 30, 2023September 30, 2023
Commercial:Commercial:Commercial:
CommercialCommercial$— $3,244 $— $3,244 Commercial$— $— $1,973 $1,973 
Commercial otherCommercial other— — 278 278 Commercial other— — 344 344 
Commercial real estate:Commercial real estate:Commercial real estate:
Non-owner occupiedNon-owner occupied12,655 — — 12,655 Non-owner occupied17,515 — — 17,515 
Owner occupiedOwner occupied1,336 — — 1,336 Owner occupied9,275 — — 9,275 
Multi-familyMulti-family1,873 — — 1,873 Multi-family2,642 — — 2,642 
Construction and land developmentConstruction and land development2,021 — — 2,021 
Lease financing— — 110 110 
Total collateral dependent loansTotal collateral dependent loans$15,864 $3,244 $388 $19,496 Total collateral dependent loans$31,453 $— $2,317 $33,770 
December 31, 2021
December 31, 2022December 31, 2022
Commercial:Commercial:Commercial:
CommercialCommercial$— $5,402 $— $5,402 Commercial$— $1,604 $— $1,604 
Commercial other— — 502 502 
Commercial real estate:Commercial real estate:Commercial real estate:
Non-owner occupiedNon-owner occupied11,604 — — 11,604 Non-owner occupied13,033 — — 13,033 
Owner occupiedOwner occupied1,336 — — 1,336 Owner occupied3,874 — — 3,874 
Multi-familyMulti-family1,969 — — 1,969 Multi-family8,950 — — 8,950 
Residential real estateResidential real estate
Residential first lienResidential first lien220 — — 220 
Total collateral dependent loansTotal 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, 20222023 was as follows:
Accruing loansAccruing loans
(dollars in thousands)(dollars in thousands)30-59
days
past due
60-89 days past duePast due
90 days
or more
Total
past due
NonaccrualCurrentTotal(dollars in thousands)30-59
days
past due
60-89 days past duePast due
90 days
or more
Total
past due
NonaccrualCurrentTotal
Commercial:Commercial:Commercial:
CommercialCommercial$7,609 $518 $— $8,127 $4,687 $840,116 $852,930 Commercial$188 $— $— $188 $3,856 $869,960 $874,004 
Commercial otherCommercial other3,510 2,189 281 5,980 2,104 675,269 683,353 Commercial other11,615 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 occupiedCommercial real estate non-owner occupied771 265 — 1,036 13,708 1,552,564 1,567,308 Commercial real estate non-owner occupied263 5,715 — 5,978 19,085 1,611,105 1,636,168 
Commercial real estate owner occupiedCommercial real estate owner occupied481 — — 481 4,222 500,471 505,174 Commercial real estate owner occupied373 — — 373 11,453 427,816 439,642 
Multi-familyMulti-family— — — — 9,167 319,306 328,473 Multi-family— — — — 2,893 266,815 269,708 
FarmlandFarmland88 — — 88 25 65,235 65,348 Farmland86 122 — 208 172 66,266 66,646 
Construction and land developmentConstruction and land development— — — — 245 225,304 225,549 Construction and land development— — — — 2,025 414,776 416,801 
Total commercial loansTotal commercial loans12,459 2,972 281 15,712 34,158 4,178,265 4,228,135 Total commercial loans12,525 11,467 800 24,792 43,664 4,331,748 4,400,204 
Residential real estate:Residential real estate:Residential real estate:
Residential first lienResidential first lien30 209 77 316 3,517 290,599 294,432 Residential first lien314 — — 314 3,154 310,170 313,638 
Other residentialOther residential197 50 — 247 798 60,748 61,793 Other residential120 — — 120 702 60,751 61,573 
Consumer:Consumer:Consumer:
ConsumerConsumer109 50 — 159 72 109,995 110,226 Consumer272 84 — 356 103 110,973 111,432 
Consumer otherConsumer other5,020 3,159 142 8,321 — 1,037,933 1,046,254 Consumer other7,264 4,128 — 11,392 — 897,184 908,576 
Lease financingLease financing3,033 987 193 4,213 1,506 451,892 457,611 Lease financing7,065 3,369 — 10,434 7,558 467,468 485,460 
Total loansTotal 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 
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The aging status of the recorded investment in loans by portfolio as of December 31, 20212022 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
NonaccrualCurrentTotal
Commercial:
Commercial$283 $1,082 $— $1,365 $6,956 $762,349 $770,670 
Commercial other2,402 2,110 4,517 4,467 670,534 679,518 
Commercial real estate:
Commercial real estate non-owner occupied585 243 — 828 11,826 1,092,679 1,105,333 
Commercial real estate owner occupied232 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 development195 195 — 390 83 193,276 193,749 
Total commercial loans3,697 4,386 8,088 29,159 3,423,518 3,460,765 
Residential real estate:
Residential first lien113 285 — 398 3,948 270,066 274,412 
Other residential456 151 — 607 836 62,296 63,739 
Consumer:
Consumer127 20 — 147 110 105,751 106,008 
Consumer other4,423 2,358 6,782 — 889,815 896,597 
Lease financing1,253 245 — 1,498 1,510 420,272 423,280 
Total loans$10,069 $7,445 $$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, 2022December 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 estate113 2,627 2,740 1,522 3,302 4,824 
Construction and land development29 — 29 37 — 37 
Residential real estate3,384 702 4,086 3,128 784 3,912 
Consumer59 — 59 98 — 98 
Lease financing824 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
NonaccrualCurrentTotal
Commercial:
Commercial$$112 $— $119 $3,021 $783,737 $786,877 
Commercial other6,035 2,365 — 8,400 3,169 716,128 727,697 
Commercial real estate:
Commercial real estate non-owner occupied1,008 999 — 2,007 13,244 1,576,148 1,591,399 
Commercial real estate owner occupied73 — — 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 loans7,123 9,476 — 16,599 35,882 4,216,134 4,268,615 
Residential real estate:
Residential first lien82 456 428 966 3,497 299,780 304,243 
Other residential188 13 — 201 871 60,779 61,851 
Consumer:
Consumer139 18 12 169 120 105,591 105,880 
Consumer other5,381 3,559 733 9,673 — 1,064,461 1,074,134 
Lease financing4,415 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 millionmay 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, 20222023 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 connectionrestructured 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 duringan increased interest rate. During the three and nine months ended September 30, 20222023 the Company restructured seven loans and 2021. Thereone lease for borrowers experiencing financial difficulties with principal balances totaling $1.2 million. Five of the restructured loans were no loans modified as TDRs withinprovided a term extension with the previous twelve months that subsequently defaulted during the threeother two receiving an interest rate reduction and nine months ended September 30, 2022 or 2021:
Commercial loan portfolioOther loan portfolio
(dollars in thousands)CommercialCommercial
real
estate
Construction
and land
development
Residential
real
estate
ConsumerLease
financing
Total
For the three months ended September 30, 2022
Troubled debt restructurings:
Number of loans— — — — — 
Pre-modification outstanding balance$— $— $— $56 $— $— $56 
Post-modification outstanding balance— — — 56 — — 56 
For the nine months ended September 30, 2022
Troubled debt restructurings:
Number of loans— 17 
Pre-modification outstanding balance$1,324 $$— $260 $107 $84 $1,781 
Post-modification outstanding balance1,324 — 260 105 84 1,779 
For the three months ended September 30, 2021
Troubled debt restructurings:
Number of loans— — — 
Pre-modification outstanding balance$114 $152 $— $— $— $234 $500 
Post-modification outstanding balance114 130 — — — 234 478 
For the nine months ended September 30, 2021
Troubled debt restructurings:
Number of loans20 
Pre-modification outstanding balance$723 $1,584 $49 $191 $50 $739 $3,336 
Post-modification outstanding balance723 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.
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Loans in the commercial loan portfolio tend to be larger and more complex than those in the other loan portfolio, and therefore, are subject to more intensive monitoring. All loans in the commercial loan portfolio have an assigned relationship manager, and most borrowers provide periodic financial and operating information that allows the relationship managers to stay
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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, 20222023 and December 31, 2021:2022:
September 30, 2022September 30, 2023
Term Loans
Amortized Cost Basis by Origination Year
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)(dollars in thousands)20222021202020192018PriorRevolving loansTotal(dollars in thousands)20232022202120202019PriorRevolving loansTotal
CommercialCommercialAcceptable credit quality$83,501 $107,645 $72,269 $29,183 $13,578 $50,113 $482,069 $838,358 CommercialAcceptable 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 Substandard4,056 13,131 970 — 258 5,028 6,049 29,492 
Substandard – nonaccrual— 340 — 99 112 259 3,877 4,687 Substandard – nonaccrual1,238 — 1,331 80 526 677 3,856 
Doubtful— — — — — — — — Doubtful— — — — — — — — 
Not graded— — — — — — — — Not graded— — — — — — — — 
Subtotal83,501 108,033 72,269 29,596 16,001 54,781 488,749 852,930 Subtotal149,012 117,321 98,100 45,063 16,038 50,149 398,321 874,004 
Commercial otherAcceptable credit quality207,903 168,275 116,826 73,659 18,985 311 90,558 676,517 Commercial otherAcceptable credit quality139,732 212,686 113,154 70,132 39,647 33,582 80,837 689,770 
Special mention— — 797 2,285 485 — 55 3,622 Special mention440 — 121 122 118 10 1,183 1,994 
Substandard250 — — 12 — — 848 1,110 Substandard39 370 — — — — 808 1,217 
Substandard – nonaccrual343 770 24 473 494 — — 2,104 Substandard – nonaccrual928 865 1,159 633 492 103 — 4,180 
Doubtful— — — — — — — — Doubtful— — — — — — — — 
Not graded— — — — — — — — Not graded74 — — — — — — 74 
Subtotal208,496 169,045 117,647 76,429 19,964 311 91,461 683,353 Subtotal141,213 213,921 114,434 70,887 40,257 33,695 82,828 697,235 
Commercial real estateCommercial real estateNon-owner occupiedAcceptable credit quality580,648 437,901 141,562 93,945 18,964 177,967 3,807 1,454,794 Commercial real estateNon-owner occupiedAcceptable credit quality165,208 661,014 347,744 128,655 83,459 138,837 6,830 1,531,747 
Special mention1,423 187 482 10,670 198 9,396 — 22,356 Special mention10,284 — 183 462 159 229 — 11,317 
Substandard593 106 — 36,858 1,611 37,282 — 76,450 Substandard30,358 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— — — — — — — — 
Subtotal582,664 438,938 142,044 141,522 31,019 227,314 3,807 1,567,308 Subtotal205,850 662,888 348,286 130,116 113,981 168,217 6,830 1,636,168 
Owner occupiedAcceptable credit quality105,981 131,950 66,624 40,949 29,247 108,957 4,667 488,375 Owner occupiedAcceptable credit quality33,707 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 
Substandard45 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 – nonaccrual142 9,443 338 183 142 901 304 11,453 
Doubtful— — — — — — — — Doubtful— — — — — — — — 
Not graded— — — — — — — — Not graded— — — — — — — — 
Subtotal106,026 136,656 67,508 43,299 29,739 116,951 4,995 505,174 Subtotal33,849 116,250 116,309 51,471 25,035 94,100 2,628 439,642 
Multi-familyAcceptable credit quality188,990 51,461 33,440 445 24,604 15,768 1,020 315,728 Multi-familyAcceptable credit quality3,705 159,152 26,037 28,296 10,251 12,828 334 240,603 
Special mention— — — — — — — — Special mention— — — — — 14,552 — 14,552 
Substandard— — — — — 3,578 — 3,578 Substandard8,187 — — — — 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— — — — — — — — 
Subtotal188,990 52,410 33,440 559 24,604 27,450 1,020 328,473 Subtotal11,892 159,152 26,936 28,296 10,355 32,743 334 269,708 
FarmlandAcceptable credit quality5,303 16,267 14,099 4,228 3,250 20,222 1,227 64,596 FarmlandAcceptable credit quality9,256 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— — — — — — — — 
Subtotal5,303 16,282 14,099 4,251 3,263 20,756 1,394 65,348 Subtotal9,256 4,780 15,343 12,449 3,780 19,507 1,531 66,646 
Construction and land developmentConstruction and land developmentAcceptable credit quality81,438 67,959 31,357 8,051 489 1,446 29,913 220,653 Construction and land developmentAcceptable credit quality59,680 201,253 109,569 — 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 graded1,649 339 34 — — — 2,026 Not graded1,012 1,350 357 — 26 — 2,751 
Subtotal83,087 68,298 31,391 8,269 2,904 1,687 29,913 225,549 Subtotal60,692 202,603 115,926 678 3,236 33,660 416,801 
TotalTotalAcceptable credit quality1,253,764 981,458 476,177 250,460 109,117 374,784 613,261 4,059,021 TotalAcceptable credit quality555,006 1,441,703 813,733 335,836 177,394 330,639 516,727 4,171,038 
Special mention1,423 370 1,279 13,437 4,183 11,714 2,007 34,413 Special mention10,724 450 9,907 584 546 15,154 1,519 38,884 
Substandard888 4,307 575 38,919 3,009 48,929 1,890 98,517 Substandard42,640 23,104 7,251 43 23,767 40,131 6,857 143,793 
Substandard – nonaccrual343 3,188 333 1,109 11,185 13,819 4,181 34,158 Substandard – nonaccrual2,308 10,308 4,086 1,819 8,417 15,697 1,029 43,664 
Doubtful— — — — — — — — Doubtful— — — — — — — — 
Not graded1,649 339 34 — — — 2,026 Not graded1,086 1,350 357 — 26 — 2,825 
Total commercial loansTotal 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 
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December 31, 2021December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)(dollars in thousands)20212020201920182017PriorRevolving loansTotal(dollars in thousands)20222021202020192018PriorRevolving loansTotal
CommercialCommercialAcceptable credit quality$108,490 $78,071 $50,458 $20,045 $27,405 $35,856 $417,920 $738,245 CommercialAcceptable credit quality$111,087 $102,966 $61,751 $28,063 $12,547 $45,168 $404,100 $765,682 
Special mention186 57 198 6,154 316 1,517 8,430 Special mention3,559 2,106 — 227 551 3,154 159 9,756 
Substandard380 372 1,934 1,868 64 4,322 8,099 17,039 Substandard— — — 206 1,722 3,915 2,575 8,418 
Substandard – nonaccrual52 — 612 177 242 169 5,704 6,956 Substandard – nonaccrual— 340 — 132 83 246 2,220 3,021 
Doubtful— — — — — — — — Doubtful— — — — — — — — 
Not graded— — — — — — — — Not graded— — — — — — — — 
Subtotal109,108 78,500 53,202 28,244 27,713 40,663 433,240 770,670 Subtotal114,646 105,412 61,751 28,628 14,903 52,483 409,054 786,877 
Commercial otherAcceptable credit quality264,282 167,326 101,083 29,981 303 341 88,198 651,514 Commercial otherAcceptable credit quality283,465 153,788 105,980 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 
Substandard688 — 62 341 — — 2,623 3,714 Substandard250 — — 12 80 — 848 1,190 
Substandard – nonaccrual10 158 3,894 384 — — 21 4,467 Substandard – nonaccrual524 1,247 444 463 491 — — 3,169 
Doubtful— — — — — — — — Doubtful— — — — — — — — 
Not graded— — — — — — — — Not graded161 — — — — — — 161 
Subtotal264,980 169,413 115,715 34,672 303 341 94,094 679,518 Subtotal284,400 155,035 107,178 67,024 16,485 163 97,412 727,697 
Commercial real estateCommercial real estateNon-owner occupiedAcceptable credit quality441,483 154,379 134,507 20,524 55,207 182,465 5,258 993,823 Commercial real estateNon-owner occupiedAcceptable credit quality679,040 403,952 145,235 72,504 18,249 160,992 4,833 1,484,805 
Special mention26 6,341 14,177 2,296 711 2,272 — 25,823 Special mention1,407 186 477 10,633 195 8,452 — 21,350 
Substandard6,196 817 8,825 20,572 14,857 22,344 250 73,861 Substandard569 — 7,458 32,731 1,587 29,655 — 72,000 
Substandard – nonaccrual169 992 6,206 — 195 4,264 — 11,826 Substandard – nonaccrual— 701 — 48 10,246 2,249 — 13,244 
Doubtful— — — — — — — — Doubtful— — — — — — — — 
Not graded— — — — — — — — Not graded— — — — — — — — 
Subtotal447,874 162,529 163,715 43,392 70,970 211,345 5,508 1,105,333 Subtotal681,016 404,839 153,170 115,916 30,277 201,348 4,833 1,591,399 
Owner occupiedAcceptable credit quality141,084 69,415 47,187 35,974 30,583 98,442 1,886 424,571 Owner occupiedAcceptable credit quality120,141 122,321 64,720 31,916 29,454 88,928 4,305 461,785 
Special mention150 24 187 161 13,087 4,540 32 18,181 Special mention— 1,161 — 7,917 — 12,161 22 21,261 
Substandard4,192 1,127 10,810 205 297 6,466 305 23,402 Substandard141 272 79 1,984 — 3,771 375 6,622 
Substandard – nonaccrual— 318 129 336 72 2,649 — 3,504 Substandard – nonaccrual155 4,165 225 146 333 1,790 304 7,118 
Doubtful— — — — — — — — Doubtful— — — — — — — — 
Not graded— — — — — — — — Not graded— — — — — — — — 
Subtotal145,426 70,884 58,313 36,676 44,039 112,097 2,223 469,658 Subtotal120,437 127,919 65,024 41,963 29,787 106,650 5,006 496,786 
Multi-familyAcceptable credit quality88,329 20,080 1,973 25,450 1,414 18,642 2,241 158,129 Multi-familyAcceptable credit quality163,647 31,605 29,458 208 24,490 14,574 1,101 265,083 
Special mention— 451 — — — — — 451 Special mention— — — — — — — — 
Substandard988 — — — — 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— — — — — — — — 
Subtotal89,317 20,531 2,096 25,450 1,414 30,826 2,241 171,875 Subtotal163,647 32,532 29,458 321 24,490 26,340 1,101 277,889 
FarmlandAcceptable credit quality15,689 14,966 3,931 3,162 7,996 19,305 1,196 66,245 FarmlandAcceptable credit quality8,659 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 
Substandard371 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— — — — — — — — 
Subtotal16,060 15,108 5,333 3,623 8,149 20,443 1,246 69,962 Subtotal8,659 16,152 13,467 4,140 3,242 19,633 1,792 67,085 
Construction and land developmentConstruction and land developmentAcceptable credit quality65,053 65,274 19,269 10,029 2,511 3,841 19,452 185,429 Construction and land developmentAcceptable credit quality171,243 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 graded1,465 37 — — — 164 — 1,666 Not graded2,112 337 — — 29 — 2,486 
Subtotal66,518 66,647 24,326 10,029 2,511 4,266 19,452 193,749 Subtotal173,355 86,084 10,684 8,590 2,513 1,659 37,997 320,882 
TotalTotalAcceptable credit quality1,124,410 569,511 358,408 145,165 125,419 358,892 536,151 3,217,956 TotalAcceptable credit quality1,537,282 910,517 431,287 209,414 103,426 330,347 550,438 4,072,711 
Special mention362 8,868 31,488 12,722 13,953 7,589 4,801 79,783 Special mention4,966 3,453 1,231 21,108 1,201 24,136 236 56,331 
Substandard12,815 3,728 21,797 23,197 15,218 44,169 11,277 132,201 Substandard960 6,286 7,537 34,956 5,917 41,391 3,997 101,044 
Substandard – nonaccrual231 1,468 11,007 1,002 509 9,167 5,775 29,159 Substandard – nonaccrual679 7,380 669 1,104 11,153 12,373 2,524 35,882 
Doubtful— — — — — — — — Doubtful— — — — — — — — 
Not graded1,465 37 — — — 164 — 1,666 Not graded2,273 337 — — 29 — 2,647 
Total commercial loansTotal 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)20232022202120202019PriorRevolving LoansTotal
For the three months ended September 30, 2023
CommercialCommercial$— $— $— $28 $49 $— $2,122 $2,199 
Commercial Other728 106 75 121 19 — 1,050 
Commercial Real EstateNon-owner occupied— — — — — 2,292 — 2,292 
Owner occupied— — — — — 21 — 21 
Multi-family— — — — — — 
Farmland— — — — — — — — 
Construction and land development— — — — 42 — 44 
Total gross commercial charge-offs$$728 $106 $103 $212 $2,337 $2,122 $5,609 
For the nine months ended September 30, 2023
CommercialCommercial$— $— $— $49 $78 $21 $2,122 $2,270 
Commercial Other47 1,936 272 180 190 394 — 3,019 
Commercial Real EstateNon-owner occupied— — — — — 2,292 — 2,292 
Owner occupied— — — — — 1,502 — 1,502 
Multi-family— — — — — 812 — 812 
Farmland— — — — — — — — 
Construction and land development— — — — 42 336 — 378 
Total gross commercial charge-offs$47 $1,936 $272 $229 $310 $5,357 $2,122 $10,273 
The Company evaluates the credit quality of its other loan portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity. Accordingly, loans on nonaccrual status and loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings are considered to be nonperforming for purposes
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of credit quality evaluation. The following tables present the recorded investment of our other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming as of September 30, 20222023 and December 31, 2021:2022:
September 30, 2022September 30, 2023
Term Loans
Amortized Cost Basis by Origination Year
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)(dollars in thousands)20222021202020192018PriorRevolving LoansTotal(dollars in thousands)20232022202120202019PriorRevolving LoansTotal
Residential real estateResidential real estateResidential first lienPerforming$57,217 $39,570 $31,875 $21,340 $22,376 $115,686 $298 $288,362 Residential real estateResidential first lienPerforming$33,360 $74,199 $37,744 $30,017 $19,931 $115,228 $$310,484 
Nonperforming102 — 105 195 870 4,798 — 6,070 Nonperforming185 50 — — 140 2,779 — 3,154 
Subtotal57,319 39,570 31,980 21,535 23,246 120,484 298 294,432 Subtotal33,545 74,249 37,744 30,017 20,071 118,007 313,638 
Other residentialPerforming1,381 517 556 1,147 1,568 1,772 53,146 60,087 Other residentialPerforming1,992 1,212 428 441 897 2,182 53,719 60,871 
Nonperforming— — — 10 214 1,474 1,706 Nonperforming— — — — — 181 521 702 
Subtotal1,381 517 556 1,155 1,578 1,986 54,620 61,793 Subtotal1,992 1,212 428 441 897 2,363 54,240 61,573 
ConsumerConsumerPerforming30,643 42,722 10,102 4,397 3,676 16,128 2,426 110,094 ConsumerPerforming29,362 25,959 33,375 6,950 2,523 11,714 1,446 111,329 
Nonperforming22 36 14 50 132 Nonperforming— 18 13 — 67 103 
Subtotal30,665 42,758 10,110 4,398 3,690 16,178 2,427 110,226 Subtotal29,362 25,977 33,388 6,950 2,526 11,781 1,448 111,432 
Consumer otherPerforming568,209 300,430 117,490 39,291 7,488 6,188 7,017 1,046,113 Consumer otherPerforming241,712 407,370 162,400 62,840 23,906 8,284 2,064 908,576 
Nonperforming141 — — — — — — 141 Nonperforming— — — — — — — — 
Subtotal568,350 300,430 117,490 39,291 7,488 6,188 7,017 1,046,254 Subtotal241,712 407,370 162,400 62,840 23,906 8,284 2,064 908,576 
Leases financingLeases financingPerforming149,392 118,613 94,940 63,175 20,649 8,319 — 455,088 Leases financingPerforming119,863 170,289 82,538 58,436 35,734 11,042 — 477,902 
Nonperforming— 646 883 676 300 18 — 2,523 Nonperforming311 3,757 1,969 454 864 203 — 7,558 
Subtotal149,392 119,259 95,823 63,851 20,949 8,337 — 457,611 Subtotal120,174 174,046 84,507 58,890 36,598 11,245 — 485,460 
TotalTotalPerforming806,842 501,852 254,963 129,350 55,757 148,093 62,887 1,959,744 TotalPerforming426,289 679,029 316,485 158,684 82,991 148,450 57,234 1,869,162 
Nonperforming265 682 996 880 1,194 5,080 1,475 10,572 Nonperforming496 3,825 1,982 454 1,007 3,230 523 11,517 
Total other loansTotal 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 
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December 31, 2021December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)(dollars in thousands)20212020201920182017PriorRevolving loansTotal(dollars in thousands)20222021202020192018PriorRevolving loansTotal
Residential real estateResidential real estateResidential first lienPerforming$38,508 $31,920 $24,311 $30,842 $48,276 $93,462 $888 $268,207 Residential real estateResidential first lienPerforming$75,449 $38,774 $31,566 $20,780 $21,691 $109,067 $336 $297,663 
Nonperforming— 108 173 780 764 4,380 — 6,205 Nonperforming101 — 104 414 987 4,974 — 6,580 
Subtotal38,508 32,028 24,484 31,622 49,040 97,842 888 274,412 Subtotal75,550 38,774 31,670 21,194 22,678 114,041 336 304,243 
Other residentialPerforming888 679 1,520 1,950 1,211 1,559 54,225 62,032 Other residentialPerforming1,722 496 534 1,060 1,496 1,515 53,159 59,982 
Nonperforming— — 10 16 128 100 1,453 1,707 Nonperforming17 — — 18 208 1,619 1,869 
Subtotal888 679 1,530 1,966 1,339 1,659 55,678 63,739 Subtotal1,739 496 534 1,067 1,514 1,723 54,778 61,851 
ConsumerConsumerPerforming65,915 14,955 7,874 8,728 3,025 2,582 2,721 105,800 ConsumerPerforming32,561 40,374 9,411 3,476 2,768 14,756 2,346 105,692 
Nonperforming89 14 24 71 208 Nonperforming33 50 13 79 188 
Subtotal66,004 14,960 7,877 8,742 3,049 2,653 2,723 106,008 Subtotal32,594 40,424 9,418 3,477 2,781 14,835 2,351 105,880 
Consumer otherPerforming474,385 323,437 63,463 12,635 3,888 5,447 13,341 896,596 Consumer otherPerforming669,015 260,360 92,148 34,501 6,637 5,430 5,310 1,073,401 
Nonperforming— — — — — — Nonperforming733 — — — — — — 733 
Subtotal474,385 323,437 63,463 12,635 3,888 5,447 13,342 896,597 Subtotal669,748 260,360 92,148 34,501 6,637 5,430 5,310 1,074,134 
Leases financingLeases financingPerforming154,803 124,575 86,402 43,536 9,077 1,983 — 420,376 Leases financingPerforming215,084 110,294 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 
Subtotal154,803 125,332 87,403 44,548 9,172 2,022 — 423,280 Subtotal215,084 110,816 85,194 55,502 22,021 3,127 — 491,744 
TotalTotalTotal
Performing734,499 495,566 183,570 97,691 65,477 105,033 71,175 1,753,011 Performing993,831 450,298 218,117 114,501 54,359 133,856 61,151 2,026,113 
Nonperforming89 870 1,187 1,822 1,011 4,590 1,456 11,025 Nonperforming884 572 847 1,240 1,272 5,300 1,624 11,739 
Total other loansTotal 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)20232022202120202019PriorRevolving LoansTotal
For the three months ended September 30, 2023
Residential real estateResidential first lien$— $— $— $33 $10 $52 $— $95 
Other residential— — — — — — — — 
ConsumerConsumer— 25 — — 41 
Consumer other14 13 174 — 209 
Lease financing228 708 14 324 115 — 1,394 
Total gross other charge-offs$242 $746 $24 $48 $337 $342 $— $1,739 
For the nine months ended September 30, 2023
Residential real estateResidential first lien$— $— $$36 $17 $52 $— $114 
Other residential— — — — — 57 66 
ConsumerConsumer— 27 17 18 31 34 — 127 
Consumer other32 96 41 18 35 424 — 646 
Lease financing228 1,101 549 140 346 191 — 2,555 
Total gross other charge-offs$260 $1,224 $616 $212 $429 $710 $57 $3,508 
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NOTE 5PREMISES, EQUIPMENT AND LEASESPREMISES, EQUIPMENT AND LEASES
A summary of premises and equipment at September 30, 20222023 and December 31, 20212022 is as follows:
September 30,December 31,
(dollars in thousands)(dollars in thousands)September 30,
2022
December 31,
2021
(dollars in thousands)20232022
LandLand$15,803 $15,696 Land$15,968 $16,004 
Buildings and improvementsBuildings and improvements69,573 67,143 Buildings and improvements77,270 71,837 
Furniture and equipmentFurniture and equipment33,946 33,545 Furniture and equipment34,967 34,081 
Lease right-of-use assetsLease right-of-use assets7,582 8,428 Lease right-of-use assets8,057 7,001 
TotalTotal126,904 124,812 Total136,262 128,923 
Accumulated depreciationAccumulated depreciation(49,385)(45,592)Accumulated depreciation(53,521)(50,630)
Premises and equipment, netPremises 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, 20222023 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, 20222023 and December 31, 2021, respectively.
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2022, respectively, and are included in accrued interest payable and Table of Contentsother liabilities
on our consolidated balance sheets.
Information related to operating leases for the three and nine months ended September 30, 20222023 and 20212022 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)2022202120222021(dollars in thousands)2023202220232022
Operating lease costOperating lease cost$533 $510 $1,576 $1,547 Operating lease cost$472 $533 $1,449 $1,576 
Operating cash flows from leasesOperating cash flows from leases638 589 1,874 1,975 Operating cash flows from leases529 638 1,709 1,874 
Right-of-use assets obtained in exchange for lease obligationsRight-of-use assets obtained in exchange for lease obligations80 — 502 689 Right-of-use assets obtained in exchange for lease obligations1,112 80 2,459 502 
Right-of-use assets derecognized due to terminations or impairment— — — (210)
Weighted average remaining lease termWeighted average remaining lease term7.3 years7.8 years7.3 years7.8 yearsWeighted average remaining lease term7.8 years7.3 years7.8 years7.3 years
Weighted average discount rateWeighted average discount rate2.88 %2.88 %2.88 %2.88 %Weighted average discount rate3.39 %2.88 %3.39 %2.88 %
The projected minimum rental payments under the terms of the leases as of September 30, 20222023 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 
20232,185 
2023 remaining2023 remaining$365 
202420241,879 20242,175 
20252025975 20251,322 
20262026843 20261,197 
202720271,101 
ThereafterThereafter4,296 Thereafter5,051 
Total future minimum lease paymentsTotal future minimum lease payments10,597 Total future minimum lease payments11,211 
Less imputed interestLess imputed interest(1,084)Less imputed interest(1,436)
Total operating lease liabilitiesTotal operating lease liabilities$9,513 Total operating lease liabilities$9,775 

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NOTE 7NOTE 6LOAN SERVICING RIGHTSLOAN SERVICING RIGHTS
A summary of loan servicing rights at September 30, 20222023 and December 31, 20212022 is as follows:
September 30, 2022December 31, 2021September 30, 2023December 31, 2022
Serviced LoansCarrying ValueServiced LoansCarrying Value
(dollars in thousands)(dollars in thousands)Serviced LoansCarrying ValueServiced LoansCarrying Value
Commercial FHACommercial FHA$— $— $2,650,531 $27,386 Commercial FHA$2,131,126 $19,873 $— $— 
SBASBA46,799 715 50,043 774 SBA$45,192 $600 $46,081 $656 
ResidentialResidential264,318 582 302,618 705 Residential232,064 460 255,298 549 
Commercial FHA held for saleCommercial FHA held for sale2,362,462 23,995 — — Commercial FHA held for sale— — 2,255,617 20,745 
TotalTotal$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 forDuring 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)2022202120222021
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 rightsAt 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 amountcost 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.
NOTE 8NOTE 7GOODWILL AND INTANGIBLE ASSETS
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 management4,746 4,746 
Total goodwill$161,904 $161,904 
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    The Company’s intangible assets, consisting of core deposit and customer relationship intangibles, as of September 30, 2022 and December 31, 2021 are summarized as follows:
September 30, 2022December 31, 2021
(dollars in thousands)Gross
carrying
amount
Accumulated
amortization
TotalGross
carrying
amount
Accumulated
amortization
Total
Core deposit intangibles$58,913 $(43,708)$15,205 $57,012 $(40,603)$16,409 
Customer relationship intangibles15,919 (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.
NOTE 9 – DERIVATIVE INSTRUMENTSDERIVATIVE 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, 20222023 and December 31, 2021:2022:
Notional amountFair value gainNotional amountFair 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 commitmentsInterest 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 securitiesForward commitments to sell mortgage-backed securities11,054 60,427 165 — Forward commitments to sell mortgage-backed securities8,299 — 91 — 
TotalTotal$15,473 $126,643 $150 $410 Total$12,011 $2,078 $151 $49 
Notional amountFair value lossNotional amountFair 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 commitmentsInterest rate lock commitments$9,138 $— $317 $— Interest rate lock commitments$— $4,419 $— $15 
Forward commitments to sell mortgage-backed securitiesForward commitments to sell mortgage-backed securities— 18,362 — 19 Forward commitments to sell mortgage-backed securities— 6,669 — — 
TotalTotal$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, theThe Company enteredperiodically 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 life3.6 years
Weighted average pay rate6.25 %
Weighted average receive rate5.48 %
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 assets16,422 5,095 
Tax effected amount included in accumulated other comprehensive (loss) income11,988 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 life2.843.37
Weighted average pay rate7.93 %7.23 %
Weighted average receive rate5.46 %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, 20222023 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, 20222023 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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NOTE 10NOTE 8DEPOSITSDEPOSITS
The following table summarizes the classification of deposits as of September 30, 20222023 and December 31, 2021:2022:
(dollars in thousands)(dollars in thousands)September 30,
2022
December 31,
2021
(dollars in thousands)September 30, 2023December 31, 2022
Noninterest-bearing demandNoninterest-bearing demand$2,025,237 $2,245,701 Noninterest-bearing demand$1,154,515 $1,362,158 
Interest-bearing:Interest-bearing:Interest-bearing:
CheckingChecking1,905,439 1,663,021 Checking2,572,224 2,494,073 
Money marketMoney market1,125,333 869,067 Money market1,090,962 1,184,101 
SavingsSavings704,245 679,115 Savings582,359 661,932 
TimeTime634,998 653,744 Time1,004,942 662,388 
Total depositsTotal deposits$6,395,252 $6,110,648 Total deposits$6,405,002 $6,364,652 

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NOTE 9SHORT-TERM BORROWINGSSHORT-TERM BORROWINGS
The following table presents the distribution of short-term borrowings and related weighted average interest rates as of September 30, 20222023 and December 31, 2021:2022:
Repurchase agreementsRepurchase 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, 2023As of and for the year ended December 31,2022
Outstanding at period-endOutstanding at period-end$58,518 $76,803 Outstanding at period-end$17,998 $42,311 
Average amount outstandingAverage amount outstanding62,495 68,986 Average amount outstanding26,865 58,688 
Maximum amount outstanding at any month endMaximum amount outstanding at any month end76,807 77,497 Maximum amount outstanding at any month end43,718 76,807 
Weighted average interest rate:Weighted average interest rate:Weighted average interest rate:
During periodDuring period0.16 %0.12 %During period0.26 %0.18 %
End of periodEnd of period0.26 %0.13 %End of period0.26 %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, 20222023 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, 20222023 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, 20222023 and December 31, 2021,2022, respectively. There were no outstanding borrowings under these lines at September 30, 20222023 and December 31, 2021.2022.
At September 30, 2022,2023, the Company had available federal funds lines of credit totaling $45.0$364.0 million. These lines of credit were unused at September 30, 2022.
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NOTE 12NOTE 10 – FHLB ADVANCESADVANCES AND OTHER BORROWINGS OTHER BORROWINGS
The following table summarizes our FHLB advances and other borrowings as of September 30, 20222023 and December 31, 2021:2022:
(dollars in thousands)September 30,
2022
December 31,
2021
Midland States Bancorp, Inc.
Revolving line of credit - variable interest rate equivalent to Daily Simple SOFR plus 1.60%$— $— 
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 2024110,000 210,000 
FHLB advances –SOFR floater at rates averaging 4.60% and 1.67% at September 30, 2022 and December 31, 2021, respectively – maturing in October 2023100,000 100,000 
FHLB advances – Short term fixed rate at rates averaging 3.14% at September 30, 2022 – maturing in October 2022150,000 — 
Total FHLB advances and other borrowings$360,000 $310,171 
(dollars in thousands)September 30, 2023December 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 2024160,000 110,000 
FHLB advances –SOFR floater at rates averaging 6.94% and 5.92% at September 30, 2023 and December 31, 2022, respectively – maturing in October 2023100,000 100,000 
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 2023223,000 250,000 
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, 20222023 and December 31, 2021,2022, respectively.
On October 12, 2021, the Company entered into a loan agreement with another bank for a revolving line
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NOTE 11 2022.
NOTE 13 SUBORDINATED DEBTSUBORDINATED DEBT
The following table summarizes the Company’s subordinated debt as ofat September 30, 20222023 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, 202739,674 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, 202972,236 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, 203426,913 26,877 
Total subordinated debt$139,370 $139,091 
Subordinated debt
Fixed to FloatFixed
(dollars in thousands)Issued September 2019Issued September 2019Issued June 2015Total
At September 30, 2023
Outstanding amount$66,750 $27,250 $— $94,000 
Carrying amount66,514 26,961 — 93,475 
Current rate5.00 %5.50 %N/A
At December 31, 2022
Outstanding amount$72,750 $27,250 $550 $100,550 
Carrying amount72,300 26,925 547 99,772 
Current rate5.00 %5.50 %6.50 %
Maturity date9/30/20299/30/20346/18/2025
Optional redemption date9/30/20249/30/2029N/A
Fixed to variable conversion date9/30/20249/30/2029N/A
Variable rate3-month SOFR plus 3.61%3-month SOFR plus 4.05%N/A
Interest payment termsSemiannuallySemiannuallySemiannually
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.
NOTE 14NOTE 12PREFERRED STOCK
On August 24, 2022, the Company issued and sold 4,600,000 depositary shares (the "Depositary Shares"), each representing a 1/40th ownership interest in a share of the Company's 7.75% fixed-rate reset non-cumulative perpetual preferred stock, Series A, par value $2.00 per share (the "Series A preferred stock"), with a liquidation preference of $25 per depositary share (equivalent to $1,000 per share of Series A Preferred Stock). The Series A preferred stock qualifies as Tier 1 capital for purposes of regulatory capital calculations. The gross proceeds were $115.0 million while net proceeds from the issuance of the
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Series A preferred stock, after deducting $4.5 million of offering costs, including the underwriting discount and other expenses, were $110.5 million.
Dividends on the Series A preferred stock will not be cumulative or mandatory, and will be paid when, as, and if declared by the Company’s board of directors. If declared, dividends will accrue and be payable, quarterly in arrears, (i) from and including the date of original issuance to, but excluding September 30, 2027 or the date of earlier redemption, at a rate of 7.75% per annum, on March 30, June 30, September 30 and December 30 of each year, commencing on December 30, 2022, and (ii) from and including September 30, 2027, during each reset period, at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 4.713%, on March 30, June 30, September 30 and December 30 of each year, beginning on December 30, 2027, except in each case where such day is not a business day.
If the Company’s board of directors does not declare a dividend on the Series A preferred stock in respect of a dividend period, then no dividend shall be deemed to be payable for such dividend period, or be cumulative, and the Company will have no obligation to pay any dividend for that dividend period, whether or not the board of directors declares a dividend on the Series A preferred stock or any other class or series of the Company's capital stock for any future dividend period. Additionally, so long as any share of Series A preferred stock remains outstanding, unless dividends on all outstanding shares of Series A preferred stock for the most recently completed dividend period have been paid in full or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on the Company’s common stock.
The Series A preferred stock is perpetual and has no maturity date. The Series A preferred stock is not subject to any mandatory redemption, sinking fund, or other similar provisions. The Company, at its option and subject to prior regulatory approval, may redeem the Series A preferred stock (i) in whole or in part, from time to time, on any dividend payment date on or after September 30, 2027, or (ii) in whole but not in part at any time within 90 days following a regulatory capital treatment event, in each case, at a redemption price equal to $1,000 per share of Series A preferred stock (equivalent to $25 per Depositary Share), plus any declared and unpaid dividends, without regard to any undeclared dividends, to but excluding the redemption date. Neither the holders of the Series A preferred stock nor holders of the Depositary Shares will have the right to require the redemption or repurchase of the Series A preferred stock.
NOTE 15 – EARNINGS PER COMMON SHAREEARNINGS 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, 20222023 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)2022202120222021(dollars in thousands, except per share data)2023202220232022
Net incomeNet income$23,521 $19,548 $66,153 $58,210 Net income$18,042 $23,521 $61,389 $66,153 
Preferred dividends declaredPreferred dividends declared(2,229)— (6,685)— 
Net income available to common shareholdersNet income available to common shareholders15,813 23,521 54,704 66,153 
Common shareholder dividendsCommon 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 dividendsUnvested restricted stock award dividends(70)(60)(218)(186)Unvested restricted stock award dividends(76)(70)(236)(218)
Undistributed earnings to unvested restricted stock awardsUndistributed 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 shareholdersUndistributed 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 
BasicBasicBasic
Distributed earnings to common shareholdersDistributed 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 shareholdersUndistributed earnings to common shareholders16,866 13,123 46,230 38,897 Undistributed earnings to common shareholders9,108 16,866 34,291 46,230 
Total common shareholders earnings, basicTotal 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 
DilutedDilutedDiluted
Distributed earnings to common shareholdersDistributed 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 shareholdersUndistributed earnings to common shareholders16,866 13,123 46,230 38,897 Undistributed earnings to common shareholders9,108 16,866 34,291 46,230 
Total common shareholders earningsTotal common shareholders earnings23,266 19,362 65,416 57,638 Total common shareholders earnings15,632 23,266 54,063 65,416 
Add back:Add back:Add back:
Undistributed earnings reallocated from unvested restricted stock awardsUndistributed earnings reallocated from unvested restricted stock awards— — Undistributed earnings reallocated from unvested restricted stock awards— — — 
Total common shareholders earnings, dilutedTotal 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, basicWeighted average common shares outstanding, basic22,338,828 22,520,499 22,306,323 22,544,898 Weighted average common shares outstanding, basic21,970,372 22,338,828 22,214,862 22,306,323 
OptionsOptions51,610 57,381 60,772 69,074 Options6,824 51,610 9,124 60,772 
Weighted average common shares outstanding, dilutedWeighted average common shares outstanding, diluted22,390,438 22,577,880 22,367,095 22,613,972 Weighted average common shares outstanding, diluted21,977,196 22,390,438 22,223,986 22,367,095 
Basic earnings per common shareBasic 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 shareDiluted earnings per common share1.04 0.86 2.92 2.55 Diluted earnings per common share0.71 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.
NOTE 16NOTE 13FAIR VALUEFAIR VALUE OF FINANCIAL INSTRUMENTS 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, 20222023 and December 31, 2021,2022, are summarized below:
September 30, 2022September 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:
AssetsAssetsAssets
Investment securities available for sale:Investment securities available for sale:Investment securities available for sale:
U.S. Treasury securitiesU.S. Treasury securities$60,496 $60,496 $— $— U.S. Treasury securities$1,563 $1,563 $— $— 
U.S. government sponsored entities and U.S. agency securitiesU.S. government sponsored entities and U.S. agency securities27,865 — 27,865 — U.S. government sponsored entities and U.S. agency securities89,038 — 89,038 — 
Mortgage-backed securities - agencyMortgage-backed securities - agency391,615 — 391,615 — Mortgage-backed securities - agency517,391 — 517,391 — 
Mortgage-backed securities - non-agencyMortgage-backed securities - non-agency21,158 — 21,158 — Mortgage-backed securities - non-agency72,665 — 72,665 — 
State and municipal securitiesState and municipal securities95,061 — 95,061 — State and municipal securities49,737 — 49,737 — 
Collateralized loan obligationsCollateralized loan obligations22,385 — 22,385 — 
Corporate securitiesCorporate securities85,694 — 85,694 — Corporate securities82,230 — 82,230 — 
Equity securitiesEquity securities8,615 8,615 — — Equity securities4,335 4,335 — — 
Loans held for saleLoans held for sale4,338 — 4,338 — Loans held for sale6,089 — 6,089 — 
Derivative assetsDerivative assets17,033 — 17,033 — Derivative assets646 — 646 — 
TotalTotal$711,875 $69,111 $642,764 $— Total$846,079 $5,898 $840,181 $— 
LiabilitiesLiabilitiesLiabilities
Derivative liabilitiesDerivative liabilities$11,512 $— $11,512 $— Derivative liabilities$10,825 $— $10,825 $— 
TotalTotal$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 rightsLoan servicing rights$1,297 $— $— $1,297 Loan servicing rights$20,933 $— $— $20,933 
Commercial FHA mortgage servicing rights held for sale23,995 — — 23,995 
Nonperforming loansNonperforming loans46,882 11,516 25,128 10,238 Nonperforming loans55,981 — 39,485 16,496 
Other real estate ownedOther real estate owned11,141 — 11,141 — Other real estate owned480 201 279 — 
Assets held for saleAssets held for sale1,271 — 1,271 — Assets held for sale182 — 182 — 
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December 31, 2021December 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:
AssetsAssetsAssets
Investment securities available for sale:Investment securities available for sale:Investment securities available for sale:
U.S. Treasury securitiesU.S. Treasury securities$64,917 $64,917 $— $— U.S. Treasury securities$81,230 $81,230 $— $— 
U.S. government sponsored entities and U.S. agency securitiesU.S. government sponsored entities and U.S. agency securities33,817 — 33,817 — U.S. government sponsored entities and U.S. agency securities37,509 — 37,509 — 
Mortgage-backed securities - agencyMortgage-backed securities - agency440,270 — 440,270 — Mortgage-backed securities - agency448,150 — 448,150 — 
Mortgage-backed securities - non-agencyMortgage-backed securities - non-agency28,706 — 28,706 — Mortgage-backed securities - non-agency20,754 — 20,754 — 
State and municipal securitiesState and municipal securities143,099 — 143,099 — State and municipal securities94,636 — 94,636 — 
Corporate securitiesCorporate securities195,794 — 194,859 935 Corporate securities85,955 — 85,955 — 
Equity securitiesEquity securities9,529 9,529 — — Equity securities8,626 8,626 — — 
Loans held for saleLoans held for sale32,045 — 32,045 — Loans held for sale1,286 — 1,286 — 
Derivative assetsDerivative assets5,883 — 5,883 — Derivative assets481 — 481 — 
TotalTotal$954,060 $74,446 $878,679 $935 Total$778,627 $89,856 $688,771 $— 
LiabilitiesLiabilitiesLiabilities
Derivative liabilitiesDerivative liabilities$397 $— $397 $— Derivative liabilities$10,446 $— $10,446 $— 
TotalTotal$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 rightsLoan servicing rights$28,865 $— $— $28,865 Loan servicing rights$1,205 $— $— $1,205 
Mortgage servicing rights held for saleMortgage servicing rights held for sale20,745 — 20,745 — 
Nonperforming loansNonperforming loans36,542 24,358 6,129 6,055 Nonperforming loans49,423 5,478 34,406 9,539 
Other real estate ownedOther real estate owned12,059 — 12,059 — Other real estate owned6,729 — 6,729 — 
Assets held for saleAssets held for sale2,284 — 2,284 — Assets held for sale356 — 356 — 
    The following table provides a reconciliation of activity forThere were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 20222023 and 2021:2022.
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2022202120222021
Balance, beginning of period$— $1,008 $935 $959 
Transferred to level 2— — (935)— 
Total realized in earnings (1)
— 10 
Total unrealized in other comprehensive income (2)
— (73)(24)
Net settlements (principal and interest)— (4)(6)(10)
Balance, end of period$— $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 valueValuation
technique
Unobservable
input / assumptions
Range (weighted average)(1)
December 31, 2021
Corporate securities$935 Consensus pricingNet market price0.0% - 7.0% (4.5)%
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
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The significant unobservable inputs used in the fair value measurement of the Company’s corporate securities is net market price. The corporate securities are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. Significant changes in any of the inputs in isolation would result in a significant change to the fair value measurement. Generally, net market price increases when market interest rates decline and declines when market interest rates increase.
The following table presents losses recognized on assets measured on a nonrecurring basis for the three and nine months ended September 30, 20222023 and 2021:2022:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)(dollars in thousands)2022202120222021(dollars in thousands)2023202220232022
Commercial mortgage servicing rightsCommercial mortgage servicing rights$— $3,037 $1,263 $5,460 Commercial mortgage servicing rights$— $— $— $1,263 
Residential mortgage servicing rights held for sale— 79 — 222 
Nonperforming loansNonperforming loans1,423 3,405 6,381 9,677 Nonperforming loans10,085 1,423 14,761 6,381 
Other real estate ownedOther real estate owned339 743 426 Other real estate owned— 339 — 743 
Assets held for sale— — — — 
Total losses on assets measured on a nonrecurring basisTotal 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, 20222023 and December 31, 2021:2022:
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(dollars in thousands)Fair valueValuation
technique
Unobservable
input / assumptions
Range (weighted average)(1)
September 30, 20222023
Loan servicing rights:
SBACommercial FHA servicing rights$71530,914 Discounted cash flowPrepayment speed14.21%
4.00% - 15.40% (14.95%100.00% (8.26%)
Discount rate8.00% - 15.00% (8.19%)
SBA servicing rights$818 Discounted cash flowPrepayment speed15.62% - 16.02% (15.87%)
Discount rateNo range (11.50%(14.25%)
Residential servicing rights5822,488 Discounted cash flowPrepayment speed7.56% -31.14% (8.46%7.20% -26.28% (7.50%)
Discount rate9.00%9.25% - 11.50% (10.13%11.75% (10.38%)
Commercial FHA servicing rights held for sale23,995 Discounted cash flowPrepayment speed8.00% - 18.00% (8.21%)
Discount rate10.00% - 27.00% (11.48%)
December 31, 20212022
Loan servicing rights:
Commercial MSR$28,368 Discounted cash flowPrepayment speed8.00% - 18.00% (8.24%)
Discount rate10.00% - 27.00% (11.87%)
SBA servicing rights898876 Discounted cash flowPrepayment speed12.27%14.49% - 14.14% (13.88%15.44% (15.00%)
Discount rate10.00% - 12.00% (11.00%No range (13.00%)
Residential servicing rights7052,770 Discounted cash flowPrepayment speed11.94%7.56% - 27.48% (14.94%26.28% (7.92%)
Discount rate9.00% - 11.50% (10.25%(10.13%)
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.
The Company has elected the fair value option for newly originated commercial and residential loans held for sale. These loans are intended for sale and are hedged with derivative instruments. We have elected the fair value option
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to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification.
The following table presents the difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected as of September 30, 20222023 and December 31, 2021:2022:
September 30, 2022December 31, 2021September 30, 2023December 31, 2022
(dollars in thousands)(dollars in thousands)Aggregate
fair value
DifferenceContractual
principal
Aggregate
fair value
DifferenceContractual
principal
(dollars in thousands)Aggregate
fair value
DifferenceContractual
principal
Aggregate
fair value
DifferenceContractual
principal
Commercial loans held for sale$— $— $— $19,230 $— $19,230 
Residential loans held for saleResidential loans held for sale4,338 (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 $31,461 
The following table presents the amount of lossesgains (losses) from fair value changes included in income before income taxes for financial assets carried at fair value for the three and nine months ended September 30, 20222023 and 2021:2022:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2023202220232022
Residential loans held for sale(37)(280)112 (557)
Total loans held for sale$(37)$(280)$112 $(557)
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Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2022202120222021
Commercial loans held for sale$— $— $— $(67)
Residential loans held for sale(280)(231)(557)(294)
Total loans held for sale$(280)$(231)$(557)$(361)
    The carrying values and estimated fair value of certain financial instruments not carried at fair value at September 30, 20222023 and December 31, 20212022 were as follows:
September 30, 2022September 30, 2023
(dollars in thousands)(dollars in thousands)Carrying
amount
Fair valueQuoted 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 valueQuoted prices
in active
markets
for identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
AssetsAssetsAssets
Cash and due from banksCash and due from banks$309,531 $309,531 $309,531 $— $— Cash and due from banks$131,179 $131,179 $131,179 $— $— 
Federal funds soldFederal funds sold3,657 3,657 3,657 — — Federal funds sold953 953 953 — — 
Loans, net6,139,812 6,025,586 — — 6,025,586 
LoansLoans6,280,883 6,176,092 — — 6,176,092 
Accrued interest receivableAccrued interest receivable17,537 17,537 — 17,537 — Accrued interest receivable24,283 24,283 — 24,283 — 
LiabilitiesLiabilitiesLiabilities
DepositsDeposits$6,395,252 $6,370,773 $— $6,370,773 $— Deposits$6,405,002 $6,392,040 $— $6,392,040 $— 
Short-term borrowingsShort-term borrowings58,518 58,518 — 58,518 — Short-term borrowings17,998 17,998 — 17,998 — 
FHLB and other borrowingsFHLB and other borrowings360,000 358,694 — 358,694 — FHLB and other borrowings538,000 533,614 — 533,614 — 
Subordinated debtSubordinated debt139,370 135,279 — 135,279 — Subordinated debt93,475 87,263 — 87,263 — 
Trust preferred debenturesTrust preferred debentures49,824 54,965 — 54,965 — Trust preferred debentures50,457 50,717 — 50,717 — 
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December 31, 2021December 31, 2022
(dollars in thousands)(dollars in thousands)Carrying
amount
Fair valueQuoted 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 valueQuoted prices
in active
markets
for identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
AssetsAssetsAssets
Cash and due from banksCash and due from banks$673,297 $673,297 $673,297 $— $— Cash and due from banks$143,035 $143,035 $143,035 $— $— 
Federal funds soldFederal funds sold7,074 7,074 7,074 — — Federal funds sold7,286 7,286 7,286 — — 
Loans, net5,173,739 5,221,886 — — 5,221,886 
LoansLoans6,306,467 6,121,026 — — 6,121,026 
Accrued interest receivableAccrued interest receivable19,470 19,470 — 19,470 — Accrued interest receivable20,313 20,313 — 20,313 — 
LiabilitiesLiabilitiesLiabilities
DepositsDeposits$6,110,648 $6,109,077 $— $6,109,077 $— Deposits$6,364,652 $6,344,534 $— $6,344,534 $— 
Short-term borrowingsShort-term borrowings76,803 76,803 — 76,803 — Short-term borrowings42,311 42,311 — 42,311 — 
FHLB and other borrowingsFHLB and other borrowings310,171 317,464 — 317,464 — FHLB and other borrowings460,000 457,998 — 457,998 — 
Subordinated debtSubordinated debt139,091 148,386 — 148,386 — Subordinated debt99,772 95,301 — 95,301 — 
Trust preferred debenturesTrust preferred debentures49,374 57,827 — 57,827 — Trust preferred debentures49,975 54,668 — 54,668 — 
In accordance with our adoption of ASU 2016-1 in 2019, theThe methods utilized to measure fair value of financial instruments at September 30, 20222023 and December 31, 20212022 represent an approximation of exit price; however, an actual exit price may differ.
NOTE 17NOTE 14COMMITMENTS, CONTINGENCIESCOMMITMENTS, CONTINGENCIES AND CREDIT RISK 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, 20222023 and December 31, 20212022 were as follows:
(dollars in thousands)(dollars in thousands)September 30,
2022
December 31,
2021
(dollars in thousands)September 30, 2023December 31, 2022
Commitments to extend creditCommitments to extend credit$1,280,312 $994,709 Commitments to extend credit$1,001,228 $1,276,263 
Financial guarantees – standby letters of creditFinancial guarantees – standby letters of credit31,315 14,325 Financial guarantees – standby letters of credit27,302 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 20222023 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, 20222023 and 2021.2022. The liability for unresolved repurchase demands totaled $0.2 million and $0.2 million at September 30, 20222023 and December 31, 2021, respectively.
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NOTE 18NOTE 15SEGMENT INFORMATIONSEGMENT 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.
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Selected business segment financial information for the three and nine months ended September 30, 20222023 and 20212022 were as follows:
(dollars in thousands)(dollars in thousands)BankingWealth
Management
OtherTotal(dollars in thousands)BankingWealth
Management
OtherTotal
Three Months Ended September 30, 2023Three Months Ended September 30, 2023
Net interest income (expense)Net interest income (expense)$60,817 $(3)$(2,218)$58,596 
Provision for credit lossesProvision for credit losses5,168 — — 5,168 
Noninterest incomeNoninterest income12,007 6,288 (110)18,185 
Noninterest expenseNoninterest expense37,272 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 assetsTotal assets$7,964,147 $30,860 $(19,082)$7,975,925 
Nine Months Ended September 30, 2023Nine Months Ended September 30, 2023
Net interest income (expense)Net interest income (expense)$184,460 $(3)$(6,517)$177,940 
Provision for credit lossesProvision for credit losses14,182 — — 14,182 
Noninterest incomeNoninterest income33,502 18,968 247 52,717 
Noninterest expenseNoninterest expense115,669 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 assetsTotal assets$7,964,147 $30,860 $(19,082)$7,975,925 
Three Months Ended September 30, 2022Three Months Ended September 30, 2022Three 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 lossesProvision for credit losses6,974 — — 6,974 Provision for credit losses6,974 — — 6,974 
Noninterest incomeNoninterest income9,646 6,199 (19)15,826 Noninterest income9,646 6,199 (19)15,826 
Noninterest expenseNoninterest expense39,338 4,364 (206)43,496 Noninterest expense39,338 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 assetsTotal 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, 2022Nine Months Ended September 30, 2022Nine 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 lossesProvision for credit losses16,582 — — 16,582 Provision for credit losses16,582 — — 16,582 
Noninterest incomeNoninterest income26,547 19,481 24 46,052 Noninterest income26,547 19,481 24 46,052 
Noninterest expenseNoninterest expense112,947 13,130 (358)125,719 Noninterest expense112,947 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 assetsTotal 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 income7,917 7,175 51 15,143 
Noninterest expense37,055 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 losses2,926 — — 2,926 
Noninterest income27,649 19,635 92 47,376 
Noninterest expense117,655 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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NOTE 19NOTE 16REVENUE FROM CONTRACTSREVENUE FROM CONTRACTS WITH CUSTOMERSCUSTOMERS
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, 20222023 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)2022202120222021(dollars in thousands)2023202220232022
Noninterest income - in-scope of Topic 606Noninterest income - in-scope of Topic 606Noninterest income - in-scope of Topic 606
Wealth management revenue:Wealth management revenue:Wealth management revenue:
Trust management/administration feesTrust 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 feesInvestment brokerage fees482 330 1,623 1,206 Investment brokerage fees420 482 1,281 1,623 
OtherOther476 645 1,496 1,913 Other398 476 1,225 1,496 
Service charges on deposit accounts:Service charges on deposit accounts:Service charges on deposit accounts:
Nonsufficient fund feesNonsufficient fund fees1,775 1,470 4,631 3,814 Nonsufficient fund fees1,950 1,775 5,389 4,631 
OtherOther822 798 2,338 2,196 Other1,199 1,008 3,355 2,913 
Interchange revenuesInterchange revenues3,531 3,651 10,401 10,823 Interchange revenues3,609 3,531 10,717 10,401 
Other income:Other income:Other income:
Merchant services revenueMerchant services revenue448 405 1,203 1,137 Merchant services revenue409 448 1,165 1,203 
OtherOther847 925 2,286 3,135 Other(66)661 1,618 1,711 
Noninterest income - out-of-scope of Topic 606Noninterest income - out-of-scope of Topic 6062,204 719 5,712 6,636 Noninterest income - out-of-scope of Topic 6064,796 2,204 11,505 5,712 
Total noninterest incomeTotal 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. ThePreviously, the Company also earnsearned 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.
NOTE 20 – SUBSEQUENT EVENTS
On October 24, 2022, the Company terminated the $140.0 million notional amount of future starting pay-fixed, receive-variable interest rate swaps on certain FHLB or other fixed-rate advances discussed in Note 9. The Company realized a $17.6 million net gain upon termination.
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ITEMITEM 2 – MANAGEMENT'S DISCUSSIONMANAGEMENT’S DISCUSSION AND ANALYSIS ANALYSIS OF FINANCIAL CONDITION FINANCIAL CONDITION AND RESULTS RESULTS OF OPERATIONS 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, 20222023 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, 20222023 and 2021,2022, and our financial condition as of September 30, 20222023 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.
On October 15, 2022, the Company redeemed the outstanding Fixed-to-Floating Rate Subordinated Notes due October 15, 2027, having an aggregate principal amount of $40.0 million, in accordance with the terms of the notes. The aggregate redemption price was 100% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest.
Preferred Stock Issuance. On August 24, 2022, the Company issued and sold 4,600,000 depositary shares, each representing a 1/40th ownership interest in a share of the Company’s 7.75% fixed rate reset non-cumulative, non-convertible, perpetual preferred stock, Series A. 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, 20222023 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)2022202120222021(dollars in thousands, except per share data)2023202220232022
Income Statement Data:Income Statement Data:Income Statement Data:
Interest incomeInterest income$79,556 $58,490 $211,540 $177,390 Interest income$103,585 $79,556 $299,615 $211,540 
Interest expenseInterest expense15,532 7,094 29,355 24,016 Interest expense44,989 15,532 121,675 29,355 
Net interest incomeNet interest income64,024 51,396 182,185 153,374 Net interest income58,596 64,024 177,940 182,185 
Provision for credit lossesProvision for credit losses6,974 (184)16,582 2,926 Provision for credit losses5,168 6,974 14,182 16,582 
Noninterest incomeNoninterest income15,826 15,143 46,052 47,376 Noninterest income18,185 15,826 52,717 46,052 
Noninterest expenseNoninterest expense43,496 41,292 125,719 129,312 Noninterest expense42,038 43,496 129,414 125,719 
Income before income taxesIncome before income taxes29,380 25,431 85,936 68,512 Income before income taxes29,575 29,380 87,061 85,936 
Income taxesIncome taxes5,859 5,883 19,783 10,302 Income taxes11,533 5,859 25,672 19,783 
Net incomeNet income$23,521 $19,548 $66,153 $58,210 Net income18,042 23,521 61,389 66,153 
Preferred dividendsPreferred dividends2,229 — 6,685 — 
Net income available to common shareholdersNet income available to common shareholders$15,813 $23,521 $54,704 $66,153 
Per Share Data:Per Share Data:
Basic earnings per common shareBasic 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 shareDiluted 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 assetsReturn on average assets0.91 %1.22 %1.04 %1.19 %
Return on average shareholders' equityReturn on average shareholders' equity9.28 %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, 20222023 compared to the nine months ended September 30, 2021 increased2022 decreased primarily due to a $28.8$4.2 million increasedecrease in net interest income, a $3.7 million increase in noninterest expense and a $3.6$5.9 million decreaseincrease in noninterestincome tax expense. These results were partially offset by a $13.7$2.4 million increasedecrease 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, 20222023 and 2021.2022.
On September 21, 2022,July 26, 2023, the Federal Reserve announced anapproved its 11th interest rate increase to its benchmark federal-fundsin 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 thecompared 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, increaseddecreased 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 increaseddecreased to 3.63%3.20% for the third quarter of 20222023 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, increaseddecreased 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, 20222023 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,
20222021
(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 securities653,277 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 securities749,022 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 loans6,040,358 73,568 4.83 4,800,063 53,477 4.42 
Loans held for sale6,044 60 3.87 15,204 107 2.79 
Nonmarketable equity securities37,765 550 5.78 43,873 558 5.05 
Total interest-earning assets7,028,846 79,863 4.51 6,158,360 58,892 3.79 
Noninterest-earning assets618,138 597,153 
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 deposits718,970 149 0.08 664,354 32 0.02 
Time deposits630,201 1,018 0.64 704,090 1,767 1.00 
Brokered time deposits14,478 50 1.35 26,272 82 1.23 
Total interest-bearing deposits4,325,098 10,249 0.94 3,895,970 2,584 0.26 
Short-term borrowings58,271 28 0.19 68,103 21 0.12 
FHLB advances and other borrowings340,163 2,424 2.83 440,171 1,993 1.80 
Subordinated debt139,324 2,010 5.77 138,954 2,011 5.79 
Trust preferred debentures49,751 821 6.54 49,167 485 3.92 
Total interest-bearing liabilities4,912,607 15,532 1.25 4,592,365 7,094 0.61 
Noninterest-bearing liabilities:
Noninterest-bearing deposits1,969,873 1,434,193 
Other noninterest-bearing liabilities63,638 77,204 
Total noninterest-bearing liabilities2,033,511 1,511,397 
Shareholders’ equity700,866 651,751 
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,
20232022
(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 securities813,582 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 securities862,998 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 loans6,297,568 94,118 5.93 6,040,358 73,568 4.83 
Loans held for sale6,078 104 6.80 6,044 60 3.87 
Nonmarketable equity securities39,347 710 7.16 37,765 550 5.78 
Total interest-earning assets7,284,382 103,790 5.65 7,028,846 79,863 4.51 
Noninterest-earning assets622,969 618,138 
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 deposits604,475 506 0.33 718,970 149 0.08 
Time deposits865,263 6,441 2.95 630,201 1,018 0.64 
Brokered time deposits113,883 1,421 4.95 14,478 50 1.35 
Total interest-bearing deposits5,354,356 37,769 2.80 4,922,345 10,249 0.83 
Short-term borrowings20,127 14 0.28 58,271 28 0.19 
FHLB advances and other borrowings402,500 4,557 4.49 340,163 2,424 2.83 
Subordinated debt93,441 1,280 5.43 139,324 2,010 5.77 
Trust preferred debentures50,379 1,369 10.78 49,751 821 6.54 
Total interest-bearing liabilities5,920,803 44,989 3.01 5,509,854 15,532 1.12 
Noninterest-bearing liabilities:
Noninterest-bearing deposits1,116,988 1,372,626 
Other noninterest-bearing liabilities97,935 63,638 
Total noninterest-bearing liabilities1,214,923 1,436,264 
Shareholders’ equity771,625 700,866 
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, 20222023 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,
2022202120232022
(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 investmentsFederal 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 securitiesTaxable investment securities709,163 11,717 2.20 602,090 10,127 2.24 Taxable investment securities784,954 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 securitiesTotal securities820,328 14,453 2.35 729,687 13,258 2.42 Total securities844,946 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 loansTotal loans5,666,874 194,442 4.59 4,872,327 162,192 4.45 Total loans6,324,578 274,005 5.79 5,666,874 194,442 4.59 
Loans held for saleLoans held for sale15,629 357 3.05 38,772 810 2.79 Loans held for sale3,900 179 6.14 15,629 357 3.05 
Nonmarketable equity securitiesNonmarketable equity securities36,832 1,521 5.52 49,688 1,847 4.97 Nonmarketable equity securities44,034 2,104 6.39 36,832 1,521 5.52 
Total interest-earning assetsTotal interest-earning assets6,807,774 212,537 4.17 6,153,050 178,561 3.88 Total interest-earning assets7,294,397 300,259 5.50 6,807,774 212,537 4.17 
Noninterest-earning assetsNoninterest-earning assets621,510 595,733 Noninterest-earning assets615,383 621,510 
Total assetsTotal 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 depositsChecking 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 depositsSavings deposits711,108 287 0.05 650,323 121 0.02 Savings deposits626,976 1,145 0.24 711,108 287 0.05 
Time depositsTime deposits624,282 2,588 0.55 702,973 6,280 1.19 Time deposits791,555 14,694 2.48 624,282 2,588 0.55 
Brokered time depositsBrokered time deposits17,668 157 1.19 35,485 334 1.26 Brokered time deposits61,838 2,094 4.53 17,668 157 1.19 
Total interest-bearing depositsTotal interest-bearing deposits4,145,065 16,220 0.52 3,823,261 8,759 0.31 Total interest-bearing deposits5,223,852 97,791 2.50 4,717,610 16,220 0.46 
Short-term borrowingsShort-term borrowings62,495 73 0.16 69,764 65 0.12 Short-term borrowings26,865 53 0.26 62,495 73 0.16 
FHLB advances and other borrowingsFHLB advances and other borrowings319,791 5,071 2.12 525,072 7,033 1.79 FHLB advances and other borrowings471,084 15,959 4.53 319,791 5,071 2.12 
Subordinated debtSubordinated debt139,233 6,032 5.78 157,871 6,694 5.65 Subordinated debt96,820 3,985 5.49 139,233 6,032 5.78 
Trust preferred debenturesTrust preferred debentures49,603 1,959 5.28 49,028 1,465 4.00 Trust preferred debentures50,216 3,887 10.35 49,603 1,959 5.28 
Total interest-bearing liabilitiesTotal interest-bearing liabilities4,716,187 29,355 0.83 4,624,996 24,016 0.69 Total interest-bearing liabilities5,868,837 121,675 2.77 5,288,732 29,355 0.74 
Noninterest-bearing liabilities:Noninterest-bearing liabilities:Noninterest-bearing liabilities:
Noninterest-bearing depositsNoninterest-bearing deposits1,975,445 1,405,641 Noninterest-bearing deposits1,184,410 1,402,900 
Other noninterest-bearing liabilitiesOther noninterest-bearing liabilities70,427 78,883 Other noninterest-bearing liabilities84,650 70,427 
Total noninterest-bearing liabilitiesTotal noninterest-bearing liabilities2,045,872 1,484,524 Total noninterest-bearing liabilities1,269,060 1,473,327 
Shareholders’ equityShareholders’ equity667,225 639,263 Shareholders’ equity771,883 667,225 
Total liabilities and shareholders’ equityTotal 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, 20222023 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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Interest Rates and Operating Interest Differential.Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning
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assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. Changes thatwhich 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, 2022Nine 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)VolumeRateVolumeRate(tax-equivalent basis, dollars in thousands)VolumeRateVolumeRate
Interest-earning assets:
EARNING ASSETS:EARNING ASSETS:
Federal funds sold and cash investmentsFederal 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 securitiesTaxable investment securities116 253 369 1,785 (195)1,590 Taxable investment securities1,204 2,506 3,710 1,579 6,448 8,027 
Investment securities exempt from federal income taxInvestment securities exempt from federal income tax(370)27 (343)(404)(395)Investment securities exempt from federal income tax(355)(93)(448)(1,210)(167)(1,377)
Total securitiesTotal securities(254)280 26 1,381 (186)1,195 Total securities849 2,413 3,262 369 6,281 6,650 
Loans:
Loans:Loans:
LoansLoans14,639 5,563 20,202 27,384 5,303 32,687 Loans3,693 16,894 20,587 26,178 53,689 79,867 
Loans exempt from federal income taxLoans exempt from federal income tax(124)13 (111)(409)(28)(437)Loans exempt from federal income tax(160)123 (37)(460)156 (304)
Total loansTotal loans14,515 5,576 20,091 26,975 5,275 32,250 Total loans3,533 17,017 20,550 25,718 53,845 79,563 
Loans held for saleLoans held for sale(76)29 (47)(505)52 (453)Loans held for sale— 44 44 (403)225 (178)
Nonmarketable equity securitiesNonmarketable equity securities(83)75 (8)(505)179 (326)Nonmarketable equity securities26 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 assetsTotal earning assets$3,296 $20,631 $23,927 $21,816 $65,906 $87,722 
INTEREST-BEARING LIABILITIES:INTEREST-BEARING LIABILITIES:
Checking and money market depositsChecking 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 depositsSavings deposits110 117 18 148 166 Savings deposits(60)417 357 (94)952 858 
Time depositsTime deposits(153)(596)(749)(514)(3,178)(3,692)Time deposits1,065 4,358 5,423 1,899 10,207 12,106 
Brokered time deposits(38)(32)(164)(13)(177)
Brokered depositsBrokered deposits789 582 1,371 945 992 1,937 
Total interest-bearing depositsTotal interest-bearing deposits582 7,083 7,665 333 7,128 7,461 Total interest-bearing deposits2,884 24,636 27,520 7,530 74,041 81,571 
Short-term borrowingsShort-term borrowings(3)10 (8)16 Short-term borrowings(22)(14)(55)35 (20)
FHLB advances and other borrowingsFHLB advances and other borrowings(582)1,013 431 (3,002)1,040 (1,962)FHLB advances and other borrowings575 1,558 2,133 3,762 7,126 10,888 
Subordinated debtSubordinated debt(6)(1)(798)136 (662)Subordinated debt(637)(93)(730)(1,789)(258)(2,047)
Trust preferred debenturesTrust preferred debentures328 336 20 474 494 Trust preferred debentures13 535 548 36 1,892 1,928 
Total interest-bearing liabilitiesTotal 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 incomeNet 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, 20222023 as compared to the same quarter in 2021,2022, primarily due to growth inimproved 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 20222023 from $6.16$7.03 billion in the same quarter in 2021. An increase2022. Increases in average loans and investment securities of $1.24 billion was$257.2 million and $114.0 million, respectively, were partially offset by decreasesa 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 20222023 compared to the same quarter of 2021. Average commercial loans increased $99.3 million. Included in commercial loans are2022 across all loan categories, except for commercial FHA warehouse lines and PPPconsumer loans. CommercialAverage 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 20222023 compared to the same period one year prior.
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Average commercial real estateconstruction 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 balancesquarter 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 tooriginated 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 relationshipprogram 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 inimproved yields on earning assets. The yield on earning assets increased 29 basis133 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 20222023 from $6.15$6.81 billion in the same period in 2021. Average2022. An increase in average loans and investment securities increased $794.5of $657.7 million and $90.6 million, respectively. These increases werewas partially offset by a $194.5$191.2 million decrease in federal funds sold and cash investments.
Average commercial loans decreased $50.4increased $99.1 million for the nine months ended September 30, 20222023 compared to the same period of 2021.2022. Commercial FHA warehouse lines and PPP loans accounted for $88.3decreased $54.6 million and $123.1to $15.7 million respectively, ofduring 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, 20222023 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, 20222023 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, 20222023 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 20222023 compared to 0.61%1.12% for the third quarter of 20212022 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, 20222023 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 20222023 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 $2.0increased $2.1 million and $10.9 million for the three and nine months ended September 30, 2022,2023, respectively, from the comparable periodperiods in 2021.2022, due to increases in both average balances and the cost of funds. Average balances decreased $205.3increased $62.3 million and $151.3 million for the three and nine months ended September 30, 2022,2023, respectively, from the comparable periodperiods in 20212022. 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 LossesLosses.. 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, 20222023 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
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Table of our loan portfolio.Contents
The provision for credit losses on loans maderecognized during the three and nine months ended September 30, 20222023 was made at a level deemed necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine
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provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.
Noninterest Income. Noninterest income 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, 20222023 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)2022202120222021(dollars in thousands)2023202220232022
Noninterest income:Noninterest income:Noninterest income:
Wealth management revenueWealth 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 revenueResidential mortgage banking revenue210 1,287 (1,077)1,193 4,423 (3,230)Residential mortgage banking revenue507 210 297 1,452 1,193 259 
Service charges on deposit accountsService charges on deposit accounts2,597 2,268 329 6,969 6,010 959 Service charges on deposit accounts3,149 2,783 366 8,744 7,544 1,200 
Interchange revenueInterchange revenue3,531 3,651 (120)10,401 10,823 (422)Interchange revenue3,609 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, netLoss on sales of investment securities, net(4,961)(129)(4,832)(6,478)(230)(6,248)
Impairment on commercial mortgage servicing rightsImpairment 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 insuranceCompany-owned life insurance929 869 60 2,788 2,592 196 Company-owned life insurance7,558 929 6,629 9,325 2,788 6,537 
Other incomeOther income2,489 2,770 (281)6,713 8,816 (2,103)Other income2,035 2,303 (268)9,989 6,138 3,851 
Total noninterest incomeTotal 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 revenueLoss on sale of investment securities. Wealth management revenue decreased $1.0 million and $0.2 million forThe 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. The2022. As previously discussed, the Company added $399.7recognized a one-time enhancement fee of $6.6 million of assets under administration from the acquisitionsurrender 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 $5.5Other 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 periodsperiod 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 andincreased $1.4 million for the three and nine months ended September 30, 2022, respectively,2023, compared to the same periodsperiod 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 inservicing 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, 20222023 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)2022202120222021(dollars in thousands)2023202220232022
Noninterest expense:Noninterest expense:Noninterest expense:
Salaries and employee benefitsSalaries 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 equipmentOccupancy and equipment3,850 3,701 149 11,094 11,437 (343)Occupancy and equipment3,730 3,850 (120)12,052 11,094 958 
Data processingData processing6,093 6,495 (402)18,048 18,776 (728)Data processing6,468 6,093 375 19,323 18,048 1,275 
FDIC insuranceFDIC insurance1,107 977 130 3,632 2,633 999 
ProfessionalProfessional1,693 1,738 (45)5,181 9,472 (4,291)Professional1,554 1,693 (139)4,977 5,181 (204)
MarketingMarketing1,026 860 166 2,447 2,037 410 Marketing950 1,026 (76)2,323 2,447 (124)
CommunicationsCommunications587 689 (102)1,934 2,335 (401)Communications507 587 (80)1,514 1,934 (420)
Loan expenseLoan expense866 1,137 (271)3,104 3,379 (275)
Amortization of intangible assetsAmortization of intangible assets1,361 1,445 (84)4,077 4,430 (353)Amortization of intangible assets1,129 1,361 (232)3,628 4,077 (449)
FHLB advances prepayment fees— — — — 3,677 (3,677)
Other expenseOther expense5,997 4,189 1,808 15,534 12,374 3,160 Other expense3,420 3,883 (463)9,454 9,522 (68)
Total noninterest expenseTotal 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 duethe result of our continuing investments in technology to annual salary increases in 2022better 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 $4.32023, 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 toFDIC 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 comparedis due primarily to the same periods in 2021, primarily as a result of increased business activities.
Income Tax Expense. Income tax expense was $5.9of $4.5 million for eachassociated with a surrender of the three months ended September 30, 2022company-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 decreasea $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, 20222023 and December 31, 2021:2022:
September 30, 2022December 31, 2021September 30, 2023December 31, 2022
(dollars in thousands)(dollars in thousands)Book Value%Book Value%(dollars in thousands)BalancePercentBalancePercent
Loans:Loans:Loans:
Commercial:Commercial:Commercial:
Equipment finance loansEquipment finance loans$577,323 9.3 %$521,973 10.0 %Equipment finance loans$578,931 9.2 %$616,751 9.8 %
Equipment finance leasesEquipment finance leases457,611 7.4 423,280 8.1 Equipment finance leases485,460 7.8 491,744 7.8 
Commercial FHA linesCommercial FHA lines51,309 0.8 91,927 1.8 Commercial FHA lines48,547 0.8 25,029 0.4 
SBA PPP loans2,810 — 52,477 1.0 
Other commercial loansOther commercial loans904,841 14.6 783,811 14.9 Other commercial loans943,761 15.0 872,794 13.8 
Total commercial loans and leasesTotal commercial loans and leases1,993,894 32.2 1,873,468 35.8 Total commercial loans and leases2,056,699 32.8 2,006,318 31.8 
Commercial real estateCommercial real estate2,466,303 39.8 1,816,828 34.8 Commercial real estate2,412,164 38.4 2,433,159 38.6 
Construction and land developmentConstruction and land development225,549 3.6 193,749 3.7 Construction and land development416,801 6.6 320,882 5.1 
Residential real estateResidential real estate356,225 5.7 338,151 6.5 Residential real estate375,211 6.0 366,094 5.8 
ConsumerConsumer1,156,480 18.7 1,002,605 19.2 Consumer1,020,008 16.2 1,180,014 18.7 
Total loans, grossTotal loans, gross6,198,451 100.0 %5,224,801 100.0 %Total loans, gross6,280,883 100.0 %6,306,467 100.0 %
Allowance for credit losses on loansAllowance for credit losses on loans(58,639)(51,062)Allowance for credit losses on loans(66,669)(61,051)
Total loans, netTotal loans, net$6,139,812 $5,173,739 Total loans, net$6,214,214 $6,245,416 

Total loans increased $973.7decreased $25.6 million to $6.20$6.28 billion at September 30, 20222023, 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 growthincrease in our construction and land development portfolio of $95.9 million was primarily reflected indriven 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.
CommercialConsumer 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. Excluding2023 primarily due to a decrease in loans originated through the decreasesprogram with GreenSky, as expected. On January 24, 2023, the Company notified GreenSky that, effective October 21, 2023, the Company would terminate its participation in PPPGreenSky’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, 2022September 30, 2023
Within One YearOne Year to Five YearsFive Years to 15 YearsAfter 15 YearsWithin One YearOne Year to Five YearsFive Years to 15 YearsAfter 15 Years
(dollars in thousands)(dollars in thousands)Fixed RateAdjustable
Rate
Fixed RateAdjustable
Rate
Fixed RateAdjustable
Rate
Fixed RateAdjustable
Rate
Total(dollars in thousands)Fixed RateAdjustable
Rate
Fixed RateAdjustable
Rate
Fixed RateAdjustable
Rate
Fixed RateAdjustable
Rate
Total
CommercialCommercial$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 estateCommercial real estate179,868 170,173 953,862 519,247 425,956 183,182 5,727 28,288 2,466,303 Commercial real estate157,723 295,113 987,952 382,396 380,537 183,848 5,496 19,099 2,412,164 
Construction and land developmentConstruction and land development3,485 58,030 30,473 101,061 9,073 20,635 1,024 1,768 225,549 Construction and land development13,662 67,570 107,525 167,375 15,344 42,529 1,013 1,783 416,801 
Total commercial loansTotal commercial loans258,515 701,256 1,591,105 707,603 627,862 300,853 6,751 34,190 4,228,135 Total commercial loans263,491 839,611 1,749,661 592,995 556,772 322,234 6,509 68,931 4,400,204 
Residential real estateResidential real estate1,878 5,091 8,463 18,272 33,016 39,010 143,508 106,987 356,225 Residential real estate969 3,368 8,530 19,238 26,218 39,106 162,533 115,249 375,211 
ConsumerConsumer1,834 4,012 1,130,138 555 19,941 — — — 1,156,480 Consumer3,314 533 979,100 534 36,526 — — 1,020,008 
Lease financingLease financing10,773 — 344,919 — 101,919 — — — 457,611 Lease financing13,930 — 365,602 — 105,928 — — — 485,460 
Total loansTotal 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, 20222023 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, 2022December 31, 2021September 30, 2023December 31, 2022
(dollars in thousands)(dollars in thousands)Allowance
% (1)
Allowance
% (1)
(dollars in thousands)Allowance
Percent (1)
Allowance
Percent (1)
CommercialCommercial$14,364 0.93%$14,375 0.99%Commercial$19,410 1.24 %$14,639 0.97 %
Commercial real estateCommercial real estate28,430 1.1522,993 1.27Commercial real estate24,611 1.02 29,290 1.20 
Construction and land developmentConstruction and land development1,591 0.71972 0.50Construction and land development3,530 0.85 2,435 0.76 
Total commercial loansTotal commercial loans44,385 1.0538,340 1.11Total commercial loans47,551 1.08 46,364 1.09 
Residential real estateResidential real estate4,171 1.172,695 0.80Residential real estate5,698 1.52 4,301 1.17 
ConsumerConsumer3,405 0.292,558 0.26Consumer3,984 0.39 3,599 0.30 
Lease financingLease financing6,678 1.467,469 1.76Lease financing9,436 1.94 6,787 1.38 
Total allowance for credit losses on loansTotal 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 toincreased $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% of1.02% to total commercial real estate loans, at September 30, 2022, increasing $5.42023, 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 $1.0decreased $2.6 million and Q-Factorqualitative factor adjustments related to commercial real estate loans increased $4.5decreased $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 $0.82023, 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 toincreased $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 expectsmodels. 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 experiencepolicy rate through year end with a mild recessiongradual 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 in2024; 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-FactorThese "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-Factorqualitative 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, 20222023 was based primarily on declining credit quality conditions within the equipment financing segment, economic conditions, including risingpersistent 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, 20222023 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)2022202120222021(dollars in thousands)2023202220232022
Balance, beginning of periodBalance, 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:
CommercialCommercial1,655 317 3,869 3,457 Commercial3,249 1,655 5,289 3,869 
Commercial real estateCommercial real estate1,232 1,663 4,084 3,382 Commercial real estate2,316 1,232 4,606 4,084 
Construction and land developmentConstruction and land development— 138 410 Construction and land development44 — 378 
Residential real estateResidential real estate166 35 315 286 Residential real estate95 166 180 315 
ConsumerConsumer316 280 812 740 Consumer250 316 773 812 
Lease financingLease financing485 1,227 1,190 1,996 Lease financing1,394 485 2,555 1,190 
Total charge-offsTotal charge-offs3,854 3,660 10,276 10,271 Total charge-offs7,348 3,854 13,781 10,276 
Recoveries:Recoveries:Recoveries:
CommercialCommercial45 134 354 288 Commercial80 45 577 354 
Commercial real estateCommercial real estate16 Commercial real estate3,678 4,006 
Construction and land developmentConstruction and land development18 74 30 221 Construction and land development— 18 32 30 
Residential real estateResidential real estate69 66 222 180 Residential real estate33 69 98 222 
ConsumerConsumer121 93 381 370 Consumer53 121 226 381 
Lease financingLease financing367 301 1,013 478 Lease financing55 367 278 1,013 
Total recoveriesTotal recoveries621 671 2,006 1,553 Total recoveries3,899 621 5,217 2,006 
Net charge-offsNet charge-offs3,233 2,989 8,270 8,718 Net charge-offs3,449 3,233 8,564 8,270 
Provision for credit losses on loansProvision for credit losses on loans6,974 — 15,847 3,950 Provision for credit losses on loans5,168 6,974 14,182 15,847 
Balance, end of periodBalance, 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 periodGross 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 loansAverage 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 loansNet charge-offs to average loans0.21 %0.25 %0.20 %0.24 %Net charge-offs to average loans0.22 %0.21 %0.18 %0.20 %
Allowance to total loans0.95 %1.13 %0.95 %1.13 %
Allowance for credit losses to total loansAllowance for credit losses to total loans1.06 %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, 20222023 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, 2022December 31, 2021
Nonperforming loans:
Commercial$8,799 $12,261 
Commercial real estate27,236 19,175 
Construction and land development275 120 
Residential real estate7,776 7,912 
Consumer273 208 
Lease financing2,523 2,904 
Total nonperforming loans46,882 42,580 
Other real estate owned and other repossessed assets12,641 14,488 
Nonperforming assets$59,523 $57,068 
Nonperforming loans to total loans0.76 %0.81 %
Nonperforming assets to total assets0.76 %0.77 %
Allowance for credit losses to nonperforming loans125.08 %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, 2023December 31, 2022
Nonperforming loans:
Commercial$8,836 $7,853 
Commercial real estate33,603 29,602 
Construction and land development2,025 229 
Residential real estate3,856 8,449 
Consumer103 921 
Lease financing7,558 2,369 
Total nonperforming loans55,981 49,423 
Other real estate owned and other repossessed assets2,696 8,401 
Nonperforming assets$58,677 $57,824 
Nonperforming loans to total loans0.89 %0.78 %
Nonperforming assets to total assets0.74 %0.74 %
Allowance for credit losses to nonperforming loans119.09 %123.53 %
We did not recognize interest income on nonaccrual loans during the three and nine months ended September 30, 20222023 or 20212022 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 commercialchange in our non-performing loans by loan category atfor the dates indicated:
CommercialCommercial
real estate
Construction &
land development
Risk categoryRisk categoryRisk 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, 202128,248 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 ofnine 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 loans35,071 
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, 20222023 and December 31, 2021.2022. The book value for investment securities classified as available for sale is equal to fair market value.
September 30, 2022December 31, 2021September 30, 2023December 31, 2022
(dollars in thousands)(dollars in thousands)Book
Value
% of
Total
Book
Value
% of
Total
(dollars in thousands)BalancePercentBalancePercent
Investment securities available for sale:Investment securities available for sale:                Investment securities available for sale:                
U.S. Treasury securitiesU.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 securitiesU.S. government sponsored entities and U.S. agency securities27,865 4.1 33,817 3.7 U.S. government sponsored entities and U.S. agency securities89,038 10.6 37,509 4.9 
Mortgage-backed securities - agencyMortgage-backed securities - agency391,615 57.4 440,270 48.5 Mortgage-backed securities - agency517,391 62.0 448,150 58.3 
Mortgage-backed securities - non-agencyMortgage-backed securities - non-agency21,158 3.1 28,706 3.2 Mortgage-backed securities - non-agency72,665 8.7 20,754 2.7 
State and municipal securitiesState and municipal securities95,061 13.9 143,099 15.8 State and municipal securities49,737 6.0 94,636 12.3 
Collateralized loan obligationsCollateralized loan obligations22,385 2.7 — — 
Corporate securitiesCorporate securities85,694 12.6 195,794 21.6 Corporate securities82,230 9.8 85,955 11.2 
Total investment securities, available for sale, at fair valueTotal 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 totalWeighted 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 years59,898 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 years15,534 2.3 1.18 
Maturing in five to ten years12,256 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 years129,152 18.9 2.19 
Maturing in five to ten years189,116 27.7 1.90 
Maturing after ten years70,184 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 years293 — 3.63 
Maturing in five to ten years15,529 2.2 2.41 
Maturing after ten years5,336 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 years28,511 4.2 3.59 
Maturing in five to ten years31,269 4.6 2.67 
Maturing after ten years26,161 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 years9,631 1.4 2.39 
Maturing in five to ten years76,063 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)BalancePercentWeighted 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 years289 — 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 years65,037 7.8 4.42 
Maturing in five to ten years10,963 1.3 2.08 
Maturing after ten years3,057 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 years244,137 29.2 3.74 
Maturing in five to ten years154,292 18.5 2.74 
Maturing after ten years113,368 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 years56,346 6.8 4.56 
Maturing in five to ten years9,239 1.1 2.25 
Maturing after ten years7,080 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 years7,485 0.9 3.07 
Maturing in five to ten years26,166 3.1 2.20 
Maturing after ten years14,766 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 years11,418 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 years19,745 2.4 3.59 
Maturing in five to ten years62,485 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.
AmortizedEstimatedAverage credit rating
(dollars in thousands)costfair valueAAAAA+/-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 securities32,267 27,865 23,289 4,576 — — — — 
Mortgage-backed securities - agency469,822 391,615 13 391,602 — — — — 
Mortgage-backed securities - non-agency25,341 21,158 21,158 — — — — — 
State and municipal securities105,838 95,061 7,782 74,730 2,010 986 — 9,553 
Corporate securities95,313 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.
AmortizedFairAverage credit rating
(dollars in thousands)costValueAAAAA+/-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 securities93,291 89,038 71,119 17,919 — — — — 
Mortgage-backed securities - agency613,484 517,391 517,385 — — — — 
Mortgage-backed securities - non-agency77,617 72,665 13,604 59,061 — — — — 
State and municipal securities59,521 49,737 636 48,847 — 254 — — 
Collateralized loan obligations22,662 22,385 14,155 8,230 — — — — 
Corporate securities95,124 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 acquired2022. 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 bearingnoninterest-bearing demand account balances.
Noninterest-bearing demand accounts decreased $220.5balances 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 compositiondecreased 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 endedat September 30, 2022 and 2021:2023 compared to 21.4% at December 31, 2022.
Three Months Ended September 30,
20222021
(dollars in thousands)(dollars in thousands)Average balanceWeighted average rateAverage balanceWeighted average rate(dollars in thousands)September 30, 2023December 31, 2022
Deposits:                
BalancePercentBalancePercent
Noninterest-bearing demandNoninterest-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:
CheckingChecking1,850,789 1.42 %1,672,599 0.12 %Checking2,572,224 40.2 2,494,073 39.2 
Money marketMoney market1,110,660 0.86 828,655 0.09 Money market1,090,962 17.0 1,184,101 18.6 
SavingsSavings718,970 0.08 664,354 0.02 Savings582,359 9.1 661,932 10.4 
Time, insured493,351 0.60 554,119 1.04 
Time, uninsured136,850 0.81 149,971 0.83 
Time, brokered14,478 1.35 26,272 1.23 
Total interest-bearing$4,325,098 0.94 %$3,895,970 0.26 %
TimeTime1,004,942 15.7 662,388 10.4 
Total depositsTotal 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$18,84148,203 
Three to six months13,02032,134 
Six to 12 months24,49820,001 
After 12 months62,8515,504 
Total$119,210105,842 
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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, 20222023 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, stockdividends to preferred shareholders of $6.7 million, repurchases of $1.1common stock of $15.0 million and a decreasean increase in accumulated other comprehensive losslosses 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 stockshare 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, $56.42023, $14.9 million, or 2,996,778703,868 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.
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, 20222023 and December 31, 2021,2022, respectively, were pledged for securities sold under agreements to repurchase.
The Company had available linestable below presents our sources of creditliquidity as of $13.5 million and $55.9 million at September 30, 20222023 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, 2023December 31, 2022
Cash and cash equivalents$132,132 $160,631 
Unpledged securities258,104 209,184 
FHLB committed liquidity883,855 997,388 
FRB discount window availability759,763 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:
RatioRatioActual
Minimum
Regulatory
Requirements (1)
Well
Capitalized
RatioActual
Minimum
Regulatory
Requirements (1)
Well
Capitalized
Total risk-based capital ratioTotal risk-based capital ratioTotal risk-based capital ratio
Midland States Bancorp, Inc.Midland States Bancorp, Inc.12.75 %10.50 %N/AMidland States Bancorp, Inc.12.84 %10.50 %N/A
Midland States BankMidland States Bank11.16 10.50 10.00 %Midland States Bank12.13 10.50 10.00 %
Tier 1 risk-based capital ratioTier 1 risk-based capital ratioTier 1 risk-based capital ratio
Midland States Bancorp, Inc.Midland States Bancorp, Inc.10.02 8.50 N/AMidland States Bancorp, Inc.10.62 8.50 N/A
Midland States BankMidland States Bank10.39 8.50 8.00 Midland States Bank11.21 8.50 8.00 
Common equity tier 1 risk-based capital ratioCommon equity tier 1 risk-based capital ratioCommon equity tier 1 risk-based capital ratio
Midland States Bancorp, Inc.Midland States Bancorp, Inc.7.54 7.00 N/AMidland States Bancorp, Inc.8.16 7.00 N/A
Midland States BankMidland States Bank10.39 7.00 6.50 Midland States Bank11.21 7.00 6.50 
Tier 1 leverage ratioTier 1 leverage ratioTier 1 leverage ratio
Midland States Bancorp, Inc.Midland States Bancorp, Inc.9.40 4.00 N/AMidland States Bancorp, Inc.9.67 4.00 N/A
Midland States BankMidland States Bank9.75 4.00 5.00 Midland States Bank10.21 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, netto model interest income is modeledrate 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 riskRisk 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 ratesImmediate 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 changeDollar change$(12,193)$11,202 $22,297 Dollar change$13,564 $4,761 $(7,540)$(15,513)
Percent changePercent change(4.6)%4.2 %8.4 %Percent change5.9 %2.1 %(3.3)%(6.7)%
December 31, 2021:
December 31, 2022:December 31, 2022:
Dollar changeDollar change$(13,499)$23,513 $47,028 Dollar change$— $(12,560)$10,814 $21,357 
Percent changePercent 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, 20222023 projects that our earnings exhibit reduced sensitivity to changesincreasing profitability in interest rates for all three scenariosa 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.
ITEMITEM 3 – QUANTITATIVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 Aboutabout Market Risk”.
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ITEMITEM 4 – CONTROLSCONTROLS AND PROCEDURESPROCEDURES
Evaluation of disclosure controls and procedures. The Company’s management, including our President and
Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM ITEM 1LEGAL PROCEEDINGS LEGAL PROCEEDINGS
In the normal course of business, we are named or threatened to be named as a defendant in various lawsuits, none of which we expect to have a material effect on the Company. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business (including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security, anti-money laundering and anti-terrorism), we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk. There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.
ITEM 1ARISK FACTORSITEM 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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ITEMITEM 2 – UNREGISTERED SALESUNREGISTERED SALES OF EQUITY SECURITIESEQUITY SECURITIES AND USEUSE OF PROCEEDSPROCEEDS
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 shareTotal 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, 2022162 $24.68 — $18,565,174 
August 1 - 31, 2022196 26.88 — 18,565,174 
September 1 - 30, 2022— — — 18,565,174 
Total358 $25.89 — $18,565,174 
Period
Total number of shares purchased(1)
Average price paid per shareTotal 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, 2023114,603 $22.15 114,500 $13,559,785 
August 1 - 31, 202397,496 22.24 97,317 11,395,800 
September 1 - 30, 202359,282 21.94 59,242 10,096,015 
Total271,381 $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 AugustDecember 6, 2019, and has amended2022, 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 thesethis 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, 2,996,7782023, 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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ITEMITEM 6 – EXHIBITSEXHIBITS
Exhibit No.Description
31.1
31.2
32.1
32.2
101Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 20222023 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.
104The cover page from Midland States Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended September 30, 20222023 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, 20222, 2023By:/s/Jeffrey G. Ludwig
Jeffrey G. Ludwig
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 3, 20222, 2023By:/s/Eric T. Lemke
Eric T. Lemke
Chief Financial Officer
(Principal Financial Officer)

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