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, 2017

March 31, 2024

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

For the transition period from ______________ to _______________

Commission File Number001-35272


MIDLAND STATES BANCORP, INC.

(Exact name of registrant as specified in its charter)


Illinois

37-1233196

ILLINOIS

37-1233196

(State of other jurisdiction of incorporation or organization)

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

1201 Network Centre Drive

Effingham, IL

62401

Effingham, IL

(Zip Code)
(Address of principal executive offices)

(Zip Code)

(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes No

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

Large accelerated filer ☐

Accelerated filer 

Non-accelerated filer

Smaller reporting company 

Emerging growth company

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

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

As of October 31, 2017,April 26, 2024, the Registrant had 19,098,89021,481,762 shares of outstanding common stock, $0.01 par value.



Table of Contents

MIDLAND STATESBANCORP, INC.

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Page

PART I.FINANCIAL INFORMATION

Consolidated Balance Sheets at September 30, 2017 March 31, 2024(Unaudited) and December 31, 2016

2023
1

Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2017 March 31, 2024 and 2016

2023
2

Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2017March 31, 2024 and 2016

2023
3

Consolidated Statements of Shareholders’ Equity (Unaudited) for the ninethree months ended September 30, 2017March 31, 2024 and 2016

2023
4

Consolidated Statements of Cash Flows (Unaudited) for the ninethree months ended September 30, 2017 March 31, 2024 and 2016

2023
5

6

44

70

70

70

71

71

72

73



1

Table of Contents

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

As used in this report, references to the "Company," "we," "our," "us," and similar terms refer to the consolidated entity consisting of Midland States Bancorp, Inc. and its wholly owned subsidiaries. Midland States Bancorp refers solely to the parent holding company and Midland States Bank (the "Bank") refers to our wholly owned banking subsidiary.
The acronyms and abbreviations identified below are used throughout this report, including the Notes to the Consolidated Financial Statements. You may find it helpful to refer to this page as you read this report.
2019 Incentive PlanThe Amended and Restated Midland States Bancorp, Inc. 2019 Long-Term Incentive Plan
ACLAllowance for credit losses on loans
ASUAccounting Standards Update
BaaSBanking-as-a-Service
Basel III RuleBasel III regulatory capital reforms required by the Dodd-Frank Act
BHCABank Holding Company Act of 1956, as amended
CBLRCommunity Bank Leverage Ratio
CFPBConsumer Financial Protection Bureau 
CISACybersecurity and Infrastructure Security Agency
COVIDCoronavirus Disease
CRACommunity Reinvestment Act
CRA ProposalJoint Proposal to Strengthen and Modernize Community Reinvestment Act Regulations 
CRECommercial Real Estate
CRE GuidanceConcentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance
DFPRIllinois Department of Financial and Professional Regulation
DIFDeposit Insurance Fund
EADExposure at default
Exchange ActSecurities Exchange Act of 1934
FASBFinancial Accounting Standards Board 
FDICFederal Deposit Insurance Corporation
Federal ReserveBoard of Governors of the Federal Reserve System
FHAFederal Housing Administration
FHLBFederal Home Loan Bank
FinTechFinancial Technology
FRBFederal Reserve Bank
GAAPU.S. generally accepted accounting principles 
GreenskyGreenSky, LLC
Illinois CRAIllinois Community Reinvestment Act 
LendingPointLendingPoint, LLC
LGDLoss given default
LIBORLondon Inter-Bank Offered Rate
Midland TrustMidland States Preferred Securities Trust
NasdaqNasdaq Global Select Market
NII at RiskNet Interest Income at Risk 
OREOOther real estate owned
PCAOBPublic Company Accounting Oversight Board
PCDPurchased credit deteriorated
PDProbability of default
Q-FactorQualitative factor
Regulatory Relief ActEconomic Growth, Regulatory Relief and Consumer Protection Act
SBASmall Business Administration
SECU.S. Securities and Exchange Commission
SOFRSecured Overnight Financing Rate
TreasuryU.S. Department of the Treasury
TDRTroubled debt restructuring


2

Table of Contents
PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

MIDLAND STATES BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

    

2017

    

2016

 

 

(unaudited)

 

 

 

 

March 31,
2024
March 31,
2024
March 31,
2024
(unaudited)
(unaudited)
(unaudited)
Assets
Assets

Assets

 

 

 

 

 

 

 

Cash and due from banks

 

$

180,807

 

$

189,543

 

Cash and due from banks
Cash and due from banks
Federal funds sold
Federal funds sold

Federal funds sold

 

 

2,765

 

 

1,173

 

Cash and cash equivalents

 

 

183,572

 

 

190,716

 

Cash and cash equivalents
Cash and cash equivalents

Investment securities available for sale, at fair value

 

 

396,985

 

 

246,339

 

Investment securities held to maturity, at amortized cost (fair value of $75,142 and $81,952 at September 30, 2017 and December 31, 2016, respectively)

 

 

70,867

 

 

78,672

 

Investment securities available for sale, at fair value
Investment securities available for sale, at fair value
Equity securities, at fair value
Equity securities, at fair value
Equity securities, at fair value

Loans

 

 

3,157,972

 

 

2,319,976

 

Allowance for loan losses

 

 

(16,861)

 

 

(14,862)

 

Loans
Loans
Allowance for credit losses on loans
Allowance for credit losses on loans
Allowance for credit losses on loans

Total loans, net

 

 

3,141,111

 

 

2,305,114

 

Loans held for sale, at fair value

 

 

35,874

 

 

70,565

 

Total loans, net
Total loans, net
Loans held for sale
Loans held for sale
Loans held for sale

Premises and equipment, net

 

 

80,941

 

 

66,692

 

Premises and equipment, net
Premises and equipment, net
Other real estate owned
Other real estate owned

Other real estate owned

 

 

6,379

 

 

3,560

 

Nonmarketable equity securities

 

 

34,391

 

 

19,485

 

Nonmarketable equity securities
Nonmarketable equity securities

Accrued interest receivable

 

 

11,673

 

 

8,202

 

Mortgage servicing rights, at lower of cost or market

 

 

56,299

 

 

68,008

 

Mortgage servicing rights held for sale

 

 

10,618

 

 

 —

 

Intangible assets

 

 

17,966

 

 

7,187

 

Accrued interest receivable
Accrued interest receivable
Loan servicing rights, at lower of cost or fair value
Loan servicing rights, at lower of cost or fair value
Loan servicing rights, at lower of cost or fair value

Goodwill

 

 

97,351

 

 

48,836

 

Cash surrender value of life insurance policies

 

 

112,591

 

 

74,226

 

Accrued income taxes receivable

 

 

2,209

 

 

5,862

 

Deferred tax assets, net

 

 

22,845

 

 

 —

 

Goodwill
Goodwill
Other intangible assets, net
Other intangible assets, net
Other intangible assets, net
Company-owned life insurance
Company-owned life insurance
Company-owned life insurance
Other assets
Other assets

Other assets

 

 

66,089

 

 

40,259

 

Total assets

 

$

4,347,761

 

$

3,233,723

 

Total assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities and Shareholders’ Equity

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Liabilities:
Liabilities:

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing

 

$

674,118

 

$

562,333

 

Interest-bearing

 

 

2,440,349

 

 

1,842,033

 

Deposits:
Deposits:
Noninterest-bearing demand deposits
Noninterest-bearing demand deposits
Noninterest-bearing demand deposits
Interest-bearing deposits
Interest-bearing deposits
Interest-bearing deposits
Total deposits
Total deposits

Total deposits

 

 

3,114,467

 

 

2,404,366

 

Short-term borrowings

 

 

153,443

 

 

131,557

 

FHLB advances and other borrowings

 

 

488,870

 

 

237,518

 

Short-term borrowings
Short-term borrowings
Federal Home Loan Bank advances and other borrowings
Federal Home Loan Bank advances and other borrowings
Federal Home Loan Bank advances and other borrowings
Subordinated debt
Subordinated debt

Subordinated debt

 

 

54,581

 

 

54,508

 

Trust preferred debentures

 

 

45,267

 

 

37,405

 

Accrued interest payable

 

 

2,355

 

 

1,045

 

Deferred tax liabilities, net

 

 

 —

 

 

8,598

 

Other liabilities

 

 

38,089

 

 

36,956

 

Trust preferred debentures
Trust preferred debentures
Accrued interest payable and other liabilities
Accrued interest payable and other liabilities
Accrued interest payable and other liabilities
Total liabilities
Total liabilities

Total liabilities

 

 

3,897,072

 

 

2,911,953

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

Preferred stock, Series H, $2 par value, $1,000 per share liquidation value; 2,636 shares authorized, issued and outstanding at September 30, 2017

 

 

3,015

 

 

 —

 

Common stock, $0.01 par value; 40,000,000 shares authorized; 19,093,153 and 15,483,499 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

191

 

 

155

 

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 March 31, 2024 and December 31, 2023, respectively
Preferred stock, $2.00 par value; 4,000,000 shares authorized; 115,000 Series A shares, $1,000 per share liquidation preference, issued and outstanding at March 31, 2024 and December 31, 2023, respectively
Preferred stock, $2.00 par value; 4,000,000 shares authorized; 115,000 Series A shares, $1,000 per share liquidation preference, issued and outstanding at March 31, 2024 and December 31, 2023, respectively
Common stock, $0.01 par value; 40,000,000 shares authorized; 21,485,231 and 21,551,402 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
Common stock, $0.01 par value; 40,000,000 shares authorized; 21,485,231 and 21,551,402 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
Common stock, $0.01 par value; 40,000,000 shares authorized; 21,485,231 and 21,551,402 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
Capital surplus
Capital surplus

Capital surplus

 

 

329,934

 

 

209,712

 

Retained earnings

 

 

116,373

 

 

112,513

 

Accumulated other comprehensive income (loss)

 

 

1,176

 

 

(610)

 

Retained earnings
Retained earnings
Accumulated other comprehensive loss, net of tax
Accumulated other comprehensive loss, net of tax
Accumulated other comprehensive loss, net of tax
Total shareholders’ equity
Total shareholders’ equity

Total shareholders’ equity

 

 

450,689

 

 

321,770

 

Total liabilities and shareholders’ equity

 

$

4,347,761

 

$

3,233,723

 

Total liabilities and shareholders’ equity
Total liabilities and shareholders’ equity

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

1

3

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME—INCOME — (UNAUDITED)

(dollars in thousands, except per share data)

Three Months Ended March 31,
Three Months Ended March 31,
Three Months Ended March 31,
2024
2024
2024
Interest income:
Interest income:
Interest income:
Loans including fees:
Loans including fees:
Loans including fees:
Taxable
Taxable
Taxable
Tax exempt
Tax exempt
Tax exempt
Loans held for sale
Loans held for sale
Loans held for sale
Investment securities:
Investment securities:
Investment securities:
Taxable
Taxable
Taxable
Tax exempt
Tax exempt
Tax exempt
Nonmarketable equity securities
Nonmarketable equity securities
Nonmarketable equity securities
Federal funds sold and cash investments
Federal funds sold and cash investments
Federal funds sold and cash investments
Total interest income
Total interest income
Total interest income
Interest expense:
Interest expense:
Interest expense:
Deposits
Deposits
Deposits
Short-term borrowings
Short-term borrowings
Short-term borrowings
Federal Home Loan Bank advances and other borrowings
Federal Home Loan Bank advances and other borrowings
Federal Home Loan Bank advances and other borrowings
Subordinated debt
Subordinated debt
Subordinated debt
Trust preferred debentures
Trust preferred debentures
Trust preferred debentures
Total interest expense
Total interest expense
Total interest expense
Net interest income
Net interest income
Net interest income
Provision for credit losses on loans
Provision for credit losses on loans
Provision for credit losses on loans
Net interest income after provision for credit losses
Net interest income after provision for credit losses
Net interest income after provision for credit losses
Noninterest income:
Noninterest income:
Noninterest income:
Wealth management revenue
Wealth management revenue
Wealth management revenue
Service charges on deposit accounts
Service charges on deposit accounts
Service charges on deposit accounts
Interchange revenue
Interchange revenue
Interchange revenue
Residential mortgage banking revenue
Residential mortgage banking revenue
Residential mortgage banking revenue
Income on company-owned life insurance
Income on company-owned life insurance
Income on company-owned life insurance
Loss on sales of investment securities, net
Loss on sales of investment securities, net
Loss on sales of investment securities, net

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2017

    

2016

    

2017

    

2016

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

$

38,689

 

$

26,047

 

$

97,016

 

$

75,741

 

Tax exempt

 

 

313

 

 

254

 

 

953

 

 

899

 

Loans held for sale

 

 

438

 

 

858

 

 

1,926

 

 

2,401

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

1,905

 

 

2,766

 

 

4,705

 

 

8,222

 

Tax exempt

 

 

963

 

 

892

 

 

2,820

 

 

2,739

 

Nonmarketable equity securities

 

 

331

 

 

174

 

 

788

 

 

504

 

Federal funds sold and cash investments

 

 

607

 

 

195

 

 

1,405

 

 

762

 

Total interest income

 

 

43,246

 

 

31,186

 

 

109,613

 

 

91,268

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,377

 

 

2,189

 

 

8,570

 

 

6,701

 

Short-term borrowings

 

 

100

 

 

81

 

 

262

 

 

217

 

FHLB advances and other borrowings

 

 

1,494

 

 

306

 

 

2,901

 

 

698

 

Subordinated debt

 

 

873

 

 

873

 

 

2,619

 

 

2,985

 

Trust preferred debentures

 

 

637

 

 

472

 

 

1,635

 

 

1,373

 

Total interest expense

 

 

6,481

 

 

3,921

 

 

15,987

 

 

11,974

 

Net interest income

 

 

36,765

 

 

27,265

 

 

93,626

 

 

79,294

 

Provision for loan losses

 

 

1,489

 

 

1,392

 

 

3,480

 

 

3,146

 

Net interest income after provision for loan losses

 

 

35,276

 

 

25,873

 

 

90,146

 

 

76,148

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial FHA revenue

 

 

3,777

 

 

3,260

 

 

14,625

 

 

18,360

 

Residential mortgage banking revenue

 

 

2,317

 

 

4,990

 

 

7,563

 

 

7,148

 

Wealth management revenue

 

 

3,475

 

 

1,941

 

 

9,754

 

 

5,596

 

Service charges on deposit accounts

 

 

2,133

 

 

1,044

 

 

4,147

 

 

2,916

 

Interchange revenue

 

 

1,724

 

 

920

 

 

3,816

 

 

2,829

 

FDIC loss-sharing expense

 

 

 —

 

 

 —

 

 

 —

 

 

(1,661)

 

Gain on sales of investment securities, net

 

 

98

 

 

39

 

 

219

 

 

315

 

Other-than-temporary impairment on investment securities

 

 

 —

 

 

 —

 

 

 —

 

 

(824)

 

Gain on sales of other real estate owned

 

 

22

 

 

33

 

 

54

 

 

112

 

Other income
Other income

Other income

 

 

1,857

 

 

2,710

 

 

5,186

 

 

6,781

 

Total noninterest income

 

 

15,403

 

 

14,937

 

 

45,364

 

 

41,572

 

Total noninterest income
Total noninterest income
Noninterest expense:
Noninterest expense:

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

22,411

 

 

16,568

 

 

61,368

 

 

48,967

 

Salaries and employee benefits
Salaries and employee benefits
Occupancy and equipment
Occupancy and equipment

Occupancy and equipment

 

 

4,144

 

 

3,271

 

 

10,800

 

 

9,815

 

Data processing

 

 

5,786

 

 

2,586

 

 

11,531

 

 

7,830

 

Data processing
Data processing

FDIC insurance

 

 

565

 

 

388

 

 

1,403

 

 

1,350

 

Professional

 

 

4,151

 

 

1,877

 

 

10,285

 

 

5,151

 

FDIC insurance
FDIC insurance
Professional services
Professional services
Professional services
Marketing
Marketing

Marketing

 

 

1,070

 

 

717

 

 

2,517

 

 

2,009

 

Communications

 

 

723

 

 

546

 

 

1,655

 

 

1,609

 

Communications
Communications

Loan expense

 

 

629

 

 

314

 

 

1,531

 

 

1,351

 

Other real estate owned

 

 

146

 

 

179

 

 

725

 

 

748

 

Loan expense
Loan expense

Amortization of intangible assets

 

 

1,187

 

 

514

 

 

2,291

 

 

1,613

 

Loss on mortgage servicing rights held for sale

 

 

3,617

 

 

 —

 

 

3,617

 

 

 —

 

Amortization of intangible assets
Amortization of intangible assets
Other expense
Other expense

Other expense

 

 

3,934

 

 

1,697

 

 

9,082

 

 

6,756

 

Total noninterest expense

 

 

48,363

 

 

28,657

 

 

116,805

 

 

87,199

 

Total noninterest expense
Total noninterest expense
Income before income taxes
Income before income taxes

Income before income taxes

 

 

2,316

 

 

12,153

 

 

18,705

 

 

30,521

 

Income taxes

 

 

280

 

 

4,102

 

 

4,640

 

 

10,562

 

Income taxes
Income taxes

Net income

 

 

2,036

 

 

8,051

 

 

14,065

 

 

19,959

 

Preferred stock dividends and premium amortization

 

 

27

 

 

 —

 

 

46

 

 

 —

 

Net income
Net income
Preferred dividends
Preferred dividends
Preferred dividends
Net income available to common shareholders
Net income available to common shareholders

Net income available to common shareholders

 

$

2,009

 

$

8,051

 

$

14,019

 

$

19,959

 

Per common share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Per common share data:
Per common share data:
Basic earnings per common share
Basic earnings per common share

Basic earnings per common share

 

$

0.10

 

$

0.51

 

$

0.81

 

$

1.46

 

Diluted earnings per common share

 

$

0.10

 

$

0.51

 

$

0.78

 

$

1.43

 

Diluted earnings per common share
Diluted earnings per common share
Weighted average common shares outstanding
Weighted average common shares outstanding

Weighted average common shares outstanding

 

 

19,265,409

 

 

15,578,703

 

 

17,274,746

 

 

13,637,997

 

Weighted average diluted common shares outstanding

 

 

19,704,217

 

 

15,858,273

 

 

17,797,235

 

 

13,902,664

 

Weighted average diluted common shares outstanding
Weighted average diluted common shares outstanding

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

2

4

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME—INCOME — (UNAUDITED)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2017

    

2016

    

2017

    

2016

 

Three Months Ended March 31,
Three Months Ended March 31,
Three Months Ended March 31,
2024
2024
2024
Net income
Net income

Net income

 

$

2,036

 

$

8,051

 

$

14,065

 

$

19,959

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):
Other comprehensive income (loss):

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) that occurred during the period

 

 

305

 

 

(233)

 

 

3,245

 

5,789

 

Reclassification adjustment for realized net gains on sales of investment securities included in net income

 

 

(98)

 

 

(39)

 

 

(219)

 

(315)

 

Investment securities available for sale:
Investment securities available for sale:
Unrealized (losses) gains that occurred during the period
Unrealized (losses) gains that occurred during the period
Unrealized (losses) gains that occurred during the period
Reclassification adjustment for realized net losses on sales of investment securities included in net income
Reclassification adjustment for realized net losses on sales of investment securities included in net income
Reclassification adjustment for realized net losses on sales of investment securities included in net income
Income tax effect
Income tax effect

Income tax effect

 

 

(94)

 

 

110

 

 

(1,188)

 

 

(2,203)

 

Change in investment securities available for sale, net of tax

 

 

113

 

 

(162)

 

 

1,838

 

 

3,271

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized gain on investment securities transferred from available-for-sale

 

 

(25)

 

 

(3)

 

 

(83)

 

(42)

 

Change in investment securities available for sale, net of tax
Change in investment securities available for sale, net of tax
Cash flow hedges:
Cash flow hedges:
Cash flow hedges:
Net unrealized derivative gains on cash flow hedges
Net unrealized derivative gains on cash flow hedges
Net unrealized derivative gains on cash flow hedges

Income tax effect

 

 

 9

 

 

 1

 

 

31

 

 

17

 

Change in investment securities held to maturity, net of tax

 

 

(16)

 

 

(2)

 

 

(52)

 

 

(25)

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate swap

 

 

 —

 

 

32

 

 

 —

 

93

 

Income tax effect

Income tax effect

 

 

 —

 

 

(13)

 

 

 —

 

 

(38)

 

Change in cash flow hedges, net of tax

 

 

 —

 

 

19

 

 

 —

 

 

55

 

Other comprehensive income (loss), net of tax

 

 

97

 

 

(145)

 

 

1,786

 

 

3,301

 

Change in cash flow hedges, net of tax
Change in cash flow hedges, net of tax
Other comprehensive (loss) income, net of tax
Other comprehensive (loss) income, net of tax
Other comprehensive (loss) income, net of tax

Total comprehensive income

 

$

2,133

 

$

7,906

 

$

15,851

 

$

23,260

 

Total comprehensive income
Total comprehensive income

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

3

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Table of Contents

MIDLAND STATES BANCORP, INC.

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

NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

    

 

 

    

 

 

    

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

Total

 

 

Preferred

 

Common

 

Capital

 

Retained

 

comprehensive

 

shareholders'

 

 

stock

 

stock

 

surplus

 

earnings

 

(loss) income

 

equity

Balances, December 31, 2016

 

$

 —

 

$

155

 

$

209,712

 

$

112,513

 

$

(610)

 

$

321,770

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

14,065

 

 

 —

 

 

14,065

Compensation expense for stock option grants

 

 

 —

 

 

 —

 

 

413

 

 

 —

 

 

 —

 

 

413

Amortization of restricted stock awards

 

 

 —

 

 

 —

 

 

599

 

 

 —

 

 

 —

 

 

599

Preferred dividends declared

 

 

 —

 

 

 —

 

 

 —

 

 

(102)

 

 

 —

 

 

(102)

Amortization of preferred stock premium

 

 

(56)

 

 

 —

 

 

 —

 

 

56

 

 

 

 

 

 —

Common dividends declared ($0.60 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(10,159)

 

 

 —

 

 

(10,159)

Acquisition of CedarPoint Investment Advisors, Inc.

 

 

 —

 

 

 1

 

 

3,350

 

 

 —

 

 

 —

 

 

3,351

Acquisition of Centrue Financial Corporation

 

 

3,071

 

 

32

 

 

112,480

 

 

 —

 

 

 —

 

 

115,583

Issuance of common stock under employee benefit plans

 

 

 —

 

 

 3

 

 

3,380

 

 

 —

 

 

 —

 

 

3,383

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,786

 

 

1,786

Balances, September 30, 2017

 

$

3,015

 

$

191

 

$

329,934

 

$

116,373

 

$

1,176

 

$

450,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2015

 

$

 —

 

$

118

 

$

135,822

 

$

90,911

 

$

6,029

 

$

232,880

Cumulative effect of change in accounting principle

 

 

 —

 

 

 —

 

 

87

 

 

(87)

 

 

 —

 

 

 —

Balances, January 1, 2016

 

 

 —

 

 

118

 

 

135,909

 

 

90,824

 

 

6,029

 

 

232,880

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

19,959

 

 

 —

 

 

19,959

Compensation expense for stock option grants

 

 

 —

 

 

 —

 

 

315

 

 

 —

 

 

 —

 

 

315

Amortization of restricted stock awards

 

 

 —

 

 

 —

 

 

387

 

 

 —

 

 

 —

 

 

387

Common dividends declared ($0.54 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(7,057)

 

 

 —

 

 

(7,057)

Initial public offering of 3,590,065 shares of common stock, net of issuance costs

 

 

 —

 

 

36

 

 

71,439

 

 

 —

 

 

 —

 

 

71,475

Issuance of common stock under employee benefit plans

 

 

 —

 

 

 —

 

 

489

 

 

 —

 

 

 —

 

 

489

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,301

 

 

3,301

Balances, September 30, 2016

 

$

 —

 

$

154

 

$

208,539

 

$

103,726

 

$

9,330

 

$

321,749

Preferred stockCommon
stock
Capital
surplus
Retained
earnings
Accumulated
other
comprehensive
(loss) income
Total
shareholders'
equity
Balances, December 31, 2023$110,548 $216 $435,463 $322,379 $(76,753)$791,853 
Net income— — — 13,885 — 13,885 
Other comprehensive loss— — — — (4,666)(4,666)
Common dividends declared ($0.31 per share)— — — (6,772)— (6,772)
Preferred dividends declared ($19.375 per share)— — — (2,228)— (2,228)
Common stock repurchased— (1)(1,943)— — (1,944)
Share-based compensation expense— — 701 — — 701 
Issuance of common stock under employee benefit plans— — 177 — — 177 
Balances, March 31, 2024$110,548 $215 $434,398 $327,264 $(81,419)$791,006 
Balances, December 31, 2022$110,548 $222 $449,196 $282,405 $(83,797)$758,574 
Net income— — — 21,772 — 21,772 
Other comprehensive income— — — — 6,000 6,000 
Common dividends declared ($0.30 per share)— — — (6,749)— (6,749)
Preferred dividends declared ( $19.375 per share)— — — (2,228)— (2,228)
Common stock repurchased— (1)(2,800)— — (2,801)
Share-based compensation expense— — 625 — — 625 
Issuance of common stock under employee benefit plans— — 450 — — 450 
Balances, March 31, 2023$110,548 $221 $447,471 $295,200 $(77,797)$775,643 
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, 

 

 

    

2017

    

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

14,065

 

$

19,959

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

3,480

 

 

3,146

 

Depreciation on premises and equipment

 

 

3,666

 

 

3,816

 

Amortization of intangible assets

 

 

2,291

 

 

1,613

 

FDIC loss-sharing expense

 

 

 —

 

 

1,661

 

Amortization of restricted stock awards

 

 

599

 

 

387

 

Compensation expense for stock option grants

 

 

413

 

 

315

 

Increase in cash surrender value of life insurance

 

 

(2,016)

 

 

(1,547)

 

Investment securities amortization, net

 

 

1,358

 

 

840

 

Other-than-temporary impairment on investment securities

 

 

 —

 

 

824

 

Gain on sales of investment securities, net

 

 

(219)

 

 

(315)

 

Gain on sales of other real estate owned

 

 

(54)

 

 

(112)

 

Write-down of other real estate owned

 

 

171

 

 

219

 

Origination of loans held for sale

 

 

(630,601)

 

 

(894,445)

 

Proceeds from sales of loans held for sale

 

 

679,217

 

 

907,306

 

Gain on loans sold and held for sale

 

 

(20,844)

 

 

(28,827)

 

Amortization of mortgage servicing rights

 

 

4,254

 

 

4,410

 

Impairment of mortgage servicing rights

 

 

1,830

 

 

6,093

 

Loss on mortgage servicing rights held for sale

 

 

3,617

 

 

 —

 

Net change in operating assets and liabilities:

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(1,095)

 

 

(1,114)

 

Accrued interest payable

 

 

1,035

 

 

896

 

Accrued income taxes receivable

 

 

3,653

 

 

7,304

 

Other assets

 

 

159

 

 

460

 

Other liabilities

 

 

(2,341)

 

 

(2,620)

 

Net cash provided by operating activities

 

 

62,638

 

 

30,269

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

Purchases

 

 

(221,617)

 

 

(64,396)

 

Sales

 

 

11,250

 

 

31,191

 

Maturities and payments

 

 

192,791

 

 

22,038

 

Investment securities held to maturity:

 

 

 

 

 

 

 

Purchases

 

 

(2,929)

 

 

(2,401)

 

Maturities

 

 

10,480

 

 

6,646

 

Net increase in loans

 

 

(160,266)

 

 

(325,009)

 

Purchases of premises and equipment

 

 

(5,261)

 

 

(1,410)

 

Purchase of bank-owned life insurance

 

 

 —

 

 

(20,000)

 

Purchases of nonmarketable equity securities

 

 

(16,575)

 

 

(3,428)

 

Sales of nonmarketable equity securities

 

 

9,837

 

 

90

 

Proceeds from sales of other real estate owned

 

 

4,525

 

 

4,423

 

Net cash paid in acquisitions

 

 

(18,519)

 

 

 —

 

Net cash used in investing activities

 

 

(196,284)

 

 

(352,256)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net (decrease) increase in deposits

 

 

(29,766)

 

 

52,384

 

Net increase in short-term borrowings

 

 

7,452

 

 

30,751

 

Proceeds from FHLB borrowings

 

 

347,357

 

 

850,000

 

Payments made on FHLB borrowings

 

 

(229,857)

 

 

(652,500)

 

Proceeds from other borrowings, net of issuance costs

 

 

39,964

 

 

 —

 

Payments made on other borrowings

 

 

(1,770)

 

 

 —

 

Payments made on subordinated debt

 

 

 —

 

 

(8,000)

 

Cash dividends paid on common stock

 

 

(10,159)

 

 

(7,057)

 

Cash dividends paid on preferred stock

 

 

(102)

 

 

 —

 

Proceeds from issuance of common stock in initial public offering, net of issuance costs

 

 

 —

 

 

71,475

 

Proceeds from issuance of common stock under employee benefit plans

 

 

3,383

 

 

489

 

Net cash provided by financing activities

 

 

126,502

 

 

337,542

 

Net (decrease) increase in cash and cash equivalents

 

$

(7,144)

 

$

15,555

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Beginning of period

 

$

190,716

 

$

212,475

 

End of period

 

$

183,572

 

$

228,030

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

Interest paid on deposits and borrowed funds

 

$

14,677

 

$

11,078

 

Income tax paid

 

 

637

 

 

157

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

Transfer of loans to other real estate owned

 

$

2,659

 

$

4,245

 

Transfer of premises and equipment to assets held for sale

 

 

2,858

 

 

 —

 

Transfer of mortgage servicing rights at lower of cost or market to mortgage servicing rights held for sale

 

 

10,618

 

 

 —

 

Three Months Ended March 31,
20242023
Cash flows from operating activities:
Net income$13,885 $21,772 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses on loans14,000 3,135 
Depreciation on premises and equipment1,231 1,208 
Amortization of intangible assets1,089 1,291 
Amortization of operating lease right-of-use asset402 421 
Amortization of loan servicing rights676 88 
Share-based compensation expense701 625 
Increase in cash surrender value of life insurance(1,801)(876)
Investment securities accretion, net(1,296)(47)
Loss on sales of investment securities, net— 648 
Gain on sales of other real estate owned(22)— 
Origination of loans held for sale(14,070)(7,507)
Proceeds from sales of loans held for sale17,627 6,261 
Gain on sale of loans held for sale(442)(264)
Net change in operating assets and liabilities:
Accrued interest receivable(997)(221)
Other assets1,034 4,423 
Accrued expenses and other liabilities(5,100)(14,949)
Net cash provided by operating activities26,917 16,008 
Cash flows from investing activities:
Purchases of investment securities available for sale(172,715)(136,881)
Proceeds from sales of investment securities available for sale— 84,493 
Maturities and payments on investment securities available for sale42,464 13,748 
Purchases of equity securities(93)(139)
Net decrease (increase) in loans163,694 (49,923)
Purchases of premises and equipment(527)(2,788)
Proceeds from sale of premises and equipment— 
Purchases of nonmarketable equity securities(58,162)(11,315)
Proceeds from redemptions of nonmarketable equity securities68,107 4,385 
Proceeds from sales of other real estate owned301 — 
Net cash provided by (used in) investing activities43,069 (98,412)
Cash flows from financing activities:
Net increase in deposits14,455 60,549 
Net increase (decrease) in short-term borrowings179,581 (11,138)
Net (decrease) increase in short-term FHLB borrowings(166,000)92,000 
Proceeds from long-term FHLB borrowings35,000 235,000 
Payments made on long-term FHLB borrowings(90,000)(305,000)
Cash dividends paid on preferred stock(2,228)(2,228)
Cash dividends paid on common stock(6,772)(6,749)
Common stock repurchased(1,944)(2,801)
Proceeds from issuance of common stock under employee benefit plans177 450 
Net cash (used in) provided by financing activities(37,731)60,083 
Net increase (decrease) in cash and cash equivalents32,255 (22,321)
Cash and cash equivalents:
Beginning of period135,061 160,631 
End of period$167,316 $138,310 
Supplemental disclosures of cash flow information:
Cash payments for:
Interest paid on deposits and borrowed funds$46,187 $34,888 
Income tax paid (net of refunds)985 1,409 
Supplemental disclosures of noncash investing and financing activities:
Transfer of loans to other real estate owned51 — 
Right of use assets obtained in exchange for lease obligations222 1,130 
Theaccompanying 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 1 – Business Description

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
Midland States Bancorp, Inc. (the “Company,” “we,” “our,” or “us”) is a diversified financial holding company headquartered in Effingham, Illinois. Our 136-year oldwholly owned banking subsidiary, Midland States Bank, (the “Bank”), has branches across Illinois and in Missouri, and Colorado, and provides a broad arrayfull range of traditional communitycommercial and consumer banking products and other complementary financial services, including commercial lending, residential mortgage origination, wealthbusiness equipment financing, merchant credit card services, trust and investment management merchant services, and prime consumer lending. We also originateinsurance and service government sponsored mortgages for multifamily and healthcare facilities through our subsidiary, Love Funding Corporation (“Love Funding”), based in Washington, D.C. and operate a commercial equipment leasing business on a nationwide basis through our subsidiary, Heartland Business Credit Corporation (“Business Credit”), based in Denver, Colorado.

On June 9, 2017, we completed the acquisition of Centrue Financial Corporation (“Centrue”) and its banking subsidiary, Centrue Bank, as more fully described in Note 3 to the consolidated financial statements. Through the Centrue acquisition, we greatly expanded our commercial and retail banking presence in northern and central Illinois.

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 earnedcharged on loans and leases 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; residential mortgage loan originations, sales and servicing; and, from time to time, gains on sales of assets. Our income sources also include Love Funding’s commercial Federal Housing Administration (“FHA”) loan origination and servicing income. 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 loancredit losses and income tax expense.

Initial Public Offering

On May 24, 2016, we

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP and guidance provided by the SEC for interim financial information. Accordingly, the condensed financial statements do not include all of the information and footnotes required by GAAP for completed our initial public offeringfinancial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and received gross proceeds of $67.0 million forassumptions that affect the 3,044,252 shares of common stock sold by usamounts reported in the offering. On June 6, 2016, we received additional gross proceeds of $12.0 million for the 545,813 shares of common stock sold when the underwriters fully exercised their option to purchase additional shares of common stock. After deducting underwriting discountsconsolidated financial statements and offering expenses, we received total net proceeds of $71.5 millionaccompanying notes. Actual results may differ from the initial public offering.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

these estimates.

The consolidated financial statements of the Company are unaudited and should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2023, filed with the Securities and Exchange Commission (the “SEC”)SEC on March 10, 2017. 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. Management of the Company has made a number of estimates and assumptions related to the reporting of assets and liabilities to prepare the consolidated financial statements in conformity with GAAP. Actual results may differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of the results of operations for the interim periods presented herein, have been included.February 23, 2024. Certain reclassifications of 20162023 amounts have been made to conform to the 20172024 presentation. All significant transactions and accounts between subsidiaries have been eliminated. Assets held for customers in a fiduciary or agency capacity are not assets of the Company and, accordingly, other than trust cash on deposit with the Bank, are not included in the accompanying unaudited balance sheets. Management has evaluated subsequent events for potential recognition or disclosure. Operating results for the three and nine months ended September 30, 2017March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

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 fiduciary2024 or

6


any other period.

8

Table of Contents

agency capacity, other than trust cash on deposit with the Bank, are not assets of the Company and, accordingly, are not includedAccounting Guidance Adopted in the accompanying unaudited consolidated financial statements.

The Company operates through its principal wholly owned banking subsidiary, Midland States Bank. The Bank operates through its branch banking offices and principal subsidiaries: Love Funding and Business Credit.

Summary of Significant Accounting Policies

Mortgage Servicing Rights Held for Sale. Mortgage servicing rights held for sale consist of residential 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. Decreases in the valuation of mortgage servicing rights held for sale are included in loss on mortgage servicing rights held for sale in the consolidated statements of income.

Impact of Recently Issued Accounting Standards

FASB Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)”; 2024

FASB ASU 2015-14, “Revenue from Contracts with CustomersNo. 2023-02, Investments—Equity Method and Joint Ventures (Topic 606)323): Deferral ofAccounting for Investments in Tax Credit Structures Using the Effective Date”; FASB ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”; FASB ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”; FASB ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” Proportional Amortization Method In May 2014, the Financial Accounting Standards Board (the “FASB”) amended existing guidance related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer. These amendments are effective for us for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. The Company’s revenue is primarily comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09. The Company has determined the result of applying ASU 2014-09 to the individual revenue streams affected, as well as on an aggregate basis, will not be material to the Company’s consolidated financial statements. The Company continues to evaluate the impact of the disclosure requirements associated with ASU 2014-09.

FASB ASU 2016-02, “Leases (Topic 842)”In February 2016,March 2023, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This update revises2023-02, which allows for reporting entities to elect to account for qualifying tax equity investments using the model to assess how a lease should be classified and provides guidance for lessees and lessors, when presenting right-of-use assets and lease liabilities onproportional amortization method, regardless of the balance sheet. This updatetype of program the tax credits are related to. The ASU is effective for us on January 1, 2019, with early adoption permitted. We have not yet decided whether we will early adopt the new standard. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. The Company has developed a project plan for evaluating the provisions of the new lease standard, but has not yet determined the overall impact of the new guidance on the Company’s consolidated financial statements. The Company is continuing to evaluate the pending adoption of ASU 2016-02 and its impact on the Company’s consolidated financial statements.

FASB ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” – In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The objective of this update is to improve financial reporting by providing timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will use forward-looking information to better understand their credit loss estimates. For public companies that are filers with the SEC, this update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2019. Early application is permitted for any organization for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

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We have formed a committee that is assessing our data and system needs and are evaluating the impact of adopting the new guidance. While the2023. The Company generally expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, the Company cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the newadopted this guidance on the Company’s consolidated financial statements.January 1, 2024 on a prospective basis. The Company is continuing to evaluate the potential impact on the Company’s consolidated financial statements.

FASB ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” – In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which amends FASB Accounting Standards Codification (“ASC”) 230 to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. For public business entities, this update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early application is permitted for any organization in any interim period or fiscal year. The Company elected to early adopt the new guidance in the first quarter of 2017. Adoptionadoption of this ASUaccounting pronouncement did not have a material impact on the Company’s consolidated financial statements.

Accounting Guidance Not Yet Adopted
FASB ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20)No. 2023-07, Segment Reporting (Topic 280): Premium Amortization on Purchased Callable Debt Securities”Improvements to Reportable Segment Disclosures - In March 2017,December 2023, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees2023-07, which requires public entities to disclose significant segment expenses, an amount and Other Costs (Subtopic 310-20): Premium Amortizationdescription for other segment items, the title and position of the entity's chief operating decision maker and an explanation of how the chief operating decision maker uses the reported measures of profit or loss to assess segment performance, and, on Purchased Callable Debt Securities.” This guidance shortens the amortization period for premiumsan interim basis, certain segment related disclosures that previously were required only on certain callable debt securities to the earliest call date, rather than contractual maturity date as currently required under GAAP. For public business entities, thisan annual basis.The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years beginning after December 15, 2018. Early application is permitted for any organization in any interim period or fiscal year.2024. The Company electedwill update the related disclosures upon adoption.
FASB ASU No. 2023-09, Income Taxes (Topic 740): Improvements to early adoptIncome Tax Disclosures - In December 2023, the new guidanceFASB issued ASU No. 2023-09, which requires public entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the first quarterreconciling items in some categories if items meet a quantitative threshold. The pronouncement also requires entities to disclose income taxes paid, net of 2017. Adoption ofrefunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the ASU did not have a material impact on the Company’s consolidated financial statements.    

Note 3 – Acquisitions

Centrue Financial Corporation

On June 9, 2017, the Company completed its acquisition of Centrue and its banking subsidiary, Centrue Bank, which operated 20 full-service banking centers located principally in northern Illinois. In the aggregate, the Company acquired Centrue for approximately $176.6 million, which consisted of approximately $61.0 million in cash and the issuance of 3,219,238 shares of the Company’s common stock, 181 shares of Series G preferred stock and 2,635.5462 shares of Series H preferred stock. This acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. Through September 30, 2017, transaction and integration costs of $15.0 million associated with the acquisition have been expensed as incurred.  

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Under the acquisition method of accounting, the consideration paid is allocated to net tangible and intangible assetsinformation by jurisdiction based on current estimated fair values on the date of acquisition. During the third quarter of 2017, the Company updated the preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which required a measurement period adjustment of $169,000 to increase goodwill. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change, the consideration paidquantitative threshold, among other things. The ASU is effective for the acquisition is allocated as follows (in thousands):

 

 

 

 

 

 

Assets acquired:

 

 

 

 

 

Cash and cash equivalents

 

 

$

42,461

 

Investment securities available for sale

 

 

 

149,013

 

Loans

 

 

 

681,870

 

Loans held for sale

 

 

 

531

 

Premises and equipment

 

 

 

17,147

 

Other real estate owned

 

 

 

4,759

 

Nonmarketable equity securities

 

 

 

8,168

 

Accrued interest receivable

 

 

 

2,376

 

Mortgage servicing rights

 

 

 

1,933

 

Intangible assets

 

 

 

11,070

 

Cash surrender value of life insurance policies

 

 

 

36,349

 

Deferred tax assets, net

 

 

 

33,461

 

Other assets

 

 

 

2,256

 

Total assets acquired

 

 

 

991,394

 

Liabilities assumed:

 

 

 

 

 

Deposits

 

 

 

739,867

 

Short-term borrowings

 

 

 

14,434

 

FHLB advances and other borrowings

 

 

 

95,332

 

Trust preferred debentures

 

 

 

7,565

 

Accrued interest payable

 

 

 

275

 

Other liabilities

 

 

 

3,429

 

Total liabilities assumed

 

 

 

860,902

 

Net assets acquired

 

 

 

130,492

 

Goodwill

 

 

 

46,087

 

Total consideration paid

 

 

$

176,579

 

Prior to the end of the one year measurement period for finalizing the consideration paid allocation, if information becomes available which would indicate adjustments are required to the allocation, such adjustments will be included in the allocation in the reporting period in which the adjustment amounts are determined.

Goodwill of $46.1 million arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of Centrue into the Company. The goodwill is assigned as part of the Company’s Banking reporting unit. The portion of the consideration paid allocated to goodwill will not be deductible for tax purposes.

The identifiable assets acquired included the establishment of $11.1 million in core deposit intangibles, which are being amortized on an accelerated basis over an estimated useful life of eight years.

Acquired loan data for Centrue can be found in the table below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Best Estimate at

 

 

 

 

 

 

 

 

Acquisition Date of

 

 

Fair Value

 

Gross Contractual

 

Contractual Cash

 

 

of Acquired Loans

 

Amounts Receivable

 

Flows Not Expected

 

 

at Acquisition Date

 

at Acquisition Date

 

to be Collected

Acquired receivables subject to ASC 310-30

 

$

13,352

 

$

20,719

 

$

5,256

Acquired receivables not subject to ASC 310-30

 

 

668,518

 

 

821,338

 

 

4,518

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The following table provides the unaudited pro forma information for the results of operations for three and nine months ended September 30, 2017 and 2016, as if the acquisition had occurred on January 1, 2016 (in thousands, except per share data). The pro forma results combine the historical results of Centruefiscal years beginning after December 15, 2024, with the Company’s consolidated statements of income, adjusted for the impact of the application of the acquisition method of accounting including loan discount accretion, intangible assets amortization, and deposit and trust preferred securities premium accretion, net of taxes. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations had the acquisition actually occurred on January 1, 2016. No assumptions have been applied to the pro forma results of operations regarding revenue enhancements, expense efficiencies or asset dispositions. Only the acquisition related expenses that have been incurred as of September 30, 2017 are included in net income in the table below. Acquisition related expenses that were recognized and are included in the pro forma net income for the three and nine months ended September 30, 2017 totaled $7.3 million and $15.0 million, respectively, on a pre-tax basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2017

    

2016

    

2017

    

2016

Revenue (1)

 

$

52,168

 

$

52,139

 

$

156,851

 

$

152,532

Net income

 

 

2,036

 

 

8,850

 

 

15,299

 

 

23,490

Diluted earnings per common share

 

$

0.10

 

$

0.46

 

$

0.71

 

$

1.37


(1)

Net interest income plus noninterest income

CedarPoint Investment Advisors, Inc.

On March 28, 2017, the Company acquired all of the outstanding capital stock of CedarPoint Investment Advisors, Inc. (“CedarPoint”), an SEC registered investment advisory firm, pursuant to an Agreement and Plan of Merger, dated as of March 15, 2017. CedarPoint had approximately $180.0 million of assets under administration.early adoption permitted. The Company acquired CedarPoint for $3.7 million, which consisted ofwill update the issuance of 102,000 shares of the Company’s common stock and an accrual in other liabilities of $345,000 for the fair value of 18,000 shares that will be held in a special purpose escrow account (the “escrow shares”) as additional consideration until at least March 31, 2019. Payout of the escrow shares is contingent on CedarPoint reaching certain target revenue levels. Intangible assets recognized as a result of the transaction consisted of approximately $2.4 million in goodwill and $2.0 million in customer relationship intangibles. The customer relationship intangibles are being amortized on a straight-line basis over 12 years.

Acquisition of Wealth Management Assets

On November 10, 2016, the Bank completed its acquisition of approximately $400.0 million in wealth management assets from Sterling National Bank of Yonkers, New York (“Sterling”) for approximately $5.2 million in cash. Intangible assets recognized as a result of the transaction consisted of approximately $2.3 million in goodwill and $2.3 million in customer relationship intangibles. The customer relationship intangibles are being amortized on a straight-line basis over 20 years.

Note 4related disclosures upon adoption.


NOTE 2INVESTMENT SECURITIES
Investment Securities Available for Sale

Investment securities classified as available for sale as of September 30, 2017at March 31, 2024 and December 31, 2016 are2023 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

    

Amortized

 

unrealized

 

unrealized

 

Fair

 

 

    

cost

    

gains

    

losses

    

value

 

U.S. Treasury securities

 

$

47,979

 

$

 —

 

$

72

 

$

47,907

 

Government sponsored entity debt securities

 

 

19,290

 

 

104

 

 

 5

 

 

19,389

 

Agency mortgage-backed securities

 

 

229,382

 

 

1,103

 

 

631

 

 

229,854

 

State and municipal securities

 

 

39,385

 

 

376

 

 

45

 

 

39,716

 

Corporate securities

 

 

56,404

 

 

1,070

 

 

167

 

 

57,307

 

Equity securities

 

 

2,705

 

 

115

 

 

 8

 

 

2,812

 

Total

 

$

395,145

 

$

2,768

 

$

928

 

$

396,985

 

follows:

10

March 31, 2024
(dollars in thousands)Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Investment securities available for sale
U.S. government sponsored entities and U.S. agency securities$69,487 $126 $1,890 $67,723 
Mortgage-backed securities - agency763,902 1,517 83,899 681,520 
Mortgage-backed securities - non-agency93,146 456 4,074 89,528 
State and municipal securities66,902 233 6,505 60,630 
Collateralized loan obligations33,558 102 46 33,614 
Corporate securities117,145 142 9,896 107,391 
Total available for sale securities$1,144,140 $2,576 $106,310 $1,040,406 



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December 31, 2023
(dollars in thousands)Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Investment securities available for sale
U.S. Treasury securities$1,097 $— $— $1,097 
U.S. government sponsored entities and U.S. agency securities74,161 176 1,765 72,572 
Mortgage-backed securities - agency650,119 2,325 77,944 574,500 
Mortgage-backed securities - non-agency87,019 414 3,904 83,529 
State and municipal securities62,952 258 5,750 57,460 
Collateralized loan obligations27,646 84 27,565 
Corporate securities109,598 41 10,467 99,172 
Total available for sale securities$1,012,592 $3,217 $99,914 $915,895 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

    

 

    

Gross

    

Gross

    

 

 

 

 

Amortized

 

unrealized

 

unrealized

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

U.S. Treasury securities

 

$

75,973

 

$

 —

 

$

72

 

$

75,901

 

Government sponsored entity debt securities

 

 

7,653

 

 

57

 

 

22

 

 

7,688

 

Agency mortgage-backed securities

 

 

90,629

 

 

373

 

 

932

 

 

90,070

 

Non-agency mortgage-backed securities

 

 

 1

 

 

 —

 

 

 —

 

 

 1

 

State and municipal securities

 

 

25,826

 

 

15

 

 

567

 

 

25,274

 

Corporate securities

 

 

47,443

 

 

403

 

 

441

 

 

47,405

 

Total

 

$

247,525

 

$

848

 

$

2,034

 

$

246,339

 


The following is a summary of the amortized cost and fair value of the investment securities available for sale, by maturity, at March 31, 2024. 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)Amortized
cost
Fair
value
Investment securities available for sale
Within one year$12,571 $12,566 
After one year through five years101,298 98,686 
After five years through ten years136,040 122,565 
After ten years37,183 35,541 
Mortgage-backed securities857,048 771,048 
Total available for sale securities$1,144,140 $1,040,406 
Proceeds and gross realized gains and losses on sales of investment securities available for sale for the three months ended March 31, 2024 and 2023 are summarized as follows:
Three Months Ended March 31,
(dollars in thousands)20242023
Investment securities available for sale
Proceeds from sales$— $84,493 
Gross realized gains on sales— 338 
Gross realized losses on sales— (986)
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Table of Contents
Unrealized losses and fair values for investment securities available for sale as of September 30, 2017March 31, 2024 and December 31, 2016,2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as follows (in thousands):

follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

Less than 12 Months

 

12 Months or more

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

    

value

    

loss

    

value

    

loss

    

value

    

loss

 

U.S. Treasury securities

 

$

42,936

 

$

47

 

$

4,971

 

$

25

 

$

47,907

 

$

72

 

Government sponsored entity debt securities

 

 

6,467

 

 

 5

 

 

 —

 

 

 —

 

 

6,467

 

 

 5

 

Agency mortgage-backed securities

 

 

50,978

 

 

370

 

 

10,569

 

 

261

 

 

61,547

 

 

631

 

State and municipal securities

 

 

4,609

 

 

14

 

 

2,569

 

 

31

 

 

7,178

 

 

45

 

Corporate securities

 

 

4,957

 

 

52

 

 

5,412

 

 

115

 

 

10,369

 

 

167

 

Equity securities

 

 

2,606

 

 

 8

 

 

 —

 

 

 —

 

 

2,606

 

 

 8

 

Total

 

$

112,553

 

$

496

 

$

23,521

 

$

432

 

$

136,074

 

$

928

 

March 31, 2024
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. government sponsored entities and U.S. agency securities$28,789 $50 $21,364 $1,840 $50,153 $1,890 
Mortgage-backed securities - agency160,215 6,769 383,450 77,130 543,665 83,899 
Mortgage-backed securities - non-agency30,644 453 18,920 3,621 49,564 4,074 
State and municipal securities51,422 6,505 — — 51,422 6,505 
Collateralized loan obligations14,712 46 — — 14,712 46 
Corporate securities3,671 62 88,991 9,834 92,662 9,896 
Total available for sale securities$289,453 $13,885 $512,725 $92,425 $802,178 $106,310 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Less than 12 Months

 

12 Months or more

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

value

 

loss

 

value

 

loss

 

value

 

loss

 

U.S. Treasury securities

 

$

75,901

 

$

72

 

$

 —

 

$

 —

 

$

75,901

 

$

72

 

Government sponsored entity debt securities

 

 

4,107

 

 

22

 

 

 —

 

 

 —

 

 

4,107

 

 

22

 

Agency mortgage-backed securities

 

 

57,882

 

 

930

 

 

402

 

 

 2

 

 

58,284

 

 

932

 

State and municipal securities

 

 

20,215

 

 

567

 

 

 —

 

 

 —

 

 

20,215

 

 

567

 

Corporate securities

 

 

11,111

 

 

334

 

 

8,312

 

 

107

 

 

19,423

 

 

441

 

Total

 

$

169,216

 

$

1,925

 

$

8,714

 

$

109

 

$

177,930

 

$

2,034

 

For all of the above investment securities, the unrealized losses are generally due to changes in interest rates and continued financial market stress, and unrealized losses are considered to be temporary.

We evaluate securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, at a minimum, and more frequently when economic or market concerns warrant such evaluation. In estimating OTTI losses, we consider the severity and duration of the impairment; the financial condition and near-term prospects of the issuer, which for debt securities considers external credit ratings and recent downgrades; and the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value.

December 31, 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$— $— $— $— $— $— 
U.S. government sponsored entities and U.S. agency securities42,826 87 8,323 1,678 51,149 1,765 
Mortgage-backed securities - agency130,106 7,386 348,476 70,558 478,582 77,944 
Mortgage-backed securities - non-agency8,852 353 19,418 3,551 28,270 3,904 
State and municipal securities51,497 5,750 — — 51,497 5,750 
Collateralized loan obligations14,763 84 — — 14,763 84 
Corporate securities4,688 53 84,662 10,414 89,350 10,467 
Total available for sale securities$252,732 $13,713 $460,879 $86,201 $713,611 $99,914 
At September 30, 2017, 63March 31, 2024, 285 investment securities available for sale had unrealized losses with aggregate depreciation of 0.68%11.70% from their amortized cost basis. The unrealized losses relate principally to the fluctuations in the current interest rate environment. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies and whether downgrades by bond rating agencies have occurred. The Company does not have the intent to sell and it is not more likely than not that it will be required to sell a security in an unrealized loss position; therefore, the Company does not consider these securities to be other than temporarily impaired at September 30, 2017.

For the three and nine months ended September 30, 2017, there was no OTTI recognized on investment securities available for sale. During the three and nine months ended September 30, 2016, the Company recognized $0 and $824,000,  respectively, of OTTI on its investment securities available for sale.

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The amortized cost and fair value of the available-for-sale investment securities as of September 30, 2017 are shown by expected maturity in the following table (in thousands). Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

 

 

 

 

 

 

    

Amortized

    

Fair

 

 

 

cost

 

value

 

Debt securities:

 

 

 

 

 

 

 

Within one year

 

$

37,340

 

$

37,307

 

After one year through five years

 

 

235,754

 

 

236,319

 

After five years through ten years

 

 

102,922

 

 

104,113

 

After ten years

 

 

16,424

 

 

16,434

 

Equity securities

 

 

2,705

 

 

2,812

 

Total

 

$

395,145

 

$

396,985

 

Proceeds from the sale of securities available for sale were $2.7 million and $11.3 million for the three and nine months ended September 30, 2017, respectively. Gross realized gains from the sale of securities available for sale were $98,000 and $219,000 for the three and nine months ended September 30, 2017, respectively.  There were no gross realized losses for the three and nine months ended September 30, 2017.

Proceeds from the sale of securities available for sale were $865,000 and $31.2 million for the three and nine months ended September 30, 2016, respectively. Gross realized gains from the sale of securities available for sale were $39,000 and $315,000 for the three and nine months ended September 30, 2016, respectively. There were no gross realized losses for the three and nine months ended September 30, 2016.

Note 5 – Investment Securities Held to Maturity

Investment securities classified as held to maturity as of September 30, 2017 and December 31, 2016 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

unrecognized

 

unrecognized

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

State and municipal securities

    

$

70,867

    

$

4,381

    

$

106

    

$

75,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

unrecognized

 

unrecognized

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

State and municipal securities

    

$

78,672

    

$

3,517

    

$

237

    

$

81,952

 

Unrecognized losses and fair value for investment securities held to maturity as of September 30, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrecognized loss position, are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

Less than 12 Months

 

12 Months or more

 

Total

 

 

 

Fair

 

Unrecognized

 

Fair

 

Unrecognized

 

Fair

 

Unrecognized

 

 

 

value

 

loss

 

value

 

loss

 

value

 

loss

 

State and municipal securities

    

$

3,343

 

$

32

    

$

3,490

    

$

74

    

$

6,833

    

$

106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Less than 12 Months

 

12 Months or more

 

Total

 

 

 

Fair

 

Unrecognized

 

Fair

 

Unrecognized

 

Fair

 

Unrecognized

 

 

 

value

 

loss

 

value

 

loss

 

value

 

loss

 

State and municipal securities

    

$

13,991

    

$

140

    

$

2,699

    

$

97

    

$

16,690

    

$

237

 

For all of the above investment securities, the unrecognizedunrealized losses arewere generally due to changes in interest rates and continued financialother market stressconditions, and unrecognizedunrealized losses arewere considered to be temporary.

We evaluate securities for OTTI on a quarterly basis, at a minimum, and more frequently when economic or market concerns warrant such evaluation. In estimating OTTI losses, we considertemporary as the severity and duration of the

12


Table of Contents

impairment; the financial condition and near-term prospects of the issuer, which for debt securities considers external credit ratings and recent downgrades; and the intent and ability of the Companyfair value is expected to hold the security for a period of time sufficient for a recovery in value.

At September 30, 2017, 27 investment securities held to maturity had unrecognized losses with aggregate depreciation of 1.53% from their amortized cost basis. The unrecognized losses relate principally to the fluctuations in the current interest rate environment. In analyzing an issuer’s financial condition, we consider who issuedrecover as the securities approach their respective maturity dates. The issuers are of high credit quality and whether downgrades by bond rating agencies have occurred.all principal amounts are expected to be paid when securities mature. The Company does not have the intentintend to sell and it is not more likely thanthat the Company will not that it will be required to sell a security in an unrecognized loss position; therefore, the Company does not consider these securities prior to be other than temporarily impaired at September 30, 2017.

The amortized cost and fair valuetheir anticipated recovery.

11

Table of investment securities held to maturity as of September 30, 2017, by contractual maturity, are as follows (in thousands):

Contents

 

 

 

 

 

 

 

 

 

    

Amortized

    

Fair

 

 

 

cost

 

value

 

Within one year

 

$

871

 

$

877

 

After one year through five years

 

 

19,055

 

 

19,709

 

After five years through ten years

 

 

35,164

 

 

38,478

 

After ten years

 

 

15,777

 

 

16,078

 

Total

 

$

70,867

 

$

75,142

 

Note 6NOTE 3Loans

LOANS

The following table presents total loans outstanding by portfolio which includes non-purchased credit impaired (“Non-PCI”) loans and purchased credit impaired (“PCI”) loans,class, as of September 30, 2017March 31, 2024 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

Non-PCI

 

PCI

 

 

 

 

Non-PCI

 

PCI

 

 

 

 

 

 

Loans

 

Loans (1)

 

Total

 

Loans

 

Loans (1)

 

Total

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

510,457

 

$

3,087

 

$

513,544

 

$

454,310

 

$

3,517

 

$

457,827

 

Commercial real estate

 

 

1,456,620

 

 

15,664

 

 

1,472,284

 

 

963,895

 

 

5,720

 

 

969,615

 

Construction and land development

 

 

181,763

 

 

750

 

 

182,513

 

 

165,175

 

 

12,150

 

 

177,325

 

Total commercial loans

 

 

2,148,840

 

 

19,501

 

 

2,168,341

 

 

1,583,380

 

 

21,387

 

 

1,604,767

 

Residential real estate

 

 

438,973

 

 

6,774

 

 

445,747

 

 

247,156

 

 

6,557

 

 

253,713

 

Consumer

 

 

342,863

 

 

175

 

 

343,038

 

 

269,705

 

 

312

 

 

270,017

 

Lease financing

 

 

200,846

 

 

 —

 

 

200,846

 

 

191,479

 

 

 —

 

 

191,479

 

Total loans

 

$

3,131,522

 

$

26,450

 

$

3,157,972

 

$

2,291,720

 

$

28,256

 

$

2,319,976

 

2023:

(dollars in thousands)March 31,
2024
December 31,
2023
Commercial:
Commercial$813,963 $825,938 
Commercial other601,704 656,592 
Commercial real estate:
Commercial real estate non-owner occupied1,591,455 1,622,668 
Commercial real estate owner occupied450,149 436,857 
Multi-family287,586 279,904 
Farmland67,923 67,416 
Construction and land development474,128 452,593 
Total commercial loans4,286,908 4,341,968 
Residential real estate:
Residential first lien316,310 317,388 
Other residential62,273 63,195 
Consumer:
Consumer99,157 107,743 
Consumer other737,935 827,435 
Lease financing455,879 473,350 
Total loans$5,958,462 $6,131,079 

(1)

The unpaid principal balance for PCI loans totaled $38.9 million and $34.6 million as of September 30, 2017 and December 31, 2016, respectively.

Total loans include net deferred loan feescosts of $11.4$3.5 million and $3.1$3.8 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively, and unearned discounts of $20.7$64.4 million and $66.4 million within the lease financing portfolio at both September 30, 2017March 31, 2024 and December 31, 2016.

2023, respectively.

At September 30, 2017 and DecemberMarch 31, 2016,2024, the Company had commercial and residential real estate loans held for sale totaling $35.9$5.0 million, and $70.6compared to $3.8 million respectively.  During the three and nine months ended September 30, 2017, theat December 31, 2023. The Company sold commercialloans and residential real estate loansleases with proceeds totaling $206.2$17.6 million and $679.2$6.3 million respectively,during the three months ended March 31, 2024 and sold commercial and residential real estate loans with proceeds totaling $450.9 million and $907.3 million for the comparable periods in 2016,2023, 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 loan losses.

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.

13


Repayment of such loans is generally provided through operating cash flows of the business. Commercial loans are predominantlypredominately secured by equipment, inventory, accounts receivable, and other sources of repayment.

Commercial FHA warehouse lines of $8.0 million as of March 31, 2024 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 commercial real estate commercial loan at the completion of the construction period. Secured development loans are made to borrowers for the purpose of infrastructure improvements to vacant land to create finished marketable residential and commercial lots/land. Most land development loans are originated with the intention that the loans will be paid through the sale of developed lots/land by the developers within twelve months of the completion date. Interest reserves may be established on real estate construction loans.

12

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 andor acquiring automobiles, recreational vehicles and boats. Consumer loans consist of relatively small amounts that are spread across many individual borrowers.

Lease financingIndirectOur equipment leasing business provides financing leases to smallvarying types of businesses, nationwide, for purchases of business equipment. All indirectequipment and software. The financing leases requireis secured by a first priority interest in the financed assets and generally requires monthly payments, and the weighted average maturity of our leases is less than four years.

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, and 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 normalsubstantially the same terms, including collateralization and interest rates prevailing at the time, and did not involve more than the normal risk of repayment by the borrower.time. The aggregate loans outstanding to the directors, executive officers, principal shareholders and their affiliates totaled $26.5 million at both September 30, 2017 and December 31, 2016. During the three and nine months ended September 30, 2017, there were $982,000 and $4.0 million, respectively, of new loans, and other additions, while repayments and other reductions totaled $948,000for the three months ended March 31, 2024 and $4.02023, are summarized as follows:
Three Months Ended March 31,
(dollars in thousands)20242023
Beginning balance$20,990 $19,776 
Repayments and other reductions(264)(257)
Ending balance$20,726 $19,519 

The following table represents, by loan portfolio segment, a summary of changes in the allowance for credit losses on loans for the three months ended March 31, 2024 and 2023:
Commercial Loan PortfolioOther Loan Portfolio
(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 March 31, 2024:
Balance, beginning of period$21,847 $20,229 $4,163 $5,553 $3,770 $12,940 $68,502 
Provision for credit losses on loans1,776 1,677 8,466 82 (11)2,010 14,000 
Charge-offs(2,410)(691)— (35)(235)(1,665)(5,036)
Recoveries116 152 — 55 87 181 591 
Balance, end of period$21,329 $21,367 $12,629 $5,655 $3,611 $13,466 $78,057 
Changes in allowance for credit losses on loans for the three months ended March 31, 2023:
Balance, beginning of period$14,639 $29,290 $2,435 $4,301 $3,599 $6,787 $61,051 
Provision for credit losses on loans1,998 (330)63 700 697 3,135 
Charge-offs(969)(746)— (31)(263)(390)(2,399)
Recoveries94 — 17 93 74 280 
Balance, end of period$15,762 $28,216 $2,442 $4,350 $4,129 $7,168 $62,067 
The Company utilizes a combination of models which measure probability of default and loss given default in determining expected future credit losses.
13

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 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.
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.
14

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 with other loans in the pool. The following table presents the amortized cost basis of individually evaluated loans on nonaccrual status as of March 31, 2024 and December 31, 2023:
March 31, 2024December 31, 2023
(dollars in thousands)Nonaccrual with allowanceNonaccrual with no allowanceTotal nonaccrualNonaccrual with allowanceNonaccrual with no allowanceTotal nonaccrual
Commercial:
Commercial$3,572 $— $3,572 $3,560 $— $3,560 
Commercial other6,251 — 6,251 4,941 — 4,941 
Commercial real estate:
Commercial real estate non-owner occupied6,544 14,902 21,446 1,614 14,098 15,712 
Commercial real estate owner occupied4,198 6,500 10,698 4,276 6,500 10,776 
Multi-family3,413 2,652 6,065 240 6,015 6,255 
Farmland1,265 — 1,265 1,148 — 1,148 
Construction and land development15,724 10,594 26,318 39 — 39 
Total commercial loans40,967 34,648 75,615 15,818 26,613 42,431 
Residential real estate:
Residential first lien2,658 590 3,248 2,583 490 3,073 
Other residential670 — 670 635 — 635 
Consumer:
Consumer91 — 91 134 — 134 
Lease financing10,185 15 10,200 9,097 36 9,133 
Total loans$54,571 $35,253 $89,824 $28,267 $27,139 $55,406 
There was no interest income recognized on nonaccrual loans during the three months ended March 31, 2024 and 2023 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 $1.3 million and $0.8 million for the three months ended March 31, 2024 and 2023, 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
15

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 March 31, 2024 and December 31, 2023:
Type of Collateral
(dollars in thousands)Real EstateEquipmentTotal
March 31, 2024
Commercial:
Commercial$— $1,972 $1,972 
Commercial other— 1,399 1,399 
Commercial real estate:
Non-owner occupied20,293 — 20,293 
Owner occupied9,275 — 9,275 
Multi-family20,461 — 20,461 
Construction and land development26,204 — 26,204 
Total collateral dependent loans$76,233 $3,371 $79,604 
December 31, 2023
Commercial:
Commercial$— $1,972 $1,972 
Commercial other— 1,232 1,232 
Commercial real estate:
Non-owner occupied14,147 — 14,147 
Owner occupied9,275 — 9,275 
Multi-family5,143 — 5,143 
Total collateral dependent loans$28,565 $3,204 $31,769 

16

The aging status of the recorded investment in loans by portfolio as of March 31, 2024 was as follows:
Accruing loans
(dollars in thousands)30-59
days
past due
60-89 days past duePast due
90 days
or more
Total
past due
NonaccrualCurrentTotal
Commercial:
Commercial$4,164 $640 $450 $5,254 $3,572 $805,137 $813,963 
Commercial other12,247 4,474 16,724 6,251 578,729 601,704 
Commercial real estate:
Commercial real estate non-owner occupied7,072 4,339 — 11,411 21,446 1,558,598 1,591,455 
Commercial real estate owner occupied284 265 — 549 10,698 438,902 450,149 
Multi-family— — 14,483 14,483 6,065 267,038 287,586 
Farmland— — 1,265 66,655 67,923 
Construction and land development— — — — 26,318 447,810 474,128 
Total commercial loans23,770 9,718 14,936 48,424 75,615 4,162,869 4,286,908 
Residential real estate:
Residential first lien429 — 212 641 3,248 312,421 316,310 
Other residential142 52 — 194 670 61,409 62,273 
Consumer:
Consumer39 22 — 61 91 99,005 99,157 
Consumer other6,735 4,126 10,863 — 727,072 737,935 
Lease financing8,646 5,174 13,825 10,200 431,854 455,879 
Total loans$39,761 $19,092 $15,155 $74,008 $89,824 $5,794,630 $5,958,462 
The aging status of the recorded investment in loans by portfolio as of December 31, 2023 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$9,340 $504 $— $9,844 $3,560 $812,534 $825,938 
Commercial other11,156 5,990 781 17,927 4,941 633,724 656,592 
Commercial real estate:
Commercial real estate non-owner occupied384 — — 384 15,712 1,606,572 1,622,668 
Commercial real estate owner occupied— — — — 10,776 426,081 436,857 
Multi-family14,506 8,140 — 22,646 6,255 251,003 279,904 
Farmland— 120 — 120 1,148 66,148 67,416 
Construction and land development211 10,593 — 10,804 39 441,750 452,593 
Total commercial loans35,597 25,347 781 61,725 42,431 4,237,812 4,341,968 
Residential real estate:
Residential first lien69 299 161 529 3,073 313,786 317,388 
Other residential100 50 — 150 635 62,410 63,195 
Consumer:
Consumer62 20 — 82 134 107,527 107,743 
Consumer other7,225 4,561 11,789 — 815,646 827,435 
Lease financing7,622 1,826 — 9,448 9,133 454,769 473,350 
Total loans$50,675 $32,103 $945 $83,723 $55,406 $5,991,950 $6,131,079 
17

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 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 may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.
In some cases, the Company will modify a loan by providing multiple types of concessions. Typically, one type of concession, such as a 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 March 31, 2024 the Company restructured four loans and three leases for borrowers experiencing financial difficulties with principal balances totaling $1.5 million. Each of the restructured loans and leases were provided a term extension. The Company has not committed to lend any additional amounts to the borrowers that have been granted a loan modification.
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, northerngeographic regions. In addition, our specialty finance division does nationwide bridge lending for FHA and southern IllinoisHUD developments and the St. Louis metropolitan area.originates loans for multifamily, assisted and senior living and multi-use properties. Our equipment leasing business based in Denver, 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

14


entire consumer loan portfolio is measured by the periodic delinquency rate, nonaccrual amounts and actual losses incurred.

Loans in the commercial loan portfolio tend to be larger and more complex than those in the other loan portfolio, and therefore, are subject to more intensive monitoring. All loans in the commercial loan portfolio have an assigned relationship manager, and most borrowers provide periodic financial and operating information that allows the relationship managers to stay abreast of credit quality during the life of the loans. The risk ratings of loans in the commercial loan portfolio are reassessed at least annually, with loans below an acceptable risk rating reassessed more frequently and reviewed by various individuals within the Company at least quarterly.

18

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 of - 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”"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 and monitored 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’sCompany's Special Assets Group. Loans not graded in the commercial loan portfolio are small loans that are monitored by aging status and payment activity.


19

The following table presentstables present the recorded investment of the commercial loan portfolio (excluding PCI loans) by risk category as of September 30, 2017March 31, 2024 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

September 30, 2017

 

 

December 31, 2016

 

 

 

 

 

 

Commercial

 

Construction

 

 

 

 

 

 

 

 

Commercial

 

Construction

 

 

 

 

 

 

 

 

 

Real

 

and Land

 

 

 

 

 

 

 

 

Real

 

and Land

 

 

 

 

 

 

Commercial

 

Estate

 

Development

 

Total

 

 

Commercial

 

Estate

 

Development

 

Total

 

Acceptable credit quality

 

$

474,513

 

$

1,408,398

 

$

174,115

 

$

2,057,026

 

 

$

426,560

 

$

925,244

 

$

159,702

 

$

1,511,506

 

Special mention

 

 

16,543

 

 

9,121

 

 

 —

 

 

25,664

 

 

 

10,930

 

 

8,735

 

 

 —

 

 

19,665

 

Substandard

 

 

17,695

 

 

13,639

 

 

 —

 

 

31,334

 

 

 

12,649

 

 

21,178

 

 

450

 

 

34,277

 

Substandard – nonaccrual

 

 

1,469

 

 

21,454

 

 

 —

 

 

22,923

 

 

 

3,559

 

 

7,145

 

 

21

 

 

10,725

 

Doubtful

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Not graded

 

 

237

 

 

4,008

 

 

7,648

 

 

11,893

 

 

 

612

 

 

1,593

 

 

5,002

 

 

7,207

 

Total (excluding PCI)

 

$

510,457

 

$

1,456,620

 

$

181,763

 

$

2,148,840

 

 

$

454,310

 

$

963,895

 

$

165,175

 

$

1,583,380

 

2023:

15

March 31, 2024
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)20242023202220212020PriorRevolving loansTotal
CommercialCommercialAcceptable credit quality$34,179 $161,363 $94,071 $63,411 $32,308 $51,224 $343,792 $780,348 
Special mention— — 450 — — 169 1,103 1,722 
Substandard970 3,321 13,192 420 322 5,229 4,867 28,321 
Substandard – nonaccrual— 1,308 — 1,321 — 273 670 3,572 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal35,149 165,992 107,713 65,152 32,630 56,895 350,432 813,963 
Commercial otherAcceptable credit quality31,164 117,553 177,957 89,308 49,811 49,197 77,454 592,444 
Special mention— 400 368 109 94 1,071 2,044 
Substandard— 36 220 — — — 709 965 
Substandard – nonaccrual— 2,301 2,437 654 148 595 116 6,251 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal31,166 119,890 181,014 90,330 50,068 49,886 79,350 601,704 
Commercial real estateNon-owner occupiedAcceptable credit quality183,143 181,438 540,756 294,180 102,842 185,288 6,923 1,494,570 
Special mention— 4,423 — 181 452 277 — 5,333 
Substandard17,978 19,027 11,474 — — 21,627 — 70,106 
Substandard – nonaccrual— 5,256 — 96 860 15,234 — 21,446 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal201,121 210,144 552,230 294,457 104,154 222,426 6,923 1,591,455 
Owner occupiedAcceptable credit quality11,641 37,180 108,068 111,372 47,480 95,805 793 412,339 
Special mention— 5,750 — 127 — 546 6,428 
Substandard— — 7,644 265 — 12,775 — 20,684 
Substandard – nonaccrual— 109 9,419 159 702 304 10,698 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal11,641 43,039 125,131 111,769 47,639 109,828 1,102 450,149 
Multi-familyAcceptable credit quality59,782 12,834 111,585 25,660 27,987 20,888 112 258,848 
Special mention— — — — — — — — 
Substandard8,140 — — — — 14,533 — 22,673 
Substandard – nonaccrual— 1,658 — 899 — 3,508 — 6,065 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal67,922 14,492 111,585 26,559 27,987 38,929 112 287,586 
FarmlandAcceptable credit quality1,017 9,720 4,654 15,117 12,037 21,322 1,040 64,907 
Special mention— — — 1,451 — — — 1,451 
Substandard— — — 14 — 286 — 300 
Substandard – nonaccrual— — — 117 — 1,100 48 1,265 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal1,017 9,720 4,654 16,699 12,037 22,708 1,088 67,923 
Construction and land developmentAcceptable credit quality9,176 69,390 229,815 88,372 — 1,566 27,125 425,444 
Special mention— — 9,851 3,810 — 40 — 13,701 
Substandard— — — 6,000 — — — 6,000 
Substandard – nonaccrual— — — 26,278 — 40 — 26,318 
Doubtful— — — — — — — — 
Not graded264 1,601 421 355 — 24 — 2,665 
Subtotal9,440 70,991 240,087 124,815 — 1,670 27,125 474,128 
TotalAcceptable credit quality330,102 589,478 1,266,906 687,420 272,465 425,290 457,239 4,028,900 
Special mention10,173 10,701 5,937 561 1,126 2,179 30,679 
Substandard27,088 22,384 32,530 6,699 322 54,450 5,576 149,049 
Substandard – nonaccrual— 10,632 11,856 29,370 1,167 21,452 1,138 75,615 
Doubtful— — — — — — — — 
Not graded264 1,601 421 355 — 24 — 2,665 
Total commercial loans$357,456 $634,268 $1,322,414 $729,781 $274,515 $502,342 $466,132 $4,286,908 

20

December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)20232022202120202019PriorRevolving loansTotal
CommercialCommercialAcceptable credit quality$157,498 $96,295 $71,366 $36,680 $14,688 $42,827 $369,297 $788,651 
Special mention3,015 450 — 181 43 983 4,676 
Substandard4,485 13,651 420 342 253 4,961 4,940 29,052 
Substandard – nonaccrual1,238 — 1,321 25 79 360 536 3,559 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal166,236 110,396 73,111 37,047 15,201 48,191 375,756 825,938 
Commercial otherAcceptable credit quality139,057 195,726 100,946 59,392 32,848 28,946 90,928 647,843 
Special mention— 532 399 114 107 1,682 2,838 
Substandard37 220 — — — — 639 896 
Substandard – nonaccrual1,819 1,918 449 184 361 94 116 4,941 
Doubtful— — — — — — — — 
Not graded74 — — — — — — 74 
Subtotal140,987 198,396 101,794 59,690 33,316 29,044 93,365 656,592 
Commercial real estateNon-owner occupiedAcceptable credit quality237,215 653,057 309,013 110,743 82,563 124,430 6,328 1,523,349 
Special mention4,480 — 181 457 — 274 — 5,392 
Substandard35,811 1,658 — — 17,835 22,911 — 78,215 
Substandard – nonaccrual5,573 — 154 999 7,597 1,389 — 15,712 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal283,079 654,715 309,348 112,199 107,995 149,004 6,328 1,622,668 
Owner occupiedAcceptable credit quality32,972 100,893 113,264 48,415 23,671 77,854 1,803 398,872 
Special mention5,750 — 129 — 149 177 6,213 
Substandard— 7,716 265 — 705 12,310 — 20,996 
Substandard – nonaccrual126 9,431 28 171 27 689 304 10,776 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal38,848 118,040 113,686 48,586 24,552 91,030 2,115 436,857 
Multi-familyAcceptable credit quality4,483 170,519 25,835 28,137 10,185 11,538 254 250,951 
Special mention— — — — — — — — 
Substandard8,140 — — — — 14,558 — 22,698 
Substandard – nonaccrual1,700 — 899 — 104 3,552 — 6,255 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal14,323 170,519 26,734 28,137 10,289 29,648 254 279,904 
FarmlandAcceptable credit quality10,104 4,735 13,405 12,255 3,723 18,636 1,439 64,297 
Special mention— — 1,451 — — 96 — 1,547 
Substandard— — 133 — 22 269 — 424 
Substandard – nonaccrual— — — — — 1,100 48 1,148 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal10,104 4,735 14,989 12,255 3,745 20,101 1,487 67,416 
Construction and land developmentAcceptable credit quality65,538 233,660 88,047 — 677 916 29,385 418,223 
Special mention— — — — — 40 — 40 
Substandard— — 16,594 — — — 15,349 31,943 
Substandard – nonaccrual— — — — — 39 — 39 
Doubtful— — — — — — — — 
Not graded1,535 432 356 — — 25 — 2,348 
Subtotal67,073 234,092 104,997 — 677 1,020 44,734 452,593 
TotalAcceptable credit quality646,867 1,454,885 721,876 295,622 168,355 305,147 499,434 4,092,186 
Special mention13,245 982 2,164 571 437 634 2,673 20,706 
Substandard48,473 23,245 17,412 342 18,815 55,009 20,928 184,224 
Substandard – nonaccrual10,456 11,349 2,851 1,379 8,168 7,223 1,004 42,430 
Doubtful— — — — — — — — 
Not graded1,609 432 356 — — 25 — 2,422 
Total commercial loans$720,650 $1,490,893 $744,659 $297,914 $195,775 $368,038 $524,039 $4,341,968 


21

The following table presents the gross charge-offs by class of loan and year of origination on the commercial loan portfolio for the three months ended March 31, 2024:
Term Loans by Origination Year
(dollars in thousands)20242023202220212020PriorRevolving LoansTotal
For the three months ended March 31, 2024
CommercialCommercial$— $— $— $— $10 $$102 $113 
Commercial Other— 866 1,074 294 20 43 — 2,297 
Commercial Real EstateNon-owner occupied— — — — — — — — 
Owner occupied— — — — 138 553 — 691 
Multi-family— — — — — — — — 
Construction and land development— — — — — — — — 
Total gross commercial charge-offs$— $866 $1,074 $294 $168 $597 $102 $3,101 
The Company evaluates the credit quality of its other loan portfolioportfolios, 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 any loanand loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings are considered to be impairednonperforming for purposes of credit quality evaluation. The following table presentstables present the recorded investment of our other loan portfolio (excluding PCI loans) based on the credit risk profile of loans that are performing and loans that are impairednonperforming as of September 30, 2017March 31, 2024 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

    

Residential

    

 

 

    

Lease

    

 

 

 

 

Residential

    

 

 

    

Lease

    

 

 

 

 

 

Real Estate

 

Consumer

 

Financing

 

Total

 

 

Real Estate

 

Consumer

 

Financing

 

Total

 

Performing

 

$

433,653

 

$

342,586

 

$

199,784

 

$

976,023

 

 

$

242,127

 

$

269,492

 

$

190,148

 

$

701,767

 

Impaired

 

 

5,320

 

 

277

 

 

1,062

 

 

6,659

 

 

 

5,029

 

 

213

 

 

1,331

 

 

6,573

 

Total (excluding PCI)

 

$

438,973

 

$

342,863

 

$

200,846

 

$

982,682

 

 

$

247,156

 

$

269,705

 

$

191,479

 

$

708,340

 

Impaired Loans

Impaired loans include loans on nonaccrual status, any loan past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings. Impaired loans at September 30, 2017 and December 31, 2016 do not include $26.5 million and $28.3 million, respectively, of PCI loans. The risk of credit loss on acquired loans was recognized as part of the fair value adjustment at the acquisition date.

A summary of impaired loans (excluding PCI loans) as of September 30, 2017 and December 31, 2016 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

    

2017

    

2016

 

Nonaccrual loans:

 

 

 

 

 

 

 

Commercial

 

$

1,469

 

$

3,559

 

Commercial real estate

 

 

21,454

 

 

7,145

 

Construction and land development

 

 

 —

 

 

21

 

Residential real estate

 

 

4,355

 

 

4,629

 

Consumer

 

 

273

 

 

187

 

Lease financing

 

 

1,062

 

 

1,330

 

Total nonaccrual loans

 

 

28,613

 

 

16,871

 

Accruing loans contractually past due 90 days or more as to interest or principal payments:

 

 

 

 

 

 

 

Commercial

 

 

2,212

 

 

2,378

 

Commercial real estate

 

 

 —

 

 

 —

 

Construction and land development

 

 

45

 

 

 —

 

Residential real estate

 

 

193

 

 

 —

 

Consumer

 

 

 4

 

 

26

 

Lease financing

 

 

 —

 

 

 1

 

Total accruing loans contractually past due 90 days or more as to interest or principal payments

 

 

2,454

 

 

2,405

 

Loans modified under troubled debt restructurings and still accruing:

 

 

 

 

 

 

 

Commercial

 

 

319

 

 

611

 

Commercial real estate

 

 

1,214

 

 

11,253

 

Construction and land development

 

 

59

 

 

63

 

Residential real estate

 

 

772

 

 

400

 

Consumer

 

 

 —

 

 

 —

 

Lease financing

 

 

 —

 

 

 —

 

Total loans modified under troubled debt restructurings and still accruing

 

 

2,364

 

 

12,327

 

Total impaired loans (excluding PCI)

 

$

33,431

 

$

31,603

 

There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2017 and 2016 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 $124,000 and $532,000 for the three and nine months ended September 30, 2017, respectively, and $243,000 and $484,000 for the three and nine months ended September 30, 2016, respectively. The Company recognized interest income on commercial and commercial real estate loans modified under troubled debt restructurings of $40,000 and $59,000 for the three and nine months ended September 30, 2017, respectively, and $90,000 and $196,000 for the comparable periods in 2016, respectively.

2023:

16

March 31, 2024
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)20242023202220212020PriorRevolving LoansTotal
Residential real estateResidential first lienPerforming$5,943 $43,221 $73,140 $36,738 $28,978 $124,818 $12 $312,850 
Nonperforming— 176 — 331 — 2,953 — 3,460 
Subtotal5,943 43,397 73,140 37,069 28,978 127,771 12 316,310 
Other residentialPerforming542 2,465 1,039 329 375 2,542 54,311 61,603 
Nonperforming— — — 24 — 169 477 670 
Subtotal542 2,465 1,039 353 375 2,711 54,788 62,273 
ConsumerConsumerPerforming2,856 27,585 21,508 29,044 5,203 11,971 900 99,067 
Nonperforming— 15 42 — 23 90 
Subtotal2,856 27,600 21,550 29,053 5,203 11,994 901 99,157 
Consumer otherPerforming20 183,855 350,647 128,536 50,076 24,798 — 737,932 
Nonperforming— — — — — — 
Subtotal20 183,855 350,647 128,536 50,076 24,801 — 737,935 
Leases financingPerforming30,896 128,315 144,134 65,687 43,798 32,844 — 445,674 
Nonperforming— 1,342 5,107 2,720 261 775 — 10,205 
Subtotal30,896 129,657 149,241 68,407 44,059 33,619 — 455,879 
TotalPerforming40,257 385,441 590,468 260,334 128,430 196,973 55,223 1,657,126 
Nonperforming— 1,533 5,149 3,084 261 3,923 478 14,428 
Total other loans$40,257 $386,974 $595,617 $263,418 $128,691 $200,896 $55,701 $1,671,554 

22

The following table presents impaired loans (excluding PCI loans) by portfolio and related valuation allowance as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

September 30, 2017

    

December 31, 2016

 

 

 

 

 

 

Unpaid

 

Related

 

 

 

 

Unpaid

 

Related

 

 

 

Recorded

 

Principal

 

Valuation

 

Recorded

 

Principal

 

Valuation

 

 

 

Investment

 

Balance

 

Allowance

 

Investment

 

Balance

 

Allowance

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

3,047

 

$

3,111

 

$

500

 

$

3,877

 

$

3,888

 

$

882

 

Commercial real estate

 

 

16,454

 

 

17,540

 

 

3,570

 

 

2,142

 

 

2,331

 

 

309

 

Construction and land development

 

 

104

 

 

104

 

 

10

 

 

84

 

 

84

 

 

 8

 

Residential real estate

 

 

3,056

 

 

3,634

 

 

490

 

 

3,735

 

 

4,404

 

 

604

 

Consumer

 

 

277

 

 

289

 

 

31

 

 

213

 

 

190

 

 

23

 

Lease financing

 

 

757

 

 

757

 

 

186

 

 

1,331

 

 

1,331

 

 

356

 

Total impaired loans with a valuation allowance

 

 

23,695

 

 

25,435

 

 

4,787

 

 

11,382

 

 

12,228

 

 

2,182

 

Impaired loans with no related valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

953

 

 

5,874

 

 

 —

 

 

2,671

 

 

7,567

 

 

 —

 

Commercial real estate

 

 

6,214

 

 

8,291

 

 

 —

 

 

16,256

 

 

17,058

 

 

 —

 

Construction and land development

 

 

 —

 

 

813

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Residential real estate

 

 

2,264

 

 

2,500

 

 

 —

 

 

1,294

 

 

1,462

 

 

 —

 

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

26

 

 

 —

 

Lease financing

 

 

305

 

 

305

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total impaired loans with no related valuation allowance

 

 

9,736

 

 

17,783

 

 

 —

 

 

20,221

 

 

26,113

 

 

 —

 

Total impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

4,000

 

 

8,985

 

 

500

 

 

6,548

 

 

11,455

 

 

882

 

Commercial real estate

 

 

22,668

 

 

25,831

 

 

3,570

 

 

18,398

 

 

19,389

 

 

309

 

Construction and land development

 

 

104

 

 

917

 

 

10

 

 

84

 

 

84

 

 

 8

 

Residential real estate

 

 

5,320

 

 

6,134

 

 

490

 

 

5,029

 

 

5,866

 

 

604

 

Consumer

 

 

277

 

 

289

 

 

31

 

 

213

 

 

216

 

 

23

 

Lease financing

 

 

1,062

 

 

1,062

 

 

186

 

 

1,331

 

 

1,331

 

 

356

 

Total impaired loans (excluding PCI)

 

$

33,431

 

$

43,218

 

$

4,787

 

$

31,603

 

$

38,341

 

$

2,182

 

The difference between a loan’s recorded investment and the unpaid principal balance represents: (1) a partial charge-off resulting from a confirmed loss due to the value of the collateral securing the loan being below the loan’s principal balance and management’s assessment that the full collection of the loan balance is not likely and/or (2) payments received on nonaccrual loans that are fully applied to principal on the loan’s recorded investment as compared to being applied to principal and interest on the unpaid customer principal and interest balance. The difference between the recorded investment and the unpaid principal balance on loans was $9.8 million and $6.7 million at September 30, 2017 and December 31, 2016, respectively.

December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)20232022202120202019PriorRevolving loansTotal
Residential real estateResidential first lienPerforming$42,550 $74,613 $37,009 $29,628 $19,647 $110,703 $$314,154 
Nonperforming179 50 335 — 139 2,531 — 3,234 
Subtotal42,729 74,663 37,344 29,628 19,786 113,234 317,388 
Other residentialPerforming3,245 1,113 377 409 836 2,009 54,571 62,560 
Nonperforming— — — — 178 448 635 
Subtotal3,245 1,122 377 409 836 2,187 55,019 63,195 
ConsumerConsumerPerforming30,748 24,190 31,946 6,116 2,313 10,794 1,502 107,609 
Nonperforming11 55 — 56 — 134 
Subtotal30,759 24,245 31,952 6,122 2,313 10,850 1,502 107,743 
Consumer otherPerforming190,018 392,184 149,791 63,461 23,991 7,987 — 827,432 
Nonperforming— — — — — — 
Subtotal190,018 392,184 149,791 63,461 23,991 7,990 — 827,435 
Leases financingPerforming143,334 157,059 74,359 50,174 30,428 8,863 — 464,217 
Nonperforming1,485 5,043 1,482 317 612 194 — 9,133 
Subtotal144,819 162,102 75,841 50,491 31,040 9,057 — 473,350 
Total
Performing409,895 649,159 293,482 149,788 77,215 140,356 56,077 1,775,972 
Nonperforming1,675 5,157 1,823 323 751 2,962 448 13,139 
Total other loans$411,570 $654,316 $295,305 $150,111 $77,966 $143,318 $56,525 $1,789,111 

17



The average balance of impaired loans (excluding PCI loans) and interest income recognized on impaired loans during the three months ended September 30, 2017 and 2016 are included in the table below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

 

 

2017

 

2016

 

 

    

 

    

Interest Income

 

 

    

Interest Income

 

 

 

Average

 

Recognized

 

Average

 

Recognized

 

 

 

Recorded

 

While on

 

Recorded

 

While on

 

 

 

Investment

 

Impaired Status

 

Investment

 

Impaired Status

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

3,054

 

$

 6

 

$

6,426

 

$

23

 

Commercial real estate

 

 

16,243

 

 

34

 

 

2,170

 

 

65

 

Construction and land development

 

 

104

 

 

 2

 

 

65

 

 

 3

 

Residential real estate

 

 

3,090

 

 

 9

 

 

3,157

 

 

13

 

Consumer

 

 

289

 

 

 —

 

 

115

 

 

 —

 

Lease financing

 

 

757

 

 

 —

 

 

727

 

 

 —

 

Total impaired loans with a valuation allowance

 

 

23,537

 

 

51

 

 

12,660

 

 

104

 

Impaired loans with no related valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

2,912

 

 

 —

 

 

439

 

 

 2

 

Commercial real estate

 

 

6,238

 

 

 —

 

 

15,610

 

 

 —

 

Construction and land development

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Residential real estate

 

 

2,276

 

 

 2

 

 

1,341

 

 

 1

 

Consumer

 

 

 —

 

 

 —

 

 

91

 

 

 —

 

Lease financing

 

 

305

 

 

 —

 

 

 —

 

 

 —

 

Total impaired loans with no related valuation allowance

 

 

11,731

 

 

 2

 

 

17,481

 

 

 3

 

Total impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

5,966

 

 

 6

 

 

6,865

 

 

25

 

Commercial real estate

 

 

22,481

 

 

34

 

 

17,780

 

 

65

 

Construction and land development

 

 

104

 

 

 2

 

 

65

 

 

 3

 

Residential real estate

 

 

5,366

 

 

11

 

 

4,498

 

 

14

 

Consumer

 

 

289

 

 

 —

 

 

206

 

 

 —

 

Lease financing

 

 

1,062

 

 

 —

 

 

727

 

 

 —

 

Total impaired loans (excluding PCI)

 

$

35,268

 

$

53

 

$

30,141

 

$

107

 

18


The average balance of impaired loans (excluding PCI loans) and interest income recognized on impaired loans during the nine months ended September 30, 2017 and 2016 are included in the table below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

 

2017

 

2016

 

 

 

 

    

Interest Income

 

 

    

Interest Income

 

 

 

Average

 

Recognized

 

Average

 

Recognized

 

 

 

Recorded

 

While on

 

Recorded

 

While on

 

 

 

Investment

 

Impaired Status

 

Investment

 

Impaired Status

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

3,068

 

$

 8

 

$

8,115

 

$

24

 

Commercial real estate

 

 

16,808

 

 

51

 

 

2,273

 

 

115

 

Construction and land development

 

 

106

 

 

 3

 

 

66

 

 

 6

 

Residential real estate

 

 

3,032

 

 

12

 

 

3,234

 

 

24

 

Consumer

 

 

311

 

 

 —

 

 

118

 

 

 —

 

Lease financing

 

 

757

 

 

 —

 

 

727

 

 

 —

 

Total impaired loans with a valuation allowance

 

 

24,082

 

 

74

 

 

14,533

 

 

169

 

Impaired loans with no related valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

3,199

 

 

 —

 

 

313

 

 

 1

 

Commercial real estate

 

 

6,332

 

 

 —

 

 

15,742

 

 

56

 

Construction and land development

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Residential real estate

 

 

2,174

 

 

 3

 

 

1,364

 

 

 3

 

Consumer

 

 

 —

 

 

 —

 

 

91

 

 

 —

 

Lease financing

 

 

305

 

 

 —

 

 

 —

 

 

 —

 

Total impaired loans with no related valuation allowance

 

 

12,010

 

 

 3

 

 

17,510

 

 

60

 

Total impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

6,267

 

 

 8

 

 

8,428

 

 

25

 

Commercial real estate

 

 

23,140

 

 

51

 

 

18,015

 

 

171

 

Construction and land development

 

 

106

 

 

 3

 

 

66

 

 

 6

 

Residential real estate

 

 

5,206

 

 

15

 

 

4,598

 

 

27

 

Consumer

 

 

311

 

 

 —

 

 

209

 

 

 —

 

Lease financing

 

 

1,062

 

 

 —

 

 

727

 

 

 —

 

Total impaired loans (excluding PCI)

 

$

36,092

 

$

77

 

$

32,043

 

$

229

 

19


The following table presents the aging statusgross charge-offs by class of the recorded investment in loans by portfolio (excluding PCI loans) as of September 30, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59

 

60-89

 

Past Due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days

 

Days

 

90 Days

 

Nonaccrual

 

Total

 

 

 

 

Total

 

 

 

Past Due

 

Past Due

 

or More

 

Loans

 

Past Due

 

Current

 

Loans

 

Commercial

 

$

3,395

 

$

2,161

 

$

2,212

 

$

1,469

 

$

9,237

 

$

501,220

 

$

510,457

 

Commercial real estate

 

 

364

 

 

1,044

 

 

 —

 

 

21,454

 

 

22,862

 

 

1,433,758

 

 

1,456,620

 

Construction and land development

 

 

115

 

 

67

 

 

45

 

 

 —

 

 

227

 

 

181,536

 

 

181,763

 

Residential real estate

 

 

2,271

 

 

228

 

 

193

 

 

4,355

 

 

7,047

 

 

431,926

 

 

438,973

 

Consumer

 

 

2,055

 

 

1,228

 

 

 4

 

 

273

 

 

3,560

 

 

339,303

 

 

342,863

 

Lease financing

 

 

598

 

 

 —

 

 

 —

 

 

1,062

 

 

1,660

 

 

199,186

 

 

200,846

 

Total (excluding PCI)

 

$

8,798

 

$

4,728

 

$

2,454

 

$

28,613

 

$

44,593

 

$

3,086,929

 

$

3,131,522

 

The following table presents the aging status of the recorded investment in loans by portfolio (excluding PCI loans) as of December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59

 

60-89

 

Past Due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days

 

Days

 

90 Days

 

Nonaccrual

 

Total

 

 

 

 

Total

 

 

 

Past Due

 

Past Due

 

or More

 

Loans

 

Past Due

 

Current

 

Loans

 

Commercial

 

$

3,326

 

$

138

 

$

2,378

 

$

3,559

 

$

9,401

 

$

444,909

 

$

454,310

 

Commercial real estate

 

 

648

 

 

787

 

 

 —

 

 

7,145

 

 

8,580

 

 

955,315

 

 

963,895

 

Construction and land development

 

 

 —

 

 

 —

 

 

 —

 

 

21

 

 

21

 

 

165,154

 

 

165,175

 

Residential real estate

 

 

3,472

 

 

13

 

 

 —

 

 

4,629

 

 

8,114

 

 

239,042

 

 

247,156

 

Consumer

 

 

1,701

 

 

588

 

 

26

 

 

187

 

 

2,502

 

 

267,203

 

 

269,705

 

Lease financing

 

 

94

 

 

 —

 

 

 1

 

 

1,330

 

 

1,425

 

 

190,054

 

 

191,479

 

Total (excluding PCI)

 

$

9,241

 

$

1,526

 

$

2,405

 

$

16,871

 

$

30,043

 

$

2,261,677

 

$

2,291,720

 

Troubled Debt Restructurings

A loan is categorized as a troubled debt restructuring (“TDR”) if a concession is granted to provide for a reduction of either interest or principal due to deterioration in the financial condition of the borrower.  TDRs can take the form of a reduction of the stated interest rate, splitting a loan into separate loans with market terms on one loan and concessionary termsyear of origination on the other loans, receiptsloan portfolio for the three months ended March 31, 2024:

Term Loans by Origination Year
(dollars in thousands)20242023202220212020PriorRevolving LoansTotal
For the three months ended March 31, 2024
Residential real estateResidential first lien$— $— $11 $— $— $— $— $11 
Other residential— — 16 — — — 24 
ConsumerConsumer— — — — 27 — 33 
Consumer other— — — — — 202 — 202 
Lease financing— 123 1,371 114 37 20 — 1,665 
Total gross other charge-offs$— $123 $1,398 $114 $43 $249 $$1,935 
23

NOTE 4 – PREMISES, EQUIPMENT AND LEASES
A summary of premises, equipment and leases at March 31, 2024 and December 31, 2023 is as follows:
March 31,December 31,
(dollars in thousands)20242023
Land$15,968 $15,968 
Buildings and improvements78,196 78,104 
Furniture and equipment35,461 35,797 
Lease right-of-use assets7,492 7,673 
Total137,117 137,542 
Accumulated depreciation(55,286)(54,728)
Premises and equipment, net$81,831 $82,814 
Depreciation expense for the three months ended March 31, 2024 and 2023 was $1.2 million for each period.
The Company has entered into operating leases, primarily for banking offices and operating facilities, which have remaining lease terms of 7 months to 14 years, some of which may include options to extend the lease terms for up to an additional 10 years. The options to extend are included in the remaining lease term if they are reasonably certain to be exercised. The Company had operating lease right-of-use assets from a debtorof $7.5 million and $7.7 million as of March 31, 2024 and December 31, 2023, respectively, included in partial or full satisfaction of a loan, the extensionpremises and equipment on our consolidated balance sheets. The operating lease liabilities of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, the reductionCompany were $9.0 million and $9.3 million as of the face amount or maturity of the debt as statedMarch 31, 2024 and December 31, 2023, respectively, and are included in the instrument or other agreement, the reduction of accrued interest payable and other liabilities on our consolidated balance sheets.
Information related to operating leases for the release of a personal guarantee in a bankruptcy situation or any other concessionary type of renegotiated debt.  Loans are not classifiedthree months ended March 31, 2024 and 2023 was as TDRs whenfollows:
Three Months Ended March 31,
(dollars in thousands)20242023
Operating lease cost$476 $484 
Operating cash flows from leases572 590 
Right-of-use assets obtained in exchange for lease obligations222 1,130 
Weighted average remaining lease term7.61 years8.10 years
Weighted average discount rate3.44 %3.26 %
The projected minimum rental payments under the modification is short-term or results in only an insignificant delay or shortfall in the payments to be received.

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 that continue to accrue interest and are greater than $50,000 are individually evaluated for impairment, on a quarterly basis, and 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 allowance for loan losses on TDRs totaled $2.4 million and $203,000leases as of September 30, 2017 and DecemberMarch 31, 2016, respectively. The Company had no unfunded commitments in connection with TDRs at September 30, 2017 and December 31, 2016.

20


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 (excluding PCI loans) as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

Accruing (1)

 

Non-accrual (2)

 

Total

 

Accruing (1)

 

Non-accrual (2) 

 

Total

Commercial

    

$

319

    

$

 —

    

$

319

    

$

611

    

$

 —

    

$

611

Commercial real estate

 

 

1,214

 

 

14,812

 

 

16,026

 

 

11,253

 

 

5,098

 

 

16,351

Construction and land development

 

 

59

 

 

 —

 

 

59

 

 

63

 

 

 —

 

 

63

Residential real estate

 

 

772

 

 

614

 

 

1,386

 

 

400

 

 

527

 

 

927

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Lease financing

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total loans (excluding PCI)

 

$

2,364

 

$

15,426

 

$

17,790

 

$

12,327

 

$

5,625

 

$

17,952


(1)

These loans are still accruing interest.

(2)

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

The following table presents a summary of loans by portfolio that were restructured during the three and nine months ended September 30, 2017 and the loans by portfolio that were modified as TDRs within the previous twelve months that subsequently defaulted during the three and nine months ended September 30, 2017 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Loan Portfolio

 

Other Loan Portfolio

 

 

 

 

 

 

 

 

 

Commercial

 

Construction

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real

 

and Land

 

Real

 

 

 

 

Lease

 

 

 

 

 

Commercial

 

Estate

 

Development

 

Estate

 

Consumer

 

Financing

 

Total

 

For the Three Months Ended September 30, 2017:

 

Troubled debt restructurings:

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

 

Number of loans

 

 

 —

 

 

 —

 

 

 —

 

 

 1

 

 

 —

 

 

 —

 

 

 1

 

Pre-modification outstanding balance

 

$

 —

 

$

 —

 

$

 —

 

$

91

 

$

 —

 

$

 —

 

$

91

 

Post-modification outstanding balance

 

 

 —

 

 

 —

 

 

 —

 

 

90

 

 

 —

 

 

 —

 

 

90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Troubled debt restructurings that subsequently defaulted

 

Number of loans

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Recorded balance

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2017:

 

Troubled debt restructurings:

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

 

Number of loans

 

 

 1

 

 

 —

 

 

 —

 

 

 3

 

 

 —

 

 

 —

 

 

 4

 

Pre-modification outstanding balance

 

$

362

 

$

 —

 

$

 —

 

$

475

 

$

 —

 

$

 —

 

$

837

 

Post-modification outstanding balance

 

 

339

 

 

 —

 

 

 —

 

 

474

 

 

 —

 

 

 —

 

 

813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Troubled debt restructurings that subsequently defaulted

 

Number of loans

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Recorded balance

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

21


The following table presents a summary of loans by portfolio that were restructured during the three and nine months ended September 30, 2016 and the loans by portfolio that were modified as TDRs within the previous twelve months that subsequently defaulted during the three and nine months ended September 30, 2016 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Loan Portfolio

 

Other Loan Portfolio

 

 

 

 

 

 

 

 

 

Commercial

 

Construction

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real

 

and Land

 

Real

 

 

 

 

Lease

 

 

 

 

 

 

Commercial

 

Estate

 

Development

 

Estate

 

Consumer

 

Financing

 

Total

 

For the Three Months Ended September 30, 2016:

 

Troubled debt restructurings:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

 

 

 

    

 

Number of loans

 

 

 —

 

 

 2

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

Pre-modification outstanding balance

 

$

 —

 

$

10,207

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

10,207

 

Post-modification outstanding balance

 

 

 —

 

 

10,207

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Troubled debt restructurings that subsequently defaulted

 

Number of loans

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Recorded balance

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2016:

 

Troubled debt restructurings:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

 

 

 

    

 

Number of loans

 

 

 3

 

 

 2

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 5

 

Pre-modification outstanding balance

 

$

685

 

$

10,207

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

10,892

 

Post-modification outstanding balance

 

 

647

 

 

10,207

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Troubled debt restructurings that subsequently defaulted

 

Number of loans

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Recorded balance

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Purchased Credit Impaired Loans

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan losses. PCI loans are purchased loans that have evidence of credit deterioration since origination, and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the purchase date may include factors such as past due and nonaccrual status. The difference between contractually required principal and interest at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in impairment, which is recorded as provision for loan losses in the consolidated statements of income. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges or a reclassification of the difference from non-accretable to accretable with a positive impact on interest income. Further, any excess cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. Accretion recorded as loan interest income totaled $1.1 million and $4.3 million during the three and nine months ended September 30, 2017, respectively, and $1.8 million and $7.1 million during the three and nine months ended September 30, 2016, respectively.

Accretable yield of PCI loans, or income expected to be collected, is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2017

    

2016

 

Balance, beginning of period

 

$

9,035

 

$

10,526

 

New loans purchased – Centrue acquisition

 

 

2,111

 

 

 —

 

Accretion

 

 

(4,276)

 

 

(7,066)

 

Other adjustments (including maturities, charge-offs and impact of changes in timing of expected cash flows)

 

 

(1,558)

 

 

(96)

 

Reclassification from non-accretable

 

 

1,519

 

 

4,302

 

Balance, end of period

 

$

6,831

 

$

7,666

 

22


Allowance for Loan Losses

The Company’s loan portfolio is principally comprised of commercial, commercial real estate, construction and land development, residential real estate and consumer loans and lease financing receivables. The principal risks to each category of loans are as follows:

Commercial – The principal risk of commercial loans is that these loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans. Most often, this collateral consists of accounts receivable, inventory and equipment. Inventory and equipment may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired. As such, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the general economy.

Commercial real estate – As with commercial loans, repayment of commercial real estate loans is often dependent on the borrower’s ability to make repayment from the cash flow of the commercial venture. While commercial real estate loans are collateralized by the borrower’s underlying real estate, foreclosure on such assets may be more difficult than with other types of collateralized loans because of the possible effect the foreclosure would have on the borrower’s business, and property values may tend to be partially based upon the value of the business situated on the property.

Construction and land development – Construction and land development lending involves additional risks not generally present in other types of lending because funds are advanced upon the estimated future value of the project, which is uncertain prior to its completion and at the time the loan is made, and costs may exceed realizable values in declining real estate markets. Moreover, if the estimate of the value of the completed project proves to be overstated or market values or rental rates decline, the collateral may prove to be inadequate security for the repayment of the loan. Additional funds may also be required to complete the project, and the project may have to be held for an unspecified period of time before a disposition can occur.

Residential real estate – The principal risk to residential real estate lending is associated with residential loans not sold into the secondary market. In such cases, the value of the underlying property may have deteriorated as a result of a change in the residential real estate market, and the borrower may have little incentive to repay the loan or continue living in the property. Additionally, in areas with high vacancy rates, reselling the property without substantial loss may be difficult.

Consumer – The repayment of consumer loans is typically dependent on the borrower remaining employed through the life of the loan, as well as the possibility that the collateral underlying the loan may not be adequately maintained by the borrower.

Lease financing – Our indirect financing leases are primarily for business equipment leased to varying types of small businesses.  If the cash flow from business operations is reduced, the business’s ability to repay may become impaired.

23


Changes in the allowance for loan losses for the three and nine months ended September 30, 2017 and 2016 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

 

 

2017

 

2016

 

 

 

Non-PCI

 

PCI

 

 

 

 

Non-PCI

 

PCI

 

 

 

 

 

 

Loans

 

Loans

 

Total

 

Loans

 

Loans

 

Total

 

Balance, beginning of period

    

$

14,037

    

$

1,387

    

$

15,424

    

$

13,629

    

$

1,123

    

$

14,752

 

Provision for loan losses

 

 

1,435

 

 

54

 

 

1,489

 

 

1,156

 

 

236

 

 

1,392

 

Loan charge-offs

 

 

(335)

 

 

 —

 

 

(335)

 

 

(806)

 

 

(58)

 

 

(864)

 

Loan recoveries

 

 

278

 

 

 5

 

 

283

 

 

250

 

 

29

 

 

279

 

Net loan (charge-offs) recoveries

 

 

(57)

 

 

 5

 

 

(52)

 

 

(556)

 

 

(29)

 

 

(585)

 

Balance, end of period

 

$

15,415

 

$

1,446

 

$

16,861

 

$

14,229

 

$

1,330

 

$

15,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

 

2017

 

2016

 

 

 

Non-PCI

 

PCI

 

 

 

 

Non-PCI

 

PCI

 

 

 

 

 

 

Loans

 

Loans

 

Total

 

Loans

 

Loans

 

Total

 

Balance, beginning of period

    

$

13,744

    

$

1,118

    

$

14,862

    

$

14,093

   ��

$

1,895

    

$

15,988

    

Provision for loan losses

 

 

3,260

 

 

220

 

 

3,480

 

 

3,752

 

 

(606)

 

 

3,146

 

Loan charge-offs

 

 

(2,856)

 

 

 —

 

 

(2,856)

 

 

(4,228)

 

 

(58)

 

 

(4,286)

 

Loan recoveries

 

 

1,267

 

 

108

 

 

1,375

 

 

612

 

 

99

 

 

711

 

Net loan (charge-offs) recoveries

 

 

(1,589)

 

 

108

 

 

(1,481)

 

 

(3,616)

 

 

41

 

 

(3,575)

 

Balance, end of period

 

$

15,415

 

$

1,446

 

$

16,861

 

$

14,229

 

$

1,330

 

$

15,559

 

The following table represents, by loan portfolio, a summary of changes in the allowance for loan losses for the three and nine months ended September 30, 2017 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Loan Portfolio

 

Other Loan Portfolio

 

 

 

 

 

 

 

 

 

Commercial

 

Construction

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real

 

and Land

 

Real

 

 

 

 

Lease

 

 

 

 

 

 

Commercial

 

Estate

 

Development

 

Estate

 

Consumer

 

Financing

 

Total

 

Changes in allowance for loan losses for the three months ended September 30, 2017:

 

Beginning balance

 

$

5,381

 

$

3,996

 

$

147

 

$

3,377

 

$

1,385

 

$

1,138

 

$

15,424

 

Provision for loan losses

 

 

(745)

 

 

2,715

 

 

55

 

 

(433)

 

 

(92)

 

 

(11)

 

 

1,489

 

Charge-offs

 

 

 —

 

 

 —

 

 

 —

 

 

(128)

 

 

(105)

 

 

(102)

 

 

(335)

 

Recoveries

 

 

54

 

 

56

 

 

13

 

 

47

 

 

81

 

 

32

 

 

283

 

Ending balance

 

$

4,690

 

$

6,767

 

$

215

 

$

2,863

 

$

1,269

 

$

1,057

 

$

16,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in allowance for loan losses for the three months ended September 30, 2016:

 

Beginning balance

 

$

6,186

 

$

3,511

 

$

569

 

$

2,584

 

$

827

 

$

1,075

 

$

14,752

 

Provision for loan losses

 

 

1,216

 

 

(12)

 

 

(271)

 

 

220

 

 

326

 

 

(87)

 

 

1,392

 

Charge-offs

 

 

(251)

 

 

(214)

 

 

(1)

 

 

(153)

 

 

(91)

 

 

(154)

 

 

(864)

 

Recoveries

 

 

36

 

 

129

 

 

13

 

 

32

 

 

20

 

 

49

 

 

279

 

Ending balance

 

$

7,187

 

$

3,414

 

$

310

 

$

2,683

 

$

1,082

 

$

883

 

$

15,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in allowance for loan losses for the nine months ended September 30, 2017:

 

Beginning balance

 

$

5,920

 

$

3,225

 

$

345

 

$

2,929

 

$

930

 

$

1,513

 

$

14,862

 

Provision for loan losses

 

 

(630)

 

 

3,577

 

 

(178)

 

 

113

 

 

678

 

 

(80)

 

 

3,480

 

Charge-offs

 

 

(737)

 

 

(470)

 

 

 —

 

 

(455)

 

 

(536)

 

 

(658)

 

 

(2,856)

 

Recoveries

 

 

137

 

 

435

 

 

48

 

 

276

 

 

197

 

 

282

 

 

1,375

 

Ending balance

 

$

4,690

 

$

6,767

 

$

215

 

$

2,863

 

$

1,269

 

$

1,057

 

$

16,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in allowance for loan losses for the nine months ended September 30, 2016:

 

Beginning balance

 

$

6,917

 

$

5,179

 

$

435

 

$

2,120

 

$

749

 

$

588

 

$

15,988

 

Provision for loan losses

 

 

2,619

 

 

(1,520)

 

 

(154)

 

 

886

 

 

479

 

 

836

 

 

3,146

 

Charge-offs

 

 

(2,513)

 

 

(461)

 

 

(1)

 

 

(454)

 

 

(225)

 

 

(632)

 

 

(4,286)

 

Recoveries

 

 

164

 

 

216

 

 

30

 

 

131

 

 

79

 

 

91

 

 

711

 

Ending balance

 

$

7,187

 

$

3,414

 

$

310

 

$

2,683

 

$

1,082

 

$

883

 

$

15,559

 

24


The following table represents, by loan portfolio, details regarding the balance in the allowance for loan losses and the recorded investment in loans as of September 30, 2017 and December 31, 2016 by impairment evaluation method (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Loan Portfolio

 

Other Loan Portfolio

 

 

 

 

 

 

 

 

 

Commercial

 

Construction

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real

 

and Land

 

Real

 

 

 

 

Lease

 

 

 

 

 

 

Commercial

 

Estate

 

Development

 

Estate

 

Consumer

 

Financing

 

Total

 

September 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

212

 

$

3,549

 

$

 5

 

$

248

 

$

 —

 

$

115

 

$

4,129

 

Loans collectively evaluated for impairment

 

 

288

 

 

21

 

 

 5

 

 

242

 

 

31

 

 

71

 

 

658

 

Non-impaired loans collectively evaluated for impairment

 

 

3,702

 

 

2,872

 

 

204

 

 

1,893

 

 

1,086

 

 

871

 

 

10,628

 

Loans acquired with deteriorated credit quality (1)

 

 

488

 

 

325

 

 

 1

 

 

480

 

 

152

 

 

 —

 

 

1,446

 

Total allowance for loan losses

 

$

4,690

 

$

6,767

 

$

215

 

$

2,863

 

$

1,269

 

$

1,057

 

$

16,861

 

Recorded investment (loan balance):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans individually evaluated for impairment

 

$

1,384

 

$

22,482

 

$

59

 

$

3,124

 

$

 —

 

$

420

 

$

27,469

 

Impaired loans collectively evaluated for impairment

 

 

2,616

 

 

186

 

 

45

 

 

2,196

 

 

277

 

 

642

 

 

5,962

 

Non-impaired loans collectively evaluated for impairment

 

 

506,457

 

 

1,433,952

 

 

181,659

 

 

433,653

 

 

342,586

 

 

199,784

 

 

3,098,091

 

Loans acquired with deteriorated credit quality (1)

 

 

3,087

 

 

15,664

 

 

750

 

 

6,774

 

 

175

 

 

 —

 

 

26,450

 

Total recorded investment (loan balance)

 

$

513,544

 

$

1,472,284

 

$

182,513

 

$

445,747

 

$

343,038

 

$

200,846

 

$

3,157,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

878

 

$

296

 

$

 6

 

$

379

 

$

 —

 

$

285

 

$

1,844

 

Loans collectively evaluated for impairment

 

 

 4

 

 

13

 

 

 2

 

 

225

 

 

23

 

 

71

 

 

338

 

Non-impaired loans collectively evaluated for impairment

 

 

4,539

 

 

2,684

 

 

337

 

 

1,968

 

 

877

 

 

1,157

 

 

11,562

 

Loans acquired with deteriorated credit quality (1)

 

 

499

 

 

232

 

 

 —

 

 

357

 

 

30

 

 

 —

 

 

1,118

 

Total allowance for loan losses

 

$

5,920

 

$

3,225

 

$

345

 

$

2,929

 

$

930

 

$

1,513

 

$

14,862

 

Recorded investment (loan balance):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans individually evaluated for impairment

 

$

6,504

 

$

18,275

 

$

63

 

$

2,920

 

$

 —

 

$

670

 

$

28,432

 

Impaired loans collectively evaluated for impairment

 

 

44

 

 

123

 

 

21

 

 

2,109

 

 

213

 

 

661

 

 

3,171

 

Non-impaired loans collectively evaluated for impairment

 

 

447,762

 

 

945,497

 

 

165,091

 

 

242,127

 

 

269,492

 

 

190,148

 

 

2,260,117

 

Loans acquired with deteriorated credit quality (1)

 

 

3,517

 

 

5,720

 

 

12,150

 

 

6,557

 

 

312

 

 

 —

 

 

28,256

 

Total recorded investment (loan balance)

 

$

457,827

 

$

969,615

 

$

177,325

 

$

253,713

 

$

270,017

 

$

191,479

 

$

2,319,976

 


(1)

Loans acquired with deteriorated credit quality were originally recorded at fair value at the acquisition date and the risk of credit loss was recognized at that date based on estimates of expected cash flows.

25


Note 7 – Mortgage Servicing Rights

At September 30, 2017 and December 31, 2016, the Company serviced mortgage loans for others totaling $5.95 billion and $5.64 billion, respectively. A summary of mortgage loans serviced for others as of September 30, 2017 and December 31, 2016 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

 

2017

 

2016

 

Commercial FHA mortgage loans

    

$

3,895,455

    

$

3,811,066

 

Residential mortgage loans

 

 

2,053,933

 

 

1,833,443

 

Total loans serviced for others

 

$

5,949,388

 

$

5,644,509

 

Changes in our mortgage servicing rights2024 were as follows for the three and nine months ended September 30, 2017 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

    

Mortgage servicing rights:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

75,705

 

$

68,395

 

$

71,710

 

$

67,218

 

Servicing rights acquired – residential mortgage loans

 

 

 —

 

 

 —

 

 

1,933

 

 

 —

 

Servicing rights transferred to held for sale - residential mortgage loans

 

 

(16,229)

 

 

 —

 

 

(16,229)

 

 

 —

 

Servicing rights capitalized – commercial FHA mortgage loans

 

 

1,432

 

 

3,506

 

 

5,020

 

 

5,777

 

Servicing rights capitalized – residential mortgage loans

 

 

435

 

 

1,125

 

 

1,656

 

 

2,764

 

Amortization – commercial FHA mortgage loans

 

 

(650)

 

 

(592)

 

 

(1,928)

 

 

(1,741)

 

Amortization – residential mortgage loans

 

 

(857)

 

 

(1,085)

 

 

(2,326)

 

 

(2,669)

 

Balance, end of period

 

 

59,836

 

 

71,349

 

 

59,836

 

 

71,349

 

Valuation allowances:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

5,428

 

 

5,587

 

 

3,702

 

 

567

 

Additions

 

 

104

 

 

1,073

 

 

1,942

 

 

6,301

 

Reductions

 

 

 —

 

 

 —

 

 

(112)

 

 

(208)

 

Servicing rights transferred to held for sale - residential mortgage loans

 

 

(1,995)

 

 

 —

 

 

(1,995)

 

 

 —

 

Balance, end of period

 

 

3,537

 

 

6,660

 

 

3,537

 

 

6,660

 

Mortgage servicing rights, net

 

$

56,299

 

$

64,689

 

$

56,299

 

$

64,689

 

Fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

At beginning of period

 

$

70,277

 

$

62,960

 

$

68,008

 

$

66,700

 

At end of period

 

$

56,299

 

$

64,689

 

$

56,299

 

$

64,689

 

During the third quarter of 2017, the Company transferred $14.2 million of residential mortgage servicing rights, net of valuation allowance, to mortgage servicing rights held for sale. The Company has committed to a plan to sell certain residential mortgage servicing rights and has the ability to sell them to a buyer in their present condition. During the three and nine months ended September 30, 2017, the Company recognized a $3.6 million loss on mortgage servicing rights held for sale to reflect them at the lower of their carrying value or fair value less estimated costs to sell. As a result of recognizing this loss, mortgage servicing rights held for sale had a net carrying value of $10.6 million at September 30, 2017.

follows:

26

(dollars in thousands)Amount
Year ending December 31:
2024 remaining$1,475 
20251,402 
20261,277 
20271,132 
20281,074 
Thereafter3,976 
Total future minimum lease payments10,336 
Less imputed interest(1,305)
Total operating lease liabilities$9,031 


The following table is a summary of key assumptions, representing both general economic and other published information and the weighted average characteristics of the commercial and residential portfolios, used in the valuation of servicing rights at September 30, 2017 and December 31, 2016. Assumptions used in the prepayment rate consider 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 portfolios. Significant increases or decreases in any one of these assumptions would result in a significantly lower or higher fair value measurement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

Remaining

    

 

    

 

 

    

 

 

 

 

Servicing

 

Interest

 

Years to

    

Prepayment

 

Servicing

    

Discount

 

 

Fee

 

Rate

 

 Maturity

    

Rate

 

Cost

    

Rate

September 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial FHA mortgage loans

 

0.13

%

 

3.67

%

 

30.3

 

8.25

%

 

$

1,000

 

10 - 12

%

Residential mortgage loans

 

0.26

%

 

3.93

%

 

22.6

 

11.52

%

 

$

67

 

9 - 11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial FHA mortgage loans

 

0.13

%

 

3.72

%

 

30.2

 

8.31

%

 

$

1,000

 

10 - 13

%

Residential mortgage loans

 

0.26

%

 

3.89

%

 

24.2

 

9.72

%

 

$

60

 

9 - 11

%

We recognize revenue from servicing commercial FHA and residential mortgages as earned based on the specific contractual terms. This revenue, along with amortization of and changes in impairment on servicing rights, is reported in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income. Mortgage servicing rights do not trade in an active market with readily observable prices. The fair value of mortgage servicing rights and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured residential and commercial mortgages and conventional residential mortgages. 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, cost to service, contractual servicing fee income, ancillary income, late fees, replacement reserves and other economic factors that are determined based on current market conditions.

Note 8NOTE 5Goodwill and Intangible Assets

At September 30, 2017 and December 31, 2016, goodwill totaled $97.4 million and $48.8 million, respectively. Goodwill increased $46.1 million as a result of the acquisition of Centrue on June 9, 2017 and $2.4 million as a result of the acquisition of CedarPoint on March 28, 2017, as further discussed in Note 3 to the consolidated financial statements.

The Company’s intangible assets, consisting of core deposit and customer relationship intangibles, as of September 30, 2017 and December 31, 2016 are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

Gross

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

Carrying

 

Accumulated

 

 

 

 

Carrying

 

Accumulated

 

 

 

 

 

 

Amount

 

Amortization

 

Total

 

Amount

 

Amortization

 

Total

 

Core deposit intangibles

    

$

31,612

    

$

(17,998)

    

$

13,614

    

$

20,542

    

$

(16,181)

    

$

4,361

 

Customer relationship intangibles

 

 

7,471

 

 

(3,119)

 

 

4,352

 

 

5,471

 

 

(2,645)

 

 

2,826

 

Total intangible assets

 

$

39,083

 

$

(21,117)

 

$

17,966

 

$

26,013

 

$

(18,826)

 

$

7,187

 

In conjunction with the acquisition of Centrue on June 9, 2017, we recorded $11.1 million of core deposit intangibles, which are being amortized on an accelerated basis over an estimated useful life of eight years, as further discussed in Note 3 to the consolidated financial statements.

In conjunction with the acquisition of CedarPoint on March 28, 2017, we recorded $2.0 million of customer relationship intangibles, which are being amortized on a straight-line basis over 12 years, as further discussed in Note 3 to the consolidated financial statements.

Amortization of intangible assets was $1.2 million and $2.3 million for the three and nine months ended September 30, 2017, respectively, and $514,000 and $1.6 million for the comparable periods in 2016, respectively.

DERIVATIVE INSTRUMENTS

27


Note 9 – Derivative Instruments

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

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.

24

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

Derivative instruments issued by the

The Company consist ofissues interest rate lock commitments to originateon originated fixed-rate residential real estate loans to be sold.  Commitments to originate fixed-rate loans consist of commercial and residential real estate loans. 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 and the location in which the derivative instruments are reported in the consolidated balances sheets at September 30, 2017March 31, 2024 and December 31, 2016 (in thousands):

2023:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional Amount

 

Fair Value Gain

 

 

    

September 30, 

    

December 31, 

    

September 30, 

    

December 31, 

 

 

 

2017

 

2016

 

2017

 

2016

 

Derivative Instruments (included in Other Assets):

 

Interest rate lock commitments

 

$

337,280

 

$

264,359

 

$

6,421

 

$

6,253

 

Forward commitments to sell mortgage-backed securities

 

 

349,945

 

 

301,788

 

 

 5

 

 

125

 

Total

 

$

687,225

 

$

566,147

 

$

6,426

 

$

6,378

 

Notional amountFair value gain
(dollars in thousands)March 31,
2024
December 31,
2023
March 31,
2024
December 31,
2023
Derivative instruments (included in other assets):
Interest rate lock commitments$5,564 $2,405 $116 $62 

Net losses of $1.1 million

Notional amountFair value loss
(dollars in thousands)March 31,
2024
December 31,
2023
March 31,
2024
December 31,
2023
Derivative instruments (included in other liabilities):
Forward commitments to sell mortgage-backed securities$8,500 $5,000 $19 $83 
During both the three months ended March 31, 2024 and 2023, the Company recognized net gains of $48,000 were recognized$0.1 million on derivative instruments for the three and nine months ended September 30, 2017, respectively. Net losses of $5.2 million and net gains of $527,000 were recognized on derivative instruments for the three and nine months ended September 30, 2016, respectively. Net gains and losses on derivative instruments were recognized in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income.

Cash Flow Hedges
The Company periodically enters into interest rate swap agreements, which qualify as cash flow hedges, to manage the risk of changes in future cash flows due to interest rate fluctuations. The following table summarizes the Company's receive-fixed, pay-variable interest rate swaps on certain pools of loans indexed to prime at March 31, 2024 and December 31, 2023
(dollars in thousands)March 31,
2024
December 31,
2023
Notional Amount$425,000 $400,000 
Fair value loss included in other liabilities(8,895)(8,443)
Tax effected amount included in accumulated other comprehensive (loss) income(5,693)(6,164)
Average remaining life2.562.67
Weighted average pay rate6.37 %6.55 %
Weighted average receive rate5.40 %5.41 %
Interest Rate Swap Contracts

Not Designated as Hedges

The Company entered into derivative instruments related to 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 thesethe customer derivative instruments and the offsetting counterparty derivative instruments were $10.1$6.8 million and $6.9 million at September 30, 2017.March 31, 2024 and December 31, 2023, respectively. The fair value of the customer derivative instruments and the offsetting counterparty derivative instruments was $121,000$0.4 million and $0.3 million at September 30, 2017,March 31, 2024 and December 31, 2023, respectively, which are included in other assets and other liabilities, respectively, on the consolidated balance sheets.

28

25

Table of Contents

Note 10NOTE 6Deposits

DEPOSITS

The following table summarizes the classification of deposits as of September 30, 2017March 31, 2024 and December 31, 2016 (in thousands):

2023:

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

    

2017

    

2016

 

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

Noninterest-bearing demand

 

$

674,118

 

$

562,333

 

Interest-bearing:

 

 

 

 

 

 

 

Checking
Checking

Checking

 

 

800,649

 

 

656,248

 

Money market

 

 

633,844

 

 

399,851

 

Savings

 

 

278,977

 

 

166,910

 

Time

 

 

726,879

 

 

619,024

 

Total deposits

 

$

3,114,467

 

$

2,404,366

 

Note 11



NOTE 7Short-Term Borrowings

SHORT-TERM BORROWINGS

The following table presents the distribution of short-term borrowingssecurities sold under agreements to repurchase and federal funds purchased and the related weighted average interest rates as of and for the nine months ended September 30, 2017 and as of and for the year ended DecemberMarch 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Repurchase Agreements

 

 

September 30, 

 

December 31, 

 

 

2017

 

2016

Outstanding at period-end

    

$

153,443

    

 

$

131,557

 

Average amount outstanding

 

 

157,388

 

 

 

130,228

 

Maximum amount outstanding at any month end

 

 

183,327

 

 

 

168,369

 

Weighted average interest rate:

 

 

 

 

 

 

 

 

During period

 

 

0.22

%

 

 

0.23

%

End of period

 

 

0.23

%

 

 

0.21

%

At September 30, 2017, the Company had federal funds lines of credit totaling $55.0 million. The lines of credit were unused at September 30, 2017.

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 $185.7 million and $140.0 million at September 30, 2017 and December 31, 2016, respectively, were pledged for securities sold under agreements to repurchase.

The Company had lines of credit of $23.2 million and $35.1 million at September 30, 2017 and December 31, 2016, 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 $31.5 million and $43.3 million at September 30, 2017 and December 31, 2016, respectively. There were no outstanding borrowings at September 30, 2017 and December 31, 2016.

2024:

29

As of and for the quarter ended
March 31, 2024
(dollars in thousands)Repurchase agreementsFederal funds purchased
Outstanding at period-end$7,446 $207,000 
Average amount outstanding7,347 57,835 
Maximum amount outstanding at any month end7,446 207,000 
Weighted average interest rate:
During period0.26 %5.78 %
End of period0.25 %5.44 %

Table of Contents

Note 12NOTE 8 – FHLB Advances and Other Borrowings

ADVANCES AND OTHER BORROWINGS

The following table summarizes our Federal Home Loan Bank (“FHLB”)FHLB advances and other borrowings as of September 30, 2017March 31, 2024 and December 31, 2016 (in thousands):

2023:

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

    

2017

    

2016

 

Midland States Bancorp, Inc.

 

 

 

 

 

 

 

Term loan - variable interest rate equal to LIBOR plus 2.25%, which was 3.50% at September 30, 2017 – maturing through May 25, 2020

 

$

38,539

 

$

 —

 

Series G redeemable preferred stock - 181 shares at $1,000 per share

 

 

181

 

 

 —

 

Midland States Bank

 

 

 

 

 

 

 

FHLB advances – fixed rate, fixed term of $176.0 million and $112.5 million, at rates averaging 1.28% and 1.00% at September 30, 2017 and December 31, 2016, respectively – maturing through June 2021, and putable fixed rate of $235.0 million and $125.0 million at rates averaging 1.10% and 0.79% at September 30, 2017 and December 31, 2016, respectively, – maturing through August 2023 with call provisions through June 2019

 

 

411,144

 

 

237,500

 

FHLB advances – variable rate, fixed term, at rates averaging 0.85% at September 30, 2017 – maturing through March 2018

 

 

39,000

 

 

 —

 

Other

 

 

 6

 

 

18

 

Total FHLB advances and other borrowings

 

$

488,870

 

$

237,518

 

(dollars in thousands)March 31, 2024December 31, 2023
FHLB advances – fixed rate, fixed term at rates averaging 4.64% and 4.94% at March 31, 2024 and December 31, 2023 - maturing through February 2029$100,000 $150,000 
FHLB advances – putable fixed rate at rates averaging 3.11% and 3.07% at March 31, 2024 and December 31, 2023, respectively – maturing through February 2028 with call provisions through October 2024155,000 160,000 
FHLB advances – Short term fixed rate at rates averaging 5.45% at December 31, 2023 – matured January 2024— 166,000 
Total FHLB advances and other borrowings$255,000 $476,000 

On May 25, 2017, the Company entered into a loan agreement with another bank for a revolving line of credit in the original principal amount of up to $10.0 million and a term loan in the original principal amount of $40.0 million.

The revolving line of credit matures on May 24, 2018 and pays a variable rate of interest equal to one-month LIBOR plus 2.00%. There were no advances made on the line of credit as of September 30, 2017. The term loan matures on May 25, 2020 and pays a variable rate of interest equal to one-month LIBOR plus 2.25%. Beginning September 1, 2017, the Company was required to begin making quarterly principal and interest payments on the term loan of $1.4 million with the remaining principal and any unpaid interest due at maturity. The loan is unsecured with a negative pledge of shares of the Company’s common stock. The loan agreement contains financial covenants that require the Company to maintain a minimum total capital to risk-weighted assets ratio, a minimum adjusted loan loss reserves to nonperforming loans ratio, a minimum fixed charge coverage ratio and a maximum percentage of nonperforming assets to tangible capital. At September 30, 2017, the Company was in compliance with each of these financial covenants.

In conjunction with the acquisition of Centrue on June 9, 2017, as further discussed in Note 3 to the consolidated financial statements, each share of Centrue’s Series B preferred stock was converted into the right to receive a share of a newly created series of Series G preferred stock of the Company, and was recorded at fair value of $181,000 at the time of acquisition.

The Bank’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 $1.63$3.01 billion and $1.18$2.98 billion at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.

Note 13

26

Table of Contents
NOTE 9Subordinated Debt

SUBORDINATED DEBT

The following table summarizes the Company’s subordinated debt as of September 30, 2017at March 31, 2024 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2017

 

2016

 

Subordinated debt issued June 2015 – fixed interest rate of 6.00% for the first five years through June 2020 and a variable interest rate equivalent to three month LIBOR plus 4.35% thereafter, $40,325 maturing June 18, 2025

 

$

39,783

 

$

39,729

 

Subordinated debt issued June 2015 – fixed interest rate of 6.50%, $15,000 maturing June 18, 2025

 

 

14,798

 

 

14,779

 

Total subordinated debt

 

$

54,581

 

$

54,508

 

2023:

30

Subordinated debt
Fixed to Float
(dollars in thousands)Issued September 2019Issued September 2019Total
At March 31, 2024
Outstanding amount$66,750 $27,250 $94,000 
Carrying amount66,632 26,985 93,617 
Current rate5.00 %5.50 %
At December 31, 2023
Outstanding amount$66,750 $27,250 $94,000 
Carrying amount66,573 26,973 93,546 
Current rate5.00 %5.50 %
Maturity date9/30/20299/30/2034
Optional redemption date9/30/20249/30/2029
Fixed to variable conversion date9/30/20249/30/2029
Variable rate3-month SOFR plus 3.61%3-month SOFR plus 4.05%
Interest payment termsSemiannuallySemiannually

Table of Contents

Note 14 – Trust Preferred Debentures

The following table summarizes the Company’s trust preferred debentures as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

    

2017

    

2016

 

Grant Park Statutory Trust I – variable interest rate equal to LIBOR plus 2.85%, which was 4.16% and 3.74%, at September 30, 2017 and December 31, 2016, respectively – $3,000 maturing January 23, 2034

 

$

2,043

 

$

1,996

 

Midland States Preferred Securities Trust – variable interest rate equal to LIBOR plus 2.75%, which was 4.06% and 3.63% at September 30, 2017 and December 31, 2016, respectively – $10,000 maturing April 23, 2034

 

 

9,959

 

 

9,957

 

Love Savings/Heartland Capital Trust III – variable interest rate equal to LIBOR plus 1.75%, which was 3.07% and 2.71% at September 30, 2017 and December 31, 2016, respectively – $20,000 maturing December 31, 2036

 

 

13,253

 

 

13,141

 

Love Savings/Heartland Capital Trust IV – variable interest rate equal to LIBOR plus 1.47%, which was 2.79% and 2.42% at September 30, 2017 and December 31, 2016, respectively – $20,000 maturing September 6, 2037

 

 

12,425

 

 

12,311

 

Centrue Statutory Trust II - variable interest rate equal to LIBOR plus 2.65%, which was 3.97% at September 30, 2017 - $10,000 maturing June 17, 2034

 

 

7,587

 

 

 —

 

Total trust preferred debentures

 

$

45,267

 

$

37,405

 

In conjunction with the acquisition of Centrue on June 9, 2017, as further discussed in Note 3 to the consolidated financial statements, the Company assumed $10.0 millionvalue of subordinated debentures that were recorded at fair value of $7.6 million athave been reduced by the time of acquisition. In April 2004,debt issuance costs, which are being amortized on a straight line basis through the Centrue Statutory Trust II (“Centrue Trust II”) issued 10,000 shares of preferred securities with a liquidation amount of $1,000 per preferred security. Centrue issued $10.0 million of subordinated debentures to Centrue Trust II in exchange for ownership of all the common securitiesearlier of the trust. The Company is not considered the primary beneficiaryredemption option or maturity date. All of Centrue Trust II, therefore, the trust is not consolidated in the Company’s consolidated financial statements, but rather the subordinated debentures are shown as a liability, and the Company’s investment in the common stock of Centrue Trust II of $310,000 isabove may be included in other assets.

Note 15Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

NOTE 10Preferred Stock

Series G Preferred Stock

In conjunction with the acquisition of Centrue on June 9, 2017, as previously discussed in Note 3 to the consolidated financial statements, each share of Centrue’s Series B preferred stock was converted into the right to receive a share of a newly created series of Series G preferred stock of the Company, which are shown in FHLB advances and other borrowings in Note 12 to the consolidated financial statements. Preferential cumulative cash dividends are payable quarterly at an annual rate of $60.00 per share. Dividends accrue on each share of Series G preferred stock from the date of issuance and from day to day, thereafter, whether or not earned or declared.

Fixed Rate Non-Voting Perpetual Non-Cumulative Preferred Stock, Series H

Each share of Centrue’s Series D preferred stock was converted into the right to receive a share of a newly created series of Series H preferred stock of the Company, and was recorded at fair value of $3.1 million at the time of acquisition. Dividends are payable at a fixed rate of 12.5% per annum, payable quarterly and are non-cumulative. No dividends may be paid on shares of common stock, shares of preferred stock that rank junior to Series H preferred stock (other than dividends payable solely in shares of common stock), or shares of preferred stock that rank on parity with Series H preferred stock, if a dividend is not paid in full on the Series H preferred stock, for a period of three calendar quarters from the date of the missing dividend payment date. The Company has the option to redeem, in whole or in part, the shares of Series H preferred stock at any time after July 29, 2019. The per share price payable by the Company for such shares of Series H preferred stock will be equal to $1,000 per share, plus any accrued but unpaid dividends.

EARNINGS PER COMMON SHARE

31


Table of Contents

Note 16 – Earnings Per Share

Earnings per common share areis calculated utilizing the two‑classtwo-class method. Basic earnings per common share areis 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 areis 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 using the treasury stock method (outstanding stock options and unvested restricted stock) and common stock warrants.awards. Presented

27

Table of Contents
below are the calculations for basic and diluted earnings per common share for the three and nine months ended September 30, 2017March 31, 2024 and 2016 (dollars in thousands, except2023:
Three Months Ended March 31,
(dollars in thousands, except per share data)20242023
Net income$13,885 $21,772 
Preferred dividends declared(2,228)(2,228)
Net income available to common shareholders11,657 19,544 
Common shareholder dividends(6,666)(6,669)
Unvested restricted stock award dividends(106)(80)
Undistributed earnings to unvested restricted stock awards(75)(151)
Undistributed earnings to common shareholders$4,810 $12,644 
Basic
Distributed earnings to common shareholders$6,666 $6,669 
Undistributed earnings to common shareholders4,810 12,644 
Total common shareholders earnings, basic$11,476 $19,313 
Diluted
Distributed earnings to common shareholders$6,666 $6,669 
Undistributed earnings to common shareholders4,810 12,644 
Total common shareholders earnings11,476 19,313 
Add back:
Undistributed earnings reallocated from unvested restricted stock awards— — 
Total common shareholders earnings, diluted$11,476 $19,313 
Weighted average common shares outstanding, basic21,774,647 22,478,808 
Options13,044 23,162 
Weighted average common shares outstanding, diluted21,787,691 22,501,970 
Basic earnings per common share$0.53 $0.86 
Diluted earnings per common share0.53 0.86 
Antidilutive stock options(1)
235,652 265,831 
(1)The diluted earnings per common share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

    

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

    

Net income

 

$

2,036

 

$

8,051

 

$

14,065

 

$

19,959

 

Preferred stock dividends

 

 

(83)

 

 

 —

 

 

(102)

 

 

 

 

Amortization of preferred stock premium

 

 

56

 

 

 —

 

 

56

 

 

 —

 

Net income available to common equity

 

 

2,009

 

 

8,051

 

 

14,019

 

 

19,959

 

Common shareholder dividends

 

 

(3,818)

 

 

(2,773)

 

 

(10,100)

 

 

(7,022)

 

Unvested restricted stock award dividends

 

 

(19)

 

 

(12)

 

 

(59)

 

 

(35)

 

Undistributed earnings to unvested restricted stock awards

 

 

 —

 

 

(26)

 

 

(21)

 

 

(69)

 

Undistributed earnings to common shareholders

 

$

(1,828)

 

$

5,240

 

$

3,839

 

$

12,833

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributed earnings to common shareholders

 

$

3,818

 

$

2,773

 

$

10,100

 

$

7,022

 

Undistributed earnings to common shareholders

 

 

(1,828)

 

 

5,240

 

 

3,839

 

 

12,833

 

Total common shareholders earnings, basic

 

$

1,990

 

$

8,013

 

$

13,939

 

$

19,855

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributed earnings to common shareholders

 

$

3,818

 

$

2,773

 

$

10,100

 

$

7,022

 

Undistributed earnings to common shareholders

 

 

(1,828)

 

 

5,240

 

 

3,839

 

 

12,833

 

Total common shareholders earnings

 

 

1,990

 

 

8,013

 

 

13,939

 

 

19,855

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

Undistributed earnings reallocated from unvested restricted stock awards

 

 

 —

 

 

 —

 

 

 1

 

 

 1

 

Total common shareholders earnings, diluted

 

$

1,990

 

$

8,013

 

$

13,940

 

$

19,856

 

Weighted average common shares outstanding, basic

 

 

19,265,409

 

 

15,578,703

 

 

17,274,746

 

 

13,637,997

 

Options and warrants

 

 

438,808

 

 

279,570

 

 

522,489

 

 

264,667

 

Weighted average common shares outstanding, diluted

 

 

19,704,217

 

 

15,858,273

 

 

17,797,235

 

 

13,902,664

 

Basic earnings per common share

 

$

0.10

 

$

0.51

 

$

0.81

 

$

1.46

 

Diluted earnings per common share

 

 

0.10

 

 

0.51

 

 

0.78

 

 

1.43

 

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.

32


NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Table of Contents

Note 17 – Fair Value of Financial Instruments

ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value including a three‑level valuation hierarchy, and expands disclosures about fair value measurements. 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: ObservableLevel 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, either directly or indirectly, for substantially the full term of the financial instrument.

·

Level 3: Inputs to a valuation methodology that is unobservable, supported by little or no market activity, and significant to the fair value measurement. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation. This category also includes observable inputs from a pricing service not corroborated by observable market data, such as pricing corporate securities.

Fair value is used on a recurring basis to account for securities available for sale and derivative instruments, and for financial assets for which the Company has elected the fair value option. For assets and liabilities measured at the lower of costin active markets, quoted prices in less active markets, or fair value, the fair value measurement criteria may or may notother observable inputs that can be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for impaired loans and other real estate owned and also to record impairment on certain assets, such as mortgage servicing rights, goodwill, intangible assets and other long-lived assets.

corroborated by observable market data.

33


Table of Contents

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 as of September 30, 2017 and December 31, 2016, are summarized below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

 

 

 

Quoted prices

 

 

 

 

 

 

 

 

 

 

 

 

in active

 

Significant

 

 

 

 

 

 

 

 

 

markets

 

other

 

Significant

 

 

 

 

 

 

for identical

 

observable

 

unobservable

 

 

 

 

 

 

assets

 

inputs

 

inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Assets and liabilities measured at fair value on a recurring basis:

    

 

    

    

 

    

    

 

    

    

 

    

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

47,907

 

$

47,907

 

$

 —

 

$

 —

 

Government sponsored entity debt securities

 

 

19,389

 

 

 —

 

 

19,389

 

 

 —

 

Agency mortgage-backed securities

 

 

229,854

 

 

 —

 

 

229,854

 

 

 —

 

State and municipal securities

 

 

39,716

 

 

 —

 

 

39,716

 

 

 —

 

Corporate securities

 

 

57,307

 

 

 —

 

 

52,558

 

 

4,749

 

Equity securities

 

 

2,812

 

 

 —

 

 

2,812

 

 

 —

 

Loans held for sale

 

 

35,874

 

 

 —

 

 

35,874

 

 

 —

 

Interest rate lock commitments

 

 

6,421

 

 

 —

 

 

6,421

 

 

 —

 

Forward commitments to sell mortgage-backed securities

 

 

 5

 

 

 —

 

 

 5

 

 

 —

 

Interest rate swap contracts

 

 

121

 

 

 —

 

 

121

 

 

 —

 

Total

 

$

439,406

 

$

47,907

 

$

386,750

 

$

4,749

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

121

 

$

 —

 

$

121

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets measured at fair value on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

56,299

 

$

 —

 

$

 —

 

$

56,299

 

Mortgage servicing rights held for sale

 

 

10,618

 

 

 —

 

 

 —

 

 

10,618

 

Impaired loans

 

 

18,311

 

 

 —

 

 

6,227

 

 

12,084

 

Assets held for sale

 

 

2,858

 

 

 —

 

 

2,858

 

 

 —

 

34


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

Quoted prices

 

 

 

 

 

 

 

 

 

 

 

in active

 

Significant

 

 

 

 

 

 

 

 

 

markets

 

other

 

Significant

 

 

 

 

 

 

for identical

 

observable

 

unobservable

 

 

 

 

 

 

assets

 

inputs

 

inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level) 3

 

Assets and liabilities measured at fair value on a recurring basis:

    

 

    

    

 

    

    

 

    

    

 

    

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

75,901

 

$

75,901

 

$

 —

 

$

 —

 

Government sponsored entity debt securities

 

 

7,688

 

 

 —

 

 

7,688

 

 

 —

 

Agency mortgage-backed securities

 

 

90,070

 

 

 —

 

 

90,070

 

 

 —

 

Non-agency mortgage-backed securities

 

 

 1

 

 

 —

 

 

 —

 

 

 1

 

State and municipal securities

 

 

25,274

 

 

 —

 

 

25,274

 

 

 —

 

Corporate securities

 

 

47,405

 

 

 —

 

 

39,925

 

 

7,480

 

Loans held for sale

 

 

70,565

 

 

 —

 

 

70,565

 

 

 —

 

Interest rate lock commitments

 

 

6,253

 

 

 —

 

 

6,253

 

 

 —

 

Forward commitments to sell mortgage-backed securities

 

 

125

 

 

 —

 

 

125

 

 

 —

 

Total

 

$

323,282

 

$

75,901

 

$

239,900

 

$

7,481

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

None

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets measured at fair value on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

10,202

 

$

 —

 

$

6,635

 

$

3,567

 

Other real estate owned

 

 

165

 

 

 —

 

 

165

 

 

 —

 

Assets held for sale

 

 

1,550

 

 

 —

 

 

1,550

 

 

 —

 

The following table presents losses recognized on assets measured on a non‑recurring basis for the three and nine months ended September 30, 2017 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

     

2017

    

2016

 

Mortgage servicing rights

 

$

104

 

$

1,073

 

$

1,830

 

$

6,093

 

Mortgage servicing rights held for sale

 

 

3,617

 

 

 —

 

 

3,617

 

 

 —

 

Impaired loans

 

 

 1

 

 

144

 

 

564

 

 

310

 

Other real estate owned

 

 

 —

 

 

 4

 

 

180

 

 

219

 

Assets held for sale

 

 

 —

 

 

 —

 

 

1,130

 

 

 —

 

Total loss on assets measured on a nonrecurring basis

 

$

3,722

 

$

1,221

 

$

7,321

 

$

6,622

 

The following table presents activity for assets measured at fair value on a recurring basis using significantLevel 3: Significant unobservable inputs (Level 3) forthat reflect a company’s own assumptions about the three and nine months ended September 30, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Agency

 

 

 

Corporate

 

Mortgage-Backed

 

 

 

Securities

 

Securities

 

 

 

Three Months

 

Nine Months

 

Three Months

 

Nine Months

 

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

 

September 30, 

 

September 30, 

 

September 30, 

 

September 30, 

 

 

    

2017

 

2017

 

Balance, beginning of period

 

$

4,740

 

$

7,480

 

$

 —

 

$

 1

 

Total realized in earnings (1)

 

 

54

 

 

235

 

 

 —

 

 

 —

 

Total unrealized in other comprehensive income

 

 

 —

 

 

242

 

 

 —

 

 

 —

 

Net settlements (principal and interest)

 

 

(45)

 

 

(3,208)

 

 

 —

 

 

(1)

 

Balance, end of period

 

$

4,749

 

$

4,749

 

$

 —

 

$

 —

 

assumptions that market participants would use in pricing an asset or liability.

(1)

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

35


Table of Contents

The following table presents activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) forCompany used the three and nine months ended September 30, 2016 (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Agency

 

 

 

Corporate

 

Mortgage-Backed

 

 

 

Securities

 

Securities

 

 

 

Three Months

 

Nine Months

 

Three Months

 

Nine Months

 

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

 

September 30, 

 

September 30, 

 

September 30, 

 

September 30, 

 

 

    

2016

 

2016

 

Balance, beginning of period

 

$

9,765

 

$

 —

 

$

 2

 

$

 —

 

Transferred from Level 2

 

 

 —

 

 

6,749

 

 

 —

 

 

 2

 

Transferred to Level 2

 

 

(2,000)

 

 

(2,000)

 

 

 —

 

 

 —

 

Purchases of investment securities recognized as Level 3

 

 

 —

 

 

3,000

 

 

 —

 

 

 —

 

Total realized in earnings (1)

 

 

93

 

 

251

 

 

 —

 

 

 —

 

Total unrealized in other comprehensive income

 

 

(294)

 

 

(296)

 

 

 —

 

 

 —

 

Net settlements (principal and interest)

 

 

(84)

 

 

(224)

 

 

(1)

 

 

(1)

 

Balance, end of period

 

$

7,480

 

$

7,480

 

$

 1

 

$

 1

 


(1)

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

ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of certain financial instruments and thefollowing 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.

36


Table of Contents

The following tables are a summary of the carrying values and fair value estimates of certain financial instruments as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

 

 

 

 

 

 

Quoted prices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in active

 

Significant

 

 

 

 

 

 

 

 

 

 

 

 

markets

 

other

 

Significant

 

 

 

 

 

 

 

 

 

for identical

 

observable

 

unobservable

 

 

 

Carrying

 

 

 

 

assets

 

inputs

 

inputs

 

 

 

Amount

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

    

$

180,807

    

$

180,807

    

$

180,807

    

$

 —

    

$

 —

 

Federal funds sold

 

 

2,765

 

 

2,765

 

 

2,765

 

 

 —

 

 

 —

 

Investment securities available for sale

 

 

396,985

 

 

396,985

 

 

47,907

 

 

344,329

 

 

4,749

 

Investment securities held to maturity

 

 

70,867

 

 

75,142

 

 

 —

 

 

75,142

 

 

 —

 

Nonmarketable equity securities

 

 

34,391

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans, net

 

 

3,141,111

 

 

3,142,910

 

 

 —

 

 

 —

 

 

3,142,910

 

Loans held for sale

 

 

35,874

 

 

35,874

 

 

 —

 

 

35,874

 

 

 —

 

Accrued interest receivable

 

 

11,673

 

 

11,673

 

 

 —

 

 

11,673

 

 

 —

 

Interest rate lock commitments

 

 

6,421

 

 

6,421

 

 

 —

 

 

6,421

 

 

 —

 

Forward commitments to sell mortgage-backed securities

 

 

 5

 

 

 5

 

 

 —

 

 

 5

 

 

 —

 

Interest rate swap contracts

 

 

121

 

 

121

 

 

 —

 

 

121

 

 

 —

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

3,114,467

 

$

3,112,541

 

$

 —

 

$

3,112,541

 

$

 —

 

Short-term borrowings

 

 

153,443

 

 

153,443

 

 

 —

 

 

153,443

 

 

 —

 

FHLB and other borrowings

 

 

488,870

 

 

488,196

 

 

 —

 

 

488,196

 

 

 —

 

Subordinated debt

 

 

54,581

 

 

50,055

 

 

 —

 

 

50,055

 

 

 —

 

Trust preferred debentures

 

 

45,267

 

 

43,114

 

 

 —

 

 

43,114

 

 

 —

 

Accrued interest payable

 

 

2,355

 

 

2,355

 

 

 —

 

 

2,355

 

 

 —

 

Interest rate swap contracts

 

 

121

 

 

121

 

 

 —

 

 

121

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

Quoted prices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in active

 

Significant

 

 

 

 

 

 

 

 

 

 

 

 

markets

 

other

 

Significant

 

 

 

 

 

 

 

 

 

for identical

 

observable

 

unobservable

 

 

 

Carrying

 

 

 

 

assets

 

inputs

 

inputs

 

 

 

Amount

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

    

$

189,543

    

$

189,543

    

$

189,543

    

$

 —

    

$

 —

 

Federal funds sold

 

 

1,173

 

 

1,173

 

 

1,173

 

 

 —

 

 

 —

 

Investment securities available for sale

 

 

246,339

 

 

246,339

 

 

75,901

 

 

162,957

 

 

7,481

 

Investment securities held to maturity

 

 

78,672

 

 

81,952

 

 

 —

 

 

81,952

 

 

 —

 

Nonmarketable equity securities

 

 

19,485

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans, net

 

 

2,305,114

 

 

2,305,206

 

 

 —

 

 

 —

 

 

2,305,206

 

Loans held for sale

 

 

70,565

 

 

70,565

 

 

 —

 

 

70,565

 

 

 —

 

Accrued interest receivable

 

 

8,202

 

 

8,202

 

 

 —

 

 

8,202

 

 

 —

 

Interest rate lock commitments

 

 

6,253

 

 

6,253

 

 

 —

 

 

6,253

 

 

 —

 

Forward commitments to sell mortgage-backed securities

 

 

125

 

 

125

 

 

 —

 

 

125

 

 

 —

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

2,404,366

 

$

2,404,231

 

$

 —

 

$

2,404,231

 

$

 —

 

Short-term borrowings

 

 

131,557

 

 

131,557

 

 

 —

 

 

131,557

 

 

 —

 

FHLB and other borrowings

 

 

237,518

 

 

236,736

 

 

 —

 

 

236,736

 

 

 —

 

Subordinated debt

 

 

54,508

 

 

49,692

 

 

 —

 

 

49,692

 

 

 —

 

Trust preferred debentures

 

 

37,405

 

 

33,054

 

 

 —

 

 

33,054

 

 

 —

 

Accrued interest payable

 

 

1,045

 

 

1,045

 

 

 —

 

 

1,045

 

 

 —

 

37


Table of Contents

The following is a description of the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820) and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825):

Cash and due from banks and federal funds sold.  The carrying amounts are assumed to be the fair value because of the liquidityeach type of these instruments.

financial instrument:

Investment securities available for sale.  Investment securities available for sale are measured and carried atsecurities. The fair value on a recurring basis. Unrealized gains and losses onof investment securities available for sale are reported as a component of accumulated other comprehensive income in the consolidated balance sheets.

determined by quoted market prices, if available (Level 1). For investment securities available for sale where quoted prices are not available, fair values are

28

Table of Contents
calculated based on market prices of similar securities (Level 2). In determining the fair value of investment securities available for sale categorized as Level 2, we obtain a report from a nationally recognized broker‑dealer detailing the fair value of each investment security we hold as of each reporting date. The broker‑dealer uses observable market information to value our fixed income securities, with the primary source being a nationally recognized pricing service. The fair value of the municipal securities is based on a proprietary model maintained by the broker‑dealer. We review all of the broker‑dealer supplied quotes on the securities we own as of the reporting date for reasonableness based on our understanding of the marketplace, and we consider any credit issues related to the bonds. As we have not made any adjustments to the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy.

For investment securities available for sale where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). During the nine months ended September 30, 2016, $6.7 million of corporate securities and $2,000 of non-agency mortgage backed securities were transferred from Level 2 to Level 3 because observable market inputs were not available and the securities were not actively traded; therefore, the fair value was determined utilizing third-party valuation services through consensus pricing. There were no investment securities available for sale transferred from Level 2 to Level 3 during the three and nine months ended September 30, 2017.

Corporate securitiesSecurities classified as Level 3 are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. The significant unobservable input used inThere were no transfers between Levels 1, 2 or 3 during the fair value measurement of Level 3 corporate securities is net market price (range of -2.0% to 2.5%; weighted average of 1.5%). Significant changes in any of the inputs in isolation would result in a significant change to the fair value measurement. Net market price generally increases when market interest rates decline and declines when market interest rates increase.

During both the three and nine months ended September 30, 2016, $2.0 million of corporate securities were transferred from Level 3 to Level 2 because a more liquid marketperiod presented for these securities had developed and prices supported by observable market inputs had become available.

Investment securities held to maturity.  Investment securities held to maturity are those debt instruments which the Company has the positive intent and ability to hold until maturity. Securities held to maturity are recorded at cost, adjusted for the amortization of premiums or accretion of discounts.

For investment securities held to maturity where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). In determining the fair value of investment securities held to maturity categorized as Level 2, we obtain a report from a nationally recognized broker‑dealer detailing the fair value of each investment security we hold as of each reporting date. The fair value of the municipal securities is based on a proprietary model maintained by the broker‑dealer. We review all of the broker‑dealer supplied quotes on the securities we own as of the reporting date for reasonableness based on our understanding of the marketplace, and we consider any credit issues related to the bonds. As we have not made any adjustments to the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy.

Nonmarketable equity securities.  Nonmarketable equity securities are primarily FHLB and Federal Reserve Bank stock. The Company is a member of the FHLB and the Federal Reserve System.  The carrying value is our basis because it is not practical to determine the fair value due to restrictions placed on transferability.

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Table of Contents

Loans.  Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type and further segmented into fixed and adjustable rate interest terms and by credit risk categories. The fair value estimates do not take into consideration the value of the loan portfolio in the event the loans have to be sold outside the parameters of normal operating activities. The fair value of performing fixed rate loans is estimated by discounting scheduled cash flows through the estimated maturity using estimated market prepayment speeds and estimated market discount rates that reflect the credit and interest rate risk inherent in the loans. The estimated market discount rates used for performing fixed rate loans are the Company’s current offering rates for comparable instruments with similar terms. The fair value of performing adjustable rate loans is estimated by discounting scheduled cash flows through the next repricing date. As these loans reprice frequently at market rates and the credit risk is not considered to be greater than normal, the market value is typically close to the carrying amount of these loans. The method of estimating fair value does not incorporate the exit‑price concept of fair value prescribed by ASC Topic 820.

Impaired loans.  Impaired loans areassets measured and recorded 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.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).
Nonperforming loans. All of our nonaccrual loans and restructured loans are considered impairednonperforming and are reviewed individually for the amount of impairment, if any. Most of our loans areWe measure collateral dependent and, accordingly, we measure impairednonperforming 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; such valuation inputs result in a nonrecurring fair value measurement that is categorized as a Level 2 measurement.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 and the fair value measurement is categorized as a Level 3 measurement.(Level 3). The impairednonperforming 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. The loan balances shown in
Other Real Estate Owned. OREO is initially recorded at fair value at the above tables represent nonaccrual and restructured loans fordate of foreclosure less estimated costs of disposal, which impairment was recognized during the three and nine months ended September 30, 2017 and 2016. The amounts shown as losses represent, for the loan balances shown, the impairment recognized during those same years.

Loans held for sale.  Loansestablishes a new cost basis. After foreclosure, OREO is held for sale and is carried at the lower of cost or fair value less estimated costs of disposal. Fair value for OREO is based on an appraisal performed upon foreclosure. Adjustments are carriedroutinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Property is evaluated regularly to ensure the recorded amount is supported by its fair value less estimated costs to dispose. After the initial foreclosure appraisal, fair value is generally determined by an annual appraisal unless known events warrant adjustments to the recorded value (Level 2).


29

Table of Contents
Assets and liabilities measured and recorded at fair value, determined individually, as ofincluding financial assets for which the balance sheet date.  Fair value measurements on loans held for sale are based on quoted market prices for similar loans inCompany has elected the secondary market.  

Other real estate owned.  The fair value option, on a recurring and nonrecurring basis at March 31, 2024 and December 31, 2023, are summarized below:

March 31, 2024
(dollars in thousands)Carrying
amount
Quoted prices
in active
markets
for identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant unobservable
inputs
(Level 3)
Assets and liabilities measured at fair value on a recurring basis:
Assets
Investment securities available for sale:
U.S. government sponsored entities and U.S. agency securities$67,723 $— $67,723 $— 
Mortgage-backed securities - agency681,520 — 681,520 — 
Mortgage-backed securities - non-agency89,528 — 89,528 — 
State and municipal securities60,630 — 60,630 — 
Collateralized loan obligations33,614 — 33,614 — 
Corporate securities107,391 — 107,391 — 
Equity securities4,494 4,494 — — 
Loans held for sale5,043 — 5,043 — 
Derivative assets1,585 — 1,585 — 
Total$1,051,528 $4,494 $1,047,034 $— 
Liabilities
Derivative liabilities$9,287 $— $9,287 $— 
Total$9,287 $— $9,287 $— 
Assets measured at fair value on a non-recurring basis:
Nonperforming loans$20,740 $— $19,115 $1,625 
Other real estate owned8,920 — 8,920 — 
30

Table of foreclosed real estate is generally basedContents
December 31, 2023
(dollars in thousands)Carrying
amount
Quoted prices
in active
markets
for identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant unobservable
inputs
(Level 3)
Assets and liabilities measured at fair value on a recurring basis:
Assets
Investment securities available for sale:
U.S. Treasury securities$1,097 $1,097 $— $— 
U.S. government sponsored entities and U.S. agency securities72,572 — 72,572 — 
Mortgage-backed securities - agency574,500 — 574,500 — 
Mortgage-backed securities - non-agency83,529 — 83,529 — 
State and municipal securities57,460 — 57,460 — 
Corporate securities99,172 — 99,172 — 
Equity securities4,501 4,501 — — 
Loans held for sale3,811 — 3,811 — 
Derivative assets372 — 372 — 
Total$924,579 $5,598 $918,981 $— 
Liabilities
Derivative liabilities$8,836 $— $8,836 $— 
Total$8,836 $— $8,836 $— 
Assets measured at fair value on a non-recurring basis:
Nonperforming loans$4,633 $— $3,964 $669 
Other real estate owned9,112 — 9,112 — 
The following table presents losses recognized on estimated market prices from independently prepared current appraisals or negotiated sales prices with potential buyers; such valuation inputs result in a fair value measurement that is categorized as a Level 2 measurementassets measured on a nonrecurring basis. Whenbasis for the three months ended March 31, 2024 and 2023:
Three Months Ended March 31,
(dollars in thousands)20242023
Nonperforming loans$4,834 $1,103 
The following tables present quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured on a current appraised value is not available or management determinesnonrecurring basis at March 31, 2024 and December 31, 2023:
(dollars in thousands)Fair valueValuation
technique
Unobservable
input / assumptions
Range (weighted average)(1)
March 31, 2024
Nonperforming loans$1,625 Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability25.80% - 100.00% (51.90%)
December 31, 2023
Nonperforming loans$669 Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability24.38% - 100.00% (27.46%)
(1)Unobservable inputs were weighted by the relative fair value of the collateral is further impaired belowinstruments.
ASC Topic 825, Financial Instruments, requires disclosure of the appraised value as a result of known changes in the market or the collateral and there is no observable market price, such valuation inputs result in aestimated fair value measurement that is categorized as a Level 3 measurement. Toof certain financial instruments and the extent a negotiated sales price or reduced listing price represents amethods and significant discountassumptions used to an observable market price,estimate such valuation input would result in a fair value measurement that is also considered a Level 3 measurement.

Assets held for sale.  Assets held for sale representvalues. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.

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Table of Contents
The Company has elected the fair value of the banking facilities that are expected to be sold as a result of the branch network optimization plan that was announced in November 2016. The fair value of the assets heldoption for sale was based on estimated market prices from independently prepared current appraisals. Such valuation inputs result in a fair value measurement that is categorized as a Level 2 measurement on a nonrecurring basis.

Accrued interest receivable.  The carrying amounts approximate their fair values.

Deposits.  Deposits are carried at historical cost. The fair value of deposits with no stated maturity, such as noninterest‑bearing demand deposits, money market, savings and checking accounts, is equal to the amount payable on demand as of the balance sheet date. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Short-term borrowings.  Short-term borrowings consist of repurchase agreements. These borrowings typically have terms of less than 30 days, and therefore, their carrying amounts are a reasonable estimate of fair value.

FHLB advances and other borrowings and subordinated debt.  Borrowings are carried at amortized cost. The fair value of fixed rate borrowings is calculated by discounting scheduled cash flows through the estimated maturity or

39


Table of Contents

call dates using estimated market discount rates that reflect rates offered at that time for borrowings with similar remaining maturities and other characteristics.

Trust preferred debentures.  Debentures are carried at amortized cost. The fair value of variable rate debentures is calculated by discounting scheduled cash flows through the estimated maturity or call dates using estimated market discount rates that reflect spreads offered at that time for borrowings with similar remaining maturities and other characteristics.

Accrued interest payable.  The carrying amounts approximate their fair values.

Derivative financial instruments.  The Company enters into interest rate lock commitments which are agreements to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. These commitments are carried at fair value in other assets on the consolidated balance sheet with changes in fair value reflected in commercial FHA revenue andnewly originated residential mortgage banking revenue in the consolidated statements of income. The Company also has forward loan sales commitments related to its interest rate lock commitments and its loans held for sale. These commitmentsloans are intended for sale and are hedged with derivative instruments. We have elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification.


The following table presents the difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected as of March 31, 2024 and December 31, 2023:
March 31, 2024December 31, 2023
(dollars in thousands)Aggregate
fair value
DifferenceContractual
principal
Aggregate
fair value
DifferenceContractual
principal
Residential loans held for sale$5,043 $259 $4,784 $3,811 $203 $3,608 
The following table presents the amount of gains from fair value changes included in income before income taxes for financial assets carried at fair value in other assets or other liabilities onfor the consolidated balance sheets with changes inthree months ended March 31, 2024 and 2023:
Three Months Ended March 31,
(dollars in thousands)20242023
Residential loans held for sale$18 $99 
    The carrying values and estimated fair value reflected in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income. The interest rate swaps arecertain financial instruments not carried at fair value on a recurring basis based upon the amounts requiredat March 31, 2024 and December 31, 2023 were as follows:
March 31, 2024
(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)
Assets
Cash and due from banks$166,471 $166,471 $166,471 $— $— 
Federal funds sold845 845 845 — — 
Loans5,958,462 5,888,375 — — 5,888,375 
Accrued interest receivable25,931 25,931 — 25,931 — 
Liabilities
Deposits$6,323,984 $6,304,279 $— $6,304,279 $— 
Short-term borrowings214,446 214,446 207,000 7,446 — 
FHLB and other borrowings255,000 252,517 — 252,517 — 
Subordinated debt93,617 86,353 — 86,353 — 
Trust preferred debentures50,790 53,240 — 53,240 — 
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Table of Contents
December 31, 2023
(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)
Assets
Cash and due from banks$134,212 $134,212 $134,212 $— $— 
Federal funds sold849 849 849 — — 
Loans6,131,079 6,129,244 — — 6,129,244 
Accrued interest receivable24,934 24,934 — 24,934 — 
Liabilities
Deposits$6,309,529 $6,294,979 $— $6,294,979 $— 
Short-term borrowings34,865 34,865 25,000 9,865 — 
FHLB and other borrowings476,000 475,240 — 475,240 — 
Subordinated debt93,546 90,253 — 90,253 — 
Trust preferred debentures50,616 51,626 — 51,626 — 
The methods utilized to settle the contracts.

Note 18measure fair value of financial instruments at March 31, 2024 and December 31, 2023 represent an approximation of exit price; however, an actual exit price may differ.

NOTE 12Commitments, Contingencies and Credit Risk

COMMITMENTS, CONTINGENCIES AND CREDIT RISK

In the normal course of business, there are outstanding various contingent liabilities such as claims and legal actions, which are not reflected in the consolidated financial statements. No material losses are anticipated as a result of these actions or claims.

We are a party to financial instruments with off-balance‑sheetoff-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank used the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The commitments are principally tied to variable rates. Loan commitments as of September 30, 2017March 31, 2024 and December 31, 2016 are2023 were as follows (in thousands):

follows:

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

    

2017

    

2016

 

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

Commitments to extend credit

 

$

605,419

 

$

483,345

 

Financial guarantees – standby letters of credit

 

 

71,616

 

 

89,233

 

The Company sells residential mortgage loans to investors in the normal course of business. Residential mortgage loans sold to others are predominantly conventional residential first lien mortgages originated under our usual underwriting procedures, and are sold on a nonrecourse basis, primarily to government-sponsored enterprises (“GSEs”). The Company’s agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability. Subsequent to being sold, if a material underwriting deficiency or documentation defect is discovered, the Company may be obligated to repurchase the loan or reimburse the GSEs for losses incurred. The make-whole requests and any related risk of loss under the representations and warranties are largely driven by borrower performance.

The Company establishes a mortgage repurchase liability related to these events that reflect management’s estimate of losses on loans for which the Company could have a repurchase obligation based on a combination of factors.  Such factors incorporate the volume of loans sold in 20172024 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. The Company incurredThere were no losses as a result of make-whole requests and loan repurchases totaling $17,000 for both the three and nine months

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Table of Contents

ended September 30, 2017, and $83,000 for the nine months ended September 30, 2016. There were no losses incurred for the three months ended September 30, 2016.March 31, 2024 and 2023. The liability for unresolved repurchase demands totaled $366,000 and $329,000$0.1 million at September 30, 2017both March 31, 2024 and December 31, 2016, respectively.

Note 192023.

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Table of Contents
NOTE 13Segment Information

Our businessSEGMENT INFORMATION

The Company's reportable segments are defined as Banking, Commercial FHA Originationcomprised of strategic business units primarily based upon industry categories and, Servicing,to a lesser extent, the core competencies relating to product origination, distribution methods, operations and Other. The reportable business segments areservicing. Segment determination also considers organizational structure and is consistent with the internal reportingpresentation of financial information to the chief operating decision maker to evaluate segment performance, develop strategy and evaluation ofallocate resources. The Company's chief operating decision maker is the principle lines of businessChief Executive Officer of the Company. Management has determined that the Company has three reportable segments consisting of Banking, Wealth Management and Corporate.
The bankingBanking 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 commercial FHA origination and servicingWealth Management segment provides for the origination and servicing of government sponsored mortgages for multifamily and healthcare facilities. The other segment includes the operating results of the parent company, our wealth management business unit, our captive insurance business unit, and the elimination of intercompany transactions. Wealth management activities consistconsists of trust and fiduciary services, brokerage and retirement planning services.

41

The Corporate segment includes the holding company financing and investment activities, administrative expenses, as well as the elimination of intercompany transactions. The Corporate segment also included our captive insurance business unit for the three months ended March 31, 2023. This business was dissolved as of December 31, 2023.

Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially the same as those described in the “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2023 Form 10-K.

TableTransactions between segments consist primarily of Contents

borrowed funds and servicing fees. Noninterest income and expense directly attributable to a segment are assigned to it with various shared service costs such as human resources, accounting, finance, risk management and information technology expense assigned to the Banking segment.


Selected business segment financial information as of and for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Commercial FHA

    

 

 

    

 

 

 

 

 

 

 

 

Origination and

 

 

 

 

 

 

 

 

 

Banking

 

Servicing

 

Other

 

Total

 

Three Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

38,598

 

$

(79)

 

$

(1,754)

 

$

36,765

 

Provision for loan losses

 

 

1,489

 

 

 —

 

 

 —

 

 

1,489

 

Noninterest income

 

 

8,571

 

 

3,966

 

 

2,866

 

 

15,403

 

Noninterest expense

 

 

42,425

 

 

3,910

 

 

2,028

 

 

48,363

 

Income (loss) before income taxes (benefit)

 

 

3,255

 

 

(23)

 

 

(916)

 

 

2,316

 

Income taxes (benefit)

 

 

996

 

 

(9)

 

 

(707)

 

 

280

 

Net income (loss)

 

$

2,259

 

$

(14)

 

$

(209)

 

$

2,036

 

Total assets

 

$

4,370,600

 

$

121,514

 

$

(144,353)

 

$

4,347,761

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

28,394

 

$

215

 

$

(1,344)

 

$

27,265

 

Provision for loan losses

 

 

1,392

 

 

 —

 

 

 —

 

 

1,392

 

Noninterest income

 

 

9,714

 

 

3,557

 

 

1,666

 

 

14,937

 

Noninterest expense

 

 

23,640

 

 

3,511

 

 

1,506

 

 

28,657

 

Income (loss) before income taxes (benefit)

 

 

13,076

 

 

261

 

 

(1,184)

 

 

12,153

 

Income taxes (benefit)

 

 

4,573

 

 

104

 

 

(575)

 

 

4,102

 

Net income (loss)

 

$

8,503

 

$

157

 

$

(609)

 

$

8,051

 

Total assets

 

$

3,252,421

 

$

100,516

 

$

(105,210)

 

$

3,247,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Commercial FHA

    

 

 

    

 

 

 

 

 

 

 

 

Origination and

 

 

 

 

 

 

 

 

 

Banking

 

Servicing

 

Other

 

Total

 

Nine Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

97,580

 

$

325

 

$

(4,279)

 

$

93,626

 

Provision for loan losses

 

 

3,480

 

 

 —

 

 

 —

 

 

3,480

 

Noninterest income

 

 

24,339

 

 

15,189

 

 

5,836

 

 

45,364

 

Noninterest expense

 

 

99,214

 

 

11,639

 

 

5,952

 

 

116,805

 

Income (loss) before income taxes (benefit)

 

 

19,225

 

 

3,875

 

 

(4,395)

 

 

18,705

 

Income taxes (benefit)

 

 

4,870

 

 

1,550

 

 

(1,780)

 

 

4,640

 

Net income (loss)

 

$

14,355

 

$

2,325

 

$

(2,615)

 

$

14,065

 

Total assets

 

$

4,370,600

 

$

121,514

 

$

(144,353)

 

$

4,347,761

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

82,939

 

$

712

 

$

(4,357)

 

$

79,294

 

Provision for loan losses

 

 

3,146

 

 

 —

 

 

 —

 

 

3,146

 

Noninterest income

 

 

21,347

 

 

19,212

 

 

1,013

 

 

41,572

 

Noninterest expense

 

 

69,784

 

 

12,203

 

 

5,212

 

 

87,199

 

Income (loss) before income taxes (benefit)

 

 

31,356

 

 

7,721

 

 

(8,556)

 

 

30,521

 

Income taxes (benefit)

 

 

9,348

 

 

3,088

 

 

(1,874)

 

 

10,562

 

Net income (loss)

 

$

22,008

 

$

4,633

 

$

(6,682)

 

$

19,959

 

Total assets

 

$

3,252,421

 

$

100,516

 

$

(105,210)

 

$

3,247,727

 

Note 20 – Related Party Transactions

A member of our board of directors has an ownership interest in the office building located in Clayton, Missouri and three of the Bank’s full-service branch facilities. During the three and nine months ended September 30, 2017, the Company paid rent on these facilities of $166,000 and $553,000, respectively, and $165,000 and $540,000 for the comparable periods in 2016, respectively.

A member of our board of directors is an executive and board member of a company we utilize for relationship and marketplace studies. During the nine months ended September 30, 2017, the Company paid $116,000 for these services.

follows:

(dollars in thousands)BankingWealth
Management
CorporateTotal
Three Months Ended March 31, 2024
Net interest income (expense)$58,216 $(8)$(2,288)$55,920 
Provision for credit losses14,000 — — 14,000 
Noninterest income14,491 7,132 (436)21,187 
Noninterest expense40,098 5,412 (643)44,867 
Income (loss) before income taxes (benefit)18,609 1,712 (2,081)18,240 
Income taxes (benefit)4,461 690 (796)4,355 
Net income (loss)$14,148 $1,022 $(1,285)$13,885 
Total assets$7,810,328 $33,103 $(11,622)$7,831,809 
Three Months Ended March 31, 2023
Net interest income (expense)$62,608 $— $(2,104)$60,504 
Provision for credit losses3,135 — — 3,135 
Noninterest income9,621 6,411 (253)15,779 
Noninterest expense39,847 4,841 (206)44,482 
Income (loss) before income taxes (benefit)29,247 1,570 (2,151)28,666 
Income taxes (benefit)7,206 439 (751)6,894 
Net income (loss)$22,041 $1,131 $(1,400)$21,772 
Total assets$7,918,339 $29,828 $(17,993)$7,930,174 

42

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Table of Contents

Note 21NOTE 14Subsequent Events

On October 16, 2017,REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company’s revenue from contracts with customers in the scope of Topic 606 is recognized within noninterest income in the consolidated statements of income. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2024 and 2023.
Three Months Ended March 31,
(dollars in thousands)20242023
Noninterest income - in-scope of Topic 606
Wealth management revenue:
Trust management/administration fees$6,267 $5,636 
Investment advisory and brokerage fees423 431 
Other442 344 
Service charges on deposit accounts:
Nonsufficient fund fees1,822 1,698 
Other1,294 870 
Interchange revenues3,358 3,412 
Other income:
Merchant services revenue344 358 
Other98 630 
Noninterest income - out-of-scope of Topic 6067,139 2,400 
Total noninterest income$21,187 $15,779 
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and investment securities. In addition, certain noninterest income streams such as commercial FHA revenue, residential mortgage banking revenue and gain on sales of investment securities, net, are also not in scope of Topic 606. Topic 606 is applicable to noninterest income streams such as wealth management revenue, service charges on deposit accounts, interchange revenue, gain on sales of other real estate owned, and certain other noninterest income streams. The noninterest income streams considered in-scope by Topic 606 are discussed below.
Wealth Management Revenue
Wealth management revenue is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company announced that it had entered into a definitive agreement to acquire Alpine Bancorporation, Inc. (“Alpine”) for estimated total considerationalso earns investment advisory fees through its SEC registered investment advisory subsidiary. The Company’s performance obligation in both of approximately $181.0 million, consisting of $33.3 million in cash (the “Cash Consideration”)these instances is generally satisfied over time and an aggregate of 4,463,200 shares of Midland common stock (the “Stock Consideration”).  Alpine, the parent company of Alpine Bank & Trust is headquartered in Belvidere, Illinois, and operates 19 locations in northern Illinois. As of June 30, 2017, Alpine had total assets of $1.28 billion, gross loans of $830.2 million and total deposits of $1.14 billion. Under the terms of the definitive agreement,resulting fees are recognized monthly, based upon consummation of the transaction, holders of Alpine common stock will have the right to receive a pro rata share of the Cash Consideration and a pro rate share of the Stock Consideration, subject to potential adjustment based on Alpine’s tangible stockholders’ equity as of the month-end preceding the closing date. Based on an assumed value of $33.10 per share of Midland common stock, which was the closing price on NASDAQ on the trading day preceding the announcement of the transaction, the Company estimates themarket value of the total consideration will be $181.0 million, althoughassets 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 actual value of the total consideration will be higher or lowerCompany’s third party broker dealer are remitted to the extent the trading priceCompany on a monthly basis for that month’s transactional activity.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of Company common stock at closing differs from $33.10 per share. The transaction is expectedfees received under depository agreements with customers to close during the first quarterprovide access to deposited funds, serve as custodian of 2018, subject to the receiptdeposited 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 regulatory approvals, the approval of Alpine’savailable 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 shareholders,performance obligation for the proper safeguard and remittance of funds, monthly account analysis and any other monthly service fees is generally satisfied, and the satisfaction of other customary closing conditions.

On October 13, 2017,related revenue recognized, over the Company issued,period in which the service is provided. Payment for service charges on deposit accounts is typically received immediately or in the following month through a private placement, $40.0 million aggregate principal amount of subordinated debentures withdirect charge to a maturity date of October 15, 2027. The subordinated debentures bear a fixed rate of interest of 6.25% for the first five years, payable semiannually in arrears beginning April 15, 2018, and a floating rate of interest equal to the three-month LIBOR plus 422.9 basis points thereafter, payable quarterly in arrears beginning January 15, 2023. The subordinated debentures will be redeemable by the Company, in whole or in part, on or after October 15, 2022, and are not subject to redemption at the option of the holders. The value of the subordinated debentures is expected to be reduced by approximately $0.6 million related to debt issuance costs, which will be amortized on a straight line basis through the maturity of the subordinated debentures. The subordinated debentures will be included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

43


customer’s account.

35

Table of Contents

Interchange Revenue

Interchange revenue includes debit / credit card income and ATM user fees. Card income is primarily comprised of interchange fees earned for standing ready to authorize and providing settlement on card transactions processed through the MasterCard interchange network. The levels and structure of interchange rates are set by MasterCard and can vary based on cardholder purchase volumes. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with completion of the Company’s performance obligation, the transaction processing services provided to the cardholder. Payment is typically received immediately or in the following month. ATM fees are primarily generated when a Company cardholder withdraws funds from a non-Company ATM or a non-Company cardholder withdraws funds from a Company ATM. The Company satisfies its performance obligation for each transaction at the point in time when the ATM withdrawal is processed.
Other Noninterest Income
The other noninterest income revenue streams within the scope of Topic 606 consist of merchant services revenue, safe deposit box rentals, wire transfer fees, paper statement fees, check printing commissions, gain on sales of other real estate owned and other noninterest related fees. Revenue from the Company’s merchant services business consists principally of transaction and account management fees charged to merchants for the electronic processing of transactions. These fees are net of interchange fees paid to the credit card issuing bank, card company assessments, and revenue sharing amounts. Account management fees are considered earned at the time the merchant’s transactions are processed or other services are performed. Fees related to the other components of other noninterest income within the scope of Topic 606 are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at the point in time the customer uses the selected service to execute a transaction.
36

Table of Contents Item
ITEM 2 –Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management's discussion explains ourand 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 March 31, 2024, as compared to December 31, 2023, and operating results for the three and nine months ended September 30, 2017. Annualized results for these interim periods may not be indicative of results for the full year or future periods. The following discussionMarch 31, 2024 and analysis2023. These comments should be read in conjunction with the Company's unaudited consolidated financial statements and relatedaccompanying notes presentedappearing elsewhere in this reportherein and our Annual Report on Form 10-K for the year ended December 31, 2016,2023, filed with the SEC on March 10, 2017.

February 23, 2024.

In addition to the historical information contained herein, this Form 10-Q includes “forward-looking statements” within the meaning of such term inunder 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; changes in the financial markets; changes in business plans as circumstances warrant; risks related to mergers and acquisitions and the integration of acquired businesses; 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.

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“Note 1 – Summary of Significant Accounting PoliciesPolicies” of the Notes to Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2016.2023. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since the year ended December 31, 2016.

Overview

Midland States Bancorp, Inc. is a diversified financial holding company headquartered in Effingham, Illinois. Our 136‑year old banking subsidiary, Midland States Bank, has branches across Illinois2023.

Significant Developments and in Missouri and Colorado, and provides a broad array of traditional community banking and other complementary financial services, including commercial lending, residential mortgage origination, wealth management, merchant services and prime consumer lending. Our commercial FHA origination and servicing business through our subsidiary, Love Funding, based in Washington, D.C., is one of the top originators of government sponsored mortgages for multifamily and healthcare facilities in the United States. Our commercial equipment leasing business through our subsidiary, Business Credit, based in Denver, Colorado, provides financing to business customers across the country. As of September 30, 2017, we had $4.3 billion in assets, $3.1 billion of deposits and $450.7 million of shareholders’ equity.

In late 2007, we developed a strategic plan to build a diversified financial services company anchored by a strong community bank. Since then, we have grown organically and through a series of acquisitions, with an over‑arching focus on enhancing shareholder value and building a platform for scalability. In November 2016, we completed the acquisition of approximately $400.0 million in wealth management assets from Sterling National Bank of Yonkers, New York. In March 2017, we acquired CedarPoint, an SEC registered investment advisory firm located in Delafield, Wisconsin, which added $180.0 million of wealth management assets. In June 2017, we completed the acquisition of Centrue Financial Corporation and its subsidiary, Centrue Bank, a regional, full-service community bank headquartered in Ottawa, Illinois. At closing, Centrue had 20 bank branches located principally in northern Illinois and total assets of $991.4 million.

On October 16, 2017, the Company announced it had entered into a definitive agreement to acquire Alpine Bancorporation, Inc., a regional, full-service community bank headquartered in Belvidere, Illinois. Alpine has 19 bank

Transactions

44


Table of Contents

branches located principally in northern Illinois and had total assets of $1.3 billion as of June 30, 2017. The total consideration will be paid with $33.3 million in cash and 4,463,200 shares of Midland common stock, which has an estimated value of $181.0 million based on an assumed value of $33.10 per share of Midland common stock, which was the closing price on NASDAQ on the trading day preceding the announcement of the transaction. The transaction is expected to close during the first quarter of 2018, subject to regulatory and shareholder approvals. In connection with the Company’s entry into the transaction with Alpine, the Company issued $40.0 million of subordinated notes in October 2017 to certain institutional investors. These subordinated notes, which mature in October 2027, have a fixed interest rate of 6.25% for the first five years and a floating rate based on LIBOR plus 422.9 basis points thereafter.

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 earned on loans and leases 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 FHA mortgage loan originations, sales and 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 loan losses and income tax expense.

Significant Transactions

Each item listed below materially affects the comparability of our results of operations for the three months ended March 31, 2024 and 2023, and our financial condition as of March 31, 2024 and for the three and nine months ended September 30, 2017 and 2016,December 31, 2023, and may affect the comparability of financial information we report in future fiscal periods.

Recent Acquisitions. On June 9, 2017,

Balance sheet repositioning.The Company took advantage of certain market conditions during 2023 to reposition out of lower yielding securities into other structures, which were expected to result in improved overall margin, liquidity and capital allocations. These transactions resulted in losses of $0.6 million in the three months ended March 31, 2023.

In addition, in the third quarter of 2023, the Company acquired Centrue for total considerationsurrendered certain low-yielding life insurance policies and purchased additional policies. The Company recognized a $4.5 million tax charge related to the surrender of $176.6 million. Consideration transferred by the policies.

Redemption of Subordinated Notes. In the second quarter of 2023, the Company consisted of $61.0 million in cash, 3.2 million shares of common stock and 2,636 shares of Series H preferred stock. At closing, Centrue primarily consisted of Centrue Bank and $10.0redeemed $6.6 million of trust preferred debentures. All identifiable assets acquired and liabilities assumed were adjusted to fair value as of June 9, 2017 and the results of Centrue’s operations have been included in the consolidated statements of income beginning on that date.outstanding subordinated notes. The resultant purchase accounting adjustments have been reflected in the enclosed consolidated balance sheet as of September 30, 2017. Intangible assets recognized as a resultweighted average redemption price was 89.2% of the transaction consisted of $46.1 million in goodwill and $11.1 million in core deposit intangibles.

On March 28, 2017, the Company acquired for $3.7 million allaggregate principal amount of the outstanding capital stocksubordinated notes, plus accrued and unpaid interest. The Company recorded gains totaling $0.7 million on these redemptions.



37

Table of CedarPoint, an SEC registered investment advisory firm with $180.0 millionContents
Results of assets under administration. In conjunction with this agreement, the Company issued 120,000 shares of common stock of which 18,000 shares were deposited into a special purpose escrow account (the escrow shares). PayoutOperations
Overview. The following table sets forth condensed income statement information of the escrow shares to CedarPoint is contingent on CedarPoint reaching certain target revenue levels. Intangible assets recognized as a result of the transaction consisted of $2.4 million in goodwill and $2.0 million in customer relationship intangibles.  The customer relationship intangibles are being amortized on a straight-line basis over 12 years.

On November 10, 2016, the Company acquired approximately $400.0 million in wealth management assets from Sterling for $5.2 million in cash. Intangible assets recognized as a result of the transaction consisted of approximately $2.3 million in goodwill and $2.3 million in customer relationship intangibles. The customer relationship intangibles are being amortized on a straight-line basis over 20 years.

Purchased Credit‑Impaired (“PCI”) Loans.  Our net interest margin benefits from favorable changes in expected cash flows on our PCI loans and from accretion income associated with purchase accounting discounts established on the non-PCI loans included in our acquisitions. Our reported net interest margin for the three months ended September 30, 2017March 31, 2024 and 2016 was 3.78%2023:

Three Months Ended March 31,
(dollars in thousands, except per share data)20242023
Income Statement Data:
Interest income$101,675 $95,539 
Interest expense45,755 35,035 
Net interest income55,920 60,504 
Provision for credit losses14,000 3,135 
Noninterest income21,187 15,779 
Noninterest expense44,867 44,482 
Income before income taxes18,240 28,666 
Income taxes4,355 6,894 
Net income13,885 21,772 
Preferred dividends2,228 2,228 
Net income available to common shareholders$11,657 $19,544 
Per Share Data:
Basic earnings per common share$0.53 $0.86 
Diluted earnings per common share$0.53 $0.86 
Performance Metrics:
Return on average assets0.72 %1.12 %
Return on average shareholders' equity7.07 %11.51 %
During the three months ended March 31, 2024, we generated net income of $13.9 million, or diluted earnings per common share of $0.53, compared to net income of $21.8 million, or diluted earnings per common share of $0.86, in the three months ended March 31, 2023. Earnings for the first quarter of 2024 compared to the first quarter of 2023 decreased primarily due to a $4.6 million decrease in net interest income, a $10.9 million increase in provision for credit losses, and 4.00%a $0.4 million increase in noninterest expense. These results were partially offset by a $5.4 million increase in noninterest income and a $2.5 million decrease in income tax expense.
Net Interest Income and Margin. Our primary source of revenue is net interest income, which is the difference between interest income from interest-earning assets (primarily loans and securities) and interest expense of funding sources (primarily interest-bearing deposits and borrowings). Net interest income is influenced by many factors, primarily the volume and mix of interest-earning assets, funding sources, and interest rate fluctuations. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. Net interest margin is calculated as net interest income divided by average interest-earning assets. Net interest margin is presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to a pretax-equivalent income, assuming a federal income tax rate of 21% for 2024 and 2023.
At its March 20, 2024 meeting, the Federal Reserve held its key interest rate steady for the fifth consecutive meeting, as the central bank awaits more data to determine when, and if, to cut rates. Federal Reserve officials also released an updated set of economic projections that show they now expect fewer rate cuts in the coming years than they estimated in December 2023. A majority of policymakers continue to expect three rate cuts this year, but they now see fewer in 2025 and 2026. They expect interest rates in the longer run to be slightly higher than they projected in December. Economic growth is also expected to be much higher this year than officials previously estimated. In 2023, the Federal Reserve increased the federal funds rate 100 basis points to a target range of 5.25%-5.50%, respectively. Accretionthe highest since August 2007. The benchmark federal funds rate remains at a target range between 5.25%-5.50%, compared to a target range of 4.25%-4.50% at the beginning of 2023.
During the three months ended March 31, 2024, net interest income, associated with purchase accounting discounts established on loans acquired totaled $3.0a tax-equivalent basis, decreased to $56.1 million and $2.6compared to $60.7 million for the three months ended September 30, 2017 and 2016, respectively, increasing the reportedMarch 31, 2023. The tax-equivalent net interest margin by 27 and 34 basis pointsdecreased to 3.18% for each respective period. The reported net interest margin for the nine months ended September 30, 2017 and 2016 was 3.78% and 4.01%, respectively. Accretion income associated with purchase accounting discounts established on loans acquired totaled $7.0 million and $9.5 million for the nine months ended September 30, 2017 and 2016, respectively, increasing the reported net interest margin by 25 and 43 basis points for each respective period.

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Table of Contents

During the second quarter of 2016, we received payment in full on a PCI loan that was a covered asset from an FDIC-assisted acquisition. We recognized the financial impact of this transaction by recording $1.8 million of accretion income into interest income on loans and a $0.8 million credit against the provision for loan losses offsetting the allowance amount that was previously recorded against this loan. In accordance with the loss-sharing agreement with the FDIC, we also recorded loss-sharing expense of $1.5 million for reimbursement of covered losses previously paid by the FDIC on this loan.

Mortgage Servicing Rights.The Company sells residential and commercial mortgage loans in the secondary market and typically retains the right to service the loans sold. Mortgage servicing rights (“MSR”) are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR are amortized in proportion to and over the period of estimated net servicing income, and assessed for impairment at each reporting date.

During the third quarter of 2017, the Company transferred $14.2 million of residential MSR, net of valuation allowances, to MSR held for sale. The Company has committed to a plan to sell these residential MSR and has the ability to sell them to a buyer in their present condition. During the three and nine months ended September 30, 2017, the Company recognized a $3.6 million loss on MSR held for sale to reflect them at the lower of their carrying amount or fair value less estimated costs to sell. As a result of recognizing this loss, MSR held for sale had a net carrying value of $10.6 million at September 30, 2017.

There were no impairment charges on our residential MSR in the third quarter of 2017 and $0.7 million of impairment recognized during the nine months ended September 30, 2017. For the three and nine months ended September 30, 2016, we recorded impairment charges on our residential MSR totaling $22,000 and $5.0 million, respectively. Impairment charges on our commercial FHA MSR totaled $0.1 million and $1.1 million during the three and nine months ended September 30, 2017, respectively.  For the three and nine months ended September 30, 2016, we recorded impairment charges on our commercial FHA MSR totaling $1.1 million and $1.1 million, respectively.

Sale of Previously Covered Non-Agency Mortgage-Backed Securities – In October 2016, we sold previously covered non-agency mortgage-backed securities (“CMOs”) with a carrying value of $72.1 million. As a result of the sale, we recognized a gain totaling $14.3 million in the fourth quarter of 2016.

Branch Network Optimization Plan – In November 2016, the Company announced a branch network optimization plan that led to the closure of seven banking offices in the first quarter of 2017. As a result2024 compared to 3.39% for the first quarter of the Centrue acquisition, the Company announced the closure of six additional Bank facilities. During the second and third quarters of 2017, we recorded $1.1 million and $0.4 million, respectively, of asset impairment on the six banking facilities to be closed and classified $3.9 million of branch related assets as held for sale by reclassifying this amount from premises and equipment to other assets on the consolidated balance sheet at September 30, 2017.

2023.

46

38

Table of Contents

Average Balance Sheet, Interest and Yield/Rate Analysis

Analysis.The following table presentstables present the average balance sheet information,sheets, interest income, interest expense and the corresponding average yields earned and rates paid for the three and nine months ended September 30, 2017March 31, 2024 and 2016.2023. 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 

 

 

 

2017

 

 

2016

 

 

 

Average

 

Interest

 

Yield /

 

 

Average

 

Interest

 

Yield /

 

(tax-equivalent basis, dollars in thousands)

    

Balance

    

& Fees

    

Rate

    

 

Balance

    

& Fees

    

Rate

 

Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds sold and cash investments

 

$

202,407

 

$

607

 

1.19

%  

 

$

154,764

 

$

195

 

0.50

%

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable investment securities

 

 

359,370

 

 

1,905

 

2.12

 

 

 

229,670

 

 

2,766

 

4.82

 

Investment securities exempt from federal income tax (1)

 

 

114,846

 

 

1,481

 

5.16

 

 

 

100,230

 

 

1,373

 

5.48

 

Total investment securities

 

 

474,216

 

 

3,386

 

2.86

 

 

 

329,900

 

 

4,139

 

5.02

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable loans (2)

 

 

3,126,325

 

 

38,689

 

4.91

 

 

 

2,136,642

 

 

26,047

 

4.85

 

Loans exempt from federal income tax (1)

 

 

46,702

 

 

482

 

4.10

 

 

 

40,875

 

 

391

 

3.80

 

Total loans

 

 

3,173,027

 

 

39,171

 

4.90

 

 

 

2,177,517

 

 

26,438

 

4.83

 

Loans held for sale

 

 

46,441

 

 

438

 

3.74

 

 

 

90,661

 

 

858

 

3.77

 

Nonmarketable equity securities

 

 

31,224

 

 

331

 

4.20

 

 

 

18,365

 

 

174

 

3.77

 

Total earning assets

 

 

3,927,315

 

$

43,933

 

4.44

%

 

 

2,771,207

 

$

31,804

 

4.57

%

Noninterest-Earning Assets

 

 

498,364

 

 

 

 

 

 

 

 

330,036

 

 

 

 

 

 

Total assets

 

$

4,425,679

 

 

 

 

 

 

 

$

3,101,243

 

 

 

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking and money market deposits

 

$

1,448,228

 

$

1,139

 

0.31

%  

 

$

1,008,028

 

$

448

 

0.18

%

Savings deposits

 

 

286,199

 

 

92

 

0.13

 

 

 

163,867

 

 

62

 

0.15

 

Time deposits

 

 

511,761

 

 

1,094

 

0.85

 

 

 

425,269

 

 

957

 

0.90

 

Time, brokered deposits

 

 

281,302

 

 

1,052

 

1.48

 

 

 

206,025

 

 

722

 

1.39

 

Total interest-bearing deposits

 

 

2,527,490

 

 

3,377

 

0.53

 

 

 

1,803,189

 

 

2,189

 

0.48

 

Short-term borrowings

 

 

182,015

 

 

100

 

0.22

 

 

 

134,052

 

 

81

 

0.24

 

FHLB advances and other borrowings

 

 

434,860

 

 

1,494

 

1.36

 

 

 

165,774

 

 

306

 

0.73

 

Subordinated debt

 

 

54,570

 

 

873

 

6.40

 

 

 

54,470

 

 

873

 

6.41

 

Trust preferred debentures

 

 

45,201

 

 

637

 

5.60

 

 

 

37,266

 

 

472

 

5.03

 

Total interest-bearing liabilities

 

 

3,244,136

 

$

6,481

 

0.79

%  

 

 

2,194,751

 

$

3,921

 

0.71

%

Noninterest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

688,986

 

 

 

 

 

 

 

 

550,816

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

39,240

 

 

 

 

 

 

 

 

36,816

 

 

 

 

 

 

Total noninterest-bearing liabilities

 

 

728,226

 

 

 

 

 

 

 

 

587,632

 

 

 

 

 

 

Shareholders’ equity

 

 

453,317

 

 

 

 

 

 

 

 

318,860

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

4,425,679

 

 

 

 

 

 

 

$

3,101,243

 

 

 

 

 

 

Net interest income / net interest margin (3)

 

 

 

 

$

37,452

 

3.78

%  

 

 

 

 

$

27,883

 

4.00

%


Three Months Ended March 31,
20242023
(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$69,316 $951 5.52 %$85,123 $980 4.67 %
Investment securities:
Taxable investment securities933,785 10,179 4.38 731,075 5,370 2.98 
Investment securities exempt from federal income tax (1)
54,931 529 3.87 78,773 625 3.22 
Total securities988,716 10,708 4.36 809,848 5,995 3.00 
Loans:
Loans (2)
5,964,454 88,995 6.00 6,264,591 87,459 5.66 
Loans exempt from federal income tax (1)
47,578 494 4.17 55,811 538 3.91 
Total loans6,012,032 89,489 5.99 6,320,402 87,997 5.65 
Loans held for sale3,405 55 6.56 1,506 16 4.41 
Nonmarketable equity securities35,927 687 7.69 47,819 795 6.75 
Total interest-earning assets7,109,396 101,890 5.76 7,264,698 95,783 5.35 
Noninterest-earning assets671,671 610,811 
Total assets$7,781,067 $7,875,509 
Interest-bearing liabilities:
Deposits:
Checking and money market deposits$3,605,946 $29,237 3.26 %$3,686,192 $22,955 2.53 %
Savings deposits555,668 477 0.34 650,138 243 0.15 
Time deposits852,440 7,310 3.45 703,039 3,121 1.80 
Brokered time deposits181,064 2,190 4.86 14,572 86 2.39 
Total interest-bearing deposits5,195,118 39,214 3.04 5,053,941 26,405 2.12 
Short-term borrowings65,182 836 5.16 38,655 25 0.26 
FHLB advances and other borrowings313,121 3,036 3.90 540,278 6,006 4.51 
Subordinated debt93,583 1,280 5.50 99,812 1,370 5.57 
Trust preferred debentures50,707 1,389 11.02 50,047 1,229 9.96 
Total interest-bearing liabilities5,717,711 45,755 3.22 5,782,733 35,035 2.46 
Noninterest-bearing liabilities:
Noninterest-bearing deposits1,151,542 1,250,899 
Other noninterest-bearing liabilities121,908 74,691 
Total noninterest-bearing liabilities1,273,450 1,325,590 
Shareholders’ equity789,906 767,186 
Total liabilities and shareholders’ equity$7,781,067 $7,875,509 
Net interest income / net interest margin (3)
$56,135 3.18 %$60,748 3.39 %

(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 35%. Tax- equivalent adjustments totaled $687,000 and $617,000 for the three months ended September 30, 2017 and 2016, respectively.

(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 $0.2 million for each of the three months ended March 31, 2024 and 2023.

(2)

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

(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.

(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.


39

47


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 

 

 

 

2017

 

 

2016

 

 

 

Average

 

Interest

 

Yield /

 

 

Average

 

Interest

 

Yield /

 

(tax-equivalent basis, dollars in thousands)

    

Balance

    

& Fees

    

Rate

    

 

Balance

    

& Fees

    

Rate

 

Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds sold and cash investments

 

$

186,539

 

$

1,405

 

1.01

%  

 

$

203,514

 

$

762

 

0.50

%

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable investment securities

 

 

281,156

 

 

4,705

 

2.23

 

 

 

221,091

 

 

8,222

 

4.96

 

Investment securities exempt from federal income tax (1)

 

 

107,831

 

 

4,338

 

5.36

 

 

 

99,985

 

 

4,215

 

5.62

 

Total investment securities

 

 

388,987

 

 

9,043

 

3.10

 

 

 

321,076

 

 

12,437

 

5.16

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable loans (2)

 

 

2,674,770

 

 

97,016

 

4.85

 

 

 

2,049,891

 

 

75,741

 

4.94

 

Loans exempt from federal income tax (1)

 

 

46,719

 

 

1,467

 

4.20

 

 

 

41,742

 

 

1,382

 

4.42

 

Total loans

 

 

2,721,489

 

 

98,483

 

4.84

 

 

 

2,091,633

 

 

77,123

 

4.93

 

Loans held for sale

 

 

60,590

 

 

1,926

 

4.25

 

 

 

76,586

 

 

2,401

 

4.19

 

Nonmarketable equity securities

 

 

24,547

 

 

788

 

4.29

 

 

 

16,881

 

 

504

 

3.99

 

Total earning assets

 

 

3,382,152

 

$

111,645

 

4.41

%

 

 

2,709,690

 

$

93,227

 

4.60

%

Noninterest-Earning Assets

 

 

402,889

 

 

 

 

 

 

 

 

324,116

 

 

 

 

 

 

Total assets

 

$

3,785,041

 

 

 

 

 

 

 

$

3,033,806

 

 

 

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking and money market deposits

 

$

1,254,706

 

$

2,565

 

0.27

%  

 

$

1,010,734

 

$

1,391

 

0.18

%

Savings deposits

 

 

217,753

 

 

224

 

0.14

 

 

 

162,890

 

 

181

 

0.15

 

Time deposits

 

 

446,025

 

 

2,928

 

0.88

 

 

 

436,975

 

 

2,933

 

0.90

 

Time, brokered deposits

 

 

264,035

 

 

2,853

 

1.44

 

 

 

216,075

 

 

2,196

 

1.36

 

Total interest-bearing deposits

 

 

2,182,519

 

 

8,570

 

0.52

 

 

 

1,826,674

 

 

6,701

 

0.49

 

Short-term borrowings

 

 

157,388

 

 

262

 

0.22

 

 

 

123,192

 

 

217

 

0.24

 

FHLB advances and other borrowings

 

 

325,120

 

 

2,901

 

1.19

 

 

 

150,213

 

 

698

 

0.62

 

Subordinated debt

 

 

54,544

 

 

2,619

 

6.40

 

 

 

59,324

 

 

2,985

 

6.71

 

Trust preferred debentures

 

 

40,613

 

 

1,635

 

5.38

 

 

 

37,181

 

 

1,373

 

4.93

 

Total interest-bearing liabilities

 

 

2,760,184

 

$

15,987

 

0.77

%  

 

 

2,196,584

 

$

11,974

 

0.73

%

Noninterest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

598,874

 

 

 

 

 

 

 

 

528,238

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

45,426

 

 

 

 

 

 

 

 

34,363

 

 

 

 

 

 

Total noninterest-bearing liabilities

 

 

644,300

 

 

 

 

 

 

 

 

562,601

 

 

 

 

 

 

Shareholders’ equity

 

 

380,557

 

 

 

 

 

 

 

 

274,621

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

3,785,041

 

 

 

 

 

 

 

$

3,033,806

 

 

 

 

 

 

Net interest income / net interest margin (3)

 

 

 

 

$

95,658

 

3.78

%  

 

 

 

 

$

81,253

 

4.01

%


(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 35%. Tax- equivalent adjustments totaled $2.0 million for both the nine months ended September 30, 2017 and 2016, 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.

48


Interest Rates and Operating Interest Differential

Differential. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest‑earninginterest-earning assets and interest‑bearinginterest-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‑earninginterest-earning assets and the interest incurred on our interest‑bearinginterest-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 which are not due solely to volume or rate have been allocated proportionally to the change due to volume and the change due to rate. Interest income and average rates for tax‑exempt loans and securities were calculated on a tax‑equivalent basis, assuming a federal income tax rate of 35%. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2017

 

Nine Months Ended September 30, 2017

 

 

Compared with

 

Compared with

 

 

Three Months Ended September 30, 2016

 

Nine Months Ended September 30, 2016

 

 

Change due to:

 

Interest

 

Change due to:

 

Interest

 

Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023
Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023
Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023
Change due to:
Change due to:
Change due to:

(tax-equivalent basis, dollars in thousands)

    

Volume

    

Rate

    

Variance

    

Volume

    

Rate

    

Variance

  

Earning Assets

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(tax-equivalent basis, dollars in thousands)
(tax-equivalent basis, dollars in thousands)
Earning assets:
Earning assets:
Earning assets:
Federal funds sold and cash investments
Federal funds sold and cash investments

Federal funds sold and cash investments

 

$

102

 

$

310

 

$

412

 

$

(96)

 

$

739

 

$

643

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities:
Investment securities:
Taxable investment securities
Taxable investment securities

Taxable investment securities

 

 

1,124

 

 

(1,985)

 

 

(861)

 

 

1,619

 

 

(5,136)

 

 

(3,517)

 

Investment securities exempt from federal income tax

 

 

194

 

 

(86)

 

 

108

 

 

323

 

 

(200)

 

 

123

 

Total investment securities

 

 

1,318

 

 

(2,071)

 

 

(753)

 

 

1,942

 

 

(5,336)

 

 

(3,394)

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable loans

 

 

12,209

 

 

433

 

 

12,642

 

 

22,831

 

 

(1,556)

 

 

21,275

 

Investment securities exempt from federal income tax
Investment securities exempt from federal income tax
Total securities
Total securities
Total securities
Loans:
Loans:
Loans:
Loans
Loans
Loans
Loans exempt from federal income tax
Loans exempt from federal income tax

Loans exempt from federal income tax

 

 

58

 

 

33

 

 

91

 

 

160

 

 

(75)

 

 

85

 

Total loans

 

 

12,267

 

 

466

 

 

12,733

 

 

22,991

 

 

(1,631)

 

 

21,360

 

Total loans
Total loans
Loans held for sale
Loans held for sale

Loans held for sale

 

 

(417)

 

 

(3)

 

 

(420)

 

 

(506)

 

 

31

 

 

(475)

 

Nonmarketable equity securities

 

 

129

 

 

28

 

 

157

 

 

237

 

 

47

 

 

284

 

Nonmarketable equity securities
Nonmarketable equity securities

Total earning assets

 

$

13,399

 

$

(1,270)

 

$

12,129

 

$

24,568

 

$

(6,150)

 

$

18,418

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earning assets
Total earning assets
Interest-bearing liabilities:
Interest-bearing liabilities:
Interest-bearing liabilities:
Checking and money market deposits
Checking and money market deposits

Checking and money market deposits

 

$

272

 

$

419

 

$

691

 

$

417

 

$

757

 

$

1,174

 

Savings deposits

 

 

43

 

 

(13)

 

 

30

 

 

58

 

 

(15)

 

 

43

 

Savings deposits
Savings deposits

Time deposits

 

 

191

 

 

(54)

 

 

137

 

 

59

 

 

(64)

 

 

(5)

 

Time, brokered deposits

 

 

274

 

 

56

 

 

330

 

 

501

 

 

156

 

 

657

 

Time deposits
Time deposits
Brokered time deposits
Brokered time deposits
Brokered time deposits
Total interest-bearing deposits
Total interest-bearing deposits

Total interest-bearing deposits

 

 

780

 

 

408

 

 

1,188

 

 

1,035

 

 

834

 

 

1,869

 

Short-term borrowings

 

 

28

 

 

(9)

 

 

19

 

 

58

 

 

(13)

 

 

45

 

Short-term borrowings
Short-term borrowings
FHLB advances and other borrowings
FHLB advances and other borrowings

FHLB advances and other borrowings

 

 

712

 

 

476

 

 

1,188

 

 

1,186

 

 

1,017

 

 

2,203

 

Subordinated debt

 

 

 2

 

 

(2)

 

 

 —

 

 

(235)

 

 

(131)

 

 

(366)

 

Subordinated debt
Subordinated debt
Trust preferred debentures
Trust preferred debentures

Trust preferred debentures

 

 

106

 

 

59

 

 

165

 

 

131

 

 

131

 

 

262

 

Total interest-bearing liabilities

 

$

1,628

 

$

932

 

$

2,560

 

$

2,175

 

$

1,838

 

$

4,013

 

Total interest-bearing liabilities
Total interest-bearing liabilities

Net interest income

 

$

11,771

 

$

(2,202)

 

$

9,569

 

$

22,393

 

$

(7,988)

 

$

14,405

 

Net interest income
Net interest income

Net

Interest Income. 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 impacted by the volume of interest‑earning assets and related funding sources, as well as changes in the levels of interest rates. Noninterest‑bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest‑bearing sources of funds is captured in the net interest margin, which is calculated as net interest income divided by average interest-earning assets. The net interest margin is presented on a tax-equivalent basis, which means that tax‑free interest income has been adjusted to a pretax-equivalent income, assuming a 35% tax rate.

In the third quarter of 2017, we generated $37.5 million of net interestInterest income, on a tax-equivalent basis, which was an increase of $9.6increased $6.1 million or 34.3%, from the $27.9to $101.9 million of net interest income we produced on a tax-equivalent basis in the thirdthree months ended March 31, 2024 as compared to the same quarter of 2016. This increase in net interest income was2023, primarily due to improved yields on earning assets. The yield on earning assets increased 41 basis points to 5.76% from 5.35% primarily due to the impact of increasing market interest rates.

Average earning assets decreased to $7.11 billion in the first quarter of 2024 from $7.26 billion in the same quarter of 2023. Decreases in average loans and federal funds sold and cash investments of $308.4 million and $15.8 million, respectively, were partially offset by a $12.1$178.9 million increase in interest income on a tax-equivalent basis, offsetinvestment securities.
Average loans decreased $308.4 million in part by a $2.6 million increase in interest expense.

For the first nine monthsquarter of 2017, net interest income on a tax-equivalent basis was $95.72024 compared to the same quarter of 2023. Average commercial loans decreased $120.6 million. Included in this category are commercial FHA warehouse lines, which decreased $12.1 million an increase of $14.4to $1.2 million or 17.7%, from the $81.3 million of net interest income we generated on a tax-equivalent basis forin the first nine monthsquarter of the prior year. This increase was mainly due to an $18.4 million increase in interest income on a tax-equivalent basis, offset in part by a $4.0 million increase in interest expense.

49


2024.

40

Table of Contents

Interest Income.    Total interest income on a tax-equivalent basis was $43.9Average commercial real estate loans and leases also decreased this quarter by $44.8 million and $111.6$37.5 million, for the three and nine months ended September 30, 2017, respectively, compared to $31.8 million and $93.2 million for the three and nine months ended September 30, 2016, respectively.  These increases were primarily attributable to increases in interest income on loans and cash investments, offset in part by decreases in interest income on investment securities.

Interest income onprior year's first quarter. Average construction loans increased to $39.2this quarter by $136.9 million, and $98.5 million for the three and nine months ended September 30, 2017, respectively, compared to $26.4the prior year's first quarter, primarily due to funding draws on existing multifamily project lines. Average balances in our consumer loan portfolio decreased this quarter by $252.0 million compared to the prior year first quarter. During the fourth quarter of 2023, the Company ceased originating consumer loans through both Greensky and $77.1LendingPoint.

Interest Expense. Interest expense increased $10.7 million for the three and nine months ended September 30, 2016, respectively.  Increases of 45.7% and 30.1% in the average balances of loans outstanding for the three and nine months ended September 30, 2017, respectively, were primarily driven by the addition of loans from the Centrue acquisition combined with organic loan growth over the past year. A seven basis point increase in the average yield on loans to $45.8 million for the three months ended September 30, 2017 was primarily driven by a $0.3 million increase in accretion income from purchase accounting discounts on acquired loans. For the nine months ended September 30, 2017, a nine basis point decrease in the average yield on loans resulted primarily from a $2.5 million decrease in accretion income from purchase accounting discounts on acquired loans, offset in part by an increase in prepayment penalties and the impact of higher market rates.

 The average rate on loans benefits from purchase accounting discount accretion on loan portfolios acquired (see “Significant Transactions – Purchased Credit-Impaired (PCI) Loans” above). The reported yield on total loans forMarch 31, 2024, compared to the three months ended September 30, 2017 and 2016 was 4.90% and 4.83%, respectively. Accretion income associated with purchase accounting discounts establishedMarch 31, 2023. The cost of interest-bearing liabilities increased to 3.22% for the first quarter of 2024, compared to 2.46% for the first quarter of 2023, due to the increase in deposit costs as a result of the rate increases announced by the Federal Reserve.

Interest expense on loans acquired totaled $3.0deposits increased $12.8 million and $2.6to $39.2 million for the three months ended September 30, 2017 and 2016, respectively, increasing the reported yields by 33 and 43 basis points for each respective period. The reported yield on total loans for the nine months ended September 30, 2017 and 2016 was 4.84% and 4.93%, respectively. Accretion income associated with purchase accounting discounts established on loans acquired totaled $7.0 million and $9.5 million for the nine months ended September 30, 2017 and 2016, respectively, increasing the reported yields by 30 and 54 basis points for each respective period.

Interest income on investment securities decreased $0.8 million and $3.4 million for the three and nine months ended September 30, 2017, respectively. These decreases were mainly attributable to declines in the average yield on investment securities of 216 basis points and 206 basis points, respectively, offset in part by increases in the average balance of investment securities of 43.7% and 21.2%, respectively. The decreases in average yields resulted primarilyMarch 31, 2024 from the impact of sellingcomparable period in the prior year fourth quarter $72.1 million of previously covered mortgage-backed securities (“CMOs”) that were yielding approximately 13.0%, coupled with lower yields being earned on Centrue’s investment portfolio.2023. The increases in average balances were primarily due to the addition of $149.0 million of investment securities from Centrue. 

Interest income on short-term cash investments increased to $0.6 million and $1.4 million for the three and nine months ended September 30, 2017, respectively, compared to $0.2 million and $0.8 million for the three and nine months ended September 30, 2016, respectively.  These increases wereincrease was primarily due to an increase in short-term interest rates.

Interest Expense.rates paid on deposits. Average balances of interest-bearing deposit accounts increased $141.2 million, or 2.8%, to $5.20 billion for the three months ended March 31, 2024     compared to the same period one year earlier. The increase in volume was attributable to increases of brokered deposits and reciprocal deposits of $194.0 million and $227.5 million, respectively. Our retail, commercial, servicing and public fund deposits decreased $26.3 million, $156.8 million, $49.0 million, and $48.1 million, respectively.

Interest expense on interest-bearing liabilities increased $2.6 million, or 65.3%, to $6.5 million for the third quarter of 2017,FHLB advances and $4.0 million, or 33.5%, to $16.0 million for the nine months ended September 30, 2017. The increases in interest expense were primarily due to increases in interest expense on deposits and borrowings.

Interest expense on deposits increased to $3.4 million and $8.6other borrowings decreased $3.0 million for the three and nine months ended September 30, 2017, respectively, as compared to $2.2 million and $6.7March 31, 2024, from the comparable period in 2023. Average balances decreased $227.2 million for the three and nine months ended September 30, 2016, respectively.  The $1.2 million, or 54.2%, increaseMarch 31, 2024, from the comparable period in interest expense on2023, as loan paydowns and increases brokered deposits for the third quarter of 2017 was primarily due to the average balance of interest-bearing deposits increasing 40.2% combined with a five basis point increase in the average rate paid. For the nine-month period, the $1.9 million, or 27.9%, increase in interest expense on deposits was mainly attributable to the average balance of deposits increasing 19.5% coupled with a three basis point increase in the average rate paid. The increases in the average balance of deposits primarily reflected the addition of interest-bearing deposits from Centrue. The increases in the average rates paid were primarily due to increases in market interest rates.

replaced this funding source.

Interest expense on borrowings trust preferred debentures increased to $3.1 million and $7.4$0.2 million for the three and nine months ended September 30, 2017, respectively,March 31, 2024, from the comparable period in 2023, due to interest rate increases, as compared to $1.7these debt instruments reprice quarterly.
Provision for Credit Losses.The Company's provision for credit losses on loans was $14.0 million and $5.3 million for the three and nine months ended

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September 30, 2016, respectively.  The $1.4 million and $2.1 million increases in interest expense on borrowings for the three and nine months ended September 30, 2017, respectively, were primarily due to increased usage of both short-term and long-term FHLB advances, the addition of $90.0 million of FHLB advances and $10.0 million of trust preferred debentures from Centrue, entering into a $40.0 million term loan in May 2017, and the impact of higher market interest rates on new FHLB advances.  For the nine months ended September 30, 2017, the impact of these increases was offset in part by a decrease in interest expense on subordinated debt due to the payoff of $8.0 million of 8.25% subordinated debt on June 28, 2016.

Provision for Loan Losses.  The provision for loan losses totaled $1.5 million and $3.5 million for the three and nine months ended September 30, 2017, respectively,March 31, 2024, compared to $1.4 million and $3.1 million for the three and nine months ended September 30, 2016, respectively. ForMarch 31, 2023. The Company recorded a specific reserve of $8.0 million on one large construction and land development loan. Net charge-offs for the first nine monthsquarter totaled $4.4 million compared to $2.1 million for the comparable quarter of 2017, the2023.

The provision for loancredit losses primarily reflected specific reserves recorded on two commercial real estate loans combined withrecognized during the impact of loan growth over the past year. For the ninethree months ended September 30, 2016,March 31, 2024 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 provision for credit losses. Management estimates the allowance balance required using past loan losses was impacted by a $0.8 million provision reduction related to a PCI loan that was paid in full duringloss experience, the second quarternature and volume of 2016 (see “Significant Transactions – Purchased Credit-Impaired (PCI) Loans” above).

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 totaled $15.4 million inincreased 34.3% for the third quarter of 2017three months ended March 31, 2024, compared to $14.9 million in the third quarter of 2016. For the nine months ended September 30, 2017, noninterest income increased $3.8 million, or 9.1%, to $45.4 million.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, 2017March 31, 2024 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

 

 

 

September 30, 

 

Increase

 

(dollars in thousands)

    

2017

    

2016

    

(decrease)

 

Noninterest income:

 

 

    

 

 

    

 

 

    

 

Commercial FHA revenue

 

$

3,777

 

$

3,260

 

$

517

 

Residential mortgage banking revenue

 

 

2,317

 

 

4,990

 

 

(2,673)

 

Wealth management revenue

 

 

3,475

 

 

1,941

 

 

1,534

 

Service charges on deposit accounts

 

 

2,133

 

 

1,044

 

 

1,089

 

Interchange revenue

 

 

1,724

 

 

920

 

 

804

 

FDIC loss-sharing expense

 

 

 —

 

 

 —

 

 

 —

 

Gain on sales of investment securities, net

 

 

98

 

 

39

 

 

59

 

Other-than-temporary impairment on investment securities

 

 

 —

 

 

 —

 

 

 —

 

Gain on sales of other real estate owned

 

 

22

 

 

33

 

 

(11)

 

Other income

 

 

1,857

 

 

2,710

 

 

(853)

 

Total noninterest income

 

$

15,403

 

$

14,937

 

$

466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

 

 

 

 

 

September 30, 

 

Increase

 

(dollars in thousands)

    

2017

    

2016

    

(decrease)

 

Noninterest income:

 

 

    

 

 

    

 

 

    

 

Commercial FHA revenue

 

$

14,625

 

$

18,360

 

$

(3,735)

 

Residential mortgage banking revenue

 

 

7,563

 

 

7,148

 

 

415

 

Wealth management revenue

 

 

9,754

 

 

5,596

 

 

4,158

 

Service charges on deposit accounts

 

 

4,147

 

 

2,916

 

 

1,231

 

Interchange revenue

 

 

3,816

 

 

2,829

 

 

987

 

FDIC loss-sharing expense

 

 

 —

 

 

(1,661)

 

 

1,661

 

Gain on sales of investment securities, net

 

 

219

 

 

315

 

 

(96)

 

Other-than-temporary impairment on investment securities

 

 

 —

 

 

(824)

 

 

824

 

Gain on sales of other real estate owned

 

 

54

 

 

112

 

 

(58)

 

Other income

 

 

5,186

 

 

6,781

 

 

(1,595)

 

Total noninterest income

 

$

45,364

 

$

41,572

 

$

3,792

 

2023:

51

Three Months Ended March 31,Increase
(decrease)
(dollars in thousands)20242023
Noninterest income:
Wealth management revenue$7,132 $6,411 $721 
Service charges on deposit accounts3,116 2,745 371 
Interchange revenue3,358 3,412 (54)
Residential mortgage banking revenue527 405 122 
Income on Company-owned life insurance1,801 876 925 
Loss on sales of investment securities, net— (648)648 
Other income5,253 2,578 2,675 
Total noninterest income$21,187 $15,779 $5,408 

Wealth management revenue. Income from our wealth management business increased $0.7 million for the three months ended March 31, 204, as compared to the same period in 2023. Assets under administration increased to $3.89 billion at March 31, 2024 from $3.50 billion at March 31, 2023, primarily due to an increase in the market performance as a result of economic growth between the two periods.

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Commercial FHA revenue.  NoninterestCompany-owned life insurance income. Income on company-owned life insurance income from our commercial FHA business increased $0.5$0.9 million or 15.9%,for the three months ended March 31, 2024, as compared to $3.8 millionthe same period in 2023. As previously discussed, the Company surrendered certain low-yielding life insurance policies and purchased additional policies in the third quarter of 2017. Love Funding generated gains2023.

Loss on loans held for sale of $3.4investment securities. The Company took advantage of certain market conditions during the three months ended March 31, 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 net losses of $0.6 million.
Other noninterest income.Other income totaled $5.3 million and netfor the three months ended March 31, 2024, an increase of $2.7 million, as compared to the same period of 2023. Other noninterest income in 2024 included incremental servicing revenues of $0.4$3.7 million related to Greensky portfolio. In addition, we recognized amortization expense of $0.6 million on our commercial serving portfolio in the thirdcurrent quarter of 2017 compared to gains on loans held for sale of $3.8 million and a net servicing loss of $0.5 million in the third quarter of 2016. Rate lock commitments totaled $112.5 million in the third quarter of 2017 compared to $73.4 million in the third quarter of 2016. Although rate lock commitments were higher in the third quarter of 2017, the decrease in gains recognized on loans held for sale resulted from a rate lock cancellation that led to the reversal of $0.9 million of commercial FHA revenue that had been initially recognizedbut no expense in the first quarter of 2017. The increase in servicing revenue2023, as the portfolio was primarily due to $1.1 million of MSR impairment recorded in the prior year third quarter compared to $0.1 million of MSR impairment recognized in the third quarter of 2017.  

For the first nine months of 2017, noninterest income from our commercial FHA business decreased $3.7 million, or 20.3%, to $14.6 million. Love Funding generated gains on loansclassified as held for sale of $14.3 million and net servicing revenues of $0.3 million for the first nine months of 2017 compared to gains on loans held for sale of $17.8 million and net servicing revenue of $0.6 million for the first nine months of 2016. The $3.5 million decrease in gains on loans held for sale resulted primarily from a decrease in commercial FHA interest rate lock commitments to $481.0 million in the first nine months of 2017 compared to $581.8 million in the first nine months of 2016. The $0.2 million decrease in net servicing revenue primarily resulted from a $0.1 million increase in impairment recorded against our commercial FHA MSR during the first nine months of 2017 combined with higher amortization of commercial FHA MSR.

Residential mortgage banking revenue.  Our residential mortgage banking activities generated gains on loans held for sale of $1.8 million and net servicing revenue of $0.6 million in the third quarter of 2017 compared to gains on loans held for sale of $4.8 million and net servicing revenue of $0.2 million in the third quarter of 2016. The $3.0 million decrease in gains on loans held for sale was primarily due to a 60.2% decrease in interest rate lock commitments in the third quarter of 2017 compared to the prior year third quarter. The $0.3 million increase in net servicing revenue primarily resulted from a decrease in MSR amortization.

For the first nine months of 2017, our residential mortgage banking activities generated gains on loans held for sale of $6.5 million and net servicing revenue of $1.0 million compared to gains on loans held for sale of $11.0 million and a net servicing loss of $3.9 million in the first nine months of 2016. The $4.5 million decrease in gains on loans held for sale was primarily due to a 37.1% decline in interest rate lock commitments during the first nine months of 2017. The $4.9 million increase in net servicing revenue primarily resulted from $5.0 million of impairment recorded against our residential mortgage servicing rights during the first nine months of 2016 compared to $0.7 million of impairment in the first nine months of 2017. The increase in net servicing revenue was also impacted by a decrease in MSR amortization.

Wealth management revenue.  Noninterest income from our wealth management business totaled $3.5 million and $9.8 million for the three and nine months ended September 30, 2017, respectively, compared to $1.9 million and $5.6 million for the corresponding three and nine month periods in the prior year, respectively. These increases in wealth management revenue for both the three- and nine-month periods were primarily due to growth in assets under administration of $766.0 million, or 62.0%, to $2.0 billion at September 30, 2017 compared to September 30, 2016. The increase in assets under administration consisted of $400.0 million of wealth management assets added from the Sterling acquisition that closed in November 2016, $180.0 million of assets under administration added from the CedarPoint acquisition and organic growth experienced during the past year.

Service charges on deposit accounts.  Noninterest income from service charges on deposit accounts totaled $2.1 million and $4.1 million for the three and nine months ended September 30, 2017, respectively, compared to $1.0 million and $2.9 million for the corresponding three and nine month periods in the prior year, respectively. These increases primarily resulted from the addition of transactional deposit accounts associated with the Centrue acquisition that closed in June 2017.

sale.

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Interchange revenue.  Noninterest income from interchange revenue totaled $1.7 million and $3.8 million for the three and nine months ended September 30, 2017, respectively, compared to $0.9 million and $2.8 million for the corresponding three and nine month periods in the prior year, respectively. These increases were primarily due to an increased level of debit card activity resulting from the Centrue acquisition that closed in June 2017.

FDIC loss-sharing expense.In October 2016, we entered into an agreement with the FDIC to terminate the remaining provisions of the then existing loss share agreements. As a result, we have recorded no FDIC loss-sharing expense during the three and nine months ended September 30, 2017. For the nine months ended September 30, 2016, FDIC loss-sharing expense totaled $1.7 million.FDIC loss-sharing expense in 2016 primarily consisted of a $1.5 million reimbursement to the FDIC for 80% of covered losses paid to us previously on a covered loan that was paid in full during the second quarter of 2016 (see “Significant Transactions – Purchased Credit-Impaired (PCI) Loans” above).

Other‑than‑temporary impairment on investment securities.  During the first quarter of 2016, we recognized OTTI losses of $0.8 million due to changes in expected cash flows on three previously covered CMOs. We have recorded no OTTI loses during the first nine months of 2017. Early in the fourth quarter of 2016, all previously covered CMOs totaling $72.1 million were sold.

Other income.  Other income totaled $1.9 million and $5.2 million for the three and nine months ended September 30, 2017, respectively, compared to $2.7 million and $6.8 million for the corresponding three and nine month periods in the prior year, respectively. During the third quarter of 2016, the Company recognized $0.7 million of death benefits due to the passing of an employee covered by bank-owned life insurance. Additionally, other noninterest income for the nine months ended September 30, 2016 included the reversal of a $0.4 million contingent consideration accrual associated with the Heartland Bank acquisition. The Company concluded during the second quarter of 2016 that Love Funding would not reach the level of net income for the two-year period ending December 31, 2016 that would trigger a contingent consideration payment.

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Table of Contents

Noninterest Expense.Noninterest expense totaled $48.4 million in the third quarter of 2017 compared to $28.7 million in the third quarter of 2016. For the nine months ended September 30, 2017, noninterest expense increased $29.6 million, or 34.0%, to $116.8 million. The following table sets forth the major components of noninterest expense for the three and nine months ended September 30, 2017March 31, 2024 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

 

 

 

September 30, 

 

Increase

 

(dollars in thousands)

    

2017

    

2016

    

(decrease)

 

Noninterest expense:

 

 

    

 

 

    

 

 

    

 

Salaries and employee benefits

 

$

22,411

 

$

16,568

 

$

5,843

 

Occupancy and equipment

 

 

4,144

 

 

3,271

 

 

873

 

Data processing

 

 

5,786

 

 

2,586

 

 

3,200

 

FDIC insurance

 

 

565

 

 

388

 

 

177

 

Professional

 

 

4,151

 

 

1,877

 

 

2,274

 

Marketing

 

 

1,070

 

 

717

 

 

353

 

Communications

 

 

723

 

 

546

 

 

177

 

Loan expense

 

 

629

 

 

314

 

 

315

 

Other real estate owned

 

 

146

 

 

179

 

 

(33)

 

Amortization of intangible assets

 

 

1,187

 

 

514

 

 

673

 

Loss on mortgage servicing rights held for sale

 

 

3,617

 

 

 —

 

 

3,617

 

Other expense

 

 

3,934

 

 

1,697

 

 

2,237

 

Total noninterest expense

 

$

48,363

 

$

28,657

 

$

19,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

 

 

 

 

 

September 30, 

 

Increase

 

(dollars in thousands)

 

2017

 

2016

 

(decrease)

 

Noninterest expense:

    

 

    

    

 

    

    

 

    

 

Salaries and employee benefits

 

$

61,368

 

$

48,967

 

$

12,401

 

Occupancy and equipment

 

 

10,800

 

 

9,815

 

 

985

 

Data processing

 

 

11,531

 

 

7,830

 

 

3,701

 

FDIC insurance

 

 

1,403

 

 

1,350

 

 

53

 

Professional

 

 

10,285

 

 

5,151

 

 

5,134

 

Marketing

 

 

2,517

 

 

2,009

 

 

508

 

Communications

 

 

1,655

 

 

1,609

 

 

46

 

Loan expense

 

 

1,531

 

 

1,351

 

 

180

 

Other real estate owned

 

 

725

 

 

748

 

 

(23)

 

Amortization of intangible assets

 

 

2,291

 

 

1,613

 

 

678

 

Loss on mortgage servicing rights held for sale

 

 

3,617

 

 

 —

 

 

3,617

 

Other expense

 

 

9,082

 

 

6,756

 

 

2,326

 

Total noninterest expense

 

$

116,805

 

$

87,199

 

$

29,606

 

2023:

54

Three Months Ended March 31,Increase
(decrease)
(dollars in thousands)20242023
Noninterest expense:
Salaries and employee benefits$24,102 $24,243 $(141)
Occupancy and equipment4,142 4,443 (301)
Data processing6,722 6,311 411 
FDIC insurance1,274 1,329 (55)
Professional services2,255 1,760 495 
Marketing737 703 34 
Communications342 511 (169)
Loan expense1,231 818 413 
Amortization of intangible assets1,089 1,291 (202)
Other expense2,973 3,073 (100)
Total noninterest expense$44,867 $44,482 $385 

Table of Contents

Salaries and employee benefits.  Salaries and employee benefitsTotal noninterest expense increased $5.8$0.4 million, or 35.3%0.9%, to $22.4 million in the third quarterthree months ended March 31, 2024, as compared to the same period of 2017.  For the first nine months of 2017, salaries and employee benefits2023.    

Income Tax Expense.Income tax expense increased $12.4 million, or 25.3%, to $61.4 million. These increases were directly impacted by acquisition-related costs associated with the Centrue acquisition of $2.4 million and $7.1was $4.4 million for the three and nine months ended September 30, 2017, respectively. For Centrue, the Company recorded $4.1 million of change in control costs, along with severance and other benefit related expenses. Salaries and employees benefits expense for both the three and nine months ended September 30, 2017 was also impacted by an increase in the number of full-time equivalent employees attributableMarch 31, 2024, as compared to the Centrue transaction, annual salary increases that took effect in 2017 and increased benefit costs.

Occupancy and equipment.  Occupancy equipment expense totaled $4.1 million and $10.8$6.9 million for the three and nine months ended September 30, 2017, respectively, compared to $3.3 millionMarch 31, 2023. The resulting effective tax rates were 23.9% and $9.8 million for the corresponding three and nine month periods in the prior year, respectively. These increases were mainly due to depreciation, real estate taxes, utilities, ongoing maintenance and lease obligations associated with the branch and office facilities added from the Centrue acquisition.

Data processing.Data processing expense increased $3.2 million, or 123.7%, to $5.8 million for the third quarter of 2017 and $3.7 million, or 47.3%, to $11.5 million for the first nine months of 2017.  These increases resulted primarily from one-time data processing costs incurred in conjunction with the conversion of Centrue’s systems to the core processing platform and ancillary systems used by the Company, combined with increased processing costs related to the addition of Centrue and growth of our wealth management business. Data processing expense also includes a $1.8 million fee paid in July 2017 to terminate the contract with Centrue’s debit card service provider.

Professional.Professional fees increased $2.3 million, or 121.2%, to $4.2 million for the third quarter of 2017 and $5.1 million, or 99.7%, to $10.3 million for the first nine months of 2017.  These increases resulted primarily from nonrecurring acquisition-related expenses associated with the Centrue acquisition coupled with professional fees incurred on various technology and other integration projects.

Marketing.  Marketing expense totaled $1.1 million and $2.5 million24.0% for the three and nine months ended September 30, 2017, respectively,March 31, 2024 and 2023, respectively.

Financial Condition
Assets. Total assets were $7.83 billion at March 31, 2024, as compared to $0.7 million and $2.0 million for the corresponding three and nine month periods in the prior year, respectively. These increases reflected the impact of increased advertising and public relations expense centered on the promotion of our acquisition and integration of Centrue.

Amortization of intangible assets.  Intangible assets expense totaled $1.2 million and $2.3 million for the three and nine months ended September 30, 2017, respectively, compared to $0.5 million and $1.6 million for the three and nine months ended September 30, 2016, respectively. These increases were primarily due to amortization recorded on the $11.1 million core deposit intangible established in conjunction with the Centrue acquisition in June 2017.

Loss on mortgage servicing rights held for sale.    During the third quarter of 2017, we transferred $14.2 million of residential MSR, net of valuation allowances, to MSR held for sale. We have committed to a plan to sell these residential MSR and have the ability to sell them to a buyer in their present condition. As a result, during the three and nine months ended September 30, 2017, we recognized a $3.6 million loss on MSR held for sale to reflect them$7.87 billion at the lower of their carrying amount or fair value less costs to sell. After recognizing this loss, MSR held for sale had a net carrying value of $10.6 million at September 30, 2017.

Other expense.  Other expense totaled $3.9 million and $9.1 million for the three and nine months ended September 30, 2017, respectively, compared to $1.7 million and $6.8 million for the three and nine months ended September 30, 2016, respectively. These increases were primarily attributable to the Centrue acquisition and increases in costs associated with supplies, insurance, travel, meals, postage, and training. Included in other noninterest expense for the three and nine months ended September 30, 2017 were $0.4 million and $1.5 million of asset impairment on three banking facilities that closed in the third quarter of 2017.

Income Tax Expense. Income tax expense was $0.3 million and $4.6 million for the three and nine months ended September 30, 2017, respectively, compared to $4.1 million and $10.6 million for the three and nine months ended September 30, 2016, respectively. Effective tax rates were 12.1% and 24.8% for the three and nine months ended September 30, 2017, respectively, compared to 33.8% and 34.6% for the three and nine months ended September 30, 2016, respectively. Significant items that impact our effective tax rate are interest on tax-exempt securities and loans and tax-free earnings from bank-owned life insurance. The lower effective tax rate for the first nine months of 2017 was

55


December 31, 2023.

42

Table of Contents

primarily due to income before taxes declining without a corresponding decrease in tax-exempt items. The lower effective tax rates also reflected the impact of an increase in excess tax benefits associated with share-based compensation award activity combined with tax benefits realized on the recent establishment of a captive insurance subsidiary.

Financial Condition

Assets. Total assets increased $1.1 billion to $4.3 billion at September 30, 2017 as compared to December 31, 2016.  This increase primarily reflected the addition of $1.0 billion of assets from the Centrue acquisition. The remaining increase was primarily attributable to organic loan growth of $156.1 million.

Loans. The loan portfolio is the largest category of our assets. At September 30, 2017, total loans, net of allowance for loan losses, were $3.1 billion. The following table shows loans by non‑PCIpresents the balance and PCIassociated percentage of each major category in our loan category and the related allowance as of September 30, 2017portfolio at March 31, 2024 and December 31, 2016:

2023:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

Non-PCI

 

PCI

 

 

 

 

Non-PCI

 

PCI

 

 

 

 

March 31, 2024March 31, 2024December 31, 2023

(dollars in thousands)

    

Loans

    

Loans

    

Total

    

Loans

    

Loans

    

Total

 

(dollars in thousands)BalancePercentBalancePercent

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

510,457

 

$

3,087

 

$

513,544

 

$

454,310

 

$

3,517

 

$

457,827

 

Commercial:
Commercial:
Commercial:
Equipment finance loans
Equipment finance loans
Equipment finance loans$494,068 8.3 %$531,143 8.7 %
Equipment finance leases
Commercial FHA lines
Other commercial loans
Other commercial loans
Other commercial loans
Total commercial loans and leases

Commercial real estate

 

 

1,456,620

 

 

15,664

 

 

1,472,284

 

 

963,895

 

 

5,720

 

 

969,615

 

Construction and land development

 

 

181,763

 

 

750

 

 

182,513

 

 

165,175

 

 

12,150

 

 

177,325

.

Total commercial loans

 

 

2,148,840

 

 

19,501

 

 

2,168,341

 

 

1,583,380

 

 

21,387

 

 

1,604,767

 

Residential real estate

 

 

438,973

 

 

6,774

 

 

445,747

 

 

247,156

 

 

6,557

 

 

253,713

 

Consumer

 

 

342,863

 

 

175

 

 

343,038

 

 

269,705

 

 

312

 

 

270,017

 

Lease financing

 

 

200,846

 

 

 —

 

 

200,846

 

 

191,479

 

 

 —

 

 

191,479

 

Total loans, gross

 

 

3,131,522

 

 

26,450

 

 

3,157,972

 

 

2,291,720

 

 

28,256

 

 

2,319,976

 

Total loans, gross5,958,462 100.0 100.0 %6,131,079 100.0 100.0 %

Allowance for loan losses

 

 

(15,415)

 

 

(1,446)

 

 

(16,861)

 

 

(13,744)

 

 

(1,118)

 

 

(14,862)

 

Allowance for credit losses on loans

Total loans, net

 

$

3,116,107

 

$

25,004

 

$

3,141,111

 

$

2,277,976

 

$

27,138

 

$

2,305,114

 

Total loans, net
Total loans, net

Loans increased $838.0


Total loans decreased $172.6 million to $3.2$5.96 billion at September 30, 2017March 31, 2024, as compared to December 31, 2016.2023, as the Company originated loans in a more selective and deliberate approach to balance liquidity and funding costs. An increase in construction and land development loans of $21.5 million was offset by decreases in all other loan categories. The increase in loansour construction and land development portfolio was primarily duedriven by draws on existing lines.
Consumer loans decreased $98.1 million to $681.9$837.1 million of loans added from the Centrue acquisition. The remaining increase resulted from organic growth of commercial real estate loans, residential real estate loans, consumer loans and lease financing receivables. The $1.8 million decrease in PCI loans at September 30, 2017March 31, 2024 compared to December 31, 2016 reflected the impact of2023, due to loan payoffs and repayments, offseta cessation in part by the addition of $13.4 million of PCI loans from the Centrue acquisition.  

Outstandingoriginated through GreenSky. Our Greensky-originated loan balances increase duedecreased $77.5 million during the first quarter of 2024 to new loan originations, advances on$606.0 million at March 31, 2024. In addition, during the fourth quarter of 2023, the Company ceased originating loans through LendingPoint. At March 31, 2024, the Company had $112.7 million in loans outstanding commitments and loans acquired as a result of acquisitions of other financial institutions, net of amounts received for loan payments and payoffs, charge‑offs of loans and transfers of loansthat were originated through LendingPoint, which will continue to OREO. The following table shows the fair values of those loans acquired at acquisition date and the net growth for the periods presented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

For the Year Ended

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

 

 

 

Net

 

 

 

 

Net

 

 

 

 

 

 

Growth

 

 

 

 

Growth

 

(dollars in thousands)

    

Acquired

    

(Attrition)

    

Acquired

    

(Attrition)

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

104,812

 

$

(49,095)

 

$

 

$

(41,746)

 

Commercial real estate

 

 

485,984

 

 

16,685

 

 

 

 

92,831

 

Construction and land development

 

 

28,458

 

 

(23,270)

 

 

 

 

27,059

 

Total commercial loans

 

 

619,254

 

 

(55,680)

 

 

 

 

78,144

 

Residential real estate

 

 

59,569

 

 

132,465

 

 

 

 

90,489

 

Consumer

 

 

3,047

 

 

69,974

 

 

 

 

108,505

 

Lease financing

 

 

 —

 

 

9,367

 

 

 

 

47,249

 

Total loans

 

$

681,870

 

$

156,126

 

$

 —

 

$

324,387

 

be serviced by LendingPoint.

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Table of Contents

The principal categoriessegments 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‑small- and medium‑sizedmedium-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.

Commercial The commercial loan category also includes loans increased $55.7 million to $513.5 million at September 30, 2017 as compared to December 31, 2016. This increase was primarily due to $104.8 million of loans added fromoriginated by the Centrue acquisition. This increase was offset in partequipment financing business that are secured by repayments and payoffs exceeding new originations.  

the underlying equipment.

Commercial real estate loans.  Commercial Our commercial real estate loans increased $502.7 millionconsist 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 $1.5 billion at September 30, 2017 as compareda borrower actively involved in farming rather than to December 31, 2016. This increase was primarily due to $486.0 million of loans added from the Centrue acquisition. The remaining increase in commercial loans was primarily driven by seven larger originations totaling $34.7 million, several larger construction loans totaling $39.3 million moved to permanent financing and the origination of two new LFC bridge loans totaling $15.2 million.  These increases were partially offset by repayments coupled with 13 larger payoffs totaling $46.5 million.

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.  As


43

Table of September 30, 2017,Contents
The following table presents the balance and associated percentage of the major property types within our commercial real estate and construction and land development loan portfolio was divided among the foregoing categories as follows: $22.0portfolios at March 31, 2024 and December 31, 2023:
March 31, 2024December 31, 2023
(dollars in thousands)BalancePercentBalancePercent
Multi-Family$537,704 18.7 %$516,295 18.1 %
Skilled Nursing420,768 14.6 469,096 16.4 
Retail466,572 16.2 454,589 15.9 
Industrial/Warehouse218,399 7.6 217,956 7.6 
Hotel/Motel176,447 6.1 159,707 5.6 
Office154,253 5.4 153,756 5.4 
All other897,098 31.4 888,039 31.0 
Total commercial real estate and construction and land development loans$2,871,241 100.0 %$2,859,438 100.0 %
Loans secured by office space totaled $154.3 million residential construction; $137.9 million commercial construction; and $22.7 million land acquisition and development.

Construction and land development loans increased $5.2 million to $182.5$153.8 million at September 30, 2017 as compared toMarch 31, 2024 and December 31, 2016.   The increase2023, respectively, primarily located in constructionsuburban locations in Illinois and land development loans was primarily due to loans added from the Centrue acquisition of $28.5 million and new originations exceeding repayments and transfers to permanent financing.

Missouri.

Residential real estate loans.  Residential real estate loans increased $192.0 million to $445.7 million at September 30, 2017 as compared to December 31, 2016. This increase was due in part to $59.6 million of loans added from the Centrue acquisition. The remaining increase in Our residential real estate loans, was attributable to organic growth ofsecured by residential real estate loans exceeding repayments. Origination volume in the first nine months of 2017 benefited from $133.7 million in new residential real estate loans from a lending program targeting doctors.

Included within residential real estate loans were home equity loans which increased $28.0 million to $88.4 million at September 30, 2017 as compared to December 31, 2016. This increase primarily reflected the impact of home equity loans added from the Centrue acquisition.

properties, that generally do not qualify for secondary market sale.

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.

Consumer loans increased $73.0 million to $343.0 million at September 30, 2017 as compared to December 31, 2016.  This increase primarily reflected the purchase of $71.0 million of installment loans originated by other banks through home improvement specialty retailers and contractors in the first quarter of 2017 combined with the addition of $3.0 million of consumer loans from Centrue and new origination volume exceeding repayments.

Lease financing.  Business Credit, our custom Our equipment leasing subsidiary located in Denver, Colorado,business provides indirect financing leases to varying types of small businesses nationwide for purchases of business equipment and software. All indirectThe financing leases requireis secured by a first priority interest in the financed asset and generally requires monthly payments, and the weighted average maturity of our leases is less than four years. Lease financing receivables increased $9.4 million, or 4.9%, to $200.8 million at September 30, 2017 as compared to December 31, 2016 as continued growth in new lease volume exceeded repayments.

payments.

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Table of Contents

The following table shows the contractual maturities of our loan portfolio and the distribution between fixed and adjustable interest rate loans at September 30, 2017:

March 31, 2024:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

Within One Year

 

One Year to Five Years

 

After Five Years

 

 

 

 

 

 

 

 

Adjustable

 

 

 

 

Adjustable

 

 

 

 

Adjustable

 

 

 

 

March 31, 2024March 31, 2024
Within One Year

(dollars in thousands)

    

Fixed Rate

    

Rate

    

Fixed Rate

    

Rate

    

Fixed Rate

    

Rate

    

Total

 

Loans:

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(dollars in thousands)
(dollars in thousands)Fixed RateAdjustable
Rate
Fixed RateAdjustable
Rate
Fixed RateAdjustable
Rate
Fixed RateAdjustable
Rate
Total

Commercial

 

$

42,516

 

$

156,556

 

$

112,807

 

$

112,299

 

$

78,785

 

$

10,581

 

$

513,544

 

Commercial real estate

 

 

149,549

 

 

95,752

 

 

646,331

 

 

201,995

 

 

70,036

 

 

308,621

 

 

1,472,284

 

Construction and land development

 

 

16,478

 

 

51,473

 

 

23,219

 

 

72,137

 

 

776

 

 

18,430

 

 

182,513

 

Total commercial loans

 

 

208,543

 

 

303,781

 

 

782,357

 

 

386,431

 

 

149,597

 

 

337,632

 

 

2,168,341

 

Residential real estate

 

 

3,823

 

 

13,507

 

 

16,050

 

 

40,116

 

 

133,677

 

 

238,574

 

 

445,747

 

Consumer

 

 

3,947

 

 

6,620

 

 

61,087

 

 

17,635

 

 

252,513

 

 

1,236

 

 

343,038

 

Lease financing

 

 

7,503

 

 

 —

 

 

193,046

 

 

 —

 

 

297

 

 

 —

 

 

200,846

 

Total loans

 

$

223,816

 

$

323,908

 

$

1,052,540

 

$

444,182

 

$

536,084

 

$

577,442

 

$

3,157,972

 

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, and 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 loan losses, our purchase discounts on acquired loans provide additional protections against credit losses.

Discounts on PCI Loans.PCI loans are loans that have evidence of credit deterioration since origination and for which it is probable at the date of acquisition that we will not collect all contractually required principal and interest payments. These loans are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan losses. At September 30, 2017 and December 31, 2016, we had PCI loans totaling $26.5 million and $28.3 million, respectively.

In determining the fair value of purchased credit‑impaired loans at acquisition, we first determine the contractually required payments due, which represent the total undiscounted amount of all uncollected principal and interest payments, adjusted for the effect of estimated prepayments. We then estimate the undiscounted cash flows we expect to collect. We incorporate several key assumptions to estimate cash flows expected to be collected, including probability of default rates, loss given default assumptions and the amount and timing of prepayments. We calculate fair value by discounting the estimated cash flows we expect to collect using an observable market rate of interest, when available, adjusted for factors that a market participant would consider in determining fair value. We have aggregated certain credit‑impaired loans acquired in the same transaction into pools based on common risk characteristics. A pool is accounted for as one asset with a single composite interest rate and an aggregate fair value and expected cash flows.

The difference between contractually required payments due and the cash flows expected to be collected, considering the impact of prepayments, is referred to as the nonaccretable difference. The nonaccretable difference, which is neither accreted into income nor recorded on our consolidated balance sheet, reflects estimated future credit losses expected to be incurred over the life of the loans. The excess of cash flows expected to be collected over the estimated fair value of PCI loans is referred to as the accretable yield. This amount is not recorded on our consolidated balance sheet, but is accreted into interest income over the remaining life of the loans, or pool of loans, using the effective yield method. The outstanding customer balance for PCI loans totaled $38.9 million and $34.6 million as of September 30, 2017 and December 31, 2016, respectively.

Subsequent to acquisition, we periodically evaluate our estimates of cash flows expected to be collected. These evaluations, performed quarterly, require the continued use of key assumptions and estimates, similar to the initial estimate of fair value. Subsequent changes in the estimated cash flows expected to be collected may result in changes in the accretable yield and nonaccretable difference or reclassifications between accretable yield and the nonaccretable difference. Decreases in expected cash flows due to further credit deterioration will result in an impairment charge to the provision for loan losses, resulting in an increase to the allowance for loan losses and a reclassification from accretable

58


44

Table of Contents

yield to nonaccretable difference. Increases in expected cash flows due to credit improvements will result in an increase in the accretable yield through a reclassification from the nonaccretable difference or as a reduction in the allowance for loan losses to the extent established on specific pools subsequent to acquisition. The adjusted accretable yield is recognized in interest income over the remaining life of the loan, or pool of loans.

The following table shows changes in the accretable yield for PCI loans for the nine months ended September 30, 2017 and 2016:


 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

(dollars in thousands)

 

2017

 

2016

    

Balance, beginning of period

    

$

9,035

    

$

10,526

 

New loans purchased - Centrue acquisition

 

 

2,111

 

 

 —

 

Accretion

 

 

(4,276)

 

 

(7,066)

 

Other adjustments (including maturities, charge-offs, and impact of changes in timing of expected cash flows)

 

 

(1,558)

 

 

(96)

 

Reclassification from non-accretable

 

 

1,519

 

 

4,302

 

Balance, end of period

 

$

6,831

 

$

7,666

 

As of September 30, 2017, the balance of accretable discounts on our PCI loan portfolio was $6.8 million compared to $9.0 million at December 31, 2016. We may not accrete the full amount of these discounts into interest income in future periods if the assets to which these discounts are applied do not perform according to our current expectations.

We have also recorded accretable discounts in purchase accounting for loans that are not considered PCI loans. Similar to the way in which we employ the fair value methodology for PCI loans, we consider expected prepayments and estimate the amount and timing of undiscounted cash flows in order to determine the accretable discount for non-PCI loans.

Analysis of the Allowance for Loan Losses.Credit Losses on Loans. The allowance for credit losses on loans was $78.1 million, or 1.31% of total loans, at March 31, 2024 compared to $68.5 million, or 1.12% of total loans, at December 31, 2023. The following table allocates the allowance for credit losses on loans by loan losses, orcategory:
March 31, 2024December 31, 2023
(dollars in thousands)Allowance
Percent (1)
Allowance
Percent (1)
Commercial$21,329 1.51 %$21,847 1.47 %
Commercial real estate21,367 0.89 20,229 0.84 
Construction and land development12,629 2.66 4,163 0.92 
Total commercial loans55,325 1.29 46,239 1.06 
Residential real estate5,655 1.49 5,553 1.46 
Consumer3,611 0.43 3,770 0.40 
Lease financing13,466 2.95 12,940 2.73 
Total allowance for credit losses on loans$78,057 1.31 %$68,502 1.12 %

(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 category:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

December 31, 2016

 

(dollars in thousands)

    

Allowance

    

%  (1)

    

 

Allowance

    

%  (1)

    

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

4,690

 

0.91

%  

 

$

5,920

 

1.29

%  

 

Commercial real estate

 

 

6,767

 

0.46

 

 

 

3,225

 

0.33

 

 

Construction and land development

 

 

215

 

0.12

 

 

 

345

 

0.19

 

 

Total commercial loans

 

 

11,672

 

0.54

 

 

 

9,490

 

0.59

 

 

Residential real estate

 

 

2,863

 

0.64

 

 

 

2,929

 

1.15

 

 

Consumer

 

 

1,269

 

0.37

 

 

 

930

 

0.34

 

 

Lease financing

 

 

1,057

 

0.53

 

 

 

1,513

 

0.79

 

 

Total allowance for loan losses

 

$

16,861

 

0.53

 

 

$

14,862

 

0.64

 

 

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.

In estimating expected credit losses as of March 31, 2024, we utilized certain forecasted macroeconomic variables from Oxford Economics in our models. The forecasted projections included, among other things, (i) U.S. gross domestic product ranging from 1.5% to 3.0% over the next four quarters; (ii) the 10-year treasury rate decreasing from 4.2% in the first quarter of 2024 to 3.7% by the first quarter of 2025; and (iii) Illinois unemployment rate averaging 4.9% through the first quarter of 2025.

(1)

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

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. These Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already fully captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. The qualitative factor adjustment at March 31, 2024, was approximately 42 basis points of total loans, consistent with 41 basis points at December 31, 2023.

The allowance and the balanceallocated to commercial loans totaled $21.3 million, or 1.51% of nonaccretable discounts represent our estimate of probable and reasonably estimabletotal commercial loans, at March 31, 2024, compared to $21.8 million, or 1.47%, at December 31, 2023. Modeled expected credit losses inherent inincreased $0.2 million and qualitative factor adjustments related to commercial loans helddecreased $0.3 million. Specific allocations for investment as of the respective balance sheet date. We assess the appropriateness of our allowancecommercial loans that were evaluated for non-PCI loans separatelyexpected credit losses on an individual basis decreased $0.4 million from our allowance for PCI loans.

The allowance for loan losses was $16.9 million at September 30, 2017 compared to $14.9$1.8 million at December 31, 2016. 2023.

The $2.0 million increase in the allowance at September 30, 2017 comparedallocated to December 31, 2016 was mainly attributable to specific reserves recorded on two commercial real estate loans combined withtotaled $21.4 million, or 0.89% to total commercial real estate loans, at March 31, 2024, increasing $1.1 million, from $20.2 million, or 0.84% of total commercial real estate loans, at December 31, 2023. Modeled expected credit losses were unchanged from prior quarter. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increased from $0.7 million at December 31, 2023, to $2.3 million at March 31, 2024. The commercial real estate portfolio does not include significant exposure to urban office properties.
The allowance allocated to construction and land development loans totaled $12.6 million, or 2.66% to total construction loans, at March 31, 2024, increasing $8.5 million, from $4.2 million, or 0.92% of total constructions loans, at December 31, 2023. Specific allocations for construction loans that were evaluated for expected credit losses on an individual basis total $8.0 million and $0.0 million at March 31, 2024 and December 31, 2023, respectively. This represents the impactspecific reserve of $8.0 million on one large construction and land development loan growth overrecognized in our first current period provision for
45

credit losses. Modeled expected credit losses decreased $0.1 million and qualitative factor adjustments related to construction loans increased $0.6 million.
The allowance allocated to the past year.

lease portfolio totaled $13.5 million, or 2.95% of total commercial leases, at March 31, 2024, increasing $0.5 million, from $12.9 million, or 2.73% of total commercial leases at December 31, 2023. Modeled expected credit losses related to commercial leases increased $0.3 million and specific allocation reserves increased $0.4 million.

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 months ended March 31, 2024 and 2023:
Three Months Ended March 31,
(dollars in thousands)20242023
Balance, beginning of period$68,502 $61,051 
Charge-offs:
Commercial2,410 969 
Commercial real estate691 746 
Residential real estate35 31 
Consumer235 263 
Lease financing1,665 390 
Total charge-offs5,036 2,399 
Recoveries:
Commercial116 94 
Commercial real estate152 
Residential real estate55 17 
Consumer87 93 
Lease financing181 74 
Total recoveries591 280 
Net charge-offs4,445 2,119 
Provision for credit losses on loans14,000 3,135 
Balance, end of period$78,057 $62,067 
Gross loans, end of period$5,958,462 $6,354,271 
Average total loans$6,012,032 $6,320,402 
Net charge-offs to average loans0.30 %0.14 %
Allowance for credit losses to total loans1.31 %0.98 %
Individual loans considered to be uncollectible are charged offcharged-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 offcharged-off are

added to the allowance.

59

Charge-offs of equipment financing loans and leases for the three months ended March 31, 2024 and 2023, totaled $3.6 million and $1.2 million, respectively, primarily due to continued weakness within the trucking and transportation sector. Net charge-offs for the three months ended March 31, 2024 totaled $4.4 million, compared to $2.1 million for the same period one year ago.


46

Table of Contents

added to the allowance. Net charge-offs to average loans were 0.07% and 0.31% for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.

Allowance for non‑PCI loans.Our methodology for assessing the appropriateness of the allowance for non-PCI loans includes a general allowance for performing loans, which are grouped based on similar characteristics, and a specific allowance for individual impaired loans or loans considered by management to be in a high risk category. General allowances are established based on a number of factors, including historical loss rates, an assessment of portfolio trends and conditions, accrual status and economic conditions.

For commercial and commercial real estate loans, a specific allowance may be assigned to individual loans based on an impairment analysis.Nonperforming Loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of impairment is based on an analysis of the most probable source of repayment, including the present value of the loan's expected future cash flows and the estimated market value or the fair value of the underlying collateral. Interest income on impaired loans is accrued as earned, unless the loan is placed on nonaccrual status.

Allowance for PCI loans.  PCI loans are recorded at their estimated fair value at the date of acquisition, with the estimated fair value including a component for estimated credit losses. An allowance related to PCI loans may be recorded subsequent to acquisition if a PCI loan pool experiences a decrease in expected cash flows as compared to the expected cash flows projected in the previous quarter. Loans considered to be uncollectible are initially charged off against the specific loan pool’s non‑accretable difference. When the pool���s non‑accretable difference has been fully utilized, uncollectible amounts are charged off against the corresponding allowance. The following table shows our allowance by loan portfolio and by non‑PCI and PCI loans as of September 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

 

 

Non-PCI

 

PCI

 

 

 

 

Non-PCI

 

PCI

 

 

 

 

 

 

(dollars in thousands)

    

Loans

    

Loans

    

Total

    

Loans

    

Loans

    

Total

    

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

4,202

 

$

488

 

$

4,690

 

$

5,421

 

$

499

 

$

5,920

 

 

 

Commercial real estate

 

 

6,442

 

 

325

 

 

6,767

 

 

2,993

 

 

232

 

 

3,225

 

 

 

Construction and land development

 

 

214

 

 

 1

 

 

215

 

 

345

 

 

 —

 

 

345

 

 

 

Total commercial loans

 

 

10,858

 

 

814

 

 

11,672

 

 

8,759

 

 

731

 

 

9,490

 

 

 

Residential real estate

 

 

2,383

 

 

480

 

 

2,863

 

 

2,572

 

 

357

 

 

2,929

 

 

 

Consumer

 

 

1,117

 

 

152

 

 

1,269

 

 

900

 

 

30

 

 

930

 

 

 

Lease financing

 

 

1,057

 

 

 —

 

 

1,057

 

 

1,513

 

 

 

 

1,513

 

 

 

Total allowance for loan losses

 

$

15,415

 

$

1,446

 

$

16,861

 

$

13,744

 

$

1,118

 

$

14,862

 

 

 

Provision for Loan Losses.In determining the allowance and the related provision for loan losses, we consider three principal elements: (i) valuation allowances based upon probable losses identified during the review of impaired commercial, commercial real estate, and construction and land development loans, (ii) allocations, by loan classes, on loan portfolios based on historical loan loss experience and qualitative factors, and (iii) valuation allowances on PCI loan pools based on decreases in expected cash flows. Provisions for loan losses are charged to operations to adjust the total allowance to a level deemed appropriate by us.

60


The following table provides an analysis of the allowance for loan losses, provision for loan losses and net charge‑offs for the three and nine months ended September 30, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the

 

 

As of and for the

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

September 30, 

 

(dollars in thousands)

    

2017

    

 

2016

    

 

2017

    

 

2016

    

Balance, beginning of period

 

$

15,424

 

 

$

14,752

 

 

$

14,862

 

 

$

15,988

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 —

 

 

 

251

 

 

 

737

 

 

 

2,513

 

Commercial real estate

 

 

 —

 

 

 

214

 

 

 

470

 

 

 

461

 

Construction and land development

 

 

 —

 

 

 

 1

 

 

 

 —

 

 

 

 1

 

Residential real estate

 

 

128

 

 

 

153

 

 

 

455

 

 

 

454

 

Consumer

 

 

105

 

 

 

91

 

 

 

536

 

 

 

225

 

Lease financing

 

 

102

 

 

 

154

 

 

 

658

 

 

 

632

 

Total charge-offs

 

 

335

 

 

 

864

 

 

 

2,856

 

 

 

4,286

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

54

 

 

 

36

 

 

 

137

 

 

 

164

 

Commercial real estate

 

 

56

 

 

 

129

 

 

 

435

 

 

 

216

 

Construction and land development

 

 

13

 

 

 

13

 

 

 

48

 

 

 

30

 

Residential real estate

 

 

47

 

 

 

32

 

 

 

276

 

 

 

131

 

Consumer

 

 

81

 

 

 

20

 

 

 

197

 

 

 

79

 

Lease financing

 

 

32

 

 

 

49

 

 

 

282

 

 

 

91

 

Total recoveries

 

 

283

 

 

 

279

 

 

 

1,375

 

 

 

711

 

Net charge-offs

 

 

52

 

 

 

585

 

 

 

1,481

 

 

 

3,575

 

Provision for loan losses

 

 

1,489

 

 

 

1,392

 

 

 

3,480

 

 

 

3,146

 

Balance, end of period

 

$

16,861

 

 

$

15,559

 

 

$

16,861

 

 

$

15,559

 

Net charge-offs to average loans

 

 

0.01

%  

 

 

0.11

%  

 

 

0.07

%  

 

 

0.23

%  

Allowance to total loans

 

 

0.53

%  

 

 

0.67

%  

 

 

0.53

%  

 

 

0.67

%  

Impaired Loans.The following table sets forth our nonperforming assets by asset categories as of the dates indicated. ImpairedNonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings.interest. The balances of impairednonperforming loans reflect the net investment in these assets, including deductionsassets.

(dollars in thousands)March 31, 2024December 31, 2023
Nonperforming loans:
Commercial$10,276 $9,282 
Commercial real estate53,957 33,891 
Construction and land development26,318 39 
Residential real estate4,130 3,869 
Consumer93 137 
Lease financing10,205 9,133 
Total nonperforming loans104,979 56,351 
Other real estate owned and other repossessed assets11,742 11,350 
Nonperforming assets$116,721 $67,701 
Nonperforming loans to total loans1.76 %0.92 %
Nonperforming assets to total assets1.49 %0.86 %
Allowance for credit losses to nonperforming loans74.35 %121.56 %
Non-performing loans increased $48.6 million to $105.0 million at March 31, 2024, compared to $56.4 million as of December 31, 2023. Four loans totaling $47.4 million account for purchase discounts.  PCIthe increase. Of these, three loans totaling $40.8 million are excluded from nonperforming status because we expect to fully collect their new carrying values, which reflect significant purchase discounts. If our expectation of reasonably estimable future cash flows from PCI loans deteriorates, the loans may be classified as nonaccrual loans and interest income will not be recognized until the timing and amount of future cash flows can be reasonably estimated.

multi-family construction or multi-family projects.

 

 

 

 

 

 

 

 

 

 

    

September 30, 

    

 

December 31, 

    

(dollars in thousands)

 

2017

    

 

2016

 

Impaired loans:

 

 

    

 

 

 

    

 

Commercial

 

$

4,000

 

 

$

6,548

 

Commercial real estate

 

 

22,668

 

 

 

18,398

 

Construction and land development

 

 

104

 

 

 

84

 

Residential real estate

 

 

5,320

 

 

 

5,029

 

Consumer

 

 

277

 

 

 

213

 

Lease financing

 

 

1,062

 

 

 

1,331

 

Total impaired loans

 

 

33,431

 

 

 

31,603

 

Other real estate owned, non-covered/non-guaranteed

 

 

4,678

 

 

 

2,947

 

Nonperforming assets

 

$

38,109

 

 

$

34,550

 

Impaired loans to total loans

 

 

1.06

%  

 

 

1.36

%  

Nonperforming assets to total assets

 

 

0.88

%  

 

 

1.07

%  

The increase in nonperforming loans at September 30, 2017 was primarily due to one commercial real estate loan being classified as nonaccrual during the third quarter of 2017.

We did not recognize any interest income on nonaccrual loans during the ninethree months ended September 30, 2017 and the year ended DecemberMarch 31, 20162024 or 2023 while the loans were in nonaccrual status. Additional interest income that we would have recognizedbeen recorded on thesenonaccrual loans had they been current in accordance with their original terms was $0.5$1.3 million and $0.7$0.8 million duringfor the ninethree months ended September 30, 2017March 31, 2024 and the year ended December 31, 2016,2023, respectively. We recognized interest income on commercial and commercial real estate loans modified under troubled debt

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Table of Contents

restructurings of $0.1 million and $0.3 million during the nine months ended September 30, 2017 and the year ended December 31, 2016, 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 impaired. 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 (excluding PCI loans) by loan category atfor the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

Construction &

 

 

 

 

 

 

Commercial

 

Real Estate

 

Land Development

 

 

 

 

 

 

Risk Category

 

Risk Category

 

Risk Category

 

 

 

 

(dollars in thousands)

    

7

    

8  (1)

    

7

    

8  (1)

    

7

    

8  (1)

    

Total

 

September 30, 2017

 

$

16,543

 

$

17,376

 

$

9,121

 

$

13,484

 

$

 —

 

$

 —

 

$

56,524

 

December 31, 2016

 

 

10,930

 

 

12,037

 

 

8,735

 

 

11,039

 

 

 —

 

 

450

 

 

43,191

 


three months ended March 31, 2024:

(dollars in thousands)

(1)

Year Ended
March 31, 2024

Balance, beginning of period

Includes only those 8‑rated

$56,351 
New nonperforming loans that are not included in impaired loans.

56,119 
Return to performing status(1,471)
Payments received(3,452)
Transfer to OREO and other repossessed assets(522)
Charge-offs(2,046)
Balance, end of period$104,979 

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.

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

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Table of Contents
The following table sets forth the book value and associated percentage of each category of investment securities at September 30, 2017March 31, 2024 and December 31, 2016. The book value for investment securities classified as available for sale is equal to fair market value and the book value for investment securities classified as held to maturity is equal to amortized cost.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

 

December 31, 

 

 

 

2017

 

 

2016

 

 

 

Book

 

% of

 

 

Book

 

% of

 

(dollars in thousands)

    

Value

    

Total

    

 

Value

 

Total

    

Investment securities, available for sale, at fair value

 

 

    

 

    

 

 

 

    

    

    

 

U.S. Treasury securities

 

$

47,907

 

10.3

%  

 

$

75,901

 

23.3

%  

Government sponsored entity debt securities

 

 

19,389

 

4.1

 

 

 

7,688

 

2.4

 

Agency mortgage-backed securities

 

 

229,854

 

49.1

 

 

 

90,070

 

27.7

 

Non-agency mortgage-backed securities

 

 

 —

 

 —

 

 

 

 1

 

 —

 

State and municipal securities

 

 

39,716

 

8.5

 

 

 

25,274

 

7.8

 

Corporate securities

 

 

57,307

 

12.2

 

 

 

47,405

 

14.6

 

Equity securities

 

 

2,812

 

0.6

 

 

 

 —

 

 —

 

Total investment securities, available for sale, at fair value

 

 

396,985

 

84.8

 

 

 

246,339

 

75.8

 

Investment securities, held to maturity, at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal securities

 

 

70,867

 

15.2

 

 

 

78,672

 

24.2

 

Total investment securities

 

$

467,852

 

100.0

%  

 

$

325,011

 

100.0

%  

2023.

62

March 31, 2024December 31, 2023
(dollars in thousands)BalancePercentBalancePercent
Investment securities available for sale:                
U.S. Treasury securities$— — %$1,097 0.1 %
U.S. government sponsored entities and U.S. agency securities67,723 6.5 72,572 7.9 
Mortgage-backed securities - agency681,520 65.5 574,500 62.7 
Mortgage-backed securities - non-agency89,528 8.6 83,529 9.1 
State and municipal securities60,630 5.8 57,460 6.3 
Collateralized loan obligations33,614 3.2 27,565 3.0 
Corporate securities107,391 10.4 99,172 10.9 
Total investment securities, available for sale, at fair value$1,040,406 100.0 %$915,895 100.0 %

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Table of Contents

The following table sets forth the book value, maturities and weighted average yields for our investment portfolio at September 30, 2017. The book valueMarch 31, 2024.

(dollars in thousands)BalancePercentWeighted average yield
Investment securities available for sale:            
U.S. government sponsored entities and U.S. agency securities:
Maturing within one year$— — %
Maturing in one to five years33,923 3.3 5.82 
Maturing in five to ten years33,800 3.2 4.65 
Maturing after ten years— — — 
Total U.S. government sponsored entities and U.S. agency securities$67,723 6.5 %5.23 %
Mortgage-backed securities - agency:
Maturing within one year$13,461 1.3 %4.92 %
Maturing in one to five years335,140 32.2 4.45 
Maturing in five to ten years179,363 17.2 3.17 
Maturing after ten years153,556 14.8 2.85 
Total mortgage-backed securities - agency$681,520 65.5 %3.73 %
Mortgage-backed securities - non-agency:
Maturing within one year$— — %— %
Maturing in one to five years79,896 7.7 4.69 
Maturing in five to ten years4,230 0.4 2.24 
Maturing after ten years5,402 0.5 3.21 
Total mortgage-backed securities - non-agency$89,528 8.6 %4.45 %
State and municipal securities (1):
Maturing within one year$1,175 0.1 %2.82 %
Maturing in one to five years9,253 0.9 2.59 
Maturing in five to ten years25,760 2.5 2.15 
Maturing after ten years24,442 2.3 3.99 
Total state and municipal securities$60,630 5.8 %2.95 %
Collateralized loan obligations:
Maturing within one year$6,395 0.6 %6.82 %
Maturing in one to five years16,120 1.5 6.99 
Maturing in five to ten years— — — 
Maturing after ten years11,099 1.1 6.49 
Total collateralized loan obligations$33,614 3.2 %6.79 %
Corporate securities:
Maturing within one year$4,997 0.5 %8.41 %
Maturing in one to five years39,390 3.8 4.42 
Maturing in five to ten years63,004 6.1 3.87 
Maturing after ten years— — — 
Total corporate securities$107,391 10.4 %4.25 %
Total investment securities, available for sale$1,040,406 100.0 %3.98 %
(1)Weighted average yield for investment securities classified as available for sale is equal to fair market value and the book value for investment securities classified as held to maturity is equal to amortized cost.

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

 

 

 

% of Total

 

Weighted

 

 

 

Book

 

Investment

 

Average

 

(dollars in thousands)

    

Value

    

Securities

    

Yield

 

Investment securities, available for sale

 

 

    

 

    

 

    

 

U.S. Treasury securities:

 

 

 

 

 

 

 

 

Maturing within one year

 

$

27,939

 

6.0

%  

0.9

%

Maturing in one to five years

 

 

19,968

 

4.3

 

1.5

 

Maturing in five to ten years

 

 

 —

 

0.0

 

0.0

 

Maturing after ten years

 

 

 —

 

0.0

 

0.0

 

Total U.S. Treasury securities

 

$

47,907

 

10.3

%  

1.2

%

 

 

 

 

 

 

 

 

 

Government sponsored entity debt securities:

 

 

 

 

 

 

 

 

Maturing within one year

 

$

 —

 

0.0

%  

0.0

%

Maturing in one to five years

 

 

6,930

 

1.5

 

2.0

 

Maturing in five to ten years

 

 

11,887

 

2.5

 

2.5

 

Maturing after ten years

 

 

572

 

0.1

 

2.5

 

Total government sponsored entity debt securities

 

$

19,389

 

4.1

%  

2.3

%

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities:

 

 

 

 

 

 

 

 

Maturing within one year

 

$

923

 

0.2

%  

2.5

%

Maturing in one to five years

 

 

191,912

 

41.0

 

2.2

 

Maturing in five to ten years

 

 

30,602

 

6.5

 

2.7

 

Maturing after ten years

 

 

6,417

 

1.4

 

3.0

 

Total agency mortgage-backed securities

 

$

229,854

 

49.1

%  

2.3

%

 

 

 

 

 

 

 

 

 

State and municipal securities (1):

 

 

 

 

 

 

 

 

Maturing within one year

 

$

5,442

 

1.2

%  

2.3

%

Maturing in one to five years

 

 

12,937

 

2.8

 

2.6

 

Maturing in five to ten years

 

 

14,704

 

3.1

 

3.6

 

Maturing after ten years

 

 

6,633

 

1.4

 

4.4

 

Total state and municipal securities

 

$

39,716

 

8.5

%  

3.2

%

 

 

 

 

 

 

 

 

 

Corporate securities:

 

 

 

 

 

 

 

 

Maturing within one year

 

$

3,003

 

0.6

%  

1.7

%

Maturing in one to five years

 

 

4,572

 

1.0

 

2.6

 

Maturing in five to ten years

 

 

46,920

 

10.0

 

4.9

 

Maturing after ten years

 

 

2,812

 

0.6

 

5.5

 

Total corporate securities

 

$

57,307

 

12.2

%  

4.6

%  

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

No stated maturity

 

$

2,812

 

0.6

%  

2.2

%

Total investment securities, available for sale

 

$

396,985

 

84.9

%  

2.2

%

 

 

 

 

 

 

 

 

 

Investment securities, held to maturity

 

 

 

 

 

 

 

 

State and municipal securities (1):

 

 

 

 

 

 

 

 

Maturing within one year

 

$

871

 

0.2

%  

5.8

%

Maturing in one to five years

 

 

19,055

 

4.1

 

5.7

 

Maturing in five to ten years

 

 

35,164

 

7.5

 

6.8

 

Maturing after ten years

 

 

15,777

 

3.4

 

5.5

 

Total state and municipal securities

 

$

70,867

 

15.2

%  

6.2

%

Total investment securities

 

$

467,852

 

100.0

%  

3.1

%


(1)

Weighted average yield for tax‑exempt securities are presented on a tax‑equivalent basis assuming a federal income tax rate of 35%.

Declines in the fair value of available-for-sale investmenttax-exempt securities are recorded as either temporary impairment or OTTI. OTTI is recognized when the fair valuepresented on a tax-equivalent basis assuming a federal income tax rate of an available-for-sale security is less than historical cost, and it is probable that all contractual cash flows will not be collected. OTTI is recorded as an offset to noninterest income and, therefore, results in a negative impact to our net income. An increase in the value of an OTTI security is not recorded as a recovery but as additional interest income over the remaining life of the security21%. During the first nine months of 2016, we recognized OTTI losses of $0.8 million due to changes in expected cash flows on three previously covered CMOs. We recorded no OTTI loses during the first nine months of 2017. Early in the fourth quarter of 2016, all $72.1 million of previously covered CMOs were sold.  

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Table of Contents

The table below presents the credit ratings at September 30, 2017 at fair value for our investment securities classified as available for sale, and amortized cost for investment securities classified as held to maturity.

at fair value, at March 31, 2024.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

Amortized

 

Estimated

 

Average Credit Rating

 

AmortizedAmortizedFairAverage credit rating

(dollars in thousands)

    

Cost

    

Fair Value

    

AAA

    

AA+/−

    

A+/−

    

BBB+/−

    

<BBB−

    

Not Rated

 

(dollars in thousands)costValueAAAAA+/-A+/-BBB+/-<BBB-Not Rated

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

47,979

 

$

47,907

 

$

 —

 

$

47,907

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Government sponsored entity debt securities

 

 

19,290

 

 

19,389

 

 

 —

 

 

19,389

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Agency mortgage-backed securities

 

 

229,382

 

 

229,854

 

 

297

 

 

229,557

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

U.S. government sponsored entities and U.S. agency securities
U.S. government sponsored entities and U.S. agency securities
U.S. government sponsored entities and U.S. agency securities
Mortgage-backed securities - agency
Mortgage-backed securities - non-agency

State and municipal securities

 

 

39,385

 

 

39,716

 

 

8,109

 

 

20,569

 

 

1,666

 

 

 —

 

 

 —

 

 

9,372

 

Collateralized loan obligations

Corporate securities

 

 

56,404

 

 

57,307

 

 

 —

 

 

 —

 

 

13,997

 

 

41,285

 

 

 —

 

 

2,025

 

Equity securities

 

 

2,705

 

 

2,812

 

 

 —

 

 

 —

 

 

2,812

 

 

 —

 

 

 —

 

 

 —

 

Total investment securities, available for sale

 

 

395,145

 

 

396,985

 

 

8,406

 

 

317,422

 

 

18,475

 

 

41,285

 

 

 —

 

 

11,397

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal securities

 

 

70,867

 

 

75,142

 

 

6,079

 

 

36,448

 

 

18,927

 

 

 —

 

 

714

 

 

12,974

 

Total investment securities

 

$

466,012

 

$

472,127

 

$

14,485

 

$

353,870

 

$

37,402

 

$

41,285

 

$

714

 

$

24,371

 

Cash and Cash Equivalents.  Cash and cash equivalents decreased $7.1 million to $183.6 million as of September 30, 2017 as

Liabilities. At March 31, 2024, liabilities totaled $7.04 billion compared to December 31, 2016. This decrease was primarily due to cash flows used in investing activities of $196.3 million exceeding cash flows from financing activities of $126.5 million and cash flows provided by operating activities of $62.6 million. Cash flows from financing activities primarily consisted of FHLB advances increasing $117.5 million and proceeds from a term loan totaling $40.0 million, offset in part by a $29.8 million decrease in deposits. Cash provided by operating activities primarily reflected $14.1 million of net income and $48.6 million of proceeds received from sales of loans held for sale that exceeded originations. Cash used in investing activities primarily reflected loan growth.

Goodwill and Other Intangible Assets.  Goodwill was $97.4 million at September 30, 2017 compared to $48.8 million$7.08 billion at December 31, 2016. Goodwill represents the excess of consideration paid in an acquisition over the fair value of the net assets acquired. The $48.5 million increase during the first nine months of 2017 resulted from $46.1 million of goodwill associated with the Centrue acquisition and $2.4 million of goodwill from the CedarPoint acquisition.

Our other intangible assets, which consist of core deposit and trust relationship intangibles, were $18.0 million and $7.2 million at September 30, 2017 and December 31, 2016, respectively. The increase in other intangibles primarily reflected the impact of an $11.1 million core deposit intangible associated with the Centrue acquisition and a $2.0 million trust relationship intangible from the CedarPoint acquisition, offset in part by $2.3 million of other intangibles amortization recorded during the first nine months of 2017.

Liabilities.  Total liabilities increased $985.1 million to $3.9 billion at September 30, 2017 due primarily to the Centrue acquisition.

2023.

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‑bearingnoninterest-bearing and interest‑bearinginterest-bearing demand, savings and time deposit accounts.

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The following table summarizes our average deposit balances and weighted average ratesTotal deposits increased $14.5 million to $6.32 billion at September 30, 2017 andMarch 31, 2024, as compared to December 31, 2016:

2023. Increases in noninterest-bearing demand accounts and time deposits of $67.0 million and $76.0 million, respectively, during this period, were partially offset by decreases in interest-bearing checking, money market and savings account balances. Noninterest-bearing demand commercial accounts, servicing deposits and treasury services accounts increased $20.3 million, $21.4 million, and $16.7 million, respectively during the first quarter of 2024. Our noninterest-bearing deposits increased to 19.2% of total deposits at March 31, 2024 compared to 18.1% at December 31, 2023.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

Average

 

Average

 

 

Average

 

Average

 

 

(dollars in thousands)

    

Balance

    

Rate

    

 

Balance

    

Rate

    

 

Deposits:

 

 

    

 

    

 

 

 

    

 

    

 

 

Noninterest-bearing demand

 

$

598,874

 

 —

 

 

$

536,965

 

 

 

Interest-bearing:

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking

 

 

764,324

 

0.19

%  

 

 

637,531

 

0.13

%  

 

Money market

 

 

490,382

 

0.40

 

 

 

382,780

 

0.27

 

 

Savings

 

 

217,753

 

0.14

 

 

 

163,392

 

0.15

 

 

Time, less than $250,000

 

 

388,867

 

0.86

 

 

 

378,158

 

0.90

 

 

Time, $250,000 and over

 

 

57,158

 

1.02

 

 

 

51,986

 

0.87

 

 

Time, brokered

 

 

264,035

 

1.44

 

 

 

215,865

 

1.37

 

 

Total interest-bearing

 

$

2,182,519

 

0.52

%  

 

$

1,829,712

 

0.49

%  

 

Total deposits

 

$

2,781,393

 

0.41

%  

 

$

2,366,677

 

0.38

%  

 

Brokered time deposits increased to $188.2 million at March 31, 2024 from $94.5 million at December 31, 2023, accounting for all of the increase in time deposit balances.

(dollars in thousands)March 31, 2024December 31, 2023
BalancePercentBalancePercent
Noninterest-bearing demand$1,212,382 19.2 %$1,145,395 18.1 %
Interest-bearing:
Checking2,394,163 37.9 2,511,840 39.8 
Money market1,128,463 17.8 1,135,629 18.0 
Savings555,552 8.8 559,267 8.9 
Time1,033,424 16.3 957,398 15.2 
Total deposits$6,323,984 100.0 %$6,309,529 100.0 %
The following table sets forth the maturity of uninsured time deposits of $250,000 or more and brokered deposits as of September 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

Maturity Within:

 

 

 

Three

 

Three to Six

 

Six to 12

 

After 12

 

 

 

 

(dollars in thousands)

    

Months or Less

    

Months

    

Months

    

Months

    

Total

 

Time, $250,000 and over

 

$

7,989

 

$

10,663

 

$

33,079

 

$

18,249

 

$

69,980

 

Time, brokered

 

 

64,316

 

 

38,385

 

 

36,038

 

 

94,230

 

 

232,969

 

Total

 

$

72,305

 

$

49,048

 

$

69,117

 

$

112,479

 

$

302,949

 

Total deposits increased $710.1 million to $3.1 billion at September 30, 2017 as compared to DecemberMarch 31, 2016. This increase primarily resulted from $739.9 million2024:

(dollars in thousands)Amount
Three months or less$58,488 
Three to six months24,419 
Six to 12 months7,301 
After 12 months8,763 
Total$98,971 
50

Table of deposits added from the Centrue acquisition. At September 30, 2017, total deposits were comprisedContents
Short-term Borrowings. Short-term borrowings, consisting of 21.7% noninterest‑bearing demand accounts, 55.0% interest‑bearing transaction accounts and 23.3% of time deposits. At September 30, 2017, brokered deposits totaled $233.0 million, or 7.5% of total deposits, compared to $218.7 million, or 9.1% of total deposits, at December 31, 2016.

Short‑Term Borrowings.  In addition to deposits, we use short‑term borrowings, such as federal funds purchased and securities sold under agreements to repurchase as a source of funds to meet the daily liquidity needs of our customerstotaled $214.4 million and fund growth in earning assets. Short‑term borrowings were $153.4$34.9 million at September 30, 2017 compared to $131.6 million at DecemberMarch 31, 2016. This $21.9 million increase resulted from $14.4 million of short-term borrowings added from the Centrue acquisition combined with an increase in short-term borrowings at the Bank. The weighted average interest rate on our short‑term borrowings was 0.23% and 0.21% at September 30, 20172024 and December 31, 2016,2023, respectively.

The Company utilized additional short-term liquidity resources and reduced our reliance on FHLB advances to optimize contingent liquidity and improve our cost of funds.

FHLB Advances and Other Borrowings.Borrowings. FHLB advances and other borrowings totaled $488.9$255.0 million and $237.5$476.0 million as of September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. During the first nine months of 2017, we added a mix of both short-term and long-termThe decrease in borrowings was due to FHLB advances totaling $347.4$251.0 million combinedbeing repaid in accordance with the $95.2 million of FHLB advances from the Centrue acquisition. After repayments of $229.9 million, FHLB advances as of September 30, 2017 totaled $450.1 million.

On May 25, 2017, the Company entered into a loan agreement with another bank for a revolving line of credit in the original principal amount of up to $10.0 million and a term loan in the original principal amount of $40.0 million.  The revolving line of credit matures on May 24, 2018 and pays a variable rate of interest equal to one-month LIBOR plus 2.00%. There were no advances made against the revolving line of credit at September 30, 2017.  The term loan matures on May 25, 2020 and pays a variable rate of interest equal to one-month LIBOR plus 2.25%.

In conjunction with the Centrue acquisition, the Company assumed 181 shares of Centrue Series B mandatory redeemable preferred stock by issuing an equal number of shares of Series G preferred stock. The Series G preferred shares, which pay dividends of 6.0%, were recorded at a fair value of $0.2 million.

contract terms.

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Subordinated Debt.  Subordinated debt totaled $54.6 million and $54.5 million as of September 30, 2017 and December 31, 2016, respectively. 

Trust Preferred Debentures.  Trust preferred debentures totaled $45.3 million and $37.4 million as of September 30, 2017 and December 31, 2016, respectively. The increase in trust preferred debentures primarily resulted from $10.0 million of trust preferred debentures that were assumed by us in the Centrue acquisition and recorded at an acquisition date fair value of $7.6 million. The junior subordinated debentures from the Centrue transaction are unsecured with interest payable quarterly based on an interest rate of three-month LIBOR plus 2.65%.These debentures mature on June 17, 2034.

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‑saleavailable-for-sale investment securities.

securities and cash flow hedges.

Shareholders’ equity increased $128.9decreased $0.8 million to $450.7$791.0 million at September 30, 2017March 31, 2024 as compared to December 31, 2016.2023. The increasechange in shareholders’ equity was due primarily to $112.5 millionthe result of common equity and $3.1 millionthe generation of preferred equity issued for the Centrue acquisition. During the first nine months of 2017, we generated net income of $14.1$13.9 million, offset by dividends to common shareholders of $6.8 million, dividends to preferred shareholders of $2.2 million, the repurchases of common stock of $1.9 million and declared dividendsincrease in accumulated other comprehensive losses of $10.2 million$4.7 million.
On December 5, 2023, the Company’s board of directors authorized a new share repurchase program, pursuant to common shareholders. Shareholders’ equity was also impacted bywhich the issuance of $3.4Company is authorized to repurchase up to $25.0 million of common stock forthrough December 31, 2024. As of March 31, 2024, the CedarPoint acquisition and $3.0Company repurchased 73,781 shares of its common stock at a weighted average price of $26.31 under its stock repurchase program, with approximately $23.1 million of common stock activity related primarily to the exercise of stock options. In addition, accumulated other comprehensive income increased $1.8 million during the first nine months of 2017.

In conjunction with the acquisition of Centrue, the Company assumed 2,636 shares of Centrue Series D non-cumulative non-voting preferred stock by issuing an equal number Series H preferred shares that were recorded upon issuance at a fair value of $3.1 million. Dividends are payable quarterly on the Series H preferred shares at a fixed rate of 12.5% per annum. The Company has the option to redeem, in whole or in part, the Series H preferred shares at any time after July 29, 2019. Upon redemption, the Company would pay holders of Series H preferred shares $1,000 per share, plus any accrued but unpaid dividends.

As previously discussed, the Company recently entered into a definitive agreement to acquire Alpine, and will be required to pay an aggregate of $33.3 million in cash and issue 4,463,200 shares of Midland common stock upon closing of the transaction, which is expected to occur in the first quarter of 2018.  In connection with its entry into the agreement to acquire Alpine, the Company issued $40.0 million aggregate principal amount of subordinated debentures in October 2017, the proceeds of which may be used to fund the payment of the cash portion of the merger consideration.  See “Note 21 — Subsequent Events” above for additional information.

remaining repurchase authority.

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‑termshort-term and long‑termlong-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while 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‑termshort-term borrowings. To the extent we are unable to obtain sufficient liquidity through core deposits;deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short‑short- or long‑termlong-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.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. SecuritiesInvestment securities with a carrying amount of $15.8 million and $20.9 million at March 31, 2024 and December 31, 2023, respectively, were pledged for securities sold under agreements to repurchase were $153.4 million at September 30, 2017 compared to $131.6 million at Decemberrepurchase.
The table below presents our sources of liquidity as of March 31, 2016.

As of September 30, 20172024 and December 31, 2016, we had $55.0 million and $30.0 million of unsecured federal funds lines, respectively, with no amounts advanced against the lines at either date. In addition, available lines of credit from the Federal Reserve Discount Window at September 30, 2017 and December 31, 2016 were $23.2 million

2023:

66


(dollars in thousands)March 31, 2024December 31, 2023
Cash and cash equivalents$167,316 $160,631 
Unpledged securities506,158 209,184 
FHLB committed liquidity1,167,381 997,388 
FRB discount window availability613,250 12,201 
Total Estimated Liquidity$2,454,105 $1,379,404 
Conditional Funding Based on Market Conditions
Additional credit facility$431,000 $250,000 
Brokered CDs (additional capacity)$400,000 $500,000 

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and $35.1 million, respectively. Federal Reserve Discount Window lines were collateralized by a pool of commercial real estate loans totaling $31.5 million and $43.3 million as of September 30, 2017 and December 31, 2016, respectively. We did not have any borrowings outstanding with the Federal Reserve at September 30, 2017 or December 31, 2016, and our borrowing capacity is limited only by eligible collateral.

At September 30, 2017 and December 31, 2016, we had $450.1 million and $237.5 million of outstanding advances from the FHLB, respectively. Based on the values of stock, securities, and loans pledged as collateral, we had $412.5 million and $310.8 million of additional borrowing capacity with the FHLB as of September 30, 2017 and December 31, 2016, respectively. We also maintain relationships in the capital markets with brokers and dealers to issue certificates of deposit.

The Company is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. The Company’s main source of funding is dividends declared and paid to usit by the Bank. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to the Company. Management believesbelieved at March 31, 2024, that these limitations will not impact our ability to meet our ongoing short‑termshort-term cash obligations.

Regulatory Capital Requirements

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

The Dodd‑Frank Wall Street Reform and Consumer Protection Act

In December 2018, the Office of the Comptroller of the Currency, the Federal Reserve, and the Basel III regulatory capital reforms (the “Basel III Rule”) have established capital standards for banks and bank holding companies.FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The table below summarizesfinal rule provides banking organizations the minimum capital requirements applicableoption to us under the Basel III Rule.

 

 

 

 

 

 

 

 

Basel III

 

 

 

Well

 

Adequately

 

Ratio

    

Capitalized

    

Capitalized

 

Tier 1 leverage ratio

 

5.0

%  

4.0

%

Common equity Tier 1 capital ratio

 

6.5

 

4.5

 

Tier 1 risk-based capital ratio

 

8.0

 

6.0

 

Total risk-based capital ratio

 

10.0

 

8.0

 

In addition to the minimum regulatory capital requirements set forth in the table above, the Basel III Rule implemented a “capital conservation buffer” that is added to the minimum requirements for capital adequacy purposes. A banking organization that fails to meet the required amount of the capital conservation buffer will be subject to limits on capital distributions (e.g., dividends, stock buybacks, etc.) and certain discretionary bonus payments to executive officers. For community banks, the capital conservation buffer requirement is being phasedphase in over a three-year period beginningthe day-one adverse effects on Januaryregulatory 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 March 31, 2024, the Company and the Bank exceeded the regulatory minimums and met the regulatory definition of well-capitalized.
The following table presents the Company's and the Bank’s capital ratios and the minimum requirements at March 31, 2024:
RatioActual
Minimum
Regulatory
Requirements (1)
Well
Capitalized
Total risk-based capital ratio
Midland States Bancorp, Inc.13.68 %10.50 %N/A
Midland States Bank12.77 10.50 10.00 %
Tier 1 risk-based capital ratio
Midland States Bancorp, Inc.11.16 8.50 N/A
Midland States Bank11.62 8.50 8.00 
Common equity tier 1 risk-based capital ratio
Midland States Bancorp, Inc.8.60 7.00 N/A
Midland States Bank11.62 7.00 6.50 
Tier 1 leverage ratio
Midland States Bancorp, Inc.9.92 4.00 N/A
Midland States Bank10.33 4.00 5.00 
(1)Total risk-based capital ratio, Tier 1 2016. Therisk-based capital ratio and Common equity tier 1 risk-based capital ratio include the capital conservation buffer in 2016 was 0.625%, is 1.25% in 2017 and will increase by 0.625% on January 1 of each subsequent year until fully phased in at 2.5% on January 1, 2019.

At September 30, 2017, the Company exceeded all regulatory capital requirements under the Basel III Rule and was considered to be “well‑capitalized” with a Tier 1 leverage ratio of 8.54%, a common equity Tier 1 capital ratio of 8.50%, a Tier 1 capital ratio of 10.20% and a total capital ratio of 12.21%.

At September 30, 2017, Midland States Bank exceeded all regulatory capital requirements under the Basel III Rule and was considered to be “well‑capitalized” with a Tier 1 leverage ratio of 10.05%, a common equity Tier 1 capital ratio of 11.99%, a Tier 1 capital ratio of 11.99% and a total capital ratio of 12.47%.

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Table of Contents

Contractual Obligations

The following table contains supplemental information regarding our total contractual obligations at September 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due

 

 

 

Less than

 

One to

 

Three to

 

More than

 

 

 

 

(dollars in thousands)

    

One Year

    

Three Years

    

Five Years

    

Five Years

    

Total

 

Deposits without a stated maturity

 

$

2,387,588

 

$

 —

 

$

 —

 

$

 —

 

$

2,387,588

 

Time deposits

 

 

448,096

 

 

260,698

 

 

17,940

 

 

145

 

 

726,879

 

Securities sold under repurchase agreements

 

 

153,443

 

 

 —

 

 

 —

 

 

 —

 

 

153,443

 

FHLB advances and other borrowings

 

 

205,929

 

 

42,913

 

 

165,028

 

 

75,000

 

 

488,870

 

Operating lease obligations

 

 

2,745

 

 

4,478

 

 

3,643

 

 

3,905

 

 

14,771

 

Subordinated debt

 

 

 —

 

 

 —

 

 

 —

 

 

54,581

 

 

54,581

 

Trust preferred debentures

 

 

 —

 

 

 —

 

 

 —

 

 

45,267

 

 

45,267

 

Total contractual obligations

 

$

3,197,801

 

$

308,089

 

$

186,611

 

$

178,898

 

$

3,871,399

 

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short‑term and long‑term liquidity needs.

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 have identified two primary sources of market risk: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.

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‑earninginterest-earning assets and interest‑bearinginterest-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

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(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 LIBORSOFR (basis risk).

Our board of directors’ Asset‑Liability Committee (“ALCO”) establishes broad policy limits with respect to

We actively manage interest rate risk. ALCO establishes specific operating guidelines withinrisk, 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 parametersfair market value of the board of directors’ policies. In general, weour financial instruments, cash flows, and net interest income. We seek to minimizeachieve consistent growth in net interest income while managing volatility arising from shifts in market interest rates. Our Board of Directors’ Risk Policy and Compliance Committee oversees interest rate risk, as well as the impactestablishment of changingrisk measures, limits, and policy guidelines for managing the amount of interest ratesrate risk and its effect on net interest income and the economic values of assets and liabilities. Our ALCOincome. 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‑termshort-term interest rates is expected to generate higher net interest income, as rates earned on our interest‑earninginterest-earning assets would reprice upward more quickly than rates paid on our interest‑bearinginterest-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‑termshort-term interest rates is expected to generate lower net interest income, as rates paid on our interest‑bearinginterest-bearing liabilities would reprice upward more quickly than rates earned on our interest‑earninginterest-earning assets, thus compressing our net interest margin.

Income Simulation and Economic Value Analysis.

Interest rate risk measurement is calculated and reported to the ALCORisk Policy and Compliance Committee at least quarterly. The information reported includes period‑endperiod-end results and identifies any policy limits

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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 approachesNII at Risk to model interest rate risk: Net Interest Income at Risk (“NII at Risk”) and Economic Value of Equity (“EVE”). Under NII at Risk, net interest income is modeledrisk utilizing various assumptions for assets, liabilities, and derivatives. EVE measuresNII at Risk uses net interest income simulation analysis which involves forecasting net interest earnings under a variety of scenarios including changes in the period endlevel of interest rates, the shape of the yield curve, and spreads between market valueinterest rates. The sensitivity of assets minusnet 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 valueinterest 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 liabilitiesexpected behavior and the change in this value as rates change. EVE is a period end measurement.

these assumptions are reviewed periodically.

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)-200-100+100+200
March 31, 2024:March 31, 2024:        
Dollar change
Percent changePercent change0.2 %(0.1)%(0.3)%(1.1)%
December 31, 2023:
Dollar change
Dollar change
Dollar change
Percent changePercent change0.2 %(0.1)%(0.6)%(1.3)%

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income Sensitivity (Shocks)

 

 

Immediate Change in Rates

 

(dollars in thousands)

    

−50

    

 

+100

    

 

+200

 

September 30, 2017:

 

 

    

 

 

    

 

 

    

 

Dollar change

 

$

(2,093)

 

$

2,392

 

$

4,289

 

Percent change

 

 

(1.5)

%  

 

 

1.7

%  

 

 

3.1

%

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

Dollar change

 

$

(2,857)

 

$

4,154

 

$

8,162

 

Percent change

 

 

(2.8)

%  

 

 

4.0

%  

 

 

7.9

%

We report NII at Risk to isolate the change in income related solely to interest earninginterest-earning assets and interest‑bearinginterest-bearing liabilities. The NII at Risk results included in the table above reflect the analysis used quarterly by management. It models immediate −50,-200, −100, +100 and +200 basis point parallel shifts in market interest rates. Due torates, implied by the current low level of short‑term interest rates,forward yield curve over the analysis reflects a declining interest rate scenario of 50 basis points, the point at which many assets and liabilities reach zero percent.

next twelve months. We arewere within board policy limits for all scenarios at March 31, 2024.

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Tolerance levels for risk management require the +100 and +200 basis point scenarios. There is no policy limit forcontinuing development of remedial plans to maintain residual risk within approved levels as we adjust the −50 basis point scenario. Thebalance sheet. NII at Risk reported at September 30, 2017,March 31, 2024 projects that our earnings exhibit decreased sensitivity to changesincreasing profitability in interest rates compared toa declining rate environment, consistent with our modeling at December 31, 2016.

The following table shows EVE at2023. Throughout the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Value of Equity Sensitivity (Shocks)

 

 

 

Immediate Change in Rates

 

(dollars in thousands)

    

−50

    

 

+100

    

 

+200

 

September 30, 2017:

 

 

    

 

 

 

    

 

 

 

    

 

Dollar change

 

$

(17,724)

 

 

$

25,765

 

 

$

46,590

 

Percent change

 

 

(3.9)

%  

 

 

5.7

%  

 

 

10.2

%

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Dollar change

 

$

(16,159)

 

 

$

27,135

 

 

$

50,676

 

Percent change

 

 

(4.7)

%  

 

 

7.9

%  

 

 

14.8

%

The EVE results includedcourse of 2023, the bank exhibited similar trends to the industry concerning its beta assumptions related to its non-maturity deposit portfolio. Coupled with a market shift to slowing rate increases or even rate cuts into 2024, the bank did start to position its investment strategy to protect against lower rates in the table above reflectfuture. These two aspects are the analysis used quarterly by management. It models immediate −50, +100 and +200primary drivers of moving to a virtually neutral position as measured in the +/- 100 basis point parallel shifts in market interest rates. Due to the current low level of short‑term interest rates, the analysis reflects a declining interest rate scenario of 50 basis points, the point at which many assets and liabilities reach zero percent.

We are within board policy limits for the +100 and +200 basis point scenarios. There is no policy limit for the −50 basis point scenario. The EVE reported at September 30, 2017 projects 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.

shocks.

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 and investments in securities backed by mortgage loans.

investments.

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ItemITEM 3 – Quantitative and Qualitative Disclosures About Market Risk

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are included under “Item 72 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures Aboutabout Market Risk,” appearing on pages Risk”.
54

68 through 69Table of this report.

ContentsItem


ITEM 4 – Controls and Procedures

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. The Company’s management, including our President and
Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)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

PART II – Other Information

ItemOTHER INFORMATION

ITEM 1 – Legal 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, and anti-money laundering and anti-terrorism laws)anti-terrorism), we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk. Except as described below, thereThere 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.

Centrue, the Company, Sentinel Acquisition, LLC, a wholly owned subsidiary of the Company (“Merger Sub”) and the individual members of the Centrue board of directors were named as defendants in a putative class action lawsuit filed by an alleged shareholder of Centrue in the Circuit Court of LaSalle County, Illinois: Rader v. Battles, et al., Case No. 17L16 (filed February 3, 2017). The Complaint alleges, among other things, that the directors of Centrue breached their fiduciary duties in connection with entering into the merger agreement and that Centrue, the Company and Merger Sub aided and abetted those alleged fiduciary breaches. Plaintiff claims, among other things, that Centrue’s board of directors failed to ensure that Centrue’s shareholders would receive maximum value for their shares, utilized preclusive corporate and deal protection terms to inhibit an alternate transaction and failed to conduct an appropriate sale process, and that Centrue’s largest shareholder and its representative on Centrue’s board of directors exerted undue influence to force a sale of Centrue at an unfair price. The Complaint sought a variety of equitable and injunctive relief including, among other things, enjoining the consummation of the merger, directing the defendants to exercise their fiduciary duties to obtain a transaction that is in the best interests of Centrue shareholders and awarding plaintiff his costs and attorneys’ fees.

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ITEM 1A– RISK FACTORS

Table of Contents

The plaintiffs filed a First Amended Complaint on May 4, 2017 adding an additional Centrue shareholder, Paul Ray Juarez, Jr., as a plaintiff. The plaintiffs filed a Second Amended Complaint on July 13, 2017. The Second Amended Complaint was filed after the completion of the Centrue acquisition and seeks monetary damages instead of equitable relief.

The defendants filed motions to dismiss the Second Amended Complaint on August 18, 2017.  On October 12, 2017, the Court granted the plaintiffs’ motion to voluntarily dismiss the Company and Merger Sub without prejudice and voluntarily dismiss Centrue with prejudice. The plaintiffs have responded to the motion to dismiss filed by the former Centrue directors. Plaintiffs have agreed that they will dismiss the suit against the Company and Merger Sub with prejudice if the former Centrue directors prevail on their motion to dismiss the Second Amended Complaint. 

The defendants believe that the claims in this lawsuit are wholly without merit and intend to defend them vigorously. It is possible that other potential plaintiffs may file additional lawsuits challenging the merger.

The outcome of the pending and any additional future litigation is uncertain. If the case is not resolved, the lawsuit(s) could result in substantial costs to the Company, including any costs associated with the indemnification of directors and officers that are not covered by insurance. The defense or settlement of the lawsuit may adversely affect the Company’s business, financial condition, results of operations and cash flows.

Item 1A – Risk Factors

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2016 and our Quarterly Report on Form 10-Q for the period ended June 30, 2017.

2023.

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ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities and Use of Proceeds

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 thirdfirst quarter of 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Maximum

 

 

 

 

 

 

 

Number of

 

Number of

 

 

Total

 

Average

 

Shares Purchased

 

Shares that May

 

 

Number

 

Price

 

as Part of Publicly

 

Yet Be Purchased

 

 

of Shares

 

Paid Per

 

Announced Plans

 

Under the Plans

Period

 

Purchased (1)

 

Share

 

or Programs

 

or Programs

July 1 - 31, 2017

 

18

 

$

33.72

 

 -

 

 -

August 1 - 31, 2017

 

1,677

 

 

30.50

 

 -

 

 -

September 1 - 30, 2017

 

320

 

 

31.63

 

 -

 

 -

Total

 

2,015

 

$

30.71

 

 -

 

 -

(1)

Represents shares of the Company’s common stock repurchased under the employee stock purchase program and/or shares withheld to satisfy tax withholding obligations upon the vesting of awards of restricted stock. These shares were purchased pursuant to the terms of the applicable plan and not pursuant to a publicly announced repurchase plan or program.

2024.

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)
January 1 - 31, 202455,166 $27.26 55,023 $23,500,019 
February 1 - 29, 2024278 24.74 — 23,500,019 
March 1 - 31, 202418,758 23.51 18,758 23,059,060 
Total74,202 $26.30 73,781 $23,059,060 

71

(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 December 5, 2023, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2024. Stock repurchases under this programs may be made from time to time on the open market, in privately negotiated transactions, or in any manner that complies with applicable securities laws, at the discretion of the Company. The timing of purchases and the number of shares repurchased under the programs are dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market condition. The repurchase program may be suspended or discontinued at any time without notice. As of March 31, 2024, 73,781 shares of the Company’s common stock have been repurchased under the program for an aggregate purchase price of $1.9 million.
ITEM 5 – OTHER INFORMATION
During the three months ended March 31, 2024, 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 – Exhibits

EXHIBITS

Exhibit No.

Description

Exhibit No.

Description

4.1

31.1

Form of Fixed-to-Floating Rate Subordinated Notes due October 15, 2027 (incorporated by reference to Exhibit 4.1 to Midland States Bancorp, Inc.’s Current Report on Form 8-K filed on October 17, 2017)

31.1

31.2

32.1

32.2

101

Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017,March 31, 2024 formatted in XBRL interactive data files pursuant to Rule 405 of Regulation S-T: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 March 31, 2024 formatted in inline XBRL and contained in Exhibit 101.

72

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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.

 Inc.

Date: NovemberMay 9, 2017

2024

By:

/s/

Leon J. Holschbach

Jeffrey G. Ludwig

Leon J. Holschbach

Jeffrey G. Ludwig

President and Chief Executive Officer

(Principal Executive Officer)

Date: NovemberMay 9, 2017

2024

By:

/s/

Jeffrey G. Ludwig

Eric T. Lemke

Jeffrey G. Ludwig

Eric T. Lemke

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

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