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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 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 Number 001-35272
MIDLAND STATES BANCORP, INC.
(Exact name of registrant as specified in its charter)
Illinois37-1233196
(State of other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1201 Network Centre Drive62401
Effingham, IL
(Zip Code)
(Address of principal executive offices)
(217) 342-7321
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueMSBI
The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/40th interest in a share of 7.75% fixed rate reset non-cumulative perpetual preferred stock, Series AMSBIP
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer ☒Non-accelerated filer ☐Smaller reporting company ☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
As of April 26, 2024, the Registrant had 21,481,762 shares of outstanding common stock, $0.01 par value.

Table of Contents
MIDLAND STATES BANCORP, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets at March 31, 2024 (Unaudited) and December 31, 2023
Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2024 and 2023
Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2024 and 2023
Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended March 31, 2024 and 2023
Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2024 and 2023

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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


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PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
MIDLAND STATES BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
March 31,
2024		December 31,
2023
(unaudited)
Assets
Cash and due from banks$166,471 $134,212 
Federal funds sold845 849 
Cash and cash equivalents167,316 135,061 
Investment securities available for sale, at fair value1,040,406 915,895 
Equity securities, at fair value4,494 4,501 
Loans5,958,462 6,131,079 
Allowance for credit losses on loans(78,057)(68,502)
Total loans, net5,880,405 6,062,577 
Loans held for sale5,043 3,811 
Premises and equipment, net81,831 82,814 
Other real estate owned8,920 9,112 
Nonmarketable equity securities33,476 43,421 
Accrued interest receivable25,931 24,934 
Loan servicing rights, at lower of cost or fair value19,577 20,253 
Goodwill161,904 161,904 
Other intangible assets, net15,019 16,108 
Company-owned life insurance205,286 203,485 
Other assets182,201 182,992 
Total assets$7,831,809 $7,866,868 
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand deposits$1,212,382 $1,145,395 
Interest-bearing deposits5,111,602 5,164,134 
Total deposits6,323,984 6,309,529 
Short-term borrowings214,446 34,865 
Federal Home Loan Bank advances and other borrowings255,000 476,000 
Subordinated debt93,617 93,546 
Trust preferred debentures50,790 50,616 
Accrued interest payable and other liabilities102,966 110,459 
Total liabilities7,040,803 7,075,015 
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
110,548 110,548 
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
215 216 
Capital surplus434,398 435,463 
Retained earnings327,264 322,379 
Accumulated other comprehensive loss, net of tax(81,419)(76,753)
Total shareholders’ equity791,006 791,853 
Total liabilities and shareholders’ equity$7,831,809 $7,866,868 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME — (UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended March 31,
20242023
Interest income:
Loans including fees:
Taxable$88,995 $87,459 
Tax exempt390 425 
Loans held for sale55 16 
Investment securities:
Taxable10,179 5,370 
Tax exempt418 494 
Nonmarketable equity securities687 795 
Federal funds sold and cash investments951 980 
Total interest income101,675 95,539 
Interest expense:
Deposits39,214 26,405 
Short-term borrowings836 25 
Federal Home Loan Bank advances and other borrowings3,036 6,006 
Subordinated debt1,280 1,370 
Trust preferred debentures1,389 1,229 
Total interest expense45,755 35,035 
Net interest income55,920 60,504 
Provision for credit losses on loans14,000 3,135 
Net interest income after provision for credit losses41,920 57,369 
Noninterest income:
Wealth management revenue7,132 6,411 
Service charges on deposit accounts3,116 2,745 
Interchange revenue3,358 3,412 
Residential mortgage banking revenue527 405 
Income on company-owned life insurance1,801 876 
Loss on sales of investment securities, net— (648)
Other income5,253 2,578 
Total noninterest income21,187 15,779 
Noninterest expense:
Salaries and employee benefits24,102 24,243 
Occupancy and equipment4,142 4,443 
Data processing6,722 6,311 
FDIC insurance1,274 1,329 
Professional services2,255 1,760 
Marketing737 703 
Communications342 511 
Loan expense1,231 818 
Amortization of intangible assets1,089 1,291 
Other expense2,973 3,073 
Total 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 common share data:
Basic earnings per common share$0.53 $0.86 
Diluted earnings per common share$0.53 $0.86 
Weighted average common shares outstanding21,774,647 22,478,808 
Weighted average diluted common shares outstanding21,787,691 22,501,970 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — (UNAUDITED)
(dollars in thousands)
Three Months Ended March 31,
20242023
Net income$13,885 $21,772 
Other comprehensive income (loss):
Investment securities available for sale:
Unrealized (losses) gains that occurred during the period(7,037)5,364 
Reclassification adjustment for realized net losses on sales of investment securities included in net income
— 648 
Income tax effect1,900 (1,622)
Change in investment securities available for sale, net of tax(5,137)4,390 
Cash flow hedges:
Net unrealized derivative gains on cash flow hedges644 2,206 
Income tax effect(173)(596)
Change in cash flow hedges, net of tax471 1,610 
Other comprehensive (loss) income, net of tax(4,666)6,000 
Total comprehensive income$9,219 $27,772 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY — (UNAUDITED)
(dollars in thousands, except per share data)
Preferred stockCommon
stock		Capital
surplus		Retained
earnings		Accumulated
other
comprehensive
(loss) income 		Total
shareholders'
equity
Balances, 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 — (UNAUDITED)
(dollars in thousands)
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— 8 
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 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Midland States Bancorp, Inc. is a diversified financial holding company headquartered in Effingham, Illinois. Our wholly owned banking subsidiary, Midland States Bank, has branches across Illinois and in Missouri, and provides a full range of commercial and consumer banking products and services, business equipment financing, merchant credit card services, trust and investment management services, and insurance and financial planning services.
Our principal business activity has been lending to and accepting deposits from individuals, businesses, municipalities and other entities. We have derived income principally from interest charged on loans and, to a lesser extent, from interest and dividends earned on investment securities. We have also derived income from noninterest sources, such as: fees received in connection with various lending and deposit services; wealth management services; mortgage loan originations, sales and servicing; and, from time to time, gains on sales of assets. Our principal expenses include interest expense on deposits and borrowings, operating expenses, such as salaries and employee benefits, occupancy and equipment expenses, data processing costs, professional fees and other noninterest expenses, provisions for credit losses and income tax expense.
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 financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates.
The consolidated financial statements of the Company 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, 2023, filed with the SEC on February 23, 2024. Certain reclassifications of 2023 amounts have been made to conform to the 2024 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 months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other period.
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Accounting Guidance Adopted in 2024
FASB ASU No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method – In March 2023, the FASB issued ASU No. 2023-02, which allows for reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the type of program the tax credits are related to. The ASU is effective for fiscal years beginning after December 15, 2023. The Company adopted this guidance on January 1, 2024 on a prospective basis. The adoption of this accounting pronouncement did not have a material impact on the consolidated financial statements.
Accounting Guidance Not Yet Adopted
FASB ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures - In December 2023, the FASB issued ASU No. 2023-07, which requires public entities to disclose significant segment expenses, an amount and description 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 an interim basis, certain segment related disclosures that previously were required only on an annual basis.The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company will update the related disclosures upon adoption.
FASB ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures - In December 2023, the FASB 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 reconciling items in some categories if items meet a quantitative threshold. The pronouncement also requires entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company will update the related disclosures upon adoption.

NOTE 2 – INVESTMENT SECURITIES
Investment Securities Available for Sale
Investment securities available for sale at March 31, 2024 and December 31, 2023 were as follows:
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 3 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 

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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Unrealized losses and fair values for investment securities available for sale as of March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as follows:
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 $106,310 
December 31, 2023
Less than 12 Months12 Months or moreTotal
(dollars in thousands)Fair
value		Unrealized
loss		Fair
value		Unrealized
loss		Fair
value		Unrealized
loss
Investment securities available for sale
U.S. Treasury securities$— $— $— $— $— $— 
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 March 31, 2024, 285 investment securities available for sale had unrealized losses with aggregate depreciation of 11.70% from their amortized cost basis. For all of the above investment securities, the unrealized losses were generally due to changes in interest rates and other market conditions, and unrealized losses were considered to be temporary as the fair value is expected to recover as the securities approach their respective maturity dates. The issuers are of high credit quality and all principal amounts are expected to be paid when securities mature. The Company does not intend to sell and it is likely that the Company will not be required to sell the securities prior to their anticipated recovery.
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NOTE 3 – LOANS
The following table presents total loans outstanding by portfolio class, as of March 31, 2024 and December 31, 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 
Total loans include net deferred loan costs of $3.5 million and $3.8 million at March 31, 2024 and December 31, 2023, respectively, and unearned discounts of $64.4 million and $66.4 million within the lease financing portfolio at March 31, 2024 and December 31, 2023, respectively.
At March 31, 2024, the Company had residential real estate loans held for sale totaling $5.0 million, compared to $3.8 million at December 31, 2023. The Company sold loans and leases with proceeds totaling $17.6 million and $6.3 million during the three months ended March 31, 2024 and 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 credit losses on loans.
Commercial—Loans to varying types of businesses, including municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital, operational needs and term financing of equipment. Repayment of such loans is generally provided through operating cash flows of the business. Commercial loans are predominately secured by equipment, inventory, accounts receivable, and other sources of repayment. 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 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.
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Residential real estate—Loans, secured by residential properties, that generally do not qualify for secondary market sale; however, the risk to return and/or overall relationship are considered acceptable to the Company. This category also includes loans whereby consumers utilize equity in their personal residence, generally through a second mortgage, as collateral to secure the loan.
Consumer—Loans to consumers primarily for the purpose of home improvements or acquiring automobiles, recreational vehicles and boats. Consumer loans consist of relatively small amounts that are spread across many individual borrowers.
Lease financing—Our equipment leasing business provides financing leases to varying types of businesses, nationwide, for purchases of business equipment and software. The financing is secured by a first priority interest in the financed assets and generally requires monthly payments.
Commercial, commercial real estate, and construction and land development loans are collectively referred to as the Company’s commercial loan portfolio, while residential real estate, consumer loans and lease financing receivables are collectively referred to as the Company’s other loan portfolio.
We have extended loans to certain of our directors, executive officers, principal shareholders and their affiliates. These loans were made in the ordinary course of business upon substantially the same terms, including collateralization and interest rates prevailing at the time. The new loans, other additions, repayments and other reductions for the three months ended March 31, 2024 and 2023, 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)7 63 700 697 3,135 
Charge-offs(969)(746)— (31)(263)(390)(2,399)
Recoveries94 2 — 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.
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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.
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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
10-5
0-14
26
15-29
37
30-59
48
60-89
Default9+ and nonaccrual
90+ and nonaccrual
Expected Credit Losses
In calculating expected credit losses, the Company individually evaluates loans on nonaccrual status with a balance greater than $500,000, loans past due 90 days or more and still accruing interest, and loans that do not share risk characteristics 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 $0.8 million for the three months ended March 31, 2024 and 2023, respectively.
Collateral Dependent Financial Assets
A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of
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protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral’s value increases and the loan may become collateral dependent.
The table below presents the value of individually evaluated, collateral dependent loans by loan class, for borrowers experiencing financial difficulty, as of March 31, 2024 and December 31, 2023:
Type of Collateral
(dollars in thousands)Real EstateEquipmentTotal
March 31, 2024
Commercial:
Commercial$— $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 

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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 3 16,724 6,251 578,729 601,704 
Commercial real estate:
Commercial real estate non-owner occupied
7,072 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 
Farmland3 — — 3 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 2 10,863 — 727,072 737,935 
Lease financing8,646 5,174 5 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 3 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 
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Loan Restructurings
The Company adopted the accounting guidance in ASU No. 2022-02, effective as of January 1, 2023, which eliminated the recognition and measurement of a 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 geographic regions. In addition, our specialty finance division does nationwide bridge lending for FHA and HUD developments and originates loans for multifamily, assisted and senior living and multi-use properties. Our equipment leasing business provides financing to business customers across the country.
The Company has a loan approval process involving underwriting and individual and group loan approval authorities to consider credit quality and loss exposure at loan origination. The loans in the Company’s commercial loan portfolio are risk rated at origination based on the grading system set forth below. All loan authority is based on the aggregate credit to a borrower and its related entities.
The Company’s consumer loan portfolio is primarily comprised of both secured and unsecured loans that are relatively small and are evaluated at origination on a centralized basis against standardized underwriting criteria. The ongoing measurement of credit quality of the consumer loan portfolio is largely done on an exception basis. If payments are made on schedule, as agreed, then no further monitoring is performed. However, if delinquency occurs, the delinquent loans are turned over to the Company’s Consumer Collections Group for resolution. Credit quality for the entire consumer loan portfolio is measured by the periodic delinquency rate, nonaccrual amounts and actual losses incurred.
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.
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The Company maintains a centralized independent loan review function that monitors the approval process and ongoing asset quality of the loan portfolio, including the accuracy of loan grades. The Company also maintains an independent appraisal review function that participates in the review of all appraisals obtained by the Company.
Credit Quality Indicators
The Company uses a ten grade risk rating system to monitor the ongoing credit quality of its commercial loan portfolio. These loan grades rank the credit quality of a borrower by measuring liquidity, debt capacity, and coverage and payment behavior as shown in the borrower’s financial statements. The risk grades also measure the quality of the borrower’s management and the repayment support offered by any guarantors.
The Company considers all loans with Risk Grades 1 - 6 as acceptable credit risks and structures and manages such relationships accordingly. Periodic financial and operating data combined with regular loan officer interactions are deemed adequate to monitor borrower performance. Loans with Risk Grades of 7 are considered "watch credits" categorized as special mention and the frequency of loan officer contact and receipt of financial data is increased to stay abreast of borrower performance. Loans with Risk Grades of 8 - 10 are considered problematic and require special care. Risk Grade 8 is categorized as substandard, 9 as substandard - nonaccrual and 10 as doubtful. Further, loans with Risk Grades of 7 - 10 are managed regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive and senior management of the Company, which includes highly structured reporting of financial and operating data, intensive loan officer intervention and strategies to exit, as well as potential management by the Company's Special Assets Group. Loans not graded in the commercial loan portfolio are monitored by aging status and payment activity.

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The following tables present the recorded investment of the commercial loan portfolio by risk category as of March 31, 2024 and December 31, 2023:
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 mention2 — 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 5 6,428 
Substandard— — 7,644 265 — 12,775 — 20,684 
Substandard – nonaccrual— 109 9,419 5 159 702 304 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 mention2 10,173 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 
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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 4 — 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 4 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 8 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 

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The following table presents the gross charge-offs by class of loan and year of origination on the commercial loan portfolio for the three 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 $1 $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 portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity. Accordingly, loans on nonaccrual status and loans past due 90 days or more and still accruing interest are considered to be nonperforming for purposes of credit quality evaluation. The following tables present the recorded investment of our other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming as of March 31, 2024 and December 31, 2023:
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 9 — 23 1 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— — — — — 3 — 3 
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 
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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 $4 $314,154 
Nonperforming179 50 335 — 139 2,531 — 3,234 
Subtotal42,729 74,663 37,344 29,628 19,786 113,234 4 317,388 
Other residentialPerforming3,245 1,113 377 409 836 2,009 54,571 62,560 
Nonperforming— 9 — — — 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 6 6 — 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— — — — — 3 — 3 
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 

The following table presents the gross charge-offs by class of loan and year of origination on the other 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
Residential real estateResidential first lien$— $— $11 $— $— $— $— $11 
Other residential— — 16 — — — 8 24 
ConsumerConsumer— — — — 6 27 — 33 
Consumer other— — — — — 202 — 202 
Lease financing— 123 1,371 114 37 20 — 1,665 
Total gross other charge-offs$— $123 $1,398 $114 $43 $249 $8 $1,935 
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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 of $7.5 million and $7.7 million as of March 31, 2024 and December 31, 2023, respectively, included in premises and equipment on our consolidated balance sheets. The operating lease liabilities of the Company were $9.0 million and $9.3 million as of March 31, 2024 and December 31, 2023, respectively, and are included in accrued interest payable and other liabilities on our consolidated balance sheets.
Information related to operating leases for the three months ended March 31, 2024 and 2023 was as follows:
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 terms of the leases as of March 31, 2024 were as follows:
(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 

NOTE 5 – DERIVATIVE INSTRUMENTS
As part of the Company’s overall interest rate risk management, the Company utilizes derivative instruments to minimize significant, unanticipated earnings fluctuations caused by interest rate volatility, including interest rate lock commitments, forward commitments to sell mortgage-backed securities, cash flow hedges and interest rate swap contracts. The notional amount does not represent amounts exchanged by the parties, rather the amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements.
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Interest Rate Lock Commitments / Forward Commitments to Sell Mortgage-Backed Securities
The Company issues interest rate lock commitments on originated fixed-rate residential real estate loans to be sold. The interest rate lock commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities. The fair value of the interest rate lock commitments and forward contracts to sell mortgage-backed securities are included in other assets or other liabilities in the consolidated balance sheets. Changes in the fair value of derivative financial instruments are recognized in residential mortgage banking revenue in the consolidated statements of income.
The following table summarizes the interest rate lock commitments and forward commitments to sell mortgage-backed securities held by the Company, their notional amount and estimated fair values at March 31, 2024 and December 31, 2023:
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 
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 $0.1 million on derivative instruments in 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 interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by contracts simultaneously purchased by the Company from other financial dealer institutions with mirror-image terms. Because of the mirror-image terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in the fair value subsequent to initial recognition have a minimal effect on earnings. These derivative contracts do not qualify for hedge accounting.
The notional amounts of the customer derivative instruments and the offsetting counterparty derivative instruments were $6.8 million and $6.9 million at March 31, 2024 and December 31, 2023, respectively. The fair value of the customer derivative instruments and the offsetting counterparty derivative instruments was $0.4 million and $0.3 million at March 31, 2024 and December 31, 2023, respectively, which are included in other assets and other liabilities, respectively, on the consolidated balance sheets.
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NOTE 6 – DEPOSITS
The following table summarizes the classification of deposits as of March 31, 2024 and December 31, 2023:
(dollars in thousands)March 31, 2024December 31, 2023
Noninterest-bearing demand$1,212,382 $1,145,395 
Interest-bearing:
Checking2,394,163 2,511,840 
Money market1,128,463 1,135,629 
Savings555,552 559,267 
Time1,033,424 957,398 
Total deposits$6,323,984 $6,309,529 


NOTE 7 – SHORT-TERM BORROWINGS
The following table presents the distribution of securities sold under agreements to repurchase and federal funds purchased and the related weighted average interest rates as of March 31, 2024:
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 %
NOTE 8 – FHLB ADVANCES AND OTHER BORROWINGS
The following table summarizes our FHLB advances and other borrowings as of March 31, 2024 and December 31, 2023:
(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 2024
155,000 160,000 
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 
    The Company’s advances from the FHLB are collateralized by a blanket collateral agreement of qualifying mortgage and home equity line of credit loans and certain commercial real estate loans totaling approximately $3.01 billion and $2.98 billion at March 31, 2024 and December 31, 2023, respectively.
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NOTE 9 – SUBORDINATED DEBT
The following table summarizes the Company’s subordinated debt at March 31, 2024 and December 31, 2023:
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 rate
3-month SOFR plus 3.61%
3-month SOFR plus 4.05%
Interest payment termsSemiannuallySemiannually
The value of subordinated debentures have been reduced by the debt issuance costs, which are being amortized on a straight line basis through the earlier of the redemption option or maturity date. All of the subordinated debentures above may be included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
NOTE 10 – EARNINGS PER COMMON SHARE
Earnings per common share is calculated utilizing the two-class method. Basic earnings per common share is calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of shares adjusted for the dilutive effect of common stock awards. Presented
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below are the calculations for basic and diluted earnings per common share for the three months ended March 31, 2024 and 2023:
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 computation excludes antidilutive stock options because the exercise prices of these stock options exceeded the average market prices of the Company's common shares for those respective periods.
NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
•Level 1: Unadjusted quoted prices for identical assets or liabilities traded in active markets.
•Level 2: Significant other observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.
•Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Investment securities. The fair value of investment securities available for sale are determined by quoted market prices, if available (Level 1). For investment securities available for sale where quoted prices are not available, fair values are
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calculated based on market prices of similar securities (Level 2). 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). Securities classified as Level 3 are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. There were no transfers between Levels 1, 2 or 3 during the period presented for assets measured at fair value on a recurring basis. The fair value of equity securities is determined using quoted prices or market prices for similar securities (Level 2).
Loans held for sale. The fair value of loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).
Derivative instruments. The fair value of derivative instruments are determined based on derivative valuation models using observable market data as of the measurement date (Level 2).
Loan servicing rights. In accordance with GAAP, the Company records impairment charges on loan servicing rights on a non-recurring basis when the carrying value exceeds the estimated fair value. The fair value of our servicing rights is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs, replacement reserves and other economic factors which are estimated based on current market conditions (Level 3).
Nonperforming loans. All of our nonaccrual loans are considered nonperforming and are reviewed individually for the amount of impairment, if any. We measure collateral dependent nonperforming loans based on the estimated fair value of such collateral. In cases where the Company has an agreed upon selling price for the collateral, the fair value is set at the selling price (Level 1). The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral (Level 2). When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable (Level 3). The nonperforming loans categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, cash flows discounted at the effective loan rate, and management’s judgment.
Other Real Estate Owned. OREO is initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost basis. After foreclosure, OREO is held for sale and is carried at the lower of cost or fair value less estimated costs of disposal. Fair value for OREO is based on an appraisal performed upon foreclosure. Adjustments are routinely 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).

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Assets and liabilities measured and recorded at fair value, including financial assets for which the Company has elected the fair value option, on a recurring and nonrecurring basis at 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 — 
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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 assets measured on a nonrecurring basis 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 nonrecurring 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 collectability
25.80% - 100.00% (51.90%)
December 31, 2023
Nonperforming loans$669 Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability
24.38% - 100.00% (27.46%)
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.
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The Company has elected the fair value option for newly originated residential loans held for sale. These loans 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 for the three 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 of certain financial instruments not carried at fair value at 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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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 measure 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 12 – 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-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 March 31, 2024 and December 31, 2023 were as follows:
(dollars in thousands)March 31, 2024December 31, 2023
Commitments to extend credit$827,049 $855,489 
Financial guarantees – standby letters of credit23,689 22,745 
The Company establishes a mortgage repurchase liability to reflect management’s estimate of losses on loans for which the Company could have a repurchase obligation based on the volume of loans sold in 2024 and years prior, borrower default expectations, historical investor repurchase demand and appeals success rates, and estimated loss severity. Loans repurchased from investors are initially recorded at fair value, which becomes the Company’s new accounting basis. Any difference between the loan’s fair value and the outstanding principal amount is charged or credited to the mortgage repurchase liability, as appropriate. Subsequent to repurchase, such loans are carried in loans receivable. There were no losses as a result of make-whole requests and loan repurchases for the three months ended March 31, 2024 and 2023. The liability for unresolved repurchase demands totaled $0.1 million at both March 31, 2024 and December 31, 2023.
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NOTE 13 – SEGMENT INFORMATION
The Company's reportable segments are comprised of strategic business units primarily based upon industry categories and, to a lesser extent, the core competencies relating to product origination, distribution methods, operations and servicing. Segment determination also considers organizational structure and is consistent with the presentation of financial information to the chief operating decision maker to evaluate segment performance, develop strategy and allocate resources. The Company's chief operating decision maker is the Chief Executive Officer of the Company. Management has determined that the Company has three reportable segments consisting of Banking, Wealth Management and Corporate.
The Banking segment provides a wide range of financial products and services to consumers and businesses, including commercial, commercial real estate, mortgage and other consumer loan products; commercial equipment financing; mortgage loan sales and servicing; letters of credit; various types of deposit products, including checking, savings and time deposit accounts; merchant services; and corporate treasury management services.
The Wealth Management segment consists of trust and fiduciary services, brokerage and retirement planning services.
The 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.
Transactions between segments consist primarily of 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 for the three months ended March 31, 2024 and 2023 were as 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 
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NOTE 14 – 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 also earns investment advisory fees through its SEC registered investment advisory subsidiary. The Company’s performance obligation in both of these instances is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and contractually determined fee schedules. Payment is generally received a few days after month end through a direct charge to each customer’s account. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Fees generated from transactions executed by the Company’s third party broker dealer are remitted to the Company on a monthly basis for that month’s transactional activity.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of fees received under depository agreements with customers to provide access to deposited funds, serve as custodian of deposited funds, and when applicable, pay interest on deposits. These service charges primarily include non-sufficient fund fees and other account related service charges. Non-sufficient fund fees are earned when a depositor presents an item for payment in excess of available funds, and the Company, at its discretion, provides the necessary funds to complete the transaction. The Company generates other account related service charge revenue by providing depositors proper safeguard and remittance of funds as well as by delivering optional services for depositors, such as check imaging or treasury management, that are performed upon the depositor’s request. The Company’s performance obligation for the proper safeguard and remittance of funds, monthly account analysis and any other monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is typically received immediately or in the following month through a direct charge to a customer’s account.
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Interchange Revenue
Interchange revenue includes debit / credit card income and ATM user fees. Card income is primarily comprised of interchange fees earned for standing ready to authorize and providing settlement on card transactions processed through the MasterCard interchange network. The levels and structure of interchange rates are set by MasterCard and can vary based on cardholder purchase volumes. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with completion of the Company’s performance obligation, the transaction processing services provided to the cardholder. Payment is typically received immediately or in the following month. ATM fees are primarily generated when a Company cardholder withdraws funds from a non-Company ATM or a non-Company cardholder withdraws funds from a Company ATM. The Company satisfies its performance obligation for each transaction at the point in time when the ATM withdrawal is processed.
Other Noninterest Income
The other noninterest income revenue streams within the scope of Topic 606 consist of merchant services revenue, safe deposit box rentals, wire transfer fees, paper statement fees, check printing commissions, gain on sales of other real estate owned and other noninterest related fees. Revenue from the Company’s merchant services business consists principally of transaction and account management fees charged to merchants for the electronic processing of transactions. These fees are net of interchange fees paid to the credit card issuing bank, card company assessments, and revenue sharing amounts. Account management fees are considered earned at the time the merchant’s transactions are processed or other services are performed. Fees related to the other components of other noninterest income within the scope of Topic 606 are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at the point in time the customer uses the selected service to execute a transaction.
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of March 31, 2024, as compared to December 31, 2023, and operating results for the three months ended March 31, 2024 and 2023. These comments should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes appearing elsewhere herein and our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on 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 under the Private Securities Litigation Reform Act of 1995. These statements are subject to many risks and uncertainties, including changes in interest rates and other general economic, business and political conditions, including prevailing interest rates and the rate of inflation; 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.
Critical Accounting Policies
The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under current circumstances. These estimates form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on the Company’s reported financial position and results of operations are set forth in “Note 1 – Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2023.
Significant Developments and Transactions
Each item listed below 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 December 31, 2023, and may affect the comparability of financial information we report in future fiscal periods.
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 surrendered certain low-yielding life insurance policies and purchased additional policies. The Company recognized a $4.5 million tax charge related to the surrender of the policies.

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


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Results of Operations
Overview. The following table sets forth condensed income statement information of the Company for the three months ended March 31, 2024 and 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 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%, the 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, on a tax-equivalent basis, decreased to $56.1 million compared to $60.7 million for the three months ended March 31, 2023. The tax-equivalent net interest margin decreased to 3.18% for the first quarter of 2024 compared to 3.39% for the first quarter of 2023.
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Average Balance Sheet, Interest and Yield/Rate Analysis. The following tables present the average balance sheets, interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended March 31, 2024 and 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.
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 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.
(3)Net interest margin during the periods presented represents: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.

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Interest Rates and Operating Interest Differential. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. Changes which are not due solely to volume or rate have been allocated proportionally to the change due to volume and the change due to rate.
Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023
Change due to:Interest
Variance
(tax-equivalent basis, dollars in thousands)VolumeRate
Earning assets:
Federal funds sold and cash investments$(196)$167 $(29)
Investment securities:
Taxable investment securities1,846 2,963 4,809 
Investment securities exempt from federal income tax(210)114 (96)
Total securities1,636 3,077 4,713 
Loans:
Loans(3,987)5,523 1,536 
Loans exempt from federal income tax(80)36 (44)
Total loans(4,067)5,559 1,492 
Loans held for sale26 13 39 
Nonmarketable equity securities(210)102 (108)
Total earning assets$(2,811)$8,918 $6,107 
Interest-bearing liabilities:
Checking and money market deposits$(481)$6,763 $6,282 
Savings deposits(57)291 234 
Time deposits989 3,200 4,189 
Brokered time deposits1,501 603 2,104 
Total interest-bearing deposits1,952 10,857 12,809 
Short-term borrowings179 632 811 
FHLB advances and other borrowings(2,349)(621)(2,970)
Subordinated debt(90)— (90)
Trust preferred debentures23 137 160 
Total interest-bearing liabilities$(285)$11,005 $10,720 
Net interest income$(2,526)$(2,087)$(4,613)
Interest Income. Interest income, on a tax-equivalent basis, increased $6.1 million to $101.9 million in the three months ended March 31, 2024 as compared to the same quarter in 2023, 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 $178.9 million increase in investment securities.
Average loans decreased $308.4 million in the first quarter of 2024 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 to $1.2 million in the first quarter of 2024.
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Average commercial real estate loans and leases also decreased this quarter by $44.8 million and $37.5 million, respectively, compared to prior year's first quarter. Average construction loans increased this quarter by $136.9 million, compared to the 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 LendingPoint.
Interest Expense. Interest expense increased $10.7 million to $45.8 million for the three months ended March 31, 2024, compared to the three months ended March 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 deposits increased $12.8 million to $39.2 million for the three months ended March 31, 2024 from the comparable period in 2023. The increase was primarily due to an increase in 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 FHLB advances and other borrowings decreased $3.0 million for the three months ended March 31, 2024, from the comparable period in 2023. Average balances decreased $227.2 million for the three months ended March 31, 2024, from the comparable period in 2023, as loan paydowns and increases brokered deposits replaced this funding source.
Interest expense on trust preferred debentures increased $0.2 million for the three months ended March 31, 2024, from the comparable period in 2023, due to interest rate increases, as these debt instruments reprice quarterly.
Provision for Credit Losses. The Company's provision for credit losses on loans was $14.0 million for the three months ended March 31, 2024, compared to $3.1 million for the three months ended March 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 quarter totaled $4.4 million compared to $2.1 million for the comparable quarter of 2023.
The provision for credit losses on loans recognized during the three months ended 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 loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.
Noninterest Income. Noninterest income increased 34.3% for the three months ended March 31, 2024, compared to the same period one year prior. The following table sets forth the major components of our noninterest income for the three months ended March 31, 2024 and 2023:
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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Company-owned life insurance income. Income on company-owned life insurance income increased $0.9 million for the three months ended March 31, 2024, as compared to the 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 2023.
Loss on sale of investment 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 for 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 $3.7 million related to Greensky portfolio. In addition, we recognized amortization expense of $0.6 million on our commercial serving portfolio in the current quarter but no expense in the first quarter of 2023, as the portfolio was classified as held for sale.
Noninterest Expense. The following table sets forth the major components of noninterest expense for the three months ended March 31, 2024 and 2023:
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 
    Total noninterest expense increased $0.4 million, or 0.9%, in the three months ended March 31, 2024, as compared to the same period of 2023.    
Income Tax Expense. Income tax expense was $4.4 million for the three months ended March 31, 2024, as compared to $6.9 million for the three months ended March 31, 2023. The resulting effective tax rates were 23.9% and 24.0% for the three months ended March 31, 2024 and 2023, respectively.
Financial Condition
Assets. Total assets were $7.83 billion at March 31, 2024, as compared to $7.87 billion at December 31, 2023.
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Loans. The loan portfolio is the largest category of our assets. The following table presents the balance and associated percentage of each major category in our loan portfolio at March 31, 2024 and December 31, 2023:
March 31, 2024December 31, 2023
(dollars in thousands)BalancePercentBalancePercent
Loans:
Commercial:
Equipment finance loans$494,068 8.3 %$531,143 8.7 %
Equipment finance leases455,879 7.7 473,350 7.7 
Commercial FHA lines8,035 0.1 — — 
Other commercial loans913,564 15.3 951,387 15.5 
Total commercial loans and leases1,871,546 31.4 1,955,880 31.9 
Commercial real estate2,397,113 40.2 2,406,845 39.3 
Construction and land development474,128 8.0 452,593 7.4 
Residential real estate378,583 6.4 380,583 6.2 
Consumer837,092 14.0 935,178 15.2 
Total loans, gross5,958,462 100.0 %6,131,079 100.0 %
Allowance for credit losses on loans(78,057)(68,502)
Total loans, net$5,880,405 $6,062,577 

Total loans decreased $172.6 million to $5.96 billion at March 31, 2024, as compared to December 31, 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 our construction and land development portfolio was primarily driven by draws on existing lines.
Consumer loans decreased $98.1 million to $837.1 million at March 31, 2024 compared to December 31, 2023, due to loan payoffs and a cessation in loans originated through GreenSky. Our Greensky-originated loan balances decreased $77.5 million during the first quarter of 2024 to $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 that were originated through LendingPoint, which will continue to be serviced by LendingPoint.
The principal segments of our loan portfolio are discussed below:
Commercial loans. We provide a mix of variable and fixed rate commercial loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and farm operations. Commercial loans generally include lines of credit and loans with maturities of five years or less. The loans are generally made with business operations as the primary source of repayment, but may also include collateralization by inventory, accounts receivable and equipment, and generally include personal guarantees. The commercial loan category also includes loans originated by the equipment financing business that are secured by the underlying equipment.
Commercial real estate loans. Our commercial real estate loans consist of both real estate occupied by the borrower for ongoing operations and non-owner occupied real estate properties. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner occupied offices, warehouses and production facilities, office buildings, hotels, mixed-use residential and commercial facilities, retail centers, multifamily properties and assisted living facilities. Our commercial real estate loan portfolio also includes farmland loans. Farmland loans are generally made to a borrower actively involved in farming rather than to passive investors.
Construction and land development loans. Our construction and land development loans are comprised of residential construction, commercial construction and land acquisition and development loans. Interest reserves are generally established on real estate construction loans.


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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 portfolios 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 and $153.8 million at March 31, 2024 and December 31, 2023, respectively, primarily located in suburban locations in Illinois and Missouri.
Residential real estate loans. Our residential real estate loans, secured by residential 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.
Lease financing. Our equipment leasing business provides financing leases to varying types of businesses nationwide for purchases of business equipment and software. The financing is secured by a first priority interest in the financed asset and generally requires monthly payments.
The following table shows the contractual maturities of our loan portfolio and the distribution between fixed and adjustable interest rate loans at March 31, 2024:
March 31, 2024
Within One YearOne Year to Five YearsFive Years to 15 YearsAfter 15 Years
(dollars in thousands)Fixed RateAdjustable
Rate		Fixed RateAdjustable
Rate		Fixed RateAdjustable
Rate		Fixed RateAdjustable
Rate		Total
Commercial$106,058 $427,010 $541,137 $78,344 $124,373 $91,298 $— $47,447 $1,415,667 
Commercial real estate330,647 312,529 955,687 243,948 355,598 175,316 5,530 17,858 2,397,113 
Construction and land development74,590 97,996 94,159 155,958 2,647 45,858 100 2,820 474,128 
Total commercial loans511,295 837,535 1,590,983 478,250 482,618 312,472 5,630 68,125 4,286,908 
Residential real estate4,275 5,702 8,050 18,306 24,095 36,980 169,877 111,298 378,583 
Consumer3,343 53 687,572 113,182 32,942 — — — 837,092 
Lease financing24,092 — 344,661 — 87,126 — — — 455,879 
Total loans$543,005 $843,290 $2,631,266 $609,738 $626,781 $349,452 $175,507 $179,423 $5,958,462 
Loan Quality
We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio. Our underwriting policies and practices govern the risk profile, credit and geographic concentration for our loan portfolio. We also have what we believe to be a comprehensive methodology to monitor these credit quality standards, including a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level.
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Analysis of the Allowance for 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 category:
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 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.
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 allocated to commercial loans totaled $21.3 million, or 1.51% of total commercial loans, at March 31, 2024, compared to $21.8 million, or 1.47%, at December 31, 2023. Modeled expected credit losses increased $0.2 million and qualitative factor adjustments related to commercial loans decreased $0.3 million. Specific allocations for commercial loans that were evaluated for expected credit losses on an individual basis decreased $0.4 million from $1.8 million at December 31, 2023.
The allowance allocated to commercial real estate loans totaled $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 specific reserve of $8.0 million on one large construction and land development loan recognized in our first current period provision for
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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 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 2 
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-off against the allowance. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Collateral value is determined using updated appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is determined to be other-than-temporary. Recoveries on loans previously charged-off are added to the allowance.
Charge-offs 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.

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Nonperforming Loans. The following table sets forth our nonperforming assets by asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest. The balances of nonperforming loans reflect the net investment in these assets.
(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 the increase. Of these, three loans totaling $40.8 million are multi-family construction or multi-family projects.
We did not recognize interest income on nonaccrual loans during the three months ended March 31, 2024 or 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.
The following table presents the change in our non-performing loans for the three months ended March 31, 2024:
(dollars in thousands)
Year Ended
March 31, 2024
Balance, beginning of period$56,351 
New nonperforming loans56,119 
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$104,979 
Investment Securities. Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk. The types and maturities of securities purchased are primarily based on our current and projected liquidity and interest rate sensitivity positions. In the periods presented, all investment securities of the Company are classified as available for sale and, therefore, the book value of investment securities is equal to the fair market value.
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The following table sets forth the book value and associated percentage of each category of investment securities at March 31, 2024 and December 31, 2023.
March 31, 2024December 31, 2023
(dollars in thousands)BalancePercentBalancePercent
Investment securities available for sale:                
U.S. Treasury securities$— — %$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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The following table sets forth the book value, maturities and weighted average yields for our investment portfolio at March 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 tax-exempt securities are presented on a tax-equivalent basis assuming a federal income tax rate of 21%.
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The table below presents the credit ratings for our investment securities classified as available for sale, at fair value, at March 31, 2024.
AmortizedFairAverage credit rating
(dollars in thousands)costValueAAAAA+/-A+/-BBB+/-<BBB-Not Rated
Investment securities available for sale:
U.S. government sponsored entities and U.S. agency securities69,487 67,723 47,417 20,306 — — — — 
Mortgage-backed securities - agency763,902 681,520 39,740 641,780 — — — — 
Mortgage-backed securities - non-agency93,146 89,528 13,786 75,742 — — — — 
State and municipal securities66,902 60,630 788 59,842 — — — — 
Collateralized loan obligations33,558 33,614 20,246 13,368 — — — — 
Corporate securities117,145 107,391 — 63,291 21,984 16,325 5,791 — 
Total investment securities, available for sale$1,144,140 $1,040,406 $121,977 $874,329 $21,984 $16,325 $5,791 $— 
Liabilities. At March 31, 2024, liabilities totaled $7.04 billion compared to $7.08 billion at December 31, 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-bearing and interest-bearing demand, savings and time deposit accounts.
Total deposits increased $14.5 million to $6.32 billion at March 31, 2024, as compared to December 31, 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.
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 as of March 31, 2024:
(dollars in thousands)Amount
Three months or less$58,488 
Three to six months24,419 
Six to 12 months 7,301 
After 12 months8,763 
Total$98,971 
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Short-term Borrowings. Short-term borrowings, consisting of federal funds purchased and securities sold under agreements to repurchase totaled $214.4 million and $34.9 million at March 31, 2024 and December 31, 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. FHLB advances and other borrowings totaled $255.0 million and $476.0 million as of March 31, 2024 and December 31, 2023, respectively. The decrease in borrowings was due to FHLB advances totaling $251.0 million being repaid in accordance with contract terms.
Capital Resources and Liquidity Management
Capital Resources. Shareholders’ equity is influenced primarily by earnings, dividends, issuances and redemptions of common and preferred stock and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on available-for-sale investment securities and cash flow hedges.
Shareholders’ equity decreased $0.8 million to $791.0 million at March 31, 2024 as compared to December 31, 2023. The change in shareholders’ equity was the result of the generation of net income of $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 increase in accumulated other comprehensive losses of $4.7 million.
On December 5, 2023, the Company’s board of directors authorized a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2024. As of March 31, 2024, the Company 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 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-term and long-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-term borrowings. To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis.
Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction, which represents the amount of the Bank’s obligation. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. Investment securities with a carrying amount of $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.
The table below presents our sources of liquidity as of March 31, 2024 and December 31, 2023:
(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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The Company is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. The Company’s main source of funding is dividends declared and paid to it by the Bank. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to the Company. Management believed at March 31, 2024, that these limitations will not impact our ability to meet our ongoing short-term cash obligations.
Regulatory Capital Requirements
We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.
In December 2018, the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the CECL accounting standard. In March 2020, the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company is adopting the capital transition relief over the permissible five-year period.
At 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 risk-based capital ratio and Common equity tier 1 risk-based capital ratio include the capital conservation buffer of 2.5%.
Quantitative and Qualitative Disclosures About Market Risk
Market Risk. Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price risk from investments in securities backed by mortgage loans.
Interest Rate Risk. Interest rate risk is the risk to earnings arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity
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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 SOFR (basis risk).
We actively manage interest rate risk, as changes in market interest rates may have a significant impact on reported earnings. Changes in market interest rates may result in changes in the fair market value of our financial instruments, cash flows, and net interest income. We seek to achieve consistent growth in net interest income while managing volatility arising from shifts in market interest rates. Our Board of Directors’ Risk Policy and Compliance Committee oversees interest rate risk, as well as the establishment of risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income. The Committee meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits.
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.
An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.
Interest rate risk measurement is calculated and reported to the Risk Policy and Compliance Committee at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
We use NII at Risk to model interest rate risk utilizing various assumptions for assets, liabilities, and derivatives. NII at Risk uses net interest income simulation analysis which involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. The sensitivity of net interest income to changes in interest rates is measured using numerous interest rate scenarios including shocks, gradual ramps, curve flattening, curve steepening as well as forecasts of likely interest rates scenarios. Modeling the sensitivity of net interest earnings to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. To the extent that actual performance is different than what was assumed, actual net interest earnings sensitivity may be different than projected. We use a data warehouse to study interest rate risk at a transactional level and use various ad-hoc reports to continuously refine assumptions. Assumptions and methodologies regarding administered rate liabilities (e.g., savings accounts, money market accounts and interest-bearing checking accounts), balance trends, and repricing relationships reflect our best estimate of expected behavior and these assumptions are reviewed periodically.
The following table shows NII at Risk at the dates indicated:
Net interest income sensitivity (Shocks)
Immediate change in rates
(dollars in thousands)-200-100+100+200
March 31, 2024:            
Dollar change$497 $(295)$(768)$(2,519)
Percent change0.2 %(0.1)%(0.3)%(1.1)%
December 31, 2023:
Dollar change$539 $(293)$(1,424)$(3,162)
Percent change0.2 %(0.1)%(0.6)%(1.3)%
We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The NII at Risk results included in the table above reflect the analysis used quarterly by management. It models -200, −100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next twelve months. We were within board policy limits for all scenarios at March 31, 2024.
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Tolerance levels for risk management require the continuing development of remedial plans to maintain residual risk within approved levels as we adjust the balance sheet. NII at Risk reported at March 31, 2024 projects that our earnings exhibit increasing profitability in a declining rate environment, consistent with our modeling at December 31, 2023. Throughout the course 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 future. These two aspects are the primary drivers of moving to a virtually neutral position as measured in the +/- 100 basis point rate 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.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The quantitative and qualitative disclosures about market risk are included under “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk”.
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ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. The Company’s management, including our President and
Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act)), as of the end of the period covered by this report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
In the normal course of business, we are named or threatened to be named as a defendant in various lawsuits, none of which we expect to have a material effect on the Company. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business (including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security, anti-money laundering and anti-terrorism), we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk. There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.
ITEM 1A– RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2023.
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ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the first quarter of 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 
(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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ITEM 6 – EXHIBITS
Exhibit No.Description
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 March 31, 2024 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements – filed herewith.
104
The cover page from Midland States Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended March 31, 2024 formatted in inline XBRL and contained in Exhibit 101.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Midland States Bancorp, Inc.
Date: May 9, 2024
By:/s/Jeffrey G. Ludwig
Jeffrey G. Ludwig
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 2024
By:/s/Eric T. Lemke
Eric T. Lemke
Chief Financial Officer
(Principal Financial Officer)

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