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 endedSeptember 30, ~~2017~~

2022

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

For the transition period from ______________ to _______________

Commission File Number001-35272

MIDLAND STATES BANCORP, INC.

(Exact name of registrant as specified in its charter)

~~ILLINOIS~~

Illinois

37-1233196

(State of other jurisdiction of incorporation or organization)

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

1201 Network Centre Drive

~~Effingham, IL~~

62401

Effingham, IL

(Zip Code)

(Address of principal executive offices)

~~(Zip Code)~~

(217)342-7321

(Registrant’s telephone number, including area code)

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


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

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

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

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

Large accelerated filer ☐

☐

Accelerated filer ☐

☒

Non-accelerated filer ☒

☐

Smaller reporting company

☐

Emerging growth company ☒

☐

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

☐

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

As of October ~~31, 2017,~~21, 2022, the Registrant had ~~19,098,890~~22,149,470 shares of outstanding common stock, $0.01 par value.

Table of Contents

MIDLAND STATESBANCORP, INC.

TABLE OF CONTENTS


				Page
PART I. FINANCIAL INFORMATION			~~Page~~
~~PART I.FINANCIAL INFORMATION~~

Item 1.	Financial ~~Statements~~Statements:

		Consolidated Balance Sheets at September 30, ~~2017~~2022 (Unaudited) and December 31, ~~2016~~ 2021	3 1

		Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, ~~2017~~ 2022 and ~~2016~~ 2021	4 2

		Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~ 2021	5 3

		Consolidated Statements of Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~ 2021	6 4

		Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, ~~2017~~ 2022 and ~~2016~~ 2021	7 5

		Notes to Consolidated Financial Statements (Unaudited)	8 6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	44 44

Item 3.		Quantitative and Qualitative Disclosures about Market Risk	65 70

Item 4.		Controls and Procedures	66 70

PART II.OTHER INFORMATION

Item 1.		Legal Proceedings	66 70

Item 1A.		Risk Factors	66 71

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	67 71

Item 6.		Exhibits	68 72

SIGNATURES			73

Table of Contents

PART I – FINANCIAL INFORMATION


Consolidated Balance Sheets			3
Consolidated Statements of Income			4
Consolidated Statements of Comprehensive Income			5
Consolidated Statements of Shareholders' Equity			6
Consolidated Statements of Cash Flows			7
Note 1: Business Description			8
Note 2: Basis of Presentation and Summary of Significant Accounting Policies			8
Note 3: Acquisitions			9
Note 4: Investment Securities			10
Note 5: Loans			13
Note 6: Premises, Equipment and Leases			26
Note 7: Loan Servicing Rights			28
Note 8: Goodwill and Intangible Assets			28
Note 9: Derivative Instruments			29
Note 10: Deposits			31
Note 11: Short-Term Borrowings			31
Note 12: FHLB Advances and Other Borrowings			32
Note 13: Subordinated Debt			32
Note 14: Preferred Stock			32
Note 15: Earnings Per Common Share			33
Note 16: Fair Value of Financial Instruments			34
Note 17: Commitments, Contingencies and Credit Risk			39
Note 18: Segment Information			40
Note 19: Revenue From Contracts with Customers			42
N ote 20: Subsequent Events			43

Table of Contents

ITEM 1 – FINANCIAL STATEMENTS

MIDLAND STATES BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)


	September 30,		December 31,
	2017		2016			September 30, 2022		December 31, 2021
	(unaudited)					(unaudited)
Assets					Assets
Cash and due from banks	$	180,807	$	189,543	Cash and due from banks	$	309,531	$	673,297
Federal funds sold		2,765		1,173	Federal funds sold	3,657		7,074
Cash and cash equivalents		183,572		190,716	Cash and cash equivalents	313,188		680,371
Investment securities available for sale, at fair value		396,985		246,339
Investment securities held to maturity, at amortized cost (fair value of $75,142 and $81,952 at September 30, 2017 and December 31, 2016, respectively)		70,867		78,672
Investment securities available for sale, at fair value (allowance for credit losses of $0 and $221 at September 30, 2022 and December 31, 2021, respectively)					Investment securities available for sale, at fair value (allowance for credit losses of $0 and $221 at September 30, 2022 and December 31, 2021, respectively)	681,889		906,603
Equity securities, at fair value					Equity securities, at fair value	8,615		9,529
Loans		3,157,972		2,319,976	Loans	6,198,451		5,224,801
Allowance for loan losses		(16,861)		(14,862)
Allowance for credit losses on loans					Allowance for credit losses on loans	(58,639)		(51,062)
Total loans, net		3,141,111		2,305,114	Total loans, net	6,139,812		5,173,739
Loans held for sale, at fair value		35,874		70,565
Loans held for sale					Loans held for sale	4,338		32,045
Premises and equipment, net		80,941		66,692	Premises and equipment, net	77,519		79,220

Other real estate owned		6,379		3,560	Other real estate owned	11,141		12,059
Nonmarketable equity securities		34,391		19,485	Nonmarketable equity securities	39,696		36,341
Accrued interest receivable		11,673		8,202	Accrued interest receivable	17,537		19,470
Mortgage servicing rights, at lower of cost or market		56,299		68,008
Mortgage servicing rights held for sale		10,618		—
Intangible assets		17,966		7,187
Loan servicing rights, at lower of cost or fair value					Loan servicing rights, at lower of cost or fair value	1,297		28,865
Commercial FHA mortgage loan servicing rights held for sale					Commercial FHA mortgage loan servicing rights held for sale	23,995		—
Goodwill		97,351		48,836	Goodwill	161,904		161,904
Cash surrender value of life insurance policies		112,591		74,226
Accrued income taxes receivable		2,209		5,862
Deferred tax assets, net		22,845		—
Other intangible assets, net					Other intangible assets, net	22,198		24,374
Company-owned life insurance					Company-owned life insurance	149,648		148,378
Other assets		66,089		40,259	Other assets	169,100		130,907
Total assets	$	4,347,761	$	3,233,723	Total assets	$	7,821,877	$	7,443,805
Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Liabilities:					Liabilities:
Deposits:					Deposits:
Noninterest-bearing	$	674,118	$	562,333
Interest-bearing		2,440,349		1,842,033
Noninterest-bearing demand deposits					Noninterest-bearing demand deposits	$	2,025,237	$	2,245,701
Interest-bearing deposits					Interest-bearing deposits	4,370,015		3,864,947
Total deposits		3,114,467		2,404,366	Total deposits	6,395,252		6,110,648
Short-term borrowings		153,443		131,557	Short-term borrowings	58,518		76,803
FHLB advances and other borrowings		488,870		237,518
Federal Home Loan Bank advances and other borrowings					Federal Home Loan Bank advances and other borrowings	360,000		310,171
Subordinated debt		54,581		54,508	Subordinated debt	139,370		139,091
Trust preferred debentures		45,267		37,405	Trust preferred debentures	49,824		49,374
Accrued interest payable		2,355		1,045
Deferred tax liabilities, net		—		8,598
Other liabilities		38,089		36,956

Accrued interest payable and other liabilities					Accrued interest payable and other liabilities	79,634		93,881
Total liabilities		3,897,072		2,911,953	Total liabilities	7,082,598		6,779,968

Shareholders’ Equity:					Shareholders’ Equity:
Preferred stock, Series H, $2 par value, $1,000 per share liquidation value; 2,636 shares authorized, issued and outstanding at September 30, 2017		3,015		—
Common stock, $0.01 par value; 40,000,000 shares authorized; 19,093,153 and 15,483,499 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		191		155
Preferred stock, $2.00 par value; 4,000,000 shares authorized; 115,000 Series A shares, $1,000 per share liquidation preference, issued and outstanding at September 30, 2022					Preferred stock, $2.00 par value; 4,000,000 shares authorized; 115,000 Series A shares, $1,000 per share liquidation preference, issued and outstanding at September 30, 2022	110,548		—
Common stock, $0.01 par value; 40,000,000 shares authorized; 22,074,740 and 22,050,537 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively					Common stock, $0.01 par value; 40,000,000 shares authorized; 22,074,740 and 22,050,537 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	221		221
Capital surplus		329,934		209,712	Capital surplus	447,672		445,907
Retained earnings		116,373		112,513	Retained earnings	259,221		212,472
Accumulated other comprehensive income (loss)		1,176		(610)
Accumulated other comprehensive (loss) income, net of tax					Accumulated other comprehensive (loss) income, net of tax	(78,383)		5,237
Total shareholders’ equity		450,689		321,770	Total shareholders’ equity	739,279		663,837
Total liabilities and shareholders’ equity	$	4,347,761	$	3,233,723	Total liabilities and shareholders’ equity	$	7,821,877	$	7,443,805

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

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME—(UNAUDITED)

(dollars in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016			2022		2021		2022		2021
Interest income:									Interest income:
Loans:
Loans including fees:									Loans including fees:
Taxable	$	38,689	$	26,047	$	97,016	$	75,741	Taxable	$	72,901	$	52,699	$	192,430	$	159,743
Tax exempt		313		254		953		899	Tax exempt	527		615		1,589		1,935
Loans held for sale		438		858		1,926		2,401	Loans held for sale	60		107		357		810
Investment securities:									Investment securities:
Taxable		1,905		2,766		4,705		8,222	Taxable	3,765		3,396		11,717		10,127
Tax exempt		963		892		2,820		2,739	Tax exempt	628		899		2,162		2,474
Nonmarketable equity securities		331		174		788		504	Nonmarketable equity securities	550		558		1,521		1,847
Federal funds sold and cash investments		607		195		1,405		762	Federal funds sold and cash investments	1,125		216		1,764		454
Total interest income		43,246		31,186		109,613		91,268	Total interest income	79,556		58,490		211,540		177,390
Interest expense:									Interest expense:
Deposits		3,377		2,189		8,570		6,701	Deposits	10,249		2,584		16,220		8,759
Short-term borrowings		100		81		262		217	Short-term borrowings	28		21		73		65
FHLB advances and other borrowings		1,494		306		2,901		698
Federal Home Loan Bank advances and other borrowings									Federal Home Loan Bank advances and other borrowings	2,424		1,993		5,071		7,033
Subordinated debt		873		873		2,619		2,985	Subordinated debt	2,010		2,011		6,032		6,694
Trust preferred debentures		637		472		1,635		1,373	Trust preferred debentures	821		485		1,959		1,465
Total interest expense		6,481		3,921		15,987		11,974	Total interest expense	15,532		7,094		29,355		24,016
Net interest income		36,765		27,265		93,626		79,294	Net interest income	64,024		51,396		182,185		153,374
Provision for loan losses		1,489		1,392		3,480		3,146
Net interest income after provision for loan losses		35,276		25,873		90,146		76,148
Provision for credit losses:									Provision for credit losses:
Provision for credit losses on loans									Provision for credit losses on loans	6,974		—		15,847		3,950
Provision for credit losses on unfunded commitments									Provision for credit losses on unfunded commitments	—		—		956		(800)
Recapture of provision for other credit losses									Recapture of provision for other credit losses	—		(184)		(221)		(224)
Total provision for credit losses									Total provision for credit losses	6,974		(184)		16,582		2,926
Net interest income after provision for credit losses									Net interest income after provision for credit losses	57,050		51,580		165,603		150,448
Noninterest income:									Noninterest income:
Commercial FHA revenue		3,777		3,260		14,625		18,360
Wealth management revenue									Wealth management revenue	6,199		7,175		19,481		19,635

Residential mortgage banking revenue		2,317		4,990		7,563		7,148	Residential mortgage banking revenue	210		1,287		1,193		4,423
Wealth management revenue		3,475		1,941		9,754		5,596
Service charges on deposit accounts		2,133		1,044		4,147		2,916	Service charges on deposit accounts	2,597		2,268		6,969		6,010
Interchange revenue		1,724		920		3,816		2,829	Interchange revenue	3,531		3,651		10,401		10,823
FDIC loss-sharing expense		—		—		—		(1,661)
Gain on sales of investment securities, net		98		39		219		315
Other-than-temporary impairment on investment securities		—		—		—		(824)
Gain on sales of other real estate owned		22		33		54		112
(Loss) gain on sales of investment securities, net									(Loss) gain on sales of investment securities, net	(129)		160		(230)		537
Impairment on commercial mortgage servicing rights									Impairment on commercial mortgage servicing rights	—		(3,037)		(1,263)		(5,460)
Company-owned life insurance									Company-owned life insurance	929		869		2,788		2,592
Other income		1,857		2,710		5,186		6,781	Other income	2,489		2,770		6,713		8,816
Total noninterest income		15,403		14,937		45,364		41,572	Total noninterest income	15,826		15,143		46,052		47,376
Noninterest expense:									Noninterest expense:
Salaries and employee benefits		22,411		16,568		61,368		48,967	Salaries and employee benefits	22,889		22,175		67,404		64,774
Occupancy and equipment		4,144		3,271		10,800		9,815	Occupancy and equipment	3,850		3,701		11,094		11,437
Data processing		5,786		2,586		11,531		7,830	Data processing	6,093		6,495		18,048		18,776
FDIC insurance		565		388		1,403		1,350
Professional		4,151		1,877		10,285		5,151	Professional	1,693		1,738		5,181		9,472
Marketing		1,070		717		2,517		2,009	Marketing	1,026		860		2,447		2,037
Communications		723		546		1,655		1,609	Communications	587		689		1,934		2,335
Loan expense		629		314		1,531		1,351
Other real estate owned		146		179		725		748
Amortization of intangible assets		1,187		514		2,291		1,613	Amortization of intangible assets	1,361		1,445		4,077		4,430
Loss on mortgage servicing rights held for sale		3,617		—		3,617		—

Federal Home Loan Bank advances prepayment fees									Federal Home Loan Bank advances prepayment fees	—		—		—		3,677
Other expense		3,934		1,697		9,082		6,756	Other expense	5,997		4,189		15,534		12,374
Total noninterest expense		48,363		28,657		116,805		87,199	Total noninterest expense	43,496		41,292		125,719		129,312
Income before income taxes		2,316		12,153		18,705		30,521	Income before income taxes	29,380		25,431		85,936		68,512
Income taxes		280		4,102		4,640		10,562	Income taxes	5,859		5,883		19,783		10,302
Net income		2,036		8,051		14,065		19,959	Net income	$	23,521	$	19,548	$	66,153	$	58,210
Preferred stock dividends and premium amortization		27		—		46		—
Net income available to common shareholders	$	2,009	$	8,051	$	14,019	$	19,959
Per common share data:									Per common share data:
Basic earnings per common share	$	0.10	$	0.51	$	0.81	$	1.46	Basic earnings per common share	$	1.04	$	0.86	$	2.93	$	2.56
Diluted earnings per common share	$	0.10	$	0.51	$	0.78	$	1.43	Diluted earnings per common share	$	1.04	$	0.86	$	2.92	$	2.55
Weighted average common shares outstanding		19,265,409		15,578,703		17,274,746		13,637,997	Weighted average common shares outstanding	22,338,828		22,520,499		22,306,323		22,544,898
Weighted average diluted common shares outstanding		19,704,217		15,858,273		17,797,235		13,902,664	Weighted average diluted common shares outstanding	22,390,438		22,577,880		22,367,095		22,613,972

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

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME—(UNAUDITED)

(dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Net income

$
2,036

$
8,051

$
14,065

$
19,959

Other comprehensive income (loss):

Investment securities available for sale:

Unrealized gains (losses) that occurred during the period

305

(233)

3,245

5,789

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

(98)

(39)

(219)

(315)

Income tax effect

(94)

110

(1,188)

(2,203)

Change in investment securities available for sale, net of tax

113

(162)

1,838

3,271

Investment securities held to maturity:

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

(25)

(3)

(83)

(42)

Income tax effect

9

1

31

17

Change in investment securities held to maturity, net of tax

(16)

(2)

(52)

(25)

Cash flow hedges:

Change in fair value of interest rate swap

—

32

—

93

Income tax effect

—

(13)

—

(38)

Change in cash flow hedges, net of tax

—

19

—

55

Other comprehensive income (loss), net of tax

97

(145)

1,786

3,301

Total comprehensive income

$
2,133

$
7,906

$
15,851

$
23,260


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

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

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY—(UNAUDITED)

~~NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016~~

(dollars in thousands, except per share data)

Accumulated

other

Total

Preferred

Common

Capital

Retained

comprehensive

shareholders'

stock

stock

surplus

earnings

(loss) income

equity
Balances, December 31, 2016

$
—

$
155

$
209,712

$
112,513

$
(610)

$
321,770
Net income

—

—

—

14,065

—

14,065
Compensation expense for stock option grants

—

—

413

—

—

413
Amortization of restricted stock awards

—

—

599

—

—

599
Preferred dividends declared

—

—

—

(102)

—

(102)
Amortization of preferred stock premium

(56)

—

—

56

—
Common dividends declared ($0.60 per share)

—

—

—

(10,159)

—

(10,159)
Acquisition of CedarPoint Investment Advisors, Inc.

—

1

3,350

—

—

3,351
Acquisition of Centrue Financial Corporation

3,071

32

112,480

—

—

115,583
Issuance of common stock under employee benefit plans

—

3

3,380

—

—

3,383
Other comprehensive income

—

—

—

—

1,786

1,786
Balances, September 30, 2017

$
3,015

$
191

$
329,934

$
116,373

$
1,176

$
450,689

Balances, December 31, 2015

$
—

$
118

$
135,822

$
90,911

$
6,029

$
232,880
Cumulative effect of change in accounting principle

—

—

87

(87)

—

—
Balances, January 1, 2016

—

118

135,909

90,824

6,029

232,880
Net income

—

—

—

19,959

—

19,959
Compensation expense for stock option grants

—

—

315

—

—

315
Amortization of restricted stock awards

—

—

387

—

—

387
Common dividends declared ($0.54 per share)

—

—

—

(7,057)

—

(7,057)
Initial public offering of 3,590,065 shares of common stock, net of issuance costs

—

36

71,439

—

—

71,475
Issuance of common stock under employee benefit plans

—

—

489

—

—

489
Other comprehensive income

—

—

—

—

3,301

3,301
Balances, September 30, 2016

$
—

$
154

$
208,539

$
103,726

$
9,330

$
321,749


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

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

Balances, December 31, 2021	$	—	$	221	$	445,907	$	212,472	$	5,237	$	663,837
Net income	—		—		—		66,153		—		66,153
Other comprehensive loss	—		—		—		—		(83,620)		(83,620)
Issuance of preferred stock, net of offering costs	110,548		—		—		—		—		110,548
Common dividends declared ($0.87 per share)	—		—		—		(19,404)		—		(19,404)
Common stock repurchased	—		(1)		(1,108)		—		—		(1,109)
Share-based compensation expense	—		—		1,547		—		—		1,547
Issuance of common stock under employee benefit plans	—		1		1,326		—		—		1,327
Balances, September 30, 2022	$	110,548	$	221	$	447,672	$	259,221	$	(78,383)	$	739,279

Balances, June 30, 2021	$	—	$	224	$	455,215	$	182,361	$	10,386	$	648,186
Net income	—		—		—		19,548		—		19,548
Other comprehensive income	—		—		—		—		759		759
Common dividends declared ($0.28 per share)	—		—		—		(6,299)		—		(6,299)
Common stock repurchased	—		(2)		(5,238)		—		—		(5,240)
Share-based compensation expense	—		—		438		—		—		438
Issuance of common stock under employee benefit plans	—		—		452		—		—		452
Balances, September 30, 2021	$	—	$	222	$	450,867	$	195,610	$	11,145	$	657,844

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


Net income	—		—		—		58,210		—		58,210
Other comprehensive loss	—		—		—		—		(286)		(286)
Common dividends declared ($0.84 per share)	—		—		—		(18,927)		—		(18,927)
Common stock repurchased	—		(3)		(6,445)		—		—		(6,448)
Share-based compensation expense	—		—		1,424		—		—		1,424
Issuance of common stock under employee benefit plans	—		2		2,478		—		—		2,480
Balances, September 30, 2021	$	—	$	222	$	450,867	$	195,610	$	11,145	$	657,844

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

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS—(UNAUDITED)

(dollars in thousands)

Nine Months Ended

September 30,

2017

2016

Cash flows from operating activities:

Net income

$
14,065

$
19,959

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

Provision for loan losses

3,480

3,146

Depreciation on premises and equipment

3,666

3,816

Amortization of intangible assets

2,291

1,613

FDIC loss-sharing expense

—

1,661

Amortization of restricted stock awards

599

387

Compensation expense for stock option grants

413

315

Increase in cash surrender value of life insurance

(2,016)

(1,547)

Investment securities amortization, net

1,358

840

Other-than-temporary impairment on investment securities

—

824

Gain on sales of investment securities, net

(219)

(315)

Gain on sales of other real estate owned

(54)

(112)

Write-down of other real estate owned

171

219

Origination of loans held for sale

(630,601)

(894,445)

Proceeds from sales of loans held for sale

679,217

907,306

Gain on loans sold and held for sale

(20,844)

(28,827)

Amortization of mortgage servicing rights

4,254

4,410

Impairment of mortgage servicing rights

1,830

6,093

Loss on mortgage servicing rights held for sale

3,617

—

Net change in operating assets and liabilities:

Accrued interest receivable

(1,095)

(1,114)

Accrued interest payable

1,035

896

Accrued income taxes receivable

3,653

7,304

Other assets

159

460

Other liabilities

(2,341)

(2,620)

Net cash provided by operating activities

62,638

30,269

Cash flows from investing activities:

Investment securities available for sale:

Purchases

(221,617)

(64,396)

Sales

11,250

31,191

Maturities and payments

192,791

22,038

Investment securities held to maturity:

Purchases

(2,929)

(2,401)

Maturities

10,480

6,646

Net increase in loans

(160,266)

(325,009)

Purchases of premises and equipment

(5,261)

(1,410)

Purchase of bank-owned life insurance

—

(20,000)

Purchases of nonmarketable equity securities

(16,575)

(3,428)

Sales of nonmarketable equity securities

9,837

90

Proceeds from sales of other real estate owned

4,525

4,423

Net cash paid in acquisitions

(18,519)

—

Net cash used in investing activities

(196,284)

(352,256)

Cash flows from financing activities:

Net (decrease) increase in deposits

(29,766)

52,384

Net increase in short-term borrowings

7,452

30,751

Proceeds from FHLB borrowings

347,357

850,000

Payments made on FHLB borrowings

(229,857)

(652,500)

Proceeds from other borrowings, net of issuance costs

39,964

—

Payments made on other borrowings

(1,770)

—

Payments made on subordinated debt

—

(8,000)

Cash dividends paid on common stock

(10,159)

(7,057)

Cash dividends paid on preferred stock

(102)

—

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

—

71,475

Proceeds from issuance of common stock under employee benefit plans

3,383

489

Net cash provided by financing activities

126,502

337,542

Net (decrease) increase in cash and cash equivalents

$
(7,144)

$
15,555

Cash and cash equivalents:

Beginning of period

$
190,716

$
212,475

End of period

$
183,572

$
228,030

Supplemental disclosures of cash flow information:

Cash payments for:

Interest paid on deposits and borrowed funds

$
14,677

$
11,078

Income tax paid

637

157

Supplemental disclosures of noncash investing and financing activities:

Transfer of loans to other real estate owned

$
2,659

$
4,245

Transfer of premises and equipment to assets held for sale

2,858

—

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

10,618

—


	Nine months ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	66,153	$	58,210
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	16,582		2,926
Depreciation on premises and equipment	3,665		4,223
Amortization of intangible assets	4,077		4,430
Amortization of operating lease right-of-use asset	1,373		1,281
Amortization of loan servicing rights	2,202		2,497
Share-based compensation expense	1,547		1,424
Increase in cash surrender value of life insurance	(2,524)		(2,592)
Gain on proceeds from company-owned life insurance	(264)		—
Investment securities amortization, net	1,923		3,141
Loss (gain) on sales of investment securities, net	230		(537)
Loss (gain) on sales of other real estate owned	131		(418)
Impairment on other real estate owned	743		426
Origination of loans held for sale	(123,602)		(394,905)
Proceeds from sales of loans held for sale	252,078		634,445
Gain on sale of loans held for sale	(1,035)		(3,799)
Impairment on commercial mortgage servicing rights	1,263		5,460
Impairment on mortgage servicing rights held for sale	—		222

Net change in operating assets and liabilities:
Accrued interest receivable	1,969		1,502
Other assets	(37,534)		(21,279)
Accrued expenses and other liabilities	17,095		4,436
Net cash provided by operating activities	206,072		301,093
Cash flows from investing activities:
Purchases of investment securities available for sale	(100,115)		(338,456)
Proceeds from sales of investment securities available for sale	136,403		14,777
Maturities and payments on investment securities available for sale	71,305		164,213
Purchases of equity securities	(441)		(232)

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

Proceeds from sales of other real estate owned	561		9,089
Purchases of company-owned life insurance	—		(550)
Proceeds from settlements of company-owned life insurance	1,518		—
Net cash received (paid) on acquisition	60,275		(2,715)
Net cash used in investing activities	(900,971)		(85,189)
Cash flows from financing activities:
Net increase in deposits	204,810		500,360
Net decrease in short-term borrowings	(18,285)		(2,291)
Proceeds from FHLB borrowings	1,900,000		350,000
Payments made on FHLB borrowings and other borrowings	(1,850,000)		(689,000)
Payments made on subordinated debt	—		(31,075)


Redemption of Series G preferred stock	(171)		—
Proceeds from Series A preferred stock offering	110,548		—
Cash dividends paid on common stock	(19,404)		(18,927)
Common stock repurchased	(1,109)		(6,448)
Proceeds from issuance of common stock under employee benefit plans	1,327		2,480
Net cash provided by financing activities	327,716		105,099
Net (decrease) increase in cash and cash equivalents	(367,183)		321,003
Cash and cash equivalents:
Beginning of period	680,371		341,640
End of period	$	313,188	$	662,643
Supplemental disclosures of cash flow information:
Cash payments for:
Interest paid on deposits and borrowed funds	$	29,449	$	25,561
Income tax paid, net of refunds	22,014		(6,648)
Supplemental disclosures of noncash investing and financing activities:
Transfer of loans to loans held for sale	99,505		123,117
Transfer of loans to other real estate owned	517		583
Transfer of loan servicing rights, at lower of cost or market to loan servicing rights held for sale	23,995		—

Pending settlements on securities purchased	—		(62,923)

Theaccompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MIDLAND STATES BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(UNAUDITED)

~~Note~~

NOTE 1 – ~~Business Description~~

BUSINESS DESCRIPTION

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

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

planning services.

Our principal business activity has been lending to and accepting deposits from individuals, businesses, municipalities and other entities. We have derived income principally from interest ~~earned~~charged on loans ~~and leases~~ and, to a lesser extent, from interest and dividends earned on investment securities. We have also derived income from noninterest sources, such as: fees received in connection with various lending and deposit services; wealth management services; commercial Federal Housing Administration ("FHA") mortgage loan servicing; residential mortgage loan originations, sales and servicing; and, from time to time, gains on sales of assets. ~~Our income sources also include Love Funding’s commercial Federal Housing Administration (“FHA”) loan origination and servicing income.~~ Our principal expenses include interest expense on deposits and borrowings, operating expenses, such as salaries and employee benefits, occupancy and equipment expenses, data processing costs, professional fees and other noninterest expenses, provisions for ~~loan~~credit losses and income tax expense.

~~Initial Public Offering~~

On May 24, 2016, we completed our initial public offering and received gross proceeds of $67.0 million for the 3,044,252 shares of common stock sold by us in the offering. On June 6, 2016, we received additional gross proceeds of $12.0 million for the 545,813 shares of common stock sold when the underwriters fully exercised their option to purchase additional shares of common stock. After deducting underwriting discounts and offering expenses, we received total net proceeds of $71.5 million from the initial public offering.

~~Note~~

NOTE 2 – BASISOF PRESENTATION AND SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation ~~and Summary of Significant Accounting Policies~~

~~Basis of Presentation~~

The consolidated financial statements of the Company are unaudited and should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, filed with the Securities and Exchange Commission (the “SEC”) on ~~March 10, 2017.~~February 25, 2022. The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) and conform to predominant practices within the banking industry. ~~Management~~A discussion of these policies can be found in Note 1 – Summary of Significant Accounting Policies included in the Company has made a number of estimates and assumptions related to the reporting of assets and liabilities to prepare the consolidated financial statements in conformity with GAAP. Actual results may differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of the results of operations for the interim periods presented herein, have been included.Company's 2021 Annual Report on Form 10-K. Certain reclassifications of ~~2016~~2021 amounts have been made to conform to the ~~2017~~2022 presentation. Management has evaluated subsequent events for potential recognition or disclosure. Operating results for the three and nine months ended September 30, ~~2017~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~

2022 or any other period.

Principles of Consolidation

The consolidated financial statements include the accounts of the parent company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Assets held for customers in a fiduciary or

~~Table~~ agency capacity are not assets of ~~Contents~~

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

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

~~Summary of Significant~~ balance sheets.

Accounting ~~Policies~~

~~Mortgage Servicing Rights Held for Sale.~~ Mortgage servicing rights held for sale consist of residential mortgage servicing rights that management has committed to a plan to sell and has the ability to sell them to a buyer in their present condition. Mortgage servicing rights held for sale are carried at the lower of their carrying value or fair value less estimated costs to sell. Decreases in the valuation of mortgage servicing rights held for sale are included in loss on mortgage servicing rights held for sale in the consolidated statements of income.

~~Impact of Recently~~Guidance Issued ~~Accounting Standards~~

~~FASB Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)”;~~ But Not Yet Adopted

FASB ASU ~~2015-14, “Revenue from Contracts with Customers~~No. 2020-04, Reference Rate Reform (Topic ~~606)~~848): ~~Deferral~~Facilitation of the Effective Date”; FASB ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”; FASB ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”; FASB ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” Effects of Reference Rate Reform on Financial Reporting – In May 2014, the Financial Accounting Standards Board (the “FASB”) amended existing guidance related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer. These amendments are effective for us for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. The Company’s revenue is primarily comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09. The Company has determined the result of applying ASU 2014-09 to the individual revenue streams affected, as well as on an aggregate basis, will not be material to the Company’s consolidated financial statements. The Company continues to evaluate the impact of the disclosure requirements associated with ASU 2014-09.

~~FASB ASU 2016-02, “Leases (Topic 842)”~~–~~In February 2016,~~March 2020, the FASB issued ASU No. ~~2016-02, “Leases (Topic 842).” This update revises the model~~2020-04 which provides optional expedients and exceptions for accounting related to ~~assess how a lease should~~contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be ~~classified~~discontinued because of reference rate reform; it does not apply to contract modifications made and provides guidance for lessees and lessors, when presenting right-of-use assets and lease liabilities on the balance sheet. This update is effective for us on January 1, 2019, with early adoption permitted. We have not yet decided whether we will early adopt the new standard. A modified retrospective transition approach is required for leases existing at, orhedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

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

Table of Contents

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

The Company believes the adoption of this guidance on activities subsequent to December 31, 2021 through December 31, 2022 will not have a material impact on the consolidated financial ~~statements, with certain practical expedients available. The~~ Company has developed a project plan for evaluating the provisions of the new lease standard, but has not yet determined the overall impact of the new guidance on the Company’s consolidated financial statements. ~~The Company is continuing to evaluate the pending adoption of ASU 2016-02 and its impact on the Company’s consolidated financial statements.~~

FASB ASU ~~2016-13, “Financial Instruments – Credit~~No. 2022-02, Financial Instruments-Credit Losses (Topic 326): ~~Measurement of Credit Losses on Financial Instruments”~~Troubled Debt Restructurings and Vintage Disclosures – In ~~June 2016,~~March 2022, the FASB issued ASU No. ~~2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement~~2022-02, which 1) eliminates the accounting guidance for troubled debt restructurings ("TDRs") by creditors while enhancing the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty; and 2) requires that an entity disclose current-period gross write-offs by year of ~~Credit Losses on Financial Instruments.”~~ ~~The objective of this update is to improve financial reporting by providing timelier recording of credit losses on loans~~origination for financing receivables and ~~other financial instruments held by financial institutions and other organizations. The~~net investments in leases. ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will use forward-looking information to better understand their credit loss estimates. For public companies that are filers with the SEC, this update2022-02 is effective for ~~fiscal years, and interim periods within those~~ fiscal years beginning after December 15, ~~2019. Early application~~2022 and the amendments should be applied prospectively, although the entity has the option to apply a modified retrospective transition method for the recognition and measurement of TDRs, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company is ~~permitted for any organization for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.~~

~~Table of Contents~~

~~We have formed a committee that is assessing our data and system needs and are~~currently evaluating the impact of adopting the new ~~guidance.~~ ~~While~~guidance on its consolidated financial statements.

NOTE 3 – ACQUISITIONS

FNBC Bank & Trust

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

A summary of the ~~beginning~~fair value of the first reporting period in which the new standard is effective, the Company cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial statements. The Company is continuing to evaluate the potential impact on the Company’s consolidated financial statements.

~~FASB ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts~~assets acquired and ~~Cash Payments”~~ ~~– In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,”~~ ~~which amends FASB Accounting Standards Codification (“ASC”) 230 to add or clarify guidance on the classification of certain cash receipts and payments~~liabilities assumed are included in the statement of cash flows. For public business entities, this update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early application is permitted for any organization in any interim period or fiscal year. Thetable below.


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

ATG Trust Company ~~elected to early adopt the new guidance in the first quarter of 2017. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.~~

~~FASB ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”~~ ~~– In March 2017, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.”~~ This guidance shortens the amortization period for premiums on certain callable debt securities to the earliest call date, rather than contractual maturity date as currently required under GAAP. For public business entities, this ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted for any organization in any interim period or fiscal year. The Company elected to early adopt the new guidance in the first quarter of 2017. Adoption of the ASU did not have a material impact on the Company’s consolidated financial statements.

~~Note 3 – Acquisitions~~

~~Centrue Financial Corporation~~

On June ~~9, 2017,~~1, 2021, the Company completed its acquisition of ~~Centrue and its banking subsidiary, Centrue Bank, which operated 20 full-service banking centers located principally~~substantially all of the trust assets of ATG Trust Company (“ATG Trust”), a trust company based in ~~northern Illinois.~~Chicago, Illinois, with approximately $399.7 million in assets under management. In ~~the~~ aggregate, the Company acquired ~~Centrue~~the assets of ATG Trust for ~~approximately $176.6 million, which consisted of approximately $61.0~~$2.7 million in ~~cash and the issuance of 3,219,238 shares of the Company’s common stock, 181 shares of Series G preferred stock and 2,635.5462 shares of Series H preferred stock. This~~cash. The acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identifiable assets acquired ~~and liabilities assumed~~ at their estimated acquisition date fair ~~values. Through September 30, 2017,~~values, while $0.4 million of transaction and integration costs ~~of $15.0 million~~ associated with the acquisition ~~have been~~were expensed ~~as incurred.~~

in 2021.

Table of Contents

~~Under~~NOTE 4 – INVESTMENT SECURITIES

Investment Securities Available for Sale

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


	September 30, 2022
(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Allowance for credit losses		Fair value
Investment securities available for sale
U.S. Treasury securities	$	66,369	$	—	$	5,873	$	—	$	60,496
U.S. government sponsored entities and U.S. agency securities	32,267		78		4,480		—		27,865
Mortgage-backed securities - agency	469,822		5		78,212		—		391,615
Mortgage-backed securities - non-agency	25,341		—		4,183		—		21,158
State and municipal securities	105,838		128		10,905		—		95,061
Corporate securities	95,313		—		9,619		—		85,694
Total available for sale securities	$	794,950	$	211	$	113,272	$	—	$	681,889


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

The following is a summary of the ~~acquisition method of accounting, the consideration paid is allocated to net tangible~~amortized cost and ~~intangible assets based on current estimated fair values on the date of acquisition. During the third quarter of 2017, the Company updated the preliminary valuation of the~~ fair value of ~~tangible and intangible assets acquired and liabilities assumed, which required a measurement period adjustment~~the investment securities available for sale, by maturity, at September 30, 2022. Expected maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be prepaid without penalties. The maturities of ~~$169,000 to increase goodwill. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which~~all other investment securities available for sale are based on ~~assumptions that are subject to change, the consideration paid for the acquisition is allocated as follows (in thousands):~~

Assets acquired:

Cash and cash equivalents

$
42,461

Investment securities available for sale

149,013

Loans

681,870

Loans held for sale

531

Premises and equipment

17,147

Other real estate owned

4,759

Nonmarketable equity securities

8,168

Accrued interest receivable

2,376

Mortgage servicing rights

1,933

Intangible assets

11,070

Cash surrender value of life insurance policies

36,349

Deferred tax assets, net

33,461

Other assets

2,256

Total assets acquired

991,394

Liabilities assumed:

Deposits

739,867

Short-term borrowings

14,434

FHLB advances and other borrowings

95,332

Trust preferred debentures

7,565

Accrued interest payable

275

Other liabilities

3,429

Total liabilities assumed

860,902

Net assets acquired

130,492

Goodwill

46,087

Total consideration paid

$
176,579

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

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

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

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

Best Estimate at

Acquisition Date of

Fair Value

Gross Contractual

Contractual Cash

of Acquired Loans

Amounts Receivable

Flows Not Expected

at Acquisition Date

at Acquisition Date

to be Collected
Acquired receivables subject to ASC 310-30

$
13,352

$
20,719

$
5,256
Acquired receivables not subject to ASC 310-30

668,518

821,338

4,518

final contractual maturity.


(dollars in thousands)	Amortized cost		Fair value
Investment securities available for sale
Within one year	$	9,766	$	9,793
After one year through five years	123,074		113,574
After five years through ten years	135,520		119,588
After ten years	31,427		26,161
Mortgage-backed securities	495,163		412,773
Total available for sale securities	$	794,950	$	681,889

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~~The following table provides the unaudited pro forma information~~Proceeds and gross realized gains on sales of investment securities available for the results of operations for three and nine months ended September 30, 2017 and 2016, as if the acquisition had occurred on January 1, 2016 (in thousands, except per share data). The pro forma results combine the historical results of Centrue with the Company’s consolidated statements of income, adjusted for the impact of the application of the acquisition method of accounting including loan discount accretion, intangible assets amortization, and deposit and trust preferred securities premium accretion, net of taxes. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations had the acquisition actually occurred on January 1, 2016. No assumptions have been applied to the pro forma results of operations regarding revenue enhancements, expense efficiencies or asset dispositions. Only the acquisition related expenses that have been incurred as of September 30, 2017 are included in net income in the table below. Acquisition related expenses that were recognized and are included in the pro forma net incomesale for the three and nine months ended September 30, ~~2017 totaled $7.3 million~~2022 and ~~$15.0 million, respectively, on~~2021, are summarized as follows:


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

The table below presents a ~~pre-tax basis.~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016
Revenue (1)

$
52,168

$
52,139

$
156,851

$
152,532
Net income

2,036

8,850

15,299

23,490
Diluted earnings per common share

$
0.10

$
0.46

$
0.71

$
1.37

~~(1)~~

~~Net interest income plus noninterest income~~

~~CedarPoint Investment Advisors, Inc.~~

~~On March 28, 2017,~~rollforward by security type for the ~~Company acquired all~~ three and nine months ended September 30, 2022 and 2021 of the ~~outstanding capital stock of CedarPoint Investment Advisors, Inc. (“CedarPoint”), an SEC registered~~allowance for credit losses on investment advisory firm, pursuant to an Agreement and Plan of Merger, dated as of March 15, 2017. CedarPoint had approximately $180.0 million of assets under administration. The Company acquired CedarPoint for $3.7 million, which consisted of the issuance of 102,000 shares of the Company’s common stock and an accrual in other liabilities of $345,000 for the fair value of 18,000 shares that will be held in a special purpose escrow account (the “escrow shares”) as additional consideration until at least March 31, 2019. Payout of the escrow shares is contingent on CedarPoint reaching certain target revenue levels. Intangible assets recognized as a result of the transaction consisted of approximately $2.4 million in goodwill and $2.0 million in customer relationship intangibles. The customer relationship intangibles are being amortized on a straight-line basis over 12 years.

~~Acquisition of Wealth Management Assets~~

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

~~Note 4 – Investment Securities Available for Sale~~

~~Investment~~ securities ~~classified as~~ available for sale ~~as of September 30, 2017 and December 31, 2016 are as follows (in thousands):~~

September 30, 2017

Gross

Gross


Amortized

unrealized

unrealized

Fair


cost

gains

losses

value

U.S. Treasury securities

$
47,979

$
—

$
72

$
47,907

Government sponsored entity debt securities

19,290

104

5

19,389

Agency mortgage-backed securities

229,382

1,103

631

229,854

State and municipal securities

39,385

376

45

39,716

Corporate securities

56,404

1,070

167

57,307

Equity securities

2,705

115

8

2,812

Total

$
395,145

$
2,768

$
928

$
396,985

held at period end:


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

~~Table of Contents~~

December 31, 2016




Gross

Gross


Amortized

unrealized

unrealized

Fair

cost

gains

losses

value

U.S. Treasury securities

$
75,973

$
—

$
72

$
75,901

Government sponsored entity debt securities

7,653

57

22

7,688

Agency mortgage-backed securities

90,629

373

932

90,070

Non-agency mortgage-backed securities

1

—

—

1

State and municipal securities

25,826

15

567

25,274

Corporate securities

47,443

403

441

47,405

Total

$
247,525

$
848

$
2,034

$
246,339

Unrealized losses and fair values for investment securities available for sale as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as ~~follows (in thousands):~~

follows:

September 30, 2017

Less than 12 Months

12 Months or more

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized


value

loss

value

loss

value

loss

U.S. Treasury securities

$
42,936

$
47

$
4,971

$
25

$
47,907

$
72

Government sponsored entity debt securities

6,467

5

—

—

6,467

5

Agency mortgage-backed securities

50,978

370

10,569

261

61,547

631

State and municipal securities

4,609

14

2,569

31

7,178

45

Corporate securities

4,957

52

5,412

115

10,369

167

Equity securities

2,606

8

—

—

2,606

8

Total

$
112,553

$
496

$
23,521

$
432

$
136,074

$
928


	September 30, 2022
	Less than 12 Months				12 Months or more				Total
(dollars in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss
Investment securities available for sale
U.S. Treasury securities	$	37,689	$	3,305	$	22,807	$	2,568	$	60,496	$	5,873
U.S. government sponsored entities and U.S. agency securities	333		19		23,289		4,461		23,622		4,480
Mortgage-backed securities - agency	168,562		21,838		222,652		56,374		391,214		78,212
Mortgage-backed securities - non-agency	6,228		879		14,930		3,304		21,158		4,183
State and municipal securities	56,578		5,879		22,193		5,026		78,771		10,905
Corporate securities	57,401		4,767		28,293		4,852		85,694		9,619
Total available for sale securities	$	326,791	$	36,687	$	334,164	$	76,585	$	660,955	$	113,272

December 31, 2016

Less than 12 Months

12 Months or more

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

value

loss

value

loss

value

loss

U.S. Treasury securities

$
75,901

$
72

$
—

$
—

$
75,901

$
72

Government sponsored entity debt securities

4,107

22

—

—

4,107

22

Agency mortgage-backed securities

57,882

930

402

2

58,284

932

State and municipal securities

20,215

567

—

—

20,215

567

Corporate securities

11,111

334

8,312

107

19,423

441

Total

$
169,216

$
1,925

$
8,714

$
109

$
177,930

$
2,034

~~For all~~

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

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

Contents


	December 31, 2021
	Less than 12 Months				12 Months or more				Total
(dollars in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss
Investment securities available for sale
U.S. Treasury securities	$	64,917	$	430	$	—	$	—	$	64,917	$	430
U.S. government sponsored entities and U.S. agency securities	17,487		263		9,432		568		26,919		831
Mortgage-backed securities - agency	317,372		6,633		9,051		268		326,423		6,901
Mortgage-backed securities - non-agency	24,095		381		—		—		24,095		381
State and municipal securities	27,324		270		2,538		96		29,862		366
Corporate securities	—		—		—		—		—		—
Total available for sale securities	$	451,195	$	7,977	$	21,021	$	932	$	472,216	$	8,909

At September 30, ~~2017, 63~~2022, 393 investment securities available for sale had unrealized losses with aggregate depreciation of ~~0.68%~~14.63% from their amortized cost basis. ~~The~~For all of the above investment securities, the unrealized losses ~~relate principally~~were generally due to changes in interest rates, and unrealized losses were considered to be temporary as the ~~fluctuations in the current interest rate environment. In analyzing an issuer’s financial condition, we consider whether~~fair value is expected to recover as the securities approach their respective maturity dates. The issuers are ~~issued by the federal government or its agencies~~of high credit quality and ~~whether downgrades by bond rating agencies have occurred.~~all principal amounts are expected to be paid when securities mature. The Company does not ~~have the intent~~intend to sell and it is ~~not more~~ likely ~~than~~that the Company will not ~~that it will~~ be required to sell ~~a security in an unrealized loss position; therefore,~~ the ~~Company does not consider these~~ securities prior to ~~be other than temporarily impaired~~their anticipated recovery.

Equity Securities

Equity securities are recorded at fair value and totaled $8.6 million and $9.5 million at September 30, ~~2017.~~

~~For~~2022 and December 31, 2021, respectively.

During both the three and nine months ended September 30, ~~2017,~~2022 and 2021, there ~~was~~were no ~~OTTI recognized~~sales of equity securities. Net unrealized gains and losses on ~~investment~~equity securities ~~available for sale. During the three and nine months ended September 30, 2016, the Company recognized $0 and $824,000, respectively, of OTTI on its investment securities available for sale.~~

~~Table of Contents~~

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

Amortized

Fair

cost

value

Debt securities:

Within one year

$
37,340

$
37,307

After one year through five years

235,754

236,319

After five years through ten years

102,922

104,113

After ten years

16,424

16,434

Equity securities

2,705

2,812

Total

$
395,145

$
396,985

~~Proceeds from the sale of securities available for sale were $2.7 million and $11.3 million~~ for the three and nine months ended September 30, ~~2017, respectively. Gross realized gains from the sale of securities available for sale were $98,000~~2022 and ~~$219,000 for the three and nine months ended September 30, 2017, respectively. There were no gross realized losses for the three and nine months ended September 30, 2017.~~

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

~~Note 5 – Investment Securities Held to Maturity~~

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

September 30, 2017

Gross

Gross

Amortized

unrecognized

unrecognized

Fair

cost

gains

losses

value

State and municipal securities

$
70,867

$
4,381

$
106

$
75,142

December 31, 2016

Gross

Gross

Amortized

unrecognized

unrecognized

Fair

cost

gains

losses

value

State and municipal securities

$
78,672

$
3,517

$
237

$
81,952

Unrecognized losses and fair value for investment securities held to maturity as of September 30, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrecognized loss position,2021 are summarized ~~as follows (in thousands):~~

below:

September 30, 2017

Less than 12 Months

12 Months or more

Total

Fair

Unrecognized

Fair

Unrecognized

Fair

Unrecognized

value

loss

value

loss

value

loss

State and municipal securities

$
3,343

$
32

$
3,490

$
74

$
6,833

$
106


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



Net unrealized (losses) gains	$	(118)	$	112	$	(1,065)	$	338

December 31, 2016

Less than 12 Months

12 Months or more

Total

Fair

Unrecognized

Fair

Unrecognized

Fair

Unrecognized

value

loss

value

loss

value

loss

State and municipal securities

$
13,991

$
140

$
2,699

$
97

$
16,690

$
237

~~For all~~Net unrealized gains and losses on equity securities were recorded in other income in the consolidated statements of ~~the above investment securities, the unrecognized losses are generally due to changes in interest rates and continued financial market stress and unrecognized losses are considered to be temporary.~~

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

income.

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

At September 30, 2017, 27 investment securities held to maturity had unrecognized losses with aggregate depreciation of 1.53% from their amortized cost basis. The unrecognized losses relate principally to the fluctuations in the current interest rate environment. In analyzing an issuer’s financial condition, we consider who issued the securities and whether downgrades by bond rating agencies have occurred. The Company does not have the intent to sell and it is not more likely than not that it will be required to sell a security in an unrecognized loss position; therefore, the Company does not consider these securities to be other than temporarily impaired at September 30, 2017.

~~The amortized cost and fair value of investment securities held to maturity as of September 30, 2017, by contractual maturity, are as follows (in thousands):~~

Amortized

Fair

cost

value

Within one year

$
871

$
877

After one year through five years

19,055

19,709

After five years through ten years

35,164

38,478

After ten years

15,777

16,078

Total

$
70,867

$
75,142

~~Note 6~~NOTE 5 – ~~Loans~~

LOANS

The following table presents total loans outstanding by portfolio ~~which includes non-purchased credit impaired (“Non-PCI”) loans and purchased credit impaired (“PCI”) loans,~~class, as of September 30, ~~2017~~2022 and December 31, ~~2016 (in thousands):~~

September 30, 2017

December 31, 2016

Non-PCI

PCI

Non-PCI

PCI

Loans

Loans (1)

Total

Loans

Loans (1)

Total

Loans:

Commercial

$
510,457

$
3,087

$
513,544

$
454,310

$
3,517

$
457,827

Commercial real estate

1,456,620

15,664

1,472,284

963,895

5,720

969,615

Construction and land development

181,763

750

182,513

165,175

12,150

177,325

Total commercial loans

2,148,840

19,501

2,168,341

1,583,380

21,387

1,604,767

Residential real estate

438,973

6,774

445,747

247,156

6,557

253,713

Consumer

342,863

175

343,038

269,705

312

270,017

Lease financing

200,846

—

200,846

191,479

—

191,479

Total loans

$
3,131,522

$
26,450

$
3,157,972

$
2,291,720

$
28,256

$
2,319,976

2021:


(dollars in thousands)	September 30, 2022		December 31, 2021
Commercial:
Commercial	$	852,930	$	770,670
Commercial other	683,353		679,518
Commercial real estate:
Commercial real estate non-owner occupied	1,567,308		1,105,333
Commercial real estate owner occupied	505,174		469,658
Multi-family	328,473		171,875
Farmland	65,348		69,962
Construction and land development	225,549		193,749
Total commercial loans	4,228,135		3,460,765
Residential real estate:
Residential first lien	294,432		274,412
Other residential	61,793		63,739
Consumer:
Consumer	110,226		106,008
Consumer other	1,046,254		896,597
Lease financing	457,611		423,280
Total loans, gross	$	6,198,451	$	5,224,801

~~(1)~~

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

Total loans include net deferred loan ~~fees~~costs of ~~$11.4~~$4.2 million and ~~$3.1~~$4.6 million at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, and unearned discounts of ~~$20.7~~$54.0 million and $46.1 million within the lease financing portfolio at ~~both~~ September 30, ~~2017~~2022 and December 31, ~~2016.~~

2021, respectively.

At September 30, ~~2017 and December 31, 2016,~~2022, the Company had ~~commercial and~~ residential real estate loans held for sale totaling ~~$35.9~~$4.3 million, compared to commercial real estate and residential real estate loans held for sale totaling $32.0 million at December 31, 2021. The Company sold commercial real estate, residential real estate and consumer loans with proceeds totaling $48.5 million and ~~$70.6~~$252.1 million ~~respectively. During~~during the three and nine months ended September 30, ~~2017, the Company sold commercial~~2022, respectively, and ~~residential real estate loans with proceeds totaling $206.2~~$139.9 million and ~~$679.2~~$634.4 million ~~respectively, and sold commercial and residential real estate loans with proceeds totaling $450.9 million and $907.3 million for~~during the comparable periods in ~~2016,~~2021, respectively.

Classifications of Loan Portfolio

The Company monitors and assesses the credit risk of its loan portfolio using the classes set forth below. These classes also represent the segments by which the Company monitors the performance of its loan portfolio and estimates its allowance for ~~loan losses.~~

credit losses on loans.

Commercial—Loans to varying types of businesses, including municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital, operational needs and term financing of equipment.

~~Table of Contents~~

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

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

Commercial real estate—Loans secured by real estate occupied by the borrower for ongoing operations, including loans to borrowers engaged in agricultural production, and non-owner occupied real estate leased to one or more tenants, including commercial office, industrial, special purpose, retail and multi-family residential real estate loans.

Construction and land development—Secured loans for the construction of business and residential properties. Real estate construction loans often convert to a ~~commercial~~ real estate commercial loan at the completion of the construction period. Secured development loans are made to borrowers for the purpose of infrastructure improvements to vacant land to create finished marketable residential and commercial lots/land. Most land development loans are originated with the intention that the loans

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will be paid through the sale of developed lots/land by the developers within twelve months of the completion date. Interest reserves may be established on real estate construction loans.

Residential real estate—Loans secured by residential properties that generally do not qualify for secondary market sale; however, the risk to return and/or overall relationship are considered acceptable to the Company. This category also includes loans whereby consumers utilize equity in their personal residence, generally through a second mortgage, as collateral to secure the loan.

Consumer—Loans to consumers primarily for the purpose of home improvements ~~and~~or acquiring automobiles, recreational vehicles and boats. Consumer loans consist of relatively small amounts that are spread across many individual borrowers.

Lease financing—~~Indirect~~Our equipment leasing business provides financing leases to ~~small~~varying types of businesses, nationwide, for purchases of business ~~equipment. All indirect~~equipment and software. The financing ~~leases require~~is secured by a first priority interest in the financed assets and generally requires monthly ~~payments, and the weighted average maturity of our leases is less than four years.~~

payments.

Commercial, commercial real estate, and construction and land development loans are collectively referred to as the Company’s commercial loan portfolio, while residential real estate, ~~and~~ consumer loans and lease financing receivables are collectively referred to as the Company’s other loan portfolio.

We have extended loans to certain of our directors, executive officers, principal shareholders and their affiliates. These loans were made in the ordinary course of business upon ~~normal~~substantially the same terms, including collateralization and interest rates prevailing at the ~~time, and did not involve more than the normal risk of repayment by the borrower.~~time. The aggregate loans outstanding to the Company's directors, executive officers, principal shareholders and their affiliates totaled ~~$26.5~~$20.0 million and $13.9 million at ~~both~~ September 30, ~~2017~~2022 and December 31, ~~2016. During~~2021, respectively. The new loans, other additions, repayments and other reductions for the three and nine months ended September 30, ~~2017, there~~2022 and 2021, are summarized as follows:


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

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


	Commercial Loan Portfolio						Other Loan Portfolio
(dollars in thousands)	Commercial		Commercial real estate		Construction and land development		Residential real estate		Consumer		Lease financing		Total
Changes in allowance for credit losses on loans for the three months ended September 30, 2022:
Balance, beginning of period	$	12,748	$	27,874	$	1,101	$	3,416	$	2,994	$	6,765	$	54,898
Provision for credit losses on loans	3,226		1,787		472		852		606		31		6,974
Charge-offs	(1,655)		(1,232)		—		(166)		(316)		(485)		(3,854)
Recoveries	45		1		18		69		121		367		621
Balance, end of period	$	14,364	$	28,430	$	1,591	$	4,171	$	3,405	$	6,678	$	58,639

Changes in allowance for credit losses on loans for the nine months ended September 30, 2022:
Balance, beginning of period	$	14,375	$	22,993	$	972	$	2,695	$	2,558	$	7,469	$	51,062
Provision for credit losses on loans	3,504		9,515		595		1,569		1,278		(614)		15,847
Charge-offs	(3,869)		(4,084)		(6)		(315)		(812)		(1,190)		(10,276)
Recoveries	354		6		30		222		381		1,013		2,006
Balance, end of period	$	14,364	$	28,430	$	1,591	$	4,171	$	3,405	$	6,678	$	58,639

Changes in allowance for credit losses on loans for the three months ended September 30, 2021:
Balance, beginning of period	$	14,849	$	30,718	$	1,733	$	3,683	$	2,292	$	5,389	$	58,664
Provision for credit losses on loans	(75)		(2,105)		(538)		(697)		292		3,123		—
Charge-offs	(317)		(1,663)		(138)		(35)		(280)		(1,227)		(3,660)
Recoveries	134		3		74		66		93		301		671
Balance, end of period	$	14,591	$	26,953	$	1,131	$	3,017	$	2,397	$	7,586	$	55,675

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


Provision for credit losses on loans	(2,091)		4,854		(113)		(806)		429		1,677		3,950
Charge-offs	(3,457)		(3,382)		(410)		(286)		(740)		(1,996)		(10,271)
Recoveries	288		16		221		180		370		478		1,553
Balance, end of period	$	14,591	$	26,953	$	1,131	$	3,017	$	2,397	$	7,586	$	55,675

The Company utilizes a combination of models which measure probability of default and loss given default methodology in determining expected future credit losses.

The probability of default is the risk that the borrower will be unable or unwilling to repay its debt in full or on time. The risk of default is derived by analyzing the obligor’s capacity to repay the debt in accordance with contractual terms. Probability of default is generally associated with financial characteristics such as inadequate cash flow to service debt, declining revenues or operating margins, high leverage, declining or marginal liquidity, and the inability to successfully implement a business plan. In addition to these quantifiable factors, the borrower’s willingness to repay also must be evaluated.

The probability of default is forecasted, for most commercial and retail loans, using a regression model that determines the likelihood of default within the twelve month time horizon. The regression model uses forward-looking economic forecasts including variables such as gross domestic product, housing price index, and real disposable income to predict default rates. The forecasting method for the equipment financing portfolio assumes a rolling twelve-month average of the through-the-cycle default rate, to predict default rates for the twelve month time horizon.

The loss given default component is the percentage of defaulted loan balance that is ultimately charged off. As a method for estimating the allowance, a form of migration analysis is used that combines the estimated probability of loans experiencing default events and the losses ultimately associated with the loans experiencing those defaults. Multiplying one by

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the other gives the Company its loss rate, which is then applied to the loan portfolio balance to determine expected future losses.

Within the model, the loss given default approach produces segmented loss given default estimates using a loss curve methodology, which is based on historical net losses from charge-off and recovery information. The main principle of a loss curve model is that the loss follows a steady timing schedule based on how long the defaulted loan has been on the books.

The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look-back period includes January 2012 through the current period on a monthly basis. When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data.

Historical data is evaluated in multiple components of the expected credit loss, including the reasonable and supportable forecast and the post-reversion period of each loan segment. The historical experience is used to infer probability of default and loss given default in the reasonable and supportable forecast period. In the post-reversion period, long-term average loss rates are segmented by loan pool.

Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration other analytics performed within the organization, such as enterprise and concentration management, along with other credit-related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible.

The Company segments the loan portfolio into pools based on the following risk characteristics: financial asset type, collateral type, loan characteristics, credit characteristics, outstanding loan balances, contractual terms and prepayment assumptions, industry of borrower and concentrations, historical or expected credit loss patterns, and reasonable and supportable forecast periods.

Within the probability of default segmentation, credit metrics are identified to further segment the financial assets. The Company utilizes risk ratings for the commercial portfolios and days past due for the consumer and the lease financing portfolios.

The Company has defined five transitioning risk states for each asset pool within the expected credit loss model. The below table illustrates the transition matrix:


Risk state	Commercial loans risk rating	Consumer loans and equipment finance loans and leases days past due
1	0-5	0-14
2	6	15-29
3	7	30-59
4	8	60-89
Default	9+ and nonaccrual	90+ and nonaccrual

Expected Credit Losses

In calculating expected credit losses, the Company individually evaluates loans on nonaccrual status with a balance greater than $500,000, loans past due 90 days or more and still accruing interest, and loans that do not share risk characteristics

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


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

Lease financing	1,506		—		1,506		1,510		—		1,510
Total loans	$	16,449	$	23,602	$	40,051	$	19,237	$	16,326	$	35,563

There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2022 and 2021 while the loans were ~~$982,000~~in nonaccrual status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $0.8 million and ~~$4.0~~$1.9 million for the three and nine months ended September 30, 2022, respectively, and $0.6 million and $2.1 million for the three and nine months ended September 30, 2021, respectively.

Collateral Dependent Financial Assets

A collateral dependent financial loan relies solely on the operation or sale of ~~new~~the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of

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protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral’s value increases and the loan may become collateral dependent.

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


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



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

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




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

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


	Accruing loans
(dollars in thousands)	30-59 days past due		60-89 days past due		Past due 90 days or more		Total past due		Nonaccrual		Current		Total
Commercial:
Commercial	$	7,609	$	518	$	—	$	8,127	$	4,687	$	840,116	$	852,930
Commercial other	3,510		2,189		281		5,980		2,104		675,269		683,353
Commercial real estate:
Commercial real estate non-owner occupied	771		265		—		1,036		13,708		1,552,564		1,567,308
Commercial real estate owner occupied	481		—		—		481		4,222		500,471		505,174
Multi-family	—		—		—		—		9,167		319,306		328,473
Farmland	88		—		—		88		25		65,235		65,348
Construction and land development	—		—		—		—		245		225,304		225,549
Total commercial loans	12,459		2,972		281		15,712		34,158		4,178,265		4,228,135
Residential real estate:
Residential first lien	30		209		77		316		3,517		290,599		294,432
Other residential	197		50		—		247		798		60,748		61,793
Consumer:
Consumer	109		50		—		159		72		109,995		110,226
Consumer other	5,020		3,159		142		8,321		—		1,037,933		1,046,254
Lease financing	3,033		987		193		4,213		1,506		451,892		457,611
Total loans	$	20,848	$	7,427	$	693	$	28,968	$	40,051	$	6,129,432	$	6,198,451

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The aging status of the recorded investment in loans by portfolio as of December 31, 2021 was as follows:


	Accruing loans
(dollars in thousands)	30-59 days past due		60-89 days past due		Past due 90 days or more		Total past due		Nonaccrual		Current		Total
Commercial:
Commercial	$	283	$	1,082	$	—	$	1,365	$	6,956	$	762,349	$	770,670
Commercial other	2,402		2,110		5		4,517		4,467		670,534		679,518
Commercial real estate:
Commercial real estate non-owner occupied	585		243		—		828		11,826		1,092,679		1,105,333
Commercial real estate owner occupied	232		730		—		962		3,504		465,192		469,658
Multi-family	—		—		—		—		2,168		169,707		171,875
Farmland	—		26		—		26		155		69,781		69,962
Construction and land development	195		195		—		390		83		193,276		193,749
Total commercial loans	3,697		4,386		5		8,088		29,159		3,423,518		3,460,765
Residential real estate:
Residential first lien	113		285		—		398		3,948		270,066		274,412
Other residential	456		151		—		607		836		62,296		63,739
Consumer:
Consumer	127		20		—		147		110		105,751		106,008
Consumer other	4,423		2,358		1		6,782		—		889,815		896,597
Lease financing	1,253		245		—		1,498		1,510		420,272		423,280
Total loans	$	10,069	$	7,445	$	6	$	17,520	$	35,563	$	5,171,718	$	5,224,801

Troubled Debt Restructurings ("TDRs")

Loans modified as TDRs for commercial and ~~other reductions~~commercial real estate loans generally consist of allowing commercial borrowers to defer scheduled principal payments and make interest only payments for a specified period of time at the stated interest rate of the original loan agreement or lower payments due to a modification of the loans’ contractual terms. TDRs are transferred to nonaccrual status when it is probable that any remaining principal and interest payments due on the loan will not be collected in accordance with the contractual terms of the loan. TDRs that subsequently default are individually evaluated for impairment at the time of default. The outstanding balance of modifications made as a result of COVID, that were not considered TDRs under the Coronavirus Aid, Relief, and Economic Security Act, as amended by Section 541 of the Consolidated Appropriations Act, were $0 at September 30, 2022 and totaled ~~$948,000~~$13.3 million at December 31, 2021.

The Company’s TDRs are identified on a case-by-case basis in connection with the ongoing loan collection processes. The following table presents TDRs by loan portfolio as of September 30, 2022 and ~~$4.0~~December 31, 2021:


	September 30, 2022						December 31, 2021
(dollars in thousands)	Accruing (1)		Non-accrual (2)		Total		Accruing (1)		Non-accrual (2)		Total
Commercial	$	1,727	$	511	$	2,238	$	833	$	1,422	$	2,255
Commercial real estate	113		2,627		2,740		1,522		3,302		4,824
Construction and land development	29		—		29		37		—		37
Residential real estate	3,384		702		4,086		3,128		784		3,912
Consumer	59		—		59		98		—		98
Lease financing	824		21		845		1,394		241		1,635
Total loans	$	6,136	$	3,861	$	9,997	$	7,012	$	5,749	$	12,761

(1)These loans are still accruing interest.

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

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The allowance for credit losses on TDRs totaled $0.5 million and $0.7 million as of September 30, 2022 and December 31, 2021, respectively.

The Company had no unfunded commitments in connection with TDRs at September 30, 2022 and December 31, 2021.

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


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





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





For the three months ended September 30, 2021
Troubled debt restructurings:
Number of loans	2		1		—		—		—		3		6
Pre-modification outstanding balance	$	114	$	152	$	—	$	—	$	—	$	234	$	500
Post-modification outstanding balance	114		130		—		—		—		234		478





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

Credit Quality Monitoring

The Company maintains loan policies and credit underwriting standards as part of the process of managing credit risk. These standards include making loans generally within the Company’s four main regions, which include eastern, northern and southern Illinois and the St. Louis metropolitan area. In addition, our specialty finance division does nationwide bridge lending for FHA and HUD developments and originates loans for multifamily, assisted and senior living and multi-use properties. Our equipment leasing business ~~based in Denver,~~ provides financing to business customers across the country.

The Company has a loan approval process involving underwriting and individual and group loan approval authorities to consider credit quality and loss exposure at loan origination. The loans in the Company’s commercial loan portfolio are risk rated at origination based on the grading system set forth below. All loan authority is based on the aggregate credit to a borrower and its related entities.

The Company’s consumer loan portfolio is primarily comprised of both secured and unsecured loans that are relatively small and are evaluated at origination on a centralized basis against standardized underwriting criteria. The ongoing measurement of credit quality of the consumer loan portfolio is largely done on an exception basis. If payments are made on schedule, as agreed, then no further monitoring is performed. However, if delinquency occurs, the delinquent loans are turned over to the Company’s Consumer Collections Group for resolution. Credit quality for the

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

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

The Company maintains a centralized independent loan review function that monitors the approval process and ongoing asset quality of the loan portfolio, including the accuracy of loan grades. The Company also maintains an independent appraisal review function that participates in the review of all appraisals obtained by the Company.

Credit Quality Indicators

The Company uses a ten grade risk rating system to monitor the ongoing credit quality of its commercial loan portfolio. These loan grades rank the credit quality of a borrower by measuring liquidity, debt capacity, and coverage and payment behavior as shown in the borrower’s financial statements. The risk grades also measure the quality of the borrower’s management and the repayment support offered by any guarantors.

The Company considers all loans with Risk Grades of 1 ~~– 6~~-6 as acceptable credit risks and structures and manages such relationships accordingly. Periodic financial and operating data combined with regular loan officer interactions are deemed adequate to monitor borrower performance. Loans with Risk Grades of 7 are considered ~~“watch credits”~~"watch credits" categorized as special mention and the frequency of loan officer contact and receipt of financial data is increased to stay abreast of borrower performance. Loans with Risk Grades of 8 –- 10 are considered problematic and require special care. Risk Grade 8 is categorized as substandard, 9 as substandard - nonaccrual and 10 as doubtful. Further, loans with Risk Grades of 7 –- 10 are managed ~~and monitored~~ regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive and senior management of the Company, which includes highly structured reporting of financial and operating data, intensive loan officer intervention and strategies to exit, as well as potential management by the ~~Company’s~~Company's Special Assets Group. Loans not graded in the commercial loan portfolio are ~~small loans that are~~ monitored by aging status and payment activity.

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The following ~~table presents~~tables present the recorded investment of the commercial loan portfolio ~~(excluding PCI loans)~~ by risk category as of September 30, ~~2017~~2022 and December 31, ~~2016 (in thousands):~~

September 30, 2017

December 31, 2016

Commercial

Construction

Commercial

Construction

Real

and Land

Real

and Land

Commercial

Estate

Development

Total

Commercial

Estate

Development

Total

Acceptable credit quality

$
474,513

$
1,408,398

$
174,115

$
2,057,026

$
426,560

$
925,244

$
159,702

$
1,511,506

Special mention

16,543

9,121

—

25,664

10,930

8,735

—

19,665

Substandard

17,695

13,639

—

31,334

12,649

21,178

450

34,277

Substandard – nonaccrual

1,469

21,454

—

22,923

3,559

7,145

21

10,725

Doubtful

—

—

—

—

—

—

—

—

Not graded

237

4,008

7,648

11,893

612

1,593

5,002

7,207

Total (excluding PCI)

$
510,457

$
1,456,620

$
181,763

$
2,148,840

$
454,310

$
963,895

$
165,175

$
1,583,380

2021:


			September 30, 2022
			Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)			2022		2021		2020		2019		2018		Prior		Revolving loans		Total
Commercial	Commercial	Acceptable credit quality	$	83,501	$	107,645	$	72,269	$	29,183	$	13,578	$	50,113	$	482,069	$	838,358
		Special mention	—		48		—		314		926		267		1,928		3,483
		Substandard	—		—		—		—		1,385		4,142		875		6,402
		Substandard – nonaccrual	—		340		—		99		112		259		3,877		4,687
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	83,501		108,033		72,269		29,596		16,001		54,781		488,749		852,930

	Commercial other	Acceptable credit quality	207,903		168,275		116,826		73,659		18,985		311		90,558		676,517
		Special mention	—		—		797		2,285		485		—		55		3,622
		Substandard	250		—		—		12		—		—		848		1,110
		Substandard – nonaccrual	343		770		24		473		494		—		—		2,104
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	208,496		169,045		117,647		76,429		19,964		311		91,461		683,353

Commercial real estate	Non-owner occupied	Acceptable credit quality	580,648		437,901		141,562		93,945		18,964		177,967		3,807		1,454,794
		Special mention	1,423		187		482		10,670		198		9,396		—		22,356
		Substandard	593		106		—		36,858		1,611		37,282		—		76,450
		Substandard – nonaccrual	—		744		—		49		10,246		2,669		—		13,708
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	582,664		438,938		142,044		141,522		31,019		227,314		3,807		1,567,308

	Owner occupied	Acceptable credit quality	105,981		131,950		66,624		40,949		29,247		108,957		4,667		488,375
		Special mention	—		135		—		168		159		1,680		24		2,166
		Substandard	45		4,186		575		2,026		—		3,579		—		10,411
		Substandard – nonaccrual	—		385		309		156		333		2,735		304		4,222
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	106,026		136,656		67,508		43,299		29,739		116,951		4,995		505,174

	Multi-family	Acceptable credit quality	188,990		51,461		33,440		445		24,604		15,768		1,020		315,728
		Special mention	—		—		—		—		—		—		—		—
		Substandard	—		—		—		—		—		3,578		—		3,578
		Substandard – nonaccrual	—		949		—		114		—		8,104		—		9,167
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	188,990		52,410		33,440		559		24,604		27,450		1,020		328,473

	Farmland	Acceptable credit quality	5,303		16,267		14,099		4,228		3,250		20,222		1,227		64,596
		Special mention	—		—		—		—		—		161		—		161
		Substandard	—		15		—		23		13		348		167		566
		Substandard – nonaccrual	—		—		—		—		—		25		—		25
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	—		—		—		—		—		—		—		—
		Subtotal	5,303		16,282		14,099		4,251		3,263		20,756		1,394		65,348

Construction and land development		Acceptable credit quality	81,438		67,959		31,357		8,051		489		1,446		29,913		220,653
		Special mention	—		—		—		—		2,415		210		—		2,625
		Substandard	—		—		—		—		—		—		—		—
		Substandard – nonaccrual	—		—		—		218		—		27		—		245
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	1,649		339		34		—		—		4		—		2,026
		Subtotal	83,087		68,298		31,391		8,269		2,904		1,687		29,913		225,549

Total		Acceptable credit quality	1,253,764		981,458		476,177		250,460		109,117		374,784		613,261		4,059,021
		Special mention	1,423		370		1,279		13,437		4,183		11,714		2,007		34,413
		Substandard	888		4,307		575		38,919		3,009		48,929		1,890		98,517
		Substandard – nonaccrual	343		3,188		333		1,109		11,185		13,819		4,181		34,158
		Doubtful	—		—		—		—		—		—		—		—
		Not graded	1,649		339		34		—		—		4		—		2,026
Total commercial loans			$	1,258,067	$	989,662	$	478,398	$	303,925	$	127,494	$	449,250	$	621,339	$	4,228,135

Table of Contents

December 31, 2021
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving loans Total
Commercial Commercial Acceptable credit quality $ 108,490 $ 78,071 $ 50,458 $ 20,045 $ 27,405 $ 35,856 $ 417,920 $ 738,245
Special mention 186 57 198 6,154 2 316 1,517 8,430
Substandard 380 372 1,934 1,868 64 4,322 8,099 17,039
Substandard – nonaccrual 52 — 612 177 242 169 5,704 6,956
Doubtful — — — — — — — —
Not graded — — — — — — — —
Subtotal 109,108 78,500 53,202 28,244 27,713 40,663 433,240 770,670
Commercial other Acceptable credit quality 264,282 167,326 101,083 29,981 303 341 88,198 651,514
Special mention — 1,929 10,676 3,966 — — 3,252 19,823
Substandard 688 — 62 341 — — 2,623 3,714
Substandard – nonaccrual 10 158 3,894 384 — — 21 4,467
Doubtful — — — — — — — —
Not graded — — — — — — — —
Subtotal 264,980 169,413 115,715 34,672 303 341 94,094 679,518
Commercial real estate Non-owner occupied Acceptable credit quality 441,483 154,379 134,507 20,524 55,207 182,465 5,258 993,823
Special mention 26 6,341 14,177 2,296 711 2,272 — 25,823
Substandard 6,196 817 8,825 20,572 14,857 22,344 250 73,861
Substandard – nonaccrual 169 992 6,206 — 195 4,264 — 11,826
Doubtful — — — — — — — —
Not graded — — — — — — — —
Subtotal 447,874 162,529 163,715 43,392 70,970 211,345 5,508 1,105,333
Owner occupied Acceptable credit quality 141,084 69,415 47,187 35,974 30,583 98,442 1,886 424,571
Special mention 150 24 187 161 13,087 4,540 32 18,181
Substandard 4,192 1,127 10,810 205 297 6,466 305 23,402
Substandard – nonaccrual — 318 129 336 72 2,649 — 3,504
Doubtful — — — — — — — —
Not graded — — — — — — — —
Subtotal 145,426 70,884 58,313 36,676 44,039 112,097 2,223 469,658
Multi-family Acceptable credit quality 88,329 20,080 1,973 25,450 1,414 18,642 2,241 158,129
Special mention — 451 — — — — — 451
Substandard 988 — — — — 10,139 — 11,127
Substandard – nonaccrual — — 123 — — 2,045 — 2,168
Doubtful — — — — — — — —
Not graded — — — — — — — —
Subtotal 89,317 20,531 2,096 25,450 1,414 30,826 2,241 171,875
Farmland Acceptable credit quality 15,689 14,966 3,931 3,162 7,996 19,305 1,196 66,245
Special mention — 66 1,236 145 153 240 — 1,840
Substandard 371 76 166 211 — 898 — 1,722
Substandard – nonaccrual — — — 105 — — 50 155
Doubtful — — — — — — — —
Not graded — — — — — — — —
Subtotal 16,060 15,108 5,333 3,623 8,149 20,443 1,246 69,962
Construction and land development Acceptable credit quality 65,053 65,274 19,269 10,029 2,511 3,841 19,452 185,429
Special mention — — 5,014 — — 221 — 5,235
Substandard — 1,336 — — — — — 1,336
Substandard – nonaccrual — — 43 — — 40 — 83
Doubtful — — — — — — — —
Not graded 1,465 37 — — — 164 — 1,666
Subtotal 66,518 66,647 24,326 10,029 2,511 4,266 19,452 193,749
Total Acceptable credit quality 1,124,410 569,511 358,408 145,165 125,419 358,892 536,151 3,217,956
Special mention 362 8,868 31,488 12,722 13,953 7,589 4,801 79,783
Substandard 12,815 3,728 21,797 23,197 15,218 44,169 11,277 132,201
Substandard – nonaccrual 231 1,468 11,007 1,002 509 9,167 5,775 29,159
Doubtful — — — — — — — —
Not graded 1,465 37 — — — 164 — 1,666
Total commercial loans $ 1,139,283 $ 583,612 $ 422,700 $ 182,086 $ 155,099 $ 419,981 $ 558,004 $ 3,460,765

Table of Contents

The Company evaluates the credit quality of its other loan ~~portfolio~~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, ~~any loan~~loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings are considered to be ~~impaired~~nonperforming for purposes of credit quality evaluation. The following ~~table presents~~tables present the recorded investment of our other loan portfolio ~~(excluding PCI loans)~~ based on the credit risk profile of loans that are performing and loans that are ~~impaired~~nonperforming as of September 30, ~~2017~~2022 and December 31, ~~2016 (in thousands):~~

2021:

September 30, 2017

December 31, 2016


Residential



Lease


Residential



Lease


Real Estate

Consumer

Financing

Total

Real Estate

Consumer

Financing

Total

Performing

$
433,653

$
342,586

$
199,784

$
976,023

$
242,127

$
269,492

$
190,148

$
701,767

Impaired

5,320

277

1,062

6,659

5,029

213

1,331

6,573

Total (excluding PCI)

$
438,973

$
342,863

$
200,846

$
982,682

$
247,156

$
269,705

$
191,479

$
708,340


			September 30, 2022
			Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)			2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Residential real estate	Residential first lien	Performing	$	57,217	$	39,570	$	31,875	$	21,340	$	22,376	$	115,686	$	298	$	288,362
		Nonperforming	102		—		105		195		870		4,798		—		6,070
		Subtotal	57,319		39,570		31,980		21,535		23,246		120,484		298		294,432

	Other residential	Performing	1,381		517		556		1,147		1,568		1,772		53,146		60,087
		Nonperforming	—		—		—		8		10		214		1,474		1,706
		Subtotal	1,381		517		556		1,155		1,578		1,986		54,620		61,793

Consumer	Consumer	Performing	30,643		42,722		10,102		4,397		3,676		16,128		2,426		110,094
		Nonperforming	22		36		8		1		14		50		1		132
		Subtotal	30,665		42,758		10,110		4,398		3,690		16,178		2,427		110,226

	Consumer other	Performing	568,209		300,430		117,490		39,291		7,488		6,188		7,017		1,046,113
		Nonperforming	141		—		—		—		—		—		—		141
		Subtotal	568,350		300,430		117,490		39,291		7,488		6,188		7,017		1,046,254

Leases financing		Performing	149,392		118,613		94,940		63,175		20,649		8,319		—		455,088
		Nonperforming	—		646		883		676		300		18		—		2,523
		Subtotal	149,392		119,259		95,823		63,851		20,949		8,337		—		457,611

Total		Performing	806,842		501,852		254,963		129,350		55,757		148,093		62,887		1,959,744
		Nonperforming	265		682		996		880		1,194		5,080		1,475		10,572
Total other loans			$	807,107	$	502,534	$	255,959	$	130,230	$	56,951	$	153,173	$	64,362	$	1,970,316

~~Impaired Loans~~

~~Impaired loans include loans on nonaccrual status, any loan past due 90 days or more~~

Table of Contents


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

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

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

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

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

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

NOTE 6 – PREMISES, EQUIPMENT AND LEASES

A summary of premises and ~~still accruing interest and loans modified under troubled debt restructurings. Impaired loans~~equipment at September 30, ~~2017~~2022 and December 31, 2016 do not include $26.5 million and $28.3 million, respectively, of PCI loans. The risk of credit loss on acquired loans was recognized as part of the fair value adjustment at the acquisition date.

~~A summary of impaired loans (excluding PCI loans) as of September 30, 2017 and December 31, 2016~~2021 is as ~~follows (in thousands):~~

follows:

September 30,

December 31,


2017

2016

Nonaccrual loans:

Commercial

$
1,469

$
3,559

Commercial real estate

21,454

7,145

Construction and land development

—

21

Residential real estate

4,355

4,629

Consumer

273

187

Lease financing

1,062

1,330

Total nonaccrual loans

28,613

16,871

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

Commercial

2,212

2,378

Commercial real estate

—

—

Construction and land development

45

—

Residential real estate

193

—

Consumer

4

26

Lease financing

—

1

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

2,454

2,405

Loans modified under troubled debt restructurings and still accruing:

Commercial

319

611

Commercial real estate

1,214

11,253

Construction and land development

59

63

Residential real estate

772

400

Consumer

—

—

Lease financing

—

—

Total loans modified under troubled debt restructurings and still accruing

2,364

12,327

Total impaired loans (excluding PCI)

$
33,431

$
31,603


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

There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2017 and 2016 while the loans were in nonaccrual status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $124,000 and $532,000

Depreciation expense for the three and nine months ended September 30, ~~2017,~~2022 was $1.2 million and $3.7 million, respectively, and ~~$243,000~~$1.4 million and ~~$484,000~~$4.2 million for the three and nine months ended September 30, ~~2016,~~2021, respectively.

The Company ~~recognized interest income on commercial~~has entered into operating leases, primarily for banking offices and ~~commercial real estate loans modified under troubled debt restructurings~~operating facilities, which have remaining lease terms of ~~$40,000~~2 months to 10 years, some of which may include options to extend the lease terms for up to an additional 10 years. The options to extend are included if they are reasonably certain to be exercised. The operating lease liabilities of the Company were $9.5 million and ~~$59,000~~$10.7 million as of September 30, 2022 and December 31, 2021, respectively.

Table of Contents

Information related to operating leases for the three and nine months ended September 30, ~~2017, respectively,~~2022 and ~~$90,000 and $196,000 for~~2021 was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Operating lease cost	$	533		$	510		$	1,576		$	1,547
Operating cash flows from leases	638			589			1,874			1,975
Right-of-use assets obtained in exchange for lease obligations	80			—			502			689
Right-of-use assets derecognized due to terminations or impairment	—			—			—			(210)
Weighted average remaining lease term	7.3 years			7.8 years			7.3 years			7.8 years
Weighted average discount rate	2.88		%	2.88		%	2.88		%	2.88		%

The projected minimum rental payments under the ~~comparable periods in 2016, respectively.~~

~~Table~~terms of ~~Contents~~

~~The following table presents impaired loans (excluding PCI loans) by portfolio and related valuation allowance~~the leases as of September 30, ~~2017~~2022 were as follows:


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

Table of Contents

NOTE 7 – LOAN SERVICING RIGHTS

A summary of loan servicing rights at September 30, 2022 and December 31, ~~2016 (in thousands):~~

September 30, 2017

December 31, 2016

Unpaid

Related

Unpaid

Related

Recorded

Principal

Valuation

Recorded

Principal

Valuation

Investment

Balance

Allowance

Investment

Balance

Allowance

Impaired loans with a valuation allowance:

Commercial

$
3,047

$
3,111

$
500

$
3,877

$
3,888

$
882

Commercial real estate

16,454

17,540

3,570

2,142

2,331

309

Construction and land development

104

104

10

84

84

8

Residential real estate

3,056

3,634

490

3,735

4,404

604

Consumer

277

289

31

213

190

23

Lease financing

757

757

186

1,331

1,331

356

Total impaired loans with a valuation allowance

23,695

25,435

4,787

11,382

12,228

2,182

Impaired loans with no related valuation allowance:

Commercial

953

5,874

—

2,671

7,567

—

Commercial real estate

6,214

8,291

—

16,256

17,058

—

Construction and land development

—

813

—

—

—

—

Residential real estate

2,264

2,500

—

1,294

1,462

—

Consumer

—

—

—

—

26

—

Lease financing

305

305

—

—

—

—

Total impaired loans with no related valuation allowance

9,736

17,783

—

20,221

26,113

—

Total impaired loans:

Commercial

4,000

8,985

500

6,548

11,455

882

Commercial real estate

22,668

25,831

3,570

18,398

19,389

309

Construction and land development

104

917

10

84

84

8

Residential real estate

5,320

6,134

490

5,029

5,866

604

Consumer

277

289

31

213

216

23

Lease financing

1,062

1,062

186

1,331

1,331

356

Total impaired loans (excluding PCI)

$
33,431

$
43,218

$
4,787

$
31,603

$
38,341

$
2,182

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

~~Table of Contents~~

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

Three Months Ended September 30,

2017

2016




Interest Income


Interest Income

Average

Recognized

Average

Recognized

Recorded

While on

Recorded

While on

Investment

Impaired Status

Investment

Impaired Status

Impaired loans with a valuation allowance:

Commercial

$
3,054

$
6

$
6,426

$
23

Commercial real estate

16,243

34

2,170

65

Construction and land development

104

2

65

3

Residential real estate

3,090

9

3,157

13

Consumer

289

—

115

—

Lease financing

757

—

727

—

Total impaired loans with a valuation allowance

23,537

51

12,660

104

Impaired loans with no related valuation allowance:

Commercial

2,912

—

439

2

Commercial real estate

6,238

—

15,610

—

Construction and land development

—

—

—

—

Residential real estate

2,276

2

1,341

1

Consumer

—

—

91

—

Lease financing

305

—

—

—

Total impaired loans with no related valuation allowance

11,731

2

17,481

3

Total impaired loans:

Commercial

5,966

6

6,865

25

Commercial real estate

22,481

34

17,780

65

Construction and land development

104

2

65

3

Residential real estate

5,366

11

4,498

14

Consumer

289

—

206

—

Lease financing

1,062

—

727

—

Total impaired loans (excluding PCI)

$
35,268

$
53

$
30,141

$
107

~~Table of Contents~~

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

Nine Months Ended September 30,

2017

2016

Interest Income

Interest Income

Average

Recognized

Average

Recognized

Recorded

While on

Recorded

While on

Investment

Impaired Status

Investment

Impaired Status

Impaired loans with a valuation allowance:

Commercial

$
3,068

$
8

$
8,115

$
24

Commercial real estate

16,808

51

2,273

115

Construction and land development

106

3

66

6

Residential real estate

3,032

12

3,234

24

Consumer

311

—

118

—

Lease financing

757

—

727

—

Total impaired loans with a valuation allowance

24,082

74

14,533

169

Impaired loans with no related valuation allowance:

Commercial

3,199

—

313

1

Commercial real estate

6,332

—

15,742

56

Construction and land development

—

—

—

—

Residential real estate

2,174

3

1,364

3

Consumer

—

—

91

—

Lease financing

305

—

—

—

Total impaired loans with no related valuation allowance

12,010

3

17,510

60

Total impaired loans:

Commercial

6,267

8

8,428

25

Commercial real estate

23,140

51

18,015

171

Construction and land development

106

3

66

6

Residential real estate

5,206

15

4,598

27

Consumer

311

—

209

—

Lease financing

1,062

—

727

—

Total impaired loans (excluding PCI)

$
36,092

$
77

$
32,043

$
229

~~Table of Contents~~

~~The following table presents the aging status of the recorded investment in loans by portfolio (excluding PCI loans) as of September 30, 2017 (in thousands):~~

Accruing Loans

30-59

60-89

Past Due

Days

Days

90 Days

Nonaccrual

Total

Total

Past Due

Past Due

or More

Loans

Past Due

Current

Loans

Commercial

$
3,395

$
2,161

$
2,212

$
1,469

$
9,237

$
501,220

$
510,457

Commercial real estate

364

1,044

—

21,454

22,862

1,433,758

1,456,620

Construction and land development

115

67

45

—

227

181,536

181,763

Residential real estate

2,271

228

193

4,355

7,047

431,926

438,973

Consumer

2,055

1,228

4

273

3,560

339,303

342,863

Lease financing

598

—

—

1,062

1,660

199,186

200,846

Total (excluding PCI)

$
8,798

$
4,728

$
2,454

$
28,613

$
44,593

$
3,086,929

$
3,131,522

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

Accruing Loans

30-59

60-89

Past Due

Days

Days

90 Days

Nonaccrual

Total

Total

Past Due

Past Due

or More

Loans

Past Due

Current

Loans

Commercial

$
3,326

$
138

$
2,378

$
3,559

$
9,401

$
444,909

$
454,310

Commercial real estate

648

787

—

7,145

8,580

955,315

963,895

Construction and land development

—

—

—

21

21

165,154

165,175

Residential real estate

3,472

13

—

4,629

8,114

239,042

247,156

Consumer

1,701

588

26

187

2,502

267,203

269,705

Lease financing

94

—

1

1,330

1,425

190,054

191,479

Total (excluding PCI)

$
9,241

$
1,526

$
2,405

$
16,871

$
30,043

$
2,261,677

$
2,291,720

~~Troubled Debt Restructurings~~

A loan is categorized as a troubled debt restructuring (“TDR”) if a concession is granted to provide for a reduction of either interest or principal due to deterioration in the financial condition of the borrower. TDRs can take the form of a reduction of the stated interest rate, splitting a loan into separate loans with market terms on one loan and concessionary terms on the other loans, receipts of assets from a debtor in partial or full satisfaction of a loan, the extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, the reduction of the face amount or maturity of the debt as stated in the instrument or other agreement, the reduction of accrued interest, the release of a personal guarantee in a bankruptcy situation or any other concessionary type of renegotiated debt. Loans are not classified as TDRs when the modification is short-term or results in only an insignificant delay or shortfall in the payments to be received.

Loans modified as TDRs for commercial and commercial real estate loans generally consist of allowing commercial borrowers to defer scheduled principal payments and make interest only payments for a specified period of time at the stated interest rate of the original loan agreement or lower payments due to a modification of the loans’ contractual terms. TDRs that continue to accrue interest and are greater than $50,000 are individually evaluated for impairment, on a quarterly basis, and transferred to nonaccrual status when it is probable that any remaining principal and interest payments due on the loan will not be collected in accordance with the contractual terms of the loan. TDRs that subsequently default are individually evaluated for impairment at the time of default. The allowance for loan losses on TDRs totaled $2.4 million and $203,000 as of September 30, 2017 and December 31, 2016, respectively. The Company had no unfunded commitments in connection with TDRs at September 30, 2017 and December 31, 2016.

~~Table of Contents~~

The Company’s TDRs are identified on a case-by-case basis in connection with the ongoing loan collection processes. The following table presents TDRs by loan portfolio (excluding PCI loans) as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017

December 31, 2016

Accruing (1)

Non-accrual (2)

Total

Accruing (1)

Non-accrual (2)

Total
Commercial

$
319

$
—

$
319

$
611

$
—

$
611
Commercial real estate

1,214

14,812

16,026

11,253

5,098

16,351
Construction and land development

59

—

59

63

—

63
Residential real estate

772

614

1,386

400

527

927
Consumer

—

—

—

—

—

—
Lease financing

—

—

—

—

—

—
Total loans (excluding PCI)

$
2,364

$
15,426

$
17,790

$
12,327

$
5,625

$
17,952

~~(1)~~

~~These loans are still accruing interest.~~

~~(2)~~

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

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

Commercial Loan Portfolio

Other Loan Portfolio

Commercial

Construction

Residential

Real

and Land

Real

Lease

Commercial

Estate

Development

Estate

Consumer

Financing

Total

For the Three Months Ended September 30, 2017:

Troubled debt restructurings:












Number of loans

—

—

—

1

—

—

1

Pre-modification outstanding balance

$
—

$
—

$
—

$
91

$
—

$
—

$
91

Post-modification outstanding balance

—

—

—

90

—

—

90

Troubled debt restructurings that subsequently defaulted

Number of loans

—

—

—

—

—

—

—

Recorded balance

$
—

$
—

$
—

$
—

$
—

$
—

$
—

For the Nine Months Ended September 30, 2017:

Troubled debt restructurings:












Number of loans

1

—

—

3

—

—

4

Pre-modification outstanding balance

$
362

$
—

$
—

$
475

$
—

$
—

$
837

Post-modification outstanding balance

339

—

—

474

—

—

813

Troubled debt restructurings that subsequently defaulted

Number of loans

—

—

—

—

—

—

—

Recorded balance

$
—

$
—

$
—

$
—

$
—

$
—

$
—

~~Table of Contents~~

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

Commercial Loan Portfolio

Other Loan Portfolio

Commercial

Construction

Residential

Real

and Land

Real

Lease

Commercial

Estate

Development

Estate

Consumer

Financing

Total

For the Three Months Ended September 30, 2016:

Troubled debt restructurings:



















Number of loans

—

2

—

—

—

—

2

Pre-modification outstanding balance

$
—

$
10,207

$
—

$
—

$
—

$
—

$
10,207

Post-modification outstanding balance

—

10,207

—

—

—

—

10,207

Troubled debt restructurings that subsequently defaulted

Number of loans

—

—

—

—

—

—

—

Recorded balance

$
—

$
—

$
—

$
—

$
—

$
—

$
—

For the Nine Months Ended September 30, 2016:

Troubled debt restructurings:



















Number of loans

3

2

—

—

—

—

5

Pre-modification outstanding balance

$
685

$
10,207

$
—

$
—

$
—

$
—

$
10,892

Post-modification outstanding balance

647

10,207

—

—

—

—

10,854

Troubled debt restructurings that subsequently defaulted

Number of loans

—

—

—

—

—

—

—

Recorded balance

$
—

$
—

$
—

$
—

$
—

$
—

$
—

~~Purchased Credit Impaired Loans~~

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

~~Accretable yield of PCI loans, or income expected to be collected,~~2021 is as ~~follows (in thousands):~~

Nine Months Ended

September 30,

2017

2016

Balance, beginning of period

$
9,035

$
10,526

New loans purchased – Centrue acquisition

2,111

—

Accretion

(4,276)

(7,066)

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

(1,558)

(96)

Reclassification from non-accretable

1,519

4,302

Balance, end of period

$
6,831

$
7,666

follows:


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

Commercial FHA Mortgage Loan Servicing

~~Table of Contents~~

~~Allowance for Loan Losses~~

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

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

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

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

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

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

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

~~Table of Contents~~

Changes in ~~the allowance for~~our commercial FHA loan ~~losses~~servicing rights for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 are summarized as ~~follows (in thousands):~~

Three Months Ended September 30,

2017

2016

Non-PCI

PCI

Non-PCI

PCI

Loans

Loans

Total

Loans

Loans

Total

Balance, beginning of period

$
14,037

$
1,387

$
15,424

$
13,629

$
1,123

$
14,752

Provision for loan losses

1,435

54

1,489

1,156

236

1,392

Loan charge-offs

(335)

—

(335)

(806)

(58)

(864)

Loan recoveries

278

5

283

250

29

279

Net loan (charge-offs) recoveries

(57)

5

(52)

(556)

(29)

(585)

Balance, end of period

$
15,415

$
1,446

$
16,861

$
14,229

$
1,330

$
15,559

Nine Months Ended September 30,

2017

2016

Non-PCI

PCI

Non-PCI

PCI

Loans

Loans

Total

Loans

Loans

Total

Balance, beginning of period

$
13,744

$
1,118

$
14,862

$
14,093
   ��
$
1,895

$
15,988

Provision for loan losses

3,260

220

3,480

3,752

(606)

3,146

Loan charge-offs

(2,856)

—

(2,856)

(4,228)

(58)

(4,286)

Loan recoveries

1,267

108

1,375

612

99

711

Net loan (charge-offs) recoveries

(1,589)

108

(1,481)

(3,616)

41

(3,575)

Balance, end of period

$
15,415

$
1,446

$
16,861

$
14,229

$
1,330

$
15,559

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

Commercial Loan Portfolio

Other Loan Portfolio

Commercial

Construction

Residential

Real

and Land

Real

Lease

Commercial

Estate

Development

Estate

Consumer

Financing

Total

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

Beginning balance

$
5,381

$
3,996

$
147

$
3,377

$
1,385

$
1,138

$
15,424

Provision for loan losses

(745)

2,715

55

(433)

(92)

(11)

1,489

Charge-offs

—

—

—

(128)

(105)

(102)

(335)

Recoveries

54

56

13

47

81

32

283

Ending balance

$
4,690

$
6,767

$
215

$
2,863

$
1,269

$
1,057

$
16,861

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

Beginning balance

$
6,186

$
3,511

$
569

$
2,584

$
827

$
1,075

$
14,752

Provision for loan losses

1,216

(12)

(271)

220

326

(87)

1,392

Charge-offs

(251)

(214)

(1)

(153)

(91)

(154)

(864)

Recoveries

36

129

13

32

20

49

279

Ending balance

$
7,187

$
3,414

$
310

$
2,683

$
1,082

$
883

$
15,559

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

Beginning balance

$
5,920

$
3,225

$
345

$
2,929

$
930

$
1,513

$
14,862

Provision for loan losses

(630)

3,577

(178)

113

678

(80)

3,480

Charge-offs

(737)

(470)

—

(455)

(536)

(658)

(2,856)

Recoveries

137

435

48

276

197

282

1,375

Ending balance

$
4,690

$
6,767

$
215

$
2,863

$
1,269

$
1,057

$
16,861

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

Beginning balance

$
6,917

$
5,179

$
435

$
2,120

$
749

$
588

$
15,988

Provision for loan losses

2,619

(1,520)

(154)

886

479

836

3,146

Charge-offs

(2,513)

(461)

(1)

(454)

(225)

(632)

(4,286)

Recoveries

164

216

30

131

79

91

711

Ending balance

$
7,187

$
3,414

$
310

$
2,683

$
1,082

$
883

$
15,559

follows:


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

Servicing rights transferred to held for sale	(23,995)		—		(23,995)		—
Amortization	(608)		(721)		(1,907)		(2,284)
Refinancing fee received from third party	—		165		(221)		(439)
Permanent impairment	—		(3,037)		(1,263)		(5,460)
Balance, end of period	$	—	$	30,139	$	—	$	30,139






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

~~Table of Contents~~

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

Commercial Loan Portfolio

Other Loan Portfolio

Commercial

Construction

Residential

Real

and Land

Real

Lease

Commercial

Estate

Development

Estate

Consumer

Financing

Total

September 30, 2017:

Allowance for loan losses:

Loans individually evaluated for impairment

$
212

$
3,549

$
5

$
248

$
—

$
115

$
4,129

Loans collectively evaluated for impairment

288

21

5

242

31

71

658

Non-impaired loans collectively evaluated for impairment

3,702

2,872

204

1,893

1,086

871

10,628

Loans acquired with deteriorated credit quality (1)

488

325

1

480

152

—

1,446

Total allowance for loan losses

$
4,690

$
6,767

$
215

$
2,863

$
1,269

$
1,057

$
16,861

Recorded investment (loan balance):

Impaired loans individually evaluated for impairment

$
1,384

$
22,482

$
59

$
3,124

$
—

$
420

$
27,469

Impaired loans collectively evaluated for impairment

2,616

186

45

2,196

277

642

5,962

Non-impaired loans collectively evaluated for impairment

506,457

1,433,952

181,659

433,653

342,586

199,784

3,098,091

Loans acquired with deteriorated credit quality (1)

3,087

15,664

750

6,774

175

—

26,450

Total recorded investment (loan balance)

$
513,544

$
1,472,284

$
182,513

$
445,747

$
343,038

$
200,846

$
3,157,972

December 31, 2016:

Allowance for loan losses:

Loans individually evaluated for impairment

$
878

$
296

$
6

$
379

$
—

$
285

$
1,844

Loans collectively evaluated for impairment

4

13

2

225

23

71

338

Non-impaired loans collectively evaluated for impairment

4,539

2,684

337

1,968

877

1,157

11,562

Loans acquired with deteriorated credit quality (1)

499

232

—

357

30

—

1,118

Total allowance for loan losses

$
5,920

$
3,225

$
345

$
2,929

$
930

$
1,513

$
14,862

Recorded investment (loan balance):

Impaired loans individually evaluated for impairment

$
6,504

$
18,275

$
63

$
2,920

$
—

$
670

$
28,432

Impaired loans collectively evaluated for impairment

44

123

21

2,109

213

661

3,171

Non-impaired loans collectively evaluated for impairment

447,762

945,497

165,091

242,127

269,492

190,148

2,260,117

Loans acquired with deteriorated credit quality (1)

3,517

5,720

12,150

6,557

312

—

28,256

Total recorded investment (loan balance)

$
457,827

$
969,615

$
177,325

$
253,713

$
270,017

$
191,479

$
2,319,976

~~(1)~~

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

~~Table of Contents~~

~~Note 7 – Mortgage Servicing Rights~~

At September 30, ~~2017 and December 31, 2016,~~2022, the Company serviced mortgage loans for others totaling $5.95 billion and $5.64 billion, respectively. A summary of mortgage loans serviced for others as of September 30, 2017 and December 31, 2016 is as follows (in thousands):

September 30,

December 31,

2017

2016

Commercial FHA mortgage loans

$
3,895,455

$
3,811,066

Residential mortgage loans

2,053,933

1,833,443

Total loans serviced for others

$
5,949,388

$
5,644,509

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

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Mortgage servicing rights:

Balance, beginning of period

$
75,705

$
68,395

$
71,710

$
67,218

Servicing rights acquired – residential mortgage loans

—

—

1,933

—

Servicing rights transferred to held for sale - residential mortgage loans

(16,229)

—

(16,229)

—

Servicing rights capitalized – commercial FHA mortgage loans

1,432

3,506

5,020

5,777

Servicing rights capitalized – residential mortgage loans

435

1,125

1,656

2,764

Amortization – commercial FHA mortgage loans

(650)

(592)

(1,928)

(1,741)

Amortization – residential mortgage loans

(857)

(1,085)

(2,326)

(2,669)

Balance, end of period

59,836

71,349

59,836

71,349

Valuation allowances:

Balance, beginning of period

5,428

5,587

3,702

567

Additions

104

1,073

1,942

6,301

Reductions

—

—

(112)

(208)

Servicing rights transferred to held for sale - residential mortgage loans

(1,995)

—

(1,995)

—

Balance, end of period

3,537

6,660

3,537

6,660

Mortgage servicing rights, net

$
56,299

$
64,689

$
56,299

$
64,689

Fair value:

At beginning of period

$
70,277

$
62,960

$
68,008

$
66,700

At end of period

$
56,299

$
64,689

$
56,299

$
64,689

During the third quarter of 2017, the Company transferred $14.2 million of residential mortgage servicing rights, net of valuation allowance, to mortgage servicing rights held for sale. The Company hashad committed to a plan to sell ~~certain residential mortgage~~commercial FHA servicing rights and ~~has the ability~~therefore transferred $24.0 million to ~~sell them to a buyer in their present condition. During the three and nine months ended September 30, 2017, the Company recognized a $3.6 million loss on mortgage~~commercial FHA servicing rights held for sale. Servicing rights held for sale ~~to reflect them~~are recorded at the lower of their carrying ~~value~~amount or fair value less estimated costs to sell. ~~As a result~~No impairment was recognized in the third quarter of ~~recognizing this loss, mortgage~~2022.

The fair value of commercial FHA loan servicing rights ~~held for sale had a net carrying value of $10.6 million at September 30, 2017.~~

~~Table of Contents~~

~~The following table~~ is ~~a summary of~~determined using key assumptions, representing both general economic and other published information, including the assumed earnings rates related to escrow and replacement reserves, and the weighted average characteristics of the commercial ~~and residential portfolios, used in the valuation of servicing rights at September 30, 2017 and December 31, 2016. Assumptions used in~~portfolio, including the prepayment rate ~~consider~~and discount rate. The prepayment rate considers many factors as appropriate, including lockouts, balloons, prepayment penalties, interest rate ranges, delinquencies and geographic location. The discount rate is based on an average ~~pre‑tax~~pre-tax internal rate of return utilized by market participants in pricing the servicing ~~portfolios.~~portfolio. Significant increases or decreases in any one of these assumptions would result in a significantly lower or higher fair value measurement.

Remaining






Servicing

Interest

Years to

Prepayment

Servicing

Discount

Fee

Rate

Maturity

Rate

Cost

Rate
September 30, 2017:

Commercial FHA mortgage loans

0.13
%

3.67
%

30.3

8.25
%

$
1,000

10 - 12
%
Residential mortgage loans

0.26
%

3.93
%

22.6

11.52
%

$
67

9 - 11
%

December 31, 2016:

Commercial FHA mortgage loans

0.13
%

3.72
%

30.2

8.31
%

$
1,000

10 - 13
%
Residential mortgage loans

0.26
%

3.89
%

24.2

9.72
%

$
60

9 - 11
%

~~We recognize revenue from servicing commercial FHA~~ The weighted average prepayment rate was 8.21% and residential mortgages as earned based on the specific contractual terms. This revenue, along with amortization of and changes in impairment on servicing rights, is reported in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income. ~~Mortgage servicing rights do not trade in an active market with readily observable prices.~~ The fair value of mortgage servicing rights and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured residential and commercial mortgages and conventional residential mortgages. The fair value of our servicing rights is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, ~~cost to service, contractual servicing fee income, ancillary income, late fees, replacement reserves and other economic factors that are determined based on current market conditions.~~

~~Note 8 – Goodwill and Intangible Assets~~

At8.24% at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, while the weighted average discount rate was 11.48% and 11.87% for the same periods, respectively.

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill ~~totaled $97.4 million~~by segment at September 30, 2022 and ~~$48.8 million, respectively. Goodwill increased $46.1 million~~December 31, 2021 is summarized as ~~a result~~follows:


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

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

Table of ~~the acquisition of Centrue on June 9, 2017 and $2.4 million as a result of the acquisition of CedarPoint on March 28, 2017, as further discussed in Note 3 to the consolidated financial statements.~~

Contents

The Company’s intangible assets, consisting of core deposit and customer relationship intangibles, as of September 30, ~~2017~~2022 and December 31, ~~2016~~ 2021 are summarized as ~~follows (in thousands):~~

follows:


	September 30, 2017						December 31, 2016							September 30, 2022						December 31, 2021
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Total		Amount		Amortization		Total
(dollars in thousands)													(dollars in thousands)	Gross carrying amount		Accumulated amortization		Total		Gross carrying amount		Accumulated amortization		Total
Core deposit intangibles	$	31,612	$	(17,998)	$	13,614	$	20,542	$	(16,181)	$	4,361	Core deposit intangibles	$	58,913	$	(43,708)	$	15,205	$	57,012	$	(40,603)	$	16,409
Customer relationship intangibles		7,471		(3,119)		4,352		5,471		(2,645)		2,826	Customer relationship intangibles	15,919		(8,926)		6,993		15,918		(7,953)		7,965
Total intangible assets	$	39,083	$	(21,117)	$	17,966	$	26,013	$	(18,826)	$	7,187	Total intangible assets	$	74,832	$	(52,634)	$	22,198	$	72,930	$	(48,556)	$	24,374

In conjunction with the FNBC branch acquisition, ~~of Centrue on June 9, 2017, we~~the Company recorded ~~$11.1~~$1.9 million of core deposit intangibles, which are being amortized on an accelerated basis over an estimated useful life of ~~eight years, as further discussed in Note 3 to the consolidated financial statements.~~

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

10 years.

Amortization of intangible assets was ~~$1.2~~$1.4 million and ~~$2.3~~$4.1 million for the three and nine months ended September 30, ~~2017,~~2022, respectively, and ~~$514,000~~$1.4 million and ~~$1.6~~$4.4 million for the comparable periods in ~~2016,~~2021, respectively.

~~Table of Contents~~

~~Note~~NOTE 9 – ~~Derivative Instruments~~

DERIVATIVE INSTRUMENTS

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

securities, cash flow hedges and interest rate swap contracts.

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

~~Derivative instruments issued by the~~

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

The following table summarizes the interest rate lock commitments and forward commitments to sell mortgage-backed securities held by the Company, their notional amount and estimated fair values ~~and the location in which the derivative instruments are reported in the consolidated balances sheets~~ at September 30, ~~2017~~2022 and December 31, ~~2016 (in thousands):~~

2021:


	Notional Amount				Fair Value Gain					Notional amount				Fair value gain
	September 30,		December 31,		September 30,		December 31,
	2017		2016		2017		2016
Derivative Instruments (included in Other Assets):
(dollars in thousands)									(dollars in thousands)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Derivative instruments (included in other assets):									Derivative instruments (included in other assets):
Interest rate lock commitments	$	337,280	$	264,359	$	6,421	$	6,253	Interest rate lock commitments	$	4,419	$	66,216	$	(15)	$	410
Forward commitments to sell mortgage-backed securities		349,945		301,788		5		125	Forward commitments to sell mortgage-backed securities	11,054		60,427		165		—
Total	$	687,225	$	566,147	$	6,426	$	6,378	Total	$	15,473	$	126,643	$	150	$	410

~~Net losses of $1.1 million and net gains of $48,000 were recognized on derivative instruments for~~


	Notional amount				Fair value loss
(dollars in thousands)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Derivative instruments (included in other liabilities):
Interest rate lock commitments	$	9,138	$	—	$	317	$	—
Forward commitments to sell mortgage-backed securities	—		18,362		—		19
Total	$	9,138	$	18,362	$	317	$	19

During the three and nine months ended September 30, ~~2017, respectively. Net~~2022, the Company recognized net losses of ~~$5.2~~$0.2 million and ~~net gains of $527,000 were recognized~~$0.6 million, respectively, on derivative instruments ~~for the three and nine months ended September 30, 2016, respectively. Net gains and losses on derivative instruments were recognized~~ in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income.

Table of Contents

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

Cash Flow Hedges

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


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

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


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

Quarterly, the effectiveness evaluation of the above cash flow hedges is based on the fluctuation of the variable interest the Company receives from the customers for the loans as compared to the fixed interest rate received from the counterparty. There were no amounts recorded in the consolidated statements of income for the three and nine months ended September 30, 2022, related to ineffectiveness.

Interest Rate Swap Contracts

Not Designated as Hedges

The Company entered into ~~derivative instruments related to~~ interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by contracts simultaneously purchased by the Company from other financial dealer institutions with mirror-image terms. Because of the mirror-image terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in the fair value subsequent to initial recognition have a minimal effect on earnings. These derivative contracts do not qualify for hedge accounting.

The notional amounts of ~~these~~the customer derivative instruments and the offsetting counterparty derivative instruments were ~~$10.1~~$7.6 million and $7.9 million at September 30, ~~2017.~~2022 and December 31, 2021, respectively. The fair value of the customer derivative instruments and the offsetting counterparty derivative instruments was ~~$121,000~~$0.5 million and $0.4 million at September 30, ~~2017,~~2022 and December 31, 2021, respectively, which are included in other assets and other liabilities, respectively, on the consolidated balance sheets.

Table of Contents

~~Note~~NOTE 10 – ~~Deposits~~

DEPOSITS

The following table summarizes the classification of deposits as of September 30, ~~2017~~2022 and December 31, ~~2016 (in thousands):~~

2021:


	September 30,		December 31,
	2017		2016
(dollars in thousands)					(dollars in thousands)	September 30, 2022		December 31, 2021
Noninterest-bearing demand	$	674,118	$	562,333	Noninterest-bearing demand	$	2,025,237	$	2,245,701
Interest-bearing:					Interest-bearing:
Checking		800,649		656,248	Checking	1,905,439		1,663,021
Money market		633,844		399,851	Money market	1,125,333		869,067
Savings		278,977		166,910	Savings	704,245		679,115
Time		726,879		619,024	Time	634,998		653,744
Total deposits	$	3,114,467	$	2,404,366	Total deposits	$	6,395,252	$	6,110,648

~~Note~~

NOTE 11 – ~~Short-Term Borrowings~~

SHORT-TERM BORROWINGS

The following table presents the distribution of short-term borrowings and related weighted average interest rates as of ~~and for the nine months ended~~ September 30, ~~2017~~2022 and ~~as of and for the year ended~~ December 31, ~~2016 (in thousands):~~

2021:


	Repurchase Agreements							Repurchase agreements
	September 30,			December 31,
	2017			2016
(dollars in thousands)							(dollars in thousands)	As of and for the Nine Months Ended September 30, 2022			As of and for the Year Ended December 31, 2021
Outstanding at period-end	$	153,443		$	131,557		Outstanding at period-end	$	58,518		$	76,803
Average amount outstanding		157,388			130,228		Average amount outstanding	62,495			68,986
Maximum amount outstanding at any month end		183,327			168,369		Maximum amount outstanding at any month end	76,807			77,497
Weighted average interest rate:							Weighted average interest rate:
During period		0.22	%		0.23	%	During period	0.16		%	0.12		%
End of period		0.23	%		0.21	%	End of period	0.26		%	0.13		%

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

Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction, which represents the amount of the Bank’s obligation. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. Investment securities with a carrying amount of ~~$185.7~~$61.5 million and ~~$140.0~~$78.3 million at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, were pledged for securities sold under agreements to repurchase.

The Company had available lines of credit of ~~$23.2~~$13.5 million and ~~$35.1~~$55.9 million at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, from the Federal Reserve Discount Window. The lines are collateralized by a collateral agreement with respect to a pool of commercial real estate loans totaling ~~$31.5~~$15.7 million and ~~$43.3~~$64.8 million at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. There were no outstanding borrowings under these lines at September 30, ~~2017~~2022 and December 31, ~~2016.~~

2021.

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

Table of Contents

~~Note~~NOTE 12 – FHLB ~~Advances and Other Borrowings~~

ADVANCES AND OTHER BORROWINGS

The following table summarizes our ~~Federal Home Loan Bank (“FHLB”)~~FHLB advances and other borrowings as of September 30, ~~2017~~2022 and December 31, ~~2016 (in thousands):~~

2021:

September 30,

December 31,


2017

2016

Midland States Bancorp, Inc.

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

$
38,539

$
—

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

181

—

Midland States Bank

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

411,144

237,500

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

39,000

—

Other

6

18

Total FHLB advances and other borrowings

$
488,870

$
237,518


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

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

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

~~The Bank’s~~ advances from the FHLB are collateralized by a blanket collateral agreement of qualifying mortgage and home equity line of credit loans and certain commercial real estate loans totaling approximately ~~$1.63~~$2.71 billion and ~~$1.18~~$2.10 billion at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.

~~Note~~

On October 12, 2021, the Company entered into a loan agreement with another bank for a revolving line of credit in the original principal amount of up to $15.0 million. The loan matured on October 11, 2022.

NOTE 13 – ~~Subordinated Debt~~

SUBORDINATED DEBT

The following table summarizes the Company’s subordinated debt as of September 30, ~~2017~~2022 and December 31, ~~2016 (in thousands):~~

September 30,

December 31,

2017

2016

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

$
39,783

$
39,729

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

14,798

14,779

Total subordinated debt

$
54,581

$
54,508

2021:


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

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

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

NOTE 14 – PREFERRED STOCK

On August 24, 2022, the Company issued and sold 4,600,000 depositary shares (the "Depositary Shares"), each representing a 1/40th ownership interest in a share of the Company's 7.75% fixed-rate reset non-cumulative perpetual preferred stock, Series A, par value $2.00 per share (the "Series A preferred stock"), with a liquidation preference of $25 per depositary share (equivalent to $1,000 per share of Series A Preferred Stock). The Series A preferred stock qualifies as Tier 1 capital for purposes of regulatory capital calculations. The gross proceeds were $115.0 million while net proceeds from the issuance of the

Table of Contents

~~Note 14 – Trust Preferred Debentures~~

~~The following table summarizes~~Series A preferred stock, after deducting $4.5 million of offering costs, including the underwriting discount and other expenses, were $110.5 million.

Dividends on the Series A preferred stock will not be cumulative or mandatory, and will be paid when, as, and if declared by the Company’s ~~trust preferred debentures~~board of directors. If declared, dividends will accrue and be payable, quarterly in arrears, (i) from and including the date of original issuance to, but excluding September 30, 2027 or the date of earlier redemption, at a rate of 7.75% per annum, on March 30, June 30, September 30 and December 30 of each year, commencing on December 30, 2022, and (ii) from and including September 30, 2027, during each reset period, at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 4.713%, on March 30, June 30, September 30 ~~2017~~ and December ~~31, 2016 (in thousands):~~

30 of each year, beginning on December 30, 2027, except in each case where such day is not a business day.

September 30,

December 31,


2017

2016

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

$
2,043

$
1,996

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

9,959

9,957

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

13,253

13,141

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

12,425

12,311

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

7,587

—

Total trust preferred debentures

$
45,267

$
37,405

~~In conjunction with~~If the ~~acquisition~~Company’s board of ~~Centrue~~directors does not declare a dividend on ~~June 9, 2017, as further discussed~~the Series A preferred stock in ~~Note 3~~respect of a dividend period, then no dividend shall be deemed to ~~the consolidated financial statements,~~be payable for such dividend period, or be cumulative, and the Company ~~assumed $10.0 million~~will have no obligation to pay any dividend for that dividend period, whether or not the board of ~~subordinated debentures that were recorded at fair value of $7.6 million at~~directors declares a dividend on the ~~time of acquisition. In April 2004, the Centrue Statutory Trust II (“Centrue Trust II”) issued 10,000 shares of~~Series A preferred securities with a liquidation amount of $1,000 per preferred security. Centrue issued $10.0 million of subordinated debentures to Centrue Trust II in exchange for ownership of all the common securitiesstock or any other class or series of the trust. The Company is not considered the primary beneficiary of Centrue Trust II, therefore, the trust is not consolidated in the Company’s consolidated financial statements, but rather the subordinated debentures are shownCompany's capital stock for any future dividend period. Additionally, so long as ~~a liability, and the Company’s investment in the common stock of Centrue Trust II of $310,000 is included in other assets.~~

~~Note 15 – Preferred Stock~~

~~Series G Preferred Stock~~

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

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

~~Each share of Centrue’s Series D~~A preferred stock ~~was converted into~~for the right to receive a share of a newly created series of Series H preferred stock of the Company, and was recorded at fair value of $3.1 million at the time of acquisition. Dividends are payable at a fixed rate of 12.5% per annum, payable quarterly and are non-cumulative. No dividends may be paid on shares of common stock, shares of preferred stock that rank junior to Series H preferred stock (other than dividends payable solely in shares of common stock), or shares of preferred stock that rank on parity with Series H preferred stock, if amost recently completed dividend ~~is not~~period have been paid in full or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on the Company’s common stock.

The Series HA preferred stock ~~for a period of three calendar quarters from the date of the missing dividend payment~~is perpetual and has no maturity date. The Series A preferred stock is not subject to any mandatory redemption, sinking fund, or other similar provisions. The Company, ~~has~~at its option and subject to prior regulatory approval, may redeem the ~~option to redeem,~~Series A preferred stock (i) in whole or in part, ~~the shares of Series H preferred stock~~from time to time, on any dividend payment date on or after September 30, 2027, or (ii) in whole but not in part at any time ~~after July 29, 2019. The per share~~within 90 days following a regulatory capital treatment event, in each case, at a redemption price ~~payable by the Company for such shares of Series H preferred stock will be~~ equal to $1,000 per share of Series A preferred stock (equivalent to $25 per Depositary Share), plus any ~~accrued~~declared and unpaid dividends, without regard to any undeclared dividends, to but ~~unpaid dividends.~~

excluding the redemption date. Neither the holders of the Series A preferred stock nor holders of the Depositary Shares will have the right to require the redemption or repurchase of the Series A preferred stock.

NOTE 15 – EARNINGS PER COMMON SHARE

~~Table of Contents~~

~~Note 16 – Earnings Per Share~~

Earnings per common share ~~are~~is calculated utilizing the ~~two‑class~~two-class method. Basic earnings per common share ~~are~~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 ~~are~~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 using~~awards. The diluted earnings per common share computation for both the ~~treasury stock method (outstanding~~three and nine months ended September 30, 2022 excluded antidilutive stock options of 45,698 and ~~unvested restricted stock) and~~excluded antidilutive stock options of 69,145 for the comparable periods in 2021, respectively, because the exercise prices of these stock options exceeded the average market prices of the Company’s common ~~stock warrants.~~shares for

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those respective periods. Presented below are the calculations for basic and diluted earnings per common share for the three and nine months ended September 30, ~~2017~~2022 and ~~2016 (dollars in thousands, except per share data):~~

Three Months Ended

Nine Months Ended


September 30,

September 30,


2017

2016

2017

2016

Net income

$
2,036

$
8,051

$
14,065

$
19,959

Preferred stock dividends

(83)

—

(102)

Amortization of preferred stock premium

56

—

56

—

Net income available to common equity

2,009

8,051

14,019

19,959

Common shareholder dividends

(3,818)

(2,773)

(10,100)

(7,022)

Unvested restricted stock award dividends

(19)

(12)

(59)

(35)

Undistributed earnings to unvested restricted stock awards

—

(26)

(21)

(69)

Undistributed earnings to common shareholders

$
(1,828)

$
5,240

$
3,839

$
12,833

Basic

Distributed earnings to common shareholders

$
3,818

$
2,773

$
10,100

$
7,022

Undistributed earnings to common shareholders

(1,828)

5,240

3,839

12,833

Total common shareholders earnings, basic

$
1,990

$
8,013

$
13,939

$
19,855

Diluted

Distributed earnings to common shareholders

$
3,818

$
2,773

$
10,100

$
7,022

Undistributed earnings to common shareholders

(1,828)

5,240

3,839

12,833

Total common shareholders earnings

1,990

8,013

13,939

19,855

Add back:

Undistributed earnings reallocated from unvested restricted stock awards

—

—

1

1

Total common shareholders earnings, diluted

$
1,990

$
8,013

$
13,940

$
19,856

Weighted average common shares outstanding, basic

19,265,409

15,578,703

17,274,746

13,637,997

Options and warrants

438,808

279,570

522,489

264,667

Weighted average common shares outstanding, diluted

19,704,217

15,858,273

17,797,235

13,902,664

Basic earnings per common share

$
0.10

$
0.51

$
0.81

$
1.46

Diluted earnings per common share

0.10

0.51

0.78

1.43

2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	2022		2021		2022		2021
Net income	$	23,521	$	19,548	$	66,153	$	58,210



Common shareholder dividends	(6,400)		(6,239)		(19,186)		(18,741)
Unvested restricted stock award dividends	(70)		(60)		(218)		(186)
Undistributed earnings to unvested restricted stock awards	(185)		(126)		(519)		(386)
Undistributed earnings to common shareholders	$	16,866	$	13,123	$	46,230	$	38,897
Basic
Distributed earnings to common shareholders	$	6,400	$	6,239	$	19,186	$	18,741
Undistributed earnings to common shareholders	16,866		13,123		46,230		38,897
Total common shareholders earnings, basic	$	23,266	$	19,362	$	65,416	$	57,638
Diluted
Distributed earnings to common shareholders	$	6,400	$	6,239	$	19,186	$	18,741
Undistributed earnings to common shareholders	16,866		13,123		46,230		38,897
Total common shareholders earnings	23,266		19,362		65,416		57,638
Add back:
Undistributed earnings reallocated from unvested restricted stock awards	—		—		1		1
Total common shareholders earnings, diluted	$	23,266	$	19,362	$	65,417	$	57,639
Weighted average common shares outstanding, basic	22,338,828		22,520,499		22,306,323		22,544,898
Options	51,610		57,381		60,772		69,074
Weighted average common shares outstanding, diluted	22,390,438		22,577,880		22,367,095		22,613,972
Basic earnings per common share	$	1.04	$	0.86	$	2.93	$	2.56
Diluted earnings per common share	1.04		0.86		2.92		2.55

~~Table of Contents~~

~~Note 17~~NOTE 16 – ~~Fair Value of Financial Instruments~~

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

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

~~Fair value is used on a recurring basis to account for securities available for sale and derivative instruments, and for financial assets for which the Company has elected the fair value option. For~~ assets and liabilities ~~measured at~~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 ~~lower of cost~~assumptions that market participants would use in pricing an asset or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for impaired loans and other real estate owned and also to record impairment on certain assets, such as mortgage servicing rights, goodwill, intangible assets and other long-lived assets.

liability.

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Assets and liabilities measured and recorded at fair value, including financial assets for which the Company has elected the fair value option, on a recurring and nonrecurring basis ~~as of~~at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, are summarized ~~below (in thousands):~~

September 30, 2017

Quoted prices

in active

Significant

markets

other

Significant

for identical

observable

unobservable

assets

inputs

inputs

Total

(Level 1)

(Level 2)

(Level 3)

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













Assets

Securities available for sale:

U.S. Treasury securities

$
47,907

$
47,907

$
—

$
—

Government sponsored entity debt securities

19,389

—

19,389

—

Agency mortgage-backed securities

229,854

—

229,854

—

State and municipal securities

39,716

—

39,716

—

Corporate securities

57,307

—

52,558

4,749

Equity securities

2,812

—

2,812

—

Loans held for sale

35,874

—

35,874

—

Interest rate lock commitments

6,421

—

6,421

—

Forward commitments to sell mortgage-backed securities

5

—

5

—

Interest rate swap contracts

121

—

121

—

Total

$
439,406

$
47,907

$
386,750

$
4,749

Liabilities

Interest rate swap contracts

$
121

$
—

$
121

$
—

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

Mortgage servicing rights

$
56,299

$
—

$
—

$
56,299

Mortgage servicing rights held for sale

10,618

—

—

10,618

Impaired loans

18,311

—

6,227

12,084

Assets held for sale

2,858

—

2,858

—

below:


	September 30, 2022
(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	$	60,496	$	60,496	$	—	$	—
U.S. government sponsored entities and U.S. agency securities	27,865		—		27,865		—
Mortgage-backed securities - agency	391,615		—		391,615		—
Mortgage-backed securities - non-agency	21,158		—		21,158		—
State and municipal securities	95,061		—		95,061		—
Corporate securities	85,694		—		85,694		—
Equity securities	8,615		8,615		—		—
Loans held for sale	4,338		—		4,338		—
Derivative assets	17,033		—		17,033		—

Total	$	711,875	$	69,111	$	642,764	$	—
Liabilities
Derivative liabilities	$	11,512	$	—	$	11,512	$	—

Total	$	11,512	$	—	$	11,512	$	—

Assets measured at fair value on a non-recurring basis:
Loan servicing rights	$	1,297	$	—	$	—	$	1,297
Commercial FHA mortgage servicing rights held for sale	23,995		—		—		23,995
Nonperforming loans	46,882		11,516		25,128		10,238
Other real estate owned	11,141		—		11,141		—
Assets held for sale	1,271		—		1,271		—

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	December 31, 2021
(dollars in thousands)	Carrying amount		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets and liabilities measured at fair value on a recurring basis:
Assets
Investment securities available for sale:
U.S. Treasury securities	$	64,917	$	64,917	$	—	$	—
U.S. government sponsored entities and U.S. agency securities	33,817		—		33,817		—
Mortgage-backed securities - agency	440,270		—		440,270		—
Mortgage-backed securities - non-agency	28,706		—		28,706		—
State and municipal securities	143,099		—		143,099		—
Corporate securities	195,794		—		194,859		935
Equity securities	9,529		9,529		—		—
Loans held for sale	32,045		—		32,045		—
Derivative assets	5,883		—		5,883		—

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

Total	$	397	$	—	$	397	$	—

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

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

December 31, 2016

Quoted prices

in active

Significant

markets

other

Significant

for identical

observable

unobservable

assets

inputs

inputs

Total

(Level 1)

(Level 2)

(Level) 3

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













Assets

Securities available for sale:

U.S. Treasury securities

$
75,901

$
75,901

$
—

$
—

Government sponsored entity debt securities

7,688

—

7,688

—

Agency mortgage-backed securities

90,070

—

90,070

—

Non-agency mortgage-backed securities

1

—

—

1

State and municipal securities

25,274

—

25,274

—

Corporate securities

47,405

—

39,925

7,480

Loans held for sale

70,565

—

70,565

—

Interest rate lock commitments

6,253

—

6,253

—

Forward commitments to sell mortgage-backed securities

125

—

125

—

Total

$
323,282

$
75,901

$
239,900

$
7,481

Liabilities

None

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

Impaired loans

$
10,202

$
—

$
6,635

$
3,567

Other real estate owned

165

—

165

—

Assets held for sale

1,550

—

1,550

—

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

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Mortgage servicing rights

$
104

$
1,073

$
1,830

$
6,093

Mortgage servicing rights held for sale

3,617

—

3,617

—

Impaired loans

1

144

564

310

Other real estate owned

—

4

180

219

Assets held for sale

—

—

1,130

—

Total loss on assets measured on a nonrecurring basis

$
3,722

$
1,221

$
7,321

$
6,622

~~The following table presents~~reconciliation of activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, ~~2017 (in thousands):~~

Non-Agency

Corporate

Mortgage-Backed

Securities

Securities

Three Months

Nine Months

Three Months

Nine Months

Ended

Ended

Ended

Ended

September 30,

September 30,

September 30,

September 30,

2017

2017

Balance, beginning of period

$
4,740

$
7,480

$
—

$
1

Total realized in earnings (1)

54

235

—

—

Total unrealized in other comprehensive income

—

242

—

—

Net settlements (principal and interest)

(45)

(3,208)

—

(1)

Balance, end of period

$
4,749

$
4,749

$
—

$
—

2022 and 2021:


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

~~(1)~~

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

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

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

~~Table of Contents~~

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

(dollars in thousands)

Fair value

Valuation
technique

Unobservable
input / assumptions

Range (weighted average)(1)

December 31, 2021

Corporate securities

935

Consensus pricing

Net market price

0.0% - 7.0% (4.5)%

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

Table of Contents

The significant unobservable inputs ~~(Level 3)~~used in the fair value measurement of the Company’s corporate securities is net market price. The corporate securities are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. Significant changes in any of the inputs in isolation would result in a significant change to the fair value measurement. Generally, net market price increases when market interest rates decline and declines when market interest rates increase.

The following table presents losses recognized on assets measured on a nonrecurring basis for the three and nine months ended September 30, ~~2016 (in thousands).~~

Non-Agency

Corporate

Mortgage-Backed

Securities

Securities

Three Months

Nine Months

Three Months

Nine Months

Ended

Ended

Ended

Ended

September 30,

September 30,

September 30,

September 30,

2016

2016

Balance, beginning of period

$
9,765

$
—

$
2

$
—

Transferred from Level 2

—

6,749

—

2

Transferred to Level 2

(2,000)

(2,000)

—

—

Purchases of investment securities recognized as Level 3

—

3,000

—

—

Total realized in earnings (1)

93

251

—

—

Total unrealized in other comprehensive income

(294)

(296)

—

—

Net settlements (principal and interest)

(84)

(224)

(1)

(1)

Balance, end of period

$
7,480

$
7,480

$
1

$
1

2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Commercial mortgage servicing rights	$	—	$	3,037	$	1,263	$	5,460
Residential mortgage servicing rights held for sale	—		79		—		222
Nonperforming loans	1,423		3,405		6,381		9,677
Other real estate owned	339		9		743		426
Assets held for sale	—		—		—		—
Total losses on assets measured on a nonrecurring basis	$	1,762	$	6,530	$	8,387	$	15,785

The following tables present quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured on a nonrecurring basis at September 30, 2022 and December 31, 2021:

~~(1)~~

~~Amounts included~~

(dollars in ~~interest income from investment securities taxable in the consolidated statements of income.~~

thousands)

Fair value

Valuation
technique

Unobservable
input / assumptions

Range (weighted average)(1)

September 30, 2022

Loan servicing rights:

SBA servicing rights

715

Discounted cash flow

Prepayment speed

14.21% - 15.40% (14.95%)

Discount rate

No range (11.50%)

Residential servicing rights

582

Discounted cash flow

Prepayment speed

7.56% -31.14% (8.46%)

Discount rate

9.00% - 11.50% (10.13%)

Commercial FHA servicing rights held for sale

23,995

Discounted cash flow

Prepayment speed

8.00% - 18.00% (8.21%)

Discount rate

10.00% - 27.00% (11.48%)

December 31, 2021

Loan servicing rights:

Commercial MSR

28,368

Discounted cash flow

Prepayment speed

8.00% - 18.00% (8.24%)

Discount rate

10.00% - 27.00% (11.87%)

SBA servicing rights

898

Discounted cash flow

Prepayment speed

12.27% - 14.14% (13.88%)

Discount rate

10.00% - 12.00% (11.00%)

Residential servicing rights

705

Discounted cash flow

Prepayment speed

11.94% - 27.48% (14.94%)

Discount rate

9.00% - 11.50% (10.25%)

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

ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.

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

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to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification.

The following ~~tables are a summary of~~table presents the ~~carrying values and~~difference between the aggregate fair value ~~estimates of certain financial instruments~~and the aggregate remaining principal balance for loans for which the fair value option has been elected as of September 30, ~~2017~~2022 and December 31, ~~2016 (in thousands):~~

September 30, 2017

Quoted prices

in active

Significant

markets

other

Significant

for identical

observable

unobservable

Carrying

assets

inputs

inputs

Amount

Fair Value

(Level 1)

(Level 2)

(Level 3)

Assets

Cash and due from banks

$
180,807

$
180,807

$
180,807

$
—

$
—

Federal funds sold

2,765

2,765

2,765

—

—

Investment securities available for sale

396,985

396,985

47,907

344,329

4,749

Investment securities held to maturity

70,867

75,142

—

75,142

—

Nonmarketable equity securities

34,391

N/A

N/A

N/A

N/A

Loans, net

3,141,111

3,142,910

—

—

3,142,910

Loans held for sale

35,874

35,874

—

35,874

—

Accrued interest receivable

11,673

11,673

—

11,673

—

Interest rate lock commitments

6,421

6,421

—

6,421

—

Forward commitments to sell mortgage-backed securities

5

5

—

5

—

Interest rate swap contracts

121

121

—

121

—

Liabilities

Deposits

$
3,114,467

$
3,112,541

$
—

$
3,112,541

$
—

Short-term borrowings

153,443

153,443

—

153,443

—

FHLB and other borrowings

488,870

488,196

—

488,196

—

Subordinated debt

54,581

50,055

—

50,055

—

Trust preferred debentures

45,267

43,114

—

43,114

—

Accrued interest payable

2,355

2,355

—

2,355

—

Interest rate swap contracts

121

121

—

121

—

December 31, 2016

Quoted prices

in active

Significant

markets

other

Significant

for identical

observable

unobservable

Carrying

assets

inputs

inputs

Amount

Fair Value

(Level 1)

(Level 2)

(Level 3)

Assets

Cash and due from banks

$
189,543

$
189,543

$
189,543

$
—

$
—

Federal funds sold

1,173

1,173

1,173

—

—

Investment securities available for sale

246,339

246,339

75,901

162,957

7,481

Investment securities held to maturity

78,672

81,952

—

81,952

—

Nonmarketable equity securities

19,485

N/A

N/A

N/A

N/A

Loans, net

2,305,114

2,305,206

—

—

2,305,206

Loans held for sale

70,565

70,565

—

70,565

—

Accrued interest receivable

8,202

8,202

—

8,202

—

Interest rate lock commitments

6,253

6,253

—

6,253

—

Forward commitments to sell mortgage-backed securities

125

125

—

125

—

Liabilities

Deposits

$
2,404,366

$
2,404,231

$
—

$
2,404,231

$
—

Short-term borrowings

131,557

131,557

—

131,557

—

FHLB and other borrowings

237,518

236,736

—

236,736

—

Subordinated debt

54,508

49,692

—

49,692

—

Trust preferred debentures

37,405

33,054

—

33,054

—

Accrued interest payable

1,045

1,045

—

1,045

—

2021:


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

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

~~Table of Contents~~

The following ~~is a description~~table presents the amount of ~~the valuation methodologies used to measure our assets recorded at~~losses from fair value ~~(under ASC Topic 820) and for estimating fair value~~changes included in income before income taxes for financial ~~instruments not recorded at fair value (under ASC Topic 825):~~

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

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

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

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

~~Corporate securities classified as Level 3 are not actively traded,~~2022 and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. The significant unobservable input used in the fair value measurement of Level 3 corporate securities is net market price (range of -2.0% to 2.5%; weighted average of 1.5%). Significant changes in any of the inputs in isolation would result in a significant change to the fair value measurement. Net market price generally increases when market interest rates decline and declines when market interest rates increase.

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

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

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

~~Nonmarketable equity securities.~~ ~~Nonmarketable equity securities are primarily FHLB and Federal Reserve Bank stock. The Company is a member of the FHLB and the Federal Reserve System.~~2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Commercial loans held for sale	$	—	$	—	$	—	$	(67)
Residential loans held for sale	(280)		(231)		(557)		(294)
Total loans held for sale	$	(280)	$	(231)	$	(557)	$	(361)

The carrying ~~value is our basis because it is not practical to determine the fair value due to restrictions placed on transferability.~~

~~Table of Contents~~

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

~~Impaired loans.~~ Impaired loans are measured and recorded at fair value on a non-recurring basis. All of our nonaccrual loans and restructured loans are considered impaired and are reviewed individually for the amount of impairment, if any. Most of our loans are collateral dependent and, accordingly, we measure impaired loans based on the estimated fair value of such collateral. The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral; such valuation inputs result in a nonrecurring fair value measurement that is categorized as a Level 2 measurement. When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable and the fair value measurement is categorized as a Level 3 measurement. The impaired loans categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, cash flows discounted at the effective loan rate, and management’s judgment. The loan balances shown in the above tables represent nonaccrual and restructured loans for which impairment was recognized during the three and nine months ended September 30, 2017 and 2016. The amounts shown as losses represent, for the loan balances shown, the impairment recognized during those same years.

~~Loans held for sale.~~ ~~Loans held for sale are~~certain financial instruments not carried at fair value ~~determined individually,~~at September 30, 2022 and December 31, 2021 were as follows:


	September 30, 2022
(dollars in thousands)	Carrying amount		Fair value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets
Cash and due from banks	$	309,531	$	309,531	$	309,531	$	—	$	—
Federal funds sold	3,657		3,657		3,657		—		—

Loans, net	6,139,812		6,025,586		—		—		6,025,586
Accrued interest receivable	17,537		17,537		—		17,537		—

Liabilities
Deposits	$	6,395,252	$	6,370,773	$	—	$	6,370,773	$	—
Short-term borrowings	58,518		58,518		—		58,518		—
FHLB and other borrowings	360,000		358,694		—		358,694		—
Subordinated debt	139,370		135,279		—		135,279		—
Trust preferred debentures	49,824		54,965		—		54,965		—

Table of Contents


	December 31, 2021
(dollars in thousands)	Carrying amount		Fair value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets
Cash and due from banks	$	673,297	$	673,297	$	673,297	$	—	$	—
Federal funds sold	7,074		7,074		7,074		—		—

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

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

In accordance with our adoption of ASU 2016-1 in 2019, the ~~balance sheet date. Fair value measurements on loans held for sale are based on quoted market prices for similar loans in the secondary market.~~

~~Other real estate owned.~~ ~~The~~methods utilized to measure fair value of foreclosed real estate is generally based on estimated market prices from independently prepared current appraisals or negotiated sales prices with potential buyers; such valuation inputs result in a fair value measurement that is categorized as a Level 2 measurement on a nonrecurring basis. When a current appraised value is not available or management determines the fair valuefinancial instruments at September 30, 2022 and December 31, 2021 represent an approximation of ~~the collateral is further impaired below the appraised value as a result of known changes in the market or the collateral and there is no observable market~~exit price; however, an actual exit price such valuation inputs result in a fair value measurement that is categorized as a Level 3 measurement. To the extent a negotiated sales price or reduced listing price represents a significant discount to an observable market price, such valuation input would result in a fair value measurement that is also considered a Level 3 measurement.

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

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

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

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

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

may differ.

NOTE 17 – COMMITMENTS, CONTINGENCIES AND CREDIT RISK

~~Table of Contents~~

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

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

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

~~Derivative financial instruments.~~ The Company enters into interest rate lock commitments which are agreements to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. These commitments are carried at fair value in other assets on the consolidated balance sheet with changes in fair value reflected in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income. The Company also has forward loan sales commitments related to its interest rate lock commitments and its loans held for sale. These commitments are carried at fair value in other assets or other liabilities on the consolidated balance sheets with changes in fair value reflected in commercial FHA revenue and residential mortgage banking revenue in the consolidated statements of income. The interest rate swaps are carried at fair value on a recurring basis based upon the amounts required to settle the contracts.

~~Note 18 – 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~~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 September 30, ~~2017~~2022 and December 31, ~~2016 are~~2021 were as ~~follows (in thousands):~~

follows:


	September 30,		December 31,
	2017		2016
(dollars in thousands)					(dollars in thousands)	September 30, 2022		December 31, 2021
Commitments to extend credit	$	605,419	$	483,345	Commitments to extend credit	$	1,280,312	$	994,709
Financial guarantees – standby letters of credit		71,616		89,233	Financial guarantees – standby letters of credit	31,315		14,325

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

The Company establishes a mortgage repurchase liability ~~related~~ to ~~these events that~~ reflect management’s estimate of losses on loans for which the Company could have a repurchase obligation based on ~~a combination of factors. Such factors incorporate~~ the volume of loans sold in ~~2017~~2022 and years prior, borrower default expectations, historical investor repurchase demand and appeals success rates, and estimated loss severity. Loans repurchased from investors are initially recorded at fair value, which becomes the Company’s new accounting basis. Any difference between the loan’s fair value and the outstanding principal amount is charged or credited to the mortgage repurchase liability, as appropriate. Subsequent to repurchase, such loans are carried in loans receivable. ~~The Company incurred~~There were no losses as a result of make-whole requests and loan repurchases ~~totaling $17,000~~ for ~~both~~ the three and nine months

~~Table of Contents~~

ended September 30, ~~2017,~~2022 and ~~$83,000 for the nine months ended September 30, 2016. There were no losses incurred for the three months ended September 30, 2016.~~2021. The liability for unresolved repurchase demands totaled ~~$366,000~~$0.2 million and ~~$329,000~~$0.2 million at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.

~~Note 19~~

Table of Contents

NOTE 18 – ~~Segment Information~~

SEGMENT INFORMATION

Our business segments are defined as Banking, ~~Commercial FHA Origination and Servicing,~~Wealth Management, and Other. The reportable business segments are consistent with the internal reporting and evaluation of the principle lines of business of the Company. The ~~banking~~Banking segment provides a wide range of financial products and services to consumers and businesses, including commercial, commercial real estate, mortgage and other consumer loan products; commercial equipment leasing; mortgage loan sales and servicing; letters of credit; various types of deposit products, including checking, savings and time deposit accounts; merchant services; and corporate treasury management services. The ~~commercial FHA origination~~Wealth Management segment consists of trust and ~~servicing segment provides for the origination~~fiduciary services, brokerage and ~~servicing of government sponsored mortgages for multifamily and healthcare facilities.~~retirement planning services. The ~~other~~Other segment includes the operating results of the parent company, our ~~wealth management business unit, our~~ captive insurance business unit, and the elimination of intercompany transactions. ~~Wealth management activities consist of trust and fiduciary services, brokerage and retirement planning services.~~

Table of Contents

Selected business segment financial information ~~as of and~~ for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 were as ~~follows (in thousands):~~

Commercial FHA




Origination and

Banking

Servicing

Other

Total

Three Months Ended September 30, 2017

Net interest income (expense)

$
38,598

$
(79)

$
(1,754)

$
36,765

Provision for loan losses

1,489

—

—

1,489

Noninterest income

8,571

3,966

2,866

15,403

Noninterest expense

42,425

3,910

2,028

48,363

Income (loss) before income taxes (benefit)

3,255

(23)

(916)

2,316

Income taxes (benefit)

996

(9)

(707)

280

Net income (loss)

$
2,259

$
(14)

$
(209)

$
2,036

Total assets

$
4,370,600

$
121,514

$
(144,353)

$
4,347,761

Three Months Ended September 30, 2016

Net interest income (expense)

$
28,394

$
215

$
(1,344)

$
27,265

Provision for loan losses

1,392

—

—

1,392

Noninterest income

9,714

3,557

1,666

14,937

Noninterest expense

23,640

3,511

1,506

28,657

Income (loss) before income taxes (benefit)

13,076

261

(1,184)

12,153

Income taxes (benefit)

4,573

104

(575)

4,102

Net income (loss)

$
8,503

$
157

$
(609)

$
8,051

Total assets

$
3,252,421

$
100,516

$
(105,210)

$
3,247,727

Commercial FHA




Origination and

Banking

Servicing

Other

Total

Nine Months Ended September 30, 2017

Net interest income (expense)

$
97,580

$
325

$
(4,279)

$
93,626

Provision for loan losses

3,480

—

—

3,480

Noninterest income

24,339

15,189

5,836

45,364

Noninterest expense

99,214

11,639

5,952

116,805

Income (loss) before income taxes (benefit)

19,225

3,875

(4,395)

18,705

Income taxes (benefit)

4,870

1,550

(1,780)

4,640

Net income (loss)

$
14,355

$
2,325

$
(2,615)

$
14,065

Total assets

$
4,370,600

$
121,514

$
(144,353)

$
4,347,761

Nine Months Ended September 30, 2016

Net interest income (expense)

$
82,939

$
712

$
(4,357)

$
79,294

Provision for loan losses

3,146

—

—

3,146

Noninterest income

21,347

19,212

1,013

41,572

Noninterest expense

69,784

12,203

5,212

87,199

Income (loss) before income taxes (benefit)

31,356

7,721

(8,556)

30,521

Income taxes (benefit)

9,348

3,088

(1,874)

10,562

Net income (loss)

$
22,008

$
4,633

$
(6,682)

$
19,959

Total assets

$
3,252,421

$
100,516

$
(105,210)

$
3,247,727

~~Note 20 – Related Party Transactions~~

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

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

follows:


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

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

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

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

Table of Contents

~~Note 21~~NOTE 19 – ~~Subsequent Events~~

~~On October 16, 2017,~~REVENUE FROM CONTRACTSWITH CUSTOMERS

The Company’s revenue from contracts with customers in the ~~Company announced that it had entered into a definitive agreement to acquire Alpine Bancorporation, Inc. (“Alpine”) for estimated total consideration~~scope of ~~approximately $181.0 million, consisting~~Topic 606 is recognized within noninterest income in the consolidated statements of $33.3 million in cash (the “Cash Consideration”) and an aggregate of 4,463,200 shares of Midland common stock (the “Stock Consideration”). Alpine, the parent company of Alpine Bank & Trust is headquartered in Belvidere, Illinois, and operates 19 locations in northern Illinois. As of June 30, 2017, Alpine had total assets of $1.28 billion, gross loans of $830.2 million and total deposits of $1.14 billion. Under the terms of the definitive agreement, upon consummation of the transaction, holders of Alpine common stock will have the right to receive a pro rata share of the Cash Consideration and a pro rate share of the Stock Consideration, subject to potential adjustment based on Alpine’s tangible stockholders’ equity as of the month-end preceding the closing date. Based on an assumed value of $33.10 per share of Midland common stock, which was the closing price on NASDAQ on the trading day preceding the announcement of the transaction, the Company estimates the value of the total consideration will be $181.0 million, although the actual value of the total consideration will be higher or lower to the extent the trading price of Company common stock at closing differs from $33.10 per share. The transaction is expected to close during the first quarter of 2018, subject to the receipt of regulatory approvals, the approval of Alpine’s and the Company’s shareholders, and the satisfaction of other customary closing conditions.

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

~~Table of Contents~~

~~Item~~ ~~2 –~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

income. The following ~~discussion explains our financial condition~~presents noninterest income, segregated by revenue streams in-scope and ~~results~~out-of-scope of ~~operations as of and~~Topic 606, for the three and nine months ended September 30, ~~2017. Annualized results~~2022 and 2021.


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Noninterest income - in-scope of Topic 606
Wealth management revenue:
Trust management/administration fees	$	5,241	$	5,623	$	16,362	$	15,054
Investment advisory fees	—		577		—		1,462
Investment brokerage fees	482		330		1,623		1,206
Other	476		645		1,496		1,913
Service charges on deposit accounts:
Nonsufficient fund fees	1,775		1,470		4,631		3,814
Other	822		798		2,338		2,196
Interchange revenues	3,531		3,651		10,401		10,823
Other income:
Merchant services revenue	448		405		1,203		1,137
Other	847		925		2,286		3,135
Noninterest income - out-of-scope of Topic 606	2,204		719		5,712		6,636
Total noninterest income	$	15,826	$	15,143	$	46,052	$	47,376

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and investment securities. In addition, certain noninterest income streams such as commercial FHA revenue, residential mortgage banking revenue and gain on sales of investment securities, net, are also not in scope of Topic 606. Topic 606 is applicable to noninterest income streams such as wealth management revenue, service charges on deposit accounts, interchange revenue, gain on sales of other real estate owned, and certain other noninterest income streams. The noninterest income streams considered in-scope by Topic 606 are discussed below.

Wealth Management Revenue

Wealth management revenue is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company also earns investment advisory fees through its SEC registered investment advisory subsidiary. The Company’s performance obligation in both of these instances is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and contractually determined fee schedules. Payment is generally received a few days after month end through a direct charge to each customer’s account. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these ~~interim periods may not be indicative~~transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Fees generated from transactions executed by the Company’s third party broker dealer are remitted by them to the Company on a monthly basis for that month’s transactional activity.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of fees received under depository agreements with customers to provide access to deposited funds, serve as custodian of deposited funds, and when applicable, pay interest on deposits. These service charges primarily include non-sufficient fund fees and other account related service charges. Non-sufficient fund fees are earned when a depositor presents an item for payment in excess of available funds, and the Company, at its discretion, provides the necessary funds to complete the transaction. The Company generates other account related service charge revenue by providing depositors proper safeguard and remittance of funds as well as by delivering optional services for depositors, such as check imaging or treasury management, that are performed upon the depositor’s request. The Company’s performance obligation for the proper safeguard and remittance of funds, monthly account analysis and any other monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service

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

Interchange Revenue

Interchange revenue includes debit / credit card income and ATM user fees. Card income is primarily comprised of interchange fees earned for standing ready to authorize and providing settlement on card transactions processed through the MasterCard interchange network. The levels and structure of interchange rates are set by MasterCard and can vary based on cardholder purchase volumes. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with completion of the Company’s performance obligation, the transaction processing services provided to the cardholder. Payment is typically received immediately or in the following month. ATM fees are primarily generated when a Company cardholder withdraws funds from a non-Company ATM or a non-Company cardholder withdraws funds from a Company ATM. The Company satisfies its performance obligation for each transaction at the point in time when the ATM withdrawal is processed.

Other Noninterest Income

The other noninterest income revenue streams within the scope of Topic 606 consist of merchant services revenue, safe deposit box rentals, wire transfer fees, paper statement fees, check printing commissions, gain on sales of other real estate owned, and other noninterest related fees. Revenue from the Company’s merchant services business consists principally of transaction and account management fees charged to merchants for the electronic processing of transactions. These fees are net of interchange fees paid to the credit card issuing bank, card company assessments, and revenue sharing amounts. Account management fees are considered earned at the time the merchant’s transactions are processed or other services are performed. Fees related to the other components of other noninterest income within the scope of Topic 606 are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at the point in time the customer uses the selected service to execute a transaction.

NOTE 20 – SUBSEQUENT EVENTS

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

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ITEM2 –MANAGEMENT'S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITIONAND 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 September 30, 2022, as compared to December 31, 2021, and operating results for the ~~full year or future periods. The following discussion~~three and ~~analysis~~nine months ended September 30, 2022 and 2021. These comments should be read in conjunction with the Company's unaudited consolidated financial statements and ~~related~~accompanying notes ~~presented~~appearing elsewhere ~~in this report~~herein and our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, filed with the SEC on ~~March 10, 2017.~~

February 25, 2022.

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

otherwise.

Critical Accounting Policies

The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under current circumstances. These estimates form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on the Company’s reported financial position and results of operations are set forth in ~~Note~~“Note 1 – Summary of Significant Accounting ~~Policies~~Policies” of the Notes to Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since ~~the year ended~~ December 31, ~~2016.~~

~~Overview~~

~~Midland States Bancorp, Inc. is a diversified financial holding company headquartered in Effingham, Illinois. Our 136‑year old banking subsidiary, Midland States Bank, has branches across Illinois~~2021.

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

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

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

Transactions

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

Our principal business activity has been lending to and accepting deposits from individuals, businesses, municipalities and other entities. We have derived income principally from interest earned on loans and leases and, to a lesser extent, from interest and dividends earned on investment securities. We have also derived income from noninterest sources, such as: fees received in connection with various lending and deposit services; wealth management services; commercial FHA mortgage loan originations, sales and servicing; residential mortgage loan originations, sales and servicing; and, from time to time, gains on sales of assets. Our principal expenses include interest expense on deposits and borrowings, operating expenses, such as salaries and employee benefits, occupancy and equipment expenses, data processing costs, professional fees and other noninterest expenses, provisions for loan losses and income tax expense.

~~Significant Transactions~~

Each item listed below ~~materially~~ affects the comparability of our results of operations ~~and financial condition as of and~~ for the three and nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, and our financial condition as of September 30, 2022 and December 31, 2021, and may affect the comparability of financial information we report in future fiscal periods.

Preferred Stock Issuance. On August 24, 2022, the Company issued and sold 4,600,000 depositary shares, each representing a 1/40th ownership interest in a share of the Company’s 7.75% fixed rate reset non-cumulative, non-convertible, perpetual preferred stock, Series A. A total of 115,000 shares of Series A preferred stock was issued. The Series A preferred stock qualifies as Tier 1 capital for purposes of the regulatory capital calculations. The gross proceeds were $115.0 million while net proceeds from the issuance of the Series A preferred stock, after deducting $4.5 million of offering costs including the underwriting discount and other expenses, were $110.5 million.

Recent Acquisitions.On June ~~9, 2017,~~17, 2022, the Company completed its acquisition of the deposits and certain loans and other assets associated with FNBC's branches in Mokena and Yorkville, Illinois. The Company acquired ~~Centrue for total consideration of~~ ~~$176.6 million. Consideration transferred by the Company consisted~~ ~~of $61.0~~$79.8 million in assets, including $60.3 million in cash ~~3.2 million shares of common stock~~ and 2,636 shares of Series H preferred stock. At closing, Centrue primarily consisted of Centrue Bank and $10.0 million of trust preferred debentures. All identifiable assets acquired and liabilities assumed were adjusted to fair value as of June 9, 2017 and the results of Centrue’s operations have been included in the consolidated statements of income beginning on that date. The resultant purchase accounting adjustments have been reflected in the enclosed consolidated balance sheet as of September 30, 2017. Intangible assets recognized as a result of the transaction consisted of $46.1$16.6 million in ~~goodwill~~loans, and ~~$11.1~~assumed $79.8 million in ~~core deposit intangibles.~~

deposits.

On ~~March 28, 2017,~~June 1, 2021, the Company ~~acquired for $3.7 million~~completed its acquisition of substantially all of the ~~outstanding capital stock~~trust assets of ~~CedarPoint, an SEC registered investment advisory firm~~ATG Trust, a trust company based in Chicago, Illinois, with ~~$180.0~~$399.7 million ofin assets under administration. In conjunction with this agreement, the Company issued 120,000 shares of common stock of which 18,000 shares were deposited into a special purpose escrow account (the escrow shares). Payout of the escrow shares to CedarPoint is contingent on CedarPoint reaching certain target revenue levels. Intangible assets recognized as a result of the transaction consisted of $2.4 million in goodwill and $2.0 million in customer relationship intangibles. The customer relationship intangibles are being amortized on a straight-line basis over 12 years.

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

~~Purchased Credit‑Impaired (“PCI”) Loans.~~ Our net interest margin benefits from favorable changes in expected cash flows on our PCI loans and from accretion income associated with purchase accounting discounts established on the non-PCI loans included in our acquisitions. Our reported net interest margin for the three months ended September 30, 2017 and 2016 was 3.78% and 4.00%, respectively. Accretion income associated with purchase accounting discounts established on loans acquired totaled $3.0 million and $2.6 million for the three months ended September 30, 2017 and 2016, respectively, increasing the reported net interest margin by 27 and 34 basis points for each respective period. The reported net interest margin for the nine months ended September 30, 2017 and 2016 was 3.78% and 4.01%, respectively. Accretion income associated with purchase accounting discounts established on loans acquired totaled $7.0 million and $9.5 million for the nine months ended September 30, 2017 and 2016, respectively, increasing the reported net interest margin by 25 and 43 basis points for each respective period.

management.

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

Commercial FHA Mortgage Loan Servicing Rights.The Company ~~sells residential and~~previously originated commercial FHA commercial mortgage loans inthrough its wholly-owned subsidiary, Love Funding Corporation. On August 28, 2020, the ~~secondary market and typically retains~~Company completed the ~~right~~sale of its commercial FHA origination platform to Dwight Capital but continued to service the ~~loans sold.~~ Mortgage servicing rights (“MSR”) are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR are amortized in proportion to and over the period of estimated net servicing income, and assessed for impairment at each reporting date.

loan portfolio. During the third quarter of ~~2017, the Company transferred $14.2 million of residential MSR, net of valuation allowances, to MSR held for sale. The Company has~~2022, we committed to a plan to sell ~~these residential MSR~~the servicing rights asset associated with this

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portfolio and ~~has the ability~~transferred $24.0 million of commercial FHA loan servicing rights to ~~sell them to a buyer in their present condition. During the three and nine months ended September 30, 2017, the Company recognized a $3.6 million loss on MSR~~ held for sale. Servicing rights held for sale ~~to reflect them~~are recorded at the lower of their carrying amount or fair value less estimated costs to sell. ~~As a result of recognizing this loss, MSR held for sale had a net carrying value of $10.6 million at September 30, 2017.~~

~~There were no~~No impairment ~~charges on our residential MSR~~was recognized in the third quarter of ~~2017~~2022.

Tax Settlement. On June 29, 2021, the Company announced the settlement of a prior tax issue related to the treatment of gains recognized on FDIC-assisted transactions that resulted in a $6.75 million tax benefit that was recognized in the second quarter of 2021. The Company also recognized approximately $3.6 million in consulting and ~~$0.7~~legal expenses related to the settlement of the tax issue, resulting in an after-tax gain of approximately $2.9 million.

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

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

Purchased Loans. Our net interest margin benefits from accretion income associated with purchase accounting discounts established on the purchased loans included in our acquisitions. Our reported net interest margin for the three months ended September 30, 2022 and 2021 was 3.63% and 3.34%, respectively. Accretion income associated with accounting discounts established on loans acquired totaled $0.5 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively, increasing the reported net interest margin by 3 basis points and 7 basis points for each respective period.

The reported net interest margin for the nine months ended September 30, ~~2017. For~~2022 and 2021 was 3.60% and 3.36%, respectively. Accretion income associated with accounting discounts established on loans acquired totaled $1.7 million and $3.5 million for the nine months ended September 30, 2022 and 2021, respectively, increasing the reported net interest margin by 4 basis points and 8 basis points for each respective period.

Results of Operations

Overview. The following table sets forth condensed income statement information of the Company for the three and nine months ended September 30, ~~2016,~~2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	2022		2021		2022		2021
Income Statement Data:
Interest income	$	79,556	$	58,490	$	211,540	$	177,390
Interest expense	15,532		7,094		29,355		24,016
Net interest income	64,024		51,396		182,185		153,374
Provision for credit losses	6,974		(184)		16,582		2,926
Noninterest income	15,826		15,143		46,052		47,376
Noninterest expense	43,496		41,292		125,719		129,312
Income before income taxes	29,380		25,431		85,936		68,512
Income taxes	5,859		5,883		19,783		10,302
Net income	$	23,521	$	19,548	$	66,153	$	58,210


Basic earnings per common share	$	1.04	$	0.86	$	2.93	$	2.56
Diluted earnings per common share	$	1.04	$	0.86	$	2.92	$	2.55

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

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During the nine months ended September 30, 2022, we generated net income of $66.2 million, or diluted earnings per common share of $2.92, compared to net income of $58.2 million, or diluted earnings per common share of $2.55, in the nine months ended September 30, 2021. Earnings for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 increased primarily due to a $28.8 million increase in net interest income, and a $3.6 million decrease in noninterest expense. These results were partially offset by a $13.7 million increase in provision for credit losses, a $1.3 million decrease in noninterest income and a $9.5 million increase in income tax expense.

Net Interest Income and Margin. Our primary source of revenue is net interest income, which is the difference between interest income from interest-earning assets (primarily loans and securities) and interest expense of funding sources (primarily interest-bearing deposits and borrowings). Net interest income is influenced by many factors, primarily the volume and mix of interest-earning assets, funding sources, and interest rate fluctuations. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. Net interest margin is calculated as net interest income divided by average interest-earning assets. Net interest margin is presented on ~~our residential MSR totaling $22,000 and $5.0 million, respectively. Impairment charges on our commercial FHA MSR totaled $0.1 million and $1.1 million during~~a tax-equivalent basis, which means that tax-free interest income has been adjusted to a pretax-equivalent income, assuming a federal income tax rate of 21% for the three and nine months ended September 30, ~~2017, respectively. For~~2022 and 2021.

On September 21, 2022, the Federal Reserve announced an increase to its benchmark federal-funds rate by 0.75% to a range between 3.00% and 3.25%, and has indicated that ongoing increases in the target range will be appropriate. This was the fifth rate increase announced in 2022 and the third successive increase of 0.75% since June 16, 2022. The year began with a federal-funds rate range of 0.00%-0.25%.

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

During the nine months ended September 30, ~~2016, we recorded impairment charges~~2022, net interest income, on ~~our commercial FHA MSR totaling $1.1~~a tax-equivalent basis, increased to $183.2 million with a tax-equivalent net interest margin of 3.60% compared to net interest income, on a tax-equivalent basis, of $154.5 million and ~~$1.1 million, respectively.~~

~~Sale~~a tax-equivalent net interest margin of ~~Previously Covered Non-Agency Mortgage-Backed Securities~~ ~~– In October 2016, we sold previously covered non-agency mortgage-backed securities (“CMOs”) with a carrying value of $72.1 million. As a result of~~3.36% for the ~~sale, we recognized a gain totaling $14.3 million in the fourth quarter of 2016.~~

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

2021.

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Average Balance Sheet, Interest and Yield/Rate ~~Analysis~~

Analysis.The following ~~table presents~~tables present the average balance ~~sheet information,~~sheets, interest income, interest expense and the corresponding average yields earned and rates paid for the three and nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments.

For the Three Months Ended September 30,

2017

2016

Average

Interest

Yield /

Average

Interest

Yield /

(tax-equivalent basis, dollars in thousands)

Balance

& Fees

Rate


Balance

& Fees

Rate

Earning Assets

Federal funds sold and cash investments

$
202,407

$
607

1.19
%

$
154,764

$
195

0.50
%
Investment securities:

Taxable investment securities

359,370

1,905

2.12

229,670

2,766

4.82

Investment securities exempt from federal income tax (1)

114,846

1,481

5.16

100,230

1,373

5.48

Total investment securities

474,216

3,386

2.86

329,900

4,139

5.02

Loans:

Taxable loans (2)

3,126,325

38,689

4.91

2,136,642

26,047

4.85

Loans exempt from federal income tax (1)

46,702

482

4.10

40,875

391

3.80

Total loans

3,173,027

39,171

4.90

2,177,517

26,438

4.83

Loans held for sale

46,441

438

3.74

90,661

858

3.77

Nonmarketable equity securities

31,224

331

4.20

18,365

174

3.77

Total earning assets

3,927,315

$
43,933

4.44
%

2,771,207

$
31,804

4.57
%
Noninterest-Earning Assets

498,364

330,036

Total assets

$
4,425,679

$
3,101,243

Interest-Bearing Liabilities

Checking and money market deposits

$
1,448,228

$
1,139

0.31
%

$
1,008,028

$
448

0.18
%
Savings deposits

286,199

92

0.13

163,867

62

0.15

Time deposits

511,761

1,094

0.85

425,269

957

0.90

Time, brokered deposits

281,302

1,052

1.48

206,025

722

1.39

Total interest-bearing deposits

2,527,490

3,377

0.53

1,803,189

2,189

0.48

Short-term borrowings

182,015

100

0.22

134,052

81

0.24

FHLB advances and other borrowings

434,860

1,494

1.36

165,774

306

0.73

Subordinated debt

54,570

873

6.40

54,470

873

6.41

Trust preferred debentures

45,201

637

5.60

37,266

472

5.03

Total interest-bearing liabilities

3,244,136

$
6,481

0.79
%

2,194,751

$
3,921

0.71
%
Noninterest-Bearing Liabilities

Noninterest-bearing deposits

688,986

550,816

Other noninterest-bearing liabilities

39,240

36,816

Total noninterest-bearing liabilities

728,226

587,632

Shareholders’ equity

453,317

318,860

Total liabilities and shareholders’ equity

$
4,425,679

$
3,101,243

Net interest income / net interest margin (3)

$
37,452

3.78
%

$
27,883

4.00
%


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

~~(1)~~

Interest income and average rates for tax‑exempt loans and securities are presented on a tax‑equivalent basis, assuming a federal income tax rate of 35%. Tax- equivalent adjustments totaled $687,000 and $617,000 for the three months ended September 30, 2017 and 2016, respectively.

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

~~(2)~~

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

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

~~(3)~~

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

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

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	For the Nine Months Ended September 30,
	2017						2016							Nine Months Ended September 30,
	Average		Interest		Yield /		Average		Interest		Yield /			2022						2021
(tax-equivalent basis, dollars in thousands)	Balance		& Fees		Rate		Balance		& Fees		Rate		(tax-equivalent basis, dollars in thousands)	Average balance		Interest & fees		Yield/ Rate		Average balance		Interest & fees		Yield/ Rate
Earning Assets
Interest-earning assets:													Interest-earning assets:
Federal funds sold and cash investments	$	186,539	$	1,405	1.01	%	$	203,514	$	762	0.50	%	Federal funds sold and cash investments	$	268,111	$	1,764	0.88	%	$	462,576	$	454	0.13	%
Investment securities:
Investment securities:													Investment securities:
Taxable investment securities		281,156		4,705	2.23			221,091		8,222	4.96		Taxable investment securities	709,163		11,717		2.20		602,090		10,127		2.24
Investment securities exempt from federal income tax (1)		107,831		4,338	5.36			99,985		4,215	5.62		Investment securities exempt from federal income tax (1)	111,165		2,736		3.28		127,597		3,131		3.27
Total investment securities		388,987		9,043	3.10			321,076		12,437	5.16
Loans:
Taxable loans (2)		2,674,770		97,016	4.85			2,049,891		75,741	4.94
Total securities													Total securities	820,328		14,453		2.35		729,687		13,258		2.42
Loans:													Loans:
Loans (2)													Loans (2)	5,597,514		192,430		4.60		4,788,940		159,743		4.46
Loans exempt from federal income tax (1)		46,719		1,467	4.20			41,742		1,382	4.42		Loans exempt from federal income tax (1)	69,360		2,012		3.88		83,387		2,449		3.93
Total loans		2,721,489		98,483	4.84			2,091,633		77,123	4.93		Total loans	5,666,874		194,442		4.59		4,872,327		162,192		4.45
Loans held for sale		60,590		1,926	4.25			76,586		2,401	4.19		Loans held for sale	15,629		357		3.05		38,772		810		2.79
Nonmarketable equity securities		24,547		788	4.29			16,881		504	3.99		Nonmarketable equity securities	36,832		1,521		5.52		49,688		1,847		4.97
Total earning assets		3,382,152	$	111,645	4.41	%		2,709,690	$	93,227	4.60	%
Noninterest-Earning Assets		402,889						324,116
Total interest-earning assets													Total interest-earning assets	6,807,774		212,537		4.17		6,153,050		178,561		3.88
Noninterest-earning assets													Noninterest-earning assets	621,510						595,733
Total assets	$	3,785,041					$	3,033,806					Total assets	$	7,429,284					$	6,748,783
Interest-Bearing Liabilities
Interest-bearing liabilities:													Interest-bearing liabilities:
Deposits:													Deposits:
Checking and money market deposits	$	1,254,706	$	2,565	0.27	%	$	1,010,734	$	1,391	0.18	%	Checking and money market deposits	$	2,792,007	$	13,188	0.63	%	$	2,434,480	$	2,024	0.11	%
Savings deposits		217,753		224	0.14			162,890		181	0.15		Savings deposits	711,108		287		0.05		650,323		121		0.02
Time deposits		446,025		2,928	0.88			436,975		2,933	0.90		Time deposits	624,282		2,588		0.55		702,973		6,280		1.19
Time, brokered deposits		264,035		2,853	1.44			216,075		2,196	1.36
Brokered time deposits													Brokered time deposits	17,668		157		1.19		35,485		334		1.26
Total interest-bearing deposits		2,182,519		8,570	0.52			1,826,674		6,701	0.49		Total interest-bearing deposits	4,145,065		16,220		0.52		3,823,261		8,759		0.31
Short-term borrowings		157,388		262	0.22			123,192		217	0.24		Short-term borrowings	62,495		73		0.16		69,764		65		0.12
FHLB advances and other borrowings		325,120		2,901	1.19			150,213		698	0.62		FHLB advances and other borrowings	319,791		5,071		2.12		525,072		7,033		1.79
Subordinated debt		54,544		2,619	6.40			59,324		2,985	6.71		Subordinated debt	139,233		6,032		5.78		157,871		6,694		5.65
Trust preferred debentures		40,613		1,635	5.38			37,181		1,373	4.93		Trust preferred debentures	49,603		1,959		5.28		49,028		1,465		4.00
Total interest-bearing liabilities		2,760,184	$	15,987	0.77	%		2,196,584	$	11,974	0.73	%	Total interest-bearing liabilities	4,716,187		29,355		0.83		4,624,996		24,016		0.69
Noninterest-Bearing Liabilities
Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Noninterest-bearing deposits		598,874						528,238					Noninterest-bearing deposits	1,975,445						1,405,641
Other noninterest-bearing liabilities		45,426						34,363					Other noninterest-bearing liabilities	70,427						78,883
Total noninterest-bearing liabilities		644,300						562,601					Total noninterest-bearing liabilities	2,045,872						1,484,524
Shareholders’ equity		380,557						274,621					Shareholders’ equity	667,225						639,263
Total liabilities and shareholders’ equity	$	3,785,041					$	3,033,806					Total liabilities and shareholders’ equity	$	7,429,284					$	6,748,783
Net interest income / net interest margin (3)			$	95,658	3.78	%			$	81,253	4.01	%	Net interest income / net interest margin (3)			$	183,182	3.60	%			$	154,545	3.36	%

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

~~(1)~~

Interest income and average rates for tax‑exempt loans and securities are presented on a tax‑equivalent basis, assuming a federal income tax rate of 35%. Tax- equivalent adjustments totaled $2.0 million for both the nine months ended September 30, 2017 and 2016, respectively.

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

~~(2)~~

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

~~(3)~~

~~Table of Contents~~

Interest Rates and Operating Interest ~~Differential~~

Differential.Increases and decreases in interest income and interest expense result from changes in average balances (volume) of ~~interest‑earning~~interest-earning assets and ~~interest‑bearing~~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~~ interest-earning

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assets and the interest incurred on our ~~interest‑bearing~~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~~that are not due solely to volume or rate have been allocated proportionally to the change due to volume and the change due to rate.


	Three Months Ended September 30, 2022 compared with Three Months Ended September 30, 2021						Nine Months Ended September 30, 2022 compared with Nine Months Ended September 30, 2021
	Change due to:				Interest Variance		Change due to:				Interest Variance
(tax-equivalent basis, dollars in thousands)	Volume		Rate				Volume		Rate
Interest-earning assets:
Federal funds sold and cash investments	$	(1,017)	$	1,926	$	909	$	(735)	$	2,045	$	1,310
Investment securities:
Taxable investment securities	116		253		369		1,785		(195)		1,590
Investment securities exempt from federal income tax	(370)		27		(343)		(404)		9		(395)
Total securities	(254)		280		26		1,381		(186)		1,195
Loans:
Loans	14,639		5,563		20,202		27,384		5,303		32,687
Loans exempt from federal income tax	(124)		13		(111)		(409)		(28)		(437)
Total loans	14,515		5,576		20,091		26,975		5,275		32,250
Loans held for sale	(76)		29		(47)		(505)		52		(453)
Nonmarketable equity securities	(83)		75		(8)		(505)		179		(326)
Total interest-earning assets	$	13,085	$	7,886	$	20,971	$	26,611	$	7,365	$	33,976
Interest-bearing liabilities:
Deposits:
Checking and money market deposits	$	766	$	7,563	$	8,329	$	993	$	10,171	$	11,164
Savings deposits	7		110		117		18		148		166
Time deposits	(153)		(596)		(749)		(514)		(3,178)		(3,692)
Brokered time deposits	(38)		6		(32)		(164)		(13)		(177)
Total interest-bearing deposits	582		7,083		7,665		333		7,128		7,461
Short-term borrowings	(3)		10		7		(8)		16		8
FHLB advances and other borrowings	(582)		1,013		431		(3,002)		1,040		(1,962)
Subordinated debt	5		(6)		(1)		(798)		136		(662)
Trust preferred debentures	8		328		336		20		474		494
Total interest-bearing liabilities	$	10	$	8,428	$	8,438	$	(3,455)	$	8,794	$	5,339
Net interest income	$	13,075	$	(542)	$	12,533	$	30,066	$	(1,429)	$	28,637

Interest Income. Interest income, ~~and average rates for tax‑exempt loans and securities were calculated on a tax‑equivalent basis, assuming a federal income tax rate of 35%.~~

Three Months Ended September 30, 2017

Nine Months Ended September 30, 2017

Compared with

Compared with

Three Months Ended September 30, 2016

Nine Months Ended September 30, 2016

Change due to:

Interest

Change due to:

Interest

(tax-equivalent basis, dollars in thousands)

Volume

Rate

Variance

Volume

Rate

Variance

Earning Assets













Federal funds sold and cash investments

$
102

$
310

$
412

$
(96)

$
739

$
643

Investment securities:

Taxable investment securities

1,124

(1,985)

(861)

1,619

(5,136)

(3,517)

Investment securities exempt from federal income tax

194

(86)

108

323

(200)

123

Total investment securities

1,318

(2,071)

(753)

1,942

(5,336)

(3,394)

Loans:

Taxable loans

12,209

433

12,642

22,831

(1,556)

21,275

Loans exempt from federal income tax

58

33

91

160

(75)

85

Total loans

12,267

466

12,733

22,991

(1,631)

21,360

Loans held for sale

(417)

(3)

(420)

(506)

31

(475)

Nonmarketable equity securities

129

28

157

237

47

284

Total earning assets

$
13,399

$
(1,270)

$
12,129

$
24,568

$
(6,150)

$
18,418

Interest-Bearing Liabilities

Checking and money market deposits

$
272

$
419

$
691

$
417

$
757

$
1,174

Savings deposits

43

(13)

30

58

(15)

43

Time deposits

191

(54)

137

59

(64)

(5)

Time, brokered deposits

274

56

330

501

156

657

Total interest-bearing deposits

780

408

1,188

1,035

834

1,869

Short-term borrowings

28

(9)

19

58

(13)

45

FHLB advances and other borrowings

712

476

1,188

1,186

1,017

2,203

Subordinated debt

2

(2)

—

(235)

(131)

(366)

Trust preferred debentures

106

59

165

131

131

262

Total interest-bearing liabilities

$
1,628

$
932

$
2,560

$
2,175

$
1,838

$
4,013

Net interest income

$
11,771

$
(2,202)

$
9,569

$
22,393

$
(7,988)

$
14,405

~~Net Interest Income.~~ Our primary source of revenue is net interest income, which is the difference between interest income from interest-earning assets (primarily loans and securities) and interest expense of funding sources (primarily interest‑bearing deposits and borrowings). Net interest income is impacted by the volume of interest‑earning assets and related funding sources, as well as changes in the levels of interest rates. Noninterest‑bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest‑bearing sources of funds is captured in the net interest margin, which is calculated as net interest income divided by average interest-earning assets. The net interest margin is presented on a tax-equivalent basis, ~~which means that tax‑free~~increased $21.0 million to $79.9 million in the three months ended September 30, 2022 as compared to the same quarter in 2021, primarily due to growth in earning assets. The yield on earning assets increased 72 basis points to 4.51% from 3.79%, primarily due to the impact of increasing market interest ~~income has been adjusted~~rates.

Average earning assets increased to ~~a pretax-equivalent income, assuming a 35% tax rate.~~

In$7.03 billion in the third quarter of ~~2017, we generated $37.5~~2022 from $6.16 billion in the same quarter in 2021. An increase in average loans of $1.24 billion was partially offset by decreases in federal funds sold and cash investments and investment securities of $330.2 million and $24.4 million, respectively.

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

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

For the nine months ended September 30, 2022, interest income, on a tax-equivalent basis, ~~which was an increase of $9.6~~increased $34.0 million ~~or 34.3%, from~~to $212.5 million as compared to the ~~$27.9 million of net interest income we produced on a tax-equivalent basis~~same period in ~~the third quarter of 2016. This increase in net interest income was~~2021, primarily due to ~~a $12.1 million increase~~growth in earning assets. The yield on earning assets increased 29 basis points to 4.17% from 3.88%, primarily due to the impact of increasing market interest ~~income on a tax-equivalent basis, offset~~rates.

Average earning assets increased to $6.81 billion in ~~part by a $2.6 million increase in interest expense.~~

~~For~~ the first nine months of ~~2017, net interest income~~2022 from $6.15 billion in the same period in 2021. Average loans and investment securities increased $794.5 million and $90.6 million, respectively. These increases were partially offset by a $194.5 million decrease in federal funds sold and cash investments.

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

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

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

Interest expense on ~~a tax-equivalent basis~~deposits increased $7.7 million to $10.2 million for the three months ended September 30, 2022 from the comparable period in 2021. The increase was ~~$95.7 million,~~primarily due to an increase in rates paid on deposits. Average balances of ~~$14.4~~interest-bearing deposit accounts increased $429.1 million, or ~~17.7%~~11.0%, ~~from~~to $4.33 billion for the ~~$81.3~~three months ended September 30, 2022 compared to the same period one year earlier. The increase in volume was attributable to increases of retail deposits, commercial deposits and brokered deposits of $125.8 million, $114.0 million, and $92.3 million, respectively. In addition, our Insured Cash Sweep product balances increased $54.9 million.

For the nine month period ended September 30, 2022, interest expense increased $5.3 million to $29.4 million compared to the nine months ended September 30, 2021. The cost of ~~net interest income we generated on a tax-equivalent basis~~interest-bearing liabilities increased to 0.83% for the first nine months of 2022 compared to 0.69% for the ~~prior year. This increase was mainly~~same period of 2021. Interest expense on deposits increased to $16.2 million from $8.8 million for the comparable period in 2021, primarily due to ~~an $18.4~~increases in interest rates on deposits.

Interest expense on FHLB advances and other borrowings decreased $2.0 million for the nine months ended September 30, 2022, from the comparable period in 2021. Average balances decreased $205.3 million for the nine months ended September 30, 2022, from the comparable period in 2021 due to the Company prepaying $265.0 million of longer term FHLB advances during 2021.

Provision for Credit Losses. The Company's provision for credit losses totaled $7.0 million for the three months ended September 30, 2022, all of which was attributable to loans. Provision for credit losses for the three months ended September 30, 2021 was a benefit of $0.2 million. No provision for credit losses on loans was recorded in the quarter, while a benefit of $0.2 million was recorded for credit losses related to investment securities. For the nine months ended September 30, 2022 and 2021, the Company recorded provision expense of $16.6 million and $2.9 million, respectively. The increase in ~~interest income on a tax-equivalent basis, offset in part by a $4.0 million increase in interest expense.~~

~~Table of Contents~~

~~Interest Income.~~ ~~Total interest income on a tax-equivalent basis was $43.9 million and $111.6 million~~the provision for credit losses for the three and nine months ended September 30, ~~2017, respectively,~~2022 compared to ~~$31.8 million~~prior year periods was primarily due to the growth and ~~$93.2 million~~changes in the mix of our loan portfolio.

The provision for credit losses on loans made during the three and nine months ended September 30, ~~2016, respectively. These increases were primarily attributable~~2022 was made at a level deemed necessary by management to ~~increases in interest income on loans and cash investments, offset in part by decreases in interest income on investment securities.~~

Interest income on loans increased to $39.2 million and $98.5 million for the three and nine months ended September 30, 2017, respectively, compared to $26.4 million and $77.1 million for the three and nine months ended September 30, 2016, respectively. Increases of 45.7% and 30.1%absorb estimated losses in the ~~average balances~~loan portfolio. A detailed evaluation of ~~loans outstanding~~the adequacy of the allowance for credit losses is completed quarterly by management, the ~~three~~results of which are used to determine

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provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and ~~nine months ended September 30, 2017, respectively, were primarily driven by~~volume of the ~~addition of loans from the Centrue acquisition combined~~portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with ~~organic loan growth over the past year. A seven basis point increase in the average yield on loans~~other qualitative and quantitative factors.

Noninterest Income. Noninterest income increased 4.5% for the three months ended September 30, ~~2017 was primarily driven by a $0.3 million increase in accretion income from purchase accounting discounts on acquired loans. For~~2022, compared to the nine months ended September 30, 2017, a nine basis point decrease in the average yield on loans resulted primarily from a $2.5 million decrease in accretion income from purchase accounting discounts on acquired loans, offset in part by an increase in prepayment penaltiessame period one year prior, and ~~the impact of higher market rates.~~

~~The average rate on loans benefits from purchase accounting discount accretion on loan portfolios acquired (see “Significant Transactions –~~ ~~Purchased Credit-Impaired (PCI) Loans~~” above). The reported yield on total loans for the three months ended September 30, 2017 and 2016 was 4.90% and 4.83%, respectively. Accretion income associated with purchase accounting discounts established on loans acquired totaled $3.0 million and $2.6 million for the three months ended September 30, 2017 and 2016, respectively, increasing the reported yields by 33 and 43 basis points for each respective period. The reported yield on total loansdecreased 2.8% for the nine months ended September 30, 2017 and 2016 was 4.84% and 4.93%, respectively. Accretion income associated with purchase accounting discounts established on loans acquired totaled $7.0 million and $9.5 million for the nine months ended September 30, 2017 and 2016, respectively, increasing the reported yields by 30 and 54 basis points for each respective period.

Interest income on investment securities decreased $0.8 million and $3.4 million for the three and nine months ended September 30, 2017, respectively. These decreases were mainly attributable to declines in the average yield on investment securities of 216 basis points and 206 basis points, respectively, offset in part by increases in the average balance of investment securities of 43.7% and 21.2%, respectively. The decreases in average yields resulted primarily from the impact of selling in the prior year fourth quarter $72.1 million of previously covered mortgage-backed securities (“CMOs”) that were yielding approximately 13.0%, coupled with lower yields being earned on Centrue’s investment portfolio. The increases in average balances were primarily due2022, compared to the ~~addition of $149.0 million of investment securities from Centrue.~~

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

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

Interest expense on deposits increased to $3.4 million and $8.6 million for the three and nine months ended September 30, 2017, respectively, as compared to $2.2 million and $6.7 million for the three and nine months ended September 30, 2016, respectively. The $1.2 million, or 54.2%, increase in interest expense on deposits for the third quarter of 2017 ~~was primarily due to the average balance of interest-bearing deposits increasing 40.2% combined with a five basis point increase in the average rate paid.~~ ~~For the nine-month~~same period the $1.9 million, or 27.9%, increase in interest expense on deposits was mainly attributable to the average balance of deposits increasing 19.5% coupled with a three basis point increase in the average rate paid. The ~~increases in the average balance of deposits primarily~~ ~~reflected the addition of interest-bearing deposits from Centrue. The increases in the average rates paid were primarily due to~~ ~~increases in market interest rates.~~

~~Interest expense on borrowings~~ ~~increased to $3.1 million and $7.4 million for the three and nine months ended September 30, 2017, respectively, as compared to $1.7 million and $5.3 million for the three and nine months ended~~

~~Table of Contents~~

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

~~Provision for Loan Losses.~~ The provision for loan losses totaled $1.5 million and $3.5 million for the three and nine months ended September 30, 2017, respectively, compared to $1.4 million and $3.1 million for the three and nine months ended September 30, 2016, respectively. For the first nine months of 2017, t~~he provision for loan losses primarily reflected~~ ~~specific reserves recorded on two commercial real estate loans combined with the impact of loan growth over the past year.~~ For the nine months ended September 30, 2016, the provision for loan losses was impacted by a $0.8 million provision reduction related to a PCI loan that was paid in full during the second quarter of 2016 (see “Significant Transactions – ~~Purchased Credit-Impaired (PCI) Loans” above).~~

~~Noninterest Income.~~ Noninterest income totaled $15.4 million in the third quarter of 2017 compared to $14.9 million in the third quarter of 2016. For the nine months ended September 30, 2017, noninterest income increased $3.8 million, or 9.1%, to $45.4 million.one year prior. The following table sets forth the major components of our noninterest income for the three and nine months ended September 30, ~~2017~~2022 and ~~2016:~~

For the Three Months Ended

September 30,

Increase

(dollars in thousands)

2017

2016

(decrease)

Noninterest income:







Commercial FHA revenue

$
3,777

$
3,260

$
517

Residential mortgage banking revenue

2,317

4,990

(2,673)

Wealth management revenue

3,475

1,941

1,534

Service charges on deposit accounts

2,133

1,044

1,089

Interchange revenue

1,724

920

804

FDIC loss-sharing expense

—

—

—

Gain on sales of investment securities, net

98

39

59

Other-than-temporary impairment on investment securities

—

—

—

Gain on sales of other real estate owned

22

33

(11)

Other income

1,857

2,710

(853)

Total noninterest income

$
15,403

$
14,937

$
466

For the Nine Months Ended

September 30,

Increase

(dollars in thousands)

2017

2016

(decrease)

Noninterest income:







Commercial FHA revenue

$
14,625

$
18,360

$
(3,735)

Residential mortgage banking revenue

7,563

7,148

415

Wealth management revenue

9,754

5,596

4,158

Service charges on deposit accounts

4,147

2,916

1,231

Interchange revenue

3,816

2,829

987

FDIC loss-sharing expense

—

(1,661)

1,661

Gain on sales of investment securities, net

219

315

(96)

Other-than-temporary impairment on investment securities

—

(824)

824

Gain on sales of other real estate owned

54

112

(58)

Other income

5,186

6,781

(1,595)

Total noninterest income

$
45,364

$
41,572

$
3,792

2021:


	Three Months Ended September 30,				Increase (decrease)		Nine Months Ended September 30,				Increase (decrease)
(dollars in thousands)	2022		2021				2022		2021
Noninterest income:
Wealth management revenue	$	6,199	$	7,175	$	(976)	$	19,481	$	19,635	$	(154)

Residential mortgage banking revenue	210		1,287		(1,077)		1,193		4,423		(3,230)
Service charges on deposit accounts	2,597		2,268		329		6,969		6,010		959
Interchange revenue	3,531		3,651		(120)		10,401		10,823		(422)
(Loss) gain on sales of investment securities, net	(129)		160		(289)		(230)		537		(767)
Impairment on commercial mortgage servicing rights	—		(3,037)		3,037		(1,263)		(5,460)		4,197
Company-owned life insurance	929		869		60		2,788		2,592		196
Other income	2,489		2,770		(281)		6,713		8,816		(2,103)
Total noninterest income	$	15,826	$	15,143	$	683	$	46,052	$	47,376	$	(1,324)

~~Table of Contents~~

~~Commercial FHA revenue.~~ ~~Noninterest income from our commercial FHA business increased $0.5 million, or 15.9%, to $3.8 million in the third quarter of 2017. Love Funding generated gains on loans held for sale of $3.4~~Wealth management revenue. Wealth management revenue decreased $1.0 million and net servicing revenues of $0.4 million in the third quarter of 2017 compared to gains on loans held for sale of $3.8 million and a net servicing loss of $0.5 million in the third quarter of 2016. Rate lock commitments totaled $112.5 million in the third quarter of 2017 compared to $73.4 million in the third quarter of 2016. Although rate lock commitments were higher in the third quarter of 2017, the decrease in gains recognized on loans held for sale resulted from a rate lock cancellation that led to the reversal of $0.9 million of commercial FHA revenue that had been initially recognized in the first quarter of 2017. The increase in servicing revenue was primarily due to $1.1 million of MSR impairment recorded in the prior year third quarter compared to $0.1 million of MSR impairment recognized in the third quarter of 2017.

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

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

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

~~Wealth management revenue.~~ ~~Noninterest income from our wealth management business totaled $3.5 million and $9.8~~ million for the three and nine months ended September 30, ~~2017,~~2022, respectively, as compared to ~~$1.9 million and $5.6 million for~~ the ~~corresponding three and nine month~~same periods in the prior year, respectively. These increases in wealth management revenue for both the three- and nine-month periods were primarily due to growth in assets under administration of $766.0 million, or 62.0%, to $2.0 billion at September 30, 2017 compared to September 30, 2016.2021. The ~~increase in assets under administration consisted of $400.0 million of wealth management assets~~Company added ~~from the Sterling acquisition that closed in November 2016, $180.0~~$399.7 million of assets under administration ~~added~~ from the ~~CedarPoint~~ acquisition of ATG Trust at June 1, 2021. However, market performance in 2022 has resulted in a decrease in assets under administration, and ~~organic growth experienced~~a resulting decrease in revenue. Assets under administration decreased to $3.45 billion at September 30, 2022 from $4.06 billion at September 30, 2021.

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

~~Service charges on deposit accounts.~~ ~~Noninterest income from service charges on deposit accounts~~same period one year prior, which totaled ~~$2.1~~$47.3 million, with 28% representing refinance transactions.

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

Impairment of Commercial Mortgage Servicing Rights. Impairment of commercial mortgage servicing rights was $1.3 million and ~~$4.1~~$5.5 million for the nine months ended September 30, 2022 and 2021, respectively. The impairment resulted from loan prepayments as borrowers refinanced their loans. As previously mentioned, the commercial servicing rights were transferred to held for sale in the third quarter of 2022 at the lower of their carrying value or fair value less estimated costs to sell. No impairment was required with the transfer. Loans serviced for others totaled $2.36 billion and $2.87 billion at September 30, 2022 and 2021, respectively.

Other Income. Other income decreased $0.3 million and $2.1 million for the three and nine months ended September 30, ~~2017,~~2022, respectively, as compared to ~~$1.0~~the same periods in 2021. Net unrealized gains on our equity securities decreased $0.2 million and $2.9 million for the corresponding three and nine month periods in the prior year, respectively. These increases primarily resulted from the addition of transactional deposit accounts associated with the Centrue acquisition that closed in June 2017.

~~Table of Contents~~

~~Interchange revenue.~~ ~~Noninterest income from interchange revenue totaled $1.7 million and $3.8~~$1.4 million for the three and nine months ended September 30, ~~2017,~~2022, respectively, compared to ~~$0.9 million and $2.8 million for~~ the ~~corresponding three and nine month~~same periods in 2021. In 2021, the ~~prior year, respectively. These increases were primarily due to an increased level~~Company recognized a gain of ~~debit card activity resulting from~~$0.5 million on the ~~Centrue acquisition that closed~~sale of OREO in ~~June 2017.~~

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

~~Other‑than‑temporary impairment on investment securities.~~ ~~During~~$0.3 million from the termination of a hedged interest rate swap in the first quarter of 2016, we recognized OTTI losses of $0.8 million due to changes in expected cash flows on three previously covered CMOs. We have recorded no OTTI loses during the first nine months of 2017. Early in the fourth quarter of 2016, all previously covered CMOs totaling $72.1 million were sold.

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

quarter.

Table of Contents

Noninterest Expense.Noninterest expense totaled $48.4 million in the third quarter of 2017 compared to $28.7 million in the third quarter of 2016. For the nine months ended September 30, 2017, noninterest expense increased $29.6 million, or 34.0%, to $116.8 million. The following table sets forth the major components of noninterest expense for the three and nine months ended September 30, ~~2017~~2022 and ~~2016:~~

For the Three Months Ended

September 30,

Increase

(dollars in thousands)

2017

2016

(decrease)

Noninterest expense:







Salaries and employee benefits

$
22,411

$
16,568

$
5,843

Occupancy and equipment

4,144

3,271

873

Data processing

5,786

2,586

3,200

FDIC insurance

565

388

177

Professional

4,151

1,877

2,274

Marketing

1,070

717

353

Communications

723

546

177

Loan expense

629

314

315

Other real estate owned

146

179

(33)

Amortization of intangible assets

1,187

514

673

Loss on mortgage servicing rights held for sale

3,617

—

3,617

Other expense

3,934

1,697

2,237

Total noninterest expense

$
48,363

$
28,657

$
19,706

For the Nine Months Ended

September 30,

Increase

(dollars in thousands)

2017

2016

(decrease)

Noninterest expense:










Salaries and employee benefits

$
61,368

$
48,967

$
12,401

Occupancy and equipment

10,800

9,815

985

Data processing

11,531

7,830

3,701

FDIC insurance

1,403

1,350

53

Professional

10,285

5,151

5,134

Marketing

2,517

2,009

508

Communications

1,655

1,609

46

Loan expense

1,531

1,351

180

Other real estate owned

725

748

(23)

Amortization of intangible assets

2,291

1,613

678

Loss on mortgage servicing rights held for sale

3,617

—

3,617

Other expense

9,082

6,756

2,326

Total noninterest expense

$
116,805

$
87,199

$
29,606

2021:


	Three Months Ended September 30,				Increase (decrease)		Nine Months Ended September 30,				Increase (decrease)
(dollars in thousands)	2022		2021				2022		2021
Noninterest expense:
Salaries and employee benefits	$	22,889	$	22,175	$	714	$	67,404	$	64,774	$	2,630
Occupancy and equipment	3,850		3,701		149		11,094		11,437		(343)
Data processing	6,093		6,495		(402)		18,048		18,776		(728)
Professional	1,693		1,738		(45)		5,181		9,472		(4,291)
Marketing	1,026		860		166		2,447		2,037		410
Communications	587		689		(102)		1,934		2,335		(401)
Amortization of intangible assets	1,361		1,445		(84)		4,077		4,430		(353)


FHLB advances prepayment fees	—		—		—		—		3,677		(3,677)
Other expense	5,997		4,189		1,808		15,534		12,374		3,160
Total noninterest expense	$	43,496	$	41,292	$	2,204	$	125,719	$	129,312	$	(3,593)

~~Table of Contents~~

Salaries and employee benefits. ~~Salaries and employee benefits expense increased $5.8 million, or 35.3%, to $22.4 million in the third quarter of 2017.~~ For ~~the first nine months of 2017, salaries and employee benefits expense increased $12.4 million, or 25.3%, to $61.4 million. These increases~~ ~~were directly impacted by~~ ~~acquisition-related costs associated with the Centrue acquisition of $2.4 million and $7.1 million for~~ the three and nine months ended September 30, ~~2017, respectively.~~ 2022, salaries and employee benefits expense increased $0.7 million and $2.6 million, respectively, as compared to the same periods in 2021, primarily due to annual salary increases in 2022 and a modest increase in staffing levels. The Company had 930 employees at September 30, 2022 compared to 905 employees at September 30, 2021.

Professional fees. For ~~Centrue,~~the nine months ended September 30, 2022, professional fees decreased $4.3 million as compared to the same period in 2021. In 2021, the Company ~~recorded $4.1~~incurred $3.6 million of ~~change in control costs, along with severance~~consulting and ~~other benefit~~legal expenses related ~~expenses. Salaries and employees benefits expense for both~~to the settlement of a tax issue, as previously discussed.

Other expense. For the three and nine months ended September 30, ~~2017 was also impacted by an increase in the number of full-time equivalent employees attributable~~2022, other expense increased $1.8 million and $3.2 million, respectively, as compared to the ~~Centrue transaction, annual salary increases that took effect~~same periods in ~~2017~~2021, primarily as a result of increased business activities.

Income Tax Expense. Income tax expense was $5.9 million for each of the three months ended September 30, 2022 and ~~increased benefit costs~~.

~~Occupancy~~2021. The resulting effective tax rates were 19.9% and ~~equipment.~~ ~~Occupancy equipment expense totaled $4.1 million and $10.8 million~~23.1% for the three months ended September 30, 2022 and 2021, respectively. The decrease in the Company’s effective tax rate for the three months ended September 30, 2022 was primarily related to a reduction in the state effective tax rate based on the Company’s geographic footprint.

Income tax expense was $19.8 million for the nine months ended September 30, ~~2017, respectively,~~2022, as compared to $3.3 million and $9.8 million for the corresponding three and nine month periods in the prior year, respectively. These increases were mainly due to depreciation, real estate taxes, utilities, ongoing maintenance and lease obligations associated with the branch and office facilities added from the Centrue acquisition.

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

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

~~Marketing.~~ ~~Marketing expense totaled $1.1 million and $2.5 million for the three and~~ nine months ended September 30, ~~2017, respectively, compared to $0.7 million~~2021. The resulting effective tax rates were 23.0% and ~~$2.0 million~~15.0% for the corresponding three and nine month periods in the prior year, respectively. These increases reflected the impact of increased advertising and public relations expense centered on the promotion of our acquisition and integration of Centrue.

~~Amortization of intangible assets.~~ ~~Intangible assets expense totaled $1.2 million and $2.3 million for the three and~~ nine months ended September 30, ~~2017, respectively, compared to $0.5 million~~2022 and ~~$1.6 million~~2021, respectively. The Company's income tax expense and related effective tax rate for the ~~three and~~ nine months ended September 30, ~~2016, respectively. These increases were primarily due to amortization recorded on~~2021 benefited from the ~~$11.1~~$6.8 million ~~core deposit intangible established~~ in ~~conjunction with the Centrue acquisition in June 2017.~~

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

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

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

FDIC-assisted transactions discussed earlier.

~~Table of Contents~~

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

Financial Condition

Assets. Total assets increased ~~$1.1 billion~~ to ~~$4.3~~$7.82 billion at September 30, ~~2017~~2022, as compared to $7.44 billion at December 31, ~~2016. This increase primarily reflected the addition~~2021.

Table of ~~$1.0 billion of assets from the Centrue acquisition. The remaining increase was primarily attributable to organic loan growth of $156.1 million.~~

Contents

Loans. The loan portfolio is the largest category of our assets. At September 30, ~~2017,~~2022, total loans ~~net of allowance for loan losses,~~ were ~~$3.1 billion.~~$6.20 billion compared to $5.22 billion at December 31, 2021. The following table shows loans by ~~non‑PCI and PCI loan~~ category ~~and the related allowance~~ as of September 30, ~~2017~~2022 and December 31, ~~2016:~~

2021:


	September 30, 2017						December 31, 2016
	Non-PCI		PCI				Non-PCI		PCI						September 30, 2022				December 31, 2021
(dollars in thousands)	Loans		Loans		Total		Loans		Loans		Total			(dollars in thousands)	Book Value		%		Book Value		%
Loans:														Loans:
Commercial	$	510,457	$	3,087	$	513,544	$	454,310	$	3,517	$	457,827
Commercial:														Commercial:
Equipment finance loans														Equipment finance loans	$	577,323	9.3	%	$	521,973	10.0	%
Equipment finance leases														Equipment finance leases	457,611		7.4		423,280		8.1
Commercial FHA lines														Commercial FHA lines	51,309		0.8		91,927		1.8
SBA PPP loans														SBA PPP loans	2,810		—		52,477		1.0
Other commercial loans														Other commercial loans	904,841		14.6		783,811		14.9
Total commercial loans and leases														Total commercial loans and leases	1,993,894		32.2		1,873,468		35.8
Commercial real estate		1,456,620		15,664		1,472,284		963,895		5,720		969,615		Commercial real estate	2,466,303		39.8		1,816,828		34.8
Construction and land development		181,763		750		182,513		165,175		12,150		177,325	.	Construction and land development	225,549		3.6		193,749		3.7
Total commercial loans		2,148,840		19,501		2,168,341		1,583,380		21,387		1,604,767
Residential real estate		438,973		6,774		445,747		247,156		6,557		253,713		Residential real estate	356,225		5.7		338,151		6.5
Consumer		342,863		175		343,038		269,705		312		270,017		Consumer	1,156,480		18.7		1,002,605		19.2
Lease financing		200,846		—		200,846		191,479		—		191,479
Total loans, gross		3,131,522		26,450		3,157,972		2,291,720		28,256		2,319,976		Total loans, gross	6,198,451		100.0	%	5,224,801		100.0	%
Allowance for loan losses		(15,415)		(1,446)		(16,861)		(13,744)		(1,118)		(14,862)
Allowance for credit losses on loans														Allowance for credit losses on loans	(58,639)				(51,062)
Total loans, net	$	3,116,107	$	25,004	$	3,141,111	$	2,277,976	$	27,138	$	2,305,114		Total loans, net	$	6,139,812			$	5,173,739

~~Loans~~

Total loans increased ~~$838.0~~$973.7 million to ~~$3.2~~$6.20 billion at September 30, ~~2017~~2022 as compared to December 31, ~~2016.~~2021. The ~~increase in loans~~loan growth was primarily ~~due to $681.9 million of~~reflected in our commercial loans ~~added from the Centrue acquisition. The remaining increase resulted from organic growth of~~and leases, commercial real estate ~~loans, residential real estate loans,~~and consumer portfolios, which increased $120.4 million, $649.5 million and $153.9 million, respectively.

Commercial loans and ~~lease financing receivables. The $1.8~~leases, which includes PPP loans and commercial FHA warehouse lines, increased $120.4 million ~~decrease in PCI~~to $1.99 billion at September 30, 2022 as compared to December 31, 2021. PPP loans at September 30, ~~2017 compared to~~2022 totaled $2.8 million, a decrease of $49.7 million from December 31, ~~2016 reflected~~2021. Advances on commercial FHA warehouse lines decreased $40.6 million to $51.3 million at September 30, 2022. Excluding the ~~impact of loan payoffs and repayments, offset~~decreases in ~~part by the addition of $13.4 million of PCI loans from the Centrue acquisition.~~

Outstanding loan balances increase due to new loan originations, advances on outstanding commitments and loans acquired as a result of acquisitions of other financial institutions, net of amounts received for loan payments and payoffs, charge‑offs ofPPP loans and ~~transfers of~~commercial FHA warehouse lines, commercial loans ~~to OREO. The following table shows the fair values of those loans acquired at acquisition date~~ and ~~the net growth for the periods presented.~~

For the Nine Months Ended

For the Year Ended

September 30, 2017

December 31, 2016

Net

Net

Growth

Growth

(dollars in thousands)

Acquired

(Attrition)

Acquired

(Attrition)

Loans:

Commercial

$
104,812

$
(49,095)

$
—

$
(41,746)

Commercial real estate

485,984

16,685

—

92,831

Construction and land development

28,458

(23,270)

—

27,059

Total commercial loans

619,254

(55,680)

—

78,144

Residential real estate

59,569

132,465

—

90,489

Consumer

3,047

69,974

—

108,505

Lease financing

—

9,367

—

47,249

Total loans

$
681,870

$
156,126

$
—

$
324,387

leases increased $210.7 million.

~~Table of Contents~~

The principal ~~categories~~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‑~~small- and ~~medium‑sized~~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.

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

the underlying equipment.

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

passive investors.

Construction and land development loans. Our construction and land development loans are comprised of residential construction, commercial construction and land acquisition and development loans. Interest reserves are generally established on real estate construction loans. As of September 30, 2017, our construction and land development loan portfolio was divided among the foregoing categories as follows: $22.0 million residential construction; $137.9 million commercial construction; and $22.7 million land acquisition and development.

Construction and land development loans increased $5.2 million to $182.5 million at September 30, 2017 as compared to December 31, 2016. The increase in construction and land development loans was primarily due to loans added from the Centrue acquisition of $28.5 million and new originations exceeding repayments and transfers to permanent financing.

Residential real estate loans. Residential real estate loans increased $192.0 million to $445.7 million at September 30, 2017 as compared to December 31, 2016. This increase was due in part to $59.6 million of loans added from the Centrue acquisition. The remaining increase in Our residential real estate loans ~~was attributable to organic growth~~consist of residential ~~real estate loans exceeding repayments. Origination volume in the first nine months~~properties that generally do not qualify for secondary market sale.

Table of ~~2017 benefited from $133.7 million in new residential real estate loans from a lending program targeting doctors.~~

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

Contents

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

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

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

payments.

~~Table of Contents~~

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

2022:


	September 30, 2017
	Within One Year				One Year to Five Years				After Five Years							September 30, 2022
			Adjustable				Adjustable				Adjustable					Within One Year				One Year to Five Years				Five Years to 15 Years				After 15 Years
(dollars in thousands)	Fixed Rate		Rate		Fixed Rate		Rate		Fixed Rate		Rate		Total		(dollars in thousands)	Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Total
Loans:
Commercial	$	42,516	$	156,556	$	112,807	$	112,299	$	78,785	$	10,581	$	513,544	Commercial	$	75,162	$	473,053	$	606,770	$	87,295	$	192,833	$	97,036	$	—	$	4,134	$	1,536,283
Commercial real estate		149,549		95,752		646,331		201,995		70,036		308,621		1,472,284	Commercial real estate	179,868		170,173		953,862		519,247		425,956		183,182		5,727		28,288		2,466,303
Construction and land development		16,478		51,473		23,219		72,137		776		18,430		182,513	Construction and land development	3,485		58,030		30,473		101,061		9,073		20,635		1,024		1,768		225,549
Total commercial loans		208,543		303,781		782,357		386,431		149,597		337,632		2,168,341	Total commercial loans	258,515		701,256		1,591,105		707,603		627,862		300,853		6,751		34,190		4,228,135
Residential real estate		3,823		13,507		16,050		40,116		133,677		238,574		445,747	Residential real estate	1,878		5,091		8,463		18,272		33,016		39,010		143,508		106,987		356,225
Consumer		3,947		6,620		61,087		17,635		252,513		1,236		343,038	Consumer	1,834		4,012		1,130,138		555		19,941		—		—		—		1,156,480
Lease financing		7,503		—		193,046		—		297		—		200,846	Lease financing	10,773		—		344,919		—		101,919		—		—		—		457,611
Total loans	$	223,816	$	323,908	$	1,052,540	$	444,182	$	536,084	$	577,442	$	3,157,972	Total loans	$	273,000	$	710,359	$	3,074,625	$	726,430	$	782,738	$	339,863	$	150,259	$	141,177	$	6,198,451

Loan Quality

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

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

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

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

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

~~Table of Contents~~

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

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

Nine Months Ended

September 30,

(dollars in thousands)

2017

2016

Balance, beginning of period

$
9,035

$
10,526

New loans purchased - Centrue acquisition

2,111

—

Accretion

(4,276)

(7,066)

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

(1,558)

(96)

Reclassification from non-accretable

1,519

4,302

Balance, end of period

$
6,831

$
7,666

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

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

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

September 30, 2017

December 31, 2016

(dollars in thousands)

Allowance

% (1)


Allowance

% (1)


Loans:

Commercial

$
4,690

0.91
%

$
5,920

1.29
%

Commercial real estate

6,767

0.46

3,225

0.33

Construction and land development

215

0.12

345

0.19

Total commercial loans

11,672

0.54

9,490

0.59

Residential real estate

2,863

0.64

2,929

1.15

Consumer

1,269

0.37

930

0.34

Lease financing

1,057

0.53

1,513

0.79

Total allowance for loan losses

$
16,861

0.53

$
14,862

0.64


	September 30, 2022			December 31, 2021
(dollars in thousands)	Allowance		% (1)	Allowance		% (1)
Commercial	$	14,364	0.93%	$	14,375	0.99%
Commercial real estate	28,430		1.15	22,993		1.27
Construction and land development	1,591		0.71	972		0.50
Total commercial loans	44,385		1.05	38,340		1.11
Residential real estate	4,171		1.17	2,695		0.80
Consumer	3,405		0.29	2,558		0.26
Lease financing	6,678		1.46	7,469		1.76
Total allowance for credit losses on loans	$	58,639	0.95%	$	51,062	0.98%

~~(1)~~

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

(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.

Table of Contents

The allowance ~~and the balance~~allocated to commercial loans totaled $14.4 million, or 0.93% of ~~nonaccretable discounts represent our estimate of probable and reasonably estimable~~total commercial loans, at September 30, 2022, compared to $14.4 million, or 0.99%, at December 31, 2021. Modeled expected credit losses ~~inherent in~~decreased $0.3 million and qualitative factor ("Q-Factor") adjustments related to commercial loans ~~held~~increased $1.9 million. Specific allocations for ~~investment as of the respective balance sheet date. We assess the appropriateness of our allowance~~commercial loans that were evaluated for ~~non-PCI loans separately~~expected credit losses on an individual basis decreased from ~~our allowance for PCI loans~~.

~~The allowance for loan losses was $16.9~~$2.9 million at December 31, 2021 to $1.3 million at September 30, ~~2017 compared~~2022.

The allowance allocated to ~~$14.9 million at December 31, 2016. The $2.0 million increase in the allowance at September 30, 2017 compared to December 31, 2016 was mainly attributable~~ to ~~specific reserves recorded on two~~ commercial real estate loans ~~combined with~~totaled $28.4 million, or 1.15% of total commercial real estate loans, at September 30, 2022, increasing $5.4 million from $23.0 million, or 1.27% of total commercial real estate loans, at December 31, 2021. Modeled expected credit losses related to commercial real estate loans increased $1.0 million and Q-Factor adjustments related to commercial real estate loans increased $4.5 million.

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

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

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

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

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

•The FOMC's median interest rate forecast of 4.4% for the end of 2022 implies at least another 125bps of rate hikes by year end after September’s 75bps increase.

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

We qualitatively adjust the model results based on this scenario for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan ~~growth over~~portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the ~~past year.~~

modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. As a result of this assessment as of September 30, 2022, modeled expected credit losses were adjusted upwards with a Q-Factor adjustment of approximately 50 basis points of total loans, increasing from 43 basis points at December 31, 2021. The Q-Factor adjustment at September 30, 2022 was based primarily on declining economic conditions, including rising inflation fears and an increasing risk of recession and the impact of rising fuel prices on businesses and consumers.

Table of Contents

The following table provides an analysis of the allowance for credit losses on loans, provision for credit losses on loans and net charge-offs for the three and nine months ended September 30, 2022 and 2021:


	As of and for the Three Months Ended September 30,						As of and for the Nine Months Ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Balance, beginning of period	$	54,898		$	58,664		$	51,062		$	60,443
Charge-offs:
Commercial	1,655			317			3,869			3,457
Commercial real estate	1,232			1,663			4,084			3,382
Construction and land development	—			138			6			410
Residential real estate	166			35			315			286
Consumer	316			280			812			740
Lease financing	485			1,227			1,190			1,996
Total charge-offs	3,854			3,660			10,276			10,271
Recoveries:
Commercial	45			134			354			288
Commercial real estate	1			3			6			16
Construction and land development	18			74			30			221
Residential real estate	69			66			222			180
Consumer	121			93			381			370
Lease financing	367			301			1,013			478
Total recoveries	621			671			2,006			1,553
Net charge-offs	3,233			2,989			8,270			8,718
Provision for credit losses on loans	6,974			—			15,847			3,950

Balance, end of period	$	58,639		$	55,675		$	58,639		$	55,675
Gross loans, end of period	$	6,198,451		$	4,915,554		$	6,198,451		$	4,915,554
Average total loans	$	6,040,358		$	4,800,063		$	5,666,874		$	4,872,327
Net charge-offs to average loans	0.21		%	0.25		%	0.20		%	0.24		%
Allowance to total loans	0.95		%	1.13		%	0.95		%	1.13		%

Individual loans considered to be uncollectible are charged off against the allowance. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Collateral value is determined using updated appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is determined to be other-than-temporary. Recoveries on loans previously charged off are

~~Table of Contents~~

added to the allowance.Net charge-offs for the three months ended September 30, 2022 totaled $3.2 million, compared to ~~average loans were 0.07% and 0.31%~~$3.0 million for the same period one year ago. For the nine months ended September 30, ~~2017 and the year ended December 31, 2016, respectively.~~

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

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

~~Allowance for PCI loans.~~ PCI loans are recorded at their estimated fair value at the date of acquisition, with the estimated fair value including a component for estimated credit losses. An allowance related to PCI loans may be recorded subsequent to acquisition if a PCI loan pool experiences a decrease in expected cash flows as2022, net charge-offs totaled $8.3 million, compared to the expected cash flows projected in the previous quarter. Loans considered to be uncollectible are initially charged off against the specific loan pool’s non‑accretable difference. When the pool��s non‑accretable difference has been fully utilized, uncollectible amounts are charged off against the corresponding allowance. The following table shows our allowance by loan portfolio and by non‑PCI and PCI loans as of September 30, 2017 and December 31, 2016:

September 30, 2017

December 31, 2016

Non-PCI

PCI

Non-PCI

PCI

(dollars in thousands)

Loans

Loans

Total

Loans

Loans

Total


Loans:

Commercial

$
4,202

$
488

$
4,690

$
5,421

$
499

$
5,920

Commercial real estate

6,442

325

6,767

2,993

232

3,225

Construction and land development

214

1

215

345

—

345

Total commercial loans

10,858

814

11,672

8,759

731

9,490

Residential real estate

2,383

480

2,863

2,572

357

2,929

Consumer

1,117

152

1,269

900

30

930

Lease financing

1,057

—

1,057

1,513

—

1,513

Total allowance for loan losses

$
15,415

$
1,446

$
16,861

$
13,744

$
1,118

$
14,862

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

~~Table of Contents~~

~~The following table provides an analysis of the allowance for loan losses, provision for loan losses and net charge‑offs~~$8.7 million for the ~~three and nine months ended September 30, 2017 and 2016:~~

same period one year ago.

As of and for the

As of and for the

Three Months Ended

Nine Months Ended

September 30,

September 30,

(dollars in thousands)

2017


2016


2017


2016

Balance, beginning of period

$
15,424

$
14,752

$
14,862

$
15,988

Charge-offs:

Commercial

—

251

737

2,513

Commercial real estate

—

214

470

461

Construction and land development

—

1

—

1

Residential real estate

128

153

455

454

Consumer

105

91

536

225

Lease financing

102

154

658

632

Total charge-offs

335

864

2,856

4,286

Recoveries:

Commercial

54

36

137

164

Commercial real estate

56

129

435

216

Construction and land development

13

13

48

30

Residential real estate

47

32

276

131

Consumer

81

20

197

79

Lease financing

32

49

282

91

Total recoveries

283

279

1,375

711

Net charge-offs

52

585

1,481

3,575

Provision for loan losses

1,489

1,392

3,480

3,146

Balance, end of period

$
16,861

$
15,559

$
16,861

$
15,559

Net charge-offs to average loans

0.01
%

0.11
%

0.07
%

0.23
%
Allowance to total loans

0.53
%

0.67
%

0.53
%

0.67
%

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

Table of Contents

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


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

Nonperforming loans ~~are excluded from nonperforming status because we expect to fully collect their new carrying values, which reflect significant purchase discounts. If our expectation~~totaled $46.9 million, or 0.76% of reasonably estimable future cash flows from PCI loans deteriorates, the loans may be classified as nonaccrual loans and interest income will not be recognized until the timing and amount of future cash flows can be reasonably estimated.

September 30,


December 31,

(dollars in thousands)

2017


2016

Impaired loans:





Commercial

$
4,000

$
6,548

Commercial real estate

22,668

18,398

Construction and land development

104

84

Residential real estate

5,320

5,029

Consumer

277

213

Lease financing

1,062

1,331

Total impaired loans

33,431

31,603

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

4,678

2,947

Nonperforming assets

$
38,109

$
34,550

Impaired loans to total loans

1.06
%

1.36
%
Nonperforming assets to total assets

0.88
%

1.07
%

~~The increase in nonperforming~~total loans, at September 30, ~~2017 was primarily due~~2022, compared to ~~one commercial real estate loan being classified as nonaccrual during the third quarter~~$42.6 million, or 0.81% of ~~2017~~.

total loans at December 31, 2021.

We did not recognize ~~any~~ interest income on nonaccrual loans during the three and nine months ended September 30, ~~2017 and the year ended December 31, 2016~~2022 or 2021 while the loans were in nonaccrual status. Additional interest income that we would have ~~recognized~~been recorded on ~~these~~nonaccrual loans had they been current in accordance with their original terms was ~~$0.5~~$0.8 million and ~~$0.7~~$1.9 million ~~during~~for the three and nine months ended September 30, ~~2017~~2022, respectively, and ~~the year ended December 31, 2016, respectively. We recognized interest income on commercial and commercial real estate loans modified under troubled debt~~

~~Table of Contents~~

~~restructurings of $0.1~~$0.6 million and ~~$0.3~~$2.1 million ~~during~~for the three and nine months ended September 30, ~~2017 and the year ended December 31, 2016,~~2021, respectively.

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

team.

The following table presents the recorded investment of potential problem commercial loans ~~(excluding PCI loans)~~ by loan category at the dates indicated:

Commercial

Construction &

Commercial

Real Estate

Land Development

Risk Category

Risk Category

Risk Category

(dollars in thousands)

7

8 (1)

7

8 (1)

7

8 (1)

Total

September 30, 2017

$
16,543

$
17,376

$
9,121

$
13,484

$
—

$
—

$
56,524

December 31, 2016

10,930

12,037

8,735

11,039

—

450

43,191


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

~~(1)~~

~~Includes only those 8‑rated loans that are not included in impaired loans.~~

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

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

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

positions.

Table of Contents

The following table sets forth the book value and percentage of each category of investment securities at September 30, ~~2017~~2022 and December 31, ~~2016.~~2021. The book value for investment securities classified as available for sale is equal to fair market ~~value and the book value for investment securities classified as held to maturity is equal to amortized cost.~~

September 30,

December 31,

2017

2016

Book

% of

Book

% of

(dollars in thousands)

Value

Total


Value

Total

Investment securities, available for sale, at fair value









U.S. Treasury securities

$
47,907

10.3
%

$
75,901

23.3
%
Government sponsored entity debt securities

19,389

4.1

7,688

2.4

Agency mortgage-backed securities

229,854

49.1

90,070

27.7

Non-agency mortgage-backed securities

—

—

1

—

State and municipal securities

39,716

8.5

25,274

7.8

Corporate securities

57,307

12.2

47,405

14.6

Equity securities

2,812

0.6

—

—

Total investment securities, available for sale, at fair value

396,985

84.8

246,339

75.8

Investment securities, held to maturity, at amortized cost

State and municipal securities

70,867

15.2

78,672

24.2

Total investment securities

$
467,852

100.0
%

$
325,011

100.0
%

value.


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

Table of Contents

The following table sets forth the book value, maturities and weighted average yields for our investment portfolio at September 30, ~~2017.~~2022. The book value for investment securities classified as available for sale is equal to fair market ~~value and the book value~~value.


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

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

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

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

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

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

(1)Weighted average yield for ~~investment securities classified as held to maturity is equal to amortized cost.~~

September 30, 2017

% of Total

Weighted

Book

Investment

Average

(dollars in thousands)

Value

Securities

Yield

Investment securities, available for sale







U.S. Treasury securities:

Maturing within one year

$
27,939

6.0
%
0.9
%
Maturing in one to five years

19,968

4.3

1.5

Maturing in five to ten years

—

0.0

0.0

Maturing after ten years

—

0.0

0.0

Total U.S. Treasury securities

$
47,907

10.3
%
1.2
%

Government sponsored entity debt securities:

Maturing within one year

$
—

0.0
%
0.0
%
Maturing in one to five years

6,930

1.5

2.0

Maturing in five to ten years

11,887

2.5

2.5

Maturing after ten years

572

0.1

2.5

Total government sponsored entity debt securities

$
19,389

4.1
%
2.3
%

Agency mortgage-backed securities:

Maturing within one year

$
923

0.2
%
2.5
%
Maturing in one to five years

191,912

41.0

2.2

Maturing in five to ten years

30,602

6.5

2.7

Maturing after ten years

6,417

1.4

3.0

Total agency mortgage-backed securities

$
229,854

49.1
%
2.3
%

State and municipal securities (1):

Maturing within one year

$
5,442

1.2
%
2.3
%
Maturing in one to five years

12,937

2.8

2.6

Maturing in five to ten years

14,704

3.1

3.6

Maturing after ten years

6,633

1.4

4.4

Total state and municipal securities

$
39,716

8.5
%
3.2
%

Corporate securities:

Maturing within one year

$
3,003

0.6
%
1.7
%
Maturing in one to five years

4,572

1.0

2.6

Maturing in five to ten years

46,920

10.0

4.9

Maturing after ten years

2,812

0.6

5.5

Total corporate securities

$
57,307

12.2
%
4.6
%

Equity securities:

No stated maturity

$
2,812

0.6
%
2.2
%
Total investment securities, available for sale

$
396,985

84.9
%
2.2
%

Investment securities, held to maturity

State and municipal securities (1):

Maturing within one year

$
871

0.2
%
5.8
%
Maturing in one to five years

19,055

4.1

5.7

Maturing in five to ten years

35,164

7.5

6.8

Maturing after ten years

15,777

3.4

5.5

Total state and municipal securities

$
70,867

15.2
%
6.2
%
Total investment securities

$
467,852

100.0
%
3.1
%

~~(1)~~

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

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

Table of Contents

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

at fair value, at September 30, 2022.


	September 30, 2017
	Amortized		Estimated		Average Credit Rating													Amortized		Estimated		Average credit rating
(dollars in thousands)	Cost		Fair Value		AAA		AA+/−		A+/−		BBB+/−		<BBB−		Not Rated		(dollars in thousands)	cost		fair value		AAA		AA+/-		A+/-		BBB+/-		<BBB-		Not Rated
Investment securities available for sale:																	Investment securities available for sale:
U.S. Treasury securities	$	47,979	$	47,907	$	—	$	47,907	$	—	$	—	$	—	$	—	U.S. Treasury securities	$	66,369	$	60,496	$	60,496	$	—	$	—	$	—	$	—	$	—
Government sponsored entity debt securities		19,290		19,389		—		19,389		—		—		—		—
Agency mortgage-backed securities		229,382		229,854		297		229,557		—		—		—		—
U.S. government sponsored entities and U.S. agency securities																	U.S. government sponsored entities and U.S. agency securities	32,267		27,865		23,289		4,576		—		—		—		—
Mortgage-backed securities - agency																	Mortgage-backed securities - agency	469,822		391,615		13		391,602		—		—		—		—
Mortgage-backed securities - non-agency																	Mortgage-backed securities - non-agency	25,341		21,158		21,158		—		—		—		—		—
State and municipal securities		39,385		39,716		8,109		20,569		1,666		—		—		9,372	State and municipal securities	105,838		95,061		7,782		74,730		2,010		986		—		9,553
Corporate securities		56,404		57,307		—		—		13,997		41,285		—		2,025	Corporate securities	95,313		85,694		—		—		30,926		52,340		—		2,428
Equity securities		2,705		2,812		—		—		2,812		—		—		—
Total investment securities, available for sale		395,145		396,985		8,406		317,422		18,475		41,285		—		11,397	Total investment securities, available for sale	$	794,950	$	681,889	$	112,738	$	470,908	$	32,936	$	53,326	$	—	$	11,981
Investment securities held to maturity:
State and municipal securities		70,867		75,142		6,079		36,448		18,927		—		714		12,974
Total investment securities	$	466,012	$	472,127	$	14,485	$	353,870	$	37,402	$	41,285	$	714	$	24,371

Cash and Cash Equivalents.Cash and cash equivalents decreased ~~$7.1~~$367.2 million to ~~$183.6~~$313.2 million ~~as of~~at September 30, ~~2017 as~~2022 compared to December 31, ~~2016. This decrease was~~2021, primarily due to ~~cash flows used~~funding loan growth in investing activities of $196.3 million exceeding cash flows from financing activities of $126.5 million and cash flows provided by operating activities of $62.6 million. Cash flows from financing activities primarily consisted of FHLB advances increasing $117.5 million and proceeds from a term loan totaling $40.0 million, offset in part by a $29.8 million decrease in deposits. Cash provided by operating activities primarily reflected $14.1 million of net income and $48.6 million of proceeds received from sales of loansthe current quarter.

Loans Held for Sale. Loans held for sale ~~that exceeded originations. Cash used in investing activities primarily reflected loan growth.~~

~~Goodwill and Other Intangible Assets.~~ ~~Goodwill was $97.4~~totaled $4.3 million at September 30, ~~2017~~2022, comprised of residential real estate loans, compared to ~~$48.8~~$32.0 million at December 31, ~~2016. Goodwill represents the excess~~2021, comprised of ~~consideration paid in an acquisition over the fair value of the net assets acquired. The $48.5 million increase during the first nine months of 2017 resulted from $46.1~~$19.2 million of ~~goodwill associated with the Centrue acquisition~~commercial real estate and ~~$2.4~~$12.8 million of ~~goodwill from the CedarPoint acquisition.~~

~~Our other intangible assets, which consist of core deposit and trust relationship intangibles, were $18.0 million and $7.2 million at~~residential real estate loans.

Liabilities. At September 30, ~~2017 and~~2022, liabilities totaled $7.08 billion compared to $6.78 billion at December 31, 2016, respectively. The increase in other intangibles primarily reflected the impact of an $11.1 million core deposit intangible associated with the Centrue acquisition and a $2.0 million trust relationship intangible from the CedarPoint acquisition, offset in part by $2.3 million of other intangibles amortization recorded during the first nine months of 2017.

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

2021.

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

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

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

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

Table of Contents

The following table summarizes our average deposit balances and weighted average rates atfor the three months ended September 30, ~~2017~~2022 and ~~December 31, 2016:~~

2021:


	September 30, 2017				December 31, 2016
			Weighted				Weighted			Three Months Ended September 30,
	Average		Average		Average		Average			2022				2021
(dollars in thousands)	Balance		Rate		Balance		Rate		(dollars in thousands)	Average balance		Weighted average rate		Average balance		Weighted average rate
Deposits:									Deposits:
Noninterest-bearing demand	$	598,874	—		$	536,965	—		Noninterest-bearing demand	$	1,969,873	—		$	1,434,193	—
Interest-bearing:									Interest-bearing:
Checking		764,324	0.19	%		637,531	0.13	%	Checking	1,850,789		1.42	%	1,672,599		0.12	%
Money market		490,382	0.40			382,780	0.27		Money market	1,110,660		0.86		828,655		0.09
Savings		217,753	0.14			163,392	0.15		Savings	718,970		0.08		664,354		0.02
Time, less than $250,000		388,867	0.86			378,158	0.90
Time, $250,000 and over		57,158	1.02			51,986	0.87
Time, insured									Time, insured	493,351		0.60		554,119		1.04
Time, uninsured									Time, uninsured	136,850		0.81		149,971		0.83
Time, brokered		264,035	1.44			215,865	1.37		Time, brokered	14,478		1.35		26,272		1.23
Total interest-bearing	$	2,182,519	0.52	%	$	1,829,712	0.49	%	Total interest-bearing	$	4,325,098	0.94	%	$	3,895,970	0.26	%
Total deposits	$	2,781,393	0.41	%	$	2,366,677	0.38	%	Total deposits	$	6,294,971	0.65	%	$	5,330,163	0.19	%

The following table sets forth the maturity of uninsured time ~~deposits of $250,000 or more and brokered~~ deposits as of September 30, ~~2017:~~

September 30, 2017

Maturity Within:

Three

Three to Six

Six to 12

After 12

(dollars in thousands)

Months or Less

Months

Months

Months

Total

Time, $250,000 and over

$
7,989

$
10,663

$
33,079

$
18,249

$
69,980

Time, brokered

64,316

38,385

36,038

94,230

232,969

Total

$
72,305

$
49,048

$
69,117

$
112,479

$
302,949

Total deposits increased $710.1 million to $3.1 billion at September 30, 2017 as compared to December 31, 2016. This increase primarily resulted from $739.9 million of deposits added from the Centrue acquisition. At September 30, 2017, total deposits were comprised of 21.7% noninterest‑bearing demand accounts, 55.0% interest‑bearing transaction accounts and 23.3% of time deposits. At September 30, 2017, brokered deposits totaled $233.0 million, or 7.5% of total deposits, compared to $218.7 million, or 9.1% of total deposits, at December 31, 2016.

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

~~FHLB Advances and Other Borrowings.~~ FHLB advances and other borrowings totaled $488.9 million and $237.5 million as of September 30, 2017 and December 31, 2016, respectively. During the first nine months of 2017, we added a mix of both short-term and long-term FHLB advances totaling $347.4 million combined with the $95.2 million of FHLB advances from the Centrue acquisition. After repayments of $229.9 million, FHLB advances as of September 30, 2017 totaled $450.1 million.

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

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

2022:



(dollars in thousands)	Amount
Three months or less	$	18,841
Three to six months	13,020
Six to 12 months	24,498
After 12 months	62,851
Total	$	119,210

~~Table of Contents~~

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

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

Capital Resources and Liquidity Management

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

securities and cash flow hedges.

Shareholders’ equity increased ~~$128.9~~$75.4 million to ~~$450.7~~$739.3 million at September 30, ~~2017~~2022 as compared to December 31, ~~2016.~~2021. The increase in shareholders’ equity was due primarily to $112.5 million of common equity and $3.1 million of preferred equity issued for the Centrue acquisition. During the first nine months of 2017, weCompany generated net income of $14.1 million and declared dividends of $10.2 million to common shareholders. Shareholders’ equity was also impacted by the issuance of $3.4 million of common stock for the CedarPoint acquisition and $3.0 million of common stock activity related primarily to the exercise of stock options. In addition, accumulated other comprehensive income increased $1.8$66.2 million during the first nine months of ~~2017.~~

2022. Offsetting this increase to shareholders’ equity were dividends to common shareholders of $19.4 million, stock repurchases of $1.1 million and a decrease in accumulated other comprehensive loss of $83.6 million. In ~~conjunction with the acquisition of Centrue,~~addition, the Company ~~assumed 2,636~~completed its preferred stock offering in August 2022, generating net proceeds of $110.5 million as described in Note 14. The Company intends to use the net proceeds from the offering for general corporate purposes, which may include providing capital to support its organic growth or growth through strategic acquisitions, repaying or redeeming outstanding indebtedness, financing investments, capital expenditures, repurchasing shares of ~~Centrue Series D non-cumulative non-voting preferred~~its common stock ~~by issuing an equal number Series H preferred shares~~ ~~that were recorded upon issuance at a fair value of $3.1 million. Dividends are payable quarterly on~~and for further investments in the ~~Series H preferred shares at a fixed rate of 12.5% per annum.~~ Bank as regulatory capital.

The Company has a stock repurchase program currently in effect, whereby the ~~option to redeem, in whole or in part, the Series H preferred shares at any time after July 29, 2019. Upon redemption,~~Board of Directors authorized the Company ~~would pay holders~~to repurchase up to $75.0 million of ~~Series H preferred shares $1,000 per share, plus any accrued but unpaid dividends.~~

its common stock. This program terminates December 31, 2022. As ~~previously discussed, the Company recently entered into a definitive agreement to acquire Alpine, and will be required to pay an aggregate~~ of ~~$33.3~~September 30, 2022, $56.4 million, ~~in cash and issue 4,463,200~~or 2,996,778 shares of ~~Midland~~the Company’s common stock, ~~upon closing~~had been repurchased under the program, with approximately $18.6 million of ~~the transaction, which is expected to occur~~remaining repurchase authority. The Company did not repurchase any shares under this repurchase program in the ~~first~~third quarter of 2018. In connection with its entry into the agreement to acquire Alpine, the Company issued $40.0 million aggregate principal amount of subordinated debentures in October 2017, the proceeds of which may be used to fund the payment of the cash portion of the merger consideration. See “Note 21 — Subsequent Events” above for additional information.

2022.

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

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

Integral to our liquidity management is the administration of ~~short‑term~~short-term borrowings. To the extent we are unable to obtain sufficient liquidity through core ~~deposits;~~deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a ~~short‑~~short- or ~~long‑term~~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.~~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. ~~Securities~~Investment securities with a carrying amount of $61.5 million and $78.3 million at September 30, 2022 and December 31, 2021, respectively, were pledged for securities sold under agreements to ~~repurchase were $153.4~~repurchase.

The Company had available lines of credit of $13.5 million and $55.9 million at September 30, ~~2017 compared to $131.6 million at December 31, 2016.~~

~~As of September 30, 2017~~2022 and December 31, ~~2016, we had $55.0 million and $30.0 million of unsecured federal funds lines,~~2021, respectively, ~~with no amounts advanced against the lines at either date. In addition, available lines of credit~~ from the Federal Reserve Discount ~~Window at September 30, 2017 and December 31, 2016 were $23.2 million~~

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~~and $35.1 million, respectively. Federal Reserve Discount Window~~Window. The lines ~~were~~are collateralized by a collateral agreement with respect to a pool of commercial real estate loans totaling ~~$31.5~~$15.7 million and ~~$43.3~~$64.8 million ~~as of~~at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. ~~We did not have any~~There were no outstanding borrowings ~~outstanding with the Federal Reserve~~under these lines at September 30, ~~2017 or~~2022 and December 31, ~~2016, and our borrowing capacity is limited only by eligible collateral.~~

2021.

At September 30, ~~2017 and December 31, 2016, we~~2022, the Company had ~~$450.1~~available federal funds lines of credit totaling $45.0 million, and $237.5 million of outstanding advances from the FHLB, respectively. Based on the values of stock, securities, and loans pledged as collateral, we had $412.5 million and $310.8 million of additional borrowing capacity with the FHLB as of September 30, 2017 and December 31, 2016, respectively. We also maintain relationships in the capital markets with brokers and dealers to issue certificates of deposit.

which were unused.

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

~~The Dodd‑Frank Wall Street Reform and Consumer Protection Act~~

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

Basel III

Well

Adequately

Ratio

Capitalized

Capitalized

Tier 1 leverage ratio

5.0
%
4.0
%
Common equity Tier 1 capital ratio

6.5

4.5

Tier 1 risk-based capital ratio

8.0

6.0

Total risk-based capital ratio

10.0

8.0

In addition to the minimum regulatory capital requirements set forth in the table above, the Basel III Rule implemented a “capital conservation buffer” that is added to the minimum requirements for capital adequacy purposes. A banking organization that fails to meet the required amount of the capital conservation buffer will be subject to limits on capital distributions (e.g., dividends, stock buybacks, etc.) and certain discretionary bonus payments to executive officers. For community banks, the capital conservation buffer requirement is being phasedphase in over a three-year period ~~beginning~~the day-one adverse effects on ~~January~~regulatory capital that may result from the adoption of the CECL accounting standard. In March 2020, the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company is adopting the capital transition relief over the permissible five-year period.

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

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


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

(1)Total risk-based capital ratio, Tier 1 ~~2016. The~~risk-based capital ratio and Common equity tier 1 risk-based capital ratio include the capital conservation buffer ~~in 2016 was 0.625%, is 1.25% in 2017 and will increase by 0.625% on January 1~~ of ~~each subsequent year until fully phased in at~~ 2.5% ~~on January 1, 2019.~~

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

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

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~~Contractual Obligations~~

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

Payments Due

Less than

One to

Three to

More than

(dollars in thousands)

One Year

Three Years

Five Years

Five Years

Total

Deposits without a stated maturity

$
2,387,588

$
—

$
—

$
—

$
2,387,588

Time deposits

448,096

260,698

17,940

145

726,879

Securities sold under repurchase agreements

153,443

—

—

—

153,443

FHLB advances and other borrowings

205,929

42,913

165,028

75,000

488,870

Operating lease obligations

2,745

4,478

3,643

3,905

14,771

Subordinated debt

—

—

—

54,581

54,581

Trust preferred debentures

—

—

—

45,267

45,267

Total contractual obligations

$
3,197,801

$
308,089

$
186,611

$
178,898

$
3,871,399

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

Quantitative and Qualitative Disclosures About Market Risk

Market Risk. Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We ~~have identified two primary sources of market risk:~~are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price ~~risk.~~

risk from investments in securities backed by mortgage loans.

Interest Rate Risk

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

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

We actively manage interest rate ~~risk. ALCO establishes specific operating guidelines within~~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 ~~parameters~~fair market value of ~~the board of directors’ policies. In general, we~~our financial instruments, cash flows, and net interest income. We seek to ~~minimize~~achieve consistent growth in net interest income and capital while managing volatility arising from shifts in market interest rates. Our Board of Directors’ Risk Policy and Compliance Committee oversees interest rate risk, as well as the ~~impact~~establishment of ~~changing~~risk measures, limits, and policy guidelines for managing the amount of interest ~~rates~~rate risk and mortgage price risk and its effect on net interest income and ~~the economic values of assets and liabilities. Our ALCO~~capital. The Committee meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits.

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

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

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Income Simulation and Economic Value Analysis. Interest rate risk measurement is calculated and reported to the ~~ALCO~~Risk Policy and Compliance Committee at least quarterly. The information reported includes ~~period‑end~~period-end results and identifies any policy limits

~~Table of Contents~~

exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.

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

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

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

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


	Net Interest Income Sensitivity (Shocks)										Net interest income sensitivity (Shocks)
	Immediate Change in Rates										Immediate change in rates
(dollars in thousands)	−50			+100			+200			(dollars in thousands)	-100			+100			+200
September 30, 2017:
September 30, 2022:										September 30, 2022:
Dollar change	$	(2,093)		$	2,392		$	4,289		Dollar change	$	(12,193)		$	11,202		$	22,297
Percent change		(1.5)	%		1.7	%		3.1	%	Percent change	(4.6)		%	4.2		%	8.4		%
December 31, 2016:
December 31, 2021:										December 31, 2021:
Dollar change	$	(2,857)		$	4,154		$	8,162		Dollar change	$	(13,499)		$	23,513		$	47,028
Percent change		(2.8)	%		4.0	%		7.9	%	Percent change	(6.1)		%	10.6		%	21.2		%

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

next twelve months. We ~~are~~were within board policy limits for the -100, +100 and +200 basis point ~~scenarios. There is no policy limit~~scenarios at September 30, 2022.

Tolerance levels for risk management require the ~~−50 basis point scenario. The~~continuing development of remedial plans to maintain residual risk within approved levels as we adjust the balance sheet. NII at Risk reported at September 30, ~~2017,~~2022 projects that our earnings exhibit ~~decreased~~reduced sensitivity to changes in interest rates for all three scenarios compared to December 31, ~~2016.~~

2021.

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The following table shows EVE at the dates indicated:


	Economic Value of Equity Sensitivity (Shocks)										Economic value of equity sensitivity (Shocks)
	Immediate Change in Rates										Immediate change in rates
(dollars in thousands)	−50			+100			+200			(dollars in thousands)	-100			+100			+200
September 30, 2017:
September 30, 2022:										September 30, 2022:
Dollar change	$	(17,724)		$	25,765		$	46,590		Dollar change	$	6,949		$	7,528		$	16,900
Percent change		(3.9)	%		5.7	%		10.2	%	Percent change	(0.7)		%	0.8		%	1.8		%
December 31, 2016:
December 31, 2021:										December 31, 2021:
Dollar change	$	(16,159)		$	27,135		$	50,676		Dollar change	$	(89,850)		$	51,553		$	96,875
Percent change		(4.7)	%		7.9	%		14.8	%	Percent change	(13.4)		%	7.7		%	14.5		%

The EVE results included in the table above reflect the analysis used quarterly by management. It models immediate ~~−50,~~−100, +100 and +200 basis point parallel shifts in market interest rates. Due to the current low level of short‑term interest rates, the analysis reflects a declining interest rate scenario of 50 basis points, the point at which many assets and liabilities reach zero percent.

~~We are within board policy limits for the +100 and +200 basis point scenarios. There is no policy limit for the −50 basis point scenario.~~

The EVE reported at September 30, ~~2017 projects~~2022 projected that as interest rates increase, the economic value of equity position will increase, and as interest rates decrease, the economic value of equity position will decrease. When interest rates rise, fixed rate assets generally lose economic value; the longer the duration, the greater the value lost. The opposite is true when interest rates fall.

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

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

investments.

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~~Item~~ITEM 3 – ~~Quantitative and Qualitative Disclosures About Market Risk~~

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

68 ~~through~~ 69Table of ~~this report.~~

Contents~~Item~~

ITEM 4 – ~~Controls and Procedures~~

CONTROLSAND PROCEDURES

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

Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 ~~as amended (the “Exchange~~(“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~~

PART II – ~~Other Information~~

~~Item~~ OTHER INFORMATION

ITEM 1– ~~Legal Proceedings~~

LEGAL PROCEEDINGS

In the normal course of business, we are named or threatened to be named as a defendant in various lawsuits, none of which we expect to have a material effect on the Company. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business (including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security, ~~and~~ anti-money laundering and ~~anti-terrorism laws)~~anti-terrorism), we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk. ~~Except as described below, there~~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.

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

ITEM 1A–RISK FACTORS

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

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

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

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

~~Item 1A – Risk Factors~~

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

2021.

Table of Contents~~Item~~

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

Unregistered Sales of Equity Securities ~~and Use of Proceeds~~

None.

Issuer Purchases of Equity Securities

The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the third quarter of ~~2017.~~

Total

Maximum

Number of

Number of

Total

Average

Shares Purchased

Shares that May

Number

Price

as Part of Publicly

Yet Be Purchased

of Shares

Paid Per

Announced Plans

Under the Plans
Period

Purchased (1)

Share

or Programs

or Programs
July 1 - 31, 2017

18

$
33.72

-

-
August 1 - 31, 2017

1,677

30.50

-

-
September 1 - 30, 2017

320

31.63

-

-
Total

2,015

$
30.71

-

-

~~(1)~~

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

2022.


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

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

(2)As previously disclosed, the board of directors of the Company approved a stock repurchase program on August 6, 2019, and has amended the program on several occasions. Stock repurchases under these programs may be made from time to time on the open market, in privately negotiated transactions, or in any manner that complies with applicable securities laws, at the discretion of the Company. The timing of purchases and the number of shares repurchased under the programs are dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market condition. The repurchase program may be suspended or discontinued at any time without notice. As of September 30, 2022, 2,996,778 shares of the Company’s common stock have been repurchased under the program for an aggregate purchase price of $56.4 million.

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~~Item~~ITEM 6 – ~~Exhibits~~

EXHIBITS


Exhibit No.		Description
~~4.1~~			Form of Fixed-to-Floating Rate Subordinated Notes due October 15, 2027 (incorporated by reference to Exhibit 4.1 to Midland States Bancorp, Inc.’s Current Report on Form 8-K filed on October 17, 2017)
31.1
~~31.1~~	Chief Executive Officer’s Certification required by Rule 13(a)-14(a) – filed herewith.

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

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

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

101		Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2017,~~2022 formatted in ~~XBRL interactive data files pursuant to Rule 405 of Regulation S-T:~~iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements – filed herewith.

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

Table of Contents

SIGNATURES

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


	Midland States Bancorp,~~, INC.~~ Inc.


Date: November ~~9, 2017~~ 3, 2022	By:	/s/	~~Leon J. Holschbach~~ Jeffrey G. Ludwig
			~~Leon J. Holschbach~~ Jeffrey G. Ludwig
			President and Chief Executive Officer
			(Principal Executive Officer)


Date: November ~~9, 2017~~ 3, 2022	By:	/s/	~~Jeffrey G. Ludwig~~ Eric T. Lemke
			~~Jeffrey G. Ludwig~~ Eric T. Lemke
			~~Executive Vice President and~~ Chief Financial Officer
			(Principal Financial ~~and Accounting~~ Officer)


Assets acquired:
Cash and cash equivalents	$	42,461
Investment securities available for sale		149,013
Loans		681,870
Loans held for sale		531
Premises and equipment		17,147
Other real estate owned		4,759
Nonmarketable equity securities		8,168
Accrued interest receivable		2,376
Mortgage servicing rights		1,933
Intangible assets		11,070
Cash surrender value of life insurance policies		36,349
Deferred tax assets, net		33,461
Other assets		2,256
Total assets acquired		991,394
Liabilities assumed:
Deposits		739,867
Short-term borrowings		14,434
FHLB advances and other borrowings		95,332
Trust preferred debentures		7,565
Accrued interest payable		275
Other liabilities		3,429
Total liabilities assumed		860,902
Net assets acquired		130,492
Goodwill		46,087
Total consideration paid	$	176,579


					Best Estimate at
					Acquisition Date of
	Fair Value		Gross Contractual		Contractual Cash
	of Acquired Loans		Amounts Receivable		Flows Not Expected
	at Acquisition Date		at Acquisition Date		to be Collected
Acquired receivables subject to ASC 310-30	$	13,352	$	20,719	$	5,256
Acquired receivables not subject to ASC 310-30		668,518		821,338		4,518


	Amortized		Fair
	cost		value
Debt securities:
Within one year	$	37,340	$	37,307
After one year through five years		235,754		236,319
After five years through ten years		102,922		104,113
After ten years		16,424		16,434
Equity securities		2,705		2,812
Total	$	395,145	$	396,985


	September 30, 2017						December 31, 2016
			Unpaid		Related				Unpaid		Related
	Recorded		Principal		Valuation		Recorded		Principal		Valuation
	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans with a valuation allowance:
Commercial	$	3,047	$	3,111	$	500	$	3,877	$	3,888	$	882
Commercial real estate		16,454		17,540		3,570		2,142		2,331		309
Construction and land development		104		104		10		84		84		8
Residential real estate		3,056		3,634		490		3,735		4,404		604
Consumer		277		289		31		213		190		23
Lease financing		757		757		186		1,331		1,331		356
Total impaired loans with a valuation allowance		23,695		25,435		4,787		11,382		12,228		2,182
Impaired loans with no related valuation allowance:
Commercial		953		5,874		—		2,671		7,567		—
Commercial real estate		6,214		8,291		—		16,256		17,058		—
Construction and land development		—		813		—		—		—		—
Residential real estate		2,264		2,500		—		1,294		1,462		—
Consumer		—		—		—		—		26		—
Lease financing		305		305		—		—		—		—
Total impaired loans with no related valuation allowance		9,736		17,783		—		20,221		26,113		—
Total impaired loans:
Commercial		4,000		8,985		500		6,548		11,455		882
Commercial real estate		22,668		25,831		3,570		18,398		19,389		309
Construction and land development		104		917		10		84		84		8
Residential real estate		5,320		6,134		490		5,029		5,866		604
Consumer		277		289		31		213		216		23
Lease financing		1,062		1,062		186		1,331		1,331		356
Total impaired loans (excluding PCI)	$	33,431	$	43,218	$	4,787	$	31,603	$	38,341	$	2,182


					Remaining
	Servicing		Interest		Years to	Prepayment		Servicing		Discount
	Fee		Rate		Maturity	Rate		Cost		Rate
September 30, 2017:
Commercial FHA mortgage loans	0.13	%	3.67	%	30.3	8.25	%	$	1,000	10 - 12	%
Residential mortgage loans	0.26	%	3.93	%	22.6	11.52	%	$	67	9 - 11	%

December 31, 2016:
Commercial FHA mortgage loans	0.13	%	3.72	%	30.2	8.31	%	$	1,000	10 - 13	%
Residential mortgage loans	0.26	%	3.89	%	24.2	9.72	%	$	60	9 - 11	%


	September 30, 2017
			Quoted prices
			in active		Significant
			markets		other		Significant
			for identical		observable		unobservable
			assets		inputs		inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets and liabilities measured at fair value on a recurring basis:
Assets
Securities available for sale:
U.S. Treasury securities	$	47,907	$	47,907	$	—	$	—
Government sponsored entity debt securities		19,389		—		19,389		—
Agency mortgage-backed securities		229,854		—		229,854		—
State and municipal securities		39,716		—		39,716		—
Corporate securities		57,307		—		52,558		4,749
Equity securities		2,812		—		2,812		—
Loans held for sale		35,874		—		35,874		—
Interest rate lock commitments		6,421		—		6,421		—
Forward commitments to sell mortgage-backed securities		5		—		5		—
Interest rate swap contracts		121		—		121		—
Total	$	439,406	$	47,907	$	386,750	$	4,749
Liabilities
Interest rate swap contracts	$	121	$	—	$	121	$	—

Assets measured at fair value on a non-recurring basis:
Mortgage servicing rights	$	56,299	$	—	$	—	$	56,299
Mortgage servicing rights held for sale		10,618		—		—		10,618
Impaired loans		18,311		—		6,227		12,084
Assets held for sale		2,858		—		2,858		—


					Non-Agency
	Corporate				Mortgage-Backed
	Securities				Securities
	Three Months		Nine Months		Three Months		Nine Months
	Ended		Ended		Ended		Ended
	September 30,		September 30,		September 30,		September 30,
	2017				2017
Balance, beginning of period	$	4,740	$	7,480	$	—	$	1
Total realized in earnings (1)		54		235		—		—
Total unrealized in other comprehensive income		—		242		—		—
Net settlements (principal and interest)		(45)		(3,208)		—		(1)
Balance, end of period	$	4,749	$	4,749	$	—	$	—


			Commercial FHA
			Origination and
	Banking		Servicing		Other		Total
Three Months Ended September 30, 2017
Net interest income (expense)	$	38,598	$	(79)	$	(1,754)	$	36,765
Provision for loan losses		1,489		—		—		1,489
Noninterest income		8,571		3,966		2,866		15,403
Noninterest expense		42,425		3,910		2,028		48,363
Income (loss) before income taxes (benefit)		3,255		(23)		(916)		2,316
Income taxes (benefit)		996		(9)		(707)		280
Net income (loss)	$	2,259	$	(14)	$	(209)	$	2,036
Total assets	$	4,370,600	$	121,514	$	(144,353)	$	4,347,761

Three Months Ended September 30, 2016
Net interest income (expense)	$	28,394	$	215	$	(1,344)	$	27,265
Provision for loan losses		1,392		—		—		1,392
Noninterest income		9,714		3,557		1,666		14,937
Noninterest expense		23,640		3,511		1,506		28,657
Income (loss) before income taxes (benefit)		13,076		261		(1,184)		12,153
Income taxes (benefit)		4,573		104		(575)		4,102
Net income (loss)	$	8,503	$	157	$	(609)	$	8,051
Total assets	$	3,252,421	$	100,516	$	(105,210)	$	3,247,727


	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
	Compared with						Compared with
	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	Change due to:				Interest		Change due to:				Interest
(tax-equivalent basis, dollars in thousands)	Volume		Rate		Variance		Volume		Rate		Variance
Earning Assets
Federal funds sold and cash investments	$	102	$	310	$	412	$	(96)	$	739	$	643
Investment securities:
Taxable investment securities		1,124		(1,985)		(861)		1,619		(5,136)		(3,517)
Investment securities exempt from federal income tax		194		(86)		108		323		(200)		123
Total investment securities		1,318		(2,071)		(753)		1,942		(5,336)		(3,394)
Loans:
Taxable loans		12,209		433		12,642		22,831		(1,556)		21,275
Loans exempt from federal income tax		58		33		91		160		(75)		85
Total loans		12,267		466		12,733		22,991		(1,631)		21,360
Loans held for sale		(417)		(3)		(420)		(506)		31		(475)
Nonmarketable equity securities		129		28		157		237		47		284
Total earning assets	$	13,399	$	(1,270)	$	12,129	$	24,568	$	(6,150)	$	18,418
Interest-Bearing Liabilities
Checking and money market deposits	$	272	$	419	$	691	$	417	$	757	$	1,174
Savings deposits		43		(13)		30		58		(15)		43
Time deposits		191		(54)		137		59		(64)		(5)
Time, brokered deposits		274		56		330		501		156		657
Total interest-bearing deposits		780		408		1,188		1,035		834		1,869
Short-term borrowings		28		(9)		19		58		(13)		45
FHLB advances and other borrowings		712		476		1,188		1,186		1,017		2,203
Subordinated debt		2		(2)		—		(235)		(131)		(366)
Trust preferred debentures		106		59		165		131		131		262
Total interest-bearing liabilities	$	1,628	$	932	$	2,560	$	2,175	$	1,838	$	4,013
Net interest income	$	11,771	$	(2,202)	$	9,569	$	22,393	$	(7,988)	$	14,405


	For the Three Months Ended
	September 30,				Increase
(dollars in thousands)	2017		2016		(decrease)
Noninterest income:
Commercial FHA revenue	$	3,777	$	3,260	$	517
Residential mortgage banking revenue		2,317		4,990		(2,673)
Wealth management revenue		3,475		1,941		1,534
Service charges on deposit accounts		2,133		1,044		1,089
Interchange revenue		1,724		920		804
FDIC loss-sharing expense		—		—		—
Gain on sales of investment securities, net		98		39		59
Other-than-temporary impairment on investment securities		—		—		—
Gain on sales of other real estate owned		22		33		(11)
Other income		1,857		2,710		(853)
Total noninterest income	$	15,403	$	14,937	$	466


	For the Nine Months Ended
	September 30,				Increase
(dollars in thousands)	2017		2016		(decrease)
Noninterest income:
Commercial FHA revenue	$	14,625	$	18,360	$	(3,735)
Residential mortgage banking revenue		7,563		7,148		415
Wealth management revenue		9,754		5,596		4,158
Service charges on deposit accounts		4,147		2,916		1,231
Interchange revenue		3,816		2,829		987
FDIC loss-sharing expense		—		(1,661)		1,661
Gain on sales of investment securities, net		219		315		(96)
Other-than-temporary impairment on investment securities		—		(824)		824
Gain on sales of other real estate owned		54		112		(58)
Other income		5,186		6,781		(1,595)
Total noninterest income	$	45,364	$	41,572	$	3,792


	For the Nine Months Ended				For the Year Ended
	September 30, 2017				December 31, 2016
			Net				Net
			Growth				Growth
(dollars in thousands)	Acquired		(Attrition)		Acquired		(Attrition)
Loans:
Commercial	$	104,812	$	(49,095)	$	—	$	(41,746)
Commercial real estate		485,984		16,685		—		92,831
Construction and land development		28,458		(23,270)		—		27,059
Total commercial loans		619,254		(55,680)		—		78,144
Residential real estate		59,569		132,465		—		90,489
Consumer		3,047		69,974		—		108,505
Lease financing		—		9,367		—		47,249
Total loans	$	681,870	$	156,126	$	—	$	324,387


	As of and for the						As of and for the
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2017			2016			2017			2016
Balance, beginning of period	$	15,424		$	14,752		$	14,862		$	15,988
Charge-offs:
Commercial		—			251			737			2,513
Commercial real estate		—			214			470			461
Construction and land development		—			1			—			1
Residential real estate		128			153			455			454
Consumer		105			91			536			225
Lease financing		102			154			658			632
Total charge-offs		335			864			2,856			4,286
Recoveries:
Commercial		54			36			137			164
Commercial real estate		56			129			435			216
Construction and land development		13			13			48			30
Residential real estate		47			32			276			131
Consumer		81			20			197			79
Lease financing		32			49			282			91
Total recoveries		283			279			1,375			711
Net charge-offs		52			585			1,481			3,575
Provision for loan losses		1,489			1,392			3,480			3,146
Balance, end of period	$	16,861		$	15,559		$	16,861		$	15,559
Net charge-offs to average loans		0.01	%		0.11	%		0.07	%		0.23	%
Allowance to total loans		0.53	%		0.67	%		0.53	%		0.67	%


					Commercial				Construction &
	Commercial				Real Estate				Land Development
	Risk Category				Risk Category				Risk Category
(dollars in thousands)	7		8 (1)		7		8 (1)		7		8 (1)		Total
September 30, 2017	$	16,543	$	17,376	$	9,121	$	13,484	$	—	$	—	$	56,524
December 31, 2016		10,930		12,037		8,735		11,039		—		450		43,191


	September 30, 2017
	Maturity Within:
	Three		Three to Six		Six to 12		After 12
(dollars in thousands)	Months or Less		Months		Months		Months		Total
Time, $250,000 and over	$	7,989	$	10,663	$	33,079	$	18,249	$	69,980
Time, brokered		64,316		38,385		36,038		94,230		232,969
Total	$	72,305	$	49,048	$	69,117	$	112,479	$	302,949


	Basel III
	Well		Adequately
Ratio	Capitalized		Capitalized
Tier 1 leverage ratio	5.0	%	4.0	%
Common equity Tier 1 capital ratio	6.5		4.5
Tier 1 risk-based capital ratio	8.0		6.0
Total risk-based capital ratio	10.0		8.0


	Payments Due
	Less than		One to		Three to		More than
(dollars in thousands)	One Year		Three Years		Five Years		Five Years		Total
Deposits without a stated maturity	$	2,387,588	$	—	$	—	$	—	$	2,387,588
Time deposits		448,096		260,698		17,940		145		726,879
Securities sold under repurchase agreements		153,443		—		—		—		153,443
FHLB advances and other borrowings		205,929		42,913		165,028		75,000		488,870
Operating lease obligations		2,745		4,478		3,643		3,905		14,771
Subordinated debt		—		—		—		54,581		54,581
Trust preferred debentures		—		—		—		45,267		45,267
Total contractual obligations	$	3,197,801	$	308,089	$	186,611	$	178,898	$	3,871,399


				Total	Maximum
				Number of	Number of
	Total	Average		Shares Purchased	Shares that May
	Number	Price		as Part of Publicly	Yet Be Purchased
	of Shares	Paid Per		Announced Plans	Under the Plans
Period	Purchased (1)	Share		or Programs	or Programs
July 1 - 31, 2017	18	$	33.72	-	-
August 1 - 31, 2017	1,677		30.50	-	-
September 1 - 30, 2017	320		31.63	-	-
Total	2,015	$	30.71	-	-