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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 001-35272
MIDLAND STATES BANCORP, INC.
(Exact name of registrant as specified in its charter)
Illinois37-1233196
(State of other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1201 Network Centre Drive62401
Effingham, IL
(Zip Code)
(Address of principal executive offices)
(217) 342-7321
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueMSBI
The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/40th interest in a share of 7.75% fixed rate reset non-cumulative perpetual preferred stock, Series AMSBIP
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer ☒Non-accelerated filer ☐Smaller reporting company ☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
As of October 25, 2024, the Registrant had 21,401,485 shares of outstanding common stock, $0.01 par value.

Table of Contents
MIDLAND STATES BANCORP, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets at September 30, 2024 (Unaudited) and December 31, 2023
Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2024 and 2023
Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2024 and 2023
Consolidated Statements of Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, 2024 and 2023
Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2024 and 2023

1
Table of Contents
GLOSSARY OF ABBREVIATIONS AND ACRONYMS
As used in this report, references to the "Company," "we," "our," "us," and similar terms refer to the consolidated entity consisting of Midland States Bancorp, Inc. and its wholly owned subsidiaries. Midland States Bancorp refers solely to the parent holding company and Midland States Bank (the "Bank") refers to our wholly owned banking subsidiary.
The acronyms and abbreviations identified below are used throughout this report, including the Notes to the Consolidated Financial Statements. You may find it helpful to refer to this page as you read this report.
2019 Incentive PlanThe Amended and Restated Midland States Bancorp, Inc. 2019 Long-Term Incentive Plan
ACLAllowance for credit losses on loans
ASUAccounting Standards Update
BaaSBanking-as-a-Service
Basel III RuleBasel III regulatory capital reforms required by the Dodd-Frank Act
BHCABank Holding Company Act of 1956, as amended
CBLRCommunity Bank Leverage Ratio
CFPBConsumer Financial Protection Bureau 
CISACybersecurity and Infrastructure Security Agency
COVIDCoronavirus Disease
CRACommunity Reinvestment Act
CRA ProposalJoint Proposal to Strengthen and Modernize Community Reinvestment Act Regulations 
CRECommercial Real Estate
CRE GuidanceConcentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance
DFPRIllinois Department of Financial and Professional Regulation
DIFDeposit Insurance Fund
EADExposure at default
Exchange ActSecurities Exchange Act of 1934
FASBFinancial Accounting Standards Board 
FDICFederal Deposit Insurance Corporation
Federal ReserveBoard of Governors of the Federal Reserve System
FHAFederal Housing Administration
FHLBFederal Home Loan Bank
FinTechFinancial Technology
FOMCFederal Open Market Committee
FRBFederal Reserve Bank
GAAPU.S. generally accepted accounting principles 
GreenskyGreenSky, LLC
Illinois CRAIllinois Community Reinvestment Act 
LendingPointLendingPoint, LLC
LGDLoss given default
LIBORLondon Inter-Bank Offered Rate
Midland TrustMidland States Preferred Securities Trust
NasdaqNasdaq Global Select Market
NII at RiskNet Interest Income at Risk 
OREOOther real estate owned
PCAOBPublic Company Accounting Oversight Board
PCDPurchased credit deteriorated
PDProbability of default
Q-FactorQualitative factor
Regulatory Relief ActEconomic Growth, Regulatory Relief and Consumer Protection Act
SBASmall Business Administration
SECU.S. Securities and Exchange Commission
SOFRSecured Overnight Financing Rate
TreasuryU.S. Department of the Treasury
TDRTroubled debt restructuring


2
Table of Contents
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
MIDLAND STATES BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
September 30,
2024		December 31,
2023
(unaudited)
Assets
Cash and due from banks$121,220 $134,212 
Federal funds sold653 849 
Cash and cash equivalents121,873 135,061 
Investment securities available for sale, at fair value1,212,090 915,895 
Equity securities, at fair value4,705 4,501 
Loans5,748,819 6,131,079 
Allowance for credit losses on loans(85,804)(68,502)
Total loans, net5,663,015 6,062,577 
Loans held for sale8,001 3,811 
Premises and equipment, net84,672 82,814 
Other real estate owned8,646 9,112 
Nonmarketable equity securities41,170 43,421 
Accrued interest receivable27,099 24,934 
Loan servicing rights, at lower of cost or fair value18,400 20,253 
Goodwill161,904 161,904 
Other intangible assets, net13,052 16,108 
Company-owned life insurance209,193 203,485 
Other assets177,663 182,992 
Total assets$7,751,483 $7,866,868 
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand deposits$1,050,617 $1,145,395 
Interest-bearing deposits5,206,219 5,164,134 
Total deposits6,256,836 6,309,529 
Short-term borrowings13,849 34,865 
Federal Home Loan Bank advances and other borrowings425,000 476,000 
Subordinated debt82,744 93,546 
Trust preferred debentures51,058 50,616 
Accrued interest payable and other liabilities103,737 110,459 
Total liabilities6,933,224 7,075,015 
Shareholders’ Equity:
Preferred stock, $2.00 par value; 4,000,000 shares authorized; 115,000 Series A shares, $1,000 per share liquidation preference, issued and outstanding at September 30, 2024 and December 31, 2023, respectively
110,548 110,548 
Common stock, $0.01 par value; 40,000,000 shares authorized; 21,393,905 and 21,551,402 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively
214 216 
Capital surplus433,615 435,463 
Retained earnings334,522 322,379 
Accumulated other comprehensive loss, net of tax(60,640)(76,753)
Total shareholders’ equity818,259 791,853 
Total liabilities and shareholders’ equity$7,751,483 $7,866,868 
The accompanying notes are an integral part of the consolidated financial statements.
3
Table of Contents
MIDLAND STATES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME — (UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Interest income:
Loans including fees:
Taxable$88,860 $93,488 $266,107 $272,297 
Tax exempt382 497 1,156 1,349 
Loans held for sale124 104 263 179 
Investment securities:
Taxable13,259 7,475 35,921 19,744 
Tax exempt390 275 1,062 1,074 
Nonmarketable equity securities788 710 2,438 2,104 
Federal funds sold and cash investments1,031 1,036 2,857 2,868 
Total interest income104,834 103,585 309,804 299,615 
Interest expense:
Deposits41,970 37,769 120,660 97,791 
Short-term borrowings602 14 1,746 53 
Federal Home Loan Bank advances and other borrowings4,743 4,557 13,615 15,959 
Subordinated debt1,228 1,280 3,773 3,985 
Trust preferred debentures1,341 1,369 4,088 3,887 
Total interest expense49,884 44,989 143,882 121,675 
Net interest income54,950 58,596 165,922 177,940 
Provision for credit losses on loans5,000 5,168 36,000 14,182 
Recapture of credit losses on unfunded commitments— — (200)— 
Total provision for credit losses5,000 5,168 35,800 14,182 
Net interest income after provision for credit losses49,950 53,428 130,122 163,758 
Noninterest income:
Wealth management revenue7,104 6,288 21,037 18,968 
Service charges on deposit accounts3,411 3,149 9,648 8,744 
Interchange revenue3,506 3,609 10,427 10,717 
Residential mortgage banking revenue697 507 1,781 1,452 
Income on company-owned life insurance1,982 918 5,708 2,685 
Loss on sales of investment securities, net(44)(4,961)(196)(6,478)
Other income2,683 2,035 9,777 9,989 
Total noninterest income19,339 11,545 58,182 46,077 
Noninterest expense:
Salaries and employee benefits24,382 22,307 71,356 69,407 
Occupancy and equipment4,393 3,730 12,499 12,052 
Data processing6,955 6,468 20,882 19,323 
FDIC insurance1,402 1,107 3,895 3,632 
Professional services1,744 1,554 6,242 4,977 
Marketing967 950 2,445 2,323 
Communications359 507 1,037 1,514 
Loan expense1,935 866 4,416 3,104 
Amortization of intangible assets951 1,129 3,056 3,628 
Other expense3,645 3,420 13,251 9,454 
Total noninterest expense46,733 42,038 139,079 129,414 
Income before income taxes22,556 22,935 49,225 80,421 
Income taxes4,080 11,533 10,114 25,672 
Net income18,476 11,402 39,111 54,749 
Preferred dividends2,229 2,229 6,685 6,685 
Net income available to common shareholders$16,247 $9,173 $32,426 $48,064 
Per common share data:
Basic earnings per common share$0.74 $0.41 $1.47 $2.14 
Diluted earnings per common share$0.74 $0.41 $1.47 $2.14 
Weighted average common shares outstanding21,675,818 21,970,372 21,726,143 22,214,862 
Weighted average diluted common shares outstanding21,678,242 21,977,196 21,732,093 22,223,986 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — (UNAUDITED)
(dollars in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Net income$18,476 $11,402 $39,111 $54,749 
Other comprehensive income (loss):
Investment securities available for sale:
Unrealized gains (losses) that occurred during the period30,962 (27,305)20,969 (29,961)
Reclassification adjustment for realized net losses on sales of investment securities included in net income
44 4,961 196 6,478 
Reclassification adjustment for gains on fair value hedges included in net income
(138)— (138)— 
Income tax effect(8,902)6,032 (6,245)6,340 
Change in investment securities available for sale, net of tax21,966 (16,312)14,782 (17,143)
Cash flow hedges:
Net unrealized derivative losses on cash flow hedges(1,316)(1,614)(1,978)(4,131)
Reclassification adjustment for net losses realized in net income1,349 1,409 3,869 3,801 
Income tax effect(58)55 (560)89 
Change in cash flow hedges, net of tax(25)(150)1,331 (241)
Other comprehensive income (loss), net of tax21,941 (16,462)16,113 (17,384)
Total comprehensive income (loss)$40,417 $(5,060)$55,224 $37,365 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY — (UNAUDITED)
(dollars in thousands, except per share data)
Preferred stockCommon
stock		Capital
surplus		Retained
earnings		Accumulated
other
comprehensive
(loss) income 		Total
shareholders'
equity
Balances, June 30, 2024$110,548 $214 $432,569 $325,022 $(82,581)$785,772 
Net income— — — 18,476 — 18,476 
Other comprehensive income— — — — 21,941 21,941 
Common dividends declared ($0.31 per share)
— — — (6,747)— (6,747)
Preferred dividends declared ($19.375 per share)
— — — (2,229)— (2,229)
Common stock repurchased— — (534)— — (534)
Share-based compensation expense— — 733 — — 733 
Issuance of common stock under employee benefit plans— — 847 — — 847 
Balances, September 30, 2024$110,548 $214 $433,615 $334,522 $(60,640)$818,259 
Balances, December 31, 2023$110,548 $216 $435,463 $322,379 $(76,753)$791,853 
Net income— — — 39,111 — 39,111 
Other comprehensive income— — — — 16,113 16,113 
Common dividends declared ($0.93 per share)
— — — (20,283)— (20,283)
Preferred dividends declared ($58.125 per share)
— — — (6,685)— (6,685)
Common stock repurchased— (2)(5,502)— — (5,504)
Share-based compensation expense— — 2,139 — — 2,139 
Issuance of common stock under employee benefit plans— — 1,515 — — 1,515 
Balances, September 30, 2024$110,548 $214 $433,615 $334,522 $(60,640)$818,259 
Balances, June 30, 2023$110,548 $218 $442,886 $307,888 $(84,719)$776,821 
Net income— — — 11,402 — 11,402 
Other comprehensive loss— — — — (16,462)(16,462)
Common dividends declared ($0.30 per share)
— — — (6,600)— (6,600)
Preferred dividends declared ( $19.375 per share)
— — — (2,229)— (2,229)
Common stock repurchased— (3)(6,055)— — (6,058)
Share-based compensation expense— — 604 — — 604 
Issuance of common stock under employee benefit plans— 1 131 — — 132 
Balances, September 30, 2023$110,548 $216 $437,566 $310,461 $(101,181)$757,610 
Balances, December 31, 2022$110,548 $222 $449,196 $282,405 $(83,797)$758,574 
Net income— — — 54,749 — 54,749 
Other comprehensive loss— — — — (17,384)(17,384)
Common dividends declared ($0.90 per share)
— — — (20,008)— (20,008)
Preferred dividends declared ( $58.125 per share)
— — — (6,685)— (6,685)
Common stock repurchased— (7)(15,018)— — (15,025)
Share-based compensation expense— — 1,796 — — 1,796 
Issuance of common stock under employee benefit plans— 1 1,592 — — 1,593 
Balances, September 30, 2023$110,548 $216 $437,566 $310,461 $(101,181)$757,610 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (UNAUDITED)
(dollars in thousands)
Nine Months Ended September 30,
20242023
Cash flows from operating activities:
Net income$39,111 $54,749 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses35,800 14,182 
Depreciation on premises and equipment3,721 3,567 
Amortization of intangible assets3,056 3,628 
Amortization of operating lease right-of-use asset1,219 1,241 
Amortization of loan servicing rights1,925 861 
Share-based compensation expense2,139 1,796 
Increase in cash surrender value of life insurance(5,708)(2,685)
Investment securities accretion, net(3,741)(1,424)
Loss on sales of investment securities, net196 6,478 
Gain on repurchase of subordinated debt(244)(676)
Gain on sales of other real estate owned(22)(819)
Impairment on other real estate owned1,278 — 
Origination of loans held for sale(55,951)(45,690)
Proceeds from sales of loans and leases held for sale67,614 65,291 
Gain on sale of loans held for sale(1,716)(1,712)
Net change in operating assets and liabilities:
Accrued interest receivable(2,165)(3,970)
Other assets5,203 (58,408)
Accrued expenses and other liabilities(13,501)30,874 
Net cash provided by operating activities78,214 67,283 
Cash flows from investing activities:
Purchases of investment securities available for sale(471,040)(305,021)
Proceeds from sales of investment securities available for sale58,874 165,871 
Maturities and payments on investment securities available for sale140,682 43,838 
Purchases of equity securities(214)(244)
Proceeds from sales of equity securities— 5,148 
Net decrease (increase) in loans348,351 (6,195)
Purchases of premises and equipment(4,185)(7,064)
Proceeds from sale of premises and equipment— 104 
Purchases of nonmarketable equity securities(169,806)(157,382)
Proceeds from redemptions of nonmarketable equity securities172,057 158,372 
Proceeds from sales of other real estate owned301 7,346 
Purchases of company-owned life insurance, net— (48,622)
Net cash provided by (used in) investing activities75,020 (143,849)
Cash flows from financing activities:
Net (decrease) increase in deposits(52,693)40,350 
Net decrease in short-term borrowings(21,016)(24,313)
Net decrease in short-term FHLB borrowings(46,000)(27,000)
Proceeds from long-term FHLB borrowings255,000 130,000 
Payments made on long-term FHLB borrowings(260,000)(25,000)
Payments made on subordinated debt(10,756)(5,845)
Cash dividends paid on preferred stock(6,685)(6,685)
Cash dividends paid on common stock(20,283)(20,008)
Common stock repurchased(5,504)(15,025)
Proceeds from issuance of common stock under employee benefit plans1,515 1,593 
Net cash (used in) provided by financing activities(166,422)48,067 
Net decrease in cash and cash equivalents(13,188)(28,499)
Cash and cash equivalents:
Beginning of period135,061 160,631 
End of period$121,873 $132,132 
Supplemental disclosures of cash flow information:
Cash payments for:
Interest paid on deposits and borrowed funds$144,205 $114,011 
Income tax paid (net of refunds)21,870 17,762 
Supplemental disclosures of noncash investing and financing activities:
Transfer of loans to other real estate owned982 278 
Right of use assets obtained in exchange for lease obligations2,707 2,459 
Transfer of loan servicing rights held for sale to loan servicing rights, at lower of cost or market— 20,745 
The accompanying notes are an integral part of the consolidated financial statements.
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MIDLAND STATES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (UNAUDITED)
Note 1: Summary of Significant Accounting Policies
Note 2: Investment Securities
Note 3: Loans
Note 4: Premises, Equipment and Leases
Note 5: Derivative Instruments
Note 6: Deposits
Note 7: FHLB Advances and Other Borrowings
Note 8: Subordinated Debt
Note 9: Earnings Per Common Share
Note 10: Fair Value of Financial Instruments
Note 11: Commitments, Contingencies and Credit Risk
Note 12: Segment Information
Note 13: Revenue from Contracts with Customers

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Midland States Bancorp, Inc. is a diversified financial holding company headquartered in Effingham, Illinois. Our wholly owned banking subsidiary, Midland States Bank, has branches across Illinois and in Missouri, and provides a full range of commercial and consumer banking products and services, business equipment financing, merchant credit card services, trust and investment management services, and insurance and financial planning services.
Our principal business activity has been lending to and accepting deposits from individuals, businesses, municipalities and other entities. We have derived income principally from interest charged on loans and, to a lesser extent, from interest and dividends earned on investment securities. We have also derived income from noninterest sources, such as: fees received in connection with various lending and deposit services; wealth management services; mortgage loan originations, sales and servicing; and, from time to time, gains on sales of assets. Our principal expenses include interest expense on deposits and borrowings, operating expenses, such as salaries and employee benefits, occupancy and equipment expenses, data processing costs, professional fees and other noninterest expenses, provisions for credit losses and income tax expense.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP and guidance provided by the SEC for interim financial information. Accordingly, the condensed financial statements do not include all of the information and footnotes required by GAAP for completed financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates.
The consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 23, 2024. Certain reclassifications of 2023 amounts have been made to conform to the 2024 presentation. All significant transactions and accounts between subsidiaries have been eliminated. Assets held for customers in a fiduciary or agency capacity are not assets of the Company and, accordingly, other than trust cash on deposit with the Bank, are not included in the accompanying unaudited balance sheets. Management has evaluated subsequent events for potential recognition or disclosure. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other period.
Accounting Guidance Adopted in 2024
FASB ASU No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method – In March 2023, the FASB issued ASU
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No. 2023-02, which allows for reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the type of program the tax credits are related to. The ASU is effective for fiscal years beginning after December 15, 2023. The Company adopted this guidance on January 1, 2024 on a prospective basis. The adoption of this accounting pronouncement did not have a material impact on the consolidated financial statements.
Accounting Guidance Not Yet Adopted
FASB ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures - In December 2023, the FASB issued ASU No. 2023-07, which requires public entities to disclose significant segment expenses, an amount and description for other segment items, the title and position of the entity's chief operating decision maker and an explanation of how the chief operating decision maker uses the reported measures of profit or loss to assess segment performance, and, on an interim basis, certain segment related disclosures that previously were required only on an annual basis. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company will update the related disclosures upon adoption.
FASB ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures - In December 2023, the FASB issued ASU No. 2023-09, which requires public entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. The pronouncement also requires entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company will update the related disclosures upon adoption.
NOTE 2 – INVESTMENT SECURITIES
Investment Securities Available for Sale
Investment securities available for sale at September 30, 2024 and December 31, 2023 were as follows:
September 30, 2024
(dollars in thousands)Amortized
cost		Gross
unrealized
gains		Gross
unrealized
losses
Basis Adjustments(2)
Fair
value
Investment securities available for sale
U.S. government sponsored entities and U.S. agency securities
$44,046 $150 $(1,372)— $42,824 
Mortgage-backed securities - agency897,052 5,103 (67,253)(138)834,764 
Mortgage-backed securities - non-agency87,241 1,447 (2,762)— 85,926 
State and municipal securities74,816 592 (4,937)— 70,471 
Corporate securities94,424 306 (6,768)— 87,962 
Other securities(1)
90,181 98 (136)— 90,143 
Total available for sale securities$1,287,760 $7,696 $(83,228)$(138)$1,212,090 
(1)The fair value of other securities includes student loan asset backed securities of $54.0 million and structured financial products of $36.1 million.
(2)Basis adjustments represent the amount of fair value hedging adjustments included in the carrying amount of fixed-rate investment securities designated in fair value hedging arrangements. See Note 5 - Derivative Instruments for additional information regarding these derivative financial instruments.

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December 31, 2023
(dollars in thousands)Amortized
cost		Gross
unrealized
gains		Gross
unrealized
losses		Fair
value
Investment securities available for sale
U.S. Treasury securities$1,097 $— $— $1,097 
U.S. government sponsored entities and U.S. agency securities74,161 176 (1,765)72,572 
Mortgage-backed securities - agency650,119 2,325 (77,944)574,500 
Mortgage-backed securities - non-agency87,019 414 (3,904)83,529 
State and municipal securities62,952 258 (5,750)57,460 
Corporate securities109,598 41 (10,467)99,172 
Other securities(1)
27,646 3 (84)27,565 
Total available for sale securities$1,012,592 $3,217 $(99,914)$915,895 
(1)The fair value of other securities includes structured financial products of $27.6 million.
The following is a summary of the amortized cost and fair value of the investment securities available for sale, by maturity, at September 30, 2024. Expected maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be prepaid without penalties. The maturities of all other investment securities available for sale are based on final contractual maturity.
(dollars in thousands)Amortized
cost		Fair
value
Investment securities available for sale
Within one year$1,032 $1,031 
After one year through five years67,779 64,894 
After five years through ten years123,284 114,690 
After ten years111,372 110,785 
Mortgage-backed securities984,293 920,690 
Total available for sale securities$1,287,760 $1,212,090 
    
Proceeds and gross realized gains and losses on sales of investment securities available for sale for the three and nine months ended September 30, 2024 and 2023 are summarized as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Investment securities available for sale
Proceeds from sales$13,049 $65,911 $58,874 $165,871 
Gross realized gains on sales113 — 420 338 
Gross realized losses on sales(157)(4,961)(616)(6,816)
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Unrealized losses and fair values for investment securities available for sale as of September 30, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as follows:
September 30, 2024
Less than 12 Months12 Months or moreTotal
(dollars in thousands)Fair
value		Unrealized
loss		Fair
value		Unrealized
loss		Fair
value		Unrealized
loss
Investment securities available for sale
U.S. government sponsored entities and U.S. agency securities$12,266 $43 $8,670 $1,329 $20,936 $1,372 
Mortgage-backed securities - agency136,270 690 406,381 66,563 542,651 67,253 
Mortgage-backed securities - non-agency6,580 66 18,888 2,696 25,468 2,762 
State and municipal securities1,802 26 45,341 4,911 47,143 4,937 
Corporate securities22,100 1,689 55,045 5,079 77,145 6,768 
Other securities46,223 136 — — 46,223 136 
Total available for sale securities$225,241 $2,650 $534,325 $80,578 $759,566 $83,228 
December 31, 2023
Less than 12 Months12 Months or moreTotal
(dollars in thousands)Fair
value		Unrealized
loss		Fair
value		Unrealized
loss		Fair
value		Unrealized
loss
Investment securities available for sale
U.S. government sponsored entities and U.S. agency securities$42,826 $87 $8,323 $1,678 $51,149 $1,765 
Mortgage-backed securities - agency130,106 7,386 348,476 70,558 478,582 77,944 
Mortgage-backed securities - non-agency8,852 353 19,418 3,551 28,270 3,904 
State and municipal securities51,497 5,750 — — 51,497 5,750 
Corporate securities4,688 53 84,662 10,414 89,350 10,467 
Other securities14,763 84 — — 14,763 84 
Total available for sale securities$252,732 $13,713 $460,879 $86,201 $713,611 $99,914 
    At September 30, 2024, 240 investment securities available for sale had unrealized losses with aggregate depreciation of 9.88% from their amortized cost basis. For all of the above investment securities, the unrealized losses were generally due to changes in interest rates and other market conditions, and unrealized losses were considered to be temporary as the fair value is expected to recover as the securities approach their respective maturity dates and principal is paid back in full. The Company does not intend to sell and it is likely that the Company will not be required to sell the securities prior to their anticipated recovery.
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NOTE 3 – LOANS
The following table presents total loans outstanding by portfolio class, as of September 30, 2024 and December 31, 2023:
(dollars in thousands)September 30,
2024		December 31,
2023
Commercial:
Commercial$797,318 $825,938 
Commercial other559,354 656,592 
Commercial real estate:
Commercial real estate non-owner occupied1,630,930 1,622,668 
Commercial real estate owner occupied455,101 436,857 
Multi-family355,988 279,904 
Farmland68,453 67,416 
Construction and land development422,253 452,593 
Total commercial loans4,289,397 4,341,968 
Residential real estate:
Residential first lien315,634 317,388 
Other residential63,023 63,195 
Consumer:
Consumer90,626 107,743 
Consumer other572,608 827,435 
Lease financing417,531 473,350 
Total loans$5,748,819 $6,131,079 
Total loans include net deferred loan costs of $2.3 million and $3.8 million at September 30, 2024 and December 31, 2023, respectively, and unearned discounts of $59.0 million and $66.4 million within the lease financing portfolio at September 30, 2024 and December 31, 2023, respectively.
Classifications of Loan Portfolio
The Company monitors and assesses the credit risk of its loan portfolio using the classes set forth below. These classes also represent the segments by which the Company monitors the performance of its loan portfolio and estimates its allowance for credit losses on loans.
Commercial—Loans to varying types of businesses, including municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital, operational needs and term financing of equipment. Repayment of such loans is generally provided through operating cash flows of the business. Commercial loans are predominately secured by equipment, inventory, accounts receivable, and other sources of repayment.
Commercial real estate—Loans secured by real estate occupied by the borrower for ongoing operations, including loans to borrowers engaged in agricultural production, and non-owner occupied real estate leased to one or more tenants, including commercial office, industrial, special purpose, retail and multi-family residential real estate loans.
Construction and land development—Secured loans for the construction of business and residential properties. Real estate construction loans often convert to a real estate commercial loan at the completion of the construction period. Secured development loans are made to borrowers for the purpose of infrastructure improvements to vacant land to create finished marketable residential and commercial lots/land. Most land development loans are originated with the intention that the loans will be paid through the sale of developed lots/land by the developers within twelve months of the completion date. Interest reserves may be established on real estate construction loans.
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.
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Consumer—Loans to consumers primarily for the purpose of home improvements or acquiring automobiles, recreational vehicles and boats. Consumer loans consist of relatively small amounts that are spread across many individual borrowers.
Lease financing—Our leasing business provides financing leases to varying types of businesses, nationwide, for purchases of business equipment. The financing is secured by a first priority interest in the financed assets and generally requires monthly payments.
Commercial, commercial real estate, and construction and land development loans are collectively referred to as the Company’s commercial loan portfolio, while residential real estate, consumer loans and lease financing receivables are collectively referred to as the Company’s other loan portfolio.
We have extended loans to certain of our directors, executive officers, principal shareholders and their affiliates. These loans were made in the ordinary course of business upon substantially the same terms as comparable transactions with non-insiders, including collateralization and interest rates prevailing at the time. The new loans, other additions, repayments and other reductions for the three and nine months ended September 30, 2024 and 2023, are summarized as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Beginning balance$20,894 $21,569 $20,990 $19,776 
New loans and other additions1,000 — 1,500 2,368 
Repayments and other reductions(264)(287)(860)(862)
Ending balance$21,630 $21,282 $21,630 $21,282 

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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, 2024 and 2023:
Commercial Loan PortfolioOther Loan Portfolio
(dollars in thousands)CommercialCommercial
real
estate		Construction
and land
development		Residential
real
estate		ConsumerLease
financing		Total
Changes in allowance for credit losses on loans for the three months ended September 30, 2024:
Balance, beginning of period$24,247 $22,197 $12,966 $5,193 $14,292 $13,288 $92,183 
Provision for credit losses on loans1,866 364 (907)255 90 3,332 5,000 
Charge-offs(2,491)(32)— (159)(6,395)(2,979)(12,056)
Recoveries484 2 2 62 44 83 677 
Balance, end of period$24,106 $22,531 $12,061 $5,351 $8,031 $13,724 $85,804 
Changes in allowance for credit losses on loans for the nine months ended September 30, 2024:
Balance, beginning of period$21,847 $20,229 $4,163 $5,553 $3,770 $12,940 $68,502 
Provision for credit losses on loans9,375 788 7,895 (138)10,896 7,184 36,000 
Charge-offs(7,869)(728)— (194)(6,829)(6,728)(22,348)
Recoveries753 2,242 3 130 194 328 3,650 
Balance, end of period$24,106 $22,531 $12,061 $5,351 $8,031 $13,724 $85,804 
Changes in allowance for credit losses on loans for the three months ended September 30, 2023:
Balance, beginning of period$15,290 $29,425 $3,189 $5,551 $3,953 $7,542 $64,950 
Provision for credit losses on loans7,289 (6,176)385 209 228 3,233 5,168 
Charge-offs(3,249)(2,316)(44)(95)(250)(1,394)(7,348)
Recoveries80 3,678 — 33 53 55 3,899 
Balance, end of period$19,410 $24,611 $3,530 $5,698 $3,984 $9,436 $66,669 
Changes in allowance for credit losses on loans for the nine months ended September 30, 2023:
Balance, beginning of period$14,639 $29,290 $2,435 $4,301 $3,599 $6,787 $61,051 
Provision for credit losses on loans9,483 (4,079)1,441 1,479 932 4,926 14,182 
Charge-offs(5,289)(4,606)(378)(180)(773)(2,555)(13,781)
Recoveries577 4,006 32 98 226 278 5,217 
Balance, end of period$19,410 $24,611 $3,530 $5,698 $3,984 $9,436 $66,669 
The Company utilizes a combination of models which measure probability of default and loss given default 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 loss given default component is the percentage of defaulted loan balance that is ultimately charged off. As a method for estimating the allowance, a form of migration analysis is used that combines the estimated probability of loans experiencing default events and the losses ultimately associated with the loans experiencing those defaults. Multiplying one by the other gives the Company its loss rate, which is then applied to the loan portfolio balance to determine expected future losses.
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Within the model, the loss given default approach produces segmented loss given default estimates using a loss curve methodology, which is based on historical net losses from charge-off and recovery information. The main principle of a loss curve model is that the loss follows a steady timing schedule based on how long the defaulted loan has been on the books.
The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look-back period includes January 2012 through the current period on a monthly basis. When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data.
Historical data is evaluated in multiple components of the expected credit loss, including the reasonable and supportable forecast and the post-reversion period of each loan segment. The historical experience is used to infer probability of default and loss given default in the reasonable and supportable forecast period. In the post-reversion period, long-term average loss rates are segmented by loan pool.
Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration other analytics performed within the organization, such as enterprise and concentration management, along with other credit-related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible.
The Company segments the loan portfolio into pools based on the following risk characteristics: financial asset type, collateral type, loan characteristics, credit characteristics, outstanding loan balances, contractual terms and prepayment assumptions, industry of borrower and concentrations, historical or expected credit loss patterns, and reasonable and supportable forecast periods. Within the probability of default segmentation, credit metrics are identified to further segment the financial assets. The Company utilizes risk ratings for the commercial portfolios and days past due for the consumer and the lease financing portfolios.
The Company has defined five transitioning risk states for each asset pool within the expected credit loss model. The below table illustrates the transition matrix:
Risk stateCommercial loans
risk rating		Consumer loans and
equipment finance loans and leases
days past due
10-5
0-14
26
15-29
37
30-59
48
60-89
Default9+ and nonaccrual
90+ and nonaccrual
Expected Credit Losses
In calculating expected credit losses, the Company individually evaluates loans on nonaccrual status with a balance greater than $500,000, loans past due 90 days or more and still accruing interest, and loans that do not share similar risk
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characteristics with other loans in the pool. The following table presents the amortized cost basis of individually evaluated loans on nonaccrual status as of September 30, 2024 and December 31, 2023:
September 30, 2024December 31, 2023
(dollars in thousands)Nonaccrual with allowanceNonaccrual with no allowanceTotal nonaccrualNonaccrual with allowanceNonaccrual with no allowanceTotal nonaccrual
Commercial:
Commercial$6,558 $235 $6,793 $3,560 $— $3,560 
Commercial other9,406 — 9,406 4,941 — 4,941 
Commercial real estate:
Commercial real estate non-owner occupied17,533 982 18,515 1,614 14,098 15,712 
Commercial real estate owner occupied10,847 — 10,847 4,276 6,500 10,776 
Multi-family17,918 2,472 20,390 240 6,015 6,255 
Farmland1,261 — 1,261 1,148 — 1,148 
Construction and land development15,724 10,831 26,555 39 — 39 
Total commercial loans79,247 14,520 93,767 15,818 26,613 42,431 
Residential real estate:
Residential first lien3,474 499 3,973 2,583 490 3,073 
Other residential477 — 477 635 — 635 
Consumer:
Consumer83 — 83 134 — 134 
Lease financing12,200 — 12,200 9,097 36 9,133 
Total loans$95,481 $15,019 $110,500 $28,267 $27,139 $55,406 
    There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2024 and 2023 while the loans were in nonaccrual status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $2.7 million and $6.3 million for the three and nine months ended September 30, 2024, respectively, and $0.8 million and $2.5 million for the three and nine months ended September 30, 2023, respectively.
Collateral Dependent Financial Assets
A collateral dependent financial asset is a loan that relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. However, as other sources of
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repayment become inadequate over time, the significance of the collateral’s value increases and the loan may become collateral dependent.
The table below presents the amortized cost basis of individually evaluated, collateral dependent loans by loan class, for borrowers experiencing financial difficulty, as of September 30, 2024 and December 31, 2023:
Type of Collateral
(dollars in thousands)Real EstateBlanket LienEquipmentTotal
September 30, 2024
Commercial:
Commercial$— $1,637 $— $1,637 
Commercial real estate:
Non-owner occupied17,191 — — 17,191 
Owner occupied9,275 — — 9,275 
Multi-family20,382 — — 20,382 
Construction and land development26,442 — — 26,442 
Lease financing— — 501 501 
Total collateral dependent loans$73,290 $1,637 $501 $75,428 
December 31, 2023
Commercial:
Commercial$— $— $1,972 $1,972 
Commercial other— — 1,232 1,232 
Commercial real estate:
Non-owner occupied14,147 — — 14,147 
Owner occupied9,275 — — 9,275 
Multi-family5,143 — — 5,143 
Total collateral dependent loans$28,565 $— $3,204 $31,769 

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The aging status of the recorded investment in loans by portfolio as of September 30, 2024 was as follows:
Accruing loans
(dollars in thousands)30-59
days
past due		60-89 days past duePast due
90 days
or more		Total
past due		NonaccrualCurrentTotal
Commercial:
Commercial$587 $10,452 $— $11,039 $6,793 $779,486 $797,318 
Commercial other6,118 2,814 74 9,006 9,406 540,942 559,354 
Commercial real estate:
Commercial real estate non-owner occupied
64 — — 64 18,515 1,612,351 1,630,930 
Commercial real estate owner occupied514 7,635 — 8,149 10,847 436,105 455,101 
Multi-family8,140 — — 8,140 20,390 327,458 355,988 
Farmland— 49 — 49 1,261 67,143 68,453 
Construction and land development— 188 — 188 26,555 395,510 422,253 
Total commercial loans15,423 21,138 74 36,635 93,767 4,158,995 4,289,397 
Residential real estate:
Residential first lien5 430 163 598 3,973 311,063 315,634 
Other residential111 11 — 122 477 62,424 63,023 
Consumer:
Consumer114 10 — 124 83 90,419 90,626 
Consumer other6,744 3,223 3,819 13,786 — 558,822 572,608 
Lease financing4,497 3,623 — 8,120 12,200 397,211 417,531 
Total loans$26,894 $28,435 $4,056 $59,385 $110,500 $5,578,934 $5,748,819 
The aging status of the recorded investment in loans by portfolio as of December 31, 2023 was as follows:
Accruing loans
(dollars in thousands)30-59
days
past due		60-89
days
past due		Past due
90 days
or more		Total
past due		NonaccrualCurrentTotal
Commercial:
Commercial$9,340 $504 $— $9,844 $3,560 $812,534 $825,938 
Commercial other11,156 5,990 781 17,927 4,941 633,724 656,592 
Commercial real estate:
Commercial real estate non-owner occupied384 — — 384 15,712 1,606,572 1,622,668 
Commercial real estate owner occupied— — — — 10,776 426,081 436,857 
Multi-family14,506 8,140 — 22,646 6,255 251,003 279,904 
Farmland— 120 — 120 1,148 66,148 67,416 
Construction and land development211 10,593 — 10,804 39 441,750 452,593 
Total commercial loans35,597 25,347 781 61,725 42,431 4,237,812 4,341,968 
Residential real estate:
Residential first lien69 299 161 529 3,073 313,786 317,388 
Other residential100 50 — 150 635 62,410 63,195 
Consumer:
Consumer62 20 — 82 134 107,527 107,743 
Consumer other7,225 4,561 3 11,789 — 815,646 827,435 
Lease financing7,622 1,826 — 9,448 9,133 454,769 473,350 
Total loans$50,675 $32,103 $945 $83,723 $55,406 $5,991,950 $6,131,079 
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Loan Restructurings
The Company may offer various types of concessions when a borrower is experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows including principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Commercial loans modified in a loan restructuring often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested.
Loans modified in a loan restructuring for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for loans that have been modified in a loan restructuring is measured based on the probability of default and loss given default model, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.
Commercial and consumer loans modified in a loan restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a loan restructuring subsequently default, the Company evaluates the loan for possible further loss. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.
The following table represents, by loan portfolio segment, a summary of the loan restructuring for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
(dollars in thousands)BalanceCount BalanceCountBalanceCountBalanceCount
Commercial:
Commercial$77 2 $40 1 $77 2 $40 1 
Commercial other370 5 — — 2,277 17 354 4 
Commercial real estate:
Commercial real estate non-owner occupied3,552 1 — — 9,941 2 — — 
Commercial real estate owner occupied6,131 3 — — 6,131 3 — — 
Construction and land development1,334 1 — — 1,334 1 — — 
Total commercial loans11,464 12 40 1 19,760 25 394 5 
Residential real estate:
Residential first lien— — 34 1 65 1 34 1 
Other residential— — — — 82 2 — — 
Consumer:
Consumer11 1 — — 37 2 — — 
Lease financing348 2 423 1 2,480 11 763 2 
Total loan restructurings$11,823 15 $497 3 $22,424 41 $1,191 8 
BalanceCountBalanceCountBalanceCountBalanceCount
Interest Rate Reduction$77 1 $— — $556 3 $— — 
Term Extension4,886 2 497 3 8,555 23 1,191 8 
Forgiveness of Principal or Interest893 3 — — 893 3 — — 
Other(1)
5,967 9 — — 12,420 12 — — 
Total loan restructurings$11,823 15 $497 3 $22,424 41 $1,191 8 
(1)Other types of loan restructurings could include, but are not limited to, changes to the loan amortization period, additional escrow requirements or reserve requirements.
The Company has not committed to lend any additional amounts to the borrowers that have been granted a loan modification.
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Credit Quality Monitoring
The Company maintains loan policies and credit underwriting standards as part of the process of managing credit risk. These standards include making loans generally within the Company’s four geographic regions. In addition, our specialty finance division does nationwide bridge lending for FHA and HUD developments and originates loans for multifamily, assisted and senior living and multi-use properties. Our equipment leasing business provides financing to business customers across the country.
The Company has a loan approval process involving underwriting and individual and group loan approval authorities to consider credit quality and loss exposure at loan origination. The loans in the Company’s commercial loan portfolio are risk rated at origination based on the grading system set forth below. All loan authority is based on the aggregate credit to a borrower and its related entities.
The Company’s consumer loan portfolio is primarily comprised of both secured and unsecured loans that are relatively small and are evaluated at origination on a centralized basis against standardized underwriting criteria. The ongoing measurement of credit quality of the consumer loan portfolio is largely done on an exception basis. If payments are made on schedule, as agreed, then no further monitoring is performed. However, if delinquency occurs, the delinquent loans are turned over to the Company’s Consumer Collections Group for resolution. Credit quality for the entire consumer loan portfolio is measured by the periodic delinquency rate, nonaccrual amounts and actual losses incurred.
Loans in the commercial loan portfolio tend to be larger and more complex than those in the other loan portfolio, and therefore, are subject to more intensive monitoring. All loans in the commercial loan portfolio have an assigned relationship manager, and most borrowers provide periodic financial and operating information that allows the relationship managers to stay abreast of credit quality during the life of the loans. The risk ratings of loans in the commercial loan portfolio are reassessed at least annually, with loans below an acceptable risk rating reassessed more frequently and reviewed by various individuals within the Company at least quarterly.
The Company maintains a centralized independent loan review function that monitors the approval process and ongoing asset quality of the loan portfolio, including the accuracy of loan grades. The Company also maintains an independent appraisal review function that participates in the review of all appraisals obtained by the Company.
Credit Quality Indicators
The Company uses a ten grade risk rating system to monitor the ongoing credit quality of its commercial loan portfolio. These loan grades rank the credit quality of a borrower by measuring liquidity, debt capacity, and coverage and payment behavior as shown in the borrower’s financial statements. The risk grades also measure the quality of the borrower’s management and the repayment support offered by any guarantors.
The Company considers all loans with Risk Grades 1 - 6 as acceptable credit risks and structures and manages such relationships accordingly. Periodic financial and operating data combined with regular loan officer interactions are deemed adequate to monitor borrower performance. Loans with Risk Grades of 7 are considered "watch credits" categorized as special mention and the frequency of loan officer contact and receipt of financial data is increased to stay abreast of borrower performance. Loans with Risk Grades of 8 - 10 are considered problematic and require special care. Risk Grade 8 is categorized as substandard, 9 as substandard - nonaccrual and 10 as doubtful. Further, loans with Risk Grades of 7 - 10 are managed regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive and senior management of the Company, which includes highly structured reporting of financial and operating data, intensive loan officer intervention and strategies to exit, as well as potential management by the Company's Special Assets Group. Loans not graded in the commercial loan portfolio are monitored by aging status and payment activity.
Special mention and substandard loans increased at September 30, 2024, compared to December 31, 2023, primarily within the Company’s Specialty Finance Group and Equipment Financing loan portfolios. The Specialty Finance Group provides bridge loan financing for commercial real estate projects. These projects seek short term financing in anticipation of obtaining FHA financing. The loans are typically outside of the Company’s core market. Equipment financing portfolio includes loans and leases originated to customers throughout the United States.
Commercial loans classified as special mention increased $64.8 million to $85.5 million and substandard loans increased $34.7 million to $261.3 million, at September 30, 2024 compared to December 31, 2023. Credit deterioration in the specialty finance group and equipment financing portfolios generated these increases. As a result, the Company changed its underwriting criteria and construction review processes to reduce potential risks and losses, stopped originating loans within certain industries, and is evaluating options to determine how best to resolve these specific credits.
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Other loans classified as nonperforming loans increased $7.6 million to $20.7 million at September 30, 2024 compared to December 31, 2023, primarily within the Company’s Equipment Financing and BaaS loan portfolios. The BaaS portfolio is primarily third-party originated consumer loans. Loans originated by LendingPoint are unsecured consumer instruments originated throughout the United States. As a result of their system conversion in the third quarter of 2023, our portfolio has experienced credit deterioration and servicing-related deficiencies. Nonperforming consumer loans and nonperforming leases increased $3.8 million and $3.1 million, respectively. As a result, the Company changed its underwriting criteria, stopped originating leases within certain industries, and ceased originating consumer loans through LendingPoint in the fourth quarter of 2023.

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The following tables present the recorded investment of the commercial loan portfolio by risk category as of September 30, 2024 and December 31, 2023:
September 30, 2024
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)20242023202220212020PriorRevolving loansTotal
CommercialCommercialAcceptable credit quality$77,788 $102,827 $68,784 $58,890 $29,121 $46,247 $326,750 $710,407 
Special mention— 54,759 — — — 148 145 55,052 
Substandard1,277 2,876 12,841 420 212 1,252 6,188 25,066 
Substandard – nonaccrual— 839 363 567 105 4,235 684 6,793 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal79,065 161,301 81,988 59,877 29,438 51,882 333,767 797,318 
Commercial otherAcceptable credit quality78,262 99,165 143,956 68,968 33,004 32,784 92,168 548,307 
Special mention2 183 753 336 76 47 — 1,397 
Substandard— 33 — — — — 211 244 
Substandard – nonaccrual— 3,885 3,438 1,111 292 581 99 9,406 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal78,264 103,266 148,147 70,415 33,372 33,412 92,478 559,354 
Commercial real estateNon-owner occupiedAcceptable credit quality329,690 191,611 477,879 278,629 85,010 158,435 9,203 1,530,457 
Special mention— 4,283 — 7,068 442 180 — 11,973 
Substandard23,230 9,827 11,545 — 4,639 20,744 — 69,985 
Substandard – nonaccrual— — — 86 — 18,429 — 18,515 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal352,920 205,721 489,424 285,783 90,091 197,788 9,203 1,630,930 
Owner occupiedAcceptable credit quality46,377 37,889 96,564 103,164 46,154 86,789 655 417,592 
Special mention— — — 125 — 494 — 619 
Substandard99 5,509 8,028 — — 12,407 — 26,043 
Substandard – nonaccrual97 90 8,619 264 2 1,471 304 10,847 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal46,573 43,488 113,211 103,553 46,156 101,161 959 455,101 
Multi-familyAcceptable credit quality32,888 31,773 152,131 25,248 27,591 19,648 947 290,226 
Special mention— — — 5,290 — — — 5,290 
Substandard40,036 — — — — 46 — 40,082 
Substandard – nonaccrual— 1,573 — 899 — 17,918 — 20,390 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal72,924 33,346 152,131 31,437 27,591 37,612 947 355,988 
FarmlandAcceptable credit quality3,191 9,660 4,619 15,888 11,191 20,560 1,954 67,063 
Special mention— — — — — — — — 
Substandard— — — 14 — 115 — 129 
Substandard – nonaccrual— — — 114 — 1,099 48 1,261 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal3,191 9,660 4,619 16,016 11,191 21,774 2,002 68,453 
Construction and land developmentAcceptable credit quality30,851 55,643 204,196 57,897 — 1,505 25,198 375,290 
Special mention— — 9,851 1,334 — — — 11,185 
Substandard— — — 6,000 — — — 6,000 
Substandard – nonaccrual— — 10,831 15,684 — 40 — 26,555 
Doubtful— — — — — — — — 
Not graded1,634 1,181 385 — — 23 3,223 
Subtotal32,485 56,824 225,263 80,915 — 1,568 25,198 422,253 
TotalAcceptable credit quality599,047 528,568 1,148,129 608,684 232,071 365,968 456,875 3,939,342 
Special mention2 59,225 10,604 14,153 518 869 145 85,516 
Substandard64,642 18,245 32,414 6,434 4,851 34,564 6,399 167,549 
Substandard – nonaccrual97 6,387 23,251 18,725 399 43,773 1,135 93,767 
Doubtful— — — — — — — — 
Not graded1,634 1,181 385 — — 23 — 3,223 
Total commercial loans$665,422 $613,606 $1,214,783 $647,996 $237,839 $445,197 $464,554 $4,289,397 
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December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)20232022202120202019PriorRevolving loansTotal
CommercialCommercialAcceptable credit quality$157,498 $96,295 $71,366 $36,680 $14,688 $42,827 $369,297 $788,651 
Special mention3,015 450 4 — 181 43 983 4,676 
Substandard4,485 13,651 420 342 253 4,961 4,940 29,052 
Substandard – nonaccrual1,238 — 1,321 25 79 360 536 3,559 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal166,236 110,396 73,111 37,047 15,201 48,191 375,756 825,938 
Commercial otherAcceptable credit quality139,057 195,726 100,946 59,392 32,848 28,946 90,928 647,843 
Special mention— 532 399 114 107 4 1,682 2,838 
Substandard37 220 — — — — 639 896 
Substandard – nonaccrual1,819 1,918 449 184 361 94 116 4,941 
Doubtful— — — — — — — — 
Not graded74 — — — — — — 74 
Subtotal140,987 198,396 101,794 59,690 33,316 29,044 93,365 656,592 
Commercial real estateNon-owner occupiedAcceptable credit quality237,215 653,057 309,013 110,743 82,563 124,430 6,328 1,523,349 
Special mention4,480 — 181 457 — 274 — 5,392 
Substandard35,811 1,658 — — 17,835 22,911 — 78,215 
Substandard – nonaccrual5,573 — 154 999 7,597 1,389 — 15,712 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal283,079 654,715 309,348 112,199 107,995 149,004 6,328 1,622,668 
Owner occupiedAcceptable credit quality32,972 100,893 113,264 48,415 23,671 77,854 1,803 398,872 
Special mention5,750 — 129 — 149 177 8 6,213 
Substandard— 7,716 265 — 705 12,310 — 20,996 
Substandard – nonaccrual126 9,431 28 171 27 689 304 10,776 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal38,848 118,040 113,686 48,586 24,552 91,030 2,115 436,857 
Multi-familyAcceptable credit quality4,483 170,519 25,835 28,137 10,185 11,538 254 250,951 
Special mention— — — — — — — — 
Substandard8,140 — — — — 14,558 — 22,698 
Substandard – nonaccrual1,700 — 899 — 104 3,552 — 6,255 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal14,323 170,519 26,734 28,137 10,289 29,648 254 279,904 
FarmlandAcceptable credit quality10,104 4,735 13,405 12,255 3,723 18,636 1,439 64,297 
Special mention— — 1,451 — — 96 — 1,547 
Substandard— — 133 — 22 269 — 424 
Substandard – nonaccrual— — — — — 1,100 48 1,148 
Doubtful— — — — — — — — 
Not graded— — — — — — — — 
Subtotal10,104 4,735 14,989 12,255 3,745 20,101 1,487 67,416 
Construction and land developmentAcceptable credit quality65,538 233,660 88,047 — 677 916 29,385 418,223 
Special mention— — — — — 40 — 40 
Substandard— — 16,594 — — — 15,349 31,943 
Substandard – nonaccrual— — — — — 39 — 39 
Doubtful— — — — — — — — 
Not graded1,535 432 356 — — 25 — 2,348 
Subtotal67,073 234,092 104,997 — 677 1,020 44,734 452,593 
TotalAcceptable credit quality646,867 1,454,885 721,876 295,622 168,355 305,147 499,434 4,092,186 
Special mention13,245 982 2,164 571 437 634 2,673 20,706 
Substandard48,473 23,245 17,412 342 18,815 55,009 20,928 184,224 
Substandard – nonaccrual10,456 11,349 2,851 1,379 8,168 7,223 1,004 42,430 
Doubtful— — — — — — — — 
Not graded1,609 432 356 — — 25 — 2,422 
Total commercial loans$720,650 $1,490,893 $744,659 $297,914 $195,775 $368,038 $524,039 $4,341,968 

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The following table presents the gross charge-offs by class of loan and year of origination on the commercial loan portfolio for the three and nine months ended September 30, 2024:
Term Loans by Origination Year
(dollars in thousands)20242023202220212020PriorRevolving LoansTotal
For the three months ended September 30, 2024
CommercialCommercial$— $— $— $— $22 $1 $— $23 
Commercial Other— 320 1,608 301 43 196 — 2,468 
Commercial Real EstateOwner occupied— — — — — 32 — 32 
Total gross commercial charge-offs$— $320 $1,608 $301 $65 $229 $— $2,523 
For the nine months ended September 30, 2024
CommercialCommercial$— $475 $— $750 $32 $15 $103 $1,375 
Commercial Other— 1,765 3,619 722 66 322 — 6,494 
Commercial Real EstateNon-owner occupied— — — — 138 558 — 696 
Owner occupied— — — — — 32 — 32 
Total gross commercial charge-offs$— $2,240 $3,619 $1,472 $236 $927 $103 $8,597 
The Company evaluates the credit quality of its other loan portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity. Accordingly, loans on nonaccrual status and loans past due 90 days or more and still accruing interest are considered to be nonperforming for purposes of credit quality evaluation. The following tables present the recorded investment of our other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming as of September 30, 2024 and December 31, 2023:
September 30, 2024
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)20242023202220212020PriorRevolving LoansTotal
Residential real estateResidential first lienPerforming$22,558 $41,905 $70,045 $36,026 $27,966 $112,953 $45 $311,498 
Nonperforming— 251 360 519 — 3,006 — 4,136 
Subtotal22,558 42,156 70,405 36,545 27,966 115,959 45 315,634 
Other residentialPerforming1,846 2,316 940 284 332 2,048 54,780 62,546 
Nonperforming— — — — — 160 317 477 
Subtotal1,846 2,316 940 284 332 2,208 55,097 63,023 
ConsumerConsumerPerforming9,871 23,224 17,945 25,281 4,105 8,676 1,441 90,543 
Nonperforming— 22 40 3 — 14 4 83 
Subtotal9,871 23,246 17,985 25,284 4,105 8,690 1,445 90,626 
Consumer otherPerforming365 137,075 270,883 101,436 40,086 18,944 — 568,789 
Nonperforming— 2,616 1,201 — — 2 — 3,819 
Subtotal365 139,691 272,084 101,436 40,086 18,946 — 572,608 
Leases financingPerforming77,382 105,613 119,595 50,869 30,591 21,281 — 405,331 
Nonperforming— 3,689 5,034 2,732 477 268 — 12,200 
Subtotal77,382 109,302 124,629 53,601 31,068 21,549 — 417,531 
TotalPerforming112,022 310,133 479,408 213,896 103,080 163,902 56,266 1,438,707 
Nonperforming— 6,578 6,635 3,254 477 3,450 321 20,715 
Total other loans$112,022 $316,711 $486,043 $217,150 $103,557 $167,352 $56,587 $1,459,422 
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December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year
(dollars in thousands)20232022202120202019PriorRevolving loansTotal
Residential real estateResidential first lienPerforming$42,550 $74,613 $37,009 $29,628 $19,647 $110,703 $4 $314,154 
Nonperforming179 50 335 — 139 2,531 — 3,234 
Subtotal42,729 74,663 37,344 29,628 19,786 113,234 4 317,388 
Other residentialPerforming3,245 1,113 377 409 836 2,009 54,571 62,560 
Nonperforming— 9 — — — 178 448 635 
Subtotal3,245 1,122 377 409 836 2,187 55,019 63,195 
ConsumerConsumerPerforming30,748 24,190 31,946 6,116 2,313 10,794 1,502 107,609 
Nonperforming11 55 6 6 — 56 — 134 
Subtotal30,759 24,245 31,952 6,122 2,313 10,850 1,502 107,743 
Consumer otherPerforming190,018 392,184 149,791 63,461 23,991 7,987 — 827,432 
Nonperforming— — — — — 3 — 3 
Subtotal190,018 392,184 149,791 63,461 23,991 7,990 — 827,435 
Leases financingPerforming143,334 157,059 74,359 50,174 30,428 8,863 — 464,217 
Nonperforming1,485 5,043 1,482 317 612 194 — 9,133 
Subtotal144,819 162,102 75,841 50,491 31,040 9,057 — 473,350 
Total
Performing409,895 649,159 293,482 149,788 77,215 140,356 56,077 1,775,972 
Nonperforming1,675 5,157 1,823 323 751 2,962 448 13,139 
Total other loans$411,570 $654,316 $295,305 $150,111 $77,966 $143,318 $56,525 $1,789,111 

The following table presents the gross charge-offs by class of loan and year of origination on the other loan portfolio for the three and nine months ended September 30, 2024:
Term Loans by Origination Year
(dollars in thousands)20242023202220212020PriorRevolving LoansTotal
For the three months ended September 30, 2024
Residential real estateResidential first lien$— $18 $— $— $— $— $— $18 
Other residential— — — — — 1 140 141 
ConsumerConsumer1 — 6,167 — — — 7 6,175 
Consumer other1 — — — — 219 — 220 
Lease financing— 583 1,560 464 245 127 — 2,979 
Total gross other charge-offs$2 $601 $7,727 $464 $245 $347 $147 $9,533 
For the nine months ended September 30, 2024
Residential real estateResidential first lien$— $18 $11 $— $— $— $— $29 
Other residential— — 16 — — 1 148 165 
ConsumerConsumer1 — 6,189 5 17 27 7 6,246 
Consumer other2 — — — — 581 — 583 
Lease financing— 1,652 3,830 802 297 147 — 6,728 
Total gross other charge-offs$3 $1,670 $10,046 $807 $314 $756 $155 $13,751 
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NOTE 4 – PREMISES, EQUIPMENT AND LEASES
A summary of premises, equipment and leases at September 30, 2024 and December 31, 2023 is as follows:
September 30,December 31,
(dollars in thousands)20242023
Land$15,968 $15,968 
Buildings and improvements80,959 78,104 
Furniture and equipment36,284 35,797 
Lease right-of-use assets9,160 7,673 
Total142,371 137,542 
Accumulated depreciation(57,699)(54,728)
Premises and equipment, net$84,672 $82,814 
    Depreciation expense for the three and nine months ended September 30, 2024 was $1.2 million and $3.7 million, respectively, and $1.1 million and $3.6 million for the three and nine months ended September 30, 2023, respectively.
The Company has entered into operating leases, primarily for banking offices and operating facilities, which have remaining lease terms of 3 months to 14 years, some of which may include options to extend the lease terms for up to an additional 10 years. The options to extend are included in the remaining lease term if they are reasonably certain to be exercised. The Company had operating lease right-of-use assets of $9.2 million and $7.7 million as of September 30, 2024 and December 31, 2023, respectively, included in premises and equipment on our consolidated balance sheets. The operating lease liabilities of the Company were $10.5 million and $9.3 million as of September 30, 2024 and December 31, 2023, respectively, and are included in accrued interest payable and other liabilities on our consolidated balance sheets.
Information related to operating leases for the three and nine months ended September 30, 2024 and 2023 was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Operating lease cost$504 $472 $1,461 $1,449 
Operating cash flows from leases600 529 1,748 1,709 
Right-of-use assets obtained in exchange for lease obligations1,168 1,112 2,707 2,459 
Weighted average remaining lease term7.0 years7.8 years7.0 years7.8 years
Weighted average discount rate3.65 %3.39 %3.65 %3.39 %
The projected minimum rental payments under the terms of the leases as of September 30, 2024 were as follows:
(dollars in thousands)Amount
Year ending December 31:
2024 remaining$472 
20251,912 
20261,815 
20271,673 
20281,619 
Thereafter4,501 
Total future minimum lease payments11,992 
Less imputed interest(1,469)
Total operating lease liabilities$10,523 

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NOTE 5 – DERIVATIVE INSTRUMENTS
The Company enters into derivative instruments, which may include interest rate swaps and interest rate options, in connection with our risk-management activities. Our primary objective for using derivative financial instruments is to manage interest rate risk associated with our fixed-rate and variable-rate assets and liabilities.
Interest Rate Risk
We monitor our mix of fixed-rate and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, and options to achieve a more desired mix of fixed-rate and variable-rate assets and liabilities. We execute these trades to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges that do not qualify for hedge accounting treatment.
Derivatives qualifying for hedge accounting treatment can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances and pay-fixed swaps designated as fair value hedges of securities within our available-for-sale portfolio. Other derivatives qualifying for hedge accounting consist of interest rate floor contracts designated as cash flow hedges of the expected future cash flows in the form of interest receipts on a portion of our commercial and commercial real estate loans.
We have the ability to execute economic hedges, which could consist of interest rate swaps, interest rate caps, forwards, and options to mitigate interest rate risk.
We also enter into interest rate lock commitments and forward commitments that are executed as part of our mortgage business that do not meet the accounting definition of a derivative, as well as 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.
Balance Sheet Presentation
The following table summarizes the fair value of derivative instruments reported on our consolidated balance sheet. The amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories. Derivative assets and derivative liabilities are included in other assets and other liabilities, respectively on the consolidated balance sheet.
Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk.
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September 30, 2024December 31, 2023
Fair ValueFair Value
(dollars in thousands)AssetsLiabilitiesNotional amountAssetsLiabilitiesNotional amount
Derivatives designated as accounting hedges
Interest rate contracts
Fixed-rate mortgage-backed securities$— $1,915 $246,512 $— $1,324 $150,000 
Pools of commercial and commercial real estate loans— 3,551 200,000 — 6,654 200,000 
FHLB advances, brokered CDs and other borrowings— 1,086 75,000 — 465 50,000 
Total derivatives designated as accounting hedges$— $6,552 $521,512 $— $8,443 $400,000 
Derivatives not designated as accounting hedges
Interest rate contracts
Swaps$180 $180 $13,059 $310 $310 $13,832 
Interest rate lock commitments133 — 7,177 62 — 2,405 
Forward commitments to sell mortgage-backed securities— 93 12,750 — 83 5,000 
Total derivatives not designated as accounting hedges$313 $273 $32,986 $372 $393 $21,237 
The following table presents amounts recorded in the consolidated balance sheets related to cumulative basis adjustments for fair value hedges.
Carrying amount of the hedged itemsCumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items
(dollars in thousands)September 30, 2024December 31, 2023September 30, 2024December 31, 2023
Investment securities available for sale$260,843 $— $138 $— 
Statement of Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments not designated as accounting hedges reported in the consolidated statements of income.
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Gain (loss) recognized in earnings
Interest rate contracts$(70)$(23)$60 $116 
The following table summarizes the effect of derivative instruments in fair value hedging relationships on the consolidated statements of income.
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Location of gain (loss) recognized in income on derivativeHedged itemDerivative designated as hedging instrument
(dollars in thousands)2024202320242023
Three Months Ended September 30,
Gain (loss) on fair value hedging relationships
Interest rate contracts
Fixed-rate mortgage-backed securitiesInterest income on investment securities$(138)$— $138 $— 
Nine Months Ended September 30,
Gain (loss) on fair value hedging relationships
Interest rate contracts
Fixed-rate mortgage-backed securitiesInterest income on investment securities$(138)$— $138 $— 
The following table summarizes the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income.
Location of gain (loss) recognized in income on derivativeGain (loss) reclassified from AOCI into income
(dollars in thousands)20242023
Three Months Ended September 30,
Gain (loss) on cash flow hedging relationships
Interest rate contracts
Pools of commercial and commercial real estate loansInterest income on loans$(1,547)$(1,526)
FHLB advances, brokered CDs and other borrowingsInterest expense198 117 
Total gain (loss) on cash flow hedging relationships$(1,349)$(1,409)
Nine Months Ended September 30,
Gain (loss) on cash flow hedging relationships
Interest rate contracts
Pools of commercial and commercial real estate loansInterest income on loans$(4,642)$(4,024)
FHLB advances, brokered CDs and other borrowingsInterest expense773 223 
Total gain (loss) on cash flow hedging relationships$(3,869)$(3,801)
During the next 12 months, we estimate $2.7 million of losses will be reclassified into pretax earnings from derivatives designated as cash flow hedges.
NOTE 6 – DEPOSITS
The following table summarizes the classification of deposits as of September 30, 2024 and December 31, 2023:
(dollars in thousands)September 30, 2024December 31, 2023
Noninterest-bearing demand$1,050,617 $1,145,395 
Interest-bearing:
Checking2,389,970 2,511,840 
Money market1,187,139 1,135,629 
Savings510,260 559,267 
Time1,118,850 957,398 
Total deposits$6,256,836 $6,309,529 

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NOTE 7 – FHLB ADVANCES AND OTHER BORROWINGS
The following table summarizes our FHLB advances and other borrowings as of September 30, 2024 and December 31, 2023:
(dollars in thousands)September 30, 2024December 31, 2023
FHLB advances – fixed rate, fixed term at rates averaging 4.80% and 4.94% at September 30, 2024 and December 31, 2023 - maturing through April 2029
$150,000 $150,000 
FHLB advances – putable fixed rate at rates averaging 3.36% and 3.07% at September 30, 2024 and December 31, 2023, respectively – maturing through July 2034 with call provisions through January 2025
155,000 160,000 
FHLB advances – Short term fixed rate at rates of 4.92% and 5.45% at September 30, 2024 and December 31, 2023 – matured October 2024
120,000 166,000 
Total FHLB advances and other borrowings$425,000 $476,000 
    The Company’s advances from the FHLB are collateralized by a blanket collateral agreement of qualifying mortgage and home equity line of credit loans and certain commercial real estate loans totaling approximately $3.20 billion and $2.98 billion at September 30, 2024 and December 31, 2023, respectively.
NOTE 8 – SUBORDINATED DEBT
The following table summarizes the Company’s subordinated debt at September 30, 2024 and December 31, 2023:
Subordinated debt
Fixed to Float
(dollars in thousands)Issued September 2019Issued September 2019Total
At September 30, 2024
Outstanding amount$55,750 $27,250 $83,000 
Carrying amount55,750 26,994 82,744 
Current rate8.20 %5.50 %
At December 31, 2023
Outstanding amount$66,750 $27,250 $94,000 
Carrying amount66,573 26,973 93,546 
Current rate5.00 %5.50 %
Maturity date9/30/20299/30/2034
Optional redemption date9/30/20249/30/2029
Fixed to variable conversion date9/30/20249/30/2029
Variable rate
3-month SOFR plus 3.61%
3-month SOFR plus 4.05%
Interest payment termsSemiannually through 9/30/2024; Quarterly for all subsequent periodsSemiannually through 9/30/2029; Quarterly for all subsequent periods
The value of subordinated debentures have been reduced by the debt issuance costs, which are being amortized on a straight line basis through the earlier of the redemption option or maturity date. All of the subordinated debentures above may be included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
NOTE 9 – EARNINGS PER COMMON SHARE
Earnings per common share is calculated utilizing the two-class method. Basic earnings per common share is calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of shares adjusted for the dilutive effect of common stock awards. Presented
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below are the calculations for basic and diluted earnings per common share for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands, except per share data)2024202320242023
Net income$18,476 $11,402 $39,111 $54,749 
Preferred dividends declared(2,229)(2,229)(6,685)(6,685)
Net income available to common shareholders16,247 9,173 32,426 48,064 
Common shareholder dividends(6,632)(6,524)(19,959)(19,772)
Unvested restricted stock award dividends(115)(76)(324)(236)
Undistributed earnings to unvested restricted stock awards(147)(105)(187)(405)
Undistributed earnings to common shareholders$9,353 $2,468 $11,956 $27,651 
Basic
Distributed earnings to common shareholders$6,632 $6,524 $19,959 $19,772 
Undistributed earnings to common shareholders9,353 2,468 11,956 27,651 
Total common shareholders earnings, basic$15,985 $8,992 $31,915 $47,423 
Diluted
Distributed earnings to common shareholders$6,632 $6,524 $19,959 $19,772 
Undistributed earnings to common shareholders9,353 2,468 11,956 27,651 
Total common shareholders earnings15,985 8,992 31,915 47,423 
Total common shareholders earnings, diluted$15,985 $8,992 $31,915 $47,423 
Weighted average common shares outstanding, basic21,675,818 21,970,372 21,726,143 22,214,862 
Dilutive effect of options2,424 6,824 5,950 9,124 
Weighted average common shares outstanding, diluted21,678,242 21,977,196 21,732,093 22,223,986 
Basic earnings per common share$0.74 $0.41 $1.47 $2.14 
Diluted earnings per common share0.74 0.41 1.47 2.14 
Antidilutive stock options(1)
279,163 305,051 231,120 305,051 
(1)The diluted earnings per common share computation excludes antidilutive stock options because the exercise prices of these stock options exceeded the average market prices of the Company's common shares for those respective periods.
NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
•Level 1: Unadjusted quoted prices for identical assets or liabilities traded in active markets.
•Level 2: Significant other observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.
•Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Investment securities. The fair value of investment securities available for sale are determined by quoted market prices, if available (Level 1). For investment securities available for sale where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For investment securities available for sale where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other
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market indicators (Level 3). Securities classified as Level 3 are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. There were no transfers between Levels 1, 2 or 3 during the period presented for assets measured at fair value on a recurring basis. The fair value of equity securities is determined using quoted prices or market prices for similar securities (Level 2).
Loans held for sale. The fair value of loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).
Derivative instruments. The fair value of derivative instruments are determined based on derivative valuation models using observable market data as of the measurement date (Level 2).
Nonperforming loans. All of our nonaccrual loans are considered nonperforming and are reviewed individually for the amount of impairment, if any. We measure collateral dependent nonperforming loans based on the estimated fair value of such collateral. In cases where the Company has an agreed upon selling price for the collateral, the fair value is set at the selling price (Level 1). The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral (Level 2). When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable (Level 3). The nonperforming loans categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, cash flows discounted at the effective loan rate, and management’s judgment.
Other Real Estate Owned. OREO is initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost basis. After foreclosure, OREO is held for sale and is carried at the lower of cost or fair value less estimated costs of disposal. Fair value for OREO is based on an appraisal performed upon foreclosure. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Property is evaluated regularly to ensure the recorded amount is supported by its fair value less estimated costs to dispose. After the initial foreclosure appraisal, fair value is generally determined by an annual appraisal unless known events warrant adjustments to the recorded value (Level 2).

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Assets and liabilities measured and recorded at fair value, including financial assets for which the Company has elected the fair value option, on a recurring and nonrecurring basis at September 30, 2024 and December 31, 2023, are summarized below:
September 30, 2024
(dollars in thousands)Carrying
amount		Quoted prices
in active
markets
for identical
assets
(Level 1)		Significant
other
observable
inputs
(Level 2)		Significant unobservable
inputs
(Level 3)
Assets and liabilities measured at fair value on a recurring basis:
Assets
Investment securities available for sale:
U.S. government sponsored entities and U.S. agency securities$42,824 $— $42,824 $— 
Mortgage-backed securities - agency834,764 — 834,764 — 
Mortgage-backed securities - non-agency85,926 — 85,926 — 
State and municipal securities70,471 — 70,471 — 
Corporate securities87,962 — 87,962 — 
Other securities90,143 — 90,143 — 
Equity securities4,705 4,705 — — 
Loans held for sale8,001 — 8,001 — 
Derivative assets313 — 313 — 
Total$1,225,109 $4,705 $1,220,404 $— 
Liabilities
Derivative liabilities$6,825 $— $6,825 $— 
Total$6,825 $— $6,825 $— 
Assets measured at fair value on a non-recurring basis:
Nonperforming loans$68,213 $— $57,128 $11,085 
Other real estate owned8,646 — 8,646 — 
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December 31, 2023
(dollars in thousands)Carrying
amount		Quoted prices
in active
markets
for identical
assets
(Level 1)		Significant
other
observable
inputs
(Level 2)		Significant unobservable
inputs
(Level 3)
Assets and liabilities measured at fair value on a recurring basis:
Assets
Investment securities available for sale:
U.S. Treasury securities$1,097 $1,097 $— $— 
U.S. government sponsored entities and U.S. agency securities72,572 — 72,572 — 
Mortgage-backed securities - agency574,500 — 574,500 — 
Mortgage-backed securities - non-agency83,529 — 83,529 — 
State and municipal securities57,460 — 57,460 — 
Corporate securities99,172 — 99,172 — 
Equity securities4,501 4,501 — — 
Loans held for sale3,811 — 3,811 — 
Derivative assets372 — 372 — 
Total$924,579 $5,598 $918,981 $— 
Liabilities
Derivative liabilities$8,836 $— $8,836 $— 
Total$8,836 $— $8,836 $— 
Assets measured at fair value on a non-recurring basis:
Nonperforming loans$4,633 $— $3,964 $669 
Other real estate owned9,112 — 9,112 — 
    The following table presents losses recognized on assets measured on a nonrecurring basis for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Nonperforming loans$355 $10,085 14,225 14,761 
Other real estate owned548 — 1,278 — 
Total losses on assets measured on a nonrecurring basis$903 $10,085 $15,503 $14,761 
    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, 2024 and December 31, 2023:
(dollars in thousands)Fair valueValuation
technique		Unobservable
input / assumptions
Range (weighted average)(1)
September 30, 2024
Nonperforming loans$11,085 Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability
0.00% - 51.00% (44.69%)
December 31, 2023
Nonperforming loans$669 Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability
24.38% - 100.00% (27.46%)
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.
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The Company has elected the fair value option for newly originated residential loans held for sale. These loans are intended for sale and are hedged with derivative instruments. We have elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification.

The following table presents the difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected as of September 30, 2024 and December 31, 2023:
September 30, 2024December 31, 2023
(dollars in thousands)Aggregate
fair value		DifferenceContractual
principal		Aggregate
fair value		DifferenceContractual
principal
Residential loans held for sale$8,001 $393 $7,608 $3,811 $203 $3,608 
The following table presents the amount of gains from fair value changes included in income before income taxes for financial assets carried at fair value for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Residential loans held for sale$133 $(37)150 112 
    The carrying values and estimated fair value of certain financial instruments not carried at fair value at September 30, 2024 and December 31, 2023 were as follows:
September 30, 2024
(dollars in thousands)Carrying
amount		Fair valueQuoted prices
in active
markets
for identical
assets
(Level 1)		Significant
other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)
Assets
Cash and due from banks$121,220 $121,220 $121,220 $— $— 
Federal funds sold653 653 653 — — 
Loans5,748,819 5,581,468 — — 5,581,468 
Accrued interest receivable27,099 27,099 — 27,099 — 
Liabilities
Deposits$6,256,836 $6,243,589 $— $6,243,589 $— 
Short-term borrowings13,849 13,849 — 13,849 — 
FHLB and other borrowings425,000 426,209 — 426,209 — 
Subordinated debt82,744 78,208 — 78,208 — 
Trust preferred debentures51,058 53,336 — 53,336 — 
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December 31, 2023
(dollars in thousands)Carrying
amount		Fair valueQuoted prices
in active
markets
for identical
assets
(Level 1)		Significant
other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)
Assets
Cash and due from banks$134,212 $134,212 $134,212 $— $— 
Federal funds sold849 849 849 — — 
Loans6,131,079 6,129,244 — — 6,129,244 
Accrued interest receivable24,934 24,934 — 24,934 — 
Liabilities
Deposits$6,309,529 $6,294,979 $— $6,294,979 $— 
Short-term borrowings34,865 34,865 25,000 9,865 — 
FHLB and other borrowings476,000 475,240 — 475,240 — 
Subordinated debt93,546 90,253 — 90,253 — 
Trust preferred debentures50,616 51,626 — 51,626 — 
The methods utilized to measure fair value of financial instruments at September 30, 2024 and December 31, 2023 represent an approximation of exit price; however, an actual exit price may differ.
NOTE 11 – 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. During the second quarter of 2024, the Company recorded an accrual related to various legal actions. No other material losses are anticipated as a result of these actions or claims.
We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank used the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The commitments are principally tied to variable rates. Loan commitments as of September 30, 2024 and December 31, 2023 were as follows:
(dollars in thousands)September 30, 2024December 31, 2023
Commitments to extend credit$856,757 $855,489 
Financial guarantees – standby letters of credit25,826 22,745 
NOTE 12 – SEGMENT INFORMATION
The Company's reportable segments are comprised of strategic business units primarily based upon industry categories and, to a lesser extent, the core competencies relating to product origination, distribution methods, operations and servicing. Segment determination also considers organizational structure and is consistent with the presentation of financial information to the chief operating decision maker to evaluate segment performance, develop strategy and allocate resources. The Company's chief operating decision maker is the Chief Executive Officer of the Company. Management has determined that the Company has three reportable segments consisting of Banking, Wealth Management and Corporate.
The Banking segment provides a wide range of financial products and services to consumers and businesses, including commercial, commercial real estate, mortgage and other consumer loan products; commercial equipment financing; mortgage
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loan sales and servicing; letters of credit; various types of deposit products, including checking, savings and time deposit accounts; merchant services; and corporate treasury management services.
The Wealth Management segment consists of trust and fiduciary services, brokerage and retirement planning services.
The Corporate segment includes the holding company financing and investment activities, administrative expenses, as well as the elimination of intercompany transactions. The Corporate segment also included our captive insurance business unit for the nine months ended September 30, 2023. This business was dissolved as of December 31, 2023.
Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially the same as those described in the “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2023 Annual Report on Form 10-K.
Transactions between segments consist primarily of borrowed funds and servicing fees. Noninterest income and expense directly attributable to a segment are assigned to it with various shared service costs such as human resources, accounting, finance, risk management and information technology expense assigned to the Banking segment.

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Selected business segment financial information for the three and nine months ended September 30, 2024 and 2023 were as follows:
(dollars in thousands)BankingWealth
Management		CorporateTotal
Three Months Ended September 30, 2024
Net interest income (expense)$57,091 $(16)$(2,125)$54,950 
Provision for credit losses5,000 — — 5,000 
Noninterest income12,137 7,104 98 19,339 
Noninterest expense41,996 5,515 (778)46,733 
Income (loss) before income taxes (benefit)22,232 1,573 (1,249)22,556 
Income taxes (benefit)5,159 1,136 (2,215)4,080 
Net income (loss)$17,073 $437 $966 $18,476 
Total assets$7,728,251 $33,763 $(10,531)$7,751,483 
Nine Months Ended September 30, 2024
Net interest income (expense)$172,530 $(36)$(6,572)$165,922 
Provision for credit losses35,800 — — 35,800 
Noninterest income37,503 21,037 (358)58,182 
Noninterest expense124,886 16,269 (2,076)139,079 
Income (loss) before income taxes (benefit)49,347 4,732 (4,854)49,225 
Income taxes (benefit)11,324 2,444 (3,654)10,114 
Net income (loss)$38,023 $2,288 $(1,200)$39,111 
Total assets$7,728,251 $33,763 $(10,531)$7,751,483 
Three Months Ended September 30, 2023
Net interest income (expense)$60,817 $(3)$(2,218)$58,596 
Provision for credit losses5,168 — — 5,168 
Noninterest income5,367 6,288 (110)11,545 
Noninterest expense37,272 5,023 (257)42,038 
Income (loss) before income taxes (benefit)23,744 1,262 (2,071)22,935 
Income taxes (benefit)11,475 913 (855)11,533 
Net income (loss)$12,269 $349 $(1,216)$11,402 
Total assets$7,957,507 $30,860 $(19,082)$7,969,285 
Nine Months Ended September 30, 2023
Net interest income (expense)$184,460 $(3)$(6,517)$177,940 
Provision for credit losses14,182 — — 14,182 
Noninterest income26,862 18,968 247 46,077 
Noninterest expense115,669 14,539 (794)129,414 
Income (loss) before income taxes (benefit)81,471 4,426 (5,476)80,421 
Income taxes (benefit)26,007 1,797 (2,132)25,672 
Net income (loss)$55,464 $2,629 $(3,344)$54,749 
Total assets$7,957,507 $30,860 $(19,082)$7,969,285 
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NOTE 13 – REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company’s revenue from contracts with customers in the scope of Topic 606 is recognized within noninterest income in the consolidated statements of income. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2024 and 2023.
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Noninterest income - in-scope of Topic 606
Wealth management revenue:
Trust management/administration fees$6,159 $5,470 $18,280 $16,462 
Investment advisory and brokerage fees494 420 1,417 1,281 
Other451 398 1,340 1,225 
Service charges on deposit accounts:
Nonsufficient fund fees2,058 1,950 5,716 5,389 
Other1,353 1,199 3,932 3,355 
Interchange revenues3,506 3,609 10,427 10,717 
Other income:
Merchant services revenue357 409 1,058 1,165 
Other2 (66)614 1,618 
Noninterest income - out-of-scope of Topic 6064,959 (1,844)15,398 4,865 
Total noninterest income$19,339 $11,545 $58,182 $46,077 
    Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and investment securities. In addition, certain noninterest income streams such as commercial FHA revenue, residential mortgage banking revenue and gain on sales of investment securities, net, are also not in scope of Topic 606. Topic 606 is applicable to noninterest income streams such as wealth management revenue, service charges on deposit accounts, interchange revenue, gain on sales of other real estate owned, and certain other noninterest income streams. The noninterest income streams considered in-scope by Topic 606 are discussed below.
Wealth Management Revenue
Wealth management revenue is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company also earns investment advisory fees through its SEC registered investment advisory subsidiary. The Company’s performance obligation in both of these instances is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and contractually determined fee schedules. Payment is generally received a few days after month end through a direct charge to each customer’s account. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Fees generated from transactions executed by the Company’s third party broker dealer are remitted to the Company on a monthly basis for that month’s transactional activity.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of fees received under depository agreements with customers to provide access to deposited funds, serve as custodian of deposited funds, and when applicable, pay interest on deposits. These service charges primarily include non-sufficient fund fees and other account related service charges. Non-sufficient fund fees are earned when a depositor presents an item for payment in excess of available funds, and the Company, at its discretion, provides the necessary funds to complete the transaction. The Company generates other account related service charge revenue by providing depositors proper safeguard and remittance of funds as well as by delivering optional services for depositors, such as check imaging or treasury management, that are performed upon the depositor’s request. The Company’s performance obligation for the proper safeguard and remittance of funds, monthly account analysis and any other monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is typically received immediately or in the following month through a direct charge to a customer’s account.
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Interchange Revenue
Interchange revenue includes debit / credit card income and ATM user fees. Card income is primarily comprised of interchange fees earned for standing ready to authorize and providing settlement on card transactions processed through the MasterCard interchange network. The levels and structure of interchange rates are set by MasterCard and can vary based on cardholder purchase volumes. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with completion of the Company’s performance obligation, the transaction processing services provided to the cardholder. Payment is typically received immediately or in the following month. ATM fees are primarily generated when a Company cardholder withdraws funds from a non-Company ATM or a non-Company cardholder withdraws funds from a Company ATM. The Company satisfies its performance obligation for each transaction at the point in time when the ATM withdrawal is processed.
Other Noninterest Income
The other noninterest income revenue streams within the scope of Topic 606 consist of merchant services revenue, safe deposit box rentals, wire transfer fees, paper statement fees, check printing commissions, gain on sales of other real estate owned and other noninterest related fees. Revenue from the Company’s merchant services business consists principally of transaction and account management fees charged to merchants for the electronic processing of transactions. These fees are net of interchange fees paid to the credit card issuing bank, card company assessments, and revenue sharing amounts. Account management fees are considered earned at the time the merchant’s transactions are processed or other services are performed. Fees related to the other components of other noninterest income within the scope of Topic 606 are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at the point in time the customer uses the selected service to execute a transaction.
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of September 30, 2024, as compared to December 31, 2023, and unaudited consolidated operating results for the three and nine months ended September 30, 2024 and 2023. These comments should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes appearing elsewhere herein and the audited financial statements and accompanying notes provided in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 23, 2024.
In addition to the historical information contained herein, this Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of such term under the Private Securities Litigation Reform Act of 1995. These statements are subject to many risks and uncertainties, including interest rates and other general economic, business and political conditions, including the rate of inflation; changes in the financial markets; changes in business plans as circumstances warrant; risks related to legal proceedings; risks related to mergers and acquisitions and the integration of acquired businesses; changes to U.S. tax laws, regulations and guidance; and other risks detailed from time to time in filings made by the Company with the SEC. Readers should note that the forward-looking statements included herein are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “will,” “propose,” “may,” “plan,” “seek,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” or “continue,” or similar terminology. Any forward-looking statements presented herein are made only as of the date of this document, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.
Critical Accounting Policies
The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under current circumstances. These estimates form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on the Company’s reported financial position and results of operations are set forth in “Note 1 – Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2023.
Significant Developments and Transactions
Each item listed below affects the comparability of our results of operations for the three and nine months ended September 30, 2024 and 2023, and our financial condition as of September 30, 2024 and December 31, 2023, and may affect the comparability of financial information we report in future fiscal periods.
Balance sheet repositioning. The Company took advantage of certain market conditions during 2023 and the first nine months of 2024 to reposition out of lower yielding securities into other structures, which were expected to result in improved overall margin, liquidity and capital allocations. These transactions resulted in losses of $0.2 million in the nine months ended September 30, 2024 compared to losses of $5.0 million and $6.5 million in the three and nine months ended September 30, 2023, respectively.

In addition, in the third quarter of 2023, the Company surrendered certain low-yielding life insurance policies and purchased additional policies resulting in improved income. The Company recognized a $4.5 million income tax charge related to the surrender of the policies.

Redemption of Subordinated Notes. In the second and third quarters of 2024, the Company redeemed a total of $11.0 million of outstanding subordinated notes. The weighted average redemption price was 97.7% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest. The Company recorded gains totaling $0.2 million on these redemptions.
In addition, in the second quarter of 2023, the Company redeemed $6.6 million of outstanding subordinated notes. The weighted average redemption price was 89.2% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest. The Company recorded gains totaling $0.7 million on these redemptions.
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Results of Operations
Overview. The following table sets forth condensed income statement information of the Company for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands, except per share data)2024202320242023
Income Statement Data:
Interest income$104,834 $103,585 $309,804 $299,615 
Interest expense49,884 44,989 143,882 121,675 
Net interest income54,950 58,596 165,922 177,940 
Provision for credit losses5,000 5,168 35,800 14,182 
Noninterest income19,339 11,545 58,182 46,077 
Noninterest expense46,733 42,038 139,079 129,414 
Income before income taxes22,556 22,935 49,225 80,421 
Income taxes4,080 11,533 10,114 25,672 
Net income18,476 11,402 39,111 54,749 
Preferred dividends2,229 2,229 6,685 6,685 
Net income available to common shareholders$16,247 $9,173 $32,426 $48,064 
Per Share Data:
Basic earnings per common share$0.74 $0.41 $1.47 $2.14 
Diluted earnings per common share$0.74 $0.41 $1.47 $2.14 
Performance Metrics:
Return on average assets0.95 %0.57 %0.67 %0.93 %
Return on average shareholders' equity9.24 %5.86 %6.62 %9.48 %
During the three months ended September 30, 2024, we generated net income of $18.5 million, or diluted earnings per common share of $0.74, compared to net income of $11.4 million, or diluted earnings per common share of $0.41, in the three months ended September 30, 2023. Earnings for the third quarter of 2024 compared to the third quarter of 2023 increased primarily due to a $7.8 million increase in noninterest income, a $7.5 million decrease in income tax expense and a $0.2 million decrease in provision for credit losses. These results were partially offset by a $3.6 million decrease in net interest income, and a $4.7 million increase in noninterest expense.
During the nine months ended September 30, 2024, we generated net income of $39.1 million, or diluted earnings per common share of $1.47, compared to net income of $54.7 million, or diluted earnings per common share of $2.14, in the nine months ended September 30, 2023. Earnings for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 decreased primarily due to a $21.6 million increase in provision for credit losses, a $12.0 million decrease in net interest income and a $9.7 million increase in noninterest expense. These results were partially offset by a $12.1 million increase in noninterest income, and a $15.6 million decrease in income tax expense.
Net Interest Income and Margin. Our primary source of revenue is net interest income, which is the difference between interest income from interest-earning assets (primarily loans and securities) and interest expense of funding sources (primarily interest-bearing deposits and borrowings). Net interest income is influenced by many factors, primarily the volume and mix of interest-earning assets, funding sources and interest rate fluctuations. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. Net interest margin is calculated as net interest income divided by average interest-earning assets. Net interest margin is presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to a pretax-equivalent income, assuming a federal income tax rate of 21% for 2024 and 2023.
The Federal Reserve announced at its September 2024 FOMC meeting that it is cutting its benchmark interest rate by 0.50 percentage points, marking the first reduction in four years. This rate cut lowers the federal funds rate into a range of 4.75% to 5.00%, down from its prior range of 5.25% to 5.50%, which had been its highest level in 23 years. The half-point move signals that the Federal Reserve is acting aggressively to keep the U.S. economy from stalling, given that historically most rate cuts are 0.25 percentage points.
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The FOMC statement indicated that the Committee has gained greater confidence that inflation is moving sustainably toward two percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The committee noted that “job gains have slowed and the unemployment rate has moved up but remains low.” FOMC officials raised their expected unemployment rate this year to 4.4%, from the 4.0% projection at the last update in June, and lowered the inflation outlook to 2.3% from 2.6%.
During the three months ended September 30, 2024, net interest income, on a tax-equivalent basis, decreased to $55.2 million compared to $58.8 million for the three months ended September 30, 2023. The tax-equivalent net interest margin decreased to 3.10% for the third quarter of 2024 compared to 3.20% for the third quarter of 2023.
During the nine months ended September 30, 2024, net interest income, on a tax-equivalent basis, decreased to $166.5 million with a tax-equivalent net interest margin of 3.13% compared to net interest income, on a tax-equivalent basis, of $178.6 million and a tax-equivalent net interest margin of 3.27% for the nine months ended September 30, 2023.
Average Balance Sheet, Interest and Yield/Rate Analysis. The following tables present the average balance sheets, interest income, interest expense and the corresponding average yields earned and rates paid for the three and nine months ended September 30, 2024 and 2023. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments.
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Three Months Ended September 30,
20242023
(tax-equivalent basis, dollars in thousands)Average
balance		Interest
& fees		Yield/
Rate		Average
balance		Interest
& fees		Yield/
Rate
Interest-earning assets:
Federal funds sold and cash investments$75,255 $1,031 5.45 %$78,391 $1,036 5.24 %
Investment securities:
Taxable investment securities1,111,147 13,259 4.75 813,582 7,475 3.65 
Investment securities exempt from federal income tax (1)
51,604 493 3.80 49,416 347 2.79 
Total securities1,162,751 13,752 4.71 862,998 7,822 3.60 
Loans:
Loans (2)
5,737,805 88,860 6.16 6,245,179 93,488 5.94 
Loans exempt from federal income tax (1)
45,603 484 4.22 52,389 630 4.77 
Total loans5,783,408 89,344 6.15 6,297,568 94,118 5.93 
Loans held for sale7,505 124 6.57 6,078 104 6.80 
Nonmarketable equity securities41,137 788 7.62 39,347 710 7.16 
Total interest-earning assets7,070,056 105,039 5.91 7,284,382 103,790 5.65 
Noninterest-earning assets653,279 622,969 
Total assets$7,723,335 $7,907,351 
Interest-bearing liabilities:
Deposits:
Checking and money market deposits$3,554,785 $31,061 3.48 %$3,770,735 $29,401 3.09 %
Savings deposits523,112 429 0.33 604,475 506 0.33 
Time deposits849,664 8,034 3.76 865,263 6,441 2.95 
Brokered time deposits205,079 2,446 4.74 113,883 1,421 4.95 
Total interest-bearing deposits5,132,640 41,970 3.25 5,354,356 37,769 2.80 
Short-term borrowings53,577 602 4.47 20,127 14 0.28 
FHLB advances and other borrowings428,739 4,743 4.40 402,500 4,557 4.49 
Subordinated debt89,120 1,228 5.48 93,441 1,280 5.43 
Trust preferred debentures50,990 1,341 10.46 50,379 1,369 10.78 
Total interest-bearing liabilities5,755,066 49,884 3.45 5,920,803 44,989 3.01 
Noninterest-bearing liabilities:
Noninterest-bearing deposits1,075,712 1,116,988 
Other noninterest-bearing liabilities97,235 97,935 
Total noninterest-bearing liabilities1,172,947 1,214,923 
Shareholders’ equity795,322 771,625 
Total liabilities and shareholders’ equity$7,723,335 $7,907,351 
Net interest income / net interest margin (3)
$55,155 3.10 %$58,801 3.20 %
(1)Interest income and average rates for tax-exempt loans and securities are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. Tax-equivalent adjustments totaled $0.2 million for each of the three months ended September 30, 2024 and 2023.
(2)Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
(3)Net interest margin during the periods presented represents: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.

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Nine Months Ended September 30,
20242023
(tax-equivalent basis, dollars in thousands)Average
balance		Interest
& fees		Yield/
Rate		Average
balance		Interest
& fees		Yield/
Rate
Interest-earning assets:
Federal funds sold and cash investments$69,960 $2,857 5.45 %$76,939 $2,868 4.98 %
Investment securities:
Taxable investment securities1,029,008 35,921 4.66 784,954 19,744 3.35 
Investment securities exempt from federal income tax (1)
54,589 1,344 3.29 59,992 1,359 3.02 
Total securities1,083,597 37,265 4.59 844,946 21,103 3.33 
Loans:
Loans (2)
5,856,676 266,107 6.07 6,270,427 272,297 5.81 
Loans exempt from federal income tax (1)
46,540 1,463 4.20 54,151 1,708 4.22 
Total loans5,903,216 267,570 6.05 6,324,578 274,005 5.79 
Loans held for sale5,281 263 6.65 3,900 179 6.14 
Nonmarketable equity securities40,429 2,438 8.06 44,034 2,104 6.39 
Total interest-earning assets7,102,483 310,393 5.84 7,294,397 300,259 5.50 
Noninterest-earning assets663,967 615,383 
Total assets$7,766,450 $7,909,780 
Interest-bearing liabilities:
Deposits:
Checking and money market deposits$3,572,032 $89,910 3.36 %$3,743,483 $79,858 2.85 %
Savings deposits541,420 1,377 0.34 626,976 1,145 0.24 
Time deposits849,529 23,096 3.63 791,555 14,694 2.48 
Brokered time deposits179,998 6,277 4.66 61,838 2,094 4.53 
Total interest-bearing deposits5,142,979 120,660 3.13 5,223,852 97,791 2.50 
Short-term borrowings49,750 1,746 4.69 26,865 53 0.26 
FHLB advances and other borrowings414,259 13,615 4.39 471,084 15,959 4.53 
Subordinated debt91,921 3,773 5.48 96,820 3,985 5.49 
Trust preferred debentures50,873 4,088 10.73 50,216 3,887 10.35 
Total interest-bearing liabilities5,749,782 143,882 3.34 5,868,837 121,675 2.77 
Noninterest-bearing liabilities:
Noninterest-bearing deposits1,119,764 1,184,410 
Other noninterest-bearing liabilities107,192 84,650 
Total noninterest-bearing liabilities1,226,956 1,269,060 
Shareholders’ equity789,712 771,883 
Total liabilities and shareholders’ equity$7,766,450 $7,909,780 
Net interest income / net interest margin (3)
$166,511 3.13 %$178,584 3.27 %
(1)Interest income and average rates for tax-exempt loans and securities are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. Tax-equivalent adjustments totaled $0.6 million for each of the nine months ended September 30, 2024 and 2023, respectively.
(2)Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
(3)Net interest margin during the periods presented represents: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.
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Interest Rates and Operating Interest Differential. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. Changes which are not due solely to volume or rate have been allocated proportionally to the change due to volume and the change due to rate.
Three Months Ended September 30, 2024 compared with Three Months Ended September 30, 2023Nine Months Ended September 30, 2024 compared with Nine Months Ended September 30, 2023
Change due to:Interest
Variance		Change due to:Interest
Variance
(tax-equivalent basis, dollars in thousands)VolumeRateVolumeRate
Earning assets:
Federal funds sold and cash investments$(44)$39 $(5)$(272)$261 $(11)
Investment securities:
Taxable investment securities3,141 2,643 5,784 7,304 8,873 16,177 
Investment securities exempt from federal income tax19 127 146 (128)113 (15)
Total securities3,160 2,770 5,930 7,176 8,986 16,162 
Loans:
Loans(7,845)3,217 (4,628)(18,267)12,077 (6,190)
Loans exempt from federal income tax(78)(68)(146)(240)(5)(245)
Total loans(7,923)3,149 (4,774)(18,507)12,072 (6,435)
Loans held for sale24 (4)20 67 17 84 
Nonmarketable equity securities33 45 78 (194)528 334 
Total earning assets$(4,750)$5,999 $1,249 $(11,730)$21,864 $10,134 
Interest-bearing liabilities:
Checking and money market deposits$(1,824)$3,484 $1,660 $(3,953)$14,005 $10,052 
Savings deposits(69)(8)(77)(186)418 232 
Time deposits(141)1,734 1,593 1,333 7,069 8,402 
Brokered time deposits1,110 (85)1,025 4,065 118 4,183 
Total interest-bearing deposits(924)5,125 4,201 1,259 21,610 22,869 
Short-term borrowings199 389 588 424 1,269 1,693 
FHLB advances and other borrowings287 (101)186 (1,890)(454)(2,344)
Subordinated debt(56)4 (52)(200)(12)(212)
Trust preferred debentures15 (43)(28)54 147 201 
Total interest-bearing liabilities$(479)$5,374 $4,895 $(353)$22,560 $22,207 
Net interest income$(4,271)$625 $(3,646)$(11,377)$(696)$(12,073)
Interest Income. Interest income, on a tax-equivalent basis, increased $1.2 million to $105.0 million in the three months ended September 30, 2024 as compared to the same quarter in 2023, primarily due to improved yields on earning assets. The yield on earning assets increased 26 basis points to 5.91% from 5.65% primarily due to the impact of increasing market interest rates.
Average earning assets decreased to $7.07 billion in the third quarter of 2024 from $7.28 billion in the same quarter of 2023. The decrease in average loans of $514.2 million was partially offset by a $299.8 million increase in investment securities.
Average loans decreased $514.2 million to $5.78 billion in the third quarter of 2024 compared to the same quarter of 2023, due primarily to continued reductions in our equipment financing and consumer loan portfolios. Average equipment finance loan and lease balances decreased $215.3 million to $868.2 million in the third quarter of 2024, compared to the third quarter of 2023. The Company continued to reduce its concentration of this product within the overall loan portfolio. Consumer loans decreased $358.7 million during the third quarter to $722.1 million due to loan payoffs and a cessation in loans originated through GreenSky. Our Greensky-originated average loan balances decreased $280.0 million in the third quarter of 2024 to
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$504.6 million, compared to the third quarter of 2023. In addition, as previously disclosed, during the fourth quarter of 2023, the Company ceased originating loans through LendingPoint.
For the nine months ended September 30, 2024, interest income, on a tax-equivalent basis, increased $10.1 million to $310.4 million as compared to the same period in 2023, primarily due to the increase in market rates year over year. The yield on earning assets increased 34 basis points to 5.84% from 5.50%, primarily due to the impact of increasing market interest rates.
Average earning assets decreased to $7.10 billion in the first nine months of 2024 from $7.29 billion in the same period in 2023. Average loans decreased $421.4 million, which was partially offset by an increase in investment securities of $238.7 million. The changes in average loan mix on a year-to-date basis is consistent with the quarter-to-date changes described previously.
Interest Expense. Interest expense increased $4.9 million to $49.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The cost of interest-bearing liabilities increased to 3.45% for the third quarter of 2024 compared to 3.01% for the third quarter of 2023 due to the increase in deposit costs as a result of the rate increases previously enacted by the Federal Reserve.
Interest expense on deposits increased $4.2 million to $42.0 million for the three months ended September 30, 2024 from the comparable period in 2023. The increase was primarily due to an increase in rates paid on deposits. Average balances of interest-bearing deposit accounts decreased $221.7 million, or 4.1%, to $5.13 billion for the three months ended September 30, 2024 compared to the same period one year earlier.
For the nine month period ended September 30, 2024, interest expense increased $22.2 million to $143.9 million compared to the nine months ended September 30, 2023. The cost of interest-bearing liabilities increased to 3.34% for the first nine months of 2024 compared to 2.77% for the same period of 2023. Interest expense on deposits increased to $120.7 million from $97.8 million for the comparable period in 2023, primarily due to increases in interest rates on deposits.
Interest expense on FHLB advances and other borrowings decreased $2.3 million for the nine months ended September 30, 2024, from the comparable period in 2023. Average balances decreased $56.8 million for the nine months ended September 30, 2024, from the comparable period in 2023, as loan paydowns permitted a decrease in the use of this funding source.
Provision for Credit Losses. The Company's provision for credit losses totaled $5.0 million for the three months ended September 30, 2024, compared to $5.2 million for the three months ended September 30, 2023. For the nine months ended September 30, 2024 and 2023, the Company recorded provision expense of $35.8 million and $14.2 million, respectively. The provision expense was attributable to loans, as further described below, with the exception of $0.2 million recapture attributable to unfunded commitments in the three and nine months ended September 30, 2024.
The elevated provision for credit losses for the nine months ended September 30, 2024, was primarily due to credit deterioration and servicing issues involving one of our FinTech partners, LendingPoint, subsequent to their system conversion in late 2023. The Company recognized provision expense of $14.0 million in the second quarter of 2024 related to this portfolio. In addition, the provision expense for the first quarter of 2024 included a specific reserve of $8.0 million on a multi-family construction project.
The provision for credit losses on loans recognized during the three and nine months ended September 30, 2024 was made at a level deemed necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.
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Noninterest Income. Noninterest income increased $7.8 million and $12.1 million for the three and nine months ended September 30, 2024, respectively, compared to the same periods one year prior. The following table sets forth the major components of our noninterest income for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,Increase
(decrease)		Nine Months Ended September 30,Increase
(decrease)
(dollars in thousands)2024202320242023
Noninterest income:
Wealth management revenue$7,104 $6,288 $816 $21,037 $18,968 $2,069 
Service charges on deposit accounts3,411 3,149 262 9,648 8,744 904 
Interchange revenue3,506 3,609 (103)10,427 10,717 (290)
Residential mortgage banking revenue697 507 190 1,781 1,452 329 
Income on company-owned life insurance1,982 918 1,064 5,708 2,685 3,023 
Loss on sales of investment securities, net(44)(4,961)4,917 (196)(6,478)6,282 
Other income2,683 2,035 648 9,777 9,989 (212)
Total noninterest income$19,339 $11,545 $7,794 $58,182 $46,077 $12,105 
Wealth management revenue. Wealth management revenue increased $0.8 million and $2.1 million for the three and nine months ended September 30, 2024, as compared to the same periods in 2023. Assets under administration increased to $4.27 billion at September 30, 2024 from $3.50 billion at September 30, 2023, primarily due to improved sales activity and an increase in market performance.
Income on company-owned life insurance. Income on company-owned life insurance increased $1.1 million and $3.0 million for the three and nine months ended September 30, 2024, as compared to the same periods in 2023. As previously discussed, the Company surrendered certain low-yielding life insurance policies and purchased additional policies in the third quarter of 2023, resulting in the increase in revenue.
Noninterest Expense. The following table sets forth the major components of noninterest expense for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,Increase
(decrease)		Nine Months Ended September 30,Increase
(decrease)
(dollars in thousands)2024202320242023
Noninterest expense:
Salaries and employee benefits$24,382 $22,307 $2,075 $71,356 $69,407 $1,949 
Occupancy and equipment4,393 3,730 663 12,499 12,052 447 
Data processing6,955 6,468 487 20,882 19,323 1,559 
FDIC insurance1,402 1,107 295 3,895 3,632 263 
Professional services1,744 1,554 190 6,242 4,977 1,265 
Marketing967 950 17 2,445 2,323 122 
Communications359 507 (148)1,037 1,514 (477)
Loan expense1,935 866 1,069 4,416 3,104 1,312 
Amortization of intangible assets951 1,129 (178)3,056 3,628 (572)
Other expense3,645 3,420 225 13,251 9,454 3,797 
Total noninterest expense$46,733 $42,038 $4,695 $139,079 $129,414 $9,665 
    Salaries and employee benefits. For the three and nine months ended September 30, 2024, salaries and employee benefits expense increased $2.1 million and $1.9 million, respectively, as compared to the same period in 2023, primarily due to annual salary increases and increased incentive expense. The Company employed 907 employees at September 30, 2024 compared to 911 employees at September 30, 2023.
Data processing fees. The $0.5 million and $1.6 million increases in data processing fees for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023, were primarily the result of our continuing investments in technology to better serve our growing customer base and increased transaction volumes.
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Loan expense. The $1.1 million and $1.3 million increases in loan expense for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023, were primarily for loan collection expenses due to the increased volume of nonperforming loans and assets.
Other expense. Other expense increased $3.8 million for the nine months ended September 30, 2024, as compared to the same period in 2023. OREO expenses, including impairment and property taxes, increased $1.8 million. In addition, the Company recognized expenses of $3.1 million related to various legal actions.    
Income Tax Expense. The Company's effective tax rates were 18.1% and 20.6% for the three and nine months ended September 30, 2024, respectively, compared to 50.3% and 31.9% for the three and nine months ended September 30, 2023, respectively. The decrease in the effective tax rate from the three and nine months ended September 30, 2023 is due primarily to tax expense of $4.5 million associated with a surrender of company-owned life insurance policies recognized in the third quarter of 2023, as previously discussed, and a $1.4 million return to provision adjustment also recognized in the third quarter of 2023.
Financial Condition
Assets. Total assets were $7.75 billion at September 30, 2024, as compared to $7.87 billion at December 31, 2023.
Loans. The loan portfolio is the largest category of our assets. The following table presents the balance and associated percentage of each major category in our loan portfolio at September 30, 2024 and December 31, 2023:
September 30, 2024December 31, 2023
(dollars in thousands)BalancePercentBalancePercent
Loans:
Commercial:
Equipment finance loans$442,552 7.7 %$531,143 8.7 %
Equipment finance leases417,531 7.3 473,350 7.7 
Commercial FHA lines50,198 0.9 — — 
Other commercial loans863,922 15.0 951,387 15.5 
Total commercial loans and leases1,774,203 30.9 1,955,880 31.9 
Commercial real estate2,510,472 43.7 2,406,845 39.3 
Construction and land development422,253 7.3 452,593 7.4 
Residential real estate378,657 6.6 380,583 6.2 
Consumer663,234 11.5 935,178 15.2 
Total loans, gross5,748,819 100.0 %6,131,079 100.0 %
Allowance for credit losses on loans(85,804)(68,502)
Total loans, net$5,663,015 $6,062,577 

Total loans decreased $382.3 million to $5.75 billion at September 30, 2024, as compared to December 31, 2023. Increases in commercial FHA warehouse lines and commercial real estate loans of $50.2 million and $103.6 million, respectively, were offset by decreases in all other loan categories. The Company continued to shrink its equipment financing and consumer loan portfolios, and focus on commercial loan opportunities in our community bank footprint.
Equipment finance loan and lease balances decreased $144.4 million to $860.1 million at September 30, 2024 compared to December 31, 2023 as the Company continued to reduce its concentration of this product within the overall loan portfolio. Consumer loans decreased $271.9 million due to loan payoffs and a cessation in loans originated through GreenSky. Our Greensky-originated loan balances decreased $208.2 million during the first nine months of 2024 to $475.3 million at September 30, 2024. In addition, as previously disclosed, during the fourth quarter of 2023, the Company ceased originating loans through LendingPoint. As of September 30, 2024, the Company had $96.5 million in loans that were originated through and serviced by LendingPoint. Equipment financing and consumer loans comprised 15.0% and 11.5%, respectively, of the loan portfolio at September 30, 2024, compared to 16.4% and 15.2%, respectively, at December 31, 2023.

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The principal segments of our loan portfolio are discussed below:
Commercial loans. We provide a mix of variable and fixed rate commercial loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and farm operations. Commercial loans generally include lines of credit and loans with maturities of five years or less. The loans are generally made with business operations as the primary source of repayment, but may also include collateralization by inventory, accounts receivable and equipment, and generally include personal guarantees. The commercial loan category also includes loans originated by the equipment financing business that are secured by the underlying equipment.
Commercial real estate loans. Our commercial real estate loans consist of both real estate occupied by the borrower for ongoing operations and non-owner occupied real estate properties. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner occupied offices, warehouses and production facilities, office buildings, hotels, mixed-use residential and commercial facilities, retail centers, multifamily properties, skilled nursing and assisted living facilities. Our commercial real estate loan portfolio also includes farmland loans. Farmland loans are generally made to a borrower actively involved in farming rather than to passive investors.
Construction and land development loans. Our construction and land development loans are comprised of residential construction, commercial construction and land acquisition and development loans. Interest reserves are generally established on real estate construction loans.
The following table presents the balance and associated percentage of the major property types within our commercial real estate and construction and land development loan portfolios at September 30, 2024 and December 31, 2023:
September 30, 2024December 31, 2023
(dollars in thousands)BalancePercentBalancePercent
Multi-Family$555,984 19.0 %$516,295 18.1 %
Skilled Nursing397,700 13.7 469,096 16.4 
Retail461,017 15.7 454,589 15.9 
Industrial/Warehouse216,870 7.4 217,956 7.6 
Hotel/Motel243,292 8.3 159,707 5.6 
Office147,189 5.0 153,756 5.4 
All other910,673 30.9 888,039 31.0 
Total commercial real estate and construction and land development loans$2,932,725 100.0 %$2,859,438 100.0 %
Loans secured by office space totaled $147.2 million and $153.8 million at September 30, 2024 and December 31, 2023, respectively, primarily located in suburban locations in Illinois and Missouri.
Residential real estate loans. Our residential real estate loans are loans secured by residential properties that generally do not qualify for secondary market sale.
Consumer loans. Our consumer loans include direct personal loans, indirect automobile loans, lines of credit and installment loans originated through home improvement specialty retailers and contractors. Personal loans are generally secured by automobiles, boats and other types of personal property and are made on an installment basis.
Lease financing. Our equipment leasing business provides financing leases to varying types of businesses nationwide for purchases of business equipment and software. The financing is secured by a first priority interest in the financed asset and generally requires monthly payments.
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The following table shows the contractual maturities of our loan portfolio and the distribution between fixed and adjustable interest rate loans at September 30, 2024:
September 30, 2024
Within One YearOne Year to Five YearsFive Years to 15 YearsAfter 15 Years
(dollars in thousands)Fixed RateAdjustable
Rate		Fixed RateAdjustable
Rate		Fixed RateAdjustable
Rate		Fixed RateAdjustable
Rate		Total
Commercial$135,890 $421,349 $481,705 $77,196 $103,527 $92,405 $— $44,600 $1,356,672 
Commercial real estate371,569 377,978 1,014,476 247,232 283,529 192,413 5,530 17,745 2,510,472 
Construction and land development88,322 149,344 67,853 62,720 1,477 50,299 94 2,144 422,253 
Total commercial loans595,781 948,671 1,564,034 387,148 388,533 335,117 5,624 64,489 4,289,397 
Residential real estate4,554 6,026 8,497 17,790 22,881 36,855 179,791 102,263 378,657 
Consumer4,617 599 547,414 82,156 28,448 — — — 663,234 
Lease financing28,604 — 313,475 — — 75,452 — — 417,531 
Total loans$633,556 $955,296 $2,433,420 $487,094 $439,862 $447,424 $185,415 $166,752 $5,748,819 
Loan Quality
We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio. Our underwriting policies and practices govern the risk profile, credit and geographic concentration for our loan portfolio. We also have what we believe to be a comprehensive methodology to monitor these credit quality standards, including a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level.
Analysis of the Allowance for Credit Losses on Loans. The allowance for credit losses on loans was $85.8 million, or 1.49% of total loans, at September 30, 2024 compared to $68.5 million, or 1.12% of total loans, at December 31, 2023. The following table allocates the allowance for credit losses on loans by loan category:
September 30, 2024December 31, 2023
(dollars in thousands)Allowance
Percent (1)
Allowance
Percent (1)
Commercial$24,106 1.78 %$21,847 1.47 %
Commercial real estate22,531 0.90 20,229 0.84 
Construction and land development12,061 2.86 4,163 0.92 
Total commercial loans58,698 1.37 46,239 1.06 
Residential real estate5,351 1.41 5,553 1.46 
Consumer8,031 1.21 3,770 0.40 
Lease financing13,724 3.29 12,940 2.73 
Total allowance for credit losses on loans$85,804 1.49 %$68,502 1.12 %
(1)Represents the percentage of the allowance to total loans in the respective category.
We measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan and borrower attributes and certain macroeconomic variables. Models are adjusted to reflect the impact of certain current macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.
In estimating expected credit losses as of September 30, 2024, we utilized certain forecasted macroeconomic variables from Oxford Economics in our models. The forecasted projections included, among other things, (i) U.S. gross domestic product ranging from 2.5% to 3.1% over the next four quarters; (ii) the 10-year treasury rate decreasing from 4.0% in the third quarter of 2024 to 3.9% by the fourth quarter of 2025; and (iii) Illinois unemployment rate averaging 5.5% through the fourth quarter of 2025.
We qualitatively adjust the model results based on this scenario for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and
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external factors, among other things, that are not already fully captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. The qualitative factor adjustment at September 30, 2024, was approximately 56 basis points of total loans. The additional provision expense related to the LendingPoint portfolio resulted in the increase in the qualitative factor adjustment when compared to 41 basis points at December 31, 2023.
The allowance allocated to commercial loans totaled $24.1 million, or 1.78% of total commercial loans, at September 30, 2024, compared to $21.8 million, or 1.47%, at December 31, 2023. Modeled expected credit losses increased $0.5 million and qualitative factor adjustments related to commercial loans increased $2.7 million. A certain portion of the LendingPoint portfolio is classified as commercial loans. The Company recognized provision expense of $3.2 million on this portfolio during the nine months ended September 30, 2024. Specific allocations for commercial loans that were evaluated for expected credit losses on an individual basis decreased $1.0 million from $1.8 million at December 31, 2023.
The allowance allocated to commercial real estate loans totaled $22.5 million, or 0.90% of total commercial real estate loans, at September 30, 2024, increasing $2.3 million, from $20.2 million, or 0.84% of total commercial real estate loans, at December 31, 2023. Modeled expected credit losses increased $0.7 million and qualitative factor adjustments decreased $0.1 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increased from $0.7 million at December 31, 2023, to $1.5 million at September 30, 2024. The commercial real estate portfolio does not include significant exposure to urban office properties.
The allowance allocated to construction and land development loans totaled $12.1 million, or 2.86% of total construction and land development loans, at September 30, 2024, increasing $7.9 million, from $4.2 million, or 0.92% of total constructions loans, at December 31, 2023. Specific allocations for construction loans that were evaluated for expected credit losses on an individual basis totaled $8.0 million and $0.0 million at September 30, 2024 and December 31, 2023, respectively. This represents the specific reserve on one large construction and land development loan recognized in the first quarter of 2024 provision for credit losses. Modeled expected credit losses decreased $0.4 million and qualitative factor adjustments related to construction loans increased $0.3 million.
The allowance allocated to consumer loans totaled $8.0 million, or 1.21% of total consumer loans, at September 30, 2024, compared to $3.8 million, or 0.40%, at December 31, 2023. Credit deterioration and servicing related issues with the LendingPoint portfolio, as previously discussed, resulted in an increase of the allowance of $5.0 million at September 30, 2024 compared to December 31, 2023. The Company's consumer portfolios benefit from credit enhancements provided by LendingPoint and Greensky. The Company calculated its expected loss estimate based on delinquent loans, as reported by LendingPoint, net of expected credit enhancements. The Company expects to recognize charge offs over the remaining life of this portfolio, and believes that it has properly reserved for expected losses based upon the data that is currently known and available. Specific allocations for consumer loans that were evaluated for expected credit losses on an individual basis decreased $0.1 million.

The allowance allocated to the lease portfolio totaled $13.7 million, or 3.29% of total commercial leases, at September 30, 2024, increasing $0.8 million, from $12.9 million, or 2.73% of total commercial leases at December 31, 2023. Modeled expected credit losses and specific allocation reserves increased $0.8 million and $0.4 million, respectively. Qualitative factor adjustments related to commercial leases decreased $0.1 million.
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The following table provides an analysis of the allowance for credit losses on loans, provision for credit losses on loans and net charge-offs for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Balance, beginning of period$92,183 $64,950 $68,502 $61,051 
Charge-offs:
Commercial2,491 3,249 7,869 5,289 
Commercial real estate32 2,316 728 4,606 
Construction and land development— 44 — 378 
Residential real estate159 95 194 180 
Consumer6,395 250 6,829 773 
Lease financing2,979 1,394 6,728 2,555 
Total charge-offs12,056 7,348 22,348 13,781 
Recoveries:
Commercial484 80 753 577 
Commercial real estate2 3,678 2,242 4,006 
Construction and land development2 — 3 32 
Residential real estate62 33 130 98 
Consumer44 53 194 226 
Lease financing83 55 328 278 
Total recoveries677 3,899 3,650 5,217 
Net charge-offs11,379 3,449 18,698 8,564 
Provision for credit losses on loans5,000 5,168 36,000 14,182 
Balance, end of period$85,804 $66,669 $85,804 $66,669 
Gross loans, end of period$5,748,819 $6,280,883 $5,748,819 $6,280,883 
Average total loans$5,783,408 $6,297,568 $5,903,216 $6,324,578 
Net charge-offs to average loans0.78 %0.22 %0.42 %0.18 %
Allowance for credit losses to total loans1.49 %1.06 %1.49 %1.06 %
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 when the collectability of a loan balance is unlikely. Recoveries on loans previously charged-off are added to the allowance.
Net charge-offs for the three months ended September 30, 2024 totaled $11.4 million, compared to $3.4 million for the same period one year ago. The Company recorded $6.2 million of charge-offs of consumer loans originated and serviced by LendingPoint. Net charge-offs of equipment financing loans and leases for the three months ended September 30, 2024 and 2023, totaled $4.9 million and $2.2 million, respectively, primarily due to continued weakness within the trucking and transportation sector.
Net charge-offs for the nine months ended September 30, 2024 totaled $18.7 million, compared to $8.6 million for the same period one year ago. Net charge-offs of equipment financing loans and leases totaled $12.1 million for the nine months ended September 30, 2024, compared to $4.9 million for the same period one year ago. The Company recorded $6.2 million of charge-offs of consumer loans originated and serviced by LendingPoint in the nine months ended September 30, 2024. The Company recognized a $2.0 million partial recovery in the second quarter of 2024 related to a third quarter of 2023 charge off.
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Nonperforming Loans. The following table sets forth our nonperforming assets by asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest. The balances of nonperforming loans reflect the net investment in these assets.
(dollars in thousands)September 30, 2024December 31, 2023
Nonperforming loans:
Commercial$16,273 $9,282 
Commercial real estate51,013 33,891 
Construction and land development26,555 39 
Residential real estate4,613 3,869 
Consumer3,902 137 
Lease financing12,200 9,133 
Total nonperforming loans114,556 56,351 
Other real estate owned and other repossessed assets12,215 11,350 
Nonperforming assets$126,771 $67,701 
Nonperforming loans to total loans1.99 %0.92 %
Nonperforming assets to total assets1.64 %0.86 %
Allowance for credit losses to nonperforming loans74.90 %121.56 %
Non-performing loans increased $58.2 million to $114.6 million at September 30, 2024, compared to $56.4 million at December 31, 2023. Five loans totaling $51.0 million account for the increase. Of these, three loans totaling $40.9 million are multi-family construction or multi-family projects. Nonperforming consumer loans increased to $3.9 million as $3.8 million of loans servicing by LendingPoint were transferred to nonaccrual status.
We did not recognize interest income on nonaccrual loans during the three months ended September 30, 2024 or 2023 while the loans were in nonaccrual status. Additional interest income that would have been recorded on nonaccrual loans had they been current in accordance with their original terms was $2.7 million and $6.3 million for the three and nine months ended September 30, 2024, respectively, and $0.8 million and $2.5 million for the three and nine months ended September 30, 2023, respectively.
Collateral Dependent Financial Assets
The following table presents the change in our non-performing loans for the nine months ended September 30, 2024:
(dollars in thousands)Nine months ended
September 30, 2024
Balance, beginning of period$56,351 
New nonperforming loans75,364 
Return to performing status(1,253)
Payments received(9,390)
Transfer to OREO and other repossessed assets(1,698)
Charge-offs(4,818)
Balance, end of period$114,556 
Investment Securities. Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk. The types and maturities of securities purchased are primarily based on our current and projected liquidity and interest rate sensitivity positions. In the periods presented, all investment securities of the Company are classified as available for sale and, therefore, the book value of investment securities is equal to the fair market value.
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The following table sets forth the book value and associated percentage of each category of investment securities at September 30, 2024 and December 31, 2023.
September 30, 2024December 31, 2023
(dollars in thousands)BalancePercentBalancePercent
Investment securities available for sale:                
U.S. Treasury securities$— — %$1,097 0.1 %
U.S. government sponsored entities and U.S. agency securities42,824 3.5 72,572 7.9 
Mortgage-backed securities - agency834,764 68.9 574,500 62.7 
Mortgage-backed securities - non-agency85,926 7.1 83,529 9.1 
State and municipal securities70,471 5.8 57,460 6.3 
Corporate securities87,962 7.3 99,172 10.9 
Other securities90,143 7.4 27,565 3.0 
Total investment securities, available for sale, at fair value$1,212,090 100.0 %$915,895 100.0 %
    
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The following table sets forth the book value, maturities and weighted average yields for our investment portfolio at September 30, 2024.
(dollars in thousands)BalancePercentWeighted average yield
Investment securities available for sale:            
U.S. government sponsored entities and U.S. agency securities:
Maturing within one year$— — %— %
Maturing in one to five years27,189 2.2 4.44 
Maturing in five to ten years15,635 1.3 5.92 
Maturing after ten years— — — 
Total U.S. government sponsored entities and U.S. agency securities$42,824 3.5 %4.98 %
Mortgage-backed securities - agency:
Maturing within one year$10,767 0.9 %6.08 %
Maturing in one to five years343,832 28.4 4.61 
Maturing in five to ten years268,200 22.1 4.24 
Maturing after ten years211,965 17.5 3.45 
Total mortgage-backed securities - agency$834,764 68.9 %4.21 %
Mortgage-backed securities - non-agency:
Maturing within one year$5,153 0.4 %5.43 %
Maturing in one to five years56,993 4.7 5.02 
Maturing in five to ten years— — — 
Maturing after ten years23,780 2.0 4.63 
Total mortgage-backed securities - non-agency$85,926 7.1 %4.94 %
State and municipal securities (1):
Maturing within one year$1,031 0.1 %3.17 %
Maturing in one to five years7,188 0.6 2.57 
Maturing in five to ten years26,383 2.1 2.35 
Maturing after ten years35,869 3.0 4.60 
Total state and municipal securities$70,471 5.8 %3.53 %
Corporate securities:
Maturing within one year$— — %— %
Maturing in one to five years40,022 3.3 6.01 
Maturing in five to ten years47,940 4.0 3.83 
Maturing after ten years— — — 
Total corporate securities$87,962 7.3 %4.82 %
Other securities:
Maturing within one year$293 — %6.22 %
Maturing in one to five years6,217 0.5 6.14 
Maturing in five to ten years26,934 2.2 6.76 
Maturing after ten years56,699 4.7 6.44 
Total other securities$90,143 7.4 %6.51 %
Total investment securities, available for sale$1,212,090 100.0 %4.47 %
(1)Weighted average yield for tax-exempt securities are presented on a tax-equivalent basis assuming a federal income tax rate of 21%.
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The table below presents the credit ratings for our investment securities classified as available for sale, at fair value, at September 30, 2024.
AmortizedFairAverage credit rating
(dollars in thousands)costValueAAAAA+/-A+/-BBB+/-<BBB-Not Rated
Investment securities available for sale:
U.S. government sponsored entities and U.S. agency securities$44,046 $42,824 $— $42,824 $— $— $— $— 
Mortgage-backed securities - agency897,052 834,764 — 834,764 — — — — 
Mortgage-backed securities - non-agency87,241 85,926 5,380 80,546 — — — — 
State and municipal securities74,816 70,471 6,804 56,924 1,205 130 — 5,408 
Corporate securities94,424 87,962 — — 15,584 58,441 6,508 7,429 
Other securities90,181 90,143 45,569 36,772 7,802 — — — 
Total investment securities, available for sale$1,287,760 $1,212,090 $57,753 $1,051,830 $24,591 $58,571 $6,508 $12,837 
Liabilities. At September 30, 2024, liabilities totaled $6.93 billion compared to $7.08 billion at December 31, 2023.
Deposits. We emphasize developing total client relationships with our customers in order to increase our retail and commercial core deposit bases, which are our primary funding sources. Our deposits consist of noninterest-bearing and interest-bearing demand, savings and time deposit accounts.
Total deposits decreased $52.7 million to $6.26 billion at September 30, 2024, as compared to December 31, 2023. Decreases in noninterest-bearing demand account, interest-bearing checking account, and savings account balances of $94.8 million, $121.9 million and $49.0 million, respectively, during this period, were partially offset by increases in money market account and time deposit account balances. Brokered time deposit account balances increased to $269.4 million at September 30, 2024 from $94.5 million at December 31, 2023, accounting for the increase in time deposit account balances. Deposit outflows were primarily related to certain larger commercial clients moving funds to the Company's wealth management business, in addition to seasonal outflows of public funds.
(dollars in thousands)September 30, 2024December 31, 2023
BalancePercentBalancePercent
Noninterest-bearing demand$1,050,617 16.8 %$1,145,395 18.1 %
Interest-bearing:
Checking2,389,970 38.1 2,511,840 39.8 
Money market1,187,139 19.0 1,135,629 18.0 
Savings510,260 8.2 559,267 8.9 
Time1,118,850 17.9 957,398 15.2 
Total deposits$6,256,836 100.0 %$6,309,529 100.0 %
The following table sets forth the maturity of uninsured time deposits as of September 30, 2024:
(dollars in thousands)Amount
Three months or less$50,405 
Three to six months19,631 
Six to 12 months 18,077 
After 12 months10,667 
Total$98,780 


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Capital Resources and Liquidity Management
Capital Resources. Shareholders’ equity is influenced primarily by earnings, dividends, issuances and redemptions of common and preferred stock and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on available-for-sale investment securities, fair value hedges and cash flow hedges.
Shareholders’ equity increased $26.4 million to $818.3 million at September 30, 2024 as compared to December 31, 2023. The change in shareholders’ equity was the result of the generation of net income of $39.1 million, offset by dividends to common shareholders of $20.3 million, dividends to preferred shareholders of $6.7 million, the repurchases of common stock of $5.5 million and decrease in accumulated other comprehensive losses of $16.1 million.
On December 5, 2023, the Company’s board of directors authorized a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2024. During the nine months ended September 30, 2024, the Company repurchased 228,266 shares of its common stock at a weighted average price of $23.93 under its stock repurchase program, with approximately $19.5 million of remaining repurchase authority.
Liquidity Management. Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.
Integral to our liquidity management is the administration of short-term borrowings. To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis.
Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction, which represents the amount of the Bank’s obligation. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. Investment securities with a carrying amount of $14.0 million and $20.9 million at September 30, 2024 and December 31, 2023, respectively, were pledged for securities sold under agreements to repurchase.
The table below presents our sources of liquidity as of September 30, 2024 and December 31, 2023:
(dollars in thousands)September 30, 2024December 31, 2023
Cash and cash equivalents$121,873 $135,061 
Unpledged securities532,835 346,843 
FHLB committed liquidity1,086,286 935,977 
FRB discount window availability552,777 699,896 
Total Estimated Liquidity$2,293,771 $2,117,777 
Conditional Funding Based on Market Conditions
Additional credit facility$433,000 $419,000 
Brokered CDs (additional capacity)$350,000 $500,000 
The Company is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. The Company’s main source of funding is dividends declared and paid to it by the Bank. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to the Company. Management believed at September 30, 2024, that these limitations will not impact our ability to meet our ongoing short-term cash obligations.
Regulatory Capital Requirements
We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by
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regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.
The Company adopted the five-year CECL transition option in 2020 provided for by the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC in March 2020. At the end of 2024 this transition will be complete.
At September 30, 2024, the Company and the Bank exceeded the regulatory minimums and met the regulatory definition of well-capitalized.
The following table presents the Company's and the Bank’s capital ratios and the minimum requirements at September 30, 2024:
RatioActual
Minimum
Regulatory
Requirements (1)
Well
Capitalized
Total risk-based capital ratio
Midland States Bancorp, Inc.13.98 %10.50 %N/A
Midland States Bank13.34 10.50 10.00 %
Tier 1 risk-based capital ratio
Midland States Bancorp, Inc.11.65 8.50 N/A
Midland States Bank12.09 8.50 8.00 
Common equity tier 1 risk-based capital ratio
Midland States Bancorp, Inc.9.00 7.00 N/A
Midland States Bank12.09 7.00 6.50 
Tier 1 leverage ratio
Midland States Bancorp, Inc.10.10 4.00 N/A
Midland States Bank10.47 4.00 5.00 
(1)Total risk-based capital ratio, Tier 1 risk-based capital ratio and Common equity tier 1 risk-based capital ratio include the capital conservation buffer of 2.5%.
Quantitative and Qualitative Disclosures About Market Risk
Market Risk. Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price risk from investments in securities.
Interest Rate Risk. Interest rate risk is the risk to earnings arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and SOFR (basis risk).
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment, funding and hedging 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.
Changes in market interest rates may result in changes in the fair market value of our financial instruments, cash flows, and net interest income. We seek to achieve a stable net interest income profile while managing volatility arising from shifts in market interest rates. Our Board of Directors’ Risk Policy and Compliance Committee oversees interest rate risk, as well as the establishment of risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income. The Committee meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits.
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An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.
Interest rate risk measurement is calculated and reported to the Risk Policy and Compliance Committee at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
We use NII at Risk to model interest rate risk utilizing various assumptions for assets, liabilities, and derivatives. NII at Risk uses net interest income simulation analysis which involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. The sensitivity of net interest income to changes in interest rates is measured using numerous interest rate scenarios including shocks, gradual ramps, curve flattening, curve steepening as well as forecasts of likely interest rates scenarios. Modeling the sensitivity of net interest earnings to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. To the extent that actual performance is different than what was assumed, actual net interest earnings sensitivity may be different than projected. We use a data warehouse to study interest rate risk at a transactional level and use various ad-hoc reports to continuously refine assumptions. Assumptions and methodologies regarding administered rate liabilities (e.g., savings accounts, money market accounts and interest-bearing checking accounts), balance trends, and repricing relationships reflect our best estimate of expected behavior and these assumptions are reviewed periodically.
The following table shows NII at Risk at the dates indicated:
Net interest income sensitivity (Shocks)
Immediate change in rates
(dollars in thousands)-200-100+100+200
September 30, 2024:            
Dollar change$3,024 $2,031 $(3,618)$(7,926)
Percent change1.4 %0.9 %(1.6)%(3.6)%
December 31, 2023:
Dollar change$539 $(293)$(1,424)$(3,162)
Percent change0.2 %(0.1)%(0.6)%(1.3)%
We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The NII at Risk results included in the table above reflect the analysis used quarterly by management. It models -200, −100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next twelve months. We were within board policy limits for all scenarios at September 30, 2024.
Tolerance levels for risk management require the continuing development of remedial plans to maintain residual risk within approved levels as we adjust the balance sheet. NII at Risk reported at September 30, 2024 projects that our earnings exhibit increasing profitability in a declining rate environment, consistent with our modeling at December 31, 2023. Throughout the course of 2023, the bank exhibited similar trends to the industry concerning its beta assumptions related to its non-maturity deposit portfolio. Coupled with a market shift to slowing rate increases or even rate cuts into 2024, the bank did start to position its investment strategy to protect against lower rates in the future. These two aspects are the primary drivers of moving to a virtually neutral position as measured in the +/- 100 basis point rate shocks.
Price Risk. Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from investment securities, derivative instruments, and equity investments.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The quantitative and qualitative disclosures about market risk are included under “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk”.
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ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. The Company’s management, including our President and
Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act)), as of the end of the period covered by this report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries is a party or of which any of their property is the subject. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business, we, like all banking organizations, are subject to various legal proceedings from time to time, including those referenced in "Note 11 - Commitments, Contingencies and Credit Risk" to our consolidated financial statements.
ITEM 1A– RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2023.
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ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the third quarter of 2024.
Period
Total number of shares purchased(1)
Average price paid per shareTotal number of shares purchased as part of publicly announced plans or programs
Approximate dollar value of shares that may yet be purchased under the plans or programs (2)
July 1 - 31, 202423,215 $22.55 23,113 $19,537,960 
August 1 - 31, 2024303 21.46 — 19,537,960 
September 1 - 30, 2024— — — 19,537,960 
Total23,518 $22.53 23,113 $19,537,960 
(1)Represents shares of the Company’s common stock repurchased under the employee stock purchase program and shares withheld to satisfy tax withholding obligations upon the vesting of awards of restricted stock.
(2)As previously disclosed, the board of directors of the Company approved a stock repurchase program on December 5, 2023, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2024. Stock repurchases under this programs may be made from time to time on the open market, in privately negotiated transactions, or in any manner that complies with applicable securities laws, at the discretion of the Company. The timing of purchases and the number of shares repurchased under the programs are dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market condition. The repurchase program may be suspended or discontinued at any time without notice. As of September 30, 2024, 228,266 shares of the Company’s common stock have been repurchased under the program for an aggregate purchase price of $5.5 million.
ITEM 5 – OTHER INFORMATION
During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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ITEM 6 – EXHIBITS
Exhibit No.Description
31.1
31.2
32.1
32.2
101
Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements – filed herewith.
104
The cover page from Midland States Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended September 30, 2024 formatted in inline XBRL and contained in Exhibit 101.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Midland States Bancorp, Inc.
Date: November 6, 2024
By:/s/Jeffrey G. Ludwig
Jeffrey G. Ludwig
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 6, 2024
By:/s/Eric T. Lemke
Eric T. Lemke
Chief Financial Officer
(Principal Financial Officer)

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Document

Exhibit 31.1
 
CERTIFICATIONS REQUIRED BY
RULE 13a-14(a) OR RULE 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
 
I, Jeffrey G.  Ludwig, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Midland States Bancorp, Inc. (the “Registrant”);
2.Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3.Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4.The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
d)Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
 
 Midland States Bancorp, Inc.
    
Dated as of: November 6, 2024
By:/s/Jeffrey G. Ludwig
   Jeffrey G. Ludwig
   President and Chief Executive Officer
   (Principal Executive Officer)

Document

Exhibit 31.2
 
CERTIFICATIONS REQUIRED BY
RULE 13a-14(a) OR RULE 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
 
I, Eric T. Lemke, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Midland States Bancorp, Inc. (the “Registrant”);
2.Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3.Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4.The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: 
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; 
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 
c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and 
d)Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and 
5.The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): 
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
 
 Midland States Bancorp, Inc.
    
Dated as of: November 6, 2024
By:/s/Eric T. Lemke
   Eric T. Lemke
   Chief Financial Officer
   (Principal Financial Officer)

Document

Exhibit 32.1
 
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Jeffrey G. Ludwig, President and Chief Executive Officer of Midland States Bancorp, Inc. (the “Company”) certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)The Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2024 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 Midland States Bancorp, Inc.
    
Dated as of: November 6, 2024
By:/s/Jeffrey G. Ludwig
   Jeffrey G. Ludwig
   President and Chief Executive Officer
   (Principal Executive Officer)

Document

Exhibit 32.2
 
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Eric T. Lemke, Chief Financial Officer of Midland States Bancorp, Inc. (the “Company”) certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)The Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2024 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 Midland States Bancorp, Inc.
    
Dated as of: November 6, 2024
By:/s/Eric T. Lemke
   Eric T. Lemke
   Chief Financial Officer
   (Principal Financial Officer)