MSBI 10-K & 10-Q changes, risk factors and insider trading

Our business and operations are sensitive to business and economic conditions in the United States generally and the state of Illinois and the St. Louis metropolitan area in particular. If the national, regional and local economies experience worsening economic conditions, including as a result of recent changes in U.S. trade policy and U.S. and global tariff rates, our growth and profitability could be harmed. Weak economic conditions are characterized by, among other indicators, elevated levels of unemployment, fluctuations in debt and equity capital markets, increased delinquencies on mortgage, commercial and consumer loans, residential and commercial real estate price declines, and lower home sales and commercial activity. All of these factors are generally detrimental to our business. Our business is significantly affected by monetary and other regulatory policies of the U.S. federal government, its agencies and government-sponsored entities. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and growth prospects.

As of December 31, 2024,2025, our allowance for credit losses on loans as a percentage of total loans was 2.15%1.59% and as a percentage of total nonperforming loans was 73.69%.105.71%. Although management believed, as of such date, that the allowance for credit losses on loans was adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses on loans in the future to further supplement the allowance for credit losses on loans, either due to management’s decision to do so or because our banking regulators require us to do so. Our bank regulatory agencies will periodica llyperiodically review our allowance for credit losses on loans and the value attributed to nonaccrual loans or to real estate acquired through foreclosure and may require us to adjust our determination of the value for these items. These adjustments may adversely affect our business, financial condition and results of operations.

Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or other real estate owned, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs and adversely affecting our efficiency ratio. When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming loans and other real estate owned also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks. The resolution of nonperforming assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities. If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.

Our success is dependent, to a large degree, upon the continued service and skills of our existingcurrent executive management team, particularly Mr. Jeffrey G. Ludwig, our President and Chief Executive Officer, and Mr. Eric T. Lemke, our Chief Financial Officer.

Our business and growth strategies are built primarily upon our ability to retain employees with experience and business relationships within their respective market areas. The loss of Mr. Ludwig, Mr. Lemke or any of our other key personnel could have an adverse impact on our business and growth because of their skills, years of industry experience, knowledge of our market areas and the difficulty of finding qualified replacement personnel, particularly in light of the fact that we are not headquartered in a major metropolitan area. In addition, although we have non-competition agreements with each of our executive officers and with several others of our senior personnel, we do not have any such agreements with other employees who are important to our business, and in any event the enforceability of non-competition agreements varies across the states in which we do business. While our mortgage originators, loan officers and wealth management professionals are generally subject to non-solicitation provisions as part of their employment, our ability to enforce such agreements may not fully mitigate the injury to our business from the breach of such agreements, as such employees could leave us and immediately begin soliciting our customers. The departure of any of our personnel who are not subject to enforceable non-competition agreements could have a material adverse impact on our business, results of operations and growth prospects.

When we sell or securitize mortgage loans in the ordinary course of business, we are required to make certain representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated. Under these agreements, we may be required to repurchase mortgage loans if we have breached any of these representations or warranties, in which case we may record a loss. In addition, if repurchase and indemnity demands increase on loans that we sell from our portfolios, our liquidity, results of operations and financial condition could be adversely affected. In addition, we have sold residential mortgage servicing rights to third parties pursuant to customary purchase agreements, under which we could be required to indemnify the purchasers for losses resulting from pre-closing servicing errors or breaches of our representations and warranties, which could affect our results of operations.

Our operations consist of offering banking and mortgage services, and we also offer trust,trust and wealth managementmanagement, and leasingother services to generate noninterest income. Many of our competitors offer the same, or a wider variety of, banking and related financial services within our market areas. These competitors include national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including savings and loan institutions, finance companies, private credit funds, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In addition, a number of out-of-state financial intermediaries have opened production offices or otherwise solicit deposits in our market areas. Additionally, we face growing competition from so-called “online businesses” with few or no physical locations, including online banks, lenders and consumer and commercial lending platforms, and FinTech companies, as well as automated retirement and investment service providers. Increased competition in our markets may result in reduced loans, depositsdeposits, and commissions and brokers’ fees, as well as reduced net interest margin and profitability. Ultimately, we may not be able to compete successfully against current and future competitors. If we are unable to attract and retain banking, mortgage, leasing and wealth management customers, we may be unable to continue to grow our business and our financial condition and results of operations may be adversely affected.

DuringBeginning in 2022, we invested in the development of a BaaS platform that will enable us to enter into partnerships with financial technology companies through which we will provide banking services to the customers of these companies. We believe that these partnerships will contribute to loan production, deposit gathering, and fee income generation in future years. We intend to be very selective in our approach to developing BaaS partnerships to ensure that any partners that are added meet our high standards for risk management. However, we are subject to compliance and regulatory risk if partners do not follow our servicing policies, lending laws, and regulations. Our bank regulators may hold us responsible for the activities of our BaaS partners with respect to the marketing or administration of their programs, which may result in increased compliance costs for us or potentially compliance violations as a result of BaaS partner activities. In addition, we may not find enough suitable partnerships for the BaaS platform to have a meaningful impact on our overall financial performance.

WeIf havewe identifiedfail to design, implement and maintain effective internal control over financial reporting or fail to remediate any future material weaknessesweakness in our internal control over financial reporting, whichwe materialmay weaknessesbe could adversely affect our abilityunable to report our financial results of operations and financial condition accurately and in a timely manner.accurately.

AsOur describedmanagement elsewhereis responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in thisaccordance with GAAP. As disclosed in our Annual Report on Form 10-K,10-K ourfor the year ended December 31, 2024, management previously identified certain material weaknesses in our internal control over the risk assessment process for identifying whether third-party loan origination and servicing contracts present unique accounting considerations that should be further evaluated and the financial reporting related to our accounting and financial reporting of third partythird-party lending and servicing arrangements. See Item 9A — Controls and Procedures. As a result of these material weaknesses, our independent registered public accounting firm concluded that our internal control over financial reporting was not effective as of December 31, 2024 and December 31, 2023. In addition, we restated our consolidated financial statements as of and for the yearsyear ended December 31, 20232023, and for the year ended December 31, 2022, andas well as the interim quarterly periods in 2024 and 2023 Any failure to maintain adequate internal control over financial reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. We can give no assurance that our plans to remediate these material weaknesses will be successful or prevent any future material weaknesses, or that further restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, our controls and procedures may not be adequate to prevent or identify irregularities or errors, which could affect the fair presentation of our consolidated financial statements.2023.

For example, during the first quarter of 2025, Management determined that a triggering event had occurred at itsour Banking reporting unit as a result of further deteriorated credit quality coupled with the trends in the Company's stock price. The Company performed a quantitative impairment test on its Banking reporting unit as of March 31, 2025, and engaged a third-party service provider to assist Management with the determination of the fair value. The resulting calculation indicated that the carrying amount exceeded the fair value of the Company's Banking reporting unit. As a result of the assessment, the Company expects to recognizerecognized goodwill impairment expense between $135.0 million andof $154.0 million in the first quarter of 2025. This non-cash impairment expense did not impact our regulatory capital ratios, tangible common equity ratio nor our liquidity position, and will not result in future cash expenditures. There can be no assurance that our future evaluations of our remaining existing goodwill or goodwill we may acquire in the future will not result in additional findings of impairment and related charges, which could adversely affect our business, financial condition and results of operations.

Many aspects of our business and operations involve the risk of legal liability, and in some cases we or our subsidiaries have been named or threatened to be named as defendants in various lawsuits arising from our business activities. For example, some of the services we provide, such as wealth management services, require us to act as fiduciaries for our customers and others. From time to time, third parties make claims and take legal action against us pertaining to the performance of our fiduciary responsibilities. In addition, companies in our industry are frequently the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings. We believe we face an elevated risk of the foregoing proceedings in connection with the matters leading us to restate our prior years' financial statements and in connection with LendingPoint's 2023 system conversion and any potential effects on certain loans, as discussed in this Annual Report on Form 10-K.

The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions on the way in which we conduct our business, or reputational harm. We are not able to estimate the likelihood of such developments or the likely magnitude or significance of any liability or other outcomes of any such proceedings.

At this time, it is difficult to predict the legislative and regulatory changes that will result from having a new President of the United States. The newfederal administration and Congressgovernment may cause broad economic changes due to changes in governing ideology and governing style, included as a result of implementation of proposed policies regarding tariffs, mass deportations and tax regulations. New appointments to the Board of Governors of the Federal Reserve could affect monetary policy and interest rates, and changes in fiscal policy could affect broader patterns of trade and economic growth. Future legislation, regulation, and government policy could affect the banking industry as a whole, including our business and results of operations, in ways that are difficult to predict. In addition, our results of operations also could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies.

In addition to being affected by general economic conditions, our earnings, capital ratios and growth are affected by the policies of the Federal Reserve. The Federal Reserve reduced the federal funds rate several times insince late 2024 based upon improving economic conditions. These recent reductions have resulted in decreases in asset yields and funding costs. Future rate reductions of the Federal Reserve could continue to have positive effects on our business, by increasing loan demand, decreasing our costs of deposits and other sources of funding, improving the value of our securities portfolio, and increasing the earnings of our wealth management business. Lower interest rates can also positively affect our customers’ businesses and financial condition, and the value of collateral securing loans in our portfolio.

Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. For example, fixed-rate securities acquired by us are generally subject to decreases in market value when interest rates rise. Additional factors include, but are not limited to, rating agency downgrades of the securities or our own analysis of the value of the security, defaults by the issuer or individual mortgagors with respect to the underlying securities, and continued instability in the credit markets. WeAny of the foregoing factors could cause an impairment in future periods and result in realized losses. The process for determining potential impairment requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may berecognize requiredrealized toand/or recordunrealized additional credit reserve charges if our investment securities suffer a declinelosses in fairfuture value that has resulted from credit losses or other factors. If we determine that a significant reserve is needed, we would be required to charge against earnings the credit-related portion,periods, which could have a materialan adverse effect on our financial condition and results of operations in the periods in which the write-offs occur. In addition, we may determine to sell securities in our available-for-sale investment securities portfolio, and any such sale could cause us to realize currently unrealized losses that resulted from the increases in the prevailing interest rates.operations.

Mortgage production, especially refinancing activity, is adversely affected by high or rising interest rate environments. Though the Federal Reserve reduced the federal funds rate several times insince late 2024, should interest rates remain elevated, it could adversely affect our mortgage production levels. Because we sell a substantial portion of the mortgage loans we originate, the revenue and profitability of our mortgage banking business also depends in large part on our ability to aggregate a high volume of loans and sell them in the secondary market at a gain. Thus, in addition to our dependence on the interest rate environment, we are dependent upon (i) the existence of an active secondary market and (ii) our ability to profitably sell loans or securities into that market. To the extent we are not able to achieve a high level of mortgage production, our revenue and profitability will depend upon our ability to reduce our costs commensurate with the reduction of revenue from our mortgage operations.

We face significant capital and other regulatory requirements as a financial institution. The Company, on a consolidated basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity. Importantly, regulatory capital requirements could increase from current levels, which could require us to raise additional capital or contract our operations. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. In addition, as a result of the delayed filing of our Annual Report on Form 10-K for the year ended December 31, 2024,Accordingly, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until we have timely filed all periodic reports required under the Exchange Act for at least 12 calendar months, which could negatively affect our ability to raise any additional capital in a timely and efficient manner. We cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to maintain capital to meet regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected.

Midland States Bancorp, Inc. is a diversified financial holding company headquartered in Effingham, Illinois. Its wholly-ownedwholly 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, and trust and investment management services and insurance and financial planning services. As of December 31, 2024,2025, we had assets of $7.51$6.51 billion, deposits of $6.20$5.42 billion and shareholders’ equity of $710.8$565.5 million.

Our principal lines of business include community banking and wealth management. Our community banking business primarily consists of commercial and retail lending and deposit taking. Our wealth management group provides a comprehensive suite of trust and wealth management products and services,services and had $4.15$4.48 billion of assets under administration as of December 31, 2024.2025.

Additional Factors Affecting Comparability

Redemption of Subordinated Notes. InOn 2024,September the30, Company2025, we redeemed $16.0 millionall of our outstanding subordinatedFixed-to-Floating notes.Rate Subordinated Notes due September 30, 2029, with an interest rate of 7.91%, which had an aggregate principal amount of $50.8 million. The weighted averageaggregate redemption price was 98.5%100% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest. The Company recorded net gains totaling $0.2 million on these redemptions.

In 2023,2024, the Companywe redeemed $6.6$16.0 million of outstanding subordinated notes. The weighted average redemption price was 89.2%98.5% of the aggregate principal amount of the subordinated notes, plus accrued and unpaid interest. The CompanyWe recorded net gains totaling $0.7$0.2 million on these redemptions.

During the year ended December 31, 2024,2025, we generated a net loss of $124.3 million, or diluted loss per common share of $6.12, compared to net income of $38.0 million, or diluted earnings per common share of $1.32, compared to net income of $61.2 million, or diluted earnings per common share of $2.33, in the year ended December 31, 2023.2024. The results in 2025 included a $21.4 million loss on the sale of substantially all of our equipment finance portfolio during the fourth quarter of 2025. Earnings for the year ended December 31, 2024,2025 compared to the year ended December 31, 2023,2024 decreased primarily due toincluded a $12.5$0.5 million decreaseincrease in net interest income, a $37.8$60.5 million increasedecrease in provision for credit losses andlosses, a $14.8$50.6 million decrease in noninterest income, a $172.1 million increase in noninterest expense.expense These(primarily results were partially offset byas a $24.0result of $154.0 million of goodwill impairment in the first quarter of 2025) and a $0.6 million increase in noninterest income and an $18.0 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 earninginterest-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 20242025 and 2023.2024.

InAt 2024,its December 2025 meeting, the Federal ReserveOpen Market Committee (FOMC) cut its benchmark interest rate three times by a total of 1.000.25 percentage point,points, marking the firstthird reductionssuch reduction in four2025. years.Following Thesethe rate cuts loweredcut, the federal fundsborrowing rate intowas in a range ofbetween 4.25% to 4.50%, back to levels in December 2022.3.50%-3.75%.

In 2024,2025, net interest income, on a tax-equivalent basis, decreasedtotaled $12.5 million to $237.2$237.7 million with a tax-equivalent net interest margin of 3.35%3.64% compared to net interest income, on a tax-equivalent basis, of $249.6$237.2 million and a tax-equivalent net interest margin of 3.43%3.35% in 2023.2024.

Interest Income. For the year ended December 31, 2024,2025, interest income, on a tax-equivalent basis, increaseddecreased $9.0$38.2 million to $426.9$388.8 million as compared to the priorsame year.period in 2024, primarily due to a decline in earning assets. The yield on earning assets increaseddecreased 28seven basis points to 6.03%5.96% from 5.75%, primarily due to the impact of increasing market interest rates.6.03%.

Average earning assets decreased to $6.53 billion in 2025 from $7.08 billion in 2024 from $7.27 billion in 2023.2024. Average loans decreased $452.0$891.3 million,million. whichThis decrease was partially offset by an increaseincreases in investment securities and loans held for sale of $261.6$253.1 million.million and $89.6 million, respectively.

Interest Expense. Interest expense increaseddecreased $21.5$38.7 million to $189.8$151.1 million in 20242025 compared to 2023.2024. The cost of interest-bearing liabilities increaseddecreased to 3.31%2.85% compared to 2.87%3.31% for the prior year primarily due to the increasedecreases in depositinterest andrates short-termon borrowingdeposits. costsInterest expense on deposits was $124.3 million in 2025 compared to $160.7 million in 2024, as a result of the rate increases previouslycuts enacted by the Federal Reserve.Reserve Bank beginning in late 2024.

Interest expense on deposits increased $23.7 million to $160.7 million in 2024 compared to 2023, primarily due to increases in interest rates on deposits. Average balances of interest-bearing deposit accounts decreased $73.9$402.7 million, or 1.4%,7.79%, to $5.17$4.77 billion for 20242025 compared to the same period one year earlier. DecreasesServicing deposits decreased $433.7 million to $665.3 million due to the loss of a customer in interestJuly checking2025. andIn savings account balances of $158.4 million and $79.1 million, respectively, were partially offset by increases in time andaddition, brokered time deposits ofdecreased $31.8$76.5 million and $131.8 million, respectively.million.

Provision for Credit Losses. The Company's provision for credit losses wason $120.3loans totaled $60.5 million and $82.6$119.3 million in 20242025 and 2023,2024, respectively. InThe 2024,Company charged off $29.8 million of the provisionsallowance for credit losses onrelated loansto its equipment finance portfolio in connection with the loan and onlease unfundedsale commitmentsduring werethe $119.3fourth millionquarter of 2025. The provision for credit losses in 2025 was driven by the replenishment of reserve balances following higher charge offs and $1.1a million,modest respectively.reserve Asbuild previouslyrelated disclosed,to loan growth in the community banking portfolio during the fourth quarter of 2025. The Company recognized charge-offs in its specialty finance and equipment financing units of $25.3 million and $28.8 million, respectively in 2024. These charge-offs, recognized to reduce future credit risk, resulted in the increase in provision expense in 2024. In addition, the Company recognized $0.7 million recapture of credit losses related to unfunded commitments in 2025 compared to provision expense of $1.1 million in 2024.

Wealth management revenue. Wealth management revenue increased $3.1$2.3 million, or 12.2%8.09%, forin 2024,2025 as compared to 2023.2024, driven by the growth in assets under management. Assets under administration increased 7.85% to $4.48 billion at December 31, 2025 from $4.15 billion at December 31, 2024 from $3.73 billion at December 31, 2023, primarily due to improved sales activity and an increase in market performance.2024.

Other noninterest income. Other income decreased $5.7$3.6 million for 2024,the year ended December 31, 2025, as compared to 2023.the Severalsame one-time transactions were recognizedperiod in other2024. noninterestThe incomeCompany in 2023, includingrecognized incremental servicing revenues of $2.2 million and $1.6 million related to our commercial FHA servicing portfolio and the GreenSky portfolio,portfolio respectively.of In$0.3 addition,million in the Company2025 recognizedcompared ato $1.1$3.7 million one-timein gain from the sale of Visa B stock, a gain of $0.7 million on the redemption of subordinated debt and a gain of $0.8 million on the sale of OREO.2024.

DataMarketing processing fees.expense. The $1.9 million increase in datamarketing processing feesexpense for the year ended December 31, 2025, as compared to 2024, was primarily the result of ourincreased continuingbrand investmentsmarketing inand technologyprogram expenses related to betterdeposit serveaccount our growing customer base and increased transaction volumes.acquisition.

Loan servicing fees. Loan servicing fees expense represents servicing fees paid to third parties associated with our third party lending programs. ServicingThe decline in servicing fees inwas 2024a result of loan payoffs and 2023a werecessation $12.9in millionloans originated through the GreenSky and $19.2LendingPoint million, respectively, as these loan programs continued to pay down.programs.

Other real estate owned. The Company recorded impairment expense of $4.9 million in 2024,2024 related to a single assisted living facility. This asset was sold in 2025.

Income Tax Expense. The Company recognized income tax expense of $9.4 million in 2025 compared to $8.9 million in 2024 compared to $26.8 million in 2023.2024. Effective tax rates for 20242025 and 20232024 were 18.9%24.1% and 30.5%,18.9%, respectively. IncomeThe effective tax expenserate calculation for 2023the includedyear ended December 31, 2025, excludes the goodwill impairment charge of $154.0 million, as this item is not deductible for tax charges of $4.5 million associated with the surrender of certain company-owned life insurance policies, as previously discussed.purposes.

Commercial loans. We provide a mix of variable and fixed rate commercial loans. The loans are typically made to small-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.equipment, of which we sold substantially all of our equipment finance portfolio during the fourth quarter of 2025.

Loans secured by office space totaled $146.3$140.1 million and $153.8$146.3 million at December 31, 20242025 and December 31, 2023,2024, respectively, are primarily located in suburban locations in Illinois and Missouri.

Lease financing. Our equipment leasing business provides financing leases to varying types of businesses nationwide for purchases of business equipment and software. The financing is secured by a first priority interest in the financed asset and generally requires monthly payments. The Company sold substantially all of our equipment finance portfolio during the fourth quarter of 2025.

The following tables present our outstanding loans by business sector at December 31, 20242025 and 2023December 31, 2024:

The following is Management's discussion and analysis ofexplains certainthe significant factors which have affectedaffecting the Company's financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of MarchJune 31,30, 2026, as compared to December 31, 2025, and unaudited consolidated operating results for the three and six months ended MarchJune 31,30, 2026 and 2025. This disclosurediscussion should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes appearingincluded elsewherein hereinthis Form 10-Q and the audited financial statements and accompanying notes provided in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 2, 2026.

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; the impact of federal trade policy, inflation, deposit volatility and potential regulatory developments; the performance of our loan portfolio and our ability to manage credit risk; changes in the financial markets; the effects of armed conflict, including the scope and duration of disruptions in global energy markets relating to war in Iranthe Middle East; changes in the business environment resulting from the adoption of artificial intelligence, including fraud and cybersecurity risk; operational risks, including with respect to fraud and information technology; 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. and state 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,” "should," “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.

Each factor listed below affects the comparability of our results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025, and our financial condition as of MarchJune 31,30, 2026 and December 31, 2025, and may affect the comparability of financial information we report in future fiscal periods.

Overview. The following table sets forth condensed income statement information of the Company for the three and six months ended MarchJune 31,30, 2026 and 2025:

DuringNet income for the threesecond monthsquarter endedof March2026 31,was 2026,$19.9 wemillion, generatedor $0.82 per diluted common share, compared with net income of $18.5$12.0 million, or diluted earnings$0.44 per common share of $0.74, compared to a net loss of $141.0 million, or diluted loss per common share of $6.58,share, in the three months ended March 31, 2025. Earnings for the firstsecond quarter of 20262025. comparedThe toincrease the first quarter of 2025 increased primarily due toreflected a $152.6$0.9 million decreaseincrease in noninterestnet expenseinterest (which included the prior year goodwill impairment charge),income, a $5.8$10.6 million decrease in provision for credit losseslosses, and a $4.4$0.2 million increase in noninterest income. These resultsbenefits were partially offset by a $0.9$0.8 million decreaseincrease in netnoninterest interest incomeexpense, and a $2.5$3.1 million increase in income tax expense.

DuringFor the threesecond monthsquarter ended March 31,of 2026, net interest income, on a tax-equivalent basis, decreasedincreased $0.8 million to $57.6$59.8 millionmillion, compared to $58.5 million for the three months ended March 31, 2025. Theand tax-equivalent net interest margin increased 42 basis points to 3.91% for the first quarter of 20263.98% compared to 3.49% in the firstsecond quarter of 2025.

Average Balance Sheet, Interest and Yield/Rate Analysis. The following table presents average balance sheet information,balances, interest income,income interestand expense and the corresponding average yields earned and rates paid for the three and six months ended MarchJune 31,30, 2026 and 2025. The averageAverage 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.

(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 and $0.3 million for both the three months ended MarchJune 31,30, 2026 and 2025.2025, respectively.

Interest Income. For the three months ended March 31, 2026, interestInterest income, on a tax-equivalent basis, decreased $13.3$9.8 million to $86.2$88.4 million asfor the second quarter of 2026 compared to the same period in 2025, primarily due to a decline in earningaverage assetsinterest-earning as described below.assets. The yield on earninginterest-earning assets decreased ninefive basis points to 5.85%5.88% from 5.94%.5.93%.

Average earninginterest-earning assets decreased $609.0 million to $5.97$6.03 billion in the firstsecond quarter of 2026 fromcompared $6.80 billion into the same quarterperiod ofin 2025. AverageA loansdecrease andin average loans heldof for sale decreased $803.1$855.4 million and $319.5 million, respectively. These decreases werewas partially offset by an increase in average investment securities of $280.5$250.3 million.

Average loans decreased $803.1$855.4 million in the firstsecond quarter of 2026 compared to the same quarterperiod ofin 2025. During the fourth quarter of 2025, the Company sold substantially all of its equipment finance portfolio. As a result, equipment finance loan and lease average balances decreased $728.7$685.1 million (to $55.4$47.6 million) forin the threesecond months ended March 31, 2026 compared to the same periodquarter of 2025.2026. Proceeds from the sale of substantially all of the portfolio were used to purchase investment securities and reduce higher-cost funding for the Company.

The $326.3$184.7 million of average loans held for sale in the first quartersix months of 2025 included $320.9$178.0 million of GreenSky consumer loans. The Company completed the sale of this portfolio in the second quarter of 2025.

Interest Expense. Interest expense decreased $12.5$10.6 million to $28.6 million for the threesecond monthsquarter ended March 31,of 2026 compared to the same period in 2025. The cost of interest-bearing liabilities decreased to 2.41%2.35% forfrom the first quarter of 2026, compared to 2.99% for the first quarter of 20252.91% due to a decrease in both the rates paid on deposits and a decrease in average balances.

Interest expense on deposits decreased $10.4$7.8 million to $24.2$24.5 million for the threesecond monthsquarter ended March 31,of 2026 compared to $34.6 million in the same quarterperiod ofin 2025, driven primarily by the rate cuts enacted by the Federal Reserve Bank beginning in late 2024.2024 and a decrease in average balances.

Average balances of interest-bearing deposit accounts decreased $643.1$332.9 million, or 12.7%,million to $4.43$4.51 billion forin the threesecond monthsquarter ended March 31,of 2026 compared to the same period onein year earlier.2025. Proceeds from the sales of substantially all of our equipment financing portfolio and non-core consumer loan portfolios in 2025 were used to reduce higher-cost deposit funding for the Company, including servicing deposits and brokered deposits.

Interest expense on subordinated debt decreased $1.0 million forin the threesecond monthsquarter endedof March 31, 2026, compared to the prior year, due to a decrease in average balances. The average balance decreased $50.7 million for the three months ended March 31, 2026,2026 compared to the same period in 2025, driven primarily by a decrease in average balances of $50.7 million, due to the redemption of $50.8 million of debt as ofin September 30, 2025.

Provision for Credit Losses. The Company's provision for credit losses totaled $5.0$6.8 million and $10.9$17.4 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. For the six months ended June 30, 2026 and 2025, the Company recorded provision expense of $11.8 million and $28.2 million, respectively. Provision expense for the firstthree quarterand ofsix months ended June 30, 2026 included $0.4 million recapture of provision for credit losses on unfunded commitments.commitments of $0.3 million and $0.7 million, respectively. The decrease in the provision for credit losses for the three and six months ended MarchJune 31,30, 20262026, compared to the same periodperiods in 20252025, was due in part to the sale of the equipment finance portfolio that occurred in late 2025, and the Company's continued efforts to remediate nonperforming loans and improve credit underwriting.

The provision for credit losses on loans recognized during the three and six months ended MarchJune 31,30, 2026 was made at a level deemed necessary by Management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by Management, the results of which are used to determine provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.

Noninterest Income. The following table presents the major components of our noninterest income for the three and six months ended MarchJune 31,30, 2026 and 2025:

Wealth management revenue. Wealth management revenue increased $0.9$1.4 million, or 12.2%,18.8%, and $2.3 million, or 15.5%, for the three and six months ended MarchJune 31,30, 20262026, asrespectively, compared to the same periodperiods in 2025, driven by growth in assets under administration. Assets under administration increased 9.1%14.4% to $4.47$4.78 billion at MarchJune 31,30, 2026 from $4.10$4.18 billion at MarchJune 31,30, 2025.

The Company recognized $3.4$3.1 million and $6.4 million of credit enhancement income during the three and six months ended MarchJune 31,30, 2026, respectively, which correlated to a similar amount of provision for credit losses as a result of the new arrangement entered into at December 31, 2025.

Other noninterest income. Other income increaseddecreased $1.1$0.6 million for the three months ended MarchJune 31,30, 2026, as compared to the same period in 2025.2025, Indriven 2026, the Company recognized $2.1 million in gains from the sale of mortgage servicing rights and $0.6 million in servicing fees related to GreenSky consumer loans, which were sold in the second quarter of 2025. These gains were partially offsetprimarily by $1.7 million of losses in our limited partnership investments and the elimination of operating lease revenue due to the sale of our equipment finance portfolio in the fourth quarter of 2025. Operating lease revenue totaled $0.8$0.5 million in the firstsecond quarter of 2025.

Noninterest Expense. The following table sets forth the major components of noninterest expense for the three and six months ended MarchJune 31,30, 2026 and 2025:

Salaries and employee benefits. For the three and six months ended MarchJune 31,30, 2026, salaries and employee benefits expense decreasedincreased $0.3$1.7 million asand $1.4 million, respectively, compared to the same periodperiods in 2025.2025, Theprimarily Companydue incurredto severanceincreased expensevariable ofcompensation $0.4expense, millionincluding annual bonuses, and $1.4 million for the three months ended March 31, 2026 and 2025, respectively. In addition, the decrease was partially offset by increased medical insurance expense. These increases were partially offset by lower severance expense in both periods compared to the same periods in 2025.

FDIC insurance expense. The decrease in FDIC insurance expense for the three and six months ended MarchJune 31,30, 2026, as compared to the same periodperiods ofin 2025 was due to a lower assessment base in both the second quarter and first quartersix months of 2026, a shift in loan mix due to the sale of the equipment finance and non-core loan portfolios in 2025, and thea decline in nonperforming loans.

Professional services expense. For the three and six months ended MarchJune 31,30, 2026, professional services expense decreased $0.5$1.1 million asand $1.6 million, respectively, compared to the same periodperiods in 2025. The Company incurred additional audit and consulting expenses in 2025 as a result of the restatements of prior years' financial statements and as a result of contractual changes in the Company's third-party lending and servicing arrangements.

Loan expense. Effective December 31, 2025, the Company modified its third-party lending and servicing arrangements with its sole partner, whereby the Company pays credit insurance to the program sponsor in exchange for the sponsor to reimburse the Company for incurred loan losses. Incurred losses are recognized as loans are charged-off through the allowance for credit losses. Reimbursements of incurred losses are recognized as a reduction of our credit enhancement asset. Credit insurance expense totaled $2.2$2.5 million inand $4.7 million for the firstthree quarterand ofsix 2026.months ended June 30, 2026, respectively.

Income Tax Expense. Income tax expense was $5.6$5.9 million and $11.5 million for the three and six months ended MarchJune 31,30, 2026, asrespectively, compared to $3.2$2.8 million and $6.0 million for the threesame monthsperiods ended March 31,in 2025. The resulting effectiveEffective tax rates were 23.4%22.9% and 19.6%23.1% for the three and six months ended MarchJune 31,30, 20262026, respectively, compared to 19.1% and 2025,19.4% respectively.for the same periods in 2025. The effective tax rate calculation for the threesix months ended MarchJune 31,30, 2025, excludes the goodwill impairment charge of $154.0 million, as this item is not deductible for tax purposes.

Assets. Total assets were $6.55$6.70 billion at MarchJune 31,30, 2026, as compared to $6.51 billion at December 31, 2025.

Lease financing. Our equipment leasing business provideshistorically provided 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. As previously disclosed, we ceased originating new equipment finance loans and leases effective as of September 30, 2025.

The following table presents the balance and associated percentage of each major category in our loan portfolio at MarchJune 31,30, 2026 and December 31, 2025:

Total gross loans decreased $13.4$108.3 million, or 0.3%,2.5%, to $4.34$4.24 billion at MarchJune 31,30, 2026, compared to December 31, 2025. The loan portfolio mix remained relatively stable by category during the first quartersix months of 2026.2026, while continuing to shift toward community bank relationships as anticipated runoff occurred in the specialty finance and non-core portfolios.

The following tables present our outstanding loans by business sector at MarchJune 31,30, 2026 and December 31, 2025. The Company's loan portfolio is assigned to the following internal business sectors:

•Specialty finance provides bridge loan financing for commercial real estate projects, primarily multi-family and healthcare. These projects can include construction and short term financing in anticipation of obtaining permanent secondary market financing. The loans are typically outside of the Company’s primary market areas. The Company ceased originations of new construction loans in the fourth quarter of 2024.

•Non-core and other includes our third-party origination and servicing programs, our remaining equipment finance portfolio of loans and leases originated to varying types of businesses throughout the United States for purchases of business equipment and software and capital market credits, including loans to finance the sale of the GreenSky portfolio.

CommunityThe community bank portfolio increased $68.8$75.0 million, or 2.1%,2.25%, between December 31, 2025 and MarchJune 31,30, 2026. This growth partiallywas more than offset by the anticipated declines in the specialty finance and non-core and other business sectors of $54.7$136.1 million and $27.5$47.2 million, respectively.

The following table shows the contractual maturities of our loan portfolio and the distribution between fixed and adjustable interest rate loans at MarchJune 31,30, 2026:

Analysis of the Allowance for Credit Losses on Loans. The allowance for credit losses on loans was $67.9$62.5 million, or 1.56%1.47% of total loans, at MarchJune 31,30, 2026, compared to $69.2 million, or 1.59% of total loans, at December 31, 2025. The following table allocates the allowance for credit losses on loans by loan category:

In estimating expected credit losses as of MarchJune 31,30, 2026, we utilizedincorporated certain forecasted macroeconomic variables from Oxfordthe Capital Economics inforecast dated June 30, 2026 into our credit loss models. The Capital Economics forecast reflected a generally stable macroeconomic outlook relative to the prior quarter, including modest economic growth and unemployment levels that remained consistent with management's assessment of the economic environment. The forecasted projections included, among other things, (i) U.S. gross domestic product ranging from 1.9%1.5% to 2.4%2.1% over the next four quarters; (ii) theannual 10-yearconsumer treasuryprice rateindex averaging 4.2%3.1% over the next four quarters; and (iii) IllinoisU.S. unemployment rate averaging 4.7%4.3% through the firstsecond quarter of 2027. These assumptions resulted in lower modeled loss estimates for certain portfolios. In addition, the relative stability of the economic outlook and the absence of incremental economic risks not otherwise reflected in the models supported management's reduction of certain qualitative adjustments.

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-Factorqualitative adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already fully captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. The qualitative factor adjustment at MarchJune 31,30, 2026, was approximately 5549 basis points of total loans, decreasing slightly from 57 basis points at December 31, 2025. The reduction primarily reflected continued improvement in portfolio credit quality and management's assessment that certain risks requiring qualitative adjustments have moderated since December 31, 2025.