EX-99.5 14 tm2429075d4_ex99-5.htm EXHIBIT 99.5

Exhibit 99.5

Index to Consolidated Financial Statements

Bremer Financial Corporation

| Page
Audited Consolidated Financial Statements |
Fiscal Year Ended December 31, 2023 and 2022 |
Report of Independent Auditors | 3
Consolidated Balance Sheets | 5
Consolidated Statement of Income | 6
Consolidated Statement of Comprehensive Income | 7
Consolidated Statement of Shareholders Equity | 8
Consolidated Statement of Cash Flows | 9
Notes to Consolidated Financial Statements | 10
Interim Consolidated Financial Statements (Unaudited) |
Nine Months Ended September 30, 2024 |
Consolidated Balance Sheet | 1
Consolidated Statement of Income | 2

1

Contents

Report of Independent Auditors | 3
Consolidated Financial Statements |
Consolidated Balance Sheet | 5
Consolidated Statement of Income | 6
Consolidated Statement of Comprehensive Income | 7
Consolidated Statement of Shareholders’ Equity | 8
Consolidated Statement of Cash Flows | 9
Notes to Consolidated Financial Statements |
Note 1 — Company Description | 10
Note 2 — Accounting Policies | 10
Note 3 — Recent Accounting Pronouncements | 19
Note 4 — Restrictions on Cash, Cash Equivalents, and Due from Banks | 21
Note 5 — Investment Securities | 21
Note 6 — Loans Held for Investment and Allowance for Credit Losses | 24
Note 7 — Mortgage Banking | 29
Note 8 — Premises, Equipment, and Lease Commitments | 31
Note 9 — Intangible Assets | 31
Note 10 — Deposits | 32
Note 11 — Short-Term Borrowings | 32
Note 12 — Long-Term Debt | 33
Note 13 — Employee Benefit Plans | 34
Note 14 — Other Noninterest Income | 38
Note 15 — Other Noninterest Expense | 38
Note 16 — Income Taxes | 39
Note 17 — Commitments and Contingencies | 40
Note 18 — Derivatives and Hedging Activities | 41
Note 19 — Common Stock | 44
Note 20 — Regulatory Matters | 45
Note 21 — Fair Value | 46
Note 22 — Subsequent Events | 51

2

| Ernst & Young, LLP 700 Nicollet Mall Suite 500 Minneapolis, MN 55402 | Tel: +1 612 343 1000 ey.com

Report of Independent Auditors

The Board of Directors and Shareholders

Bremer Financial Corporation

Opinion

We have audited the consolidated financial statements of Bremer Financial Corporation (the Company), which comprise the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with auditing standards generally accepted in the United States of America, the Company’s internal control over financial reporting, including internal control over the preparation of regulatory financial statements, in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria) and our report dated March 26, 2024 expressed an unmodified opinion thereon.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Adoption of ASU 2016-13, Financial Instruments — Credit Losses

As discussed in Note 3 to the financial statements, in 2023 the Company changed its method of accounting for credit losses as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update (ASU) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and the related amendments. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.

3

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

| · | Exercise professional judgment and maintain professional skepticism throughout the audit.

| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.

| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

March 26, 2024

4

Bremer Financial Corporation

Consolidated Balance Sheet

At December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Assets |  |  |  |  |  |  |  |
Cash, cash equivalents, and due from banks |  | $ | 391,470 |  |  | $ | 713,841 |
Investment securities |  |  |  |  |  |  |  |
Available-for-sale |  |  | 1,623,960 |  |  |  | 1,754,823 |
Held-to-maturity (fair value $1,788,900 and $1,827,650, respectively; $78,478 and $59,954 pledged as collateral, respectively)(A) |  |  | 2,104,572 |  |  |  | 2,175,723 |
Loans held for sale |  |  | 10,334 |  |  |  | 11,851 |
Loans held for investment |  |  |  |  |  |  |  |
Loans |  |  | 11,454,296 |  |  |  | 10,621,894 |
Less allowance for loan losses |  |  | (102,751 | ) |  |  | (112,832 | )
Net loans held for investment |  |  | 11,351,545 |  |  |  | 10,509,062 |
Premises and equipment, net |  |  | 140,969 |  |  |  | 129,349 |
Goodwill and other intangibles, net |  |  | 136,731 |  |  |  | 138,904 |
Bank owned life insurance |  |  | 173,037 |  |  |  | 170,155 |
Other assets |  |  | 443,112 |  |  |  | 387,085 |
Total assets |  | $ | 16,375,730 |  |  | $ | 15,990,793 |
Liabilities and Shareholders’ Equity |  |  |  |  |  |  |  |
Deposits |  |  |  |  |  |  |  |
Noninterest-bearing |  | $ | 3,967,525 |  |  | $ | 4,906,954 |
Interest-bearing |  |  | 8,962,601 |  |  |  | 8,276,598 |
Total deposits |  |  | 12,930,126 |  |  |  | 13,183,552 |
Short-term borrowings |  |  | 659,230 |  |  |  | 860,946 |
Long-term debt |  |  | 1,023,118 |  |  |  | 241,664 |
Accrued expenses and other liabilities |  |  | 314,756 |  |  |  | 341,800 |
Total liabilities |  |  | 14,927,230 |  |  |  | 14,627,962 |
Redeemable Class A common stock, 960,000 shares issued and outstanding |  |  | 115,880 |  |  |  | 109,026 |
Shareholders’ equity |  |  |  |  |  |  |  |
Common stock |  |  |  |  |  |  |  |
Class A, no par, 12,000,000 shares authorized; 240,000 shares issued and outstanding |  |  | 57 |  |  |  | 57 |
Class B, no par, 10,800,000 shares authorized, issued, and outstanding |  |  | 2,562 |  |  |  | 2,562 |
Retained earnings |  |  | 1,538,586 |  |  |  | 1,483,556 |
Accumulated other comprehensive income (loss) |  |  | (208,585 | ) |  |  | (232,370 | )
Total shareholders’ equity |  |  | 1,332,620 |  |  |  | 1,253,805 |
Total liabilities and shareholders’ equity |  | $ | 16,375,730 |  |  | $ | 15,990,793 |

(A) Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.

See Notes to Consolidated Financial Statements

5

Bremer Financial Corporation

Consolidated Statement of Income

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Interest Income |  |  |  |  |  |  |  |
Loans, including loans held for sale |  | $ | 589,495 |  |  | $ | 412,233 |
Investment securities |  |  | 97,591 |  |  |  | 92,789 |
Other interest income |  |  | 23,279 |  |  |  | 9,764 |
Total interest income |  |  | 710,365 |  |  |  | 514,786 |
Interest Expense |  |  |  |  |  |  |  |
Deposits |  |  | 191,529 |  |  |  | 37,644 |
Short-term borrowings |  |  | 47,342 |  |  |  | 4,312 |
Long-term debt |  |  | 31,402 |  |  |  | 7,541 |
Other |  |  | 1,711 |  |  |  | 404 |
Total interest expense |  |  | 271,984 |  |  |  | 49,901 |
Net interest income |  |  | 438,381 |  |  |  | 464,885 |
Provision for credit losses |  |  | 19,187 |  |  |  | (9,030 | )
Net interest income after provision for credit losses |  |  | 419,194 |  |  |  | 473,915 |
Noninterest Income |  |  |  |  |  |  |  |
Service charges |  |  | 28,215 |  |  |  | 28,663 |
Insurance revenue |  |  | 15,986 |  |  |  | 13,794 |
Investment management and trust fees |  |  | 18,829 |  |  |  | 19,971 |
Brokerage revenue |  |  | 18,277 |  |  |  | 19,027 |
Mortgage banking and loan fees |  |  | 10,486 |  |  |  | 21,427 |
Realized gains (losses) on investment securities |  |  | (2,578 | ) |  |  | 134 |
Other |  |  | 18,480 |  |  |  | 26,086 |
Total noninterest income |  |  | 107,695 |  |  |  | 129,102 |
Noninterest Expense |  |  |  |  |  |  |  |
Compensation and employee benefits |  |  | 207,595 |  |  |  | 220,654 |
Occupancy and equipment, net |  |  | 43,966 |  |  |  | 48,880 |
Data processing fees |  |  | 17,531 |  |  |  | 21,033 |
FDIC premiums and examination fees |  |  | 17,544 |  |  |  | 10,163 |
Other |  |  | 83,837 |  |  |  | 54,195 |
Total noninterest expense |  |  | 370,473 |  |  |  | 354,925 |
Income before taxes |  |  | 156,416 |  |  |  | 248,092 |
Applicable income taxes |  |  | 32,408 |  |  |  | 49,632 |
Net income |  | $ | 124,008 |  |  | $ | 198,460 |

See Notes to Consolidated Financial Statements

6

Bremer Financial Corporation

Consolidated Statement of Comprehensive Income

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Net income |  | $ | 124,008 |  |  |  | $ 198,460 |
Reclassifications of realized losses (gains) to earnings, net of tax |  |  |  |  |  |  |  |
Realized losses (gains) on available-for-sale securities |  |  | 1,882 |  |  |  | (98 | )
Other employee benefit plan amortization |  |  | 7,447 |  |  |  | 821 |
Other comprehensive income (loss), net of tax |  |  |  |  |  |  |  |
Unrealized gains (losses) on available-for-sale securities |  |  | 18,915 |  |  |  | (196,585 | )
Unrealized gains (losses) on derivatives and hedging activities |  |  | (1,960 | ) |  |  | (881 | )
Net gains (losses) arising during period related to employee benefit plans |  |  | (430 | ) |  |  | (42,463 | )
Other comprehensive income (loss) |  |  | 25,854 |  |  |  | (239,206 | )
Comprehensive income (loss) |  | $ | 149,862 |  |  | $ | (40,746 | )

See Notes to Consolidated Financial Statements

7

Bremer Financial Corporation

Consolidated Statement of Shareholders’ Equity

|  |  | Common Stock |  |  |  | Retained |  |  |  | Accumulated Other Comprehensive |  |  |  |  |
(Dollars in Thousands) |  |  | Class A |  |  |  | Class B |  |  |  | Earnings |  |  |  | (Loss) Income |  |  |  | Total Equity |
Balance December 31, 2021 |  | $ | 57 |  |  | $ | 2,562 |  |  |  | $1,369,421 |  |  | $ | (12,301 | ) |  |  | $1,359,739 |
Net income |  |  | — |  |  |  | — |  |  |  | 198,460 |  |  |  | — |  |  |  | 198,460 |
Other comprehensive income (loss) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (239,206 | ) |  |  | (239,206 | )
Dividends, $5.84 per share |  |  | — |  |  |  | — |  |  |  | (74,400 | ) |  |  | — |  |  |  | (74,400 | )
Allocation to redeemable Class A common stock(A) |  |  | — |  |  |  | — |  |  |  | (9,925 | ) |  |  | 19,137 |  |  |  | 9,212 |
Balance December 31, 2022 |  |  | 57 |  |  |  | 2,562 |  |  | $ | 1,483,556 |  |  |  | (232,370 | ) |  |  | 1,253,805 |
Change in accounting principle(B) |  |  | — |  |  |  | — |  |  |  | 16,927 |  |  |  | — |  |  |  | 16,927 |
Net income |  |  | — |  |  |  | — |  |  |  | 124,008 |  |  |  | — |  |  |  | 124,008 |
Other comprehensive income (loss) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 25,854 |  |  |  | 25,854 |
Dividends, $6.76 per share |  |  | — |  |  |  | — |  |  |  | (81,120 | ) |  |  | — |  |  |  | (81,120 | )
Allocation to redeemable Class A common stock(A) |  |  | — |  |  |  | — |  |  |  | (4,785 | ) |  |  | (2,069 | ) |  |  | (6,854 | )
Balance December 31, 2023 |  | $ | 57 |  |  | $ | 2,562 |  |  | $ | 1,538,586 |  |  | $ | (208,585 | ) |  | $ | 1,332,620 |

(A) | Reflects the allocation of net income after the payment of dividends and allocation of other comprehensive income (loss).

(B) | Effective January 1, 2023 the Company adopted accounting guidance requiring the recognition of credit losses on financial instruments using an expected loss model rather than incurred losses. Upon adoption, the Company decreased its allowance for credit losses and increased retained earnings net of deferred taxes through a cumulative-effect adjustment.

See Notes to Consolidated Financial Statements

8

Bremer Financial Corporation

Consolidated Statement of Cash Flows

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Operating Activities |  |  |  |  |  |  |  |
Net income |  | $ | 124,008 |  |  | $ | 198,460 |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |  |  |  |  |  |
Provision for credit losses |  |  | 19,187 |  |  |  | (9,030 | )
Depreciation and amortization |  |  | 12,518 |  |  |  | 13,959 |
Amortization and accretion, net |  |  | 9,128 |  |  |  | 6,503 |
Deferred income tax provision |  |  | (2,233 | ) |  |  | 8,182 |
Change in fair value of MSRs |  |  | 3,339 |  |  |  | (2,792 | )
Investment securities losses (gains), net |  |  | 2,578 |  |  |  | (134 | )
Loan sales losses (gains), net |  |  | (5,906 | ) |  |  | 1,392 |
Proceeds from sales of loans originated for sale |  |  | 198,222 |  |  |  | 325,574 |
Loans originated for sale |  |  | (188,117 | ) |  |  | (284,004 | )
Other, net |  |  | (73,315 | ) |  |  | 173,435 |
Net cash provided by (used in) operating activities |  |  | 99,409 |  |  |  | 431,545 |
Investing Activities |  |  |  |  |  |  |  |
Purchases of available-for-sale investment securities |  |  | (60,000 | ) |  |  | (381,527 | )
Purchases of held-to-maturity investment securities |  |  | (131,182 | ) |  |  | (342,396 | )
Proceeds from maturities of available-for-sale investment securities |  |  | 136,572 |  |  |  | 216,220 |
Proceeds from maturities of held-to-maturity investment securities |  |  | 201,189 |  |  |  | 226,798 |
Proceeds from sales and calls of available-for-sale investment securities |  |  | 76,655 |  |  |  | 25,782 |
Net change in loans held for investment |  |  | (865,797 | ) |  |  | (451,371 | )
Purchase of premises and equipment |  |  | (39,644 | ) |  |  | (12,908 | )
Proceeds from sale of premises and equipment |  |  | 12,741 |  |  |  | 1,767 |
Other, net |  |  | 1,037 |  |  |  | 1,081 |
Net cash provided by (used in) investing activities |  |  | (668,429 | ) |  |  | (716,554 | )
Financing Activities |  |  |  |  |  |  |  |
Net change in noninterest-bearing deposits |  |  | (939,429 | ) |  |  | (238,253 | )
Net change in interest-bearing deposits |  |  | 686,003 |  |  |  | (1,071,031 | )
Net change in short-term borrowings |  |  | (201,716 | ) |  |  | 659,977 |
Proceeds from issuance of long-term debt |  |  | 782,911 |  |  |  | 24,625 |
Common stock dividends paid |  |  | (81,120 | ) |  |  | (74,400 | )
Net cash provided by (used in) financing activities |  |  | 246,649 |  |  |  | (699,082 | )
Net increase (decrease) in cash, cash equivalents, and due from banks |  |  | (322,371 | ) |  |  | (984,091 | )
Cash, cash equivalents, and due from banks at beginning of year |  |  | 713,841 |  |  |  | 1,697,932 |
Cash, cash equivalents, and due from banks at end of year |  | $ | 391,470 |  |  | $ | 713,841 |
Supplemental Disclosures of Cash Flow Information |  |  |  |  |  |  |  |
Cash paid for interest |  | $ | 254,129 |  |  | $ | 43,024 |
Cash paid for income taxes |  |  | 30,926 |  |  |  | 37,452 |
Non-cash transfer of loans to other assets |  |  | 229 |  |  |  | 157 |
Non-cash acquisition of operating leases |  |  | 157 |  |  |  | 13,248 |

See Notes to Consolidated Financial Statements

9

Notes to Consolidated Financial Statements

Note 1. Company Description

Bremer Financial Corporation and its subsidiaries, including Bremer Bank, (collectively referred to as the “Company” or “Bremer”) is a privately held, regional financial services company jointly owned by the Otto Bremer Trust (“OBT”), Bremer directors, and Bremer employees. Founded in 1943 by Otto Bremer, the Company is headquartered in St. Paul, Minnesota and provides a comprehensive range of banking, mortgage, investment, wealth management, trust and insurance products and services primarily throughout Minnesota, North Dakota, and Wisconsin. Clients include small businesses, mid-sized corporations, agribusinesses, non-profits, public and government entities, and individuals and families. Lending and depository services are primarily provided through banking offices located in Minnesota, North Dakota, and Wisconsin.

Note 2. Accounting Policies

Basis of Presentation

The consolidated financial statements, prepared in conformity with accounting principles generally accepted in the United States, include the accounts of the Company and its subsidiaries and all variable interest entities (“VIEs”) for which the Company has both the power to direct activities of the VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or right to receive benefits of the VIE that could potentially be significant to the VIE. Consolidation eliminates all intercompany accounts and transactions.

Certain items in prior periods have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual experience could differ from those estimates and assumptions.

Cash, Cash Equivalents, and Due from Banks

The Company has defined cash equivalents as cash items in process, interest-bearing balances due from depository institutions with an original maturity date of less than 90 days, and federal funds sold, which have original maturity dates less than 90 days.

Investment Securities

Available-for-sale Investment Securities

Available-for-sale securities include debt securities that are carried at fair value with unrealized net gains or losses reported within other comprehensive income (loss), net of tax. These securities may be sold before maturity in response to changes in the Company’s interest rate risk profile, funding needs, demand for collateralized deposits by public entities, or other reasons. Realized gains or losses on securities are determined on a trade date basis based on the specific amortized cost of the investments sold. Declines in fair value related to credit, if any, are recorded by establishing an allowance for credit losses.

Securities in an unrealized loss position are assessed to determine whether management intends to sell, or it is more likely than not they will be required to sell the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost is written down to fair value through income.

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For securities that do not meet either criterion, management periodically evaluates whether the decline in fair value below the amortized cost basis of the security is the result of credit related factors. As a part of this evaluation, management considers various factors such as the extent of the unrealized loss, nature of the investment security, credit ratings or financial condition of the issuer, expected cash flow scenarios, existence of any government or agency guarantees, and market conditions. If there is indication that a credit loss exists, the Company measures the allowance for credit losses using market information where available and discounting expected cash flows at the original effective rate of the investment security. The present value of expected cash flows is compared to the security’s amortized cost with any excess amortized cost recorded as a credit loss. The credit loss is limited to the excess of the security’s amortized cost over fair value. Changes in the allowance for credit losses are reported within provision for credit losses on the consolidated income statement. Charge-offs are recognized against the allowance when uncollectibility on the security is confirmed or the criteria regarding intent or requirement to sell is met. Refer to Note 5 for additional information.

Accrued interest receivable is excluded from the amortized cost basis of available-for-sale securities and the measurement of the allowance for credit losses. Accrued interest receivable on available-for-sale securities is presented within other assets in the consolidated balance sheet.

Held-to-maturity Investment Securities

Debt securities for which the Company has the positive intent and ability to hold to maturity are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Expected credit losses, if any, are recorded by establishing an allowance for credit losses.

The held-to-maturity investment securities are comprised of U.S. Treasury and U.S. agency mortgage- backed securities that are issued by U.S. government entities or agencies, are either explicitly or implicitly guaranteed by the U.S. government, and have no history of credit losses. Accordingly, the Company does not expect to incur any credit losses on held-to-maturity investment securities and no allowance for credit losses has been recorded at December 31, 2023.

Accrued interest receivable is excluded from the amortized cost basis of held-to-maturity securities and the measurement of the allowance for credit losses. Accrued interest receivable on held-to-maturity securities is presented within other assets in the consolidated balance sheet.

Loans Held for Sale

Loans held for sale (“LHFS”) represent loans originated by the Company, intended to be sold in the secondary market. LHFS primarily include first lien, single-family residential mortgage loans that conform to underwriting standards of the Government Sponsored Enterprises (“GSEs”). The LHFS portfolio is carried at the lower of cost or fair value, with any changes in carrying value recorded in noninterest income. Net gains realized on the sales of loans are recognized in noninterest income at the time of sale and are determined by the difference between the net sales proceeds and the carrying value of the loans sold, including any deferred origination fees and costs.

Loans Held for Investment

Loans held for investment (“LHFI”) include loans originated by the Company, as well as purchased loans, that management has the intent and ability to hold for the foreseeable future or until maturity or payoff. The Company’s accounting methods differ depending on whether the loans are originated or purchased, and for purchased loans, whether the loans contained evidence of credit deterioration at acquisition.

Originated LHFI

Originated LHFI are reported at the principal amount outstanding adjusted for charge-offs, the allowance for credit losses, and net of unearned income or deferred loan fees and costs. Interest income is accrued based on the principal amount outstanding. Certain direct loan origination fees and costs, as well as commitment fees, are deferred and recognized over the life of the loan or commitment as yield adjustments. The Company has elected to exclude accrued interest receivable from the amortized cost basis of LHFI and the measurement of the allowance for credit losses. Accrued interest receivable related to LHFI is presented within other assets in the consolidated balance sheet.

11

Purchased LHFI

All purchased LHFI are measured at their initial investment or at fair value if acquired as a part of a business combination, in accordance with applicable accounting guidance. For loans acquired after December 31, 2022, an allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for loans considered purchase credit deteriorated (PCD) is established by adjusting the basis of the acquired loans whereas the allowance for non-PCD loans is recognized through provision expense. Non-credit related premiums and discounts are amortized and accreted into income over the life of the loan. The Company did not have any PCD loans at December 31, 2023.

Prior to January 1, 2023, purchased LHFI were measured at their initial investment or at fair value if acquired as a part of a business combination, including any credit discounts, in accordance with applicable accounting guidance. An allowance for loan losses was not recorded at the acquisition date.

Allowance for Credit Losses

Beginning January 1, 2023, the allowance for credit losses is established for current expected credit losses on the Company’s loan portfolio, including unfunded commitments. The allowance considers expected losses for the remaining contractual lives of the applicable assets, inclusive of expected recoveries and prepayments. The allowance is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the allowance for credit losses on a quarterly basis.

The Company considers multiple economic scenarios over a reasonable and supportable two-year forecast period. Expected credit losses for periods beyond the reasonable and supportable forecast period are determined based on a reversion method which reverts to long-term historical loss estimates over a consecutive four quarter period on a straight-line basis. Economic scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of forecast uncertainty. Other factors affecting credit losses not reflected in the economic scenarios may be considered by management when estimating expected credit losses. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal or monetary policy actions.

The allowance for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, unemployment claims, nonfarm employment levels, real gross domestic product levels, home price index, commercial real estate price index, and agriculture price index, as well as loan and borrower characteristics, such as probability of default, loss given default, and exposure at default depending on the loan risk characteristics, delinquency status, industry, geographic location, collateral type and available valuation information, and the remaining term of the loan, adjusted for expected prepayments.

The Company offers a broad array of lending products and categorizes its loan portfolio into two segments, which is the level at which it develops and documents a systematic methodology to determine the allowance for credit losses. The Company’s two loan portfolio segments are commercial lending and consumer lending. The Company further disaggregates its loan portfolio segments into various classes based on their underlying risk characteristics. The three classes within the commercial lending segment are commercial loans, commercial real estate loans, and agriculture loans. The two classes within the consumer lending segment are residential mortgages and retail loans. Where similar loan risk characteristics exist, the allowance is measured on a collective (pool) basis.

The commercial class consists of loans made to businesses to provide financing for business operations, capital purchases, acquisitions, expansions, and other business investments. Lending in this segment is to a wide variety of industries, including manufacturing, retail operations, education, health care, professional offices, nonprofits, and municipalities. These loans are generally secured by business assets and guaranteed by owners, and cash flows from operations are generally the primary source of repayment. Key risk characteristics relevant to this class include the industry, geography, size of the borrower’s business, repayment sources, the borrower’s debt capacity and financial performance, strength and liquidity of guarantors, management expertise, loan covenants, and value of collateral. The Company considers these characteristics in assigning risk ratings and estimating the allowance.

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The commercial real estate class includes loans made to businesses secured by real estate. Properties securing the loans in this class are comprised of both owner-occupied and non-owner-occupied properties. Non-owner-occupied properties include hotels and lodging, multifamily residential buildings, office buildings, office warehouses, medical/assisted living, and retail buildings. Key risk characteristics relevant to this class include the industry, geography, size of the borrower’s business, repayment sources, borrower’s debt capacity and financial performance, strength and liquidity of guarantors, loan covenants, tenants, property characteristics, and value of collateral. The Company considers these characteristics in assigning risk ratings and estimating the allowance.

The agriculture class includes loans made to individuals and businesses involved in agriculture, including crop and livestock production, dairy, and other agribusiness activities. Loans in this segment are generally secured by agricultural land, crops, livestock, equipment, and operating assets and are guaranteed by owners. The primary source of repayment is generally cash flow from operations. Key risk characteristics relevant to this class include the geography of the borrower’s operations, industry characteristics, commodity prices, marketing activity, weather patterns, insurance and government program support, repayment sources, borrower’s debt capacity and financial performance, loan covenants, and value of collateral. The Company considers these characteristics in assigning risk ratings and estimating the allowance.

The residential real estate class includes loans made to consumers, including residential first mortgages, residential construction loans, and home equity first lien loans. These loans are typically fixed-rate loans secured by residential real estate. Key risk characteristics relevant to this class include the borrower’s capacity and willingness to repay, payment history, income and debt levels, value and location of collateral, unemployment rates, and other economic factors. The Company considers these characteristics in assigning, as applicable, risk classifications and estimating the allowance.

The retail class includes consumer loans, including home equity second lien loans, loans secured by automobiles and other installment loans, and unsecured term loans and revolving credit lines. Key risk characteristics relevant to this segment include the borrower’s capacity and willingness to repay, payment history, income and debt levels, value and location of collateral, unemployment rates, and other economic factors. The Company considers these characteristics in assigning, as applicable, risk classifications and estimating the allowance.

Loans that do not exhibit similar risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. If an individually evaluated loan is determined to be collateral dependent or meets the criteria to apply the collateral dependent practical expedient, expected credit losses are estimated based on the fair value of collateral less applicable selling costs. If not, a discounted cash flows methodology is used.

The Company’s methodology for determining the allowance for credit losses also considers the need for adjustments to the estimated allowance amounts described above as a result of limitations inherent in the methodologies used. Using a systematic approach, necessary adjustments are made to consider the potential impact of other qualitative factors not captured in the quantitative model which include, but are not limited to, the following: model imprecision, imprecision in economic scenario assumptions, and emerging risks related to changes in the economic environment that are affecting specific loan segments. The consideration of these qualitative factors is incorporated in the allowance for credit losses for each loan class.

Prior to implementation of Accounting Standard Update 2016-13 on January 1, 2023, the Company was required to use an incurred loss methodology to estimate credit losses. The allowance for credit losses and resulting provision expense levels for comparative periods presented were estimated in accordance with that methodology and applicable accounting guidance.

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Allowance for Unfunded Commitments

The allowance for unfunded commitments is determined using similar procedures and methodologies used for LHFI supplemented by the information related to future funding expectations. The future funding expectations are based on historical weighted average utilization levels. The reserve is included in accrued expenses and other liabilities on the consolidated balance sheet. Net adjustments to the reserve for unfunded commitments are included in provision for credit losses on the consolidated statement of income.

Nonaccrual and Past Due Loans

The LHFI portfolio is reviewed regularly by the Company and loans are placed on nonaccrual status when the collection of interest or principal is unlikely. When a loan is placed on nonaccrual status, unpaid accrued interest is reversed and future interest accruals are suspended. The Company’s policy is to assign loans to nonaccrual status when payment of interest and principal in full is not expected, principal or interest has been in default for 90 days, the loan is being maintained on a cash basis due to the deterioration in the condition of the borrower, or the loan has otherwise been determined to be impaired. An exception to this policy can be made if a loan is well-collateralized and in the process of collection, with the expectation that the loan will be fully repaid or brought current before it becomes a maximum of 150 days past due.

A nonaccrual loan may be restored to accrual status when 1) none of its principal and interest is due and unpaid and the Company expects repayment of the remaining contractual principal and interest as agreed; 2) the borrower has resumed paying the full amount of the scheduled contractual interest and principal payments for a minimum of six months; or 3) repayment criteria established by the Company to bring the loan current have been met, even though the loan has not yet been brought fully current.

Credit Quality and Risk Ratings

The Company categorizes its loans into one of 12 internal risk rating categories that are based on relevant information about the borrower’s ability to service debt, as well as expectations for future performance, with primary consideration in assigning risk ratings being the strength of the primary repayment source for the loan. The Company categorizes its loans into the internal risk rating categories on an ongoing basis.

The 12 internal risk rating categories are mapped to pass, special mention, or classified credit quality indicator categories. Pass loans are not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Special mention loans have a potential weakness requiring credit monitoring activities. Classified loans have a well-defined weakness that results in greater risk regarding the full collection of contractual cash flows. Loans in the special mention and classified categories are considered criticized loans.

Impaired Loans

A loan is considered impaired when management determines it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan agreement. Impairment is measured as the difference between the recorded investment in the loan (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount) and the estimated present value of total expected future cash flows, discounted at the loan’s effective rate, or the fair value of the collateral less selling costs, if the loan is collateral dependent. Impairment is recognized by either adjusting the allowance for credit losses, or by charging off the impaired amount. All nonaccrual loans meet the definition of impaired loans.

Loan Modifications

In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience financial difficulties in the near- term. In most cases, the modification is either a concessionary reduction in interest rate, extension of the maturity date, or reduction in the principal balance that would otherwise not be considered. If a loan has been formally restructured and, under the restructured agreement, the payments have been current for six months and all future payments are expected to be collected in full and in a timely manner, the loan may be returned to accruing status.

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Charge-Offs

Commercial, commercial real estate, and agricultural loans are charged-off when they are determined to be impaired and uncollectible and the net realizable value of the underlying collateral or expected cash flows is less than the Company’s recorded investment in the loan.

Residential real estate loans are placed on nonaccrual status during the month the loan becomes 90 consecutive days past due. A current value of the real estate collateral is determined before the loan is 180 consecutive days past due, and any loan balance in excess of the collateral value, less selling costs, is charged off. Collateral values are periodically updated when necessary.

Other secured consumer loans not secured by real estate will be charged off during the month when the loan becomes 120 days past due. The entire loan balance is charged off unless a substantiated value can be assigned to the collateral, in which case the loan is charged down to the value of the collateral less selling costs.

Unsecured consumer loans are charged off during the month when the loan becomes 90 days past due.

Other Real Estate Owned

Other real estate owned (“OREO”) represents properties that have been acquired in satisfaction of debt through foreclosure, or real estate holdings as otherwise defined by bank regulators, and is initially recorded at fair value less estimated costs to sell. Any adjustment to fair value less costs to sell at the time of foreclosure is charged to the allowance for loan losses. The properties are appraised periodically to ensure that the recorded amount is supported by the current fair value, less costs to sell. OREO is included in other assets on the consolidated balance sheets. Adjustments to fair value, less costs to sell and subsequent to the initial adjustment, based on declines in property value, operating expenses, and losses on sales, are charged to noninterest expense, while income, including gains on sales, is included in other noninterest income.

Premises and Equipment

Premises and equipment are carried at cost, less accumulated depreciation, with depreciation generally calculated on a straight-line basis over the estimated useful lives of the assets, which range from 3 to 39 years. Maintenance and repair costs are charged to net occupancy and equipment expense on the consolidated statement of income as incurred. Gains and losses on disposition of premises and equipment are included in other noninterest income and other noninterest expense on the consolidated statement of income.

The Company, as lessee, records a right of use asset (ROU) for each lease with an original term greater than 12 months. ROU assets are included in premises and equipment, with the corresponding lease liabilities included in accrued expenses and other liabilities on the consolidated balance sheet.

Capitalized Software

The Company capitalizes certain costs associated with the acquisition or development of internal-use software. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the software’s expected useful life and reviewed for impairment on an ongoing basis. The estimated useful life is generally 3 years. Capitalized software costs are recorded within other assets on the consolidated balance sheet. Capitalized software amortization expense, impairment charges, and contract termination costs are included in other noninterest expense on the consolidated income statement.

Goodwill and Other Intangible Assets

Intangible assets include goodwill, mortgage servicing rights (“MSRs”), core deposit premiums, and other intangible assets. Goodwill represents the excess of acquisition cost over the estimated fair value of assets acquired and liabilities assumed in a business combination. Other intangibles primarily relate to the value associated with certain purchased portfolios or business activities, whether through a business combination or other purchase. Goodwill is not amortized, and the Company assesses goodwill for impairment annually as of October 1. The Company evaluates certain qualitative considerations, supplemented by quantitative metrics, as part of the evaluation. Other intangible assets and core deposit premiums with finite lives are amortized over a period of time and are evaluated for impairment if certain indicators of impairment are identified.

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MSRs are capitalized as separate assets when mortgage loans are sold to third parties and the contractual right to service the loans is retained. The Company has elected to account for the MSRs at fair value. Because MSRs do not trade in an active market with readily observable prices, the Company determines the fair value by estimating the present value of future cash flows associated with the contractual servicing activities, using a discounted cash flow calculation and market based assumptions, such as prepayment rates, discount rates, and other assumptions. The estimate of MSR fair value is calculated by a third-party valuation firm and significant assumptions are benchmarked against peers. Changes in the fair value of MSRs are included in noninterest income on the consolidated statement of income.

Bank Owned Life Insurance

The Company has purchased single-premium bank-owned life insurance (“BOLI”), insuring a group of its key officers. Substantially all BOLI is in the form of an experience-rated mortality, separate-account product. BOLI is included on the consolidated balance sheet at its cash surrender value (“CSV”). Earnings on the underlying investments, less mortality and servicing costs, increase the CSV of the policy on the consolidated balance sheet and are included in other noninterest income on the consolidated statement of income.

Derivatives and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain floating and fixed-rate borrowings. The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivatives, whether the Company has elected to designate the derivatives in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

Derivatives designated and qualifying as hedges of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.

Derivatives designated and qualifying as hedges of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. For derivatives designated as fair value hedges, changes in fair value of the derivatives and corresponding assets or liabilities are included in interest income or expense on the consolidated statement of income. For derivatives designated as cash flow hedges, changes in the fair value of the derivatives are included in other comprehensive income, net of tax.

The Company may enter into derivative contracts that are intended to economically hedge certain risks even though the Company elects not to apply hedge accounting. Also, certain derivatives not designated as hedges result from a service the Company provides to certain qualified commercial banking customers by executing interest rate derivatives with these customers to facilitate their risk management strategies. Those derivatives are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. Changes in fair value are included in noninterest income on the consolidated statement of income.

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As part of the Company’s risk management strategy in the residential mortgage banking business, derivative instruments such as forward sales contracts are utilized. The Company’s obligations under forward contracts consist of commitments to deliver mortgage loans originated at a future date. The Company also has derivative contracts that are created through its mortgage operations when the Company commits to originate a mortgage loan intended to be sold at a future date, referred to as interest rate lock commitments. The fair value of forward sales contracts and interest rate lock commitments are included in other assets or accrued expenses and other liabilities on the consolidated balance sheet. Changes in fair value of these instruments are included in other noninterest income on the consolidated statement of income.

Employee Benefit Plans

The Company provides a defined benefit pension plan to substantially all employees based on years of service and employee compensation while employed with the Company. Depending on the measurement of the liability and the fair value of plan assets, a net asset or liability may be recorded. Liabilities related to future benefit obligations and assets related to the Company’s funding contributions are measured using assumptions, including long-term discount rates and the expected return on plan assets. The Company recognizes the net funded or unfunded status of the defined benefit pension plan in other assets or accrued expenses and other liabilities on the consolidated balance sheet. Deferred actuarial gains and losses, and the prior service costs and credits, are recorded in other comprehensive income, net of tax. Periodic service- related costs associated with this plan are recorded in compensation and employee benefit expense on the consolidated statement of income. Other net benefit costs are recorded within other noninterest expense on the consolidated statement of income.

Income Taxes

The Company is subject to U.S. federal income tax, as well as income tax in certain state jurisdictions. Income tax expense consists of two components, current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period. Deferred income tax expense relates to timing differences between the period in which transactions are reflected on the consolidated financial statements (referred to as the “book basis”) and the period in which transactions are considered taxable (referred to as the “tax basis”). The Company determines deferred income taxes using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized subject to management judgment that realization is more likely than not. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense on the consolidated statement of income.

Changes in relevant tax laws may impact the measurement of deferred tax assets and liabilities. The impact of changes to tax law, including changes to tax rates, on the measurement of deferred taxes is included in current income tax expense on the consolidated statement of income at the date of enactment.

Revenue Recognition

In the ordinary course of business, the Company recognizes income derived from various revenue generating activities. Certain revenues are generated for amounts the Company expects to be entitled to from contracts with customers related to the transfer of services or products. Total revenue from certain contracts with customers, which is accounted for under applicable revenue recognition accounting guidance, of $81.3 million and $81.5 million was recognized for the years ended December 31, 2023 and 2022, respectively. Revenue generating activities related to financial assets and liabilities are also recognized but accounted for under other applicable accounting guidance; including interest income on loans and investment securities, mortgage servicing fees and other mortgage banking activities, loan commitment fees, gains and losses on securities, fees collected related to customer derivatives activities, and other miscellaneous income items. Certain specific policies include the following:

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Credit and Debit Card Revenue

Debit card revenue includes interchange from debit cards processed through card association networks and other transaction and account management fees. Interchange rates are generally set by the card associations and based on purchase volumes and other factors. The Company records interchange as services are provided. Other fees, including transaction fees, are recognized as services are provided. Credit card revenue includes fees earned related to joint marketing agreements with unrelated third parties and is recorded when services are provided. Credit and debit card revenue is recorded within service charges on the consolidated statement of income.

Deposit Service Charges

Deposit service charges include service charges on deposit accounts received under depository agreements with customers to provide access to deposited funds and serve as a custodian of funds. Checking or savings accounts may contain fees for various services used on a day-to-day basis by a customer. Fees are recognized as services are delivered to and consumed by the customer, or as penalty fees are charged. Deposit service charges are recorded within service charges on the consolidated statement of income.

Insurance Revenue

Insurance revenue includes commissions related to policies provided to customers through agency contracts with insurance carriers. Coverage types primarily relate to property and casualty policies. Commission revenue is generally recorded on the effective date of the policy or when control of the policy has transferred to the applicable carrier. These commissions are recorded within insurance revenue on the consolidated statement of income.

Investment Management and Trust Fees

Investment management and trust fees are recognized over the period in which services are performed and are generally based on a percentage of the fair value of the assets under management or administration, as well as other asset management related fees. Revenue related to these activities is recorded within investment management and trust fees on the consolidated statement of income.

Brokerage Revenue

Brokerage revenue includes commissions related to the execution of requested security trades and investment advisory fees. Commissions and investment advisory fees are recognized as services are delivered to and utilized by the customer. These fees are recorded within brokerage revenue on the consolidated statement of income.

Comprehensive Income

Comprehensive income is defined as the change in equity during a period resulting from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income consists of net income, as reported on the consolidated statement of income, and other comprehensive income, net of tax, which includes the change in unrealized gains and losses on available-for-sale securities, derivatives and hedging activities, and pension and other postretirement plans related gains and losses and prior service cost or credits that arise during the period but are not recognized as components of net periodic benefit cost. Income tax effects of amounts reported within other comprehensive income (loss) related to available-for-sale securities are released under the portfolio approach. Income tax effects of amounts recorded within other comprehensive income (loss) related to employee benefit plans would be released upon termination of the plans.

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Note 3. Recent Accounting Pronouncements

The following summarizes recent accounting standards updates (“ASU”) issued by the FASB, which are relevant to the Company and were adopted during the years ended December 31, 2023 or December 31, 2022, or that will be applicable in a future period:

Standard |  | Description |  | Effective Date and Financial Statement Impact
ASU 2023-09 — Income Taxes (Topic 740): Improvements to Income Tax Disclosures |  | In December of 2023, the FASB issued new accounting guidance related to income tax disclosures. The amendments in this update require additional income tax rate reconciliation and income taxes paid disclosures. The guidance may be adopted on a prospective or retrospective basis. |  | The guidance is effective fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is evaluating the impact of the guidance on its consolidated financial statements.
ASU 2023-02 — Investments — Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method |  | In March of 2023, the FASB issued new accounting guidance related to accounting for tax credit investments. Under the new guidance, an entity may elect, on a program-by-program basis, to account for tax credit investments using the proportional amortization method if certain conditions are met. The guidance may be adopted on a modified retrospective or retrospective basis. |  | The guidance is effective fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its consolidated financial statements.
ASU 2022-02 — Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures |  | In March of 2022, the FASB issued new accounting guidance related to troubled debt restructurings (TDR) and vintage disclosures. The guidance eliminates TDR accounting while enhancing disclosure requirements for certain loan modifications made to borrowers experiencing financial difficulty. It also requires disclosure of current period gross charge-offs by year of origination for financing receivables. |  | The Company adopted the guidance as of January 1, 2023 on a modified retrospective basis. The adoption of this guidance is not material to the Company’s consolidated financial statements.
ASU 2022-01 — Derivatives and Hedging (Topic 815): Fair Value Heding — Portfolio Layer |  | In March of 2022, the FASB issued new accounting guidance related to fair value hedge accounting of portfolios of financial assets. Under the new guidance, the current last-of-layer method is expanded to allow for multiple hedge layers in a single closed portfolio and, as a result, was renamed the portfolio layer method. It also expands the scope of this method to non- prepayable financial assets. |  | The Company adopted the guidance as of January 1, 2023 on a prospective basis. The adoption of this guidance is not material to the Company’s consolidated financial statements.

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Standard |  | Description |  | Effective Date and Financial Statement Impact
ASU 2020-04 — Facilitation of the Effects of Reference Rate Reform on Financial Reporting ASU 2022-06 — Deferral of the Sunset Date of Topic 848 |  | In March 2020, the FASB issued new accounting guidance to provide optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The following expedients are provided for modified contracts whose reference rate is changed: 1) receivables and debt contracts are accounted for prospectively by adjusting the effective interest rate, 2) leases are accounted for as a continuation of the existing contracts with no reassessments of the lease classification and discount rate or remeasurements of lease payments that otherwise would be required, and 3) an entity is not required to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract. When elected the expedients must be applied consistently for all eligible contracts or transactions. |  | The guidance is subject to election as of March 12, 2020 and can be elected through December 31, 2024. The Company has made certain elections under the guidance. The elections made did not have a material impact on the consolidated financial statements
|  | In December 2022, the FASB issued guidance to defer the sunset date of ASU 2020-04 from December 31, 2022 to December 31, 2024 and to make the optional expedients available through the LIBOR transition date of June 30, 2023. |  |
ASU 2016-13 — Financial Instruments — Credit Losses |  | In June 2016, the FASB issued new accounting guidance related to the recognition of credit losses on loans and other financial instruments based on an expected loss model (CECL), replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to- maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost and the decline is due to credit-related factors, regardless of whether the impairment is considered to be other-than-temporary. |  | The Company adopted CECL as of January 1, 2023, using the modified retrospective method for all financial assets measured at amortized cost and off- balance sheet credit exposures. The adoption of CECL resulted in a decrease in the Company’s allowance for credit losses and the liability for expected credit losses on commitments to extend credit as a result of changing from the “incurred loss” model, which encompassed allowances for current known and inherent losses within the portfolio, to the “expected loss” model, which encompasses allowances for losses expected to be incurred over the contractual life of the portfolio. The adoption impacts were applied through a cumulative- effect adjustment to retained earnings of $16.9 million as of January 1, 2023. The transition adjustment included a decrease in the allowance for credit losses of $23.2 million net of the corresponding decrease in deferred tax assets of $6.3 million. The adoption of CECL did not have a material impact on the Company’s investment securities portfolio.
|  | The guidance was effective on January 1, 2023, with a cumulative-effect adjustment to retained earnings as of that date. |  |

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Note 4. Restrictions on Cash, Cash Equivalents, and Due from Banks

Banking regulators may require bank subsidiaries to maintain minimum average reserve balances, either in the form of vault cash or reserve balances held with central banks or other financial institutions. The Company did not have reserve requirements at December 31, 2023 and 2022, respectively.

Note 5. Investment Securities

The amortized cost, gross unrealized holding gains and losses, and fair value of available-for-sale and held-to-maturity investment securities at December 31 were as follows:

|  |  |  |  | Gross |  |  | Gross |  |  |  |
|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
(Dollars in Thousands) |  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
2023 |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
U.S Treasury securities |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Obligations of U.S. government agencies |  |  | 45,133 |  |  |  | 5 |  |  |  | 284 |  |  |  | 44,854 |
Obligations of state and political subdivisions |  |  | 328,909 |  |  |  | 515 |  |  |  | 9,855 |  |  |  | 319,569 |
Agency mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential |  |  | 1,212,216 |  |  |  | — |  |  |  | 177,771 |  |  |  | 1,034,445 |
Commercial |  |  | 111,874 |  |  |  | 1 |  |  |  | 6,713 |  |  |  | 105,162 |
Non-agency residential mortgage-backed securities |  |  | 104,475 |  |  |  | — |  |  |  | 12,460 |  |  |  | 92,015 |
Corporate debt securities |  |  | 33,839 |  |  |  | — |  |  |  | 5,924 |  |  |  | 27,915 |
Total available-for-sale |  | $ | 1,836,446 |  |  | $ | 521 |  |  | $ | 213,007 |  |  | $ | 1,623,960 |
Held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 78,478 |  |  | $ | 115 |  |  | $ | — |  |  | $ | 78,593 |
Agency mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential |  |  | 1,963,778 |  |  |  | 318 |  |  |  | 310,780 |  |  |  | 1,653,316 |
Commercial |  |  | 62,316 |  |  |  | — |  |  |  | 5,325 |  |  |  | 56,991 |
Total held-to-maturity |  | $ | 2,104,572 |  |  | $ | 433 |  |  | $ | 316,105 |  |  | $ | 1,788,900 |
2022 |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 100 |  |  | $ | — |  |  | $ | — |  |  | $ | 100 |
Obligations of U.S. government agencies |  |  | 6,295 |  |  |  | 20 |  |  |  | 368 |  |  |  | 5,947 |
Obligations of state and political subdivisions |  |  | 399,472 |  |  |  | 1,180 |  |  |  | 16,075 |  |  |  | 384,577 |
Agency mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential |  |  | 1,314,951 |  |  |  | — |  |  |  | 198,482 |  |  |  | 1,116,469 |
Commercial |  |  | 127,243 |  |  |  | 1 |  |  |  | 8,298 |  |  |  | 118,946 |
Non-agency residential mortgage-backed securities |  |  | 113,907 |  |  |  | — |  |  |  | 14,181 |  |  |  | 99,726 |
Corporate debt securities |  |  | 33,831 |  |  |  | — |  |  |  | 4,773 |  |  |  | 29,058 |
Total available-for-sale |  | $ | 1,995,799 |  |  | $ | 1,201 |  |  | $ | 242,177 |  |  | $ | 1,754,823 |
Held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 59,954 |  |  | $ | — |  |  | $ | 1,766 |  |  | $ | 58,188 |
Agency mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential |  |  | 2,052,699 |  |  |  | — |  |  |  | 340,001 |  |  |  | 1,712,698 |
Commercial |  |  | 63,070 |  |  |  | — |  |  |  | 6,306 |  |  |  | 56,764 |
Total held-to-maturity |  | $ | 2,175,723 |  |  | $ | — |  |  | $ | 348,073 |  |  | $ | 1,827,650 |

Available-for-sale investment securities are carried at fair value, with net unrealized gains or losses reported within accumulated other comprehensive income or loss, net of tax, in shareholders’ equity. Held- to-maturity investment securities are carried at amortized cost.

21

The Company holds required investments in Federal Home Loan Bank (“FHLB”) stock and Federal Reserve Bank (“FRB”) stock, which were recorded at cost and were included in other assets on the consolidated balance sheet. The amounts of FHLB and FRB stock held were $84.6 million and $54.9 million at December 31, 2023 and 2022, respectively. Investment securities of $1.8 billion and $2.2 billion were pledged as collateral to secure public deposits and for other purposes at December 31, 2023 and 2022, respectively.

The following table provides information regarding the amount of interest income recognized related to taxable and non-taxable investment securities:

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Taxable |  | $ | 88,520 |  |  | $ | 82,103 |
Non-taxable |  |  | 9,071 |  |  |  | 10,686 |
Total interest income from investment securities |  | $ | 97,591 |  |  | $ | 92,789 |

22

Proceeds from sales and calls of available-for-sale investment securities were $76.6 million and $25.8 million for the years ended December 31, 2023 and 2022, respectively. Net gains of $0.5 million and $0.1 million were realized on those sales and calls for the years ended December 31, 2023 and 2022, respectively. For 2023, the net losses include $3.1 million of non-credit related impairments recognized as a result of management’s intention to sell certain available-for-securities. The following table provides information regarding the gains and losses realized on available-for-sale investment securities:

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Realized gains |  | $ | 495 |  |  | $ | 150 |
Realized losses |  |  | (3,073 | ) |  |  | (16 | )
Net realized gains (losses) |  | $ | (2,578 | ) |  | $ | 134 |
Income tax expense (benefit) on net realized gains (losses) |  | $ | (696 | ) |  | $ | 36 |

The gross unrealized losses and fair value, aggregated by investment category, and the length of time the individual securities have been in a continuous unrealized loss position for available-for-sale securities at December 31, 2023, were as follows:

|  | Less than 12 Months |  |  | 12 Months or More |  |  | Total |
|  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |
(Dollars in Thousands) |  | Value |  |  | Losses |  |  | Value |  |  | Losses |  |  | Value |  |  | Losses |
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government agencies |  | $ | — |  |  | $ | — |  |  | $ | 4,230 |  |  | $ | 284 |  |  | $ | 4,230 |  |  | $ | 284 |
Obligations of state and political subdivisions |  |  | 11,615 |  |  |  | 625 |  |  |  | 131,209 |  |  |  | 9,230 |  |  |  | 142,824 |  |  |  | 9,855 |
Agency mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential |  |  | — |  |  |  | — |  |  |  | 1,018,482 |  |  |  | 177,771 |  |  |  | 1,018,482 |  |  |  | 177,771 |
Commercial |  |  | 790 |  |  |  | 5 |  |  |  | 94,948 |  |  |  | 6,708 |  |  |  | 95,738 |  |  |  | 6,713 |
Non-agency residential mortgage- backed securities |  |  | — |  |  |  | — |  |  |  | 92,014 |  |  |  | 12,460 |  |  |  | 92,014 |  |  |  | 12,460 |
Corporate debt securities |  |  | — |  |  |  | — |  |  |  | 27,915 |  |  |  | 5,924 |  |  |  | 27,915 |  |  |  | 5,924 |
Total available-for-sale |  | $ | 12,405 |  |  | $ | 630 |  |  | $ | 1,368,798 |  |  | $ | 212,377 |  |  | $ | 1,381,203 |  |  | $ | 213,007 |

These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase of these available-for-sale investment securities. U.S. Treasury, obligations of U.S. government agencies, and agency mortgage-backed securities are issued, guaranteed, and otherwise supported by the United States government. The Company’s obligations of state and political subdivisions, non-agency residential mortgage-backed securities, and corporate debt securities are generally high grade. Accordingly, the Company does not consider these unrealized losses to be credit related and an allowance for credit losses is not necessary.

For the years ended December 31, 2023 and 2022, the Company recognized non-credit related impairment losses of $3.1 million and $0.0 million, respectively, on available-for-sale securities. The recognition of the $3.1 million related to management’s intention to sell certain available-for-sale securities in a non-credit related unrealized loss position at time of the decision. At December 31, 2023, the Company had no other plans to sell investment securities with unrealized losses, and believes it is more likely than not it would not be required to sell such investment securities before recovery of the respective amortized cost.

23

The amortized cost and estimated fair value of the investment securities portfolio, by contractual maturity, at December 31, 2023, were as follows:

|  | Available-for-sale |  |  | Held-to-maturity |
(Dollars in Thousands) |  | Amortized Cost |  |  | Fair Value |  |  | Amortized Cost |  |  | Fair Value |
Within 1 year |  | $ | 14,469 |  |  | $ | 14,461 |  |  | $ | 78,477 |  |  | $ | 78,594 |
1 – 5 years |  |  | 199,279 |  |  |  | 196,163 |  |  |  | 24,697 |  |  |  | 23,183 |
5 – 10 years |  |  | 252,606 |  |  |  | 237,605 |  |  |  | 15,571 |  |  |  | 14,206 |
After 10 years |  |  | 1,370,092 |  |  |  | 1,175,731 |  |  |  | 1,985,827 |  |  |  | 1,672,917 |
Total investment securities |  | $ | 1,836,446 |  |  | $ | 1,623,960 |  |  | $ | 2,104,572 |  |  | $ | 1,788,900 |

Note 6. Loans Held for Investment and Allowance for Credit Losses

The loans held for investment portfolio consisted of the following at December 31:

|  | 2023 |  |  | 2022 |
|  |  |  |  | Percent of |  |  |  |  |  | Percent of |
(Dollars in Thousands) |  | Amount |  |  | Total LHFI |  |  | Amount |  |  | Total LHFI |
Commercial |  | $ | 2,698,306 |  |  |  | 23.5 | % |  | $ | 2,427,072 |  |  |  | 22.9 | %
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  | 2,382,295 |  |  |  | 20.8 |  |  |  | 2,227,106 |  |  |  | 21.0 |
Income producing |  |  | 3,144,775 |  |  |  | 27.5 |  |  |  | 2,946,746 |  |  |  | 27.7 |
Construction, development, and other |  |  | 22,466 |  |  |  | 0.2 |  |  |  | 19,741 |  |  |  | 0.2 |
Total commercial real estate |  |  | 5,549,536 |  |  |  | 48.5 |  |  |  | 5,193,593 |  |  |  | 48.9 |
Agriculture |  |  | 1,164,967 |  |  |  | 10.2 |  |  |  | 1,139,405 |  |  |  | 10.7 |
Residential mortgage |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage, first lien |  |  | 1,754,803 |  |  |  | 15.3 |  |  |  | 1,545,038 |  |  |  | 14.5 |
Home equity, first lien |  |  | 67,342 |  |  |  | 0.6 |  |  |  | 79,726 |  |  |  | 0.8 |
Total residential mortgage |  |  | 1,822,145 |  |  |  | 15.9 |  |  |  | 1,624,764 |  |  |  | 15.3 |
Retail |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity, second lien |  |  | 127,378 |  |  |  | 1.1 |  |  |  | 126,514 |  |  |  | 1.2 |
Other consumer |  |  | 91,964 |  |  |  | 0.8 |  |  |  | 110,546 |  |  |  | 1.0 |
Total retail |  |  | 219,342 |  |  |  | 1.9 |  |  |  | 237,060 |  |  |  | 2.2 |
Total loans held for investment |  | $ | 11,454,296 |  |  |  | 100.0 | % |  | $ | 10,621,894 |  |  |  | 100.0 | %

Deferred fees net of deferred costs included in the carrying amounts of LHFI were $14.7 million and $13.6 million at December 31, 2023 and 2022, respectively.

Loans totaling $6.7 billion and $4.9 billion at December 31, 2023 and 2022, respectively, were pledged at the Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB). The Company currently pledges residential, agricultural, commercial, construction, and commercial real estate mortgage loans, as permitted by the FHLB and FRB.

The Company may provide loans to certain executive officers, directors, and their related interests. Amounts outstanding were immaterial at December 31, 2023 and 2022.

24

Activity in the allowance for loan losses was as follows:

|  |  |  |  | Commercial |  |  |  |  |  | Residential |  |  |  |  |  |  |
(Dollars in Thousands) |  | Commercial |  |  | Real Estate |  |  | Agriculture |  |  | Mortgage |  |  | Retail |  |  | Total |
Balance December 31, 2021 |  | $ | 27,615 |  |  | $ | 68,509 |  |  | $ | 13,004 |  |  | $ | 11,262 |  |  | $ | 3,257 |  |  | $ | 123,647 |
Provision for loan losses |  |  | 1,072 |  |  |  | (961 | ) |  |  | (3,594 | ) |  |  | (4,945 | ) |  |  | (602 | ) |  |  | (9,030 | )
Charge-offs and recoveries |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Charge-offs |  |  | (539 | ) |  |  | (2,819 | ) |  |  | (241 | ) |  |  | (503 | ) |  |  | (963 | ) |  |  | (5,065 | )
Recoveries |  |  | 385 |  |  |  | 1,124 |  |  |  | 551 |  |  |  | 150 |  |  |  | 1,070 |  |  |  | 3,280 |
Net (charge-offs) recoveries |  |  | (154 | ) |  |  | (1,695 | ) |  |  | 310 |  |  |  | (353 | ) |  |  | 107 |  |  |  | (1,785 | )
Balance December 31, 2022 |  |  | 28,533 |  |  |  | 65,853 |  |  |  | 9,720 |  |  |  | 5,964 |  |  |  | 2,762 |  |  |  | 112,832 |
Adoption of ASU 2016-13 |  |  | (5,577 | ) |  |  | (29,255 | ) |  |  | (3,445 | ) |  |  | 14,985 |  |  |  | 4,235 |  |  |  | (19,057 | )
Provision for loan losses |  |  | 8,124 |  |  |  | 10,442 |  |  |  | 813 |  |  |  | 3,202 |  |  |  | (2,306 | ) |  |  | 20,275 |
Charge-offs and recoveries |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Charge-offs |  |  | (3,749 | ) |  |  | (11,115 | ) |  |  | (62 | ) |  |  | (65 | ) |  |  | (773 | ) |  |  | (15,764 | )
Recoveries |  |  | 460 |  |  |  | 2,943 |  |  |  | 43 |  |  |  | 176 |  |  |  | 843 |  |  |  | 4,465 |
Net (charge-offs) recoveries |  |  | (3,289 | ) |  |  | (8,172 | ) |  |  | (19 | ) |  |  | 111 |  |  |  | 70 |  |  |  | (11,299 | )
Balance December 31, 2023 |  | $ | 27,791 |  |  | $ | 38,868 |  |  | $ | 7,069 |  |  | $ | 24,262 |  |  | $ | 4,761 |  |  | $ | 102,751 |

Accrued interest receivable related to LHFI is excluded from the measurement of the allowance for credit losses and was $65.9 million and $52.9 million at December 31, 2023 and 2022, respectively.

Gross charge-offs of loans by origination year during the year ended December 31, 2023 were as follows:

|  |  |  |  | Commercial |  |  |  |  |  | Residential |  |  |  |  |  |  |
(Dollars in Thousands) |  | Commercial |  |  | Real Estate |  |  | Agriculture |  |  | Mortgage |  |  | Retail |  |  | Total |
Originated in 2023 |  | $ | 406 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 246 |  |  | $ | 652 |
Originated in 2022 |  |  | 2,068 |  |  |  | 2,340 |  |  |  | — |  |  |  | — |  |  |  | 84 |  |  |  | 4,492 |
Originated in 2021 |  |  | 59 |  |  |  | 434 |  |  |  | — |  |  |  | — |  |  |  | 10 |  |  |  | 503 |
Originated in 2020 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 7 |  |  |  | 1 |  |  |  | 8 |
Originated in 2019 |  |  | 46 |  |  |  | 1,881 |  |  |  | — |  |  |  | — |  |  |  | 4 |  |  |  | 1,931 |
Originated prior to 2019 |  |  | — |  |  |  | 6,460 |  |  |  | 62 |  |  |  | 52 |  |  |  | 33 |  |  |  | 6,607 |
Revolving |  |  | 1,170 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 369 |  |  |  | 1,539 |
Revolving converted to term |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6 |  |  |  | 26 |  |  |  | 32 |
Total charge-offs |  | $ | 3,749 |  |  | $ | 11,115 |  |  | $ | 62 |  |  | $ | 65 |  |  | $ | 773 |  |  | $ | 15,764 |

Note, year of origination is based on the original origination date of the loan.

25

The following table provides a summary of loans on accrual and nonaccrual status, as well as the delinquency status of accruing loans, at December 31:

|  | Accruing and Days Past Due |  |  |  |  |  |  |
(Dollars in Thousands) |  | Current or Less Than 30 Days Past Due |  |  | 30 to 89 Days Past Due |  |  | 90 Days and Over |  |  | Nonaccrual(1) |  |  | Total |
2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 2,658,433 |  |  | $ | 9,213 |  |  | $ | 786 |  |  | $ | 29,874 |  |  | $ | 2,698,306 |
Commercial real estate |  |  | 5,534,401 |  |  |  | 3,081 |  |  |  | — |  |  |  | 12,054 |  |  |  | 5,549,536 |
Agriculture |  |  | 1,160,441 |  |  |  | 2,985 |  |  |  | — |  |  |  | 1,541 |  |  |  | 1,164,967 |
Residential mortgage |  |  | 1,801,312 |  |  |  | 12,256 |  |  |  | — |  |  |  | 8,577 |  |  |  | 1,822,145 |
Retail |  |  | 217,183 |  |  |  | 636 |  |  |  | 29 |  |  |  | 1,494 |  |  |  | 219,342 |
Total |  | $ | 11,371,770 |  |  | $ | 28,171 |  |  | $ | 815 |  |  | $ | 53,540 |  |  | $ | 11,454,296 |
2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 2,409,914 |  |  | $ | 3,352 |  |  | $ | 222 |  |  | $ | 13,584 |  |  | $ | 2,427,072 |
Commercial real estate |  |  | 5,169,888 |  |  |  | 9,990 |  |  |  | — |  |  |  | 13,715 |  |  |  | 5,193,593 |
Agriculture |  |  | 1,136,758 |  |  |  | 1,012 |  |  |  | — |  |  |  | 1,635 |  |  |  | 1,139,405 |
Residential mortgage |  |  | 1,604,738 |  |  |  | 8,499 |  |  |  | — |  |  |  | 11,527 |  |  |  | 1,624,764 |
Retail |  |  | 234,855 |  |  |  | 790 |  |  |  | — |  |  |  | 1,415 |  |  |  | 237,060 |
Total |  | $ | 10,556,153 |  |  | $ | 23,643 |  |  | $ | 222 |  |  | $ | 41,876 |  |  | $ | 10,621,894 |

(1) | At December 31, 2023 and 2022, nonaccrual loans without an associated allowance for credit losses were immaterial. Interest income recognized on nonaccrual loans was immaterial for the years ended December 31, 2023 and 2022.

Loans on properties that were acquired through foreclosure or other proceedings on defaulted loans and that were transferred to other assets are immaterial for the years ended December 31, 2023 and 2022. Other nonperforming assets, consisting of OREO, are immaterial for the years ended December 31, 2023 and 2022.

26

The following tables provide information regarding internal credit quality ratings for the loans held for investment portfolio:

|  | At December 31, 2023 |
|  |  |  |  | Criticized |  |  |  |
|  |  |  |  | Special |  |  |  |  |  | Total |  |  |  |
(Dollars in Thousands) |  | Pass |  |  | Mention |  |  | Classified |  |  | Criticized |  |  | Total |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  | $ | 569,777 |  |  | $ | 6,917 |  |  | $ | 2,451 |  |  | $ | 9,368 |  |  | $ | 579,145 |
Originated in 2022 |  |  | 469,522 |  |  |  | 12,617 |  |  |  | 33,911 |  |  |  | 46,528 |  |  |  | 516,050 |
Originated in 2021 |  |  | 376,824 |  |  |  | 16,271 |  |  |  | 5,482 |  |  |  | 21,753 |  |  |  | 398,577 |
Originated in 2020 |  |  | 241,051 |  |  |  | 349 |  |  |  | 4,469 |  |  |  | 4,818 |  |  |  | 245,869 |
Originated in 2019 |  |  | 114,444 |  |  |  | 63 |  |  |  | 5,391 |  |  |  | 5,454 |  |  |  | 119,898 |
Originated prior to 2019 |  |  | 277,132 |  |  |  | 15,623 |  |  |  | 12,635 |  |  |  | 28,258 |  |  |  | 305,390 |
Revolving |  |  | 418,320 |  |  |  | 62,707 |  |  |  | 52,350 |  |  |  | 115,057 |  |  |  | 533,377 |
Total commercial |  |  | 2,467,070 |  |  |  | 114,547 |  |  |  | 116,689 |  |  |  | 231,236 |  |  |  | 2,698,306 |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  |  | 508,743 |  |  |  | 4,887 |  |  |  | 500 |  |  |  | 5,387 |  |  |  | 514,130 |
Originated in 2022 |  |  | 793,619 |  |  |  | 25,286 |  |  |  | 8,407 |  |  |  | 33,693 |  |  |  | 827,312 |
Originated in 2021 |  |  | 802,574 |  |  |  | 2,829 |  |  |  | 125,744 |  |  |  | 128,573 |  |  |  | 931,147 |
Originated in 2020 |  |  | 707,961 |  |  |  | 22,778 |  |  |  | 19,689 |  |  |  | 42,467 |  |  |  | 750,428 |
Originated in 2019 |  |  | 572,291 |  |  |  | 4,117 |  |  |  | 71,147 |  |  |  | 75,264 |  |  |  | 647,555 |
Originated prior to 2019 |  |  | 1,675,946 |  |  |  | 43,376 |  |  |  | 134,295 |  |  |  | 177,671 |  |  |  | 1,853,617 |
Revolving |  |  | 21,841 |  |  |  | — |  |  |  | 3,506 |  |  |  | 3,506 |  |  |  | 25,347 |
Total commercial real estate |  |  | 5,082,975 |  |  |  | 103,273 |  |  |  | 363,288 |  |  |  | 466,561 |  |  |  | 5,549,536 |
Agriculture |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  |  | 156,547 |  |  |  | 270 |  |  |  | 2,345 |  |  |  | 2,615 |  |  |  | 159,162 |
Originated in 2022 |  |  | 152,732 |  |  |  | 77 |  |  |  | 4,913 |  |  |  | 4,990 |  |  |  | 157,722 |
Originated in 2021 |  |  | 112,755 |  |  |  | 690 |  |  |  | 4,545 |  |  |  | 5,235 |  |  |  | 117,990 |
Originated in 2020 |  |  | 95,730 |  |  |  | 1,654 |  |  |  | 2,084 |  |  |  | 3,738 |  |  |  | 99,468 |
Originated in 2019 |  |  | 66,324 |  |  |  | 825 |  |  |  | 1,024 |  |  |  | 1,849 |  |  |  | 68,173 |
Originated prior to 2019 |  |  | 255,155 |  |  |  | 1,238 |  |  |  | 5,542 |  |  |  | 6,780 |  |  |  | 261,935 |
Revolving |  |  | 291,814 |  |  |  | 3,491 |  |  |  | 5,212 |  |  |  | 8,703 |  |  |  | 300,517 |
Total agriculture |  |  | 1,131,057 |  |  |  | 8,245 |  |  |  | 25,665 |  |  |  | 33,910 |  |  |  | 1,164,967 |
Residential mortgages |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  |  | 235,055 |  |  |  | — |  |  |  | 148 |  |  |  | 148 |  |  |  | 235,203 |
Originated in 2022 |  |  | 425,476 |  |  |  | — |  |  |  | 163 |  |  |  | 163 |  |  |  | 425,639 |
Originated in 2021 |  |  | 477,601 |  |  |  | — |  |  |  | 3,596 |  |  |  | 3,596 |  |  |  | 481,197 |
Originated in 2020 |  |  | 427,411 |  |  |  | — |  |  |  | 1,453 |  |  |  | 1,453 |  |  |  | 428,864 |
Originated in 2019 |  |  | 89,938 |  |  |  | — |  |  |  | 112 |  |  |  | 112 |  |  |  | 90,050 |
Originated prior to 2019 |  |  | 106,272 |  |  |  | — |  |  |  | 2,889 |  |  |  | 2,889 |  |  |  | 109,161 |
Revolving |  |  | 38,602 |  |  |  | — |  |  |  | 732 |  |  |  | 732 |  |  |  | 39,334 |
Revolving converted to term |  |  | 12,030 |  |  |  | 65 |  |  |  | 602 |  |  |  | 667 |  |  |  | 12,697 |
Total residential mortgage |  |  | 1,812,385 |  |  |  | 65 |  |  |  | 9,695 |  |  |  | 9,760 |  |  |  | 1,822,145 |
Retail |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  |  | 13,000 |  |  |  | — |  |  |  | 36 |  |  |  | 36 |  |  |  | 13,036 |
Originated in 2022 |  |  | 11,440 |  |  |  | — |  |  |  | 2 |  |  |  | 2 |  |  |  | 11,442 |
Originated in 2021 |  |  | 12,382 |  |  |  | — |  |  |  | 19 |  |  |  | 19 |  |  |  | 12,401 |
Originated in 2020 |  |  | 6,179 |  |  |  | — |  |  |  | 13 |  |  |  | 13 |  |  |  | 6,192 |
Originated in 2019 |  |  | 2,279 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,279 |
Originated prior to 2019 |  |  | 21,914 |  |  |  | — |  |  |  | 683 |  |  |  | 683 |  |  |  | 22,597 |
Revolving |  |  | 134,218 |  |  |  | 4 |  |  |  | 777 |  |  |  | 781 |  |  |  | 134,999 |
Revolving converted to term |  |  | 15,896 |  |  |  | — |  |  |  | 500 |  |  |  | 500 |  |  |  | 16,396 |
Total retail |  |  | 217,308 |  |  |  | 4 |  |  |  | 2,030 |  |  |  | 2,034 |  |  |  | 219,342 |
Total loans |  | $ | 10,710,795 |  |  | $ | 226,134 |  |  | $ | 517,367 |  |  | $ | 743,501 |  |  | $ | 11,454,296 |

Note, year of origination is based on the original origination date of the loan.

27

|  | At December 31, 2022 |
|  |  |  |  | Criticized |  |  |  |
|  |  |  |  | Special |  |  |  |  |  | Total |  |  |  |
(Dollars in Thousands) |  | Pass |  |  | Mention |  |  | Classified |  |  | Criticized |  |  | Total |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Originated in 2022 |  |  | 590,731 |  |  |  | 2,658 |  |  |  | 3,455 |  |  |  | 6,113 |  |  |  | 596,844 |
Originated in 2021 |  |  | 475,172 |  |  |  | 516 |  |  |  | 1,830 |  |  |  | 2,346 |  |  |  | 477,518 |
Originated in 2020 |  |  | 298,256 |  |  |  | 1,551 |  |  |  | 6,295 |  |  |  | 7,846 |  |  |  | 306,102 |
Originated in 2019 |  |  | 151,885 |  |  |  | 941 |  |  |  | 5,688 |  |  |  | 6,629 |  |  |  | 158,514 |
Originated prior to 2019 |  |  | 333,617 |  |  |  | 1,711 |  |  |  | 15,163 |  |  |  | 16,874 |  |  |  | 350,491 |
Revolving |  |  | 491,375 |  |  |  | 20,479 |  |  |  | 25,749 |  |  |  | 46,228 |  |  |  | 537,603 |
Total commercial |  |  | 2,341,036 |  |  |  | 27,856 |  |  |  | 58,180 |  |  |  | 86,036 |  |  |  | 2,427,072 |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Originated in 2022 |  |  | 556,037 |  |  |  | 684 |  |  |  | 3,160 |  |  |  | 3,844 |  |  |  | 559,881 |
Originated in 2021 |  |  | 886,620 |  |  |  | — |  |  |  | 14,129 |  |  |  | 14,129 |  |  |  | 900,749 |
Originated in 2020 |  |  | 800,467 |  |  |  | 4,648 |  |  |  | 62,541 |  |  |  | 67,189 |  |  |  | 867,656 |
Originated in 2019 |  |  | 661,117 |  |  |  | 8,070 |  |  |  | 46,972 |  |  |  | 55,042 |  |  |  | 716,159 |
Originated prior to 2019 |  |  | 1,832,464 |  |  |  | 41,438 |  |  |  | 252,757 |  |  |  | 294,195 |  |  |  | 2,126,659 |
Revolving |  |  | 16,973 |  |  |  | 1,865 |  |  |  | 3,651 |  |  |  | 5,516 |  |  |  | 22,489 |
Total commercial real estate |  |  | 4,753,678 |  |  |  | 56,705 |  |  |  | 383,210 |  |  |  | 439,915 |  |  |  | 5,193,593 |
Agriculture |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Originated in 2022 |  |  | 203,827 |  |  |  | 882 |  |  |  | 4,572 |  |  |  | 5,454 |  |  |  | 209,281 |
Originated in 2021 |  |  | 133,852 |  |  |  | 519 |  |  |  | 4,377 |  |  |  | 4,896 |  |  |  | 138,748 |
Originated in 2020 |  |  | 114,754 |  |  |  | 2,056 |  |  |  | 1,762 |  |  |  | 3,818 |  |  |  | 118,572 |
Originated in 2019 |  |  | 76,289 |  |  |  | 881 |  |  |  | 1,188 |  |  |  | 2,069 |  |  |  | 78,358 |
Originated prior to 2019 |  |  | 285,735 |  |  |  | 2,149 |  |  |  | 8,942 |  |  |  | 11,091 |  |  |  | 296,826 |
Revolving |  |  | 292,576 |  |  |  | 766 |  |  |  | 4,278 |  |  |  | 5,044 |  |  |  | 297,620 |
Total agriculture |  |  | 1,107,033 |  |  |  | 7,253 |  |  |  | 25,119 |  |  |  | 32,372 |  |  |  | 1,139,405 |
Residential mortgages |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Originated in 2022 |  |  | 355,192 |  |  |  | — |  |  |  | 685 |  |  |  | 685 |  |  |  | 355,877 |
Originated in 2021 |  |  | 518,536 |  |  |  | 73 |  |  |  | 3,947 |  |  |  | 4,020 |  |  |  | 522,556 |
Originated in 2020 |  |  | 463,024 |  |  |  | — |  |  |  | 870 |  |  |  | 870 |  |  |  | 463,894 |
Originated in 2019 |  |  | 97,317 |  |  |  | — |  |  |  | 980 |  |  |  | 980 |  |  |  | 98,297 |
Originated prior to 2019 |  |  | 119,172 |  |  |  | — |  |  |  | 4,958 |  |  |  | 4,958 |  |  |  | 124,130 |
Revolving |  |  | 46,131 |  |  |  | — |  |  |  | 979 |  |  |  | 979 |  |  |  | 47,110 |
Revolving converted to term |  |  | 12,189 |  |  |  | 68 |  |  |  | 643 |  |  |  | 711 |  |  |  | 12,900 |
Total residential mortgage |  |  | 1,611,561 |  |  |  | 141 |  |  |  | 13,062 |  |  |  | 13,203 |  |  |  | 1,624,764 |
Retail |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated in 2023 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Originated in 2022 |  |  | 19,515 |  |  |  | — |  |  |  | 10 |  |  |  | 10 |  |  |  | 19,525 |
Originated in 2021 |  |  | 18,108 |  |  |  | — |  |  |  | 28 |  |  |  | 28 |  |  |  | 18,136 |
Originated in 2020 |  |  | 10,434 |  |  |  | — |  |  |  | 12 |  |  |  | 12 |  |  |  | 10,446 |
Originated in 2019 |  |  | 3,802 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,802 |
Originated prior to 2019 |  |  | 29,315 |  |  |  | 3 |  |  |  | 1,167 |  |  |  | 1,170 |  |  |  | 30,485 |
Revolving |  |  | 136,075 |  |  |  | 109 |  |  |  | 701 |  |  |  | 810 |  |  |  | 136,885 |
Revolving converted to term |  |  | 17,576 |  |  |  | — |  |  |  | 205 |  |  |  | 205 |  |  |  | 17,781 |
Total retail |  |  | 234,825 |  |  |  | 112 |  |  |  | 2,123 |  |  |  | 2,235 |  |  |  | 237,060 |
Total loans |  | $ | 10,048,133 |  |  | $ | 92,067 |  |  | $ | 481,694 |  |  | $ | 573,761 |  |  | $ | 10,621,894 |

Note, year of origination is based on the original origination date of the loan.

28

Loan Modifications

In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience financial difficulties in the near-term. Loans modified are immaterial during the years ended December 31, 2023 and 2022.

Note 7. Mortgage Banking

Residential Mortgage Loan Sales

The Company completes residential mortgage loan sales in the normal course of business, primarily to GSEs, resulting in the derecognition of sold loan amounts from the consolidated balance sheet. In accordance with the accounting guidance for the transfer of financial assets, the Company considers any continuing involvement with residential mortgage loans sold in determining whether such assets can be derecognized from the consolidated balance sheet. The Company’s continuing involvement with residential mortgage loans sold is generally limited to customary market servicing arrangements and representation and warranty clauses. MSR assets are recorded at the fair value of the servicing arrangements. Liabilities related to representation and warranty clauses are initially recorded at fair value and were not material at December 31, 2023 or 2022. Any gain or loss on sale of residential mortgage loans depends on the previous carrying amount, the consideration received, and any liabilities incurred in exchange for the sold loans. Upon sale, any servicing assets or other interests that continue to be held by the Company are initially recognized at fair value.

Proceeds from residential mortgage loans sold were $182.4 million and $319.1 million during the years ended December 31, 2023 and 2022, respectively. Net gains on sales of residential mortgage loans included in mortgage banking and loan fee income, including origination fees, the initial fair value of originated MSRs, and servicing release premiums received, were $6.0 million and $6.7 million for the years ended December 31, 2023 and 2022, respectively.

Risk Management

In the normal course of business, the Company issues interest rate lock commitments to customers. To the extent such commitments relate to loans the Company intends to sell to a third party, the commitment is initially recognized at fair value at the date of the commitment. The Company records closed mortgage loans held for sale at the lower of cost or fair value.

29

Through these mortgage banking activities, the Company assumes interest rate risk through interest rate lock commitments, as well as mortgage loans held for sale. As part of the Company’s risk management strategy, the Company makes offsetting commitments for future delivery of residential mortgage-backed securities. The primary objective of economically hedging mortgage banking activities is to offset changes in the fair value of interest rate lock commitments and mortgage loans held for sale. Activity included in mortgage banking and loan fees was $0.8 million in gains and $3.9 million in gains for the years ended December 31, 2023 and 2022, respectively. Refer to Note 18 for additional information regarding this economic hedging activity and Note 21 for information regarding the fair value of interest rate lock commitments and mortgage loans held for sale.

Mortgage Servicing Rights

The Company serviced $2.1 billion of residential mortgage loans for others at December 31, 2023 and 2022. Loan servicing fees included in mortgage banking and loan fees were $5.2 million and $5.4 million for the years ended December 31, 2023 and 2022, respectively.

The fair value of MSRs is recorded within goodwill and other intangibles, net on the consolidated balance sheet. Changes in the fair value of MSRs, which are included in mortgage banking and loan fees on the consolidated income statement, are summarized as follows:

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Balance at beginning of period |  | $ | 25,331 |  |  | $ | 19,458 |
Origination of servicing assets |  |  | 1,318 |  |  |  | 3,081 |
Change in fair value of MSRs Due to market changes |  |  | (1,270 | ) |  |  | 5,635 |
Due to loan portfolio runoff |  |  | (2,069 | ) |  |  | (2,843 | )
Balance at end of period |  | $ | 23,310 |  |  | $ | 25,331 |

The following table provides the aggregate unpaid principal balance of mortgage loans serviced for others, as well as the third parties for which loans are serviced, at December 31:

(Dollars in Thousands) |  | 2023 |  |  | 2022 |
Federal National Mortgage Association |  | $ | 1,704,661 |  |  | $ | 1,737,312 |
Federal Home Loan Mortgage Corporation |  |  | 376,213 |  |  |  | 384,479 |
Federal Home Loan Bank and other |  |  | 409 |  |  |  | 452 |
|  | $ | 2,081,283 |  |  | $ | 2,122,243 |

In the determination of the fair value of MSRs, certain key assumptions are made. The key assumptions considered by the Company were the constant prepayment rate (“CPR”), which is an estimated loan prepayment rate that uses historical prepayment rates for previous loans similar to the loans being evaluated, and a market based discount rate. Refer to Note 21 for additional information regarding the fair value of MSRs.

The following table provides information about the fair value of MSRs and the related key assumptions at December 31:

(Dollars in Thousands) |  | 2023 |  |  | 2022 |
Unpaid principal balance of servicing portfolio |  | $ | 2,081,283 |  |  | $ | 2,122,243 |
Fair value |  | $ | 23,310 |  |  | $ | 25,331 |
Value (fair value divided by servicing portfolio, in basis points) |  |  | 112 |  |  |  | 119 |
Weighted average expected prepayment (constant prepayment rate) |  |  | 8.6 | % |  |  | 7.3 | %
Weighted average discount rate |  |  | 10.3 | % |  |  | 10.0 | %

30

Note 8. Premises, Equipment, and Lease Commitments

Premises and equipment at December 31 consisted of the following: |  |  |
(Dollars in Thousands) |  | 2023 |  |  | 2022 |
Land |  | $ | 23,366 |  |  | $ | 25,872 |
Buildings and improvements |  |  | 148,421 |  |  |  | 134,153 |
Furniture and equipment |  |  | 68,597 |  |  |  | 72,620 |
Construction in progress |  |  | 1,313 |  |  |  | 5,171 |
Right of use assets |  |  | 17,497 |  |  |  | 19,591 |
Total premises and equipment |  |  | 259,194 |  |  |  | 257,407 |
Less: accumulated depreciation and amortization |  |  | 118,225 |  |  |  | 128,058 |
Premises and equipment, net |  | $ | 140,969 |  |  | $ | 129,349 |

Depreciation and amortization expense on premises and equipment was $10.5 million and $11.4 million for the years ended December 31, 2023 and 2022, respectively. Depreciation on premises and equipment is calculated on a straight-line basis for book purposes. Buildings are depreciated over an estimated useful life not to exceed 39 years, furniture and equipment is depreciated over periods of between 3 and 10 years, and leasehold improvements are depreciated over the term of the underlying lease, not to exceed the estimated useful life of the improvements.

The Company leases certain facilities for use in its operations, which each are accounted for as operating leases. Leased facilities include retail branches and other corporate offices and locations. For each lease, the Company records a lease liability and a corresponding right of use (ROU) asset. The Company had recorded $17.5 million and $19.5 million of ROU assets within premises and equipment, net and $19.3 million and $20.2 million of lease liabilities within accrued expenses and other liabilities on the consolidated balance sheet at December 31, 2023 and 2022 respectively. Total expenses incurred related to these lease agreements during the year ended December 31, 2023 and 2022, was $5.2 million and $5.4 million respectively, which was primarily attributable to contractual lease payments.

At December 31, 2023, the weighted average remaining term and discount rate of the Company’s leased assets were 11.5 years and 3.4%, respectively. At December 31, 2022, the weighted average remaining term and discount rate of the Company’s leased assets were 12.3 years and 3.2%, respectively.

Contractual future minimum rental payments for operating leases in excess of one year in subsequent fiscal years are as follows:

(Dollars in Thousands) |  |  |
2024 |  | $ | 2,876 |
2025 |  |  | 2,525 |
2026 |  |  | 1,922 |
2027 |  |  | 1,984 |
2028 |  |  | 1,930 |
2029 and thereafter |  |  | 12,389 |

Note 9. Intangible Assets

Intangible assets consist of goodwill, core deposit premiums, MSRs, and other intangibles. Goodwill and MSRs are not amortized. Goodwill is assessed for impairment on an annual basis, and MSRs are recorded at fair value. No impairment of goodwill was recorded for the years ending December 31, 2023 and 2022. Refer to Note 7 for additional information regarding MSRs.

Amortization of core deposit premiums and other intangibles is included in noninterest expense on the consolidated statement of income, with amortization periods of 7 to 15 years.

31

Intangible assets at December 31 consisted of:

|  | 2023 |  |  | 2022 |
|  | Gross |  |  |  |  |  | Net |  |  | Gross |  |  |  |  |  | Net |
|  | Carrying |  |  | Accumulated |  |  | Carrying |  |  | Carrying |  |  | Accumulated |  |  | Carrying |
(Dollars in Thousands) |  | Value |  |  | Amortization |  |  | Value |  |  | Value |  |  | Amortization |  |  | Value |
Goodwill |  | $ | 112,686 |  |  | $ | — |  |  | $ | 112,686 |  |  | $ | 112,686 |  |  | $ | — |  |  | $ | 112,686 |
Core deposit premiums |  |  | 3,498 |  |  |  | 3,498 |  |  |  | — |  |  |  | 3,498 |  |  |  | 3,462 |  |  |  | 36 |
MSRs |  |  | 23,310 |  |  |  | — |  |  |  | 23,310 |  |  |  | 25,331 |  |  |  | — |  |  |  | 25,331 |
Other intangibles |  |  | 2,105 |  |  |  | 1,370 |  |  |  | 735 |  |  |  | 2,105 |  |  |  | 1,254 |  |  |  | 851 |
Total |  | $ | 141,599 |  |  | $ | 4,868 |  |  | $ | 136,731 |  |  | $ | 143,620 |  |  | $ | 4,716 |  |  | $ | 138,904 |

The Company recorded aggregate intangible amortization expense of $0.2 million and $0.6 million for the years ended December 31, 2023 and 2022, respectively.

The estimated amortization expense for the next five years is as follows:

(Dollars in Thousands) |  |  |
2024 |  | $ | 116 |
2025 |  |  | 116 |
2026 |  |  | 116 |
2027 |  |  | 112 |
2028 |  |  | 95 |

Note 10. Deposits

Total deposits at December 31 consisted of: |  |  |
(Dollars in Thousands) |  | 2023 |  |  | 2022 |
Noninterest-bearing |  | $ | 3,967,525 |  |  | $ | 4,906,954 |
Non-maturity interest-bearing |  |  | 7,693,554 |  |  |  | 7,576,110 |
Time certificates of deposit Balance $250,000 or less |  |  | 960,849 |  |  |  | 520,247 |
Balance more than $250,000 |  |  | 308,198 |  |  |  | 180,241 |
Total deposits |  | $ | 12,930,126 |  |  | $ | 13,183,552 |

The following table provides information regarding the maturity of time certificates of deposit at December 31:

|  | Balances Greater Than $250,000 |  |  | Balances $250,000 or Less |
(Dollars in Thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
3 months or less |  | $ | 44,735 |  |  | $ | 54,131 |  |  | $ | 194,982 |  |  | $ | 145,801 |
3 months to 6 months |  |  | 68,743 |  |  |  | 43,385 |  |  |  | 169,766 |  |  |  | 79,102 |
6 months to 12 months |  |  | 154,458 |  |  |  | 55,447 |  |  |  | 365,076 |  |  |  | 174,860 |
Over 12 months |  |  | 40,262 |  |  |  | 27,278 |  |  |  | 231,025 |  |  |  | 120,484 |
Total time certificates |  | $ | 308,198 |  |  | $ | 180,241 |  |  | $ | 960,849 |  |  | $ | 520,247 |

Note 11. Short-Term Borrowings

Short-term borrowings, which have an original maturity of one year or less, consist of federal funds, repurchase agreements, and FHLB borrowings. Investment securities of $64.2 million and $85.9 million at December 31, 2023 and 2022, respectively, were sold with agreements to repurchase (“repurchase agreements”). All repurchase agreements are customer related. There were no federal funds borrowings at December 31, 2023 and 2022.

32

The following table provides information regarding short-term borrowings at and for the years ended December 31, 2023 and 2022:

|  | Federal Funds |  |  |  |
|  | and Repurchase |  |  | FHLB |
Year Ended December 31 (Dollars in Thousands) |  | Agreements |  |  | Borrowings |
Balance at December 31 |  |  |  |  |  |
2023 |  | $ | 64,230 |  |  | $ | 595,000 |
2022 |  | $ | 85,946 |  |  | $ | 775,000 |
Weighted average interest rate at December 31 |  |  |  |  |  |  |  |
2023 |  |  | 0.05 | % |  |  | 5.59 | %
2022 |  |  | 0.09 | % |  |  | 4.71 | %
Maximum amount outstanding at any month-end |  |  |  |  |  |  |  |
2023 |  | $ | 82,380 |  |  | $ | 1,450,000 |
2022 |  | $ | 107,228 |  |  | $ | 775,000 |
Average amount outstanding during year |  |  |  |  |  |  |  |
2023 |  | $ | 76,714 |  |  | $ | 886,327 |
2022 |  | $ | 101,845 |  |  | $ | 109,201 |
Weighted average interest rate during year |  |  |  |  |  |  |  |
2023 |  |  | 0.07 | % |  |  | 5.34 | %
2022 |  |  | 0.07 | % |  |  | 3.89 | %

Note 12. Long-Term Debt

Long-term debt, which have an original maturity of more than one year, at December 31 consisted of the following:

(Dollars in Thousands) |  | 2023 |  |  | 2022 |
Junior subordinated deferrable interest debentures |  | $ | 61,856 |  |  | $ | 61,856 |
Subordinated notes |  |  | 100,000 |  |  |  | 100,000 |
FHLB borrowings |  |  | 755,000 |  |  |  | — |
Tax credit related borrowings |  |  | 104,750 |  |  |  | 76,838 |
Other(A) |  |  | 1,512 |  |  |  | 2,970 |
Total long-term debt |  | $ | 1,023,118 |  |  | $ | 241,664 |

(A) Includes amounts related to derivatives and hedging activities for subordinated notes. Refer to Note 18 for additional information.

In June 2006, the Company issued $61.9 million in junior subordinated deferrable interest debentures (“debentures”) in connection with the issuance of $60.0 million of capital securities through Bremer Statutory Trust II (“BSTII”). The Company evaluated BSTII and concluded that the trust is a variable interest entity not subject to consolidation. The debentures bear interest at a floating rate of three-month CME Term SOFR, plus 1.86%, resulting in a rate of 7.24% at December 31, 2023. The debentures mature on June 1, 2036 but may be redeemed by the Company at par on any quarterly interest payment date at the Company’s discretion. At December 31, 2023, the $60.0 million in capital securities qualified as Tier I capital under guidelines of the FRB.

33

In December 2014, the Company issued $100.0 million in subordinated notes to support ongoing business operations and the Company’s future growth strategy. The notes bear interest at a 5.20% fixed rate and mature on December 30, 2024. At December 31, 2023, none of the subordinated debt qualified as Tier II capital under guidelines of the FRB. The Company phased out the subordinated notes from Tier II capital over a 5 year period, beginning in December 2019. In January 2015, the Company entered into a 10-year, pay variable, receive fixed, interest rate swap to hedge the subordinated debt. The company terminated the swap in July 2021. For additional detail, see the “Fair Value Hedges of Interest Rate Risk” section under Note 18.

The FHLB borrowings bear interest at rates ranging from 4.13% to 5.57%, with maturity dates from 2024 through 2028, and are secured by certain loans as discussed in Note 6.

The Company enters into certain tax credit investment structures related to the New Markets Tax Credits program (“NMTCs”). As a result, the Company records certain notes payable, which are issued in the normal course of business as part of NMTC investment structures. The purpose of these notes is to supplement the investments made by the Company by financing projects that generate tax credits. Each of the notes is structured with a seven year interest only period, and maturity dates ranging from 2027 through 2053. Each structure contains separate put agreements, which allow the Company to put the notes to designated third parties at the end of the seven year interest only period. The notes bear a weighted average interest rate of 3.45%.

Maturities of outstanding long-term debt at December 31, 2023 were as follows:

(Dollars in Thousands) |  |  |
2024 |  | $ | 486,512 |
2025 |  |  | 145,000 |
2026 |  |  | 115,000 |
2027 |  |  | 85,000 |
2028 and later |  |  | 191,606 |
Total |  | $ | 1,023,118 |

Note 13. Employee Benefit Plans Pension Plans

The Company maintains the Bremer Retirement Plan (“Pension Plan”), which is a qualified defined benefit pension plan designed to provide retirement benefits to substantially all the employees of the Company, its subsidiaries, and OBT. An employee who has attained the age of 21 and completed 1,000 hours of service within a 12-month period shall become a participant in the Pension Plan on the next semiannual entry date. In addition, the Company has a Supplemental Executive Retirement Plan (“SERP”), an unfunded plan designed to supplement the benefits determined under the Pension Plan for certain highly compensated employees of the Company to the extent the benefits under the Pension Plan are capped by compensation limits.

Other Postretirement Benefits

The Company provides certain retiree health care benefits relating primarily to medical insurance co-payments to retired employees between the ages of 55 and 65. The Company amended the Company’s Retiree Medical Plan effective January 1, 2006, which gradually eliminated the medical premium subsidy for retired employees over a period of ten years ending December 31, 2015, while continuing to allow retired employees access to the Company’s group medical coverage. The Company accrues the cost of these benefits during the employees’ active service, and benefits are funded as incurred.

34

Pension Plans and Other Postretirement Benefits

The Company recognizes actuarial gains or losses and prior service costs or credits, and measures plan assets and pension obligations, and accumulated other comprehensive income or loss, net of tax, at December 31 of each year. The Company expects to amortize the following amounts from accumulated other comprehensive income in shareholders’ equity on the consolidated balance sheet to net periodic benefit cost in noninterest expense on the consolidated statement of income during the year ended December 31, 2024:

(Dollars in Thousands) |  | Pension Benefits |  |  | Other Postretirement Benefits |
Gain (loss), net |  | $ | 9,460 |  |  | $ | (712 | )

The following table summarizes the changes in benefit obligations and plan assets for the years ended December 31, and the funded status and amounts recognized on the consolidated balance sheet at December 31 for the retirement plans:

|  | Pension Benefits |  |  | Other Postretirement Benefits |
(Dollars in Thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Change in Projected Benefit Obligation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Benefit obligation at beginning of period |  | $ | 260,543 |  |  | $ | 358,890 |  |  | $ | 4,997 |  |  | $ | 6,564 |
Service cost |  |  | 7,608 |  |  |  | 12,400 |  |  |  | 215 |  |  |  | 287 |
Interest cost |  |  | 14,230 |  |  |  | 10,956 |  |  |  | 263 |  |  |  | 192 |
Participants’ contributions |  |  | — |  |  |  | — |  |  |  | 648 |  |  |  | 895 |
Actuarial loss (gain) |  |  | 13,663 |  |  |  | (110,972 | ) |  |  | (820 | ) |  |  | (1,366 | )
Benefit payments |  |  | (11,246 | ) |  |  | (10,731 | ) |  |  | (749 | ) |  |  | (1,575 | )
Benefit obligation at end of period |  | $ | 284,798 |  |  | $ | 260,543 |  |  | $ | 4,554 |  |  | $ | 4,997 |
Change in Fair Value of Plan Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value at beginning of period |  | $ | 313,824 |  |  | $ | 464,843 |  |  | $ | — |  |  | $ | — |
Actual return on plan assets |  |  | 33,814 |  |  |  | (140,634 | ) |  |  | — |  |  |  | — |
Employer contributions |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 680 |
Participant contributions |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 895 |
Benefit payments |  |  | (10,900 | ) |  |  | (10,385 | ) |  |  | — |  |  |  | (1,575 | )
Fair value at end of period |  | $ | 336,738 |  |  | $ | 313,824 |  |  | $ | — |  |  | $ | — |
Funded (Unfunded) Status |  | $ | 51,940 |  |  | $ | 53,281 |  |  | $ | (4,554 | ) |  | $ | (4,997 | )
Components of the Consolidated Balance Sheet |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Prepaid benefit asset |  | $ | 55,020 |  |  | $ | 56,400 |  |  | $ | — |  |  | $ | — |
Accrued benefit liability |  |  | (3,080 | ) |  |  | (3,119 | ) |  |  | (4,554 | ) |  |  | (4,997 | )
Recognized amount |  | $ | 51,940 |  |  | $ | 53,281 |  |  | $ | (4,554 | ) |  | $ | (4,997 | )
Accumulated Other Comprehensive Income (Loss), Pretax |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Actuarial gain (loss), net |  | $ | (109,023 | ) |  | $ | (118,493 | ) |  | $ | 6,923 |  |  | $ | 6,779 |
Prior service credit (cost), net |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Recognized amount |  | $ | (109,023 | ) |  | $ | (118,493 | ) |  | $ | 6,923 |  |  | $ | 6,779 |

35

The accumulated benefit obligation for the Company’s pension plans was $263.2 million and $240.7 million at December 31, 2023 and 2022, respectively. Net pension expense for the plans at December 31 was as follows:

|  | Pension Benefits |  |  | Other Postretirement Benefits |
Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Service cost |  | $ | 7,608 |  |  | $ | 12,400 |  |  | $ | 215 |  |  | $ | 287 |
Interest cost |  |  | 14,230 |  |  |  | 10,956 |  |  |  | 263 |  |  |  | 192 |
Expected return on plan assets |  |  | (21,561 | ) |  |  | (29,871 | ) |  |  | — |  |  |  | — |
Actuarial loss (gain) amortization |  |  | 10,880 |  |  |  | 1,682 |  |  |  | (677 | ) |  |  | (557 | )
Net periodic benefit cost (income) |  | $ | 11,157 |  |  | $ | (4,833 | ) |  | $ | (199 | ) |  | $ | (78 | )

The components of net periodic benefit cost, other than the service cost component, are included in other noninterest expense in the consolidated statement of income.

Weighted average assumptions used to determine benefit obligations at December 31, as well as the weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were as follows:

|  | Pension Benefits |  |  | Other Postretirement Benefits |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Benefit Obligations at December 31 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  |  | 5.21 | % |  |  | 5.59 | % |  |  | 5.21 | % |  |  | 5.59 | %
Rate of compensation increase |  |  | 4.00 | % |  |  | 4.00 | % |  |  | N/A |  |  |  | N/A |
Net Periodic Benefit Cost for Years Ended December 31 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  |  | 5.59 | % |  |  | 3.10 | % |  |  | 5.59 | % |  |  | 3.10 | %
Expected return on plan assets |  |  | 7.00 | % |  |  | 6.50 | % |  |  | N/A |  |  |  | N/A |
Rate of compensation increase |  |  | 4.00 | % |  |  | 4.00 | % |  |  | N/A |  |  |  | N/A |

The discount rate utilized to determine future pension obligations is based primarily on a review of current high-quality fixed-income securities that could be used to settle the obligations of the plan.

The December 31, 2023 assumption for the long-term rate of return on plan assets, which will be used to determine net periodic benefit cost for the year ended December 31, 2024, is 7.0%, representing the expected long-term rate of return on plan assets reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the benefit obligation. The assumption was determined by reflecting expectations regarding future long-term rates of return for the investment portfolio, with consideration given to the distribution of investments by, and historical rates of return of, each individual asset class.

For purposes of other postretirement benefits measurements, the Company assumed health care trend rates at December 31, as follows:

|  | 2023 |  |  | 2022 |
Current year trend |  |  | 6.25 | % |  |  | 6.50 | %
Ultimate year trend |  |  | 5.00 | % |  |  | 5.00 | %
Year of ultimate trend rates |  |  | 2029 |  |  |  | 2029 |

36

The following table presents information about the Company’s Pension Plan assets measured at fair value on a recurring basis at December 31 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. See Note 21 for a description of Level 1, Level 2, and Level 3 hierarchies.

(Dollars in Thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and money market funds |  | $ | 9,074 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,074 |
Group trust at NAV |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 187,379 | (1)
Comingled funds at NAV |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 88,538 | (1)
Collective investment trust at NAV |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 51,747 | (1)
Total |  | $ | 9,074 |  |  | $ | — |  |  | $ | — |  |  | $ | 336,738 |
2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and money market funds |  | $ | 8,011 |  |  | $ | — |  |  | $ | — |  |  | $ | 8,011 |
Group trust at NAV |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 189,842 | (1)
Comingled funds at NAV |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 68,118 | (1)
Collective investment trust at NAV |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 47,853 | (1)
Total |  | $ | 8,011 |  |  | $ | — |  |  | $ | — |  |  | $ | 313,824 |

(1) | These investments are valued based on net asset value per share as a practical expedient; fair values are provided to reconcile to total investment assets of the plans at fair value.

The Company’s long-term asset allocation targets are 75% return seeking assets and 25% liability- hedging fixed income. The return seeking assets allocation is distributed over a number of professionally managed comingled investment trusts and real estate investment trust. The Company regularly reviews the actual asset allocation and periodically rebalances the investments to the targeted allocation when considered appropriate. The Company believes that 7.0% is a reasonable long-term rate of return assumption for the pension plan assets for 2024, given the long-term asset allocation strategy and investment time horizon. During the years ended December 31, 2023 and 2022, the pension plan assets generated total composite returns of 11.2% and -30.5%, respectively. The Company will continue to evaluate the actuarial assumptions, including the expected rate of return, at least annually, and will adjust as necessary.

In developing strategic asset allocation guidelines for the plan, an emphasis is placed on the long-term characteristics of individual asset classes, the benefits of diversification among multiple asset classes, and the Company’s long-term return expectations for the plan. Consideration is also given to the proper level of risk of the plan, particularly with respect to the long-term nature of the plan’s liabilities and long-term investment horizon of plan assets.

The Company seeks to maintain an adequately funded Pension Plan, defined as having a fair market value of plan assets to projected benefit obligation ratio of at least 94% to 100%. This is generally achieved by making annual cash contributions to the plan in an amount at least equal to the current year’s calculated service cost. Contributions to the plan are intended to provide for benefits attributed to service to date and for those expected to be earned in the future.

37

The Company currently expects that there will be no minimum required contribution to the pension plan in 2024 under the provisions of the Pension Protection Act of 2006, as modified by the Worker, Retiree, and Employer Recovery Act of 2008. However, management may make a discretionary cash contribution to ensure that the plans remain adequately funded, and expects to make the following benefit payments, which reflect expected future service, as appropriate:

Year Ended December 31 (Dollars in Thousands) |  | Pension Benefits |  |  | Postretirement Benefits |
2024 |  | $ | 12,819 |  |  | $ | 499 |
2025 |  |  | 13,659 |  |  |  | 463 |
2026 |  |  | 14,620 |  |  |  | 433 |
2027 |  |  | 15,550 |  |  |  | 434 |
2028 |  |  | 16,335 |  |  |  | 408 |
2029 through 2033 |  |  | 92,113 |  |  |  | 2,085 |

401(k) Plan

The 401(k) Plan is a defined contribution plan. The Company provides a 100% match of the first 1% to 5% of plan compensation the employee contributes on a pretax basis. Total employer contributions of $6.0 million and $5.9 million were made for the years ended December 31, 2023 and 2022, respectively.

Employee Stock Ownership Plan

The Employee Stock Ownership Plan is a defined contribution plan covering substantially all employees of the Company, and the plan holds 103,356 shares of Class A common stock of the Company. Contributions to the plan are made exclusively by the Company as determined by the annual cash needs of the plan and are credited to the individual accounts of the employees who are participants in the plan for the fiscal year the contribution is made. Contributions and forfeitures are allocated to participants on the basis of total compensation, defined as 100% of base pay and eligible commissions earned during the plan year, while dividends paid on allocated shares increase participant accounts. Contributions of $1.0 million and $1.5 million were made to this plan during the years ended December 31, 2023 and 2022, respectively.

Note 14. Other Noninterest Income

The following table provides information regarding the components of other noninterest income:

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Other loan fees |  | $ | 4,515 |  |  | $ | 6,145 |
Equity in earnings of unconsolidated subsidiaries |  |  | 713 |  |  |  | 6,914 |
Other |  |  | 13,252 |  |  |  | 13,027 |
Total other noninterest income |  | $ | 18,480 |  |  | $ | 26,086 |

Note 15. Other Noninterest Expense

The following table provides information regarding the components of other noninterest expense:

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Professional fees |  | $ | 26,647 |  |  | $ | 20,338 |
Marketing |  |  | 9,366 |  |  |  | 8,773 |
Software development contract termination costs |  |  | — |  |  |  | 5,361 |
Other lending expense |  |  | 3,645 |  |  |  | 3,838 |
Other components of net benefit costs |  |  | 3,134 |  |  |  | (17,599 | )
Other |  |  | 41,045 |  |  |  | 33,484 |
Total other noninterest expense |  | $ | 83,837 |  |  | $ | 54,195 |

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Note 16. Income Taxes

The components for the provision for income taxes were:

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | 16,200 |  |  | $ | 26,309 |
State |  |  | 18,441 |  |  |  | 15,141 |
Deferred |  |  | (2,233 | ) |  |  | 8,182 |
Total provision for income taxes |  | $ | 32,408 |  |  | $ | 49,632 |

The following provides a reconciliation between the provision for income taxes and the amount computed by applying the statutory federal income tax rate:

Year Ended December 31 (Dollars in Thousands) |  | 2023 |  |  | 2022 |
Federal tax at statutory rate |  | $ | 32,847 |  |  | $ | 52,099 |
State income tax, net of federal tax benefits |  |  | 9,668 |  |  |  | 13,738 |
Less tax effect of: |  |  |  |  |  |  |  |
Interest on state and political subdivision securities |  |  | 1,669 |  |  |  | 2,200 |
Other tax-exempt interest |  |  | 8,270 |  |  |  | 7,478 |
Tax credits |  |  | 8,247 |  |  |  | 6,723 |
Unrecognized tax benefits |  |  | (6,252 | ) |  |  | (232 | )
Other |  |  | (1,827 | ) |  |  | 36 |
Total provision for income taxes |  | $ | 32,408 |  |  | $ | 49,632 |

The Company invests in certain structures, which are designed to provide income tax credits on a federal and/or state basis, including New Market Tax Credits (NMTCs), low-income housing tax credits, and historic tax credits. Tax credits recognized based on these investments were $8.2 million and $6.7 million for the years ended December 31, 2023 and 2022, respectively.

Temporary differences resulting in deferred tax assets and liabilities, included on a net basis within accrued expenses and other liabilities on the consolidated balance sheet, were as follows at December 31:

(Dollars in Thousands) |  | 2023 |  |  | 2022 |
Deferred tax assets |  |  |  |  |  |  |  |
Allowance for credit losses |  | $ | 28,827 |  |  | $ | 32,433 |
Accumulated other comprehensive loss, employee benefit plans |  |  | 27,567 |  |  |  | 30,163 |
Compensation and employee benefits |  |  | 16,955 |  |  |  | 18,711 |
Lease liability |  |  | 5,299 |  |  |  | 5,402 |
Deferred loan fees |  |  | 3,564 |  |  |  | 3,217 |
Nonaccrual loan interest income |  |  | 1,353 |  |  |  | 1,389 |
Partnership investment |  |  | 607 |  |  |  | 1,775 |
Accumulated other comprehensive loss, available-for-sale securities |  |  | 57,371 |  |  |  | 65,064 |
Other |  |  | 4,357 |  |  |  | 2,181 |
Gross deferred tax assets |  | $ | 145,900 |  |  | $ | 160,335 |
Deferred tax liabilities |  |  |  |  |  |  |  |
Prepaid pension asset |  | $ | 44,794 |  |  | $ | 46,593 |
Goodwill and other intangible assets |  |  | 15,817 |  |  |  | 14,844 |
Premises and equipment |  |  | 5,689 |  |  |  | 4,767 |
Mortgage servicing rights |  |  | 6,071 |  |  |  | 6,404 |
Right of use asset |  |  | 4,803 |  |  |  | 5,243 |
Accumulated other comprehensive income, derivatives |  |  | 1,082 |  |  |  | 1,807 |
Prepaid expenses |  |  | 1,010 |  |  |  | 838 |
Other |  |  | 2,003 |  |  |  | 1,510 |
Gross deferred tax liabilities |  | $ | 81,269 |  |  | $ | 82,006 |
Net deferred tax asset (liability) |  | $ | 64,631 |  |  | $ | 78,329 |

39

The Company’s deferred tax assets represent the anticipated federal, and state tax benefits expected to be realized in future years upon the utilization of the underlying tax attributes comprising the balance. In management’s opinion, the deferred tax assets will be fully realized through future reversals of deferred tax liabilities along with future taxable income exclusive of existing deferred tax liabilities. Accordingly, no valuation allowance has been provided.

Liabilities for unrecognized tax benefits were $7.4 million and $1.2 million at December 31, 2023 and 2022, respectively. The Company is no longer subject to income tax examinations for years prior to 2020 for federal purposes and 2019 for state purposes.

Note 17. Commitments and Contingencies

The Company utilizes various off-balance-sheet instruments to satisfy the financing needs of customers. These instruments represent contractual obligations of the Company to provide funding, within a specified time period, to a customer. The following provides information regarding the outstanding commitments at December 31:

(Dollars in Thousands) |  | 2023 |  |  | 2022 |
Loan commitments |  | $ | 3,054,683 |  |  | $ | 3,421,432 |
Standby letters of credit |  |  | 57,639 |  |  |  | 63,657 |

Loan commitments represent contractual agreements to provide funding to customers over a specified time period so long as there is no violation of any condition of the contract. These loans are generally operating lines of credit.

Standby letters of credit represent a conditional commitment to satisfy an obligation to a third party, generally to support public and private borrowing arrangements, on behalf of the customer.

The Company’s potential exposure to credit loss in the event of nonperformance by the other party is represented by the contractual amount of those instruments. The credit risk associated with letters of credit and loan commitments is substantially the same as extending credit in the form of a loan; therefore, the same credit policies apply in evaluating potential letters of credit or loan commitments. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management’s credit evaluation. The type of collateral held varies, but includes real estate, accounts receivable, inventory, and productive assets. Management assesses unfunded commitments for credit risk and estimates a liability related to losses that may result from the assessed risk. The liability for unfunded commitments, included in accrued expenses and other liabilities on the consolidated balance sheet, was $3.1 million and $8.3 million at December 31, 2023 and 2022, respectively.

40

Other Commitments and Contingencies

Under contracts with service providers, the Company is obligated for future payments. Contractual future minimum payments over the term of the contracts are as follows:

(Dollars in Thousands) |  |  |
2024 |  | $ | 23,454 |
2025 |  |  | 20,464 |
2026 |  |  | 19,317 |
2027 |  |  | 17,684 |
2028 |  |  | 17,231 |
2029 and later |  |  | 14,796 |

The Company is routinely involved in legal actions that are incidental to the business of the Company. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the Company’s consolidated financial position or results of operations.

Note 18. Derivatives and Hedging Activities

Risk Management Objectives of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount and duration of its wholesale funding, investment portfolio, and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain floating and fixed-rate borrowings. In addition, the Company may also utilize derivative financial positions to hedge changes in the fair value of certain related assets or liabilities and to accommodate the business requirements of its customers.

41

Fair Values of Derivative Instruments on the Consolidated Balance Sheet

The following table presents the fair value of the Company’s derivative financial instruments and notional amounts at December 31, categorized by hedging designation:

|  | Assets |  |  | Liabilities |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
(Dollars in Thousands) |  | Fair Value |  |  | Notional Value |  |  | Fair Value |  |  | Notional Value |  |  | Fair Value |  |  | Notional Value |  |  | Fair Value |  |  | Notional Value |
Designated hedging |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Not designated hedging |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer-related: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  | 33,155 |  |  |  | 2,116,933 |  |  |  | 33,856 |  |  |  | 1,898,377 |  |  |  | 140,556 |  |  |  | 2,116,933 |  |  |  | 167,862 |  |  |  | 1,898,377 |
Credit contracts |  |  | — |  |  |  | 49,819 |  |  |  | 9 |  |  |  | 49,087 |  |  |  | — |  |  |  | 83,606 |  |  |  | 1 |  |  |  | 60,613 |
Mortgage banking: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate locks |  |  | 304 |  |  |  | 6,883 |  |  |  | 177 |  |  |  | 4,929 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Forward contracts |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 218 |  |  |  | 11,000 |  |  |  | 53 |  |  |  | 6,000 |
Total derivatives |  | $ | 33,459 |  |  | $ | 2,173,635 |  |  | $ | 34,042 |  |  | $ | 1,952,393 |  |  | $ | 140,774 |  |  | $ | 2,211,539 |  |  | $ | 167,916 |  |  | $ | 1,964,990 |

Certain derivative exchanges have enacted a rule change which in effect results in the legal characterization of variation margin payments for certain derivative contracts as settlement of the derivatives mark-to- market exposure and not collateral. Accordingly, the Company’s reporting of certain derivatives reflects variation margin recorded on trades cleared through these exchanges as settled. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.

Derivatives are classified as other assets or other liabilities on the consolidated balance sheet.

Derivatives Designated as Hedging Instruments

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed-rate obligations due to changes in the benchmark interest rate, SOFR. Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. As of December 31, 2023, the Company did not have any interest rate contracts that were designated as fair value hedges.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related derivatives.

During 2021, the Company terminated an interest rate swap that was designated as a fair value hedge of interest rate risk associated the Company’s fixed rate subordinated notes. The interest rate swap, which had a notional value of $100.0 million, terminated with a settlement value of $5.0 million. The $5.0 million basis adjustment to the fixed rate subordinated notes’ carrying amount will be amortized as a reduction of interest expense between July 2021, the date of the interest rate swap termination, and December of 2024, the maturity date of the debt. Amortization of the basis adjustment totaled $1.5 million and $1.4 million during the years ended December 31, 2023 and 2022, respectively. The unamortized balance of the basis adjustment totaled $1.5 million and $3.0 million at December 31, 2023 and 2022, respectively. The amounts to be amortized during the next 12 months is $1.5 million.

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Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income or loss and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings. As of December 31, 2023, the Company did not have any interest rate contracts designated as cash flow hedges.

During 2022, the Company terminated two interest rate swaps that were designated as cash flow hedges of interest rate risk associated with certain of the Company’s variable rate funding. The interest rate swaps, which had a combined notional value of $200.0 million, terminated at a settlement value of $8.1 million. This amount will be reclassified from accumulated other comprehensive income to interest expense between January 2022, the termination date, and April 2026, the original combined term of the interest rate swaps. A reduction to interest expense of $2.2 million was recorded related to these transactions during the year ended December 31, 2023. The accumulated other comprehensive income balance totaled $4.0 million and $6.3 million at December 31, 2023 and 2022, respectively. The amounts to be reclassified during the next 12 months is $2.2 million.

During 2019, the Company terminated an interest rate swap that was designated as a cash flow hedge of interest rate risk associated with certain of the Company’s variable rate loans. The interest rate swap, which had a notional value of $200.0 million, terminated at a settlement value of $6.6 million. This amount was reclassified from accumulated other comprehensive income to interest income on a straight-line basis between July 2019, the termination date, and March of 2023, the original term of the interest rate swap. Interest income of $0.4 million and $1.8 million was recorded related to this transaction during the years ended December 31, 2023 and 2022, respectively. The accumulated other comprehensive income balance totaled $0.0 million and $0.4 million at December 31, 2023 and 2022, respectively.

Derivatives Not Designated as Hedging Instruments

The Company executes interest rate derivatives with commercial banking customers to facilitate their respective risk management strategies. Those interest rate derivatives are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. Interest rate derivatives associated with this program are reported on the consolidated balance sheet at fair value, with changes in fair value of both the customer derivatives and the offsetting derivatives recognized directly in net income. Amounts related to these activities are reflected as customer-related interest rate contracts within this footnote. Derivatives related to these activities are subject to credit risk associated with counterparties to the derivative contracts. The Company measures that credit risk using a credit valuation adjustment and includes it within the fair value of the derivative. Included within other noninterest income on the consolidated statement of income are amounts recorded related to credit valuation adjustments of $0.3 million in positive adjustments and $0.6 million in positive adjustments during the years ended December 31, 2023 and 2022, respectively.

Credit risk participation agreements arise when the Company contracts with other institutions, as a guarantor or beneficiary, to share the credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third-party default on the underlying swap. Amounts related to these activities are reflected as customer-related credit contracts within this footnote. Amounts recorded within other noninterest income on the consolidated statement of income related to these activities were not material for the years ended December 31, 2023 and 2022.

As part of the Company’s risk management strategy through its mortgage banking activities, derivative instruments such as forward sales contracts are utilized. Changes in the fair value of these derivative instruments are recorded in mortgage banking and loan fees. Amounts related to these activities are reflected as mortgage banking forward contracts within this footnote.

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In the normal course of business through its mortgage banking activities, interest rate lock commitments arise related to agreements with customers regarding residential mortgage loans. Such commitments provide a specified interest rate for a specified time period to the customer. Where the Company intends to sell the resulting loan, authoritative accounting guidance requires that these commitments be recorded at fair value on the consolidated balance sheet. Changes in the fair value of these interest rate lock commitments are recorded in other noninterest income and are offset by the changes in the fair value of forward sales contracts. Amounts related to these activities are reflected as mortgage banking rate locks within this footnote. Amounts recorded within mortgage banking and loan fees on the consolidated statement of income related to these activities were $0.8 million in gains and $3.9 million in gains for the years ended December 31, 2023 and 2022, respectively.

Credit-Risk-Related Contingent Features

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with its derivative counterparties that contain a provision where if the Company fails to maintain its status as an adequately capitalized institution, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. As of December 31, 2023, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non- performance risk, related to these agreements was immaterial. The Company has minimum collateral posting thresholds with its derivative counterparties and has not posted any collateral at December 31, 2023. If the Company had breached any of these provisions at year end, it could have been required to settle its obligations under the agreements at the termination value.

Note 19. Common Stock

The Company has authorized 12,000,000 shares of Class A common stock and 10,800,000 shares of Class B common stock. The shares of Class A common stock have full rights to vote on all matters presented before the Company’s shareholders, including the election of the Company’s directors. The Class B common stock, all of which is held by OBT, is non-voting except with respect to certain extraordinary corporate transactions, upon which the holders would have the right to vote on an equivalent per-share basis with the holders of Class A common stock.

Each share of Class B common stock is convertible into one share of Class A common stock upon the occurrence of the following events: (i) at the affirmative election of a third party or entity, upon the transfer of Class B common stock from OBT to any third party or entity, or (ii) at the affirmative election of the holder of Class B common stock, if cash dividends have not been paid on Class A and Class B common stock with respect to any year in an amount equal to at least 5% of the Company’s net book value as of the last day of the immediately preceding year. The Company has reserved 10,800,000 shares of Class A common stock in the event of conversion of the Class B common stock.

At December 31, 2023 and 2022, 960,000 shares of redeemable Class A stock were issued and outstanding. At December 31, 2023, these shares were subject to redemption at a price of $120.71 per share, which was net book value. These shares are owned by employees and directors of the Company and its subsidiaries and the employee benefit plans of the Company. The employee holders of Class A common stock have the right to require the Company to purchase their shares upon their deaths, permanent disabilities, or retirements, while the Company has the option to purchase the shares from holders upon the occurrence of certain events, which include death, retirement, or termination of the employee’s employment. It is the Company’s intent that these 960,000 shares will continue to be held by employees, directors, and employee benefit plans of the Company and its subsidiaries and not be directly purchased by the Company or OBT.

On October 28, 2019, OBT delivered notice to the Company asserting that the trustees of OBT had sold 725,000 shares of the Company’s Class B common stock to 19 entities, each of which delivered a notice of an intent to convert such shares of Class B common stock into Class A common stock. As of December 31, 2023, the validity of these purported transactions was the subject of ongoing litigation. These consolidated financial statements do not reflect such transactions.

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Note 20. Regulatory Matters

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios, as defined in the regulations and set forth in the following table, of total, common equity Tier I, and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. Effective January 1, 2015, under a phase-in period, revised regulatory capital guidelines increased the minimum required ratios and established a capital conservation buffer. The capital conservation buffer adds 2.5% to the minimum Tier I Common Equity ratio in order to avoid constraints on capital distributions, such as dividends, and certain bonus compensation for executive officers. The Company is required to phase out the subordinated notes from Tier II capital over a 5 year period, beginning in December 2019. As of December 31, 2023, the Company meets all capital adequacy requirements to which it is subject.

The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) required the establishment of a capital- based supervisory system of prompt corrective action for all depository institutions. The Federal Reserve Board’s implementation of FDICIA defines “well-capitalized” institutions as those for which Tier I capital ratio equals or exceeds 8%, total risk-based capital ratio equals or exceeds 10%, and leverage ratio equals or exceeds 5%. Bremer Bank’s ratios in each of these categories met or exceeded the “well- capitalized” ratios at December 31, 2023

As an approved mortgage seller and servicer, Bremer Bank, through its mortgage banking division, is required to maintain various levels of shareholder’s equity, as specified by various agencies, including the United States Department of Housing and Urban Development, Government National Mortgage Association, Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association. At December 31, 2023, Bremer Bank met these requirements.

The following provides the Company’s and Bremer Bank’s actual capital amounts and ratios at December 31:

|  |  |  |  |  |  |  |  |  |  |  |  |  | To Be Well Capitalized |
|  |  |  |  |  |  |  | For Capital |  |  | Under Prompt Corrective |
|  | Actual |  |  | Adequacy Purpose |  |  | Action Provisions |
|  | Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |
At December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  | $ | 1,743,562 |  |  |  | 13.87 | % |  | $ | 1,005,686 |  | ≥ |  | 8.00 | % |  |  | N/A |  |  |  |  |
Bremer Bank |  |  | 1,610,614 |  |  |  | 12.87 |  |  |  | 1,001,254 |  | ≥ |  | 8.00 |  |  |  | 1,251,567 |  | ≥ |  | 10.00 | %
Tier I capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 1,635,177 |  |  |  | 13.01 |  |  |  | 754,265 |  | ≥ |  | 6.00 |  |  |  | N/A |  |  |  |  |
Bremer Bank |  |  | 1,504,792 |  |  |  | 12.02 |  |  |  | 750,940 |  | ≥ |  | 6.00 |  |  |  | 1,001,254 |  | ≥ |  | 8.00 |
Common Equity Tier I capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 1,575,177 |  |  |  | 12.53 |  |  |  | 565,698 |  | ≥ |  | 4.50 |  |  |  | N/A |  |  |  |  |
Bremer Bank |  |  | 1,504,792 |  |  |  | 12.02 |  |  |  | 563,205 |  | ≥ |  | 4.50 |  |  |  | 813,519 |  | ≥ |  | 6.50 |
Tier I capital (to average assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 1,635,177 |  |  |  | 9.82 |  |  |  | 666,387 |  | ≥ |  | 4.00 |  |  |  | N/A |  |  |  |  |
Bremer Bank |  |  | 1,504,792 |  |  |  | 9.06 |  |  |  | 664,547 |  | ≥ |  | 4.00 |  |  |  | 830,683 |  | ≥ |  | 5.00 |
At December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  | $ | 1,718,975 |  |  |  | 14.43 | % |  | $ | 952,997 |  | ≥ |  | 8.00 | % |  |  | N/A |  |  |  |  |
Bremer Bank |  |  | 1,544,907 |  |  |  | 13.01 |  |  |  | 949,682 |  | ≥ |  | 8.00 |  |  |  | 1,187,103 |  | ≥ |  | 10.00 | %
Tier I capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 1,574,697 |  |  |  | 13.22 |  |  |  | 714,748 |  | ≥ |  | 6.00 |  |  |  | N/A |  |  |  |  |
Bremer Bank |  |  | 1,423,785 |  |  |  | 11.99 |  |  |  | 712,262 |  | ≥ |  | 6.00 |  |  |  | 949,682 |  | ≥ |  | 8.00 |
Common Equity Tier I capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 1,514,697 |  |  |  | 12.72 |  |  |  | 536,061 |  | ≥ |  | 4.50 |  |  |  | N/A |  |  |  |  |
Bremer Bank |  |  | 1,423,785 |  |  |  | 11.99 |  |  |  | 534,196 |  | ≥ |  | 4.50 |  |  |  | 771,617 |  | ≥ |  | 6.50 |
Tier I capital (to average assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 1,574,697 |  |  |  | 9.80 |  |  |  | 642,422 |  | ≥ |  | 4.00 |  |  |  | N/A |  |  |  |  |
Bremer Bank |  |  | 1,423,785 |  |  |  | 8.89 |  |  |  | 640,544 |  | ≥ |  | 4.00 |  |  |  | 800,680 |  | ≥ |  | 5.00 |

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Federal law prevents the Company, its nonbank subsidiaries and OBT from borrowing from Bremer Bank unless the loans are secured by the statutorily required amount of collateral. Further, the secured loans that may be made by Bremer Bank are generally limited to 10% of Bremer Bank’s equity if made to the Company or any individual affiliate and 20% of Bremer Bank’s equity if made to all affiliates and the Company in the aggregate. At December 31, 2023 and 2022, Bremer Bank had not extended credit to the Company.

The payment of dividends by the Company to shareholders and the payment of dividends by Bremer Bank to the Company are both subject to various limitations by bank regulators, which include maintenance of certain minimum capital ratios as well as limitations based on the level of net income and dividends paid in recent periods.

Note 21. Fair Value

The Company uses fair value measurements for the initial recording of certain assets and liabilities, periodic remeasurement of certain assets and liabilities, and disclosures. Derivatives, available-for-sale investment securities, and MSRs are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as LHFS, impaired loans, and OREO, and certain other assets and other liabilities. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-fair value accounting or impairment write- downs of individual assets.

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Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value measurement reflects all the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. The Company groups its assets and liabilities measured at fair value into a three-level hierarchy for valuation techniques used to measure financial assets and financial liabilities at fair value. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:

Fair Value Hierarchy |  | Definition
Level 1 |  | Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury securities.
Level 2 |  | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 includes debt securities that are traded less frequently than exchange-traded instruments and which are typically valued using third party pricing services; derivative contracts and other assets and liabilities.
Level 3 |  | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes MSRs and interest rate lock commitments.

When the Company changes its valuation inputs for measuring financial assets and financial liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period in which the transfers occur. During the years ended December 31, 2023 and 2022, there were no transfers of financial assets or financial liabilities between the hierarchy levels.

Recurring Fair Value Measurements

The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities at fair value on a recurring basis. In addition, the following section includes an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. Where appropriate, the description includes information about the valuation models and key inputs to those models. During the years ended December 31, 2023 and 2022, there were no significant changes to the valuation techniques used by the Company to measure fair value. The following table provides the balances of assets and liabilities measured at fair value on a recurring basis at December 31:

(Dollars in Thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale securities |  | $ | — |  |  | $ | 1,623,960 |  |  | $ | — |  |  | $ | 1,623,960 |
Mortgage servicing rights |  |  | — |  |  |  | — |  |  |  | 23,310 |  |  |  | 23,310 |
Derivative assets |  |  | — |  |  |  | 33,155 |  |  |  | 304 |  |  |  | 33,459 |
Total assets |  | $ | — |  |  | $ | 1,657,115 |  |  | $ | 23,614 |  |  | $ | 1,680,729 |
Derivative liabilities |  | $ | — |  |  | $ | 140,774 |  |  | $ | — |  |  | $ | 140,774 |
2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale securities |  | $ | 100 |  |  | $ | 1,754,723 |  |  | $ | — |  |  | $ | 1,754,823 |
Mortgage servicing rights |  |  | — |  |  |  | — |  |  |  | 25,331 |  |  |  | 25,331 |
Derivative assets |  |  | — |  |  |  | 33,865 |  |  |  | 177 |  |  |  | 34,042 |
Total assets |  | $ | 100 |  |  | $ | 1,788,588 |  |  | $ | 25,508 |  |  | $ | 1,814,196 |
Derivative liabilities |  | $ | — |  |  | $ | 167,916 |  |  | $ | — |  |  | $ | 167,916 |

Available-For-Sale Securities

When quoted market prices for identical securities are available in an active market, these prices are used to determine fair value and these securities are classified within Level 1 of the fair value hierarchy. Level 1 investment securities include U.S. Treasury securities.

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For other securities, quoted market prices may not be readily available for the specific securities. When possible, the Company determines fair value based on market observable information, including quoted market prices for similar securities, inactive transaction prices, and broker quotes. These securities are classified within Level 2 of the fair value hierarchy. Level 2 valuations are generally provided by a third-party pricing service. The Company reviews the valuation methodologies utilized by the pricing service and, on a quarterly basis, reviews the security level prices provided by the pricing service against management’s expectation of fair value, based on changes in various benchmarks and market knowledge from recent trading activity, as well as comparisons to other independent secondary pricing sources. Level 2 investment securities include agency mortgage-backed securities, certain other asset-backed securities, obligations of state and political subdivisions, agency debt securities, and corporate debt securities.

The Company did not hold any available-for-sale securities that were classified within Level 3 at December 31, 2023 or 2022.

Mortgage Servicing Rights

MSRs are valued using a discounted cash flow methodology and are classified within Level 3. The Company determines fair value of the MSRs by projecting future cash flows using prepayment rates and other assumptions and discounts these cash flows using a market based discount rate. The MSR valuations, as well as the assumptions used, are developed with the assistance of a third party. Risks inherent in MSR valuation include higher than expected prepayment rates and/or delayed receipt of cash flows. There is minimal observable market activity for MSRs on comparable portfolios and, therefore, the determination of fair value requires significant management judgment. Refer to Note 7 for further information on MSR valuation assumptions.

Derivatives

The Company obtains the fair value of interest rate swaps from a third-party pricing service that uses an industry standard discounted cash flow methodology. In addition, credit valuation adjustments are incorporated in the fair values to account for potential non-performance risk. In adjusting the fair value of its interest rate swap contracts for the effect of non-performance risk, the Company has considered any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of these derivative financial instruments, which are subject to master netting agreements, on a net basis by counterparty portfolio.

The Company has determined that the primary inputs used to value its interest rate swaps offered to qualified commercial borrowers fall within Level 2 of the fair value hierarchy, while the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate swaps and has determined that the credit valuation adjustment is not significant to the overall valuation of these derivatives. As a result, the Company classifies its interest rate swap valuations in Level 2 of the fair value hierarchy.

Mortgage interest rate lock commitments and forward sale contracts are valued based on the securities prices of similar collateral, term, rate, and delivery for which the loan is eligible to deliver in place of the particular security. The Company’s mortgage security prices are supplied by a market data vendor, which in turn accumulates prices from a broad list of securities dealers. Prices are processed through a mortgage pipeline management system that accumulates and segregates all interest rate lock commitment and forward sale transactions according to the similarity of various characteristics (maturity, term, rate, and collateral). Prices are matched to those positions that are deemed to be an eligible substitute or offset (i.e., deliverable) for a corresponding security observed in the market and adjusted for an assumed pull-through rate. As a result, the Company classifies its interest mortgage commitments in Level 3 of the fair value hierarchy.

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Non-Recurring Fair Value Measurements

The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities at fair value on a non-recurring basis. In addition, the following section includes an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. Where appropriate, the description includes information about the valuation models and key inputs to those models. During the years ended December 31, 2023 and 2022, there were no significant changes to the valuation techniques used by the Company to measure fair value on a nonrecurring basis. The following table provides the balances of assets and liabilities measured at fair value on a non-recurring basis at December 31:

(Dollars in Thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans, included in LHFI |  | $ | — |  |  | $ | — |  |  | $ | 52,828 |  |  | $ | 52,828 |
OREO |  |  | — |  |  |  | — |  |  |  | 3,625 |  |  |  | 3,625 |
Total assets |  | $ | — |  |  | $ | — |  |  | $ | 56,453 |  |  | $ | 56,453 |
2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans, included in LHFI |  | $ | — |  |  | $ | — |  |  | $ | 51,158 |  |  | $ | 51,158 |
OREO |  |  | — |  |  |  | — |  |  |  | 273 |  |  |  | 273 |
Total assets |  | $ | — |  |  | $ | — |  |  | $ | 51,431 |  |  | $ | 51,431 |

Impaired Loans

Impaired loans are recorded at the loan’s observable market prices, the estimated fair value of the collateral for collateral-dependent loans, or the present value of the expected future cash flows discounted using market based credit spreads of comparable debt instruments of the specific borrower or comparable borrowers. Appraised values, adjusted for management’s assumptions relating to costs to hold, maintain, and sell the property, are generally used on real estate collateral-dependent impaired loans. Given the significant assumptions used in the valuation, impaired loans are included within Level 3 of the fair value hierarchy.

Other Real Estate Owned

The fair value of OREO is based on third party appraisals, net of estimated selling costs. Given the significant assumptions used in the valuation, OREO is included within Level 3 of the fair value hierarchy.

Loans Held for Sale

LHFS, which consist primarily of current production of certain first-lien residential mortgage loans, are carried at the lower of cost or estimated fair value. Fair value is estimated using observable inputs, primarily actual sale experience as well as secondary market price quotes. The Company did not record any adjustments to LHFS during the years ended December 31, 2023 or 2022, as fair value approximated carrying value at December 31, 2023 and 2022. Given that fair value is based on observable market prices, LHFS would be classified within Level 2 of the fair value hierarchy. The Company had recorded loans held for sale of $10.3 million and $11.9 million at December 31, 2023 and 2022, respectively.

Disclosures About Fair Value of Financial Instruments

The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities at fair value for disclosure purposes only. In addition, the following section includes an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. Where appropriate, the description includes information about the valuation models and key inputs to those models. During the years ended December 31, 2023 and 2022, there were no significant changes to the valuation techniques used by the Company to measure fair value for disclosure purposes.

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The following table provides the balances of financial assets and financial liabilities measured at fair value for disclosure purposes only at December 31:

|  |  |  |  |  | Fair Value |
|  | Carrying |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in Thousands) |  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash, cash equivalents, and due from banks |  | $ | 391,470 |  |  | $ | 391,470 |  |  | $ | — |  |  | $ | — |  |  | $ | 391,470 |
Held-to-maturity securities |  |  | 2,104,572 |  |  |  | 78,593 |  |  |  | 1,710,307 |  |  |  | — |  |  |  | 1,788,900 |
Loans held for investment |  |  | 11,351,545 |  |  |  | — |  |  |  | — |  |  |  | 10,984,984 |  |  |  | 10,984,984 |
Total financial assets |  | $ | 13,847,587 |  |  | $ | 470,063 |  |  | $ | 1,710,307 |  |  | $ | 10,984,984 |  |  | $ | 13,165,354 |
Deposits |  | $ | 12,930,126 |  |  | $ | — |  |  | $ | 12,941,093 |  |  | $ | — |  |  | $ | 12,941,093 |
Short-term borrowings |  |  | 659,230 |  |  |  | — |  |  |  | 659,292 |  |  |  | — |  |  |  | 659,292 |
Long-term debt |  |  | 1,023,118 |  |  |  | — |  |  |  | 1,007,900 |  |  |  | — |  |  |  | 1,007,900 |
Total financial liabilities |  | $ | 14,612,474 |  |  | $ | — |  |  | $ | 14,608,285 |  |  | $ | — |  |  | $ | 14,608,285 |
2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash, cash equivalents, and due from banks |  | $ | 713,841 |  |  | $ | 713,841 |  |  | $ | — |  |  | $ | — |  |  | $ | 713,841 |
Held-to-maturity securities |  |  | 2,175,723 |  |  |  | 58,188 |  |  |  | 1,769,462 |  |  |  | — |  |  |  | 1,827,650 |
Loans held for investment |  |  | 10,509,062 |  |  |  | — |  |  |  | — |  |  |  | 9,935,140 |  |  |  | 9,935,140 |
Total financial assets |  | $ | 13,398,626 |  |  | $ | 772,029 |  |  | $ | 1,769,462 |  |  | $ | 9,935,140 |  |  | $ | 12,476,631 |
Deposits |  | $ | 13,183,552 |  |  | $ | — |  |  | $ | 13,185,252 |  |  | $ | — |  |  | $ | 13,185,252 |
Short-term borrowings |  |  | 860,946 |  |  |  | — |  |  |  | 861,723 |  |  |  | — |  |  |  | 861,723 |
Long-term debt |  |  | 241,664 |  |  |  | — |  |  |  | 225,152 |  |  |  | — |  |  |  | 225,152 |
Total financial liabilities |  | $ | 14,286,162 |  |  | $ | — |  |  | $ | 14,272,127 |  |  | $ | — |  |  | $ | 14,272,127 |

Cash, Cash Equivalents, and Due from Banks

The carrying value of cash, cash equivalents, and due from banks approximates fair value due to the relatively short period of time between the origination of the instruments and their expected realization. These amounts are classified within Level 1.

Held-To-Maturity Securities

When quoted market prices for identical securities are available in an active market, these prices are used to determine fair value and these securities are classified within Level 1 of the fair value hierarchy. Level 1 investment securities include U.S. Treasury securities.

For other held-to-maturity securities, quoted market prices may not be readily available for the specific securities. When possible, the Company determines fair value based on market observable information, including quoted market prices for similar securities, inactive transaction prices, and broker quotes. These securities are classified within Level 2 of the fair value hierarchy. Level 2 valuations are generally provided by a third party pricing service. The Company reviews the valuation methodologies utilized by the pricing service and, on a quarterly basis, reviews the security level prices provided by the pricing service against management’s expectation of fair value, based on changes in various benchmarks and market knowledge from recent trading activity, as well as comparisons to other independent secondary pricing sources. Level 2 investment securities include agency mortgage-backed securities. The Company did not hold any held-to- maturity securities that were classified within Level 3 at December 31, 2023 or 2022.

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Loans Held for Investment

The LHFI portfolio consists of both variable and fixed-rate obligations, the fair value of which was estimated using discounted cash flow analyses and other valuation techniques. To calculate discounted cash flows, the loans were aggregated into pools of similar types and expected repayment terms. The expected cash flows of loans considered historical prepayment experience and estimated credit losses for non- performing loans and were discounted using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan type. In addition, when computing the estimated fair values for loans, the best estimate of losses inherent in the portfolio is deducted. Given the significant assumptions used in the valuation, LHFI is included within Level 3.

Deposits

The estimated fair value of deposits with no stated maturity, such as noninterest-bearing savings and money market checking accounts, is the amount payable on demand. The fair value of time deposits is estimated using the rates currently offered for deposits of similar remaining maturities. Deposits are included within Level 2.

Short-Term Borrowings

Short-term borrowings consist of federal funds, repurchase agreements, and FHLB borrowings. For variable-rate borrowings, fair value approximates carrying value. For fixed-rate borrowings, the fair value is determined by discounting future cash flows at current rates for borrowings with similar remaining maturities. Short-term borrowings are included within Level 2.

Long-Term Debt

For fixed-rate debt, the fair value is determined by discounting future cash flows at current rates for debt with similar remaining maturities and call features or by using market prices for similar assets. For variable-rate debt, fair value is determined by using market prices for similar assets. Long-term debt is included within Level 2.

Off-Balance Sheet Financial Instruments

The Company estimates the fair value of loan commitments and letters of credit based on the related amount of unamortized deferred commitment fees adjusted for probable losses from these arrangements. Substantially all of these commitments have floating rates and do not expose the Company to interest rate risk. The fair value of these unfunded commitments is approximately equal to their carrying value, which was $3.1 million and $8.3 million at December 31, 2023 and 2022, respectively.

Note 22. Subsequent Events

The Company evaluated all subsequent event activity through March 26, 2024 (the date the accompanying financial statements were available to be issued) and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements.

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