Burke & Herbert Financial Services Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our consolidated financial condition and results of operations of the Company should be read in conjunction with the preceding consolidated financial statements and notes presented in Item 1. Financial Statements of this Form 10-Q, as well as with the audited consolidated financial statements and notes for the year ended December 31, 2023, included in our Form 10-K filed with the SEC on March 22, 2024, and as amended on April 12, 2024 (the “Form 10-K”). Historical results of operations and the percentage relationships among any amounts included and any trends that may appear may not indicate trends in operations or results of operations for any future periods. We are a financial holding company, and we conduct all of our material business operations through the Bank. As a result, the discussion and analysis below primarily relate to activities conducted at the Bank. Disclosure Regarding Forward-Looking Statements This Form 10-Q contains statements that we believe are, or may be considered to be, “forward-looking statements”. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current beliefs, expectations, or assumptions regarding the future of the business, future plans and strategies, operational results, and other future conditions of the Company. All statements other than statements of historical fact included in this Form 10-Q regarding the prospects of our industry or our prospects, plans, financial position, or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “plans,” “expects” or “does not expect,” “is expected,” “look forward to,” “budget,” “scheduled,” “estimates,” “forecasts,” “will continue,” “intends,” “the intent of,” “have the potential,” “anticipates,” “does not anticipate,” “believes,” “should,” “should not,” or variations of such words and phrases that indicate that certain actions, events, or results “may,” “could,” “would,” “might,” or “will,” “be taken,” “occur,” or “be achieved,” or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections, and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates, and intentions expressed in such forward-looking statements. Important risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company, as applicable, to be materially different from any expected future results, performance, or achievements expressed or implied by such forward-looking information and statements include, but are not limited to, the risks described in Item 1A, under the caption “Risk Factors” in our Form 10-K, and in Part II, Item 1A. Risk Factors in this Form 10-Q. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this Form 10-Q, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Form 10-Q. We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. Overview Burke & Herbert Financial Services Corp. was organized as a Virginia corporation on September 14, 2022, to serve as the holding company for the Bank. Burke & Herbert commenced operations as a bank holding company on October 1, 2022, following a reorganization transaction in which it became the Bank’s holding company. This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of Burke & Herbert. In September 2023, Burke 46 Table of Contents & Herbert elected financial holding company status. As a financial holding company, Burke & Herbert is subject to regulation and supervision by the Federal Reserve. Burke & Herbert has no material operations and owns 100% of the Bank. The Bank is a Virginia chartered commercial bank that commenced operations in 1852. The Bank is supervised and regulated by the FDIC and the Virginia BFI. Merger with Summit Financial Group, Inc. Effective on the Closing Date, Burke & Herbert completed the M erger with Summit, pursuant to the August 24, 2023 Merger Agreement. Pursuant to the Merger Agreement, on the Closing Date, (i) Summit merged with and into Burke & Herbert through the Merger, and (ii) immediately following the Merger, SCB merged with and into the Bank, with the Bank as the surviving bank. In the Merger, holders of Summit common stock outstanding at the effective time of the Merger received 0.5043 shares of Burke & Herbert common stock for each share of Summit common stock they owned, subject to the payment of cash in lieu of fractional shares. The total aggregate consideration payable in the Merger was approximately 7,405,772 shares of Burke & Herbert Common Stock. Additionally, each share of the Summit Series 2021 Preferred Stock issued and outstanding was converted into the right to receive a share of the new Burke & Herbert Series 2021 Preferred Stock. Summit results of operations are included from the Closing Date forward. The Bank’s primary market area includes northern Virginia and West Virginia, and it has over 75 branches and other commercial loan offices across Delaware, Kentucky, Maryland, Virginia, and West Virginia. The Company’s branch locations accept business and consumer deposits from a diverse customer base. The Company’s deposit products include checking, savings, and term certificate accounts. The Company’s loan portfolio includes commercial and consumer loans, a substantial portion of which are secured by real estate. The Bank derives a significant portion of its income from interest received on loans and investments. The Bank’s primary source of funding is deposits, both interest-bearing and non-interest-bearing. In order to maximize the Bank’s net interest income, or the difference between the income on interest-earning assets and the expense of interest-bearing liabilities, the Bank must not only manage the volume of these balance sheet items, but also the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities. To account for credit risk inherent in all loans, the Bank maintains an ACL to absorb expected credit losses on existing loans that may become uncollectible. The Bank establishes and maintains this ACL by charging a provision for credit losses against operating earnings. In order to maintain its operations and branch locations, the Bank incurs various operating expenses which are further described within the “Results of Operations” later in this section. As of June 30, 2024, we had total consolidated assets of $7.8 billion, gross loans of $5.6 billion, total deposits of $6.6 billion, and total shareholders’ equity of $693.1 million. As of June 30, 2024, we had 850 full-time employees. None of our employees are covered by a collective bargaining agreement. Critical Accounting Policies and Estimates Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions, and judgments based on available information. These estimates, assumptions, and judgments affect the amounts reported in the financial statements and accompanying notes and are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions, and judgments inherent in those policies, are critical in understanding our financial statements. Our most significant accounting policies are presented in the notes to the accompanying consolidated financial statements. These policies, along with the other disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, we have identified business combination and goodwill, the 47 Table of Contents determination of the allowance for credit losses, and income taxes to be the accounting areas that require the most subjective or complex judgments, and as such, could be most subject to revision as new information becomes available. Business Combination and Goodwill For acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit intangibles, and the liabilities assumed at their respective fair values. The difference between consideration and the net fair value of assets acquired is recorded as goodwill. Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values. The allowance for credit losses for PCD loans is recognized within acquisition accounting. The allowance for credit losses for non-PCD assets is recognized as provision for credit losses in the same reporting period as the acquisition. Fair value adjustments are amortized or accreted into the income statement over the estimated life of the acquired assets or assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of goodwill recognized in connection with the acquisition. The use of different assumptions could produce significantly different valuation results, which could have material positive or negative effects on our results of operations. The carrying value of goodwill recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill. The determination of fair values is based on valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors. In addition, we engage third party specialists to assist in the development of fair values. Preliminary estimates of fair values may be adjusted for a period of time subsequent to the acquisition date if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this period are recognized in the current reporting period. Management uses various valuation methodologies to estimate the fair value of these assets and liabilities, and often involves a significant degree of judgment, particularly when liquid markets do not exist for the particular item being valued. Examples of such items include loans, deposits, identifiable intangible assets, and certain other assets and liabilities. Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying value of assets, including goodwill and liabilities, which could result in impairment losses affecting our financial statements as a whole and our banking subsidiary in which the goodwill resides. Allowance for Credit Losses The allowance for credit losses represents our estimate of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and projections including reasonable and supportable forecasts, reversion, and post-reversion forecasts. It is a valuation account that is deducted from the financial assets’ amortized cost basis to present the net amount expected to be collected on the financial asset. Financial assets are charged-off against the allowance when management believes the uncollectibility of a financial asset is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The Company’s loan portfolio is the largest financial asset that is in scope of this critical accounting estimate. Determining the amount of the allowance for credit losses is considered a critical accounting estimate, because it is based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts, and prepayment experience as related to credit contractual terms. Management estimates the allowance balance using relevant available information from internal and external sources. Historical credit loss experience provides the basis for the estimation of expected credit losses; adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, and delinquency levels, as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. The model methodology used for funded credits, along with taking into consideration the probability of drawdowns or funding on unfunded commitments and whether such commitments are irrevocable or not by the Company, is how the Company determines the allowance for credit losses for unfunded commitments. These evaluations are conducted at least quarterly and more frequently, if deemed necessary. The Company is using an internally developed model that produces an estimate of the allowance for credit losses as the lifetime expected credit losses of the loan portfolio. This model uses a remaining useful life or WARM method within defined-contractual terms by federal call codes. The model forecasts net charge-off rates by call codes using ordinary least 48 Table of Contents squares (“OLS”) regression models that use macroeconomic variables to forecast the Company’s and peer banks’ net charge-off rates. These models are used to produce reasonable and supportable forecasts of net charge-off rates. The macroeconomic variables utilized by the Company include variables that meet defined criteria in forecasting credit losses for our loan portfolio. These variables include, but are not limited to, unemployment rates, housing and commercial real estate prices, gross domestic product levels, equity market conditions or interest rates, as well as other variables that are portfolio-specific, such as those pertaining to commercial real estate or to residential loan portfolios. The Company sources the macroeconomic variables and the macroeconomic variable forecasts that it uses in its ACL model from the Standard & Poor’s Global Market Intelligence and from CoStar Group. The Company currently has set an initial reasonable and supportable period of two years with a subsequent straight-line loss-rate reversion for the following four quarters before then utilizing historical average loss rates in remaining periods of the modeled contractual terms. Based on management’s analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond information used to calculate reasonable and supportable, reversion and post-reversion period forecasts on collectively evaluated loans. As the reasonable and supportable and reversion period forecasts reflect the use of the macroeconomic variable loss drivers, management may consider that an additional or reduced reserve is warranted through qualitative risk factors based on current and expected conditions, including those that utilize supplemental information relative to the macroeconomic variable loss drivers. Qualitative adjustments considered by management include the following: (i) management’s assessment of macroeconomic forecasts used in the model and how those forecasts align with management’s overall evaluation of current expected credit conditions; (ii) organization specific risks such as credit concentrations, collateral specific risks, nature and size of the portfolio, and external factors that may ultimately impact credit quality; and (iii) underwriting and delinquency trends. The qualitative factors applied at June 30, 2024, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management’s assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model. Management reviews supplemental data sources including historical net charge-off rates and data measuring other specific credit outcomes from its systems of record in supporting qualitative factors. However, qualitative factor evaluations are inherently imprecise and require significant management judgement. Income Taxes The Company’s income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated taxes due. The calculation of each component of the Company’s income tax provision is complex and requires the use of estimates and judgments in its determination. As part of the Company’s evaluation and implementation of business strategies, consideration is given to the regulations and tax laws that apply to the specific facts and circumstances for any tax positions under evaluation. Management closely monitors tax developments on both the federal and state level in order to evaluate the effect they may have on the Company’s overall tax position and the estimates and judgments used in determining the income tax provision and records adjustments as necessary. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expenses. In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company must consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and the results of recent operations. A valuation allowance is recognized for a deferred tax asset if, based on the available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized. See Note 8 — Income Taxes, in Notes to the December 31, 2023 Consolidated Financial Statements of the Company for additional information. Non-GAAP Financial Measures We prepare our financial statements in accordance with U.S. GAAP and also present certain non-GAAP financial measures that exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with U.S. GAAP. Non-GAAP measures are provided as additional useful information to assess our financial condition and results of operations (including period-to-period operating performance). These non-GAAP measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP measures with similar names used by other companies. For more information, including the reconciliation of these non-GAAP financial measures to their corresponding GAAP financial measures, see the respective sections where the measures are presented. 49 Table of Contents Current Economic Environment in the Financial Services Industry Commercial Real Estate Sector Concentration The commercial real estate (“CRE”) sector has been impacted significantly by rising interest rates and higher vacancies, increasing the prospect of default that borrowers may face due to the record amount of upcoming maturities. In addition, the office market continues to struggle with fewer employees in the office after the COVID-19 pandemic. The Bank continues to monitor its commercial real estate portfolio by reviewing various credit risk and concentration reports. The Bank’s exposure to commercial real estate at June 30, 2024, was $2.5 billion or 45.3% of its gross loan portfolio, not including owner-occupied commercial real estate and acquisition, construction & development. Commercial real estate as a percent of total assets at June 30, 2024, was 32.6%, not including owner-occupied commercial real estate and acquisition, construction & development. Including owner-occupied commercial real estate and acquisition, construction & development, total exposure was at $3.6 billion or 65.0% of our total gross loans and 46.7% of total assets at June 30, 2024. Loan balances by portfolio segment amortized cost (in thousands) and by percentage of our total gross loan portfolio at June 30, 2024, were as follows: June 30, 2024 Amortized Cost Percentage Commercial real estate $ 2,543,668 45.3 % Owner-occupied commercial real estate 626,375 11.2 Acquisition, construction & development 479,937 8.5 Commercial & industrial 499,892 8.9 Single family residential (1-4 units) 1,219,984 21.7 Consumer non-real estate and other 246,868 4.4 Total gross loans $ 5,616,724 100.0 % Monitoring of the CRE concentration is performed at both the loan level and at the portfolio level. The Credit Risk Management team provides management and the board of directors with periodic reports on the credit portfolio, which include the CRE portfolio (including owner-occupied CRE and acquisition, construction & development loans). These reports provide an assessment of asset quality and risk rating migration and monitor concentrations against the board approved concentration limits (including sub-limits). The tables below present the Bank’s commercial real estate, owner-occupied commercial real estate, and acquisition, construction & development portfolios by collateral type and geographic location as of June 30, 2024 (in thousands). Commercial Real Estate by Collateral Type and Geographic Location VA WV MD DC Other Total Percentage Retail Real Estate $ 287,723 $ 64,765 $ 137,319 $ 42,110 $ 48,418 $ 580,335 22.8 % Multi-Family 227,908 105,067 44,800 84,230 26,713 488,718 19.2 Office Buildings/Condos 193,342 37,294 120,123 27,861 29,852 408,472 16.2 Hotels/Motels 124,780 53,723 66,626 52,357 77,704 375,190 14.7 Industrial/Warehouse 202,797 4,222 20,921 — — 227,940 9.0 Self-Storage 67,962 29,883 1,500 — 33,029 132,374 5.2 Nursing-Assisted Living 44,128 — 3,629 — 21,715 69,472 2.7 Restaurants 19,457 1,835 7,763 10,606 6,065 45,726 1.8 Gas Stations 7,358 1,862 2,117 14,812 3,069 29,218 1.1 Other 105,280 3,871 19,938 43,640 13,494 186,223 7.3 Total $ 1,280,735 $ 302,522 $ 424,736 $ 275,616 $ 260,059 $ 2,543,668 100.0 % 50 Table of Contents Owner-Occupied Commercial Real Estate by Collateral Type and Geographic Location VA WV MD DC Other Total Percentage Office Buildings/Condos $ 69,160 $ 30,923 $ 21,671 $ 635 $ 14,398 $ 136,787 21.8 % Retail 45,284 50,396 14,611 126 24,014 134,431 21.5 Industrial/Warehouse 49,586 16,672 1,798 — 16,147 84,203 13.4 Gas Stations 26,914 11,331 10,076 — 29,225 77,546 12.4 Restaurants 6,678 8,264 3,951 — 15,974 34,867 5.6 Churches/Religious Organizations 21,088 8,388 1,628 241 3,462 34,807 5.6 Coal, oil, gas, and natural resource extraction 927 10,493 — — 134 11,554 1.8 Private School 7,563 — — — — 7,563 1.2 % Other 29,493 19,858 8,001 361 46,904 104,617 16.7 Total $ 256,693 $ 156,325 $ 61,736 $ 1,363 $ 150,258 $ 626,375 100.0 % Acquisition, Construction & Development by Collateral Type and Geographic Location VA WV MD DC Other Total Percentage Multi-Family $ 11,560 $ 3,569 $ 26,599 $ 46,744 $ 57,332 $ 145,804 30.4 % Land 56,808 32,113 11,174 61 12,584 112,740 23.5 Office Buildings/Condos 11,849 — 2,304 27,593 31,456 73,202 15.3 Self-Storage 8,004 569 22,336 — 21,767 52,676 11.0 Retail Real Estate 13,678 4,640 10,336 — 2,574 31,228 6.5 Residential For-Sale 5,500 5,257 882 3,822 3,008 18,469 3.8 Other 22,184 4,350 11,958 — 7,326 45,818 9.5 Total $ 129,583 $ 50,498 $ 85,589 $ 78,220 $ 136,047 $ 479,937 100.0 % CRE loans are monitored through various processes that include payment monitoring, financial reporting, and covenant compliance monitoring, and annual reviews for larger relationships. Furthermore, construction loans are monitored throughout the life of the project and the construction loan administration function is centralized within the Credit Risk Management team. Monitoring the market conditions is also an important component of prudent CRE risk management. Quarterly construction progress reviews are also completed on all acquisition, construction & development loans. For each loan, management reviews the adequacy of the construction budget, adequacy of the interest reserve, pace of construction, and review of any loan covenants. The Bank believes its underwriting and monitoring standards for commercial real estate loans are sufficient to evaluate its loan portfolio and keep it from incurring significant losses. The largest concentration of the Bank’s commercial real estate loans are in Virginia (approximately 45.7%) and the Bank does not have significant exposure to any economic areas of the country that are underperforming the national economy. Additionally, the Bank’s overall exposure to the “Office Building / Condo” collateral type is 16.9% of total commercial real estate loans, including owner-occupied commercial real estate and acquisition, construction & development. The Bank believes that the combined loan portfolio is well-diversified, generally seasoned, manageable, and will outperform the industry in terms of performance through the economic cycle; however, our underwriting, review, and monitoring cannot eliminate all of the risks related to these loans. For further discussion see Part II, Item 1A. “Risk Factors ” . 2023 Banking Failures and Ensuing Banking Industry Liquidity Concerns In response to the bank failures that occurred during March and May 2023 and the attendant stress on economic agents, including various financial markets, the Company took multiple proactive measures to mitigate any potential financial and operational impacts. Such measures included, but were not limited to: • dissemination of internal communication to inform the Board and employees of current events and the Company’s condition and desired market response; 51 Table of Contents • testing of available liquidity sources; • real-time analysis of our deposit composition and deposit concentrations; • assessment of our investment securities portfolio; and • stress testing of liquidity and capital metrics based on observed financial conditions with particular emphasis on the causes of such risk events. For further discussion see Part II, Item 1A. “Risk Factors” . The measures taken followed meetings convened by a subcommittee provided for in our Asset/Liability policy more fully described in Item 3. — Quantitative and Qualitative Disclosures About Market Risk . The Company’s key inputs and certain assumptions of the stress testing included, but were not limited to, uninsured deposits, deposit composition and deposit flows, borrowings and borrowing capacity, interest rate movements and sensitivity, unrealized losses in the investment securities portfolio, loan balances and loan demand, credit risks, and current allowances for credit losses. Results of the stress tests indicated capital levels that remained above the well capitalized regulatory ratios and liquidity metrics remained within internal policy guidelines. For additional information related to capital, see Notes to the Consolidated Financial Statements – Note 8 — Regulatory Capital Matters . The Company intends to continue conducting such stress tests on a periodic basis. Liquidity Management Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves. The Company assesses the need for liquidity in a variety of scenarios. Those scenarios may include projected growth, credit deterioration, deposit decay, interest rate changes, and a variety of other economic scenarios that can impact the liquidity position of the Company. These analyses are performed on a quarterly basis in conjunction with the Company’s Asset/Liability meetings, and findings are reported to the Asset/Liability Committee (the “ALCO”) and to the Board. From time to time, management may change the frequency of such testing or update certain inputs as a result of abnormal market conditions. Findings, as a result of the Company’s prudent liquidity modeling, may result in the change of certain products offered to customers or adjust the way the Company manages its balance sheet. Such changes could include adjusting interest rates offered on certain deposit products, changes to interest rates charged in lending activities, or the suspension of certain products and activities altogether. Times of significant economic stress may cause the mix of funding to shift and increase the likelihood of changes to certain products in order to manage the Company’s overall liquidity and capital position. The asset portion of the balance sheet provides liquidity primarily through unencumbered securities available-for-sale, loan principal and interest payments, maturities and prepayments of investment securities, and, to a lesser extent, sales of investment securities available-for-sale. Other short-term investments available to the Company that could act as potential sources of liquidity are federal funds sold, securities purchased under agreements to resell, and maturing interest-bearing deposits with other banks. The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest-bearing deposit accounts and through FHLB and other borrowings. Brokered deposits, federal funds purchased, securities sold under agreements to repurchase, and other short-term borrowings are additional sources of liquidity and basically represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs. In addition to the Company’s financial performance and condition, liquidity may be impacted by the Company’s structure as a financial holding company that is a separate legal entity from the Bank. The Company requires cash for various operating needs that could include payment of dividends to its shareholders, the servicing of debt, and the payment of general corporate expenses. The primary source of liquidity for the Company is dividends paid by the Bank. Applicable 52 Table of Contents federal and state statutes and regulations impose restrictions on the amount of dividends that may be paid by the Bank. In addition to the formal statutes and regulations, regulatory authorities also consider the adequacy of the Bank’s total capital in relation to its assets, deposits, and other such items. Any future dividends must be set forth in the Company’s capital plans before any dividends can be paid. Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth. See Note 6 - Advances and Other Borrowings and Note 10 - Commitments and Contingencies , in Notes to Consolidated Financial Statements for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations. Capital The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Applicable Basel III Capital Rules require the Company and the Bank to maintain minimum Common Equity Tier 1 (“CET 1”), Tier 1, and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and counter-cyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “counter-cyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Additionally, federal banking laws require regulatory authorities to take “prompt corrective action” with respect to depository institutions that do not satisfy minimum capital requirements. The extent of these powers depends upon whether the institution in question is “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”, or “critically undercapitalized”, as such terms are defined under federal banking agency regulations. Depository institutions that do not meet minimum capital requirements will face constraints on payment of dividends, equity repurchases, and compensation based on the amount of shortfall. A depository institution that is not “well capitalized” is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, may be subject to asset growth limitations, and may be required to submit capital restoration plans. As of June 30, 2024, and December 31, 2023, the Bank complied with all regulatory capital standards and qualifies as “well capitalized”. Note 8 - Regulatory Capital Matters in Notes to Consolidated Financial Statements contains additional discussion and analysis regarding the Company and the Bank’s regulatory capital requirements. Effects of Inflation The majority of assets and liabilities of a financial institution are monetary in nature; therefore, a financial institution differs greatly from most commercial and industrial companies, which have significant investments in fixed assets or inventories that are greatly impacted by inflation. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher-than-normal rates in order to maintain an appropriate equity-to-assets ratio. Inflation also affects other expenses that tend to rise during periods of general inflation. Management believes the most significant potential impact of inflation on financial results is a direct result of the Company’s ability to manage the impact of changes in interest rates. Management attempts to maintain a balanced position between rate-sensitive assets and liabilities over an economic cycle in order to minimize the impact of interest rate 53 Table of Contents fluctuations on net interest income. However, this goal can be difficult to completely achieve in times of rapidly changing interest rates and is one of many factors considered in determining the Company’s interest rate positioning. Key Factors Affecting Financial Performance We face a variety of risks that may impact various aspects of our financial performance from time to time. The extent of such impacts may vary depending on factors such as the current business and economic conditions, political and regulatory environment, and operational challenges. Many of these risks and our risk management strategies are described in more detail elsewhere in this Report as well as with the audited consolidated financial statements and notes for the year ended December 31, 2023, included in our Form 10-K. Our success will depend upon, among other things, the following factors that we manage or control: • Effectively managing capital and liquidity, including: • Continuing to maintain and, over time, grow our deposit base as a low-cost stable funding source, • Prudent liquidity and capital management to meet evolving regulatory capital, capital planning, stress testing, and liquidity standards, and • Actions we take within the capital and other financial markets, • Our ability to manage any material costs related to the execution of our strategic priorities, including increased employees, infrastructure, compliance, and other costs in a profitable manner over the long term, • Management of credit risk and interest rate risk in our portfolio, • Our ability to manage and implement strategic business objectives within the changing regulatory environment, • The impact of legal and regulatory-related contingencies, • The appropriateness of critical accounting estimates and related contingencies, • Our ability to manage operational risks related to new products and services, changes in processes and procedures, or the implementation of new technology, • The ability to make investments to promote compliance with existing and evolving regulatory requirements that will increase as the Company grows and will result in increased administrative expenses that we did not previously incur, which costs may materially increase our general and administrative expenses, and • The ability to execute our strategic objectives, including successfully integrating Summit’s operations, people, and technology with ours, and continuing to efficiently satisfy the obligations associated with being a public company, all of which will require significant resources and management attention and may divert management’s attention from our business operations. Our financial performance is also substantially affected by a number of external factors outside of our control, including the following: • Economic conditions, including the length and extent of the economic impacts of events affecting the financial services market generally as well as pandemics and political instability and conflicts, and any actions taken to mitigate and manage such impacts, • The effect of climate change on our business and performance, including indirectly through impacts on our customers, • The actions by the Federal Reserve, U.S. Treasury, and other government agencies, including those that impact money supply and market interest rates and inflation, • The level of, and direction, timing, and magnitude of movement in interest rates and the shape of the interest rate yield curve, 54 Table of Contents • The functioning and other performance of and availability of liquidity in U.S. and global financial markets, including capital markets, • The impact of tariffs and other trade policies of the U.S. and its global trading partners, • Changes in the competitive landscape, • Impacts of changes in federal, state, and local governmental policy, including on the regulatory landscape, capital markets, taxes, infrastructure spending, and social programs, • The impact of market credit spreads on asset valuations, • The ability of customers, counterparties, and issuers to perform in accordance with contractual terms and the resulting impact on our asset quality, • Loan demand, utilization of credit commitments, and standby letters of credit, • The impact on customers and changes in customer behavior due to changing business and economic conditions or regulatory or legislative initiatives, • Our ability to successfully integrate into our operations Summit’s assets, liabilities, and systems, as well as new management personnel and customers, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto. The impact of these items, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operation. For additional information on the risks we face, see Part II, Item 1A. - Risk Factors . 55 Table of Contents Selected Financial Data The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of June 30, 2024, and June 30, 2023, and the selected income statement data for the three months and six months ended June 30, 2024, and June 30, 2023, have been derived from our consolidated financial statements included elsewhere in this Form 10-Q and in other filings we have submitted with the SEC and should be read in conjunction with the other information contained in this Form 10-Q. As of the Three Months Ended June 30, As of the Six Months Ended June 30, (In thousands, except ratios, share and per share data) 2024 2023 2024 2023 Selected Financial Condition Data: Total assets $ 7,810,193 $ 3,569,226 $ 7,810,193 $ 3,569,226 Total cash and cash equivalents 211,920 80,799 211,920 80,799 Total investment securities, at fair value 1,414,870 1,252,190 1,414,870 1,252,190 Net loans 5,548,707 1,975,050 5,548,707 1,975,050 Company-owned life insurance 182,112 93,625 182,112 93,625 Premises and equipment, net 135,581 56,183 135,581 56,183 Total deposits 6,639,571 3,005,263 6,639,571 3,005,263 Advances and other borrowings 285,161 249,000 285,161 249,000 Total shareholders’ equity 693,126 290,072 693,126 290,072 Common shareholders’ equity 682,713 290,072 682,713 290,072 As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30, 2024 2023 2024 2023 Selected Operating Data: Interest income $ 96,097 $ 37,116 $ 134,842 $ 71,444 Interest expense 36,332 13,324 52,946 22,878 Net interest income 59,765 23,792 81,896 48,566 Provision for (recapture of) credit losses 23,910 214 23,240 729 Total non-interest income 9,505 4,625 13,759 8,839 Total non-interest expenses 64,432 21,348 85,597 41,713 Income (loss) before income taxes (19,072) 6,855 (13,182) 14,963 Income tax expense (benefit) (2,153) 821 (1,475) 1,405 Preferred stock dividends 225 — 225 — Net income (loss) applicable to common shares (17,144) 6,034 (11,932) 13,558 Per Share Data: Average shares of common stock outstanding, basic 12,174,169 7,428,079 9,803,684 7,427,363 Average shares of common stock outstanding, diluted 12,174,169 7,514,955 9,803,684 7,509,831 Total shares of common stock outstanding 14,932,169 7,428,710 14,932,169 7,428,710 Basic net income (loss) per common share $ (1.41) $ 0.81 $ (1.22) $ 1.82 Diluted net income (loss) per common share (1.41) 0.80 (1.22) 1.80 Dividends declared per common share 0.53 0.53 1.06 1.06 Common stock dividend payout ratio (1) (37.59) % 66.25 % (86.89) % 58.89 % Book value per common share (at period end) $ 45.72 $ 39.05 $ 45.72 $ 39.05 56 Table of Contents As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30, 2024 2023 2024 2023 Performance Ratios: Return on average assets (1.06) % 0.67 % (0.48) % 0.76 % Return on average equity (12.44) 8.34 (5.52) 9.56 Interest rate spread (2) 3.35 2.25 2.84 2.41 Net interest margin (3) 4.06 2.87 3.56 2.96 Efficiency ratio (4) 93.02 75.12 89.49 72.66 Capital Ratios: Common equity tier 1 (CET 1) capital to risk-weighted assets 10.91 % 17.60 % 10.91 % 17.60 % Total risk-based capital to risk-weighted assets 13.91 18.71 13.91 18.71 Tier 1 capital to risk-weighted assets 11.34 17.60 11.34 17.60 Tier 1 capital to average assets (leverage ratio) 9.04 11.20 9.04 11.20 Asset Quality Ratios: Allowance coverage ratio 1.21 % 1.30 % 1.21 % 1.30 % Allowance for credit losses as a percentage of non-performing loans 207.10 886.73 207.10 886.73 Net charge-offs to average outstanding loans during the period 0.01 0.00 0.02 0.00 Non-performing loans as a percentage of total loans 0.58 0.15 0.58 0.15 Non-performing assets as a percentage of total assets 0.46 0.08 0.46 0.08 Other Data: Number of full-service branches 75 23 75 23 Number of full-time equivalent employees 850 407 850 407 (1) The dividend payout ratio represents per share dividends declared divided by diluted earnings per share. (2) The interest rate spread represents the difference between the fully taxable-equivalent weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period. (3) The net interest margin represents fully taxable-equivalent net interest income as a percent of average interest-earning assets for the period. (4) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income and non-interest income. Results of Operations Results of Operations for the Six Months Ended June 30, 2024, and June 30, 2023 General Net loss applicable to common shares for the six months ended June 30, 2024, was $11.9 million compared to net income applicable to common shares of $13.6 million for the six months ended June 30, 2023. The $25.5 million decrease in net income applicable to common shares was primarily the result of merger related expenses and one-time CECL Day 2 provision for non-PCD assets acquired in the Merger for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Net interest income increased by $33.3 million to $81.9 million for the six months ended June 30, 2024, compared to $48.6 million for the six months ended June 30, 2023. The main driver for this increase was the impact of the Merger. For the six months ended June 30, 2024, the Company recorded credit provision expense of $23.2 million compared to a provision of $0.7 million for the six months ended June 30, 2023. For the six months ended June 30, 2024, the Company recognized a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger, which resulted in a higher credit provision expense for the six months ended June 30, 2024, compared to the six months ended, June 30, 2023. 57 Table of Contents Non-interest income increased by $4.9 million, or 55.7%, to $13.8 million for the six months ended June 30, 2024, as compared to $8.8 million for the six months ended June 30, 2023, as a result of the Merger. In addition, the Company liquidated the majority of the acquired securities portfolio that resulted in a gain on sale of securities of $0.6 million. Non-interest expense increased by $43.9 million, or 105.2%, to $85.6 million for the six months ended June 30, 2024, compared to $41.7 million for the six months ended June 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as part of the Merger Agreement), and other expenses related to the Merger. For the six months ended June 30, 2024, the Company incurred $24.4 million of expenses related to the Merger with Summit. Net Interest Income and Net Interest Margin Net interest income is the principal component of the Company’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Net interest margin, stated as a percentage, is the yield obtained by dividing the difference between interest income generated on earning assets and the interest expense paid on all funding sources by average earning assets. Fluctuations in interest rates as well as changes in the volume and mix of earning assets and interest-bearing liabilities can impact net interest income and net interest margin. Management closely monitors both total net interest income and the net interest margin and seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk through our asset and liability policies. Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities. Net interest income totaled $81.9 million for the six months ended June 30, 2024, compared to $48.6 million for the six months ended June 30, 2023. The increase in net interest income was primarily driven by the Merger which resulted in higher average balances of interest-earning assets beyond the higher average balances of interest-bearing liabilities. The tax-adjusted net interest margin was 3.56% for the six months ended June 30, 2024, compared to 2.96% for the six months ended June 30, 2023. The increase in tax-adjusted net interest margin was primarily driven by the effect of the Merger and the acquisition of additional, higher-yielding interest-earning assets. The yield for the loan portfolio was 6.72% for the six months ended June 30, 2024, compared to 4.94% for the six months ended June 30, 2023. The increase was primarily the result of the effect of the Merger which resulted in the acquisition of additional, higher-yielding loans. The tax-adjusted yield on the total investment securities portfolio was 3.76% for the six months ended June 30, 2024, compared to 3.45% for the six months ended June 30, 2023. The increase was partly due to higher yields in our investment portfolio in addition to the Merger, which resulted in the acquisition of additional securities with higher tax-adjusted yields. The yield on interest-bearing deposits increased to 2.73% during the six months ended June 30, 2024, from 1.50% during the six months ended June 30, 2023. The increase was a result of the Merger which resulted in the assumption of additional interest-bearing deposits with higher interest rates and to a lesser extent by higher market interest rates. The yield on our short-term borrowings for the six months ended June 30, 2024, was 4.58%, compared to 4.66% for the six months ended June 30, 2023. The decrease was due to the cash flow hedges that effectively lowered our yield on short-term borrowings. The yield on our subordinated debt acquired in the Merger was 10.30%. The following table sets forth the major components of net interest income and the related yields and rates for the six months ended June 30, 2024, and June 30, 2023, for comparison (dollars in thousands). 58 Table of Contents For the Six Months Ended June 30, 2024 2023 Average Outstanding Balance Interest Income/Expense Average Yield / Rate Average Outstanding Balance Interest Income/Expense Average Yield / Rate Assets: Taxable loans (1)(2) $ 3,283,909 $ 109,718 6.72 % $ 1,961,309 $ 48,060 4.94 % Tax-exempt loans (1)(2) 1,520 42 5.56 — — N/A Interest-earning deposits and fed funds sold 68,229 1,229 3.62 59,107 1,296 4.42 Taxable securities 989,183 19,945 4.05 1,065,868 19,221 3.64 Tax-exempt securities (3) 342,895 4,958 2.91 269,575 3,629 2.71 Total securities 1,332,078 24,903 3.76 1,335,443 22,850 3.45 Total interest-earning assets 4,685,736 135,892 5.83 3,355,859 72,206 4.34 Non-interest-earning assets 363,336 250,483 Total assets $ 5,049,072 $ 3,606,342 Liabilities and shareholders’ equity: Deposits: Non-interest-bearing demand $ 1,009,821 $ 901,297 Interest-bearing demand 1,038,847 12,599 2.44 % 563,405 763 0.27 % Savings 1,201,858 10,145 1.70 998,826 6,872 1.39 Time 943,852 20,560 4.38 510,912 7,796 3.08 Total interest-bearing deposits 3,184,557 43,304 2.73 2,073,143 15,431 1.50 Total deposits 4,194,378 43,304 2.08 2,974,440 15,431 1.05 Borrowings: Short-term borrowings 341,754 7,782 4.58 322,157 7,447 4.66 Subordinated debt borrowings 36,321 1,860 10.30 — — N/A Total interest-bearing liabilities 3,562,632 52,946 2.99 2,395,300 22,878 1.93 Non-interest-bearing liabilities 78,489 23,749 Equity 434,451 285,996 Total liabilities and equity $ 5,049,072 $ 3,606,342 Taxable-equivalent net interest income /net interest spread (4) 82,946 2.84 % 49,328 2.41 % Taxable-equivalent net interest margin (5) 3.56 % 2.96 % Taxable-equivalent net adjustment (1,050) (762) Net interest income $ 81,896 $ 48,566 Net interest-earning assets $ 1,123,104 $ 960,559 (1) Non-accrual loans are included in average loan balances. (2) Loan fees are included in the calculation of interest income. (3) Yields and interest income on tax-exempt assets are computed on a taxable-equivalent basis assuming a 21% tax rate. (4) The interest rate spread represents the difference between the fully taxable-equivalent weighted-average yield on interest-earning assets and the weighted-average yield of interest-bearing liabilities for the period. (5) The net interest margin represents fully taxable-equivalent net interest income as a percent of average interest-earning assets for the period. 59 Table of Contents Taxable-equivalent net interest margin, as presented above, is calculated by dividing fully-taxable equivalent (“FTE”) net interest income by total average earning assets. Net interest income, on an FTE basis, is a non-GAAP financial measure that the Company believes to provide a more accurate picture of the interest margin for comparative purposes. Management believes FTE net interest income is a standard practice in the banking industry, and when net interest income is adjusted on an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on net income. FTE net interest income is calculated by adding the tax benefit on certain financial interest-earning assets, whose interest is tax-exempt, to total interest income then subtracting total interest expense. As a non-GAAP measure, FTE net interest income should not be considered as a substitute for the nearest comparable GAAP measure, net interest income. Net interest income shown elsewhere in this presentation is GAAP net interest income. The following table reconciles GAAP net interest income to FTE net interest income (in thousands). Six Months Ended June 30, 2024 June 30, 2023 GAAP Financial Measurements Interest Income - Loans $ 109,718 $ 48,060 Interest Income - Tax-exempt loans 33 — Interest Income - Securities taxable 19,873 19,221 Interest Income - Securities tax-exempt 3,917 2,867 Interest Income - Other interest income 1,301 1,296 Interest Expense - Deposits 43,304 15,431 Interest Expense - Borrowed funds 7,726 7,417 Interest Expense - Subordinated debt 1,860 — Interest Expense - Other 56 30 Total Net Interest Income $ 81,896 $ 48,566 Non-GAAP Financial Measurements Add: Tax Benefit on Tax-Exempt Interest Income - Securities $ 1,050 $ 762 Total Tax Benefit on Tax-Exempt Interest Income (1) 1,050 762 Tax-Equivalent Net Interest Income $ 82,946 $ 49,328 (1) Tax benefit was calculated using the federal statutory tax rate of 21%. Yield/Rate and Volume Analysis The following table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Interest income and interest expense for the six months ended June 30, 2024, and June 30, 2023, are annualized using an actual days over calendar year method. The volume variances are equal to the increase or decrease in average balance multiplied by current period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances. Variances attributable to both rate and volume changes are calculated by multiplying the change in rate by the change in average balance and are allocated to the volume variance. See table below (in thousands). 60 Table of Contents Six Months Ended June 30, 2024, compared to June 30, 2023 Dollar Increase (Decrease) Due to Change in: Average Volume Average Yield / Rate Net Change Income from the interest-earning assets: Loans (1) , gross $ 111,849 $ 7,077 $ 118,926 Securities (1) 1,720 4,072 5,792 Interest-bearing deposits and fed funds sold 588 (418) 170 Total interest income on interest-earning assets 114,157 10,731 124,888 Expense from the interest-bearing liabilities: Interest-bearing demand deposits 12,053 10,972 23,025 Savings deposits 3,982 602 4,584 Time deposits 15,748 4,533 20,281 Total interest expense on interest-bearing deposits 31,783 16,107 47,890 Borrowings 5,785 (338) 5,447 Total interest expense on interest-bearing liabilities 37,568 15,769 53,337 Taxable-equivalent net interest income $ 76,589 $ (5,038) $ 71,551 (1) Yields and interest income on tax-exempt securities have been computed on a taxable-equivalent basis. Interest Income Total interest income was $134.8 million for the six months ended June 30, 2024, compared to $71.4 million for the six months ended June 30, 2023, an increase of 88.7%. The increase in interest income was due to the effect of the Merger and the acquisition of additional interest-earning assets. Interest income on loans increased by $61.7 million and interest income on securities increased $1.7 million, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Interest Expense Total interest expense was $52.9 million for the six months ended June 30, 2024, compared to $22.9 million for the six months ended June 30, 2023. The increase in interest expense was a result of the Merger and the assumption of additional interest-bearing liabilities. Interest expense on interest-bearing deposits and borrowed funds increased by $27.9 million and $0.3 million, respectively, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Interest on subordinated debt assumed in the Merger was $1.9 million for the six months ended June 30, 2024. Provision for (Recapture of) Credit Losses The provision for credit losses was $23.2 million for the six months ended June 30, 2024, compared to a provision of $0.7 million for the six months ended June 30, 2023. The increased provision expense was due to a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger and acquired commitments for unfunded commitments for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information. 61 Table of Contents Non-interest Income The following table sets forth the various components of our non-interest income for the periods indicated (in thousands): Six Months Ended June 30, Increase (Decrease) 2024 2023 Amount Percent Fiduciary and wealth management $ 3,630 $ 2,642 $ 988 37.4 % Service charges and fees 5,694 3,376 2,318 68.7 Net gains (losses) on securities 613 (111) 724 652.3 Income from company-owned life insurance 1,469 1,131 338 29.9 Other non-interest income 2,353 1,801 552 30.6 Total $ 13,759 $ 8,839 $ 4,920 55.7 % Non-interest income increased 55.7% for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase was primarily driven by the Merger. The largest increase was a $2.3 million increase in service charges and fees for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. A majority of the securities acquired in the Merger were sold, resulting in gains of $0.6 million for the six months ended June 30, 2024, compared to losses of $0.1 million during the six months ended June 30, 2023. Loan swap fees included in other non-interest income increased $0.1 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Other categories of non-interest income also increased due to the Merger, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Non-interest Expense The following table sets forth the various components of our non-interest expense for the periods indicated (in thousands): Six Months Ended June 30, Increase (Decrease) 2024 2023 Amount Percent Salaries and wages $ 30,413 $ 19,416 $ 10,997 56.6 % Pensions and other employee benefits 7,668 4,874 2,794 57.3 Occupancy 4,535 3,002 1,533 51.1 Equipment rentals, depreciation and maintenance 13,944 2,796 11,148 398.7 Other 29,037 11,625 17,412 149.8 Total $ 85,597 $ 41,713 $ 43,884 105.2 % Non-interest expense increased $43.9 million or 105.2% for the six months ended June 30, 2024, compared to June 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as contemplated by the Merger Agreement), and other expenses related to the Merger. For the six months ended June 30, 2024, the Company incurred $24.4 million of non-interest expense related to the Merger with Summit that are included in non-interest expense for the six months ended June 30, 2024. Other non-interest expense included $9.5 million of these costs, while the remaining amount of the total is included in the other line items of non-interest expense. See Note 1 6 — Business Combination in Notes to Consolidated Financial Statements for further information on Merger-related expenses and Note 13 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense. Income Tax Expense (Benefit) Income tax benefit was $1.5 million for the six months ended June 30, 2024, a decrease of $2.9 million from the tax provision for the six months ended June 30, 2023. The decrease was due to the decrease in net income and resulting net loss for the six months ended June 30, 2024, when compared to the six months ended June 30, 2023. For the six months ended June 30, 2024, the effective tax benefit was 11.2% while the effective tax rate was 9.4%, for June 30, 2023. 62 Table of Contents Results of Operations for the Three Months Ended June 30, 2024, and June 30, 2023 General Net loss applicable to common shares for the three months ended June 30, 2024, was $17.1 million, compared to net income applicable to common shares of $6.0 million during the three months ended June 30, 2023. The $23.2 million decrease was primarily the result of Merger related expenses and one-time CECL Day 2 provision for non-PCD assets acquired in the merger for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Net interest income increased by $36.0 million to $59.8 million for the three months ended June 30, 2024, compared to $23.8 million for the three months ended June 30, 2023. The main driver for this increase was the impact of the Merger. For the three months ended June 30, 2024, the Company recorded credit provision expense of $23.9 million compared to a provision of $0.2 million for the three months ended June 30, 2023. For the three months ended June 30, 2024, the Company recognized a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger, which resulted in a higher credit provision expense for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Non-interest income increased by $4.9 million, or 105.5%, to $9.5 million for the three months ended June 30, 2024, as compared to $4.6 million for the three months ended June 30, 2023, as a result of the Merger. In addition, the Company liquidated the majority of the acquired securities portfolio that resulted in a gain on sale of securities of $0.6 million. Non-interest expense increased by $43.1 million, or 201.8%, to $64.4 million for the three months ended June 30, 2024, as compared to $21.3 million for the three months ended June 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as part of the Merger Agreement), and other expenses related to the Merger. For the three months ended June 30, 2024, the Company incurred $23.8 million of expenses related to the Merger with Summit. Net Interest Income and Net Interest Margin Net interest income is the principal component of the Company’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Net interest margin, stated as a percentage, is the yield obtained by dividing the difference between interest income generated on earning assets and the interest expense paid on all funding sources by average earning assets. Fluctuations in interest rates as well as changes in the volume and mix of earning assets and interest-bearing liabilities can impact net interest income and net interest margin. Management closely monitors both total net interest income and the net interest margin and seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk through our asset and liability policies. Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities. Net interest income totaled $59.8 million for the three months ended June 30, 2024, compared to $23.8 million for the three months ended June 30, 2023. The increase in net interest income was primarily driven by the merger which resulted in higher average balances on interest-earning assets beyond the higher average balances on interest-bearing liabilities. The tax-adjusted net interest margin was 4.06% for the three months ended June 30, 2024, compared to 2.87% for the three months ended June 30, 2023. The increase in tax-adjusted net interest margin was primarily driven by the effect of the merger and the acquisition of additional, higher-yielding interest-earning assets. The yield for the loan portfolio was 7.33% for the three months ended June 30, 2024, compared to 5.07% for the three months ended June 30, 2023. The increase was primarily the result of the effect of the Merger which resulted in the acquisition of additional, higher-yielding loans. The tax-adjusted yield on the total investment securities portfolio was 4.05% for the three months ended June 30, 2024, compared to 3.45% for the three months ended June 30, 2023. The increase was partly due to higher yields in our investment portfolio in addition to the Merger, which resulted in the acquisition of additional securities with higher tax-adjusted yields. 63 Table of Contents The yield on interest-bearing deposits increased to 2.90% during the three months ended June 30, 2024, from 1.88% during the three months ended June 30, 2023. The increase was a result of the Merger which resulted in the assumption of additional interest-bearing deposits with higher interest rates and to a lesser extent by higher market interest rates. The yield on our short-term borrowings for the three months ended June 30, 2024, was 4.38%, compared to 4.61% for the three months ended June 30, 2023. The decrease was due to cash flow hedges that effectively lowered our yield on short-term borrowings. The yield on our subordinated debt assumed in the Merger was 10.30%. The following table sets forth the major components of net interest income and the related yields and rates for the three months ended June 30, 2024, and June 30, 2023, for comparison (dollars in thousands). 64 Table of Contents For the Three Months Ended June 30, 2024 2023 Average Outstanding Balance Interest Income/Expense Average Yield / Rate Average Outstanding Balance Interest Income/Expense Average Yield / Rate Assets: Loans, gross (1)(2) $ 4,481,993 $ 81,673 7.33 % $ 2,002,482 $ 25,300 5.07 % Tax-exempt loans (1)(2) 3,041 42 5.55 — — N/A Interest-earning deposits and fed funds sold 94,765 833 3.54 74,074 988 5.35 Taxable securities 988,492 11,002 4.48 1,036,576 9,418 3.64 Tax-exempt securities (3) 426,092 3,235 3.05 266,402 1,784 2.69 Total securities 1,414,584 14,237 4.05 1,302,978 11,202 3.45 Total interest-earning assets 5,994,383 96,785 6.49 3,379,534 37,490 4.45 Non-interest-earning assets 484,149 243,498 Total assets $ 6,478,532 $ 3,623,032 Liabilities and shareholders’ equity: Deposits: Non-interest-bearing demand $ 1,207,443 $ 879,794 Interest-bearing demand 1,587,914 11,834 3.00 % 554,364 564 0.41 % Savings 1,480,985 5,616 1.53 979,020 4,199 1.72 Time 1,141,758 12,923 4.55 608,949 5,267 3.47 Total interest-bearing deposits 4,210,657 30,373 2.90 2,142,333 10,030 1.88 Total deposits 5,418,100 30,373 2.25 3,022,127 10,030 1.33 Borrowings: Short-term borrowings 376,063 4,099 4.38 286,584 3,294 4.61 Subordinated debt borrowings 72,643 1,860 10.30 — — N/A Total interest-bearing liabilities 4,659,363 36,332 3.14 2,428,917 13,324 2.20 Non-interest-bearing liabilities 129,884 24,036 Equity 554,485 290,285 Total liabilities and equity $ 6,478,532 $ 3,623,032 Taxable-equivalent net interest income /net interest spread (4) 60,453 3.35 % 24,166 2.25 % Taxable-equivalent net interest margin (5) 4.06 % 2.87 % Taxable-equivalent net adjustment (688) (374) Net interest income $ 59,765 $ 23,792 Net interest-earning assets $ 1,335,020 $ 950,617 (1) Non-accrual loans are included in average loan balances. (2) Loan fees are included in the calculation of interest income. (3) Yields and interest income on tax-exempt assets are computed on a taxable-equivalent basis assuming a 21% tax rate. (4) The interest rate spread represents the difference between the fully taxable-equivalent weighted-average yield on interest-earning assets and the weighted-average yield of interest-bearing liabilities for the period. (5) The net interest margin represents FTE net interest income as a percent of average interest-earning assets for the period. 65 Table of Contents Taxable-equivalent net interest margin, as presented above, is calculated by dividing FTE net interest income by total average earning assets. Net interest income, on an FTE basis, is a non-GAAP financial measure that the Company believes to provide a more accurate picture of the interest margin for comparative purposes. Management believes FTE net interest income is a standard practice in the banking industry, and when net interest income is adjusted on an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on net income. FTE net interest income is calculated by adding the tax benefit on certain financial interest-earning assets, whose interest is tax-exempt, to total interest income then subtracting total interest expense. As a non-GAAP measure, FTE net interest income should not be considered as a substitute for the nearest comparable GAAP measure, net interest income. Net interest income shown elsewhere in this presentation is GAAP net interest income. The following table reconciles GAAP net interest income to FTE net interest income (in thousands). Three Months Ended June 30, 2024 June 30, 2023 GAAP Financial Measurements Interest Income - Loans $ 81,673 $ 25,300 Interest Income - Tax-exempt loans 33 — Interest Income - Securities taxable 10,930 9,419 Interest Income - Securities tax-exempt 2,556 1,409 Interest Income - Other interest income 905 988 Interest Expense - Deposits 30,373 10,030 Interest Expense - Borrowed funds 4,071 3,279 Interest Expense - Subordinated debt 1,860 — Interest Expense - Other 28 15 Total Net Interest Income $ 59,765 $ 23,792 Non-GAAP Financial Measurements Add: Tax Benefit on Tax-Exempt Interest Income - Securities $ 688 $ 374 Total Tax Benefit on Tax-Exempt Interest Income (1) 688 374 Tax-Equivalent Net Interest Income $ 60,453 $ 24,166 (1) Tax benefit was calculated using the federal statutory tax rate of 21%. Yield/Rate and Volume Analysis The following table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Interest income and interest expense for the three months ended June 30, 2024, and June 30, 2023, are annualized using an actual days over calendar year method. Volume variances are equal to the increase or decrease in average balance multiplied by current period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances. Variances attributable to both rate and volume changes are calculated by multiplying the change in rate by the change in average balance and are allocated to the volume variance. See table below (in thousands). 66 Table of Contents Three Months Ended June 30, 2024, compared to June 30, 2023 Dollar Increase (Decrease) Due to Change in: Average Volume Average Yield / Rate Net Change Income from the interest-earning assets: Loans (1) , gross $ 219,348 $ 7,509 $ 226,857 Securities (1) 5,192 7,782 12,974 Interest-bearing deposits and fed funds sold 1,513 (462) 1,051 Total interest income on interest-earning assets 226,053 14,829 240,882 Expense from the interest-bearing liabilities: Interest-bearing demand deposits 31,272 14,014 45,286 Savings deposits 7,834 (1,066) 6,768 Time deposits 25,504 5,408 30,912 Total interest expense on interest-bearing deposits 64,610 18,356 82,966 Borrowings 10,941 (919) 10,022 Total interest expense on interest-bearing liabilities 75,551 17,437 92,988 Taxable-equivalent net interest income $ 150,502 $ (2,608) $ 147,894 (1) Yields and interest income on tax-exempt securities have been computed on a taxable-equivalent basis. Interest Income Total interest income was $96.1 million for the three months ended June 30, 2024, compared to $37.1 million for the three months ended June 30, 2023, an increase of 158.9%. The increase in interest income was due to the effect of the Merger and the acquisition of additional interest-earning assets. Interest income on loans increased by $56.4 million and interest income on securities increased $2.7 million, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Interest Expense Total interest expense was $36.3 million for the three months ended June 30, 2024, compared to $13.3 million for the three months ended June 30, 2023. The increase in interest expense was a result of the Merger and the assumption of additional interest-bearing liabilities. Interest expense on interest-bearing deposits and borrowed funds increased by $20.3 million and $0.8 million, respectively, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Interest on subordinated debt acquired in the Merger was $1.9 million for the three months ended June 30, 2024. Provision for (Recapture of) Credit Losses The provision for credit losses was $23.9 million for the three months ended June 30, 2024, compared to a provision of $0.2 million for the three months ended June 30, 2023. The increased provision expense was due to a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger and acquired commitments for unfunded commitments for three months ended June 30, 2023, compared to the three months ended June 30, 2023. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information. 67 Table of Contents Non-interest Income The following table sets forth the various components of our non-interest income for the periods indicated (in thousands): Three months ended June 30, Increase (Decrease) 2024 2023 Amount Percent Fiduciary and wealth management $ 2,211 $ 1,305 $ 906 69.4 % Service charges and fees 4,088 1,741 2,347 134.8 Net gains (losses) on securities 613 (111) 724 652.3 Income from company-owned life insurance 922 571 351 61.5 Other non-interest income 1,671 1,119 552 49.3 Total $ 9,505 $ 4,625 $ 4,880 105.5 % Non-interest income increased 105.5% for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was primarily driven by the Merger. The largest increase was a $2.3 million increase in service charges and fees for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. A portion of securities acquired in the Merger were sold, resulting in gains of $0.6 million for the three months ended June 30, 2023, compared to losses of $0.1 million during the three months ended June 30, 2023. Loan swap fees included in other non-interest income increased $0.1 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Other categories of non-interest income also increased due to the Merger, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Non-interest Expense The following table sets forth the various components of our non-interest expense for the periods indicated (in thousands): Three months ended June 30, Increase (Decrease) 2024 2023 Amount Percent Salaries and wages $ 20,895 $ 9,922 $ 10,973 110.6 % Pensions and other employee benefits 5,303 2,406 2,897 120.4 Occupancy 2,997 1,545 1,452 94.0 Equipment rentals, depreciation and maintenance 12,663 1,457 11,206 769.1 Other 22,574 6,018 16,556 275.1 Total $ 64,432 $ 21,348 $ 43,084 201.8 % Non-interest expense increased $43.1 million or 201.8% for the three months ended June 30, 2024, compared to June 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as part of the Merger Agreement), and other Merger-related expenses. For the three months ended June 30, 2024, the Company incurred $23.8 million of non-interest expense related to the Merger with Summit that are included in other non-interest expense for the three months ended June 30, 2024. See Note 16 — Business Combination in Notes to Consolidated Financial Statements for further information on Merger-related expenses and Note 13 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense. Income Tax Expense (Benefit) Income tax benefit was $2.2 million for the three months ended June 30, 2024, a decrease of $3.0 million from the tax provision for the three months ended June 30, 2023. The decrease was due to the decrease in net income and resulting net loss for the three months ended June 30, 2024, when compared to the three months ended June 30, 2023. For the three months ended June 30, 2024, the effective tax benefit was 11.3% while the effective tax rate was 12.0% for June 30, 2023. 68 Table of Contents Analysis of Financial Condition for the Period Ended June 30, 2024, and December 31, 2023 Due mostly to the Merger, assets increased by $4.19 billion to $7.81 billion as of June 30, 2024, compared to $3.62 billion as of December 31, 2023. Loans, net of ACL, increased by $3.49 billion from $2.06 billion as of December 31, 2023, to $5.55 billion as of June 30, 2024. Deposits increased by $3.64 billion and amounted to $6.64 billion at June 30, 2024, compared to $3.00 billion at December 31, 2023. Borrowed funds increased by $13.2 million to $285.2 million as of June 30, 2024, compared to $272.0 million at December 31, 2023. Subordinated debt and subordinated debt owed to unconsolidated subsidiary trusts, which were assumed in the Merger, totaled $109.1 million at June 30, 2024, compared to zero at December 31, 2023. Investment Securities Our investment policy is established and reviewed annually by the Board. We are permitted under federal law to invest in various types of liquid assets, including United States Government obligations, securities of various federal agencies and of state and municipal governments, mortgage-backed securities, time deposits of federally insured institutions, certain bankers’ acceptances, and federal funds. Our securities are all classified as AFS. Our investments provide a source of liquidity because we can pledge them to support borrowed funds or can liquidate them to generate cash proceeds. Our investment portfolio is also a resource in managing interest rate risk because the maturity and interest rate characteristics of this asset class can be modified to match changes in the loan and deposit portfolios. The majority of our AFS investment portfolio is comprised of obligations of states and municipalities and residential mortgage-backed securities. During the six months ended June 30, 2024, the unrealized losses on our holdings remained mostly unchanged from December 31, 2023. The Company determined that the declines in market value were due to increases in interest rates and market movements and not due to credit factors. Therefore, the Company has concluded that the unrealized losses for the AFS securities do not require an ACL at June 30, 2024, and at December 31, 2023. The Company has sufficient access to liquidity such that management does not believe it would be necessary to sell any of its investment securities at a loss to offset any unexpected deposit outflows. Management believes the structure of the Bank’s investment portfolio is appropriately aligned with the rest of the balance sheet to protect against significant and unexpected charges against earnings and capital. The following tables reflect the amortized cost and fair market values for the total portfolio for each category of investment for June 30, 2024, and December 31, 2023 (in thousands): June 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities Available-for-Sale U.S. Treasuries and government agencies $ 166,380 $ — $ 18,950 $ 147,430 Obligations of states and municipalities 714,449 1,237 77,932 637,754 Residential mortgage backed - agency 58,104 230 4,166 54,168 Residential mortgage backed - non-agency 282,667 19 15,373 267,313 Commercial mortgage backed - agency 35,968 28 954 35,042 Commercial mortgage backed - non-agency 165,675 — 6,312 159,363 Asset backed 77,568 179 795 76,952 Other 38,300 81 1,533 36,848 Total $ 1,539,111 $ 1,774 $ 126,015 $ 1,414,870 69 Table of Contents December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities Available-for-Sale U.S. Treasuries and government agencies $ 197,026 $ — $ 17,955 $ 179,071 Obligations of states and municipalities 535,229 21 72,047 463,203 Residential mortgage backed - agency 47,074 — 4,836 42,238 Residential mortgage backed - non-agency 284,826 17 18,812 266,031 Commercial mortgage backed - agency 36,151 28 1,294 34,885 Commercial mortgage backed - non-agency 183,454 — 6,393 177,061 Asset backed 79,315 23 1,402 77,936 Other 9,500 — 1,486 8,014 Total $ 1,372,575 $ 89 $ 124,225 $ 1,248,439 The investment maturity table below summarizes contractual maturities for our investment securities at June 30, 2024. The actual timing of principal payments may differ from remaining contractual maturities because obligors may have the right to repay certain obligations with or without penalties. The overall weighted average duration of the Company’s investment portfolio is 4.5 years at June 30, 2024. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security (dollars in thousands). Interest on securities below excludes tax-equivalent adjustments. June 30, 2024 One Year or Less One to Five Years Five to Ten Years After Ten Years Total Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Securities Available-for-Sale U.S. Treasuries and government agencies $ — — % $ 141,054 1.30 % $ 25,326 1.36 % $ — — % $ 166,380 1.31 % Obligations of states and municipalities — — 87,560 2.96 399,572 2.43 227,317 2.68 714,449 2.58 Residential mortgage backed - agency — — 20,097 5.75 28,424 2.79 9,583 4.31 58,104 4.07 Residential mortgage backed - non-agency 68,491 4.40 67,340 3.92 141,397 3.94 5,439 5.57 282,667 4.08 Commercial mortgage backed - agency 45 5.80 26,548 5.48 9,375 5.64 — — 35,968 5.52 Commercial mortgage backed - non-agency 67,421 5.22 93,124 4.24 5,130 1.43 — — 165,675 4.55 Asset backed 3,437 5.66 35,543 6.58 38,588 6.47 — — 77,568 6.48 Other — — 2,730 8.29 21,197 5.88 14,373 9.15 38,300 7.28 Total $ 139,394 4.83 % $ 473,996 3.42 % $ 669,009 3.11 % $ 256,712 3.17 % $ 1,539,111 3.37 % Lending Activities Our loan portfolio consists primarily of commercial real estate loans, but we offer a variety of products to meet the credit needs of our borrowers. The risks associated with lending activities differ among loan classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions. Any of these factors may adversely impact a borrower’s ability to repay loans and also impact the associated collateral. Additional discussion on the classes of loans the Company makes and related risks is included in Note 3 — Loans in Notes to Consolidated Financial Statements. 70 Table of Contents The following tables set forth the composition of our loan portfolio as of the dates indicated (in thousands): June 30, 2024 December 31, 2023 Commercial real estate $ 2,543,668 $ 1,309,084 Owner-occupied commercial real estate 626,375 131,381 Acquisition, construction & development 479,937 49,091 Commercial & industrial 499,892 67,847 Single family residential (1-4 units) 1,219,984 527,980 Consumer non-real estate and other 246,868 2,373 Loans, gross 5,616,724 2,087,756 Allowance for credit losses (68,017) (25,301) Loans, net $ 5,548,707 $ 2,062,455 The loan portfolio, excluding ACL, at June 30, 2024, increased by $3.53 billion primarily due to the Merger. The following table shows the maturity distribution for total loans outstanding as of June 30, 2024. The maturity distribution is grouped by remaining scheduled principal payments that are due in the following periods. The principal balance of loans is indicated by both fixed and floating rate categories in the table below (in thousands). June 30, 2024 Within One Year One Year to Five Years Five Years to 15 Years After 15 Years Fixed Rates Adjustable Rates Fixed Rates Adjustable Rates Fixed Rates Adjustable Rates Fixed Rates Adjustable Rates Total Loans: Commercial real estate $ 170,318 $ 91,571 $ 971,122 $ 220,500 $ 380,129 $ 380,139 $ 12,078 $ 317,811 $ 2,543,668 Owner-occupied commercial real estate 35,489 30,420 134,344 37,606 110,053 148,311 16,911 113,241 626,375 Acquisition, construction & development 30,348 96,049 64,283 123,809 26,830 21,913 4,564 112,141 479,937 Commercial & industrial 8,626 124,100 108,248 175,872 30,381 50,294 1,486 885 499,892 Total commercial loans 244,781 342,140 1,277,997 557,787 547,393 600,657 35,039 544,078 4,149,872 Single family residential (1-4 units) 14,796 14,007 40,582 18,448 103,257 80,878 457,717 490,299 1,219,984 Consumer non-real estate and other 10,866 132,554 48,449 1,194 15,552 16,709 4,107 17,437 246,868 Total loans $ 270,443 $ 488,701 $ 1,367,028 $ 577,429 $ 666,202 $ 698,244 $ 496,863 $ 1,051,814 $ 5,616,724 Asset Quality The Company maintains policies and procedures to promote sound underwriting and mitigate credit risk. The Chief Credit Officer is responsible for establishing credit risk policies and procedures, including underwriting guidelines and credit approval authority, and monitoring credit exposure and performance of the Company’s lending-related transactions. A loan is placed on non-accrual status when (i) the Company is advised by the borrower that scheduled principal or interest payments cannot be met, (ii) when management’s best judgment indicates that payment in full of principal and interest can no longer be expected, or (iii) when any such loan or obligation becomes delinquent for 90 days, unless it is both well-secured and in the process of collection. The Company’s asset quality remained stable through the second quarter of 2024, but the nonaccrual loan balance increased $29.0 million from December 31, 2023 due to the merger. The Company’s non-performing assets, which includes non-performing loans consisting of non-accrual loans, loans that are more than 90 days past due and still accruing, and other real estate owned as of June 30, 2024, totaled $36.2 million. 71 Table of Contents The following table summarizes the Company’s non-performing assets as of June 30, 2024, and December 31, 2023 (in thousands): June 30, 2024 December 31, 2023 Non-accrual loans $ 32,726 $ 3,744 90 days past due and still accruing 116 — Total non-performing loans 32,842 3,744 Other real estate owned 3,334 — Total non-performing assets $ 36,176 $ 3,744 Allowance for Credit Losses Refer to the discussion in Note 1. Nature of Business Activities and Significant Accounting Policies in Notes to Consolidated Financial Statements for management’s approach to estimating the ACL. The Company maintains the ACL at a level deemed adequate by management for expected credit losses. On January 1, 2023, the Company implemented CECL and increased the ACL, previously the allowance for loan losses, with a cumulative-effect adjustment to the ACL for credit losses of $4.4 million, which included a cumulative-effect adjustment to the ACL for off-balance sheet exposures of $274.8 thousand. The Company’s ACL is calculated quarterly with any adjustment recorded to the provision for credit losses in the consolidated Statement of Income. Management evaluates the adequacy of the ACL utilizing a defined methodology to determine if it properly addresses the current and expected risks in the loan portfolio, which considers the performance of borrowers and specific evaluation of individually evaluated loans, including historical loss experiences, trends in delinquencies, non-performing loans and other risk assets, and qualitative factors. Risk factors are continuously reviewed and adjusted, as needed, by management when conditions support a change. Management believes its approach properly addresses relevant accounting and bank regulatory guidance for loans both collectively and individually evaluated. The Company recorded a provision of $20.1 million and a provision of $310.0 thousand on loans for the three months ended June 30, 2024, and June 30, 2023, respectively, and a provision of $19.4 million and a provision of $0.8 million on loans for the six months ended June 30, 2024, and June 30, 2023, respectively. This additional provision expense was due to an increase in loans that were classified as non-PCD. The Company also recorded a $23.9 million provision to establish an allowance for acquired PCD loans for the quarter ended June 30, 2024. Gross charged-off loans were $611.0 thousand and $104.0 thousand for the three months ended June 30, 2024, and June 30, 2023, respectively, and $641.0 thousand and $121.0 thousand for the six months ended June 30, 2024, and June 30, 2023, respectively. Gross recoveries totaled $12.0 thousand and $9.0 thousand for the three months ended June 30, 2024, and June 30, 2023, respectively, and $17.0 thousand and $43.0 thousand for the six months ended June 30, 2024, and June 30, 2023, respectively. The ACL as a percentage of gross loans, net of unearned income, was 1.21% and 1.30% as of June 30, 2024, and June 30, 2023, respectively. 72 Table of Contents The following table summarizes the changes in the Company’s credit loss experience by portfolio as of the three and six months ended June 30, 2024, and 2023 (dollars in thousands): Three months ended Six months ended June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 Loans outstanding at end of period $ 5,616,724 $ 2,000,969 $ 5,616,724 $ 2,000,969 Balance of allowance at beginning of period (24,606) (25,704) (25,301) (21,039) Impact of the adoption of CECL — — (4,125) Allowance established for acquired PCD Loans (23,910) — (23,910) — Loans charged-off: Commercial real estate 210 — 210 — Owner-occupied commercial real estate — — — — Acquisition, construction & development — — — — Commercial & industrial 146 29 146 29 Residential 37 — 37 — Consumer non-real estate and other 218 75 248 92 Total loans charged-off 611 104 641 121 Recoveries of loans charged-off: Commercial real estate (4) (3) (7) (31) Owner-occupied commercial real estate — — — — Acquisition, construction & development — — — — Commercial & industrial — — — — Residential — (3) (1) (6) Consumer non-real estate and other (8) (3) (9) (6) Total recoveries of loans charged-off (12) (9) (17) (43) Net loan charge-offs (recoveries) 599 95 624 78 Provision for (recapture of) credit losses for the period 20,100 310 19,430 833 Ending allowance $ (68,017) $ (25,919) $ (68,017) $ (25,919) Average loans outstanding during the period $ 4,481,993 $ 2,002,482 $ 3,283,909 $ 1,961,309 Allowance coverage ratio (1) 1.21 % 1.30 % 1.21 % 1.30 % Net charge-offs to average outstanding loans during the period (2) 0.01 0.00 0.02 0.00 Allowance for credit losses as a percentage of non-performing loans (3) 207.10 886.73 207.10 886.73 (1) The allowance coverage ratio is calculated by dividing the ACL at the end of the period by gross loans, net of unearned income at the end of the period. (2) The Net charge-offs to average outstanding loans during the period is calculated by dividing total net loan charge-offs (recoveries) during the year by average gross loans outstanding during the year. (3) The Allowance for credit losses as a percentage of non-performing loans ratio is calculated by dividing the ACL at the end of the period by non-accrual loans at the end of the period. 73 Table of Contents The following table summarizes the ACL by portfolio with a comparison of the percentage composition in relation to total ACL and allowance for credit losses and total loans as of June 30, 2024, and December 31, 2023 (dollars in thousands). June 30, 2024 Allowance for credit losses Percent of Allowance in Each Category to Total Allocated ACL Percent of Loans in Each Category to Total Loans Commercial real estate $ 27,304 40.14 % 45.29 % Owner-occupied commercial real estate 5,040 7.41 11.15 Acquisition, construction & development 18,639 27.40 8.54 Commercial & industrial 4,768 7.01 8.90 Residential 11,648 17.13 21.72 Consumer non-real estate and other 618 0.91 4.40 Total $ 68,017 100.00 % 100.00 % December 31, 2023 Allowance for credit losses Percent of Allowance in Each Category to Total Allocated Allowance Percent of Loans in Each Category to Total Loans Commercial real estate $ 20,633 81.56 % 62.71 % Owner-occupied commercial real estate 783 3.09 6.29 Acquisition, construction & development 368 1.45 2.35 Commercial & industrial 645 2.55 3.25 Residential 2,797 11.05 25.29 Consumer non-real estate and other 75 0.30 0.11 Total $ 25,301 100.00 % 100.00 % Derivative Financial Instruments The Company utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The Company recognizes derivative financial instruments at fair value as either other assets or other liabilities on the Consolidated Balance Sheets. The Company’s use of derivative financial instruments is described more fully in Note 9 — Derivatives in Notes to Consolidated Financial Statements. Off-Balance Sheet Arrangements The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit, and financial guarantees which would impact the Company’s liquidity and capital resources to the extent customers accept and/or use these commitments. See Note 10 — Commitments and Contingencies in Notes to Consolidated Financial Statements for a discussion of credit extension commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. With the exception of these off-balance sheet arrangements, the Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. Funding Activities The Company’s funding activities are monitored and governed through the Company’s asset/liability management process. Deposits are the primary source of funds for lending and investing activities; however, the Company will use borrowings to meet liquidity needs and for temporary funding. The Company has available secured lines of credit with the Federal Reserve Bank of Richmond, such as the Borrower-In-Custody program, the FHLB of Atlanta, and unsecured federal funds 74 Table of Contents lines of credit from correspondent banking relationships. The Company also utilizes brokered time deposits. For more discussion of brokered time deposits, see the Deposits heading below this section. As of June 30, 2024, the Company has available unused borrowing capacity of $2.2 billion through its available lines of credit with the FHLB of Atlanta, the Federal Reserve Borrower-In-Custody Program line, and unsecured federal fund lines of credit from correspondent banking relationships. Advances on credit lines are secured by both securities and loans. The following table shows certain information regarding short-term borrowings as of the three months ended June 30, 2024, and December 31, 2023, respectively (dollars in thousands): Balance at end of period June 30, 2024 December 31, 2023 Short-term borrowings $ 285,161 $ 272,000 Weighted average interest yield at end of period 4.38% 4.75% The following table shows certain information regarding long-term debt as of the three months ended June 30, 2024, and December 31, 2023, respectively (dollars in thousands): Balance at end of period June 30, 2024 December 31, 2023 Subordinated debentures, net $ 92,178 $ — Subordinated debentures owed to unconsolidated subsidiary trusts 16,886 — Total long-term debt $ 109,064 $ — Weighted average interest yield at end of period 10.30% N/A Deposits Total deposits increased by $3.6 billion from December 31, 2023, to June 30, 2024, primarily due to the completion of the Merger with Summit. The Company has brokered time deposits that amounted to $403.7 million as of June 30, 2024, and $389.0 million at December 31, 2023. The following table sets forth the balance of each category of deposits as of the dates indicated (in thousands): June 30, 2024 December 31, 2023 Balance Balance Demand, non-interest-bearing $ 1,397,030 $ 830,320 Demand, interest-bearing 2,507,259 509,646 Money market and savings 1,396,839 925,853 Brokered deposits 403,668 389,011 Time deposits, other 934,775 347,051 Total interest-bearing 5,242,541 2,171,561 Total deposits $ 6,639,571 $ 3,001,881 The Company continues to seek organic growth in both interest-bearing and non-interest-bearing deposits consistent with our relationship-based strategy. Management evaluates its utilization of brokered deposits, taking into consideration the interest rate curve and regulatory views on non-core funding sources, and balances this funding source with its funding needs based on growth initiatives. The Company has deposits that meet or exceed the FDIC insurance limit of $250,000 in the amounts of $1.9 billion and $677.3 million at June 30, 2024, and December 31, 2023, respectively, with the increase being primarily attributable to the Merger. 75 Table of Contents The following table sets forth maturity ranges of time deposits as of June 30, 2024, that meet or exceed the FDIC insurance limit (in thousands). June 30, 2024 Due within 3 months or less $ 100,355 Due after 3 months and within 6 months 97,881 Due after 6 months and within 12 months 32,755 Due after 12 months 16,128 Total uninsured, time deposits $ 247,119 Shareholders’ Equity Total shareholders’ equity at June 30, 2024, was $693.1 million, compared to $314.8 million at December 31, 2023. Shareholders’ equity increased by $378.4 million mostly due to the Merger since December 31, 2023. Accumulated other comprehensive income/(loss) decreased $3.1 million from December 31, 2023, to June 30, 2024, from $(103.5) million to $(100.4) million. 76 Table of Contents