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, 2024, included in our Form 10-K filed with the SEC on March 17, 2025 (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,” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the beliefs, goals, intentions, and expectations of the Company regarding revenues, earnings, earnings per share, loan production, asset quality, and capital levels, among other matters; our estimates of future costs and benefits of the actions we may take; our assessments of expected losses on loans; our assessments of interest rate and other market risks; our ability to achieve our financial and other strategic goals; and other statements that are not historical facts. 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. Additionally, forward–looking statements speak only as of the date they are made; the Company does not assume any duty, does not undertake, and specifically disclaims any obligation to update such forward–looking statements, whether written or oral, that may be made from time to time, whether because of new information, future events, or otherwise, except as required by law. Furthermore, because forward–looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those indicated in or implied by such forward-looking statements because of a variety of factors, many of which are beyond the control of the Company. Further, factors identified herein are not necessarily all of the factors that could cause the Company’s actual results, performance or achievements to differ materially from those expressed in or implied by any of the forward-looking statements. Other factors, including unknown or unpredictable factors, also could harm the Company. Accordingly, you should consider all of these risks, uncertainties and other factors carefully in evaluating all such forward-looking statements made by the Company and not place undue reliance on forward-looking statements. The risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements include, but are not limited to, the following: costs or difficulties associated with newly developed or acquired operations; changes in general economic, political, or market trends (either nationally or locally in the areas in which we conduct, or will conduct, business), including inflation, changes in interest rates, market volatility and monetary fluctuations, and changes in federal government policies and practices, as well as the impact from recently announced and future tariffs on the markets we serve; increased competition; changes in consumer confidence and demand for financial services, including changes in consumer borrowing, repayment, investment, and deposit practices; changes in asset quality and credit risk; our ability to control costs and expenses; adverse developments in borrower industries or declines in real estate values; changes in and compliance with federal and state laws and regulations that pertain to our business and capital levels; our ability to raise capital as needed; the impact, extent and timing of technological changes; the effects of any cybersecurity breaches; and the other factors discussed in the “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of the Company's Annual Report on Form 10–K for the year ended December 31, 2024 and in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 1A. Risk Factors in this Form 10-Q. 44 Table of Contents Overview Burke & Herbert Financial Services Corp. was organized as a Virginia corporation in 2022 to serve as the holding company for Burke & Herbert Bank & Trust Company. The Company became a bank holding company when it commenced operations on October 1, 2022, following a reorganization transaction in which it acquired control of the Bank under the BHCA. This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of the Company. The Company has no material operations other than owning the Bank. In September 2023, the Company elected to become a financial holding company under the BHCA. As a financial holding company of a Virginia state bank, the Company is subject to regulation, supervision, and examination by the Federal Reserve and the Virginia BFI. The Bank is a Virginia chartered commercial bank that commenced operations in 1852. The Bank became a member of the Federal Reserve System on December 31, 2024. The Bank is subject to regulation, supervision, and examination by the Federal Reserve (through the Federal Reserve Bank of Richmond) and the Virginia BFI. The Bank’s primary market area includes northern Virginia and West Virginia, and it has over 77 branches and 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 March 31, 2025, we had total consolidated assets of $7.8 billion, gross loans of $5.6 billion, total deposits of $6.5 billion, and total shareholders’ equity of $758.0 million. As of March 31, 2025, we had 814 full-time employees. None of our employees are covered by a collective bargaining agreement. 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 newly created Burke & Herbert Series 2021 Preferred Stock. Summit results of operations are included from the Closing Date forward. 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 45 Table of Contents 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 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, 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 46 Table of Contents 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 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 March 31, 2025, 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, 2024, Consolidated Financial Statements of the Company for additional information. Non-GAAP Financial Measures 47 Table of Contents 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. Commercial Real Estate Sector Concentration The commercial real estate (“CRE”) sector has been impacted significantly by rising interest rates and rising 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. However, in late 2024 interest rates began falling, and in January 2025 the U.S. president signed an executive order requiring all federal employees to return to offices on a five-day-a-week basis. Additionally, several large private-sector employers instituted similar return to office mandates in 2024. We would expect the federal return to office mandate, combined with mandates at private sector employers and decreasing interest rates could help the region’s CRE office market; however, we cannot be certain that this would be the case or the degree to which such mandates may improve the CRE sector in our markets in 2025, if at all. Additionally, recent reductions, and possible further reductions, in the federal workforce, combined with general economic uncertainty as a result of federal trade and other policies could continue to challenge the economy and impact the CRE sector. The Bank’s exposure to CRE at March 31, 2025, was $2.8 billion, or 49.7%, 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 March 31, 2025, was 35.8%, 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 $3.7 billion, or 65.8%, of our total gross loans and 47.4% of total assets at March 31, 2025. Loan balances by portfolio segment amortized cost (in thousands) and by percentage of our total gross loan portfolio at March 31, 2025, were as follows: March 31, 2025 Amortized Cost Percentage Commercial real estate $ 2,809,573 49.7 % Owner-occupied commercial real estate 589,889 10.4 Acquisition, construction & development 322,963 5.7 Commercial & industrial 613,219 10.9 Single family residential (1-4 units) 1,161,406 20.6 Consumer non-real estate and other 150,457 2.7 Total gross loans $ 5,647,507 100.0 % 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 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). 48 Table of Contents 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 March 31, 2025 (in thousands). Commercial Real Estate by Collateral Type and Geographic Location VA WV MD DC Other Total Percentage Retail Real Estate $ 293,183 $ 76,916 $ 137,611 $ 37,772 $ 60,184 $ 605,666 21.6 % Multi-Family 233,949 105,437 41,109 79,140 60,727 520,362 18.5 Office Buildings/Condos 194,838 35,776 115,426 57,514 57,610 461,164 16.5 Hotels/Motels 129,581 47,541 84,385 51,077 76,493 389,077 13.8 Industrial/Warehouse 236,476 9,171 31,915 — — 277,562 9.9 Self-Storage 60,567 24,647 1,455 — 30,794 117,463 4.2 Nursing-Assisted Living 63,022 26,250 6,138 — 37,146 132,556 4.7 Restaurants 15,913 2,285 10,220 6,894 7,829 43,141 1.5 Gas Stations 7,164 1,594 2,050 14,592 2,636 28,036 1.0 Other 148,936 7,589 12,902 43,487 21,632 234,546 8.3 Total $ 1,383,629 $ 337,206 $ 443,211 $ 290,476 $ 355,051 $ 2,809,573 100.0 % Owner-Occupied Commercial Real Estate by Collateral Type and Geographic Location VA WV MD DC Other Total Percentage Office Buildings/Condos $ 67,487 $ 34,456 $ 19,301 $ 635 $ 7,789 $ 129,668 22.0 % Retail 39,221 40,998 13,982 — 23,017 117,218 19.9 Industrial/Warehouse 42,460 14,799 1,295 — 18,003 76,557 13.0 Gas Stations 26,504 10,123 8,421 — 22,090 67,138 11.4 Restaurants 7,114 7,973 3,563 — 11,133 29,783 5.0 Churches/Religious Organizations 20,526 8,092 1,131 233 3,288 33,270 5.6 Coal, oil, gas, and natural resource extraction 649 8,682 — — — 9,331 1.6 Private School 7,396 — — — — 7,396 1.3 Other 45,655 15,725 44,031 339 13,778 119,528 20.2 Total $ 257,012 $ 140,848 $ 91,724 $ 1,207 $ 99,098 $ 589,889 100.0 % Acquisition, Construction & Development by Collateral Type and Geographic Location VA WV MD DC Other Total Percentage Multi-Family $ 17,291 $ 3,041 $ 13,152 $ 56,872 $ 40,293 $ 130,649 40.5 % Land 63,676 24,374 10,748 — 7,185 105,983 32.8 Office Buildings/Condos 341 — — — 150 491 0.2 Self-Storage 9,587 569 23,061 — 12,077 45,294 14.0 Retail Real Estate 1,492 4,665 — — — 6,157 1.9 Residential For-Sale 1,232 5,188 1,122 247 532 8,321 2.6 Other 8,042 3,662 4,725 — 9,639 26,068 8.0 Total $ 101,661 $ 41,499 $ 52,808 $ 57,119 $ 69,876 $ 322,963 100.0 % 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 acquisition, construction & development loans. For each 49 Table of Contents 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 46.8%), 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 15.9% 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” . 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 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 - Borrowed Funds and Note 10 - Commitments and Contingencies , in Notes to Consolidated 50 Table of Contents 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 capital rules under the Basel III Framework 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 Framework also provides 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 March 31, 2025, and December 31, 2024, 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 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 51 Table of Contents detail elsewhere in this Report as well as with the audited consolidated financial statements and notes for the year ended December 31, 2024, 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, and • 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. Our financial performance is also substantially affected by a number of external factors outside of our control, including the following: • Economic conditions, including the effects of pandemics, political conflicts, political instability, trade policies, including tariffs and other barriers to trade, the availability of labor, supply chain volatility, and any actions taken to mitigate and manage such impacts; • 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; • The functioning and other performance of and availability of liquidity in U.S. and global financial markets, including capital markets; • 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 effect of climate change on our business and performance, including indirectly through impacts on our customers; • 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; and 52 Table of Contents • The impact on customers and changes in customer behavior due to changing business and economic conditions or regulatory or legislative initiatives. 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 . 53 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 March 31, 2025, and March 31, 2024, and the selected income statement data for the three months ended March 31, 2025, and March 31, 2024, 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 March 31, (In thousands, except ratios, share and per share data) 2025 2024 Selected Financial Condition Data: Total assets $ 7,838,090 $ 3,696,390 Total cash and cash equivalents 148,846 54,077 Total investment securities, at fair value 1,436,869 1,275,520 Net loans 5,579,754 2,093,549 Company-owned life insurance 184,018 94,755 Premises and equipment, net 132,289 61,576 Total deposits 6,541,871 2,990,113 Short-term borrowings 300,000 360,000 Total shareholders’ equity 758,000 319,308 Common shareholders’ equity 747,587 319,308 As of or for the Three Months Ended March 31, 2025 2024 Selected Operating Data: Interest income $ 110,786 $ 38,745 Interest expense 37,799 16,614 Net interest income 72,987 22,131 Provision (recapture) for credit losses 501 (670) Total non-interest income 10,023 4,254 Total non-interest expenses 49,664 21,165 Income before income taxes 32,845 5,890 Income tax expense 5,644 678 Preferred stock dividends 225 — Net income applicable to common shares 26,976 5,212 Per Share Data: Average shares of common stock outstanding, basic 14,976,483 7,433,481 Average shares of common stock outstanding, diluted 15,026,376 7,527,489 Total shares of common stock outstanding 14,982,807 7,440,025 Basic net income per common share $ 1.80 $ 0.70 Diluted net income per common share 1.80 0.69 Dividends declared per common share 0.53 0.53 Common stock dividend payout ratio (1) 29.44 % 76.81 % Book value per common share (at period end) $ 49.90 $ 42.92 54 Table of Contents As of or for the Three Months Ended March 31, 2025 2024 Performance Ratios: Return on average assets 1.41 % 0.58 % Return on average equity (2) 14.57 6.67 Interest rate spread (3) 3.55 1.95 Net interest margin (4) 4.18 2.68 Efficiency ratio (5) 59.83 80.22 Capital Ratios: Common equity tier 1 (CET 1) capital to risk-weighted assets 11.77 % 16.56 % Total risk-based capital to risk-weighted assets 14.79 17.54 Tier 1 capital to risk-weighted assets 12.20 16.56 Tier 1 capital to average assets (leverage ratio) 10.12 11.36 Asset Quality Ratios: Allowance coverage ratio 1.20 % 1.16 % Allowance for credit losses as a percentage of non-performing loans 104.63 91.99 Net charge-offs to average outstanding loans during the period 0.02 0.00 Non-performing loans as a percentage of total loans 1.15 1.26 Non-performing assets as a percentage of total assets 0.86 0.72 Other Data: Number of full-service branches 77 23 Number of full-time equivalent employees 814 381 (1) The dividend payout ratio represents per share dividends declared divided by diluted earnings per share. (2) Return on average equity computed using total average equity at period-end. (3) 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. (4) The net interest margin represents fully taxable-equivalent net interest income as a percent of average interest-earning assets for the period. (5) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income and non-interest income. Results of Operations for the Three Months Ended March 31, 2025, and March 31, 2024 General Net income applicable to common shares for the three months ended March 31, 2025, was $27.0 million, compared to net income applicable to common shares of $5.2 million during the three months ended March 31, 2024. The $21.8 million increase was primarily due to results that reflect combined income after the Merger completion for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Net interest income increased by $50.9 million to $73.0 million for the three months ended March 31, 2025, compared to $22.1 million for the three months ended March 31, 2024. The main driver for this increase was the impact of the Merger. For the three months ended March 31, 2025, the Company recorded credit provision expense of $0.5 million compared to a provision recapture of $0.7 million for the three months ended March 31, 2024. For the three months ended March 31, 2025, the Company recognized additional credit loss expense on loans which led to an increase in credit provision expense for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Non-interest income increased by $5.8 million, or 135.6%, to $10.0 million for the three months ended March 31, 2025, as compared to $4.3 million for the three months ended March 31, 2024, as a result of the Merger. All categories of non-interest income increased as a result of the combined operations for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. 55 Table of Contents Non-interest expense increased by $28.5 million, or 134.7%, to $49.7 million for the three months ended March 31, 2025, as compared to $21.2 million for the three months ended March 31, 2024. The increase was primarily due to effect of the Merger. 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 $73.0 million for the three months ended March 31, 2025, compared to $22.1 million for the three months ended March 31, 2024. The increase in net interest income was primarily driven by higher interest earning assets, higher rates, and higher accretion income, as a result of the Merger. Accretion income associated with acquired loans and borrowings totaled $11.4 million for the three months ended March 31, 2025. Amortization expense associated with fair value marks for time deposits, subordinated debt, and trust preferred securities totaled $2.2 million for the three months ended March 31, 2025. The tax-adjusted net interest margin was 4.18% for the three months ended March 31, 2025, compared to 2.68% for the three months ended March 31, 2024. 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 taxable loan portfolio was 6.96% for the three months ended March 31, 2025, compared to 5.41% for the three months ended March 31, 2024. 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 3.85% for the three months ended March 31, 2025, compared to 3.43% for the three months ended March 31, 2024. 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 2.53% during the three months ended March 31, 2025, from 2.41% during the three months ended March 31, 2024. The increase was a result of the Merger, which resulted in the assumption of additional interest-bearing deposits with higher interest rates. The yield on our short-term borrowings for the three months ended March 31, 2025, was 3.88%, compared to 4.82% for the three months ended March 31, 2024. The decrease was due to decreases in the Federal Funds Rate and other short-term market rates. The yield on our subordinated debt assumed in the Merger was 9.85%. The following table sets forth the major components of net interest income and the related yields and rates for the three months ended March 31, 2025, and March 31, 2024, for comparison (dollars in thousands). 56 Table of Contents For the Three Months Ended March 31, 2025 2024 Average Outstanding Balance Interest Income/Expense Average Yield / Rate Average Outstanding Balance Interest Income/Expense Average Yield / Rate Assets: Loans, gross (1)(2) $ 5,651,937 $ 97,031 6.96 % $ 2,085,826 $ 28,045 5.41 % Tax-exempt loans (1)(2) 4,057 59 5.90 — — N/A Total loans 5,655,994 97,090 6.96 % 2,085,826 28,045 5.41 % Interest-earning deposits and fed funds sold 40,757 579 5.76 41,692 396 3.82 Taxable AFS securities and other securities 1,039,391 9,862 3.85 989,875 8,943 3.63 Tax-exempt AFS securities (3) 435,789 4,136 3.85 259,699 1,723 2.67 Total securities 1,475,180 13,998 3.85 1,249,574 10,666 3.43 Total interest-earning assets 7,171,931 111,667 6.31 3,377,092 39,107 4.66 Non-interest-earning assets 596,807 243,145 Total assets $ 7,768,738 $ 3,620,237 Liabilities and shareholders’ equity: Deposits: Non-interest-bearing demand $ 1,371,615 $ 812,199 Interest-bearing demand 2,216,243 11,816 2.16 % 489,779 765 0.63 % Money market & savings 1,633,307 8,139 2.02 922,732 4,529 1.97 Brokered CDs & time deposits 1,253,841 11,896 3.85 745,945 7,637 4.12 Total interest-bearing deposits 5,103,391 31,851 2.53 2,158,456 12,931 2.41 Total deposits 6,475,006 31,851 1.99 2,970,655 12,931 1.75 Borrowings: Short-term borrowings and other 336,245 3,219 3.88 307,446 3,683 4.82 Subordinated debt borrowings 112,383 2,729 9.85 — — N/A Total interest-bearing liabilities 5,552,019 37,799 2.76 2,465,902 16,614 2.71 Non-interest-bearing liabilities 94,274 27,718 Equity 750,830 314,418 Total liabilities and equity $ 7,768,738 $ 3,620,237 Taxable-equivalent net interest income /net interest spread (4) 73,868 3.55 % 22,493 1.95 % Taxable-equivalent net interest margin (5) 4.18 % 2.68 % Taxable-equivalent net adjustment (881) (362) Net interest income $ 72,987 $ 22,131 Net interest-earning assets $ 1,619,912 $ 911,190 (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. 57 Table of Contents (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. 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 March 31, 2025 March 31, 2024 GAAP Financial Measurements Interest income - Loans $ 97,031 $ 28,045 Interest income - Tax-exempt loans 46 — Interest income - Taxable AFS securities and other securities 9,487 8,943 Interest income - Tax-exempt AFS securities 3,267 1,361 Interest income - Other interest income 955 396 Total Interest Income 110,786 38,745 Interest expense - Deposits 31,851 12,931 Interest expense - Borrowed funds 3,192 3,655 Interest expense - Subordinated debt 2,729 — Interest expense - Other 27 28 Total interest expense 37,799 16,614 Total net interest income $ 72,987 $ 22,131 Non-GAAP Financial Measurements Add: Tax benefit on tax-exempt interest income $ 881 $ 362 Total tax benefit on tax-exempt interest income (1) 881 362 Tax-equivalent net interest income $ 73,868 $ 22,493 (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 March 31, 2025, and March 31, 2024, are annualized using 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). 58 Table of Contents Three Months Ended March 31, 2025, compared to March 31, 2024 Dollar Increase (Decrease) Due to Change in: Average Volume Average Yield / Rate Net Change Income from the interest-earning assets: Loans, (1) gross $ 60,583 $ 8,462 $ 69,045 AFS securities and other securities (1) 2,141 1,191 3,332 Interest-bearing deposits and fed funds sold (13) 197 184 Total interest income on interest-earning assets 62,711 9,850 72,561 Expense from the interest-bearing liabilities: Interest-bearing demand deposits 11,820 2,008 13,828 Savings deposits 1,472 (637) 835 Time deposits 4,661 (403) 4,258 Total interest expense on interest-bearing deposits 17,953 968 18,921 Borrowings 276 (740) (464) Total interest expense on interest-bearing liabilities 18,229 228 18,457 Taxable-equivalent net interest income $ 44,482 $ 9,622 $ 54,104 (1) Yields and interest income on tax-exempt loans and securities have been computed on a taxable-equivalent basis. Interest Income Total interest income was $110.8 million for the three months ended March 31, 2025, compared to $38.7 million for the three months ended March 31, 2024, an increase of 185.9%. 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 $69.0 million and interest income on securities increased $2.5 million, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Interest Expense Total interest expense was $37.8 million for the three months ended March 31, 2025, compared to $16.6 million for the three months ended March 31, 2024. 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 increased by $18.9 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Interest on subordinated debt acquired in the Merger was $2.7 million for the three months ended March 31, 2025, while interest expense on short-term borrowings amounted to $3.2 million for the three months ended March 31, 2025, compared to $3.7 million for the three months ended March 31, 2024. Provision for (Recapture of) Credit Losses The provision for credit losses was $0.5 million for the three months ended March 31, 2025, compared to a provision recapture of $0.7 million for the three months ended March 31, 2024. The increased provision expense was due to additional credit loss expense in the loan portfolio which was somewhat offset by a recapture in credit expense on off-balance sheet credit exposures, compared to the three months ended March 31, 2024. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information. 59 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 March 31, Increase (Decrease) 2025 2024 Amount Percent Fiduciary and wealth management $ 2,443 $ 1,419 $ 1,024 72.2 % Service charges and fees 2,089 655 1,434 218.9 Net gains (losses) on securities 1 — 1 NM Income from company-owned life insurance 1,193 547 646 118.1 Bank debit and other card revenue 2,884 1,132 1,752 154.8 Other non-interest income 1,413 501 912 182.0 Total $ 10,023 $ 4,254 $ 5,769 135.6 % Non-interest income increased 135.6% for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase was primarily driven by the Merger. The largest increase was a $1.8 million increase in bank debit and other card revenue for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. This increase was driven by the Merger and the increase in card revenue as a result of the increase in the customer base. The second largest increase was a $1.4 million increase in service charges and fees for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. This increase was primarily driven by an increase in deposit-based fees of $1.3 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, resulting from the increase in accounts as a result of the Merger. All other categories of non-interest income also increased, primarily due to the Merger for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. 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 March 31, Increase (Decrease) 2025 2024 Amount Percent Salaries and wages $ 20,941 $ 9,518 $ 11,423 120.0 % Pensions and other employee benefits 5,136 2,365 2,771 117.2 Occupancy 4,045 1,538 2,507 163.0 Equipment rentals, depreciation and maintenance 4,084 1,281 2,803 218.8 Other 15,458 6,463 8,995 139.2 Total $ 49,664 $ 21,165 $ 28,499 134.7 % Non-interest expense increased $28.5 million, or 134.7%, for the three months ended March 31, 2025, compared to March 31, 2024. The increase was primarily due to effect of the Merger. All other categories of non-interest expense also increased, primarily due to the effect of the Merger, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. See Note 13 — Other Operating Expense in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense. Income Tax Expense Income tax expense was $5.6 million for the three months ended March 31, 2025, an increase of $5.0 million from the tax provision for the three months ended March 31, 2024. The increase was due to the increase in net income and additional state taxes incurred in the combined market area after the Merger, for the three months ended March 31, 2025, when compared to the three months ended March 31, 2024. For the three months ended March 31, 2025, the effective tax rate was 17.2%, while the effective tax rate was 11.5% for March 31, 2024. 60 Table of Contents Analysis of Financial Condition for the Period Ended March 31, 2025, and December 31, 2024 Assets increased by $25.9 million to $7.84 billion as of March 31, 2025, compared to $7.8 billion as of December 31, 2024. Loans, net of ACL, decreased by $24.4 million from $5.6 billion as of December 31, 2024, to $5.6 billion as of March 31, 2025. Deposits increased by $26.6 million and amounted to $6.5 billion at March 31, 2025, compared to $6.5 billion at December 31, 2024. Short-term borrowings decreased by $65.0 million to $300.0 million as of March 31, 2025, compared to $365.0 million at December 31, 2024. Subordinated debt and subordinated debt owed to unconsolidated subsidiary trusts, which were assumed in the Merger, totaled $113.3 million at March 31, 2025, compared to $111.9 million at December 31, 2024. 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 three months ended March 31, 2025, the unrealized losses on our holdings decreased $7.7 million from December 31, 2024. 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 March 31, 2025, or at December 31, 2024. 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 March 31, 2025, and December 31, 2024 (in thousands): March 31, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities Available-for-Sale U.S. Treasuries and government agencies $ 165,241 $ — $ 13,448 $ 151,793 Obligations of states and municipalities 795,589 232 79,276 716,545 Residential mortgage backed - agency 57,304 301 3,712 53,893 Residential mortgage backed - non-agency 254,510 283 8,761 246,032 Commercial mortgage backed - agency 41,602 28 819 40,811 Commercial mortgage backed - non-agency 137,791 68 2,849 135,010 Asset-backed 61,396 210 820 60,786 Other 32,928 370 1,299 31,999 Total $ 1,546,361 $ 1,492 $ 110,984 $ 1,436,869 61 Table of Contents December 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities Available-for-Sale U.S. Treasuries and government agencies $ 165,619 $ — $ 16,492 $ 149,127 Obligations of states and municipalities 777,181 846 79,303 698,724 Residential mortgage backed - agency 57,244 121 4,179 53,186 Residential mortgage backed - non-agency 259,964 44 12,132 247,876 Commercial mortgage backed - agency 33,791 27 747 33,071 Commercial mortgage backed - non-agency 158,621 2 4,112 154,511 Asset-backed 64,308 316 568 64,056 Other 32,861 302 1,343 31,820 Total $ 1,549,589 $ 1,658 $ 118,876 $ 1,432,371 The investment maturity table below summarizes contractual maturities for our investment securities at March 31, 2025. 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 4.6 years at March 31, 2025. 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. March 31, 2025 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 $ 5,083 0.41 % $ 160,158 1.34 % $ — — % $ — — % $ 165,241 1.31 % Obligations of states and municipalities 2,000 6.00 167,205 2.83 304,160 2.48 322,224 3.07 795,589 2.80 Residential mortgage backed - agency 17 4.40 23,290 4.49 23,622 2.33 10,375 4.32 57,304 3.57 Residential mortgage backed - non-agency 10,479 3.68 72,758 3.27 140,964 4.34 30,309 4.88 254,510 4.07 Commercial mortgage backed - agency — — 23,859 4.63 17,743 4.88 — — 41,602 4.73 Commercial mortgage backed - non-agency 75,360 3.09 30,083 4.63 32,348 4.40 — — 137,791 3.73 Asset-backed 1,778 5.71 35,336 5.80 24,282 5.46 — — 61,396 5.66 Other — — 2,763 8.29 15,719 5.57 14,446 9.16 32,928 7.37 Total $ 94,717 3.12 % $ 515,452 2.93 % $ 558,838 3.34 % $ 377,354 3.49 % $ 1,546,361 3.23 % 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. 62 Table of Contents The following tables set forth the composition of our loan portfolio as of the dates indicated (in thousands): March 31, 2025 December 31, 2024 Commercial real estate $ 2,809,573 $ 2,637,802 Owner-occupied commercial real estate 589,889 614,362 Acquisition, construction & development 322,963 465,537 Commercial & industrial 613,219 613,085 Single family residential (1-4 units) 1,161,406 1,173,749 Consumer non-real estate and other 150,457 167,701 Loans, gross 5,647,507 5,672,236 Allowance for credit losses (67,753) (68,040) Loans, net $ 5,579,754 $ 5,604,196 The loan portfolio, excluding ACL, at March 31, 2025, decreased by $24.7 million primarily due to the exiting of loans that do not align with the Company’s desired risk profile. The following table shows the maturity distribution for total loans outstanding as of March 31, 2025. 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). March 31, 2025 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 $ 245,212 $ 163,719 $ 1,045,561 $ 368,772 $ 265,359 $ 376,090 $ 8,304 $ 336,556 $ 2,809,573 Owner-occupied commercial real estate 41,625 29,777 147,390 12,957 83,650 144,520 14,111 115,859 589,889 Acquisition, construction & development 29,277 77,368 25,924 94,577 31,556 23,273 5,399 35,589 322,963 Commercial & industrial 11,281 205,592 142,787 159,529 29,235 44,343 12,135 8,317 613,219 Total commercial loans 327,395 476,456 1,361,662 635,835 409,800 588,226 39,949 496,321 4,335,644 Single family residential (1-4 units) 13,926 13,500 40,153 8,674 77,815 76,227 460,965 470,146 1,161,406 Consumer non-real estate and other 6,781 109,139 26,467 614 6,246 558 119 533 150,457 Total loans $ 348,102 $ 599,095 $ 1,428,282 $ 645,123 $ 493,861 $ 665,011 $ 501,033 $ 967,000 $ 5,647,507 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. We regularly monitor the level of loan delinquencies and believe these levels are a key indicator of credit quality in our loan portfolio. We manage credit risk based on the risk profile of the borrower, repayment sources, underlying collateral, and other support given current events, economic conditions and expectations. 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 relatively stable through the first quarter of 2025 with the nonaccrual loan balance increasing by $5.6 million from December 31, 2024. However, the Company’s loans 90 days past due and still accruing increased $20.8 million from December 31, 2024. 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 March 31, 2025, totaled $67.4 million, up from $41.2 million at December 31, 2024. 63 Table of Contents The following table summarizes the Company’s non-performing assets as of March 31, 2025, and December 31, 2024 (in thousands): March 31, 2025 December 31, 2024 Non-accrual loans $ 41,431 $ 35,871 90 days past due and still accruing 23,325 2,497 Total non-performing loans 64,756 38,368 Other real estate owned 2,625 2,783 Total non-performing assets $ 67,381 $ 41,151 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. 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 expense of $0.9 million and a provision recapture of $0.7 million on loans for the three months ended March 31, 2025, and March 31, 2024, respectively. The increase in provision expense for the three months ended was due and increase in expected losses under the CECL model. Gross charged-off loans were $1.4 million and $30.0 thousand for the three months ended March 31, 2025, and March 31, 2024, respectively. Gross recoveries totaled $237.0 thousand and $5.0 thousand for the three months ended March 31, 2025, and March 31, 2024, respectively. The ACL as a percentage of gross loans, net of unearned income, was 1.20% and 1.16% as of March 31, 2025, and March 31, 2024, respectively. 64 Table of Contents The following table summarizes the changes in the Company’s credit loss experience by portfolio for the three months ended March 31, 2025, and 2024 (dollars in thousands): Three months ended March 31, 2025 March 31, 2024 Loans outstanding at end of period $ 5,647,507 $ 2,118,155 Balance of allowance at beginning of period (68,040) (25,301) Loans charged-off: Commercial real estate — — Owner-occupied commercial real estate 687 — Acquisition, construction & development — — Commercial & industrial 93 — Residential 33 — Consumer non-real estate and other 611 30 Total loans charged-off 1,424 30 Recoveries of loans charged-off: Commercial real estate (6) (3) Owner-occupied commercial real estate — — Acquisition, construction & development — — Commercial & industrial (4) — Residential (132) (1) Consumer non-real estate and other (95) (1) Total recoveries of loans charged-off (237) (5) Net loan charge-offs (recoveries) 1,187 25 Provision for (recapture of) credit losses for the period 900 (670) Ending allowance $ (67,753) $ (24,606) Average loans outstanding during the period $ 5,651,937 $ 2,085,826 Allowance coverage ratio (1) 1.20 % 1.16 % Net charge-offs to average outstanding loans during the period (2) 0.02 0.00 Allowance for credit losses as a percentage of non-performing loans (3) 104.63 91.99 (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 and loans 90 days past due and still accruing at the end of the period. 65 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 March 31, 2025, and December 31, 2024 (dollars in thousands). March 31, 2025 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 $ 34,746 51.28 % 49.75 % Owner-occupied commercial real estate 3,273 4.83 10.45 Acquisition, construction & development 11,474 16.94 5.72 Commercial & industrial 8,272 12.21 10.86 Residential 9,554 14.10 20.56 Consumer non-real estate and other 434 0.64 2.66 Total $ 67,753 100.00 % 100.00 % December 31, 2024 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 $ 30,444 44.75 % 46.50 % Owner-occupied commercial real estate 3,261 4.79 10.83 Acquisition, construction & development 17,386 25.55 8.21 Commercial & industrial 6,633 9.75 10.81 Residential 9,763 14.35 20.69 Consumer non-real estate and other 553 0.81 2.96 Total $ 68,040 100.00 % 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 accrued interest and 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 66 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 March 31, 2025, the Company has available unused borrowing capacity of $4.1 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 March 31, 2025, and December 31, 2024, respectively (dollars in thousands): Balance at end of period March 31, 2025 December 31, 2024 Short-term borrowings $ 300,000 $ 365,000 Weighted average interest yield at end of period 3.89% 3.35% The following table shows certain information regarding long-term debt as of the three months ended March 31, 2025, and December 31, 2024, respectively (dollars in thousands): Balance at end of period March 31, 2025 December 31, 2024 Subordinated debentures, net $ 96,212 $ 94,872 Subordinated debentures owed to unconsolidated subsidiary trusts 17,077 17,013 Total long-term debt $ 113,289 $ 111,885 Weighted average interest yield at end of period 9.85% 10.08% Deposits Total deposits slightly increased by $26.6 million from December 31, 2024, to March 31, 2025, primarily due to a continued focus on gathering deposits across our commercial and retail businesses. The Company has brokered time deposits that amounted to $246.9 million as of March 31, 2025, and $244.8 million at December 31, 2024. All of the Company’s brokered deposits are in the form of certificates of deposits that are insured by the FDIC. Excluding the brokered deposit balance, the total deposit balance increased by $24.5 million from December 31, 2024 to March 31, 2025. The following table sets forth the balance of each category of deposits as of the dates indicated (in thousands): March 31, 2025 December 31, 2024 Balance Balance Demand, non-interest-bearing $ 1,382,427 $ 1,379,940 Demand, interest-bearing 2,224,844 2,223,540 Money market and savings 1,667,447 1,658,480 Brokered deposits 246,902 244,802 Time deposits, other 1,020,251 1,008,477 Total interest-bearing 5,159,444 5,135,299 Total deposits $ 6,541,871 $ 6,515,239 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 $1.9 billion at March 31, 2025, and December 31, 2024, respectively. The Company does not have material deposit concentration risk to any significant market, industry or individual at March 31, 2025 or December 31, 2024. 67 Table of Contents The following table sets forth maturity ranges of time deposits as of March 31, 2025, that meet or exceed the FDIC insurance limit (in thousands). March 31, 2025 Due within 3 months or less $ 149,818 Due after 3 months and within 6 months 103,935 Due after 6 months and within 12 months 29,570 Due after 12 months 8,933 Total uninsured, time deposits $ 292,256 Shareholders’ Equity Total shareholders’ equity at March 31, 2025, was $758.0 million, compared to $730.2 million at December 31, 2024. Shareholders’ equity increased by $27.8 million mostly due to an increase in earnings since December 31, 2024. Accumulated other comprehensive income/(loss) decreased $7.7 million from December 31, 2024, to March 31, 2025, from $(95.7) million to $(88.0) million. 68 Table of Contents