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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-06 · 188 added, 251 removed, 222 unchanged (66% of the section changed)

Item 2 - Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition

Highlights of the results for the quarter and year-to-date period are presented below (refer also to additional discussion in the "Results of Operations" and "Financial Condition" sections following).

Comparisons for the financial periods presented are impacted by the GrandSouth acquisition which was completed on January 1, 2023 with the related core system conversion occurring in March 2023.

Overview and Highlights at and for Three Months Ended September 30, 2024

We earned net income of $18.7 million, or $0.45 diluted EPS, during the three months ended September 30, 2024 compared to net income of $29.9 million, or $0.73 diluted EPS, for the three months ended September 30, 2023.

The decrease in net income in the current year period as compared to the prior year period was driven primarily by a $14.2 million increase in provision for credit losses, $13.0 million of which was related to anticipated impact from Hurricane Helene and a higher cost of funds, partially offset by a higher yield on interest earning assets, both of which were driven by the overall interest rate environment for the past year.

Adjusting for the impact from Hurricane Helene, our adjusted net income was $29.0 million, or $0.70 per diluted share, for the third quarter.

• Net interest income for the third quarter of 2024 was $83.0 million, a 2.0% decrease from the $84.7 million recorded in the third quarter of 2023.

The decrease in net interest income from the prior year period was driven by higher cost of funds, partially offset by higher yield on earning assets.

• Net interest margin ("NIM") on a tax-equivalent basis decreased in the third quarter of 2024 to 2.90% from 2.97% for the third quarter of 2023 as a result of the higher cost of funds and decreased loan accretion, partially offset by increases in market interest rates driving higher yields on loans and other earning assets.

Highlights of the results for the first quarter of 2025 is presented below.

Refer also to additional discussion in the "Results of Operations" and "Financial Condition" sections following.

Overview and Highlights at and for Three Months Ended March 31, 2025

We earned net income of $36.4 million, or $0.88 diluted EPS, during the first quarter of 2025 compared to net income of $25.3 million, or $0.61 diluted EPS, for the first quarter of 2024.

The increase in net income in the current year was driven primarily by a $13.6 million increase in net interest income due to lower cost of funds and higher yield on interest earning assets, both of which were driven by the overall interest rate environment for the past year.

Adjusting for the impact of the $2.0 million reversal of provision related to Hurricane Helene, our adjusted net income, which is a non-GAAP financial measure, was $34.9 million, or $0.84 per diluted share, for the first quarter.

• Net interest income for the first quarter of 2025 was $92.9 million, a 17.2% increase from the $79.3 million recorded in the first quarter of 2024.

The increase in net interest income from the like quarter was driven by higher yields on earning assets and lower cost of funds.

We also grew deposits and repaid the majority of our borrowings, thereby further reducing the cost of borrowings.

• Net interest margin ("NIM") on a tax-equivalent basis ("NIM-T/E") increased 47 basis points to 3.27% in the first quarter of 2025 from 2.80% in the first quarter of 2024 as a result of the lower cost of funds and higher yields on loans, securities, and other earning assets.

The aforementioned decrease in borrowings along with a reduction in deposit costs further enhanced NIM-T/E from the prior year's like quarter.

• We remained well-capitalized by all regulatory standards.

Capital grew during the quarter with a total common equity Tier 1 ratio of 14.37%, Tier 1 risk-based capital ratio of 15.19% and total risk-based capital ratio of 16.65% at September 30, 2024, all growing for the quarter and from September 30, 2023.

• The provision for credit losses for the third quarter of 2024 was $14.2 million, driven by an incremental provision of $13.0 million related to the potential exposure from Hurricane Helene and $2.1 million of net charge-off activity, partially offset by generally improving economic forecasts that lead to a reduction in the reserves required for unfunded commitments.

See the "Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience" discussion in the Financial Condition section of Management's Discussion and Analysis.

• Noninterest income for the three months ended September 30, 2024 totaled $13.6 million which was a decrease of $1.6 million, or 10.5%, from the comparable period of 2023 and was primarily related to an decrease in Other income, net, related to the timing of the recognition of gain and loss from other investment activity, which does not include available for sale or held to maturity securities.

• Noninterest expense of $59.9 million for the quarter ended September 30, 2024 decreased $2.4 million, or 3.8%, from the three months ended September 30, 2023.

This decrease is attributable to a $2.4 million decrease in other operating expenses.

• These third quarter results include the potential impact of Hurricane Helene of $13.4 million, comprised of $13.0 million of provision for potential credit loss exposure in our footprint hardest hit by Helene, $0.3 million of estimated property damages and an additional $0.1 million of other impacts.

After considering the tax effect of these items, our net income was reduced by $10.3 million.

Overview and Highlights at and for Nine Months Ended September 30, 2024

We earned net income of $72.7 million, or $1.76 diluted EPS, during the nine months ended September 30, 2024 compared to net income of $74.5 million, or $1.81 diluted EPS, for the nine months ended September 30, 2023.

Adjusting for the potential impact from Hurricane Helene, our adjusted net income was $83.0 million, or $2.01 per diluted share, for the nine months ended September 30, 2024.

• Net interest income for the nine months ended September 30, 2024 was $243.4 million, a 7.9% decrease from the $264.2 million recorded for the comparable period of 2023.

The decrease in net interest income was driven by higher cost of funds, partially offset by higher yields on interest earning assets.

• NIM on a tax-equivalent basis decreased to 2.86% for the nine months ended September 30, 2024 from 3.12% for the nine months ended September 30, 2023 related to higher cost of funds driven by increases in market rates and competition for deposits.

Higher rates on interest-bearing liabilities and lower purchase accounting loan discount accretion were partially offset by increased loan yields from market rate increases and pricing on new loans.

• For the nine months ended September 30, 2024, the Company recorded $15.9 million in provision for credit losses as compared to $14.9 million for the nine months ended September 30, 2023.

The higher provision in 2024 was significantly impacted by the $13.0 million provision related to Hurricane Helene.

The 2023 provision was primarily driven by the GrandSouth acquisition as follows:

(1) a one-time provision of $12.2 million for non-credit deteriorated loans;

and (2) a one-time initial provision for unfunded commitments of $1.9 million.

• Noninterest income for the nine months ended September 30, 2024 totaled $41.1 million, a decrease of $1.9 million, or 4.4%, from the comparable period of 2023 primarily related to decreased Other income, net of $1.9 million and increased securities losses of $1.2 million, partially offset by an increase in SBA loan sale gains of $1.3 million.

• Noninterest expense decreased $20.7 million, or 10.4%, to $177.3 million for the nine months ended September 30, 2024 as compared to the prior year period, primarily driven by a $13.5 million decrease in merger expenses resulting from the GrandSouth acquisition along with a $4.7 million decrease in other operating expenses and a $1.6 million decrease in personnel expense.

• These 2024 year to date results include the potential impact of Hurricane Helene of $13.4 million.

This comprised of $13.0 million of provision for potential credit loss exposure in our footprint hardest hit by Helene, $0.3 million of estimated property damages and an additional $0.1 million of other impacts.

After considering the tax effect of these items, our net income was reduced by $10.3 million.

Total assets at September 30, 2024 amounted to $12.2 billion, a 0.3% increase from December 31, 2023, and was driven primarily by higher interest-bearing cash balances, partially offset by a short term strategy to intentional reduce investment securities and loan balances.

Capital grew during the quarter with a total common equity Tier 1 ratio of 14.52%, Tier 1 risk-based capital ratio of 15.34% and total risk-based capital ratio of 16.80% at March 31, 2025, all increasing from March 31, 2024.

• The provision for credit losses for the first quarter of 2025 was $1.1 million, driven by $3.3 million of net charge-off activity, partially offset by a $2.0 million reduction in the incremental provision related to potential exposure from Hurricane Helene.

Net charge-offs for the first quarter of 2025 included $1.3 million related to the sale of a credit relationship as the result of an accelerated resolution.

• Noninterest income for the three months ended March 31, 2025 totaled $12.9 million, which was consistent with the comparable prior year period.

Decreases from the like quarter of $0.8 million in SBA loan sale gains and $0.6 million in other income were partially offset by the $1.0 million securities loss in the first quarter of 2024.

• Noninterest expense of $57.9 million decreased $1.3 million, or 2.2%, for the quarter ended March 31, 2025 from the prior year.

This decrease is attributable to a $1.0 million decrease in other operating expenses and a $0.9 million decrease in occupancy and equipment expenses, partially offset by a $0.8 million increase in personnel costs resulting from increased incentives and commissions driven by improved performance.

• The first quarter results include the $2.0 million reversal of provision related to the potential impact of Hurricane Helene.

On an after-tax basis, this reversal increased our current quarter earnings by $1.5 million.

Adjusted net income and adjusted diluted EPS are non-GAAP financial measures that exclude the effect of the $2.0 million reversal of provision related to Hurricane Helene to GAAP basis net income and diluted EPS.

Management believes these non-GAAP financial measures provide additional information that is useful to investors in evaluating our performance and may facilitate comparisons with other institutions in the banking industry as well as period-to-period comparisons.

Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company.

Non-GAAP measures have limitations as analytical tools, are not audited, and may not be comparable to other similarly titled financial measures used by other companies.

Investors should not consider non-GAAP measures in isolation or as a substitute for analysis of the Company’s

results or financial condition as reported under GAAP.

The following table reconciles net income and diluted EPS to adjusted net income and adjusted diluted EPS for the quarter ended March 31, 2025:

Net income $ 36,406

Impact of Hurricane Helene

Provision for (benefit from) credit losses (2,000)

Less, tax impact 464

After-tax impact of Hurricane Helene (1,536)

Adjusted net income $ 34,870

Weighted average shares outstanding - diluted 41,406,525

EPS - diluted $ 0.88

Adjusted EPS - diluted $ 0.84

Total assets were $12.4 billion at March 31, 2025, a 2.4% increase from December 31, 2024.

The increase was driven primarily by deposit growth generating investable funds that were deployed in interest-bearing cash, securities and loan balances.

The primary balance sheet changes are presented below.

• Total loans amounted to $8.0 billion at September 30, 2024, reflecting a contraction of $136.6 million from December 31, 2023.

• Total deposits were $10.5 billion at September 30, 2024, an increase of $473.3 million, or 4.72% , from December 31, 2023.

• Credit quality continued to be strong at September 30, 2024, with NPAs of 0.38% of total assets as of September 30, 2024, up slightly from 0.37% at December 31, 2023.

• On-balance sheet liquidity ratio was 17.7% at September 30, 2024.

• Total cash and cash equivalents amounted to $772.4 million at March 31, 2025, representing a $264.9 million, or 52.2%, increase from December 31, 2024.

Interest-bearing cash comprised $193.7 million of this increase.

• AFS securities increased $21.5 million, or 1.1%, during the quarter ended March 31, 2025.

• Total loans amounted to $8.1 billion at March 31, 2025, reflecting an increase of $8.4 million from December 31, 2024.

• Total deposits were $10.7 billion at March 31, 2025, an increase of $214.1 million, or 2.03% , from December 31, 2024.

Deposit growth during the quarter was evenly split between noninterest-bearing deposits, which saw an increase of $109.2 million, and interest-bearing deposits, which increased $105.0 million.

• Credit quality continued to be strong at March 31, 2025, with NPAs of 0.27% of total assets as of March 31, 2025, down 3 basis points from 0.30% at December 31, 2024.

• Our on-balance sheet liquidity ratio was 19.8% at March 31, 2025.

Available off-balance sheet sources totaled $2.4 billion at quarter end, resulting in a total liquidity ratio of 36.4%.

• Capital grew during the quarter, keeping us well-capitalized by all regulatory standards.

At September 30, 2024, our total common equity Tier 1 ratio was 14.37%, our Tier 1 risk-based capital ratio was 15.19% and our total risk-based capital ratio was 16.65%.

All capital ratios grew during the quarter and from September 30, 2023.

Critical Accounting Estimates

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Certain policies inherently have a greater reliance on the use of estimates, assumptions, or judgments and as such, have a greater possibility of producing results that could be materially different than originally reported.

We have identified the determination of our ACL and related Allowance for Unfunded Commitments, as well as business combinations, related fair value measurements and goodwill determination to be the accounting areas that require the most subjective or complex judgments, estimates, and assumptions, and where changes in those judgments, estimates, and assumptions (based on new or additional

information, changes in the economic climate and/or market interest rates, etc.) could have a significant effect on our financial statements.

See the "Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience" discussion in the Financial Condition section of Management's Discussion and Analysis.

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Net interest income is also influenced by external factors such as local economic conditions, competition for loans and deposits, and market interest rates.

Net interest income for the three months ended September 30, 2024 amounted to $83.0 million, a decrease of $1.7 million, or 2.0%, from the $84.7 million recorded in the third quarter of 2023.

The decrease was primarily driven by higher cost of funds, partially offset by higher yields on earning assets.

While average interest-earning assets for the third quarter of 2024 increased $83.9 million, or 0.7%, from the comparable period of the prior year, the mix of assets shifted to higher earning assets, with average loans growing $79.9 million and short term investments growing $400.0 million, while taxable securities decreased $391.5 million.

The increase in the cost of interest bearing deposits of 64 basis points between the third quarter of 2023 and the third quarter of 2024 more than offset improvements from earning asset mix changes and higher yields.

This resulted in the reduction in our tax-equivalent NIM (see discussion below) from 2.97% for the third quarter of 2023 to 2.90% for the third quarter of 2024.

For internal purposes, we evaluate our NIM on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and securities to reported interest income then dividing by total average earning assets.

We believe that analysis of tax-equivalent NIM is useful and appropriate because it allows a comparison of net interest income in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods.The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM as reported and on a tax-equivalent basis.

For the Three Months Ended September 30,

($ in thousands) 2024 2023

Net interest income, as reported $ 83,043 $ 84,702

Tax-equivalent adjustment 722 740

Net interest income, tax-equivalent $ 83,765 $ 85,442

Net interest margin, as reported 2.88 % 2.95 %

Net interest margin, tax-equivalent 2.90 % 2.97 %

The following table presents an analysis of net interest income for the three months ended September 30, 2024 and 2023:

Average Balances and Net Interest Income Analysis

Three Months Ended September 30,

($ in thousands) Average

Volume Interest

or Paid Average

Volume Interest

or Paid Average

Loans (1) (2) $ 8,019,730 $ 111,076 5.51 % $ 7,939,783 $ 106,514 5.32 %

Taxable securities 2,493,924 10,779 1.72 % 2,885,443 12,936 1.78 %

Non-taxable securities 290,939 1,116 1.53 % 295,403 1,118 1.50 %

Short-term investments, primarily interest-bearing cash 684,634 8,438 4.90 % 284,678 3,283 4.58 %

Total interest-earning assets 11,489,227 131,409 4.55 % 11,405,307 123,851 4.31 %

Cash and due from banks 84,060 94,963

Premises and equipment 146,448 152,415

Other assets 406,878 353,093

Total assets $ 12,126,613 $ 12,005,778

Interest-bearing checking $ 1,393,611 $ 2,688 0.77 % $ 1,448,603 $ 2,007 0.55 %

Money market deposits 4,173,884 34,878 3.32 % 3,530,532 23,397 2.63 %

Savings deposits 549,132 317 0.23 % 646,782 307 0.19 %

Other time deposits 626,341 4,726 3.00 % 646,798 4,037 2.48 %

Time deposits >$250,000 390,208 3,811 3.89 % 359,884 2,893 3.19 %

Total interest-bearing deposits 7,133,176 46,420 2.59 % 6,632,599 32,641 1.95 %

Borrowings 97,150 1,946 7.97 % 438,808 6,508 5.88 %

Total interest-bearing liabilities 7,230,326 48,366 2.66 % 7,071,407 39,149 2.20 %

Noninterest-bearing checking 3,376,061 3,547,447

Other liabilities 75,197 83,675

Shareholders’ equity 1,445,029 1,303,249

Total liabilities and

shareholders’ equity $ 12,126,613 $ 12,005,778

Net yield on interest-earning assets and net interest income $ 83,043 2.88 % $ 84,702 2.95 %

Net yield on interest-earning assets and net interest income – tax-equivalent (3) $ 83,765 2.90 % $ 85,442 2.97 %

Interest rate spread 1.89 % 2.11 %

Average prime rate 8.43 % 8.43 %

(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.

Interest earned includes recognized net loan fees, including late fees, prepayment fees, and net deferred loan (cost)/fee amortization in the amounts of $(342,000), and $52,000 for three months ended September 30, 2024 and 2023, respectively.

(2) Includes accretion of discount on acquired loans of $2.0 million and $2.8 million for three months ended September 30, 2024 and 2023, respectively.

(3) Includes tax-equivalent adjustments of $722,000 and $740,000 for three months ended September 30, 2024 and 2023, respectively, to reflect the tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax-exempt status.

This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

Overall, as demonstrated in the table above, despite the change in the mix of earning assets to higher yielding assets, the compression in NIM drove the decrease in net interest income.

• During 2023, the Federal Reserve increased the fed funds rate four times for a total of 100 basis points, in addition to the substantial increases made during 2022.

During 2024, the Federal Reserve did not change rates until mid September at which point the fed funds rate was reduced 50 basis points.

These changes resulted in a decrease of 50 basis points in fed funds rates between September 2023 and September 2024, with an average prime rate of 8.43% for three months ended September 30, 2024, a slight decrease from the prior year period.

During much of 2024, the market yield curve was inverted.

• Average loan volumes for the three months ended September 30, 2024 were $79.9 million higher than the same period in 2023.

In addition, interest rates on loans increased 19 basis points to 5.51% for the third quarter of 2024, resulting in an increase in interest income on loans of $4.6 million.

• Due to the impact of the aforementioned fed funds increases in 2022 and 2023 and the resulting increased market rates along with higher average balances, deposit interest expense for the three months ended September 30, 2024 increased $13.8 million compared to the same period in 2023.

Average interest-bearing deposit balances increased $500.6 million while rates on those deposits increased 64 basis points as compared to the same period in the prior year.

• Average borrowings were $341.7 million lower in the third quarter of 2024 as compared to the third quarter of 2023 due in large part to the decreased utilization of short-term borrowings to fund loan growth and manage fluctuations in deposit balances.

This decrease in volume of borrowings between periods was partially offset by higher rates on the remaining borrowings, with overall rates increasing 209 basis points in the third quarter of 2024 from the third quarter of 2023.

These changes resulted in the $4.6 million decrease in interest expense on borrowings.

• The decrease in NIM was directly related to higher rates on interest-bearing liabilities driven by the aforementioned short-term Federal Reserve rate increases in 2022 and 2023, the inverted yield curve in 2024 and the repricing of our deposits during the last year occurring at a more rapid pace than the increase in yields on interest-earning assets.

Net interest income for the nine months ended September 30, 2024 amounted to $243.4 million, a decrease of $20.7 million, or 7.9%, from the $264.2 million recorded in the nine months ended September 30, 2023.

As described above, the Federal Reserve actions from 2022 through 2024 affected market rates which had resulting impacts on the rates we paid or received in 2023 and 2024.

Similar to the impact during the three months ended September 30, 2024, the decrease for the nine months ended September 30, 2024 was also driven by higher cost of funds, partially offset by increased yields on interest-earning assets.

Our tax-equivalent NIM fell to 2.86% for the nine months ended September 30, 2024 from 3.12% for the nine months ended September 30, 2023 as discussed further below.

The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM as reported and on a tax-equivalent basis.

For the Nine Months Ended September 30,

Net interest income for the first quarter of 2025 amounted to $92.9 million, an increase of $13.6 million, or 17.2%, from the $79.3 million recorded in the first quarter of 2024.

The increase was primarily driven by lower cost of funds and higher yields on interest-earning assets.

While average interest-earning assets for the first quarter of 2025 increased $38.9 million, or 0.3%, from the comparable period of the prior year, the mix of assets shifted to higher earning assets, with average short-term investments growing $225.4 million, while average taxable securities decreased $186.2 million.

While the cost of interest bearing deposits decreased 19 basis points between the first quarter of 2024 and the first quarter of 2025, the biggest decrease within interest expense between the first quarter of 2025 and the like quarter was in cost of short-term borrowings, which decreased $6.5 million.

This decrease was mostly attributable to the payoff of FRB Bank Term Funding Program borrowings, which decreased the average borrowing balance by $476.8 million from the like quarter.

This resulted in the 47 basis point improvement in our NIM-T/E (see discussion below) from the like quarter to 3.27% for the first quarter of 2025.

For internal purposes, we evaluate our NIM-T/E, which is a non-GAAP financial measure, by adding the tax benefit realized from tax-exempt loans and securities to reported interest income then dividing by total average earning assets.

We believe that analysis of NIM-T/E is useful and appropriate because it allows a comparison of net interest income in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods.The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM to NIM-T/E.

For the Three Months Ended March 31,

($ in thousands) 2025 2024

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Net interest margin, tax-equivalent 3.27 % 2.80 %

The following table presents an analysis of net interest income for the nine months ended September 30, 2024 and 2023.

The following table presents an analysis of net interest income for the first quarter of 2025 and 2024:

Average Balances and Net Interest Income Analysis

Nine Months Ended September 30,

Three Months Ended March 31,

($ in thousands) Average

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Total interest-bearing deposits 7,219,042 38,119 2.14 % 6,765,936 39,135 2.33 %

Borrowings 280,370 13,114 6.25 % 453,694 19,125 5.64 %

Short-term borrowings 794 1 0.60 % 477,612 6,121 5.15 %

Long-term borrowings 91,166 1,657 7.37 % 100,386 2,084 8.35 %

Total interest-bearing liabilities 7,311,002 39,777 2.21 % 7,343,934 47,340 2.59 %

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Shareholders’ equity 1,467,871 1,375,491

Total liabilities and

shareholders’ equity $ 12,097,804 $ 12,035,337

Total liabilities and shareholders’ equity $ 12,226,810 $ 12,111,201

Net yield on interest-earning assets and net interest income $ 92,883 3.25 % $ 79,274 2.77 %

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(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.

Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan (cost)/fee amortization (including deferred PPP fees), in the amounts of $(716,000), and $458,000 for nine months ended September 30, 2024 and 2023, respectively.

(2) Includes accretion of discount on acquired loans of $6.7 million and $9.0 million for nine months ended September 30, 2024 and 2023, respectively.

(3) Includes tax-equivalent adjustments of $2.2 million and $2.1 million for nine months ended September 30, 2024 and 2023, respectively, to reflect the tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status.

This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense

Overall, as demonstrated in the table above, the reduction in NIM, partially offset by higher earning asset volumes, drove the decrease in net interest income.

• During 2023, the Federal Reserve increased the fed funds rate four times for a total of 100 basis points, in addition to the substantial increases made during 2022.

During 2024, the Federal Reserve did not change rates until mid September at which point the fed funds rate was reduced 50 basis points.

These changes resulted in a decrease of 50 basis points in fed funds rates between September 2023 and September 2024, with an average prime rate of 8.48% for nine months ended September 30, 2024, compared to 8.09% for the prior year period.

During much of 2024, the market yield curve was inverted.

• Average loan volumes for the nine months ended September 30, 2024 were $224.1 million higher than the same period in 2023 due to organic loan growth.

In addition, interest rates on loans increased 22 basis points to 5.49% for the nine months ended September 30, 2024, resulting in an increase in loan interest income of $22.5 million.

• Primarily due to higher market rates as well as the increase in average balances, deposit interest expense for the nine months ended September 30, 2024 increased $51.4 million compared to the same period in 2023.

Average interest-bearing deposit balances increased $467.0 million while rates on those deposits increased 87 basis points as compared to the same period in the prior year.

• Interest expense on borrowings decreased $6.0 million for the nine months ended September 30, 2024 as compared to the same period in 2023 due to the $173.3 million decrease in the average volume of borrowings between periods, partially offset by a 61 basis point increase in the rates on those borrowings.

The lower balances were due in large part to a decreased reliance on short-term borrowings during 2024 as deposit growth provided additional liquidity.

The remaining borrowings are longer term in nature and carry higher interest rates than those that were paid off.

• NIM decreased 26 basis points between the comparable periods as higher loan yields and reduced cost of borrowings were more than offset by the higher cost of deposits, also driven by the increases in Fed funds rates during 2022 and 2023 and competition for deposits.

Interest earned includes recognized net loan fees, including late fees, prepayment fees, and net deferred loan (cost)/fee amortization in the amounts of $(0.4) million, and $(0.1) million for three months ended March 31, 2025 and 2024, respectively.

(2) Includes accretion of discount on acquired loans of $2.2 million and $2.9 million for three months ended March 31, 2025 and 2024, respectively.

(3) Includes tax-equivalent adjustments to reflect the tax benefit that we receive related to tax-exempt securities and loans as reduced by the related nondeductible portion of interest expense.

Overall, as demonstrated in the table above, the change in the mix of earning assets to higher yielding assets and a decrease in the cost of liabilities drove the expansion in NIM and net interest income.

While not impacting NIM-T/E, net interest income was impacted by the one less earning day in the first quarter of 2025 compared to the first quarter of 2024.

• Net interest income for the first quarter of 2025 was $92.9 million, an increase of $13.6 million from the like quarter.

The increase in net interest income was primarily driven by our focused efforts to reduce borrowings and manage deposit costs after the rate cuts by the Federal Reserve in the second half of 2024, which saw the federal funds rate fall 100 basis points.

We also focused on increasing loan yields as new originations were at higher rates than older loans.

Further, securities yields increased as a result of the loss-earnback transaction in the fourth quarter of 2024.

• The Company’s NIM for the first quarter of 2025 was 3.27%, an increase of 47 basis points from the like quarter.

Within interest-earning assets, the loss-earnback transaction in the securities portfolio during the fourth quarter of 2024 resulted in an increase of 50 basis points as compared to the like quarter.

In addition, loan yields increased 7 basis points to 5.52%.

Following the three rate cuts by the Federal Reserve between September and December of 2024, the rate on interest-bearing deposits fell 19 basis points from the like quarter to the first quarter of 2025.

• Average loan volumes for the three months ended March 31, 2025 were $4.0 million higher than the same period in 2024.

In addition, interest rates on loans increased 7 basis points to 5.52% for the first quarter of 2025, resulting in an increase in interest income on loans of $0.7 million.

• Due to the impact of the aforementioned Federal Reserve rate cuts in 2024 and the resulting decreased market rates partially offset by higher average balances, deposit interest expense for the three months ended March 31, 2025 decreased $1.0 million compared to the same period in 2024.

Average interest-bearing deposit balances increased $453.1 million while rates on those deposits decreased 19 basis points basis points as compared to the same period in the prior year.

• Average borrowings were $486.0 million lower in the first quarter of 2025 as compared to the first quarter of 2024 due in large part to the decreased utilization of short-term borrowings.

This decrease in volume of borrowings between periods was mainly attributable to the pay off of the FRB Bank Term Funding Program and FHLB Fixed Rate Credit borrowings, which,during the first quarter of 2024, had an average balance of approximately $477.6 million and carried an interest rate of 5.15%.

Coupled with the payoff of $10.0 million of subordinated debt with an interest rate of 8.99% as of March 31, 2024, these changes resulted in the $6.5 million decrease in interest expense on borrowings.

Our NIM for all periods presented benefited from the net accretion income arising from purchase accounting premiums/discounts associated with acquisitions.

Presented in the table below is the amount of accretion which increased net interest income in each time period presented.

For the Three Months Ended September 30, For the Nine Months Ended September 30,

For the Three Months Ended March 31,

($ in thousands) 2025 2024

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Generally, the level of loan discount accretion will decline each year due to the natural reduction in outstanding balance of acquired loans.

At September 30, 2024 and 2023, unaccreted loan discounts on purchased loans amounted to $17.3 million and $26.5 million, respectively.

The GrandSouth acquired portfolio comprised the majority of the remaining unaccreted loan discount at September 30, 2024.

At March 31, 2025 and 2024, unaccreted loan discounts on purchased loans amounted to $13.3 million and $21.6 million, respectively.

The portfolio acquired with the GrandSouth Bancorporation acquisition on January 1, 2023 comprised the majority of the remaining unaccreted loan discount.

In addition to the loan discount accretion recorded on acquired loans, we recorded accretion on the discounts associated with the retained unguaranteed portions of SBA loans sold in the secondary market.

The level of SBA

loan discount accretion will fluctuate relative to the SBA loan portfolio balances.

At September 30, 2024 and 2023, the unaccreted loan discounts on SBA loans amounted to $3.3 million and $4.0 million, respectively.

The level of SBA loan discount accretion will fluctuate relative to the SBA loan portfolio balances.

At March 31, 2025 and 2024, the unaccreted loan discounts on SBA loans amounted to $2.5 million and $3.4 million, respectively.

Provision for Credit Losses and Provision for Unfunded Commitments

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Refer also to “Critical Accounting Estimates” in Item 7 of the 2024 Annual Report on Form 10-K filed with the SEC for more information.

The provision for credit losses was $14.2 million and zero for the three months ended September 30, 2024 and 2023, respectively, and $15.9 million and $14.9 million for the nine months ended September 30, 2024 and 2023, respectively.

For the three months ended September 30, 2024 as compared to the same period in 2023, the higher provision was primarily due to the $13.0 million provision specifically attributed to Hurricane Helene.

Generally improving economic forecasts that lead to a reduction in the reserves required for unfunded commitments during the three months ended September 30, 2024, but the effect was not as impactful as was the case in the three months ended September 30, 2023 by $0.6 million.

For the nine months ended September 30, 2024 as compared to the same period in 2023, the higher provision was primarily due to the $13.0 million provision specifically attributed to Hurricane Helene and a $0.4 million increase in net charge off activity for the period, partially offset by generally improving economic forecasts that lead to a reduction in the reserves required for unfunded commitments.

The provision for the nine months ended September 30, 2023 was directly related to the GrandSouth acquisition, which consisted of:

(1) a one-time provision of $12.2 million for non-credit deteriorated loans;

and (2) a one-time initial provision for unfunded commitments of $1.9 million.

The provision for credit losses was $1.1 million and $1.2 million for the three months ended March 31, 2025 and 2024, respectively.

The provision for loan losses for the first quarter of 2025 included $2.0 million reversal specifically attributed to Hurricane Helene and totaled $1.4 million as compared to $1.8 million for the first quarter of 2024.

The provision for unfunded commitments reflected reversals of $0.3 million and $0.6 million for the three months ended March 31, 2025 and 2024, respectively.

Within the portions of Western North and South Carolina that were significantly impacted by Hurricane Helene, the Company identified borrowers with approximately $722 million of loans outstanding.

Given that the storm impacted the area just prior to September 30, 2024 and recovery continues in many communities, the Company performed analyses to identify possible impacts from the storm and has reserved accordingly based upon the information available at this time.

The Company continues to evaluate possible impacts from the storm and has reserved accordingly based upon the information available at each reporting period since September 30, 2024.

The Company applied increased reserve rates based upon severe economic factors to the approximately $722 million of loans in the path of Helene.

Additionally, the Company performed an initial evaluation of the largest commercial loans in its impacted markets and applied incremental reserves to those loans that were suspected of having higher potential property damage or economic impact from the storm The incremental provision related to the potential exposure from Hurricane Helene added 0.16% to the ACL as of September 30, 2024.

Additionally, the Company performed an evaluation of the largest commercial loans in its impacted markets and applied incremental reserves to those loans that were suspected of having higher potential property damage or economic impact from the storm The incremental reserve related to the potential exposure from Hurricane Helene added 0.14% to the ACL as of March 31, 2025.

Additional discussion of the CECL method and our asset quality and credit metrics, which impact our provision for credit losses, is provided in the "Nonperforming Assets" and "Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience" sections following.

Noninterest Income

Our noninterest income amounted to $13.6 million and $15.2 million for the three months ended September 30, 2024 and 2023, respectively, and $41.1 million and $42.9 million for the nine months ended September 30, 2024 and 2023, respectively.

The lower noninterest income in the current quarter as compared to the same prior year period is primarily the result of lower "Other income, net," partially offset by an increase in "Presold mortgage loan fees and gains on sale." The decreased noninterest income for the nine months ended September 30, 2024 as compared to the same period in 2023 is a result of "Securities losses, net" in 2024 and lower "Other income, net," partially offset by increased "SBA loan sale gains." Details of the more significant components of noninterest income are presented in the table below.

For the three and nine months ended September 30, 2024, the change in "Other income, net" was related to the timing of the recognition of gain and loss from other investment activity, which does not include available for sale or held to maturity securities.

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Our noninterest income amounted to $12.9 million for the three months ended March 31, 2025 and 2024.

Decreases of $0.8 million in SBA loan sale gains and $0.6 million in Other income were partially offset by the $1.0 million Securities losses, net in the first quarter of 2024.

Details of the more significant components of noninterest income are presented in the table below.

For the Three Months Ended March 31,

($ in thousands) 2025 2024

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SBA loan sale gains

1,108 1,101 3,339 2,052

Bank-owned life insurance income 1,228 1,164

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Noninterest Expenses

Total noninterest expenses totaled $59.9 million and $62.2 million for the three months ended September 30, 2024 and 2023, respectively, and $177.3 million and $198.0 million for the nine months ended September 30, 2024 and 2023, respectively.

The primary contributors to the $2.4 million, or 3.8%, decrease in noninterest expense for the third quarter of 2024 as compared to the same period of 2023 were the $1.4 million decrease in "Other operating expenses", the $0.6 million decrease in "Non-credit losses," and the $0.5 million decrease in "Equipment related expenses," partially offset by an increase in "Total personnel expense" of $0.5 million.

The primary contributors to the $20.7 million decrease for the nine months ended September 30, 2024 as compared to the same period in 2023 were the $13.5 million decrease in "Merger and acquisition expenses," the $2.7 million decrease in "Other operating expenses," the $1.7 million decrease in "Non-credit losses," and the $1.6 million decrease in "Total personnel expenses." The decline in "Other operating expenses" was primarily related to a $2.4 million charge in 2023 for the estimated termination costs associated with the Company's pension plan.

For the three and nine months ended September 30, 2024, there was an overall effort my management to cut costs and control expenses.

Total noninterest expenses totaled $57.9 million and $59.2 million for the three months ended March 31, 2025 and 2024, respectively.

The primary contributors to the $1.3 million, or 2.2%, decrease in noninterest expense for the first quarter of 2025 were the $0.9 million decrease in Occupancy and equipment expenses, the $0.4 million decrease in FDIC insurance costs, the $0.4 million decrease in Professional fees and the $0.4 million decrease in software licenses and other software costs, partially offset by increases of $0.8 million in Total personnel costs and $0.4 million in Non-credit losses.

For the three months ended March 31, 2025, there was a continued overall effort by management to control costs and reduce expenses.

The following table presents the primary components of noninterest expenses.

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

($ in thousands) 2025 2024

Salaries $ 29,955 $ 29,394 $ 85,406 $ 87,391

Employee benefits 6,495 6,539 19,467 19,097

Salaries incentives and commissions expense $ 28,661 $ 27,642

Employee benefit expense 6,095 6,269

Total personnel expense 34,756 33,911

Occupancy expense 3,738 3,409 10,910 10,644

Equipment related expenses 1,118 1,594 4,384 4,398

Occupancy and equipment expense 5,192 6,075

Credit card rewards and other bankcard expenses 1,178 1,421

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Corporate insurance costs 536 583

Intangibles amortization expense 1,516 1,759

Foreclosed property (gains) losses, net (18) (2)

Other operating expenses 4,955 4,948

Merger and acquisition expenses — — — 13,506

Amortization of intangible assets 1,613 1,953 5,041 6,147

Foreclosed property gains, net (61) (96) (214) (131)

Total noninterest expense $ 57,893 $ 59,187

We recorded income tax expense of $3.9 million and $7.8 million for the three months ended September 30, 2024 and 2023, respectively.

Our effective tax rate was 17.2% and 20.6% for the three months ended September 30, 2024 and 2023, respectively.

The lower effective tax rate for 2024 was attributable primarily to decreased pretax income driven by the potential impact of Hurricane Helene.

For the nine months ended September 30, 2024 and 2023, we recorded tax expense of $18.6 million and $19.8 million, respectively.

Our effective tax rate was 20.4% and 21.0% for the nine months ended September 30, 2024 and 2023, respectively.

We recorded income tax expense of $10.4 million and $6.5 million for the three months ended March 31, 2025 and 2024, respectively.

Our effective tax rate was 22.2% and 20.5% for the three months ended March 31, 2025 and 2024, respectively.

FINANCIAL CONDITION

Total assets at September 30, 2024 amounted to $12.2 billion, a $38.5 million, or 0.3%, increase from December 31, 2023 and was primarily related to higher interest-bearing cash balances, partially offset by reductions in investment securities and loan balances.

Total loans at September 30, 2024 amounted to $8.0 billion, a decrease of $136.6 million, or 1.7%, from December 31, 2023.

The mix of our loan portfolio remained substantially the same at September 30, 2024 as compared to December 31, 2023, with the exception of "Construction, development & other land loans," which, as a percentage of the loan portfolio, fell from 12% at December 31, 2023 to 9% at September 30, 2024.

Total assets at March 31, 2025 amounted to $12.4 billion, a $288.6 million, or 2.4%, increase from December 31, 2024 and was primarily related to higher interest-bearing cash, investment securities and loan balances.

Total loans at March 31, 2025 were $8.1 billion, an increase of $8.4 million, or 0.1%, from December 31, 2024.

The mix of our loan portfolio remained substantially the same at March 31, 2025 as compared to December 31, 2024.

The majority of our real estate loans were personal mortgages and commercial loans where real estate provides additional security for the loan.

Note 3 to the consolidated financial statements presents additional detail regarding our mix of loans.

At September 30, 2024, we had no notable concentrations in geographies or industries, including in office or hospitality categories.

The Company's exposure to non-owner occupied commercial office loans represented approximately 5.7% of the total portfolio at September 30, 2024, with the largest loan being $26.6 million and the average loan outstanding balance being $1.3 million.

Non-owner occupied office loans were generally in non-metro markets and the 10 largest loans in this category represented less than 2% of the total loan portfolio at September 30, 2024.

Total investment securities were $2.4 billion at September 30, 2024, a decrease of $293.8 million from December 31, 2023.

During the three and nine months ended September 30, 2024, the Company made no purchases of investment securities.

There were no sales of investment securities during the third quarter of 2024.

During the second quarter of 2024, the Company sold $142.9 million of available for sale investment securities at a $4.7 million loss that was substantially offset by the $4.5 million gain on sale of the VISA B shares during that quarter.

The call of a security during the first quarter of 2024 resulted in a loss of $975 thousand related to the unamortized premium balance.

In addition, the Company continues to utilize cash flows from investment securities to fund earning assets and repay borrowings and brokered deposits.

The composition of our investment portfolio remained substantially the same at September 30, 2024 as at December 31, 2023, with the exception of U.S.

Treasuries, of which $175.9 million was sold or matured during the first nine months of 2024 and Mortgage-backed securities, of which $34.6 million and $169.3 million were sold, matured or were paid down during the three and nine months ended September 30, 2024, respectively.

The composition of the investment portfolio continued to reflect our investment strategy of maintaining an appropriate level of liquidity while providing a stable source of income.

The investment portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits.

The unrealized loss on available for sale securities totaled $331.5 million at September 30, 2024.

At March 31, 2025, we had no notable concentrations in geographies or industries, including in office or hospitality categories.

The Company's exposure to non-owner occupied commercial office loans represented approximately 6.0% of the total portfolio at March 31, 2025, with the largest loan being $26.3 million and the average outstanding loan balance being $1.3 million.

Non-owner occupied office loans were generally in non-metro markets and the 10 largest loans in this category represented less than 2% of the total loan portfolio at March 31, 2025.

Total investment securities were $2.6 billion at March 31, 2025, a decrease of $19.7 million from December 31, 2024.

During the three months ended March 31, 2025, the Company purchased $10.0 million of investment

There were no sales of investment securities during the first quarter of 2025.

The unanticipated call of a security during the first quarter of 2024 resulted in a loss of $975 thousand related to the unamortized premium balance.

In addition, the Company continues to utilize cash flows from investment securities to fund other earning assets.

The composition of our investment portfolio remained substantially the same at March 31, 2025 as at December 31, 2024, with the exception of Corporate bonds, which increased $10.0 million due to the aforementioned purchase.

The unrealized loss on AFS securities totaled $321.2 million at March 31, 2025.

Refer to Note 2 to the consolidated financial statements for additional detailed information regarding our mix of investments and the unrealized losses for each category.

We evaluated the unrealized losses on individual securities at September 30, 2024 and determined them to be of a temporary nature due primarily to interest rate factors and not credit quality concerns.

We evaluated the unrealized losses on individual securities at March 31, 2025 and determined them to be of a temporary nature due primarily to interest rate factors and not credit quality concerns.

In arriving at this conclusion, we reviewed third-party credit ratings and considered the severity of the impairment.

Total deposits amounted to $10.5 billion at September 30, 2024, an increase of $473.3 million, or 4.7%, from December 31, 2023.

Brokered deposits decreased $3.1 million from year end, while organic growth from customer deposits totaled $476.4 million.

Total deposits amounted to $10.7 billion at March 31, 2025, an increase of $214.1 million, or 2.0%, from December 31, 2024.

Organic growth accounted for the growth, as brokered deposits remained flat during the quarter.

We continue to have a diversified and granular deposit base which has remained stable with continued growth in customer deposits, primarily money market accounts.

Our deposit mix has remained relatively consistent and has not changed significantly and there has been no notable shift in deposits from noninterest-bearing to interest-bearing.

September 30, 2024 December 31, 2023

Our deposit mix has remained relatively consistent and has not changed significantly.

March 31, 2025 December 31, 2024

($ in thousands) Amount Percentage Amount Percentage

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Total deposits $ 10,744,659 100 % $ 10,530,525 100 %

As of September 30, 2024, the estimated insured deposits totaled $6.5 billion or 61.8% of total deposits.

In addition, we had collateralized deposits at that date of $730.8 million such that approximately 68.7% of our total deposits were insured or collateralized at September 30, 2024.

As of March 31, 2025, the estimated insured deposits totaled $6.5 billion or 60.2% of total deposits, while approximately $4.3 billion of the Company's total deposits were uninsured.

In addition to insured deposits, there were deposits with a balance totaling $725.9 million at March 31, 2025 which were collateralized by investment securities such that approximately 66.9% of our total deposits were insured or collateralized at that date.

Nonperforming Assets

NPAs are defined as nonaccrual loans, modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, and foreclosed real estate.

NPAs are defined as nonaccrual loans, loans past due 90 or more days and still accruing interest, and foreclosed real estate.

NPAs are summarized as follows:

($ in thousands)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Nonperforming assets

Nonaccrual loans $ 29,081 $ 31,779

Modifications to borrowers in financial distress 10,262 11,719

Accruing loans >90 days past due — —

Total nonperforming loans 29,081 31,779

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Asset Quality Ratios

Nonaccrual loans to total loans 0.43 % 0.40 %

Nonperforming loans to total loans 0.36 % 0.39 %

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Allowance for credit losses to total loans 1.49 % 1.51 %

Allowance for credit losses to nonaccrual loans 359.61 % 341.07 %

Allowance for credit losses to nonperforming loans 414.81 % 385.70 %

As shown in the table above, total NPAs at September 30, 2024 increased slightly to $45.9 million from year end and related primarily to the $1.9 million increase in nonaccrual loans, partially offset by the $1.5 million decrease in modifications to borrowers in financial distress.

"Commercial and industrial" is the largest category of nonaccrual loans, at $10.3 million, or 30.2%, of total nonaccrual loans, followed by "Commercial real estate - owner occupied" at $10.1 million, or 29.6%, of total nonaccrual loans.

Included in various loan categories are nonaccrual SBA loans totaling $21.7 million at September 30, 2024, or 63.5% of total nonaccrual loans, and which have $11.8 million in guarantees from the SBA.

As reflected in Note 4 to the accompanying consolidated financial statements, total classified loans decreased 4.9% to $51.5 million at September 30, 2024 compared to $54.2 million at December 31, 2023.

The decrease resulted primarily from improvements in "Home equity loans/lines of credit" loans of $1.9 million and "Commercial real estate - owner occupied" loans of $1.8 million, partially offset by an increase in "Residential 1-4 family real estate" of $2.0 million.

Special mention loans increased 34.2% from $44.1 million at December 31, 2023 to $59.2 million at September 30, 2024.

The majority of the increase was attributable to "Commercial real estate - owner occupied" loans, which increased $14.7 million.

As shown in the table above, total NPAs at March 31, 2025 decreased to $33.9 million from year end and related primarily to the $2.7 million decrease in nonaccrual loans.

Commercial and industrial is the largest category of nonaccrual loans, at $9.7 million, or 33.3%, of total nonaccrual loans, followed by Commercial real estate - owner occupied at $9.4 million, or 32.3% Included in various loan categories are nonaccrual SBA loans totaling $15.4 million at March 31, 2025, or 53.0% of total nonaccrual loans, and which have $6.7 million in guarantees from the SBA.

As reflected in Note 3 to the accompanying consolidated financial statements, total classified loans decreased 21.4% to $51.7 million at March 31, 2025 compared to $65.8 million at December 31, 2024.

The decrease resulted primarily from improvements in Commercial real estate - owner occupied loans of $8.4 million and Commercial real estate - owner occupied loans of $3.7 million.

Special mention loans decreased 14.37% to $31.8 million at March 31, 2025 compared to $37.1 million at December 31, 2024.

The majority of the decrease was attributable to Commercial real estate - non owner occupied loans, which decreased $3.7 million.

Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience

The total allowance for credit losses amounted to $122.7 million at September 30, 2024 compared to $109.9 million at December 31, 2023.

The total allowance for credit losses amounted to $120.6 million at March 31, 2025 compared to $122.6 million at December 31, 2024.

Fluctuations in the ACL are based on loan mix and growth, changes in the levels of

nonperforming loans, economic forecasts impacting loss drivers, other assumptions and inputs to the CECL model,

and as occurred in 2023, adjustments for acquired loan portfolios.

As discussed previously in the "Provision for Credit Losses and Provision for Unfunded Commitments" section, much of the change to the level of ACL during the period ended September 30, 2024 was primarily related to the provision of $13.0 million related to potential impact from Hurricane Helene, slower prepayment assumptions and updated economic forecasts which are a key assumption in the CECL model and which indicated improvement in some factors, but also to a continued reduction of the commercial real estate pricing index, thus projecting a higher allowance for credit losses balance, partially offset by reductions in loan balances during the period.

The ACL as a percent of loans at September 30, 2024 was 1.53%, 16 basis points of which was attributable to the potential impact from Hurricane Helene.

nonperforming loans, economic forecasts impacting loss drivers, and other assumptions and inputs to the CECL model.

As discussed previously in the "Provision for Credit Losses and Provision for Unfunded Commitments" section, much of the change to the level of ACL during the period ended March 31, 2025 was primarily related to the release of $2.0 million of the credit reserves arising from Hurricane Helene.

The ACL as a percent of loans at March 31, 2025 was 1.49%, 14 basis points of which was attributable to the potential impact from Hurricane Helene.

Within the portions of Western North and South Carolina that were significantly impacted by Hurricane Helene, the Company identified borrowers with approximately $722 million of loans outstanding.

The following is a summary of the categories of those loans outstanding as of September 30, 2024:

The following is a summary of the categories of those loans outstanding as of March 31, 2025:

($ in thousands) Balance

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Total $ 722,106

The Company applied increased reserve rates based upon severe economic factors to the approximately $755 million of loans in the most impacted path of Helene.

Additionally, the Company performed an initial evaluation of the largest commercial loans in that area and applied incremental reserves to those loans that were suspected of having higher potential property damage or economic impact from the storm.

Due to the impact from from Hurricane Helene, the ACL on these impacted loans increased by $13.0 million, expanding the ACL as a percent of loans in the impacted markets from 1.29% to 3.01% as of September 30, 2024 and adding 0.16% to the overall ACL as a percent of total loans as of September 30, 2024.

Given that the recovery from the storm is ongoing in many impacted communities, the Company continues to evaluate possible impacts from the storm on borrowers and has reserved accordingly based upon the information available as of March 31, 2025.

The Company applied increased reserve rates based upon severe economic factors to the approximately $722 million of loans in the most impacted path of Hurricane Helene.

Additionally, the Company continues to evaluate the largest commercial loans in that area and applied incremental reserves to those loans that were suspected of having higher potential property damage or economic impact from the storm.

Due to the potential exposure from Hurricane Helene, the ACL on these impacted loans was $11.0 million as of March 31, 2025, adding 14 basis points to the overall ACL as a percent of total loans,which was 1.49% as of March 31, 2025.

The ACL reflects our estimate of life of loan expected credit losses that will result from the inability of our borrowers to make required loan payments.

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For the periods indicated, the following table summarizes our balances of loans outstanding, average loans outstanding, ACL, charge-offs and recoveries, and key ratios:

($ in thousands) Nine Months Ended September 30, 2024 Twelve Months Ended December 31, 2023 Nine Months Ended September 30, 2023

($ in thousands) Three Months Ended March 31, 2025 Twelve Months Ended December 31, 2024 Three Months Ended March 31, 2024

Loans outstanding at end of period $ 8,103,033 $ 8,094,676 $ 8,076,506

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No assurance can be given that we will not in any particular period sustain loan losses that are sizable in relation to the amounts reserved or that subsequent evaluations of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the ACL or future charges to earnings.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review our ACL and the value of our collateral-dependent

Such agencies may require us to recognize adjustments to the ACL based on their judgments about information available at the time of their examinations.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review our ACL and the value of our collateral-dependent loans.

Such agencies may require us to recognize adjustments to the ACL based on their judgments about

information available at the time of their examinations.

Refer also to “Critical Accounting Policies – Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments” in Note 1 to the 2024 Annual Report on Form 10-K filed with the SEC for more information.

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The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

The allowance for unfunded commitments of $9.3 million and $11.4 million at September 30, 2024 and December 31, 2023, respectively, is classified on the consolidated balance sheets within "Other liabilities." The decline in the level of the allowance between periods was driven by the reduction in reserve rates and balances of available lines of credit during the nine months ended September 30, 2024.

The allowance for unfunded commitments of $8.8 million and $9.1 million at March 31, 2025 and December 31, 2024, respectively, is classified on the consolidated balance sheets within "Other liabilities." The decline in the level of the allowance between periods was driven by a reduction in reserve rates partially offset by an increase in balances of available lines of credit during the three months ended March 31, 2025.

Liquidity, Commitments, and Contingencies

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We also maintain available lines of credit from the FHLB and the Federal Reserve, as well as federal funds lines from several correspondent banks which are summarized below.

At September 30, 2024, the Company had the following sources of readily available borrowing capacity:

• An existing borrowing capacity with the FHLB of approximately $1.3 billion which can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity need, and is secured by a blanket lien on most of our real estate loan portfolio, select securities from our investment portfolio, and our FHLB stock (of which $0.8 million and $280.9 million were outstanding at September 30, 2024 and December 31, 2023, respectively);

• Federal funds lines with several correspondent banks totaling $265.0 million, which provide for overnight unsecured federal funds purchased (of which none were outstanding at September 30, 2024 or December 31, 2023);

• A line of credit with the Federal Reserve through its discount window borrowing program of approximately $799.6 million which is secured by a blanket lien on a portion of our commercial and consumer loan portfolio (excluding real estate loans) and specific investment securities.

All of this line was available at both September 30, 2024 and December 31, 2023.

Our overall on-balance sheet liquidity ratio was 17.7% at September 30, 2024 compared to 14.6% at December 31, 2023.

At March 31, 2025, the Company had the following sources of readily available borrowing capacity:

• A $1.3 billion line of credit with the FHLB that can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity needs.

As of March 31, 2025, the line of credit is secured by a blanket lien on portions of the Company's real estate loan portfolio totaling approximately $2.3 billion and the Company's FHLB stock totaling $8.5 million.

$0.8 million was outstanding on the line of credit at March 31, 2025 and December 31, 2024;

• Federal funds lines of credit with correspondent banks totaling $265.0 million which allow the Company to purchase federal funds on an overnight, unsecured basis.

No borrowings were outstanding at March 31, 2025 or December 31, 2024;

• An approximately $801.9 million line of credit through the Federal Reserve's discount window borrowing program, which was secured at March 31, 2025 by a blanket lien on a portion of the Company’s commercial and consumer loan portfolios (excluding those secured by real estate collateral) totaling approximately $338.3 million and specific investment securities with a carrying value of $695.9 million.

No borrowings were outstanding at March 31, 2025 or December 31, 2024.

Our overall on-balance sheet liquidity ratio was 19.8% at March 31, 2025 compared to 17.6% at December 31, 2024.

We define our liquidity ratio as net liquid assets (cash, unpledged securities and other marketable assets) as a percentage of our net liabilities (unpledged deposits and borrowings).

Our total liquidity ratio, including the $2.4 billion in available lines of credit at quarter end, was 35.2% as of September 30, 2024.

Our total liquidity ratio, including the $2.4 billion in available lines of credit, was 36.4% as of March 31, 2025.

Not included in these ratios are the readily available sources of funds through brokered deposits.

As of September 30, 2024, our brokered deposits availability was $1.8 billion per our internal policy.

As of March 31, 2025, our brokered deposits availability was $1.9 billion per our internal policy.

The amount and timing of our contractual obligations and commercial commitments have not changed materially since December 31, 2024, the detail of w hich is presented in the "Contractual Obligations and Other Commercial Commitments" table of our 2024 Annual Report on Form 10-K.

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Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity.

We have no off-balance

sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities and subordinated debentures.

We have no off-balance sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities and subordinated debentures.

In the normal course of business, we are exposed to certain risks arising from both our business operations and economic conditions.

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However, in 2023 to accommodate customers, we implemented a program whereby we enter into interest rate swaps with certain commercial loan customers, with offsetting positions to dealers under a back-to-back swap program.

At September 30, 2024, the Company's derivative financial instruments consisted entirely of customer back-to-back interest rate swaps which are not designated as hedges.

At March 31, 2025, the Company's derivative financial instruments consisted entirely of customer back-to-back interest rate swaps which are not designated as hedges.

Under this program, the Company executes interest rate swaps with commercial banking customers to facilitate their risk management strategies.

14 unchanged sentences

Total risk-based capital is comprised of tier 1 capital plus qualifying subordinated debentures, and certain adjustments, the largest of which is our ACL and allowance for unfunded commitments.

The Company has elected to exclude AOCI related primarily to available for sale securities from common equity tier 1 capital.

The Company has elected to exclude AOCI related primarily to AFS securities from common equity tier 1 capital.

Risk-weighted assets refer to our on- and off-balance sheet exposures, adjusted for their related risk levels using formulas set forth in Federal Reserve regulations.

1 unchanged sentence

The Federal Reserve has not advised us of any requirement specifically applicable to us.

At September 30, 2024, our capital ratios exceeded the regulatory minimum ratios discussed above.

The capital ratios at September 30, 2024 increased as compared to 2023 year end ratios related primarily to retention of earnings increasing capital, combined with loan reductions and shifts in asset mix to lower risk-weighted assets.

At March 31, 2025, as shown in the table below, we were well-capitalized.

The capital ratios at March 31, 2025 increased as compared to 2024 year end ratios related primarily to retention of earnings increasing capital, combined with loan reductions and shifts in asset mix to lower risk-weighted assets.

The following table presents the capital ratios for the Company and the regulatory minimums discussed above for the periods indicated:

September 30, 2024 December 31, 2023 Minimum required

March 31, 2025 December 31, 2024 Minimum required

Risk-based capital ratios:

Common equity Tier 1 to Tier 1 risk weighted assets 14.37 % 13.20 % 7.00 %

Tier I capital to Tier 1 risk weighted assets 15.19 % 13.99 % 8.50 %

Total risk-based capital to Tier II risk weighted assets 16.65 % 15.54 % 10.50 %

Common equity Tier 1 ratio 14.52 % 14.35 % 7.00 %

Tier I capital ratio 15.34 % 15.17 % 8.50 %

Total risk-based capital ratio 16.80 % 16.63 % 10.50 %

Leverage capital ratio:

1 unchanged sentence

The Bank is also subject to capital requirements that do not vary materially from the Company’s capital ratios presented above.

At September 30, 2024, the Bank exceeded the minimum ratios established by the regulatory authorities.

At March 31, 2025, the Bank exceeded the minimum ratios established by the regulatory authorities.

In addition to regulatory capital ratios, we also closely monitor our ratio of tangible common equity ("TCE") to tangible assets, which is a non-GAAP financial measure.

The TCE ratio was 8.47% at September 30, 2024 compared to 7.56% at December 31, 2023.

TCE divided by tangible assets excludes the effect of goodwill and other intangible assets, net of related taxes from the GAAP basis total shareholders’ common equity and GAAP basis total assets.

Non-GAAP measures have limitations as analytical tools, are not audited, and may not be comparable to other similarly titled financial measures used by other companies.

Investors should not consider non-GAAP measures in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

The TCE ratio was 8.55% at March 31, 2025 compared to 8.22% at December 31, 2024.

The following table reconciles common equity to TCE and provides the calculation of the TCE ratio:

($ in thousands) September 30, 2024 December 31, 2023

($ in thousands) March 31, 2025 December 31, 2024

Reconciliation of Common Equity to TCE

1 unchanged sentence

Goodwill and other intangibles, net of related taxes (486,749) (487,660)

Tangible common equity $ 988,386 $ 879,169

TCE $ 1,021,427 $ 957,951

Reconciliation of Total Assets to Tangible Assets

4 unchanged sentences

Stock Repurchase Plans

On January 30, 2024, the Board of Directors of the Company authorized the repurchase of up to $40 million in shares of the Company’s common stock.

The following table discloses shares of our common stock repurchased during the three months ended March 31, 2025.

($ in millions, except per share data) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs(1)

January 1, 2025 to January 31, 2025 — $ — — $ 40,000,000

February 1, 2025 to February 28, 2025 — $ — — $ 40,000,000

March 1, 2025 to March 31, 2025 24,849 $ 39.87 24,849 $ 39,009,202

Total 24,849 $ 39.87 24,849 $ 39,009,202

(1) In January 2024, the Board of Directors of the Company authorized the repurchase of up to $40 million of the Company’s common stock.

Any such repurchases would be made pursuant to a plan approved by and containing provisions about the timing, purchase prices and quantities purchased determined by management in its discretion.

During the quarter ended September 30, 2024, the Company did not make any such purchases.

The Company did not make any such purchases in 2024.

The Board of Directors renewed this authorization in January 2025.

As of March 31, 2025, the Company had repurchased a total of 24,849 shares at an average price per share of $39.87.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis