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Item 2. Management’s Discussion and Analysis

2024-11-01 compared with 2024-08-02 · 314 added, 294 removed, 935 unchanged (39% of the section changed)

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We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly-owned bank subsidiary, Centennial Bank (sometimes referred to as “Centennial” or the “Bank”).

As of June 30, 2024, we had, on a consolidated basis, total assets of $22.92 billion, loans receivable, net of allowance for credit losses of $14.49 billion, total deposits of $16.96 billion, and stockholders’ equity of $3.86 billion.

As of September 30, 2024, we had, on a consolidated basis, total assets of $22.82 billion, loans receivable, net of allowance for credit losses of $14.51 billion, total deposits of $16.71 billion, and stockholders’ equity of $3.96 billion.

We generate the majority of our revenue from interest on loans and investments, service charges, and mortgage banking income.

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Key Financial Measures

As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30,

As of or for the Three Months Ended September 30, As of or for the Nine Months Ended September 30,

2024 2023 2024 2023

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(2) See Table 25 for the non-GAAP tabular reconciliation.

Results of Operations for the Three Months Ended June 30, 2024 and 2023

Our net income decreased $3.7 million, or 3.6%, to $101.5 million for the three-month period ended June 30, 2024, from $105.3 million for the same period in 2023.

On a diluted earnings per share basis, our earnings were $0.51 per share for the three-month period ended June 30, 2024 compared to $0.52 per share for the three-month period ended June 30, 2023.

The Company recorded $8.0 million in credit loss expense for the quarter ended June 30, 2024.

During the three months ended June 30, 2024, the Company recorded $2.3 million in Federal Deposit Insurance Corporation ("FDIC") special assessment expense, a $274,000 decrease in the fair value of marketable securities and a $2.0 million deferred tax asset write-down, which was partially offset by a $2.1 million gain on sale of a building in our Texas region.

Results of Operations for the Three Months Ended September 30, 2024 and 2023

Our net income increased $1.6 million, or 1.6%, to $100.0 million for the three-month period ended September 30, 2024, from $98.5 million for the same period in 2023.

On a diluted earnings per share basis, our earnings were $0.50 per share for the three-month period ended September 30, 2024 compared to $0.49 per share for the three-month period ended September 30, 2023.

The Company recorded $18.9 million in credit loss expense for the quarter ended September 30, 2024.

The $18.9 million of credit loss expense includes $18.2 million in provision for credit losses on loans.

Of the $18.2 million provision for credit losses on loans recorded, $16.7 million was used to establish a hurricane reserve for loans located in the Federal Emergency Management Agency ("FEMA") disaster areas impacted by Hurricane Helene, which made landfall during the quarter.

The hurricane related reserve had a six-cent impact to diluted earnings per share for the quarter.

The remaining portion of the provision was related to loan growth.

The Company also recorded a $1.0 million provision for credit losses on unfunded commitments, and we recorded a $330,000 recovery of credit losses on available-for-sale investments due to an improvement in the unrealized losses for one of our subordinated debt investments.

During the three months ended September 30, 2024, the Company recorded a $1.4 million increase in the fair value of marketable securities.

Total interest income increased by $38.6 million, or 13.1%, and non-interest expense decreased $4.7 million, or 4.1%.

This was offset by a $33.5 million, or 40.8% increase in total interest expense and a $6.7 million, or 13.6%, decrease in non-interest income.

This was partially offset by a $25.3 million, or 27.4% increase in total interest expense and a $634,000, or 1.5%, decrease in non-interest income.

These fluctuations are primarily due to the high interest rate environment.

The increase in interest income resulted from a $31.2 million, or 12.8%, increase in loan interest income and an $8.8 million, or 236.9%, increase in interest income on deposits at other banks, which was partially offset by a $2.3 million, or 5.5%, decrease in investment interest income.

The decrease in non-interest expense was due to a decrease of $4.1 million, or 6.4%, in salaries and employee benefits and a decrease of $515,000, or 3.5%, in occupancy and equipment expense, and an decrease of $216,000, or 2.4%, in data processing expense, which was partially offset by an increase of $1.7 million, or 6.3%, in other operating expenses.

The increase in interest expense was primarily due to a $25.6 million, or 36.5%, increase in interest on deposits, a $7.7 million, or 116.1%, increase in interest on FHLB and other borrowed funds and a $242,000, or 21.6%, increase in interest on securities sold under agreements to repurchase.

The decrease in non-interest income was primarily due to an $8.5 million, or 56.0%, decrease in other income, a $1.1 million, or 135.0%, decrease in the fair value adjustment for marketable securities and a $1.1 million, or 9.2%, decrease in other service charges and fees, which was partially offset by a $1.6 million, or 61.4%, increase in mortgage lending income and a $1.1 million, or 123.77%, increase in gain on sale of branches, equipment and other assets, net.

Our net interest margin decreased from 4.28% for the three-month period ended June 30, 2023 to 4.27% for the three-month period ended June 30, 2024.

The yield on interest earning assets was 6.56% and 5.96% for the three months ended June 30, 2024 and 2023, respectively, while average interest earning assets increased from $19.58 billion to $20.21 billion.

The increase in interest income resulted from a $32.5 million, or 13.0%, increase in loan interest income and a $9.8 million, or 419.6%, increase in interest income on deposits at other banks, which was partially offset by a $3.7 million, or 8.7%, decrease in investment interest income.

The decrease in non-interest expense was due to a decrease of $5.7 million, or 8.8%, in salaries and employee benefits and a decrease of $917,000, or 5.9%, in occupancy and equipment expense, which was partially offset by an increase of $1.9 million, or 7.3%, in other operating expenses.

The increase in interest expense was primarily due to a $19.1 million, or 24.3%, increase in interest on deposits and a $6.2 million, or 76.2%, increase in interest on FHLB and other borrowed funds.

The decrease in non-interest income was primarily due to a $3.1 million, or 69.1%, decrease in the fair value adjustment for marketable securities which was partially offset by a $1.3 million, or 41.7%, increase in mortgage lending income and a $1.3 million, or 21.6%, increase in other income.

Our net interest margin increased from 4.19% for the three-month period ended September 30, 2023 to 4.28% for the three-month period ended September 30, 2024.

The yield on interest earning assets was 6.60% and 6.09% for the three months ended September 30, 2024 and 2023, respectively, and average interest earning assets increased from $19.26 billion to $20.23 billion.

The increase in average interest earning assets is primarily due to a $706.1 million increase in average interest-bearing balances due from banks and a $571.2 million increase in average loans receivable, partially offset by a $315.8 million decrease in average investment securities.

During the second quarter of 2024, the Company held excess liquidity of approximately $500.0 million which was dilutive to the net interest margin by 10 basis points.

For the three months ended June 30, 2024 and 2023, we recognized $1.9 million and $2.7 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by one basis point.

We recognized $1.7 million in event income for the three-months ended June 30, 2024 compared to $1.3 million for the three-months ended June 30, 2023.

During the third quarter of 2024, the Company held excess liquidity of approximately $500.0 million which was dilutive to the net interest margin by approximately 10 basis points.

For the three months ended September 30, 2024 and 2023, we recognized $1.9 million and $2.4 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by two basis points.

We recognized $573,000 in event income for the three-months ended September 30, 2024 compared to $521,000 for the three-months ended September 30, 2023.

The remaining increase in the net interest margin was due to an increase in interest income resulting from an increase in average interest-bearing assets at higher interest rates primarily as a result of the high interest rate environment.

Our efficiency ratio was 43.17% for the three months ended June 30, 2024, compared to 44.00% for the same period in 2023.

For the second quarter of 2024, our efficiency ratio, as adjusted (non-GAAP), was 42.59%, compared to 44.83% reported for the second quarter of 2023.

Our efficiency ratio was 41.42% for the three months ended September 30, 2024, compared to 45.53% for the same period in 2023.

For the third quarter of 2024, our efficiency ratio, as adjusted (non-GAAP), was 41.66%, compared to 46.44% reported for the third quarter of 2023.

(See Table 25 for the non-GAAP tabular reconciliation).

Our annualized return on average assets was 1.79% for the three months ended June 30, 2024, compared to 1.90% for the same period in 2023.

Our annualized return on average assets was 1.74% for the three months ended September 30, 2024, compared to 1.78% for the same period in 2023.

(See Table 22 for the related non-GAAP financial measures and tabular reconciliation).

Our annualized return on average common equity was 10.73% and 11.63% for the three months ended June 30, 2024, and 2023, respectively.

Our annualized return on average common equity was 10.23% and 10.65% for the three months ended September 30, 2024, and 2023, respectively.

(See Table 23 for the related non-GAAP financial measures and tabular reconciliation).

Results of Operations for the Six Months Ended June 30, 2024 and 2023

Our net income decreased $6.6 million, or 3.17%, to $201.6 million for the six-month period ended June 30, 2024, from $208.2 million for the same period in 2023.

On a diluted earnings per share basis, our earnings were $1.00 per share for the six-month period ended June 30, 2024 compared to $1.02 per share for the six-month period ended June 30, 2023.

The Company recorded $12.5 million in credit loss expense for the six-month period ended June 30, 2024.

This consisted of a $13.5 million provision for credit losses on loans and a reversal of $1.0 million provision for unfunded commitments.

During the six months ended June 30, 2024, the Company recorded a $2.1 million gain on sale of building from our Texas region, a $729,000 increase in the fair value of marketable securities and $162,000 in bank owned life insurance ("BOLI") death benefits, partially offset by $2.3 million of FDIC special assessment and a $2.0 million deferred tax asset write-down.

Total interest expense increased by $75.5 million, or 49.5%.

This was partially offset by a $69.6 million, or 12.1%, increase in total interest income, a $900,000, or 1.1%, increase in non-interest income and a $6.2 million, or 2.7%, decrease in non-interest expense.

Results of Operations for the Nine Months Ended September 30, 2024 and 2023

Our net income decreased $5.0 million, or 1.63%, to $301.7 million for the nine-month period ended September 30, 2024, from $306.7 million for the same period in 2023.

On a diluted earnings per share basis, our earnings were $1.51 per share for both the nine-month periods ended September 30, 2024 and 2023.

The Company recorded $31.4 million in credit loss expense for the nine-month period ended September 30, 2024, The $31.4 million of credit loss expense includes $31.7 million in provision for credit losses on loans, which was partially offset by a a $330,000 recovery of credit losses on available-for-sale investments due to an improvement in the unrealized losses for one of our subordinated debt investments.

Of the $31.7 million provision for credit losses on loans recorded, $16.7 million was used to establish a hurricane reserve for loans located in the FEMA disaster areas impacted by Hurricane Helene, which made landfall during the third quarter of 2024.

The hurricane related reserve had a six-cent impact to diluted earnings per share.

The remaining portion of the provision was related to loan growth.

During the nine months ended September 30, 2024, the Company recorded a $2.1 million gain on sale of building from our Texas region, a $2.1 million increase in the fair value of marketable securities and $162,000 in bank owned life insurance bank owned life insurance ("BOLI") death benefits, partially offset by $2.3 million of Federal Deposit Insurance Corporation ("FDIC") special assessment and a $2.0 million deferred tax asset write-down.

Total interest income increased by $108.2 million, or 12.5% and non-interest expense decreased by $11.0 million, or 3.2%.

This was partially offset by a $100.8 million, or 41.2% increase in total interest expense.

These fluctuations are primarily due to the high interest rate environment.

The increase in interest income resulted from a $92.0 million, or 12.6%, increase in loan interest income and a $24.4 million, or 227.6%, increase in interest income on deposits at other banks, partially offset by an $8.2 million, or 6.4%, decrease in investment income.

The decrease in non-interest expense was due to a decrease of $13.3 million, or 6.9%, in salaries and employee benefits and a decrease of $1.8 million, or 4.0%, in occupancy and equipment expense, which was partially offset by an increase of $4.3 million, or 5.4%, in other operating expenses.

The increase in interest expense was primarily due to a $78.1 million, or 37.5%, increase in interest on deposits, a $22.0 million, or 104.9%, increase in interest on FHLB and other borrowed funds and a $769,000, or 23.1%, increase in interest on securities sold under agreements to repurchase.

The increase in interest income resulted from a $59.5 million, or 12.4%, increase in loan interest income and a $14.7 million, or 174.4%, increase in interest income on deposits at other banks, partially offset by a $4.5 million, or 5.3%, decrease in investment income.

The increase in non-interest income was primarily due to an $11.4 million, or 106.9%, increase in the fair value adjustment for marketable securities, a $2.6 million, or 50.0%, increase in mortgage lending income, and a $1.1 million, or 121.2%, increase in gain on sale of branches, equipment and other assets, net, which was partially offset by a $13.0 million, or 48.0%, decrease in other income and a $2.8 million, or 11.7%, decrease in other service charges and fees.

The decrease in non-interest expense was due to a decrease of $7.7 million, or 6.0%, in salaries and employee benefits and a decrease of $916,000, or 3.1%, in occupancy and equipment expense, which was partially offset by an increase of $2.4 million, or 4.4%, in other operating expenses.

Our net interest margin decreased from 4.33% for the six-month period ended June 30, 2023 to 4.20% for the six-month period ended June 30, 2024.

The yield on interest earning assets was 6.47% and 5.88% for the three months ended June 30, 2024 and 2023, respectively, as average interest earning assets increased from $19.82 billion to $20.12 billion.

Our net interest margin decreased from 4.28% for the nine-month period ended September 30, 2023 to 4.23% for the nine-month period ended September 30, 2024.

The yield on interest earning assets was 6.52% and 5.95% for the nine months ended September 30, 2024 and 2023, respectively, as average interest earning assets increased from $19.63 billion to $20.16 billion.

The increase in average interest earning assets is primarily due to a $564.7 million increase in average interest-bearing balances due from banks, a $326.0 million increase in average loans receivable and a $1.1 million increase in average federal funds sold, partially offset by a $368.8 million decrease in average investment securities.

During the six-month period ended June 30, 2024, the Company held excess liquidity of approximately $500.0 million which was dilutive to the net interest margin by 10 basis points.

For the six months ended June 30, 2024 and 2023, we recognized $4.6 million and $5.8 million, respectively, in total net accretion for acquired loans and deposits.

During the nine-month period ended September 30, 2024, the Company held excess liquidity of approximately $500.0 million which was dilutive to the net interest margin by approximately 10 basis points.

For the nine months ended September 30, 2024 and 2023, we recognized $6.5 million and $8.3 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by one basis point.

We recognized $2.8 million in event income for the six-months ended June 30, 2024 compared to $3.4 million for the six-months ended June 30, 2023.

Our efficiency ratio was 43.69% for the six months ended June 30, 2024, compared to 44.39% for the same period in 2023.

For the second quarter of 2024, our efficiency ratio, as adjusted (non-GAAP), was 43.50%, compared to 44.12% reported for the second quarter of 2023.

We recognized $3.4 million in event income for the nine-months ended September 30, 2024 compared to $2.8 million for the nine-months ended September 30, 2023.

Our efficiency ratio was 42.91% for the nine months ended September 30, 2024, compared to 44.76% for the same period in 2023.

For the nine months ended September 30, 2024, our efficiency ratio, as adjusted (non-GAAP), was 42.87%, compared to 44.86% reported for the third quarter of 2023.

(See Table 25 for the non-GAAP tabular reconciliation).

Our annualized return on average assets was 1.78% for the six months ended June 30, 2024, compared to 1.87% for the same period in 2023.

Our annualized return on average assets was 1.77% for the nine months ended September 30, 2024, compared to 1.84% for the same period in 2023.

(See Table 22 for the related non-GAAP financial measures and tabular reconciliation).

Our annualized return on average common equity was 10.69% and 11.66% for the six months ended June 30, 2024, and 2023, respectively.

Our annualized return on average common equity was 10.53% and 11.32% for the nine months ended September 30, 2024, and 2023, respectively.

(See Table 23 for the related non-GAAP financial measures and tabular reconciliation).

Financial Condition as of and for the Period Ended June 30, 2024 and December 31, 2023

Our total assets as of June 30, 2024 increased $263.2 million to $22.92 billion from $22.66 billion reported as of December 31, 2023.

Cash and cash equivalents increased $58.5 million for the six months ended June 30, 2024.

Our loan portfolio balance increased to $14.78 billion as of June 30, 2024 from $14.42 billion at December 31, 2023.

The increase in loans was primarily due to $218.8 million of organic loan growth in our community banking footprint and $137.9 million of organic loan growth from our Centennial Commercial Finance Group ("CFG") franchise.

These increases were partially offset by a $166.4 million decrease in investment securities resulting from paydowns and maturities during the first six months of 2024.

Total deposits increased $168.1 million to $16.96 billion as of June 30, 2024 from $16.79 billion as of December 31, 2023.

Stockholders’ equity increased $64.4 million to $3.86 billion as of June 30, 2024, compared to $3.79 billion as of December 31, 2023.

The $64.4 million increase in stockholders’ equity is primarily associated with the $201.6 million in net income for the six months ended June 30, 2024, partially offset by the $72.3 million of shareholder dividends paid, stock repurchases of $56.6 million and the $12.7 million in other comprehensive loss.

Our non-performing loans were $86.3 million, or 0.58% of total loans as of June 30, 2024, compared to $64.1 million, or 0.44% of total loans, as of December 31, 2023.

The allowance for credit losses as a percentage of non-performing loans decreased to 342.66% as of June 30, 2024, from 449.66% as of December 31, 2023.

Non-performing loans from our Arkansas franchise were $16.2 million at June 30, 2024 compared to $15.4 million as of December 31, 2023.

Non-performing loans from our Florida franchise were $39.1 million at June 30, 2024 compared to $9.3 million as of December 31, 2023.

Non-performing loans from our Texas franchise were $24.7 million at June 30, 2024 compared to $33.5 million as of December 31, 2023.

Non-performing loans from our Alabama franchise were $399,000 at June 30, 2024 compared to $413,000 as of December 31, 2023.

Non-performing loans from our Shore Premier Finance ("SPF") franchise were $3.2 million at June 30, 2024 compared to $2.8 million as of December 31, 2023.

Non-performing loans from our Centennial CFG franchise were $2.8 million at June 30, 2024 compared to $2.7 million as of December 31, 2023.

As of June 30, 2024, our non-performing assets increased to $127.8 million, or 0.56% of total assets, from $95.4 million, or 0.42% of total assets, as of December 31, 2023.

Non-performing assets from our Arkansas franchise were $16.3 million at June 30, 2024 compared to $15.5 million as of December 31, 2023.

Non-performing assets from our Florida franchise were $46.6 million at June 30, 2024 compared to $17.3 million as of December 31, 2023.

Non-performing assets from our Texas franchise were $35.8 million at June 30, 2024 compared to $33.8 million as of December 31, 2023.

Non-performing assets from our Alabama franchise were $399,000 at June 30, 2024 compared to $413,000 as of December 31, 2023.

Non-performing assets from our SPF franchise were $3.2 million at June 30, 2024 compared to $2.8 million as of December 31, 2023.

Non-performing assets from our Centennial CFG franchise were $25.5 million at June 30, 2024 compared to $25.6 million as of December 31, 2023.

Financial Condition as of and for the Period Ended September 30, 2024 and December 31, 2023

Our total assets as of September 30, 2024 increased $166.5 million to $22.82 billion from $22.66 billion reported as of December 31, 2023.

Cash and cash equivalents increased $17.5 million for the nine months ended September 30, 2024.

Our loan portfolio balance increased to $14.82 billion as of September 30, 2024 from $14.42 billion at December 31, 2023.

The increase in loans was primarily due to $350.4 million of organic loan growth in our community banking footprint and $48.9 million of organic loan growth from our Centennial Commercial Finance Group ("Centennial CFG") franchise.

These increases were partially offset by a $242.1 million decrease in investment securities resulting from paydowns and maturities during the first nine months of 2024.

Total deposits decreased $82.0 million to $16.71 billion as of September 30, 2024 from $16.79 billion as of December 31, 2023.

Stockholders’ equity increased $168.7 million to $3.96 billion as of September 30, 2024, compared to $3.79 billion as of December 31, 2023.

The $168.7 million increase in stockholders’ equity is primarily associated with the $301.7 million in net income and $54.2 million in other comprehensive income for the nine months ended September 30, 2024, which was partially offset by the $111.2 million of shareholder dividends paid and stock repurchases of $83.6 million.

Our non-performing loans were $101.1 million, or 0.68% of total loans as of September 30, 2024, compared to $64.1 million, or 0.44% of total loans, as of December 31, 2023.

The allowance for credit losses as a percentage of non-performing loans decreased to 309.16% as of September 30, 2024, from 449.66% as of December 31, 2023.

Non-performing loans from our Arkansas franchise were $30.4 million at September 30, 2024 compared to $15.4 million as of December 31, 2023.

Non-performing loans from our Florida franchise were $40.8 million at September 30, 2024 compared to $9.3 million as of December 31, 2023.

Non-performing loans from our Texas franchise were $20.0 million at September 30, 2024 compared to $33.5 million as of December 31, 2023.

Non-performing loans from our Alabama franchise were $391,000 at September 30, 2024 compared to $413,000 as of December 31, 2023.

Non-performing loans from our Shore Premier Finance ("SPF") franchise were $6.8 million at September 30, 2024 compared to $2.8 million as of December 31, 2023.

Non-performing loans from our Centennial CFG franchise were $2.8 million at September 30, 2024 compared to $2.7 million as of December 31, 2023.

As of September 30, 2024, our non-performing assets increased to $144.2 million, or 0.63% of total assets, from $95.4 million, or 0.42% of total assets, as of December 31, 2023.

Non-performing assets from our Arkansas franchise were $30.4 million at September 30, 2024 compared to $15.5 million as of December 31, 2023.

Non-performing assets from our Florida franchise were $48.1 million at September 30, 2024 compared to $17.3 million as of December 31, 2023.

Non-performing assets from our Texas franchise were $33.0 million at September 30, 2024 compared to $33.8 million as of December 31, 2023.

Non-performing assets from our Alabama franchise were $391,000 at September 30, 2024 compared to $413,000 as of December 31, 2023.

Non-performing assets from our SPF franchise were $6.8 million at September 30, 2024 compared to $2.8 million as of December 31, 2023.

Non-performing assets from our Centennial CFG franchise were $25.5 million at September 30, 2024 compared to $25.6 million as of December 31, 2023.

The $2.8 million balance of non-accrual loans for our Centennial CFG Capital Markets Group consists of two loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program.

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Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

Acquisition Accounting and Acquired Loans .

We account for our acquisitions under ASC Topic 805, Business Combinations , which requires the use of the acquisition method of accounting.

All identifiable assets acquired, including loans, and liabilities assumed are recorded at fair value.

In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans.

All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements .

The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

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As opportunities arise, we will continue to open new (commonly referred to as de novo ) branches in our current markets and in other attractive market areas.

As of June 30, 2024, we had 218 branch locations.

As of September 30, 2024, we had 218 branch locations.

There were 76 branches in Arkansas, 78 branches in Florida, 58 branches in Texas, five branches in Alabama and one branch in New York City.

Results of Operations

For the three and six months ended June 30, 2024 and 2023

Our net income decreased $3.7 million, or 3.6%, to $101.5 million for the three-month period ended June 30, 2024, from $105.3 million for the same period in 2023.

On a diluted earnings per share basis, our earnings were $0.51 per share for the three-month period ended June 30, 2024 compared to $0.52 per share for the three-month period ended June 30, 2023.

The Company recorded $8.0 million in credit loss expense for the quarter ended June 30, 2024.

During the three months ended June 30, 2024, the Company recorded $2.3 million in FDIC special assessment expense, a $274,000 decrease in the fair value of marketable securities and a $2.0 million deferred tax asset write-down, which was partially offset by a $2.1 million gain on sale of a building in our Texas region.

Our net income decreased $6.6 million, or 3.17%, to $201.6 million for the six-month period ended June 30, 2024, from $208.2 million for the same period in 2023.

On a diluted earnings per share basis, our earnings were $1.00 per share for the six-month period ended June 30, 2024 compared to $1.02 per share for the six-month period ended June 30, 2023.

The Company recorded $12.5 million in credit loss expense for the six-month period ended June 30, 2024.

This consisted of a $13.5 million provision for credit losses on loans and a reversal of $1.0 million provision for unfunded commitments.

During the six months ended June 30, 2024, the Company recorded a $2.1 million gain on sale of building from our Texas region, a $729,000 increase in the fair value of marketable securities and $162,000 in BOLI death benefits, partially offset by $2.3 million of FDIC special assessment and a $2.0 million deferred tax asset write-down.

For the three and nine months ended September 30, 2024 and 2023

Our net income increased $1.6 million, or 1.6%, to $100.0 million for the three-month period ended September 30, 2024, from $98.5 million for the same period in 2023.

The Company recorded $18.9 million in credit loss expense for the quarter ended September 30, 2024.

The $18.9 million of credit loss expense includes $18.2 million in provision for credit losses on loans.

Of the $18.2 million provision for credit losses on loans recorded, $16.7 million was used to establish a hurricane reserve for loans located in the FEMA disaster areas impacted by Hurricane Helene, which made landfall during the quarter.

The hurricane related reserve had a six-cent impact to diluted earnings per share for the quarter.

The remaining portion of the provision was related to loan growth.

During the three months ended September 30, 2024, the Company recorded a $1.4 million increase in the fair value of marketable securities.

Our net income decreased $5.0 million, or 1.63%, to $301.7 million for the nine-month period ended September 30, 2024, from $306.7 million for the same period in 2023.

On a diluted earnings per share basis, our earnings were $1.51 per share for both the nine-month periods ended September 30, 2024 and 2023.

The hurricane related reserve had a six-cent impact to diluted earnings per share.

The remaining portion of the provision was related to loan growth.

During the nine months ended September 30, 2024, the Company recorded a $2.1 million gain on sale of building from our Texas region, a $2.1 million increase in the fair value of marketable securities and $162,000 in bank owned life insurance BOLI death benefits, partially offset by $2.3 million of FDIC special assessment and a $2.0 million deferred tax asset write-down.

Net Interest Income

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First, on February 1, 2023, the target rate was increased to 4.50% to 4.75%, second, on March 22, 2023, the target rate was increased to 4.75% to 5.00%, third, on May 3, 2023, the target rate was increased to 5.00% to 5.25% and fourth, on July 26, 2023, the target rate was increased to 5.25% to 5.50%.

As of June 30, 2024, the target rate was 5.25% to 5.50% as the Federal Reserve has left the target rate unchanged in 2024.

Our net interest margin decreased from 4.28% for the three-month period ended June 30, 2023 to 4.27% for the three-month period ended June 30, 2024.

On September 18, 2024, the Federal Reserve reduced the target rate to 4.75% to 5.00%.

Our net interest margin increased from 4.19% for the three-month period ended September 30, 2023 to 4.28% for the three-month period ended September 30, 2024.

During the second quarter of 2024, the Company held excess liquidity of approximately $500.0 million which was dilutive to the net interest margin by 10 basis points.

For the three months ended June 30, 2024 and 2023, we recognized $1.9 million and $2.7 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by one basis point.

We recognized $1.7 million in event income for the three-months ended June 30, 2024 compared to $1.3 million for the three-months ended June 30, 2023.

During the third quarter of 2024, the Company held excess liquidity of approximately $500.0 million which was dilutive to the net interest margin by 10 basis points.

For the three months ended September 30, 2024 and 2023, we recognized $1.9 million and $2.4 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by two basis points.

We recognized $573,000 in event income for the three-months ended September 30, 2024 compared to $521,000 for the three-months ended September 30, 2023.

Our net interest margin decreased from 4.33% for the six-month period ended June 30, 2023 to 4.20% for the six-month period ended June 30, 2024.

Our net interest margin decreased from 4.28% for the nine-month period ended September 30, 2023 to 4.23% for the nine-month period ended September 30, 2024.

During the six-month period ended June 30, 2024, the Company held excess liquidity of approximately $500.0 million which was dilutive to the net interest margin by 10 basis points.

For the six months ended June 30, 2024 and 2023, we recognized $4.6 million and $5.8 million, respectively, in total net accretion for acquired loans and deposits.

During the nine-month period ended September 30, 2024, the Company held excess liquidity of approximately $500.0 million which was dilutive to the net interest margin by 10 basis points.

For the nine months ended September 30, 2024 and 2023, we recognized $6.5 million and $8.3 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by one basis point.

We recognized $2.8 million in event income for the six-months ended June 30, 2024 compared to $3.4 million for the six-months ended June 30, 2023.

Net interest income on a fully taxable equivalent basis increased $5.3 million, or 2.5%, to $214.5 million for the three-month period ended June 30, 2024, from $209.1 million for the same period in 2023.

This increase in net interest income for the three-month period ended June 30, 2024 was the result of a $38.8 million increase in interest income, which was partially offset by a $33.5 million increase in interest expense, on a fully taxable equivalent basis.

We recognized $3.4 million in event income for the nine-months ended September 30, 2024 compared to $2.8 million for the nine-months ended September 30, 2023.

Net interest income on a fully taxable equivalent basis increased $14.6 million, or 7.2%, to $217.8 million for the three-month period ended September 30, 2024, from $203.2 million for the same period in 2023.

This increase in net interest income for the three-month period ended September 30, 2024 was the result of a $39.9 million increase in interest income, which was partially offset by a $25.3 million increase in interest expense, on a fully taxable equivalent basis.

The $39.9 million increase in interest income was primarily the result of the high interest rate environment.

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The higher rates on interest bearing liabilities resulted in an increase in interest expense of approximately $14.2 million, in addition to an increase in average interest bearing liabilities which increased interest expense by approximately $11.1 million.

Net interest income on a fully taxable equivalent basis decreased $5.4 million, or 1.3%, to $419.9 million for the six-month period ended June 30, 2024, from $425.4 million for the same period in 2023.

This decrease in net interest income for the six-month period ended June 30, 2024 was the result of a $75.5 million increase in interest expense, which was partially offset by a $70.0 million increase in interest income, on a fully taxable equivalent basis.

The $75.5 million increase in interest expense is primarily the result of the high interest rate environment.

The higher rates on interest bearing liabilities resulted in an increase in interest expense of approximately $56.7 million, in addition to an increase in average interest bearing liabilities which increased interest expense by approximately $18.8 million.

The $70.0 million increase in interest income was also primarily the result of the high interest rate environment.

Net interest income on a fully taxable equivalent basis increased $9.2 million, or 1.5%, to $637.8 million for the nine-month period ended September 30, 2024, from $628.6 million for the same period in 2023.

This increase in net interest income for the nine-month period ended September 30, 2024 was the result of a $110.0 million increase in interest income, which was partially offset by a $100.8 million increase in interest expense, on a fully taxable equivalent basis.

The $110.0 million increase in interest income was primarily the result of the high interest rate environment.

The higher yield on earning assets resulted in an increase in interest income of approximately $80.6 million, in addition to an increase of $29.4 million in interest income due to the change in average interest earning asset balances.

Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and six months ended June 30, 2024 and 2023, as well as changes in the fully taxable equivalent net interest margin for the three and six months ended June 30, 2024 compared to the same period in 2023.

The $100.8 million increase in interest expense is also primarily the result of the high interest rate environment.

The higher rates on interest bearing liabilities resulted in an increase in interest expense of approximately $70.6 million, in addition to an increase in average interest bearing liabilities which increased interest expense by approximately $30.2 million.

Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, 2024 and 2023, as well as changes in the fully taxable equivalent net interest margin for the three and nine months ended September 30, 2024 compared to the same period in 2023.

Analysis of Net Interest Income

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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Changes in Fully Taxable Equivalent Net Interest Margin

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2024 vs.

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Increase in interest expense due to change in interest rates paid on interest-bearing liabilities (14,171) (70,612)

Decrease in net interest income $ 5,313 $ (5,428)

Table 4 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three and six months ended June 30, 2024 and 2023, respectively.

Increase in net interest income $ 14,606 $ 9,178

Table 4 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three and nine months ended September 30, 2024 and 2023, respectively.

The table also shows the average rate earned on all earning assets, the average rate expensed on all interest-bearing liabilities, the net interest spread and the net interest margin for the same periods.

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Average Balance Sheets and Net Interest Income Analysis

Three Months Ended June 30,

Three Months Ended September 30,

Expense Yield /

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Net interest income and margin $ 217,836 4.28 % $ 203,230 4.19 %

Six Months Ended June 30,

Nine Months Ended September 30,

Expense Yield /

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Net interest income and margin $ 637,768 4.23 % $ 628,590 4.28 %

Table 5 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and six months ended June 30, 2024 compared to the same period in 2023, on a fully taxable basis.

Table 5 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and nine months ended September 30, 2024 compared to the same period in 2023, on a fully taxable basis.

The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

Volume/Rate Analysis

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 over 2023 2024 over 2023

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Credit Loss Expense :

During the three months ended June 30, 2024, the Company recorded an $8.0 million provision for credit losses on loans.

However, the Company determined no additional provision, or reversal of provision, was necessary for unfunded commitments as the current level of the reserve was considered adequate.

During the six months ended June 30, 2024, the Company recorded a $13.5 million provision for credit losses on loans, no provision for credit losses on investment securities and a reversal of $1.0 million provision for unfunded commitments.

Net charge-offs to average total loans was 0.07% and 0.11% for the three months ended June 30, 2024 and 2023, respectively, and net charge-offs to average total loans was 0.08% and 0.11% for the six months ended June 30, 2024 and 2023, respectively.

During both the three and six months ended June 30, 2024, the Company determined the $2.5 million allowance for credit losses on the AFS portfolio and the $2.0 million allowance for credit losses on the HTM portfolio were adequate.

Therefore, no additional provision was considered necessary.

During the three months ended September 30, 2024, the Company recorded $18.9 million in credit loss expense.

The $18.9 million of credit loss expense includes $18.2 million in provision for credit losses on loans.

The hurricane related reserve had a six-cent impact to diluted earnings per share for the quarter.

The remaining portion of the provision was related to loan growth.

The Company also recorded a $1.0 million provision for credit losses on unfunded commitments and recorded a $330,000 recovery of credit losses on available-for-sale investments due to an improvement in the unrealized losses for one of our subordinated debt investments.

During the nine months ended September 30, 2024, the Company recorded $31.4 million in credit loss expense.

The $31.4 million of credit loss expense includes $31.7 million in provision for credit losses on loans, which as partially offset by the $330,000 recovery of credit losses on available-for-sale investments due to an improvement in the unrealized losses for one of our subordinated debt investments.

Of the $31.7 million provision for credit losses on loans recorded, $16.7 million was used to establish a hurricane reserve for loans.

The remaining portion of the provision was related to loan growth.

For both the three and nine month periods ended September 30, 2024, the Company determined the $2.0 million allowance for credit losses on the held-to-maturity portfolio was adequate.

Therefore, no additional provision was considered necessary for the HTM portfolio.

Net charge-offs to average total loans was 0.04% and 0.08% for the three months ended September 30, 2024 and 2023, respectively, and net charge-offs to average total loans was 0.07% and 0.10% for the nine months ended September 30, 2024 and 2023, respectively.

Non-Interest Income

Total non-interest income was $42.8 million and $84.6 million for the three and six months ended June 30, 2024, compared to $49.5 million and $83.7 million for the same period in 2023.

Total non-interest income was $42.8 million and $127.4 million for the three and nine months ended September 30, 2024, compared to $43.4 million and $127.1 million for the same period in 2023.

Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending income, insurance commissions, increase in cash value of life insurance, fair value adjustment for marketable securities and dividends.

Table 6 measures the various components of our non-interest income for the three and six months ended June 30, 2024 and 2023.

Table 6 measures the various components of our non-interest income for the three and nine months ended September 30, 2024 and 2023.

Non-Interest Income

Three Months Ended June 30, 2024 Change

from 2023 Six Months Ended June 30, 2024 Change

Three Months Ended September 30, 2024 Change

from 2023 Nine Months Ended September 30, 2024 Change

2024 2023 2024 2023

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Total non-interest income $ 42,779 $ 43,413 $ (634) (1.5) % $ 127,352 $ 127,086 $ 266 0.2 %

Non-interest income decreased $6.7 million, or 13.6%, to $42.8 million for the three months ended June 30, 2024 from $49.5 million for the same period in 2023.

The primary factors that resulted in this decrease were the decreases in other service charges and fees, fair value adjustment for marketable securities and other income, which was partially offset by increases in mortgage lending income and the gain on sale of branches, equipment and other assets, net.

Additional details for the three months ended June 30, 2024 on some of the more significant changes are as follows:

• The $483,000 increase in service charges on deposit accounts is primarily related to an increase in overdraft fees.

• The $1.1 million decrease in other service charges and fees is primarily related to decreases in Centennial CFG property finance loan fees and Mastercard income and incentives.

• The $670,000 increase in trust fees is primarily related to increases in IRA fees and retirement fees.

Non-interest income decreased $634,000, or 1.5%, to $42.8 million for the three months ended September 30, 2024 from $43.4 million for the same period in 2023.

The primary factor that resulted in this decrease was the decreases in fair value adjustment for marketable securities, which was partially offset by increases in other service charges and fees, mortgage lending income and other income.

Additional details for the three months ended September 30, 2024 on some of the more significant changes are as follows:

• The $362,000 increase in other service charges and fees is primarily related to an increase in Centennial CFG property finance loan fees.

• The $1.3 million increase in mortgage lending income is primarily related to an increase in volume of secondary market loans from the lower volume of loans during 2023.

• The $1.1 million increase in gain on sale of branches, equipment and other assets, net is primarily due to the sale of a building from our Texas region.

• The $3.1 million decrease in the fair value adjustment for marketable securities is due to the changes in the fair value of marketable securities held by the Company.

• The $8.5 million decrease in other income is primarily due to a $7.0 million reduction in income for equity method investments, a $2.8 million reduction in BOLI death benefit income and a $398,000 decrease in recoveries on historic losses, partially offset by an $852,000 increase in rental income from other real estate owned ("OREO") and a $689,000 increase in investment brokerage fee income.

Non-interest income increased $900,000, or 1.1%, to $84.6 million for the six months ended June 30, 2024 from $83.7 million for the same period in 2023.

• The $1.3 million increase in other income is primarily due to a $737,000 increase in rental income from other real estate owned ("OREO"), a $230,000 increase in investment brokerage fee income and a $705,000 increase in recoveries on historic losses, partially offset by a $338,000 reduction in BOLI death benefit income.

Non-interest income increased $266,000, or 0.2%, to $127.4 million for the nine months ended September 30, 2024 from $127.1 million for the same period in 2023.

The primary factors that resulted in this increase were the increases in fair value adjustment for marketable securities, trust fees, mortgage lending income and the gain on sale of branches, equipment and other assets, net, which was partially offset by decreases in other service charges and fees and other income.

Additional details for the six months ended June 30, 2024 on some of the more significant changes are as follows:

• The $2.8 million decrease in other service charges and fees is primarily related to decreases in Centennial CFG property finance loan fees and Mastercard income, partially offset by an increase in merchant service income.

• The $871,000 increase in trust fees is primarily related to increases in IRA fees, retirement fees and other fees.

Additional details for the nine months ended September 30, 2024 on some of the more significant changes are as follows:

• The $2.4 million decrease in other service charges and fees is primarily related to decreases in Centennial CFG property finance loan fees and Mastercard income.

• The $614,000 increase in trust fees is primarily related to increases in personal trust fees, employee trust fees, IRA fees and retirement fees.

• The $3.9 million increase in mortgage lending income is primarily related to an increase in volume of secondary market loans from the lower volume of loans during 2023.

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• The $8.2 million increase in the fair value adjustment for marketable securities is due to the changes in the fair value of marketable securities held by the Company.

• The $13.0 million decrease in other income is primarily due to a $9.9 million reduction of income for equity method investments, a $2.8 million reduction in BOLI death benefit income and a $4.2 million decrease in recoveries on historic losses, partially offset by a $2.1 million increase in rental income from OREO, a $1.3 million increase in investment brokerage fee income and a $372,000 increase in miscellaneous income.

• The $11.6 million decrease in other income is primarily due to a $9.9 million reduction in income for equity method investments, a $3.0 million reduction in BOLI death benefit income and a $3.5 million decrease in recoveries on historic losses, partially offset by a $2.9 million increase in rental income from OREO and a $1.5 million increase in investment brokerage fee income.

Non-Interest Expense

Non-interest expense primarily consists of salaries and employee benefits, occupancy and equipment, data processing, and other expenses such as advertising, amortization of intangibles, electronic banking expense, FDIC and state assessment, insurance, legal and accounting fees, other professional fees and other expenses.

Table 7 below sets forth a summary of non-interest expense for the three and six months ended June 30, 2024 and 2023.

Table 7 below sets forth a summary of non-interest expense for the three and nine months ended September 30, 2024 and 2023.

Non-Interest Expense

Three Months Ended June 30, 2024 Change

from 2023 Six Months Ended June 30, 2024 Change

Three Months Ended September 30, 2024 Change

from 2023 Nine Months Ended September 30, 2024 Change

2024 2023 2024 2023

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Total non-interest expense $ 110,045 $ 114,762 $ (4,717) (4.1) % $ 334,726 $ 345,688 $ (10,962) (3.2) %

Non-interest expense decreased $3.1 million, or 2.7%, to $113.2 million for the three months ended June 30, 2024 from $116.3 million for the same period in 2023.

The primary factors that resulted in this decrease were the decrease in salaries and employee benefits, occupancy and equipment expense, advertising expense, amortization of intangibles and other professional fees, which were partially offset by an increase in FDIC and state assessment expense, other expense and legal and accounting expense.

Additional details for the three months ended June 30, 2024 on some of the more significant changes are as follows:

Non-interest expense decreased $4.7 million, or 4.1%, to $110.0 million for the three months ended September 30, 2024 from $114.8 million for the same period in 2023.

The primary factors that resulted in this decrease were the decrease in salaries and employee benefits, occupancy and equipment expense, advertising expense and amortization of intangibles, which were partially offset by increases in FDIC and state assessment expense, legal and accounting expense and other expense.

Additional details for the three months ended September 30, 2024 on some of the more significant changes are as follows:

• The $5.7 million decrease in salaries and employee benefits expense is primarily due to the Company's project to reduce the size of its workforce and a decrease in deferred loan costs.

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• The $382,000 decrease in amortization of intangibles is due to the core deposit intangible ("CDI") from the acquisition of Liberty Bank being fully amortized in 2023.

• The $2.3 million increase in FDIC and state assessment expense is primarily due to the remaining portion of the FDIC special assessment expense being incurred during the second quarter of 2024.

The FDIC special assessment was levied in order to recover the losses to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.

• The $1.2 million increase in legal and accounting expense is primarily due to ongoing legal matters.

• The $666,000 decrease in other professional fees is primarily due to cost saving measures following the acquisition of Happy.

• The $468,000 million increase in other expense is primarily due to an increase in OREO expense, partially offset by decreases in travel expenses, insurance claims paid and other losses.

Non-interest expense decreased $6.2 million, or 2.7%, to $224.7 million for the six months ended June 30, 2024 from $230.9 million for the same period in 2023.

• The $566,000 increase in FDIC and state assessment expense is primarily due to a true-up which was recorded in September 2023 as a result of an FDIC assessment rate reduction.

• The $388,000 increase in legal and accounting expense is primarily due to ongoing legal matters.

• The $2.2 million increase in other expense is primarily due to increases in OREO expense.

Non-interest expense decreased $11.0 million, or 3.2%, to $334.7 million for the nine months ended September 30, 2024 from $345.7 million for the same period in 2023.

The primary factors that resulted in this decrease were the decrease in salaries and employee benefits, occupancy and equipment expense, advertising expense, amortization of intangibles, electronic banking expense and other professional fees, which were partially offset by an increase in FDIC and state assessment, legal and accounting expense and other expense.

Additional details for the six months ended June 30, 2024 on some of the more significant changes are as follows:

Additional details for the nine months ended September 30, 2024 on some of the more significant changes are as follows:

• The $13.3 million decrease in salaries and employee benefits expense is primarily due to the Company's project to reduce the size of its workforce and a decrease in deferred loan costs.

• The $916,000 decrease in occupancy and equipment expense is primarily due to lease, utility and maintenance expenses.

• The $983,000 decrease in advertising expense is primarily due to a decreased volume of advertising.

• The $675,000 decrease in amortization of intangibles is primarily due to the CDI from the acquisition of Liberty Bank being fully amortized in 2023.

• The $1.8 million decrease in occupancy and equipment expense is primarily due to decreases in lease, utility, maintenance and other occupancy expenses.

• The $1.5 million decrease in advertising expense is primarily due to a decreased volume of advertising.

• The $1.1 million decrease in amortization of intangibles is primarily due to the CDI from the acquisition of Liberty Bank being fully amortized in 2023.

• The $577,000 decrease in electronic banking expense is primarily due to a decrease in debit card processing fees and interchange network expenses.

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• The $770,000 decrease in other professional fees is primarily due to cost saving measures following the acquisition of Happy.

• The $1.4 million increase in other expense is primarily due to an increase in OREO expense and miscellaneous loan costs, partially offset by decreases in travel expenses, insurance claims paid and other losses.

Income tax expense increased $265,000, or 0.8%, to $31.9 million for the three-month period ended June 30, 2024, from $31.6 million for the same period in 2023.

Income tax expense increased $596,000, or 1.0%, to $62.2 million for the six-month period ended June 30, 2024, from $61.6 million for the same period in 2023.

The effective income tax rate was 23.90% and 23.56% for the three and six months ended June 30, 2024, respectively, compared to 23.10% and 22.82% for the same periods in 2023, respectively.

• The $3.7 million increase in other expense is primarily due to an increase in OREO expense and miscellaneous loan costs, partially offset by decreases in travel expenses, reimbursable loan fees and other losses.

Income tax expense decreased $1.8 million, or 5.8%, to $29.0 million for the three-month period ended September 30, 2024, from $30.8 million for the same period in 2023.

Income tax expense decreased $1.2 million, or 1.3%, to $91.2 million for the nine-month period ended September 30, 2024, from $92.4 million for the same period in 2023.

The effective income tax rate was 22.50% and 23.22% for the three and nine months ended September 30, 2024, respectively, compared to 23.85% and 23.15% for the same periods in 2023, respectively.

The marginal tax rate was 24.989% and 24.6735% for 2024 and 2023, respectively.