HOME BANCSHARES INC 10-Q

Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our Form 10-K, filed with the Securities and Exchange Commission on February 26, 2024, which includes the audited financial statements for the year ended December 31, 2023. Unless the context requires otherwise, the terms “Company,” “us,” “we,” and “our” refer to Home BancShares, Inc. on a consolidated basis. General 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 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. Deposits and Federal Home Loan Bank (“FHLB”) and other borrowed funds are our primary sources of funding. Our largest expenses are interest on our funding sources, salaries and related employee benefits and occupancy and equipment. We measure our performance by calculating our return on average common equity, return on average assets and net interest margin. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a non-GAAP measure and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding adjustments such as merger and acquisition expenses and/or certain gains, losses and other non-interest income and expenses. Table 1: Key Financial Measures As of or for the Three Months Ended September 30, As of or for the Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands, except per share data) Total assets $ 22,823,117 $ 21,950,638 $ 22,823,117 $ 21,950,638 Loans receivable 14,823,979 14,271,833 14,823,979 14,271,833 Allowance for credit losses (312,574) (285,562) (312,574) (285,562) Total deposits 16,705,710 16,518,745 16,705,710 16,518,745 Total stockholders’ equity 3,959,789 3,654,874 3,959,789 3,654,874 Net income 100,038 98,453 301,677 306,686 Basic earnings per share 0.50 0.49 1.51 1.51 Diluted earnings per share 0.50 0.49 1.51 1.51 Book value per share 19.91 18.06 19.91 18.06 Tangible book value per share (non-GAAP) (1) 12.67 10.90 12.67 10.90 Annualized net interest margin - FTE 4.28% 4.19% 4.23% 4.28% Efficiency ratio 41.42 45.53 42.91 44.76 Efficiency ratio, as adjusted (non-GAAP) (2) 41.66 46.44 42.87 44.86 Return on average assets 1.74 1.78 1.77 1.84 Return on average common equity 10.23 10.65 10.53 11.32 (1) See Table 21 for the non-GAAP tabular reconciliation. (2) See Table 25 for the non-GAAP tabular reconciliation. 51 Table of Contents Overview 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 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 $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 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 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 1.74% 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 10.23% 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). 52 Table of Contents 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. 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 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 $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 1.77% 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 10.53% 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). 53 Table of Contents 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. The loans are not current on either principal or interest, and we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve. Any interest payments that are received will be applied to the principal balance. In addition, the $22.8 million balance of foreclosed assets held for sale for our Centennial CFG Property Finance Group consists of an office building located in California. This represents the largest component of the Company's $43.0 million in foreclosed assets held for sale. Critical Accounting Policies and Estimates Overview. We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements included as part of this document. We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including the accounting for the allowance for credit losses, foreclosed assets, investments, intangible assets, income taxes and stock options. 54 Table of Contents Credit Losses . We account for credit losses in accordance with ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASC 326" or "CECL"). The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. Investments – Available-for-sale . Securities available-for-sale ("AFS") are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326. The Company first assesses whether it intends to sell or is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Investments – Held-to-Maturity. Debt securities held-to-maturity ("HTM"), which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326. The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed. Loans Receivable and Allowance for Credit Losses . Except for loans acquired during our acquisitions, substantially all of our loans receivable are reported at their outstanding principal balance adjusted for any charge-offs, as it is management’s intent to hold them for the foreseeable future or until maturity or payoff, except for mortgage loans held for sale. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed and expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and rental vacancy rate index. 55 Table of Contents The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan segments are as follows: • 1-4 family construction • All other construction • 1-4 family revolving home equity lines of credit (“HELOC”) & junior liens • 1-4 family senior liens • Multifamily • Owner occupies commercial real estate • Non-owner occupied commercial real estate • Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other • Consumer auto • Other consumer • Other consumer - Shore Premier Finance ("SPF") The allowance for credit losses for each segment is measured through the use of the discounted cash flow method ("DCF"). Loans evaluated individually that are considered to be collateral dependent are not included in the collective evaluation. For these loans, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral, net of estimated costs to sell, and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan, net of estimated costs to sell. For individually analyzed loans which are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: • Management has a reasonable expectation at the reporting date that restructured loans made to borrowers experiencing financial difficulty will be executed with an individual borrower. • The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factors ("Q-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions. Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. 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. 56 Table of Contents The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Purchase credit deteriorated (“PCD”) loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit loss. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for or reversal of credit loss expense. 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. Foreclosed Assets Held for Sale . Real estate and personal property acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Valuations are periodically performed by management, and the real estate and personal property are carried at fair value less costs to sell. Gains and losses from the sale of other real estate and personal property are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expenses. Intangible Assets . Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 48 months to 121 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC 350, Intangibles - Goodwill and Other , in the fourth quarter or more often if events and circumstances indicate there may be an impairment. Income Taxes . We account for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes ). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. We determine deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than 50 percent; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Both we and our subsidiary file consolidated tax returns. Our subsidiary provides for income taxes on a separate return basis, and remits to us amounts determined to be currently payable. Stock Compensation . In accordance with FASB ASC 718, Compensation - Stock Compensation , and FASB ASC 505-50, Equity-Based Payments to Non-Employees , the fair value of each option award is estimated on the date of grant. We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award. 57 Table of Contents Acquisitions Acquisition of Happy Bancshares, Inc. The Company's most recent acquisition occurred on April 1, 2022, when the Company completed the acquisition of Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank into Centennial Bank. For additional discussion regarding the acquisition of Happy, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 "Business Combinations" in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2023. Branches 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 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 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. 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 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. 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 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 Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments, rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (24.989% for 2024 and 24.6735% for 2023). 58 Table of Contents The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Reserve increased the target rate four times during 2023. 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%. 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. 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 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. 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 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 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 $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. The higher yield on earning assets resulted in an increase in interest income of approximately $22.9 million, in addition to an increase of $17.0 million in interest income due to the change in average interest earning asset balances. The $25.3 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 $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 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. 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. 59 Table of Contents 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. Table 2: Analysis of Net Interest Income Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands) Interest income $ 332,845 $ 294,262 $ 977,063 $ 868,833 Fully taxable equivalent adjustment 2,616 1,293 6,136 4,415 Interest income – fully taxable equivalent 335,461 295,555 983,199 873,248 Interest expense 117,625 92,325 345,431 244,658 Net interest income – fully taxable equivalent $ 217,836 $ 203,230 $ 637,768 $ 628,590 Yield on earning assets – fully taxable equivalent 6.60 % 6.09 % 6.52 % 5.95 % Cost of interest-bearing liabilities 3.17 2.69 3.14 2.38 Net interest spread – fully taxable equivalent 3.43 3.40 3.38 3.57 Net interest margin – fully taxable equivalent 4.28 4.19 4.23 4.28 Table 3: Changes in Fully Taxable Equivalent Net Interest Margin Three Months Ended September 30, Nine Months Ended September 30, 2024 vs. 2023 2024 vs. 2023 (In thousands) Increase in interest income due to change in earning assets $ 16,977 $ 29,381 Increase in interest income due to change in earning asset yields 22,929 80,570 Increase in interest expense due to change in interest-bearing liabilities (11,129) (30,161) Increase in interest expense due to change in interest rates paid on interest-bearing liabilities (14,171) (70,612) Increase in net interest income $ 14,606 $ 9,178 60 Table of Contents 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. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans. Table 4: Average Balance Sheets and Net Interest Income Analysis Three Months Ended September 30, 2024 2023 Average Balance Income / Expense Yield / Rate Average Balance Income / Expense Yield / Rate (Dollars in thousands) ASSETS Earnings assets Interest-bearing balances due from banks $ 903,456 $ 12,096 5.33 % $ 197,336 $ 2,328 4.68 % Federal funds sold 4,629 62 5.33 4,859 82 6.70 Investment securities – taxable 3,391,838 31,006 3.64 3,598,513 34,520 3.81 Investment securities – non-taxable 1,163,568 10,181 3.48 1,272,680 9,034 2.82 Loans receivable 14,762,667 282,116 7.60 14,191,461 249,591 6.98 Total interest-earning assets 20,226,158 335,461 6.60 % 19,264,849 295,555 6.09 % Non-earning assets 2,667,626 2,637,585 Total assets $ 22,893,784 $ 21,902,434 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Interest-bearing liabilities Savings and interest-bearing transaction accounts $ 11,095,572 $ 79,232 2.84 % $ 10,923,936 68,067 2.47 % Time deposits 1,769,952 18,553 4.17 1,319,126 10,631 3.20 Total interest-bearing deposits 12,865,524 97,785 3.02 12,243,062 78,698 2.55 Federal funds purchased 43 1 9.25 54 1 7.35 Securities sold under agreement to repurchase 157,178 1,335 3.38 154,687 1,344 3.45 FHLB and other borrowed funds 1,300,876 14,383 4.40 773,345 8,161 4.19 Subordinated debentures 439,467 4,121 3.73 440,054 4,121 3.72 Total interest-bearing liabilities 14,763,088 117,625 3.17 % 13,611,202 92,325 2.69 % Non-interest-bearing liabilities Non-interest-bearing deposits 3,993,187 4,434,394 Other liabilities 247,797 189,499 Total liabilities 19,004,072 18,235,095 Stockholders’ equity 3,889,712 3,667,339 Total liabilities and stockholders’ equity $ 22,893,784 $ 21,902,434 Net interest spread 3.43 % 3.40 % Net interest income and margin $ 217,836 4.28 % $ 203,230 4.19 % 61 Table of Contents Nine Months Ended September 30, 2024 2023 Average Balance Income / Expense Yield / Rate Average Balance Income / Expense Yield / Rate (Dollars in thousands) ASSETS Earnings assets Interest-bearing balances due from banks $ 878,368 $ 35,188 5.35 % $ 313,637 $ 10,742 4.58 % Federal funds sold 4,688 182 5.19 3,577 156 5.83 Investment securities – taxable 3,436,874 96,822 3.76 3,726,710 104,559 3.75 Investment securities – non-taxable 1,202,003 29,077 3.23 1,280,947 27,848 2.91 Loans receivable 14,633,382 821,930 7.50 14,307,358 729,943 6.82 Total interest-earning assets 20,155,315 983,199 6.52 % 19,632,229 873,248 5.95 % Non-earning assets 2,662,627 2,640,096 Total assets $ 22,817,942 $ 22,272,325 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Interest-bearing liabilities Savings and interest-bearing transaction accounts $ 11,084,397 $ 232,757 2.80 % $ 11,246,350 185,560 2.21 % Time deposits 1,729,400 53,317 4.12 1,189,620 22,447 2.52 Total interest-bearing deposits 12,813,797 286,074 2.98 12,435,970 208,007 2.24 Federal funds purchased 26 1 5.14 59 3 6.80 Securities sold under agreement to repurchase 163,013 4,102 3.36 144,603 3,333 3.08 FHLB and other borrowed funds 1,301,005 42,914 4.41 701,748 20,947 3.99 Subordinated debentures 439,613 12,340 3.75 440,199 12,368 3.76 Total interest-bearing liabilities 14,717,454 345,431 3.14 % 13,722,579 244,658 2.38 % Non-interest-bearing liabilities Non-interest-bearing deposits 4,031,447 4,729,515 Other liabilities 242,422 197,498 Total liabilities 18,991,323 18,649,592 Stockholders’ equity 3,826,619 3,622,733 Total liabilities and stockholders’ equity $ 22,817,942 $ 22,272,325 Net interest spread 3.38 % 3.57 % Net interest income and margin $ 637,768 4.23 % $ 628,590 4.28 % 62 Table of Contents 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. Table 5: Volume/Rate Analysis Three Months Ended September 30, Nine Months Ended September 30, 2024 over 2023 2024 over 2023 Volume Yield / Rate Total Volume Yield / Rate Total (In thousands) Increase (decrease) in: Interest income: Interest-bearing balances due from banks $ 9,413 $ 355 $ 9,768 $ 22,341 $ 2,105 $ 24,446 Federal funds sold (4) (16) (20) 45 (19) 26 Investment securities – taxable (1,931) (1,583) (3,514) (8,163) 426 (7,737) Investment securities – non-taxable (823) 1,970 1,147 (1,785) 3,014 1,229 Loans receivable 10,322 22,203 32,525 16,943 75,044 91,987 Total interest income 16,977 22,929 39,906 29,381 80,570 109,951 Interest expense: Interest-bearing transaction and savings deposits 1,085 10,080 11,165 (2,709) 49,906 47,197 Time deposits 4,214 3,708 7,922 12,879 17,991 30,870 Federal funds purchased — — — (1) (1) (2) Securities sold under agreement to repurchase 21 (30) (9) 447 322 769 FHLB and other borrowed funds 5,815 407 6,222 19,561 2,406 21,967 Subordinated debentures (6) 6 — (16) (12) (28) Total interest expense 11,129 14,171 25,300 30,161 70,612 100,773 Increase (decrease) in net interest income $ 5,848 $ 8,758 $ 14,606 $ (780) $ 9,958 $ 9,178 Provision for Credit Losses Credit Loss Expense : 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. 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. 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. 63 Table of Contents Non-Interest Income 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 nine months ended September 30, 2024 and 2023. Table 6: Non-Interest Income Three Months Ended September 30, 2024 Change from 2023 Nine Months Ended September 30, 2024 Change from 2023 2024 2023 2024 2023 (Dollars in thousands) Service charges on deposit accounts $ 9,888 $ 10,062 $ (174) (1.7) % $ 29,288 $ 29,135 $ 153 0.5 % Other service charges and fees 10,490 10,128 362 3.6 31,358 33,766 (2,408) (7.1) Trust fees 4,403 4,660 (257) (5.5) 14,191 13,576 615 4.5 Mortgage lending income 4,437 3,132 1,305 41.7 12,271 8,353 3,918 46.9 Insurance commissions 595 562 33 5.9 1,668 1,606 62 3.9 Increase in cash value of life insurance 1,161 1,170 (9) (0.8) 3,635 3,485 150 4.3 Dividends from FHLB, FRB, FNBB & other 2,637 2,916 (279) (9.6) 8,642 8,632 10 0.1 Gain on sale of SBA loans 145 97 48 49.5 399 236 163 69.1 Gain on sale of branches, equipment and other assets, net 32 — 32 100.0 2,076 924 1,152 124.7 Gain on OREO, net 85 — 85 100.0 151 319 (168) (52.7) Fair value adjustment for marketable securities 1,392 4,507 (3,115) (69.1) 2,121 (6,118) 8,239 134.7 Other income 7,514 6,179 1,335 21.6 21,552 33,172 (11,620) (35.0) Total non-interest income $ 42,779 $ 43,413 $ (634) (1.5) % $ 127,352 $ 127,086 $ 266 0.2 % 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 $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 $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. 64 Table of Contents 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. • 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 $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 $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 nine months ended September 30, 2024 and 2023. Table 7: Non-Interest Expense Three Months Ended September 30, 2024 Change from 2023 Nine Months Ended September 30, 2024 Change from 2023 2024 2023 2024 2023 (Dollars in thousands) Salaries and employee benefits $ 58,861 $ 64,512 $ (5,651) (8.8) % $ 180,198 $ 193,536 $ (13,338) (6.9) % Occupancy and equipment 14,546 15,463 (917) (5.9) 43,505 45,338 (1,833) (4.0) Data processing expense 9,088 9,103 (15) (0.2) 27,170 27,222 (52) (0.2) Other operating expenses: Advertising 1,810 2,295 (485) (21.1) 5,156 6,624 (1,468) (22.2) Amortization of intangibles 2,095 2,477 (382) (15.4) 6,375 7,432 (1,057) (14.2) Electronic banking expense 3,569 3,709 (140) (3.8) 10,137 10,714 (577) (5.4) Directors' fees 362 417 (55) (13.2) 1,283 1,415 (132) (9.3) Due from bank service charges 302 282 20 7.1 860 841 19 2.3 FDIC and state assessment 3,360 2,794 566 20.3 12,172 9,514 2,658 27.9 Insurance 926 878 48 5.5 2,734 2,694 40 1.5 Legal and accounting 1,902 1,514 388 25.6 6,600 4,038 2,562 63.4 Other professional fees 2,062 2,117 (55) (2.6) 6,406 7,175 (769) (10.7) Operating supplies 673 860 (187) (21.7) 1,969 2,361 (392) (16.6) Postage 522 491 31 6.3 1,542 1,578 (36) (2.3) Telephone 455 544 (89) (16.4) 1,369 1,645 (276) (16.8) Other expense 9,512 7,306 2,206 30.2 27,250 23,561 3,689 15.7 Total non-interest expense $ 110,045 $ 114,762 $ (4,717) (4.1) % $ 334,726 $ 345,688 $ (10,962) (3.2) % 65 Table of Contents 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. • The $917,000 decrease in occupancy and equipment expense is primarily due to decreased lease, utility and maintenance expenses. • The $485,000 decrease in advertising expense is primarily due to a decreased volume of advertising. • 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 $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 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 $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. • The $2.7 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 $2.6 million increase in legal and accounting expense is primarily due to ongoing legal matters. • The $770,000 decrease in other professional fees is primarily due to cost saving measures following the acquisition of Happy. • 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. 66 Table of Contents Income Taxes 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. 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 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. Loan Portfolio Loans Receivable Our loan portfolio averaged $14.76 billion and $14.19 billion during the three months ended September 30, 2024 and 2023, respectively. Our loan portfolio averaged $14.63 billion and $14.31 billion during the nine months ended September 30, 2024 and 2023, respectively. Loans receivable were $14.82 billion and $14.42 billion as of September 30, 2024 and December 31, 2023, respectively. From December 31, 2023 to September 30, 2024, the Company experienced an increase of approximately $399.3 million in loans. 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 CFG franchise. The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property. Although these loans are primarily originated within our franchises in Arkansas, Florida, Texas, Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Texas, Alabama and New York. Loans receivable were approximately $3.38 billion, $4.10 billion, $3.90 billion, $115.8 million, $1.32 billion and $2.00 billion as of September 30, 2024 in Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG, respectively. 67 Table of Contents Table 8 presents our loans receivable balances by category as of September 30, 2024 and December 31, 2023. Table 8: Loans Receivable September 30, 2024 December 31, 2023 (In thousands) Real estate: Commercial real estate loans: Non-farm/non-residential $ 5,496,536 $ 5,549,954 Construction/land development 2,741,419 2,293,047 Agricultural 335,965 325,156 Residential real estate loans: Residential 1-4 family 1,932,352 1,844,260 Multifamily residential 482,648 435,736 Total real estate 10,988,920 10,448,153 Consumer 1,219,197 1,153,690 Commercial and industrial 2,084,667 2,324,991 Agricultural 352,963 307,327 Other 178,232 190,567 Total loans receivable $ 14,823,979 $ 14,424,728 Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30-year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis. As of September 30, 2024, we had approximately $1.13 billion of construction/land development loans which were collateralized by land. This consisted of approximately $104.8 million for raw land and approximately $1.02 billion for land with commercial and/or residential lots. As of September 30, 2024, commercial real estate ("CRE") loans totaled $8.57 billion, or 57.8%, of loans receivable, as compared to $8.17 billion, or 56.7%, of loans receivable, as of December 31, 2023. CRE loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $2.18 billion, $2.57 billion, $2.19 billion, $46.7 million, zero and $1.59 billion at September 30, 2024, respectively. Table 9 presents the composition of the funded and unfunded balances of our CRE portfolio by loan type, as of September 30, 2024 and December 31, 2023, and their respective percentages of our total CRE portfolio. 68 Table of Contents Table 9: CRE Loan Concentrations September 30, 2024 Funded Balance % of CRE Loans Unfunded Balance % of CRE Loans (Dollars in thousands) Non-Farm/Non-Residential: Single Purpose Building $ 839,534 9.8 % $ 74,073 2.8 % Office Building 994,304 11.6 70,082 2.6 Hotel 1,090,495 12.7 27,495 1.0 Industrial 454,249 5.3 36,031 1.4 Retail 529,578 6.2 10,939 0.4 Owner-Occupied (1) 1,588,376 18.5 138,205 5.2 Construction/Land Development: Construction Residential-Spec 443,594 5.2 379,275 14.3 Residential Land Development 526,361 6.1 86,761 3.3 Construction Commercial 452,200 5.3 401,987 15.2 Construction Multi Family 435,895 5.1 979,162 36.9 Commercial Land Development 495,569 5.8 57,107 2.2 Construction Residential-Presold 180,635 2.1 143,082 5.4 Construction Hotel 102,415 1.2 194,169 7.3 Raw Land 104,750 1.2 9,831 0.4 Agricultural (1) 335,965 3.9 43,743 1.6 Total Commercial Real Estate (2) $ 8,573,920 100.0 % $ 2,651,942 100.0 % December 31, 2023 Funded Balance % of CRE Loans Unfunded Balance % of CRE Loans (Dollars in thousands) Non-Farm/Non-Residential: Single Purpose Building $ 979,802 12.0 % $ 79,598 3.2 % Office Building 1,023,917 12.5 89,464 3.6 Hotel 1,067,028 13.1 34,374 1.4 Industrial 401,125 4.9 37,342 1.5 Retail 579,886 7.1 19,744 0.8 Owner-Occupied (1) 1,498,196 18.4 98,681 4.0 Construction/Land Development: Construction Residential-Spec 408,023 5.0 427,563 17.2 Residential Land Development 475,615 5.8 88,856 3.6 Construction Commercial 492,421 6.0 388,486 15.7 Construction Multi Family 189,711 2.3 753,285 30.3 Commercial Land Development 327,194 4.0 51,303 2.1 Construction Residential-Presold 200,114 2.4 160,809 6.5 Construction Hotel 127,784 1.6 227,530 9.2 Raw Land 72,185 0.9 1,119 — Agricultural (1) 325,156 4.0 21,640 0.9 Total Commercial Real Estate (2) $ 8,168,157 100.0 % $ 2,479,794 100.0 % (1) Agriculture real estate loans and owner-occupied non-farm non-residential loans are not included within CRE for regulatory reporting purposes. (2) Excludes multi-family residential loans of $482.6 million and $435.7 million as of September 30, 2024 and December 31, 2023, respectively, which are included in the residential real estate loans throughout the filing. Multi-family residential loans are included in CRE for regulatory purposes. 69 Table of Contents Table 10 presents the composition of our CRE loan portfolio by the ten largest geographical locations of the collateral as of September 30, 2024 and December 31, 2023. Table 10: Geographical Locations of CRE Loans Top 10 Geographical States for CRE Loan Collateral Concentrations Florida Texas Arkansas New York Georgia California Alabama Utah Pennsylvania Tennessee All Other Total As of September 30, 2024 Non-Farm/Non-Residential: Single Purpose Building $ 270,620 $ 227,606 $ 173,900 $ 51,347 $ 17,589 $ — $ 11,974 $ — $ — $ 2,324 $ 84,174 $ 839,534 Office Building 327,949 267,300 78,942 50,172 91,735 — 19,059 — 25,615 — 133,532 994,304 Hotel 571,392 237,400 100,769 4,949 23,524 16,419 18,787 — — 7,307 109,948 1,090,495 Industrial 40,732 89,917 40,520 57,518 — 21,263 68,821 — — — 135,478 454,249 Retail 151,221 267,717 55,988 4,159 — (115) 12,254 — — 442 37,912 529,578 Owner-Occupied (1) 493,186 427,909 367,675 — 21,807 5,808 27,414 — 84,067 6,966 153,544 1,588,376 Construction/Land Development: Construction Residential - Spec 141,263 98,077 39,050 117,732 — 38,387 (8) — — — 9,093 443,594 Residential Land Development 147,206 98,772 53,025 — 215 — 2,882 166,309 — 2,197 55,755 526,361 Construction Commercial 146,142 188,651 54,608 — 2,817 (235) 6,407 10,510 419 9,049 33,832 452,200 Construction Multi Family 174,172 70,570 26,626 112,218 — 22,005 — — 218 25,159 4,927 435,895 Commercial Land Development 75,012 63,063 30,375 80,035 38,585 50,644 9,757 — — 44,019 104,079 495,569 Construction Residential - Presold 89,669 60,187 29,043 — — — 601 — — — 1,135 180,635 Construction Hotel 16,018 50,906 15,915 — 10,497 — 2,687 — — — 6,392 102,415 Raw Land 8,858 9,003 29,773 — — 32,548 1,677 — — — 22,891 104,750 Agricultural (1) 30,811 173,443 109,692 — — — 4,161 — — — 17,858 335,965 Total Commercial Real Estate (2) $ 2,684,251 $ 2,330,521 $ 1,205,901 $ 478,130 $ 206,769 $ 186,724 $ 186,473 $ 176,819 $ 110,319 $ 97,463 $ 910,550 $ 8,573,920 Top 10 Geographical States for CRE Loan Collateral Concentrations Florida Texas Arkansas New York Utah Alabama Georgia California Pennsylvania Oklahoma All Other Total As of December 31, 2023 Non-Farm/Non-Residential: Single Purpose Building $ 301,505 $ 330,203 $ 183,961 $ 52,945 $ — $ 11,810 $ 5,228 $ 1,396 $ 2,317 $ 5,200 $ 85,237 $ 979,802 Office Building 323,320 276,425 86,951 50,294 — 19,686 95,457 — 28,501 42,885 100,398 1,023,917 Hotel 518,592 223,750 106,975 59,910 — 19,374 23,760 — — 24,254 90,413 1,067,028 Industrial 41,138 64,060 39,517 93,323 — 71,465 — 24,796 — — 66,826 401,125 Retail 177,569 243,364 64,049 7,285 — 11,977 — 23,372 — 319 51,951 579,886 Owner-Occupied (1) 476,507 429,440 309,584 — 9,376 15,654 23,991 4,617 86,874 18,993 123,160 1,498,196 Construction/Land Development: — Construction Residential - Spec 124,019 103,483 35,461 88,670 — 2,763 497 40,624 — — 12,506 408,023 Residential Land Development 93,644 123,284 47,952 — 189,435 2,868 226 — — — 18,206 475,615 Construction Commercial 115,757 226,684 31,964 — — 4,293 11,248 — — — 102,475 492,421 Construction Multi Family 44,179 26,082 48,485 53,711 — — — 8,376 189 — 8,689 189,711 Commercial Land Development 71,670 35,647 33,294 81,004 — 5,764 — 19,029 — — 80,786 327,194 Construction Residential - Presold 125,004 49,654 23,248 — — 1,184 — — — 125 899 200,114 Construction Hotel 70,781 50,346 3,208 — — (208) (130) — — — 3,787 127,784 Raw Land 8,283 15,334 23,649 — — 2,837 — 20,894 — — 1,188 72,185 Agricultural (1) 23,637 182,495 99,243 — — 3,104 360 — — 1,227 15,090 325,156 Total Commercial Real Estate (2) $ 2,515,605 $ 2,380,251 $ 1,137,541 $ 487,142 $ 198,811 $ 172,571 $ 160,637 $ 143,104 $ 117,881 $ 93,003 $ 761,611 $ 8,168,157 (1) Agriculture real estate loans and owner-occupied non-farm non-residential loans are not included within CRE for regulatory reporting purposes. 70 Table of Contents (2) Excludes multi-family residential loans of $482.6 million and $435.7 million as of September 30, 2024 and December 31, 2023, respectively, which are included in the residential real estate loans throughout the filing. Multi-family residential loans are included in CRE for regulatory purposes. Our loan policy states that in order to achieve a well-balanced, diversified credit portfolio, concentrations containing inappropriate or excessive risk are to be avoided. It is the goal of the Company to maintain a prudent diversification of loans. We define a concentration of credit as direct or indirect obligations according to the following guidelines: (i) concentrations of 25% or more of total risk-based capital by individual borrower, small, interrelated group of individuals, single repayment source or individual project; (ii) concentrations of 100% or more of total risk-based capital by industry or product line. As of September 30, 2024, we have not met the threshold for the concentration limits. In addition, the Bank's Board of Directors monitors the CRE loan portfolio for concentrations related to geography, industry, and collateral type and determines applicable guidelines. The Chief Lending Officer also reviews the portfolio periodically to determine if any concentrations exist and makes recommendations with respect to setting internal guidelines. The Company also monitors key risk indicators ("KRIs") on a quarterly basis for the overall loan portfolio as well as specific KRIs for the CRE portfolio. The KRIs are tied to the Bank's appetite for credit risk which is reflected in the Bank's credit policy and underwriting criteria. The KRIs related to underwriting include loan downgrades by loan review, loan downgrades to classified levels and loan policy exceptions (loan to value, debt coverage ratio and credit score). The KRIs related to CRE loans include concentrations of construction and land loans, concentrations of total CRE loans, CRE loans in excess of loan to value guidelines and total real estate loans in excess of loan to value guidelines. The results of the KRI analysis are presented to the Bank's Asset Quality Committee on a quarterly basis. Any exceptions to established limits and thresholds are monitored and addressed in a timely manner as required by the Asset Quality Committee. The Company has a CRE strategy and contingency plan which outlines the principles required to adequately manage our CRE exposures. It discusses the inherent risks within CRE lending, as well as the risks unique to specific lending activities and property taxes. In addition, the plan outlines internal limits related to CRE lending, reasoning for operating outside those limits, and provides for a contingency plan to reduce the CRE exposures under adverse economic conditions or other situations where it is deemed necessary to do so. The responsibility for monitoring the CRE Strategy and Contingency Plan, and subsequent reporting to Management and the Board of Directors lies with the Chief Lending Officer and the Asset Quality Committee of the Board of Directors. Within the CRE Strategy and Contingency Plan, we established four adverse economic triggers to measure on an ongoing basis to attempt to determine when a change in CRE strategy might be warranted, at least from an external economic perspective. If one or a combination of these triggers have exceeded Board approved thresholds, the Executive Risk Committee will determine which action or combination of actions to take based on the specific situation. The required actions are likely to focus on tightening/loosening of underwriting criteria, potential capital raises or loan distribution actions such as selling or participating loans. However, other action steps may be considered necessary depending upon the specific situation. As of September 30, 2024, the leading economic indicator trigger exceeded our internal guidelines, but we have not recommended any additional changes to our underwriting standards because the Company considers the current standards to be adequate in addressing the risks to our CRE portfolio. Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Approximately 55.8% and 37.5% of our residential mortgage loans consist of owner occupied 1-4 family properties and non-owner occupied 1-4 family properties (rental), respectively, as of September 30, 2024, with the remaining 6.7% relating to condominiums and mobile homes. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio. As of September 30, 2024, residential real estate loans totaled $2.42 billion, or 16.3%, of loans receivable, compared to $2.28 billion, or 15.8%, of loans receivable, as of December 31, 2023. Residential real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $572.2 million, $1.03 billion, $621.0 million, $37.9 million, zero and $149.8 million at September 30, 2024, respectively. Consumer Loans. Our consumer loans are composed of secured and unsecured loans originated by our bank, the primary portion of which consists of loans to finance United States Coast Guard registered high-end sail and power boats within our SPF division. The performance of consumer loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics. As of September 30, 2024, consumer loans totaled $1.22 billion, or 8.2%, of loans receivable, compared to $1.15 billion, or 8.0%, of loans receivable, as of December 31, 2023. Consumer loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $23.0 million, $7.0 million, $11.8 million, $454,000, $1.18 billion and zero at September 30, 2024, respectively. 71 Table of Contents Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information of the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans. As of September 30, 2024, commercial and industrial loans totaled $2.08 billion, or 14.1%, of loans receivable, compared to $2.32 billion, or 16.1%, of loans receivable, as of December 31, 2023. Commercial and industrial loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $416.1 million, $448.5 million, $821.4 million, $25.2 million, $143.2 million and $230.2 million at September 30, 2024, respectively. Non-Performing Assets We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing). When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as “special mention” or otherwise classified or on non-accrual status. Purchased loans that have experienced more than insignificant credit deterioration since origination are PCD loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for credit losses. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. The Company held approximately $79.6 million and $130.7 million in PCD loans, as of September 30, 2024 and December 31, 2023, respectively. Table 11 sets forth information with respect to our non-performing assets as of September 30, 2024 and December 31, 2023. As of these dates, all non-performing restructured loans are included in non-accrual loans. Table 11: Non-performing Assets As of September 30, 2024 As of December 31, 2023 (Dollars in thousands) Non-accrual loans $ 95,747 $ 59,971 Loans past due 90 days or more (principal or interest payments) 5,356 4,130 Total non-performing loans 101,103 64,101 Other non-performing assets Foreclosed assets held for sale, net 43,040 30,486 Other non-performing assets 63 785 Total other non-performing assets 43,103 31,271 Total non-performing assets $ 144,206 $ 95,372 Allowance for credit losses to non-accrual loans 326.46 % 480.62 % Allowance for credit losses to non-performing loans 309.16 449.66 Non-accrual loans to total loans 0.65 0.42 Non-performing loans to total loans 0.68 0.44 Non-performing assets to total assets 0.63 0.42 72 Table of Contents Our non-performing loans are comprised of non-accrual loans and accruing loans that are contractually past due 90 days. Our bank subsidiary recognizes income principally on the accrual basis of accounting. When loans are classified as non-accrual, the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improve. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses. Total non-performing loans were $101.1 million and $64.1 million as of September 30, 2024 and December 31, 2023, respectively. Non-performing loans at September 30, 2024 were $30.4 million, $40.8 million, $20.0 million, $391,000, $6.8 million and $2.8 million in the Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets, respectively. 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. The loans are not current on either principal or interest, and we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve. Any interest payments that are received will be applied to the principal balance. In addition, the $22.8 million balance of foreclosed assets held for sale for our Centennial CFG Property Finance Group consists of an office building located in California. This represents the largest component of the Company's $43.0 million in foreclosed assets held for sale. Debt restructuring generally occurs when a borrower is experiencing, or is expected to experience, financial difficulties in the near term. As a result, we will work with the borrower to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan. In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in potentially an unfavorable and depressed real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about three to twelve months. For our restructured loans that accrue interest at the time the loan is restructured, it would be a rare exception to have charged-off any portion of the loan. As of September 30, 2024, we had $6.5 million of restructured loans that are in compliance with the modified terms and are not reported as past due or non-accrual, and we had $17.7 million of restructured loans that are not in compliance with the modified terms and are reported as non-accrual. Of the $6.5 million of restructured loans that are in compliance with the modified terms, our Arkansas market contained $1.5 million, our Florida market contained $1.2 million, our Texas market contained $1.5 million and our New York region contained $2.2 million of these restructured loans. Of the $17.7 million of restructured loans not in compliance with the modified terms, our Arkansas market contained $1.3 million, our Florida market contained $16.0 million and our Texas market contained $425,000. A loan modification that might not otherwise be considered may be granted. These loans can involve loans remaining on non-accrual, moving to non-accrual, or continuing on an accrual status, depending on the individual facts and circumstances of the borrower. Generally, a non-accrual loan that is restructured remains on non-accrual for a period of nine months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can pay under the new terms and may result in the loan being returned to an accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan will remain in a non-accrual status. The majority of the Bank’s restructured loans relate to real estate lending and generally involve reducing the interest rate, changing from a principal and interest payment to interest-only, lengthening the amortization period, or a combination of some or all of the three. In addition, it is common for the Bank to seek additional collateral or guarantor support when modifying a loan. At September 30, 2024, the amount of restructured loans was $24.2 million. As of September 30, 2024, 26.8% of all restructured loans were performing to the terms of the restructure. Total foreclosed assets held for sale were $43.0 million as of September 30, 2024, compared to $30.5 million as of December 31, 2023, for an increase of $12.6 million. The foreclosed assets held for sale as of September 30, 2024 are comprised of $21,000 located in Arkansas, $7.3 million located in Florida, $13.0 million located in Texas, zero in Alabama, zero in SPF and $22.8 million in Centennial CFG. The majority of the foreclosed assets held for sale is comprised of three properties. The first is an office building located in Santa Monica, California with a carrying value of $22.8 million. The second is an apartment complex which is under construction in Gunter, Texas with a carrying value of $12.8 million, and the third is an office building located in Miami, Florida with a carrying value of $7.0 million. These three properties account for $42.6 million of the balance of foreclosed assets held for sale at September 30, 2024. 73 Table of Contents Table 12 shows the summary of foreclosed assets held for sale as of September 30, 2024 and December 31, 2023. Table 12: Foreclosed Assets Held For Sale As of September 30, 2024 As of December 31, 2023 (In thousands) Commercial real estate loans Non-farm/non-residential $ 29,824 $ 29,894 Construction/land development 12,919 47 Residential real estate loans Residential 1-4 family 297 545 Total foreclosed assets held for sale $ 43,040 $ 30,486 The Company had $134.1 million and $94.9 million in impaired loans (which includes loans individually analyzed for credit losses for which a specific reserve has been recorded, non-accrual loans, loans past due 90 days or more and restructured loans made to borrowers experiencing financial difficulty) for the periods ended September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets accounted for approximately $35.7 million, $42.0 million, $41.3 million, $391,000, $9.7 million and $5.0 million of the impaired loans, respectively. The amortized cost balance for loans with a specific allocation increased from $10.5 million to $74.3 million, and the specific allocation for impaired loans increased by approximately $14.0 million at September 30, 2024 compared to December 31, 2023. Past Due and Non-Accrual Loans Table 13 shows the summary of non-accrual loans as of September 30, 2024 and December 31, 2023: Table 13: Total Non-Accrual Loans As of September 30, 2024 As of December 31, 2023 (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 48,086 $ 13,178 Construction/land development 5,403 12,094 Agricultural 737 431 Residential real estate loans Residential 1-4 family 23,905 20,351 Total real estate 78,723 46,054 Consumer 7,501 3,423 Commercial and industrial 8,511 9,982 Agricultural & other 1,012 512 Total non-accrual loans $ 95,747 $ 59,971 If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $1.5 million and $1.9 million, respectively, would have been recorded for both of the three-month periods ended September 30, 2024 and 2023. If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $4.5 million and $5.5 million, respectively, would have been recorded for both of the nine-month periods ended September 30, 2024 and 2023. The interest income recognized on non-accrual loans for the three months ended September 30, 2024 and 2023 was considered immaterial. Table 14 shows the summary of accruing past due loans 90 days or more as of September 30, 2024 and December 31, 2023: 74 Table of Contents Table 14: Loans Accruing Past Due 90 Days or More As of September 30, 2024 As of December 31, 2023 (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 709 $ 2,177 Construction/land development 657 255 Residential real estate loans Residential 1-4 family 1,495 84 Total real estate 2,861 2,516 Consumer 28 79 Commercial and industrial 2,405 1,535 Agricultural & Other 62 — Total loans accruing past due 90 days or more $ 5,356 $ 4,130 Our ratio of total loans accruing past due 90 days or more and non-accrual loans to total loans was 0.68% and 0.44% at September 30, 2024 and December 31, 2023, respectively. Allowance for Credit Losses Overview. The allowance for credit losses on loans receivable increased from $288.2 million as of December 31, 2023 to $312.6 million as of September 30, 2024. The specific reserve for loans individually analyzed for credit losses was $20.4 million on $206.8 million of individually analyzed loans as of September 30, 2024, compared to a reserve of $6.4 million on $171.7 million of individually analyzed loans as of December 31, 2023. The allowance for credit losses as a percentage of loans was 2.11% and 2.00% at September 30, 2024 and December 31, 2023, respectively. Loans Collectively Evaluated for Credit Loss. Loans receivable collectively evaluated for credit loss increased by approximately $364.1 million from $14.25 billion at December 31, 2023 to $14.62 billion at September 30, 2024. The percentage of the allowance for credit losses allocated to loans receivable collectively evaluated for credit loss to the total loans collectively evaluated for credit loss was 2.00% and 1.98% at September 30, 2024 and December 31, 2023, respectively. Charge-offs and Recoveries. Total charge-offs decreased to $2.0 million for the three months ended September 30, 2024, compared to $3.4 million for the same period in 2023. Total charge-offs decreased to $9.1 million for the nine months ended September 30, 2024, compared to $12.5 million for the same period in 2023. Total recoveries were $519,000 and $528,000 for the three months ended September 30, 2024 and 2023, respectively. Total recoveries were $1.7 million and $2.1 million for the nine months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024, net charge-offs were $538,000 for Arkansas, $310,000 for Florida, $503,000 for Texas, $4,000 for Alabama, $127,000 for SPF and zero for Centennial CFG. These equal a net charge-off position of $1.5 million. For the nine months ended September 30, 2024, net charge-offs were $3.1 million for Arkansas, $835,000 for Florida, $2.9 million for Texas, $23,000 for Alabama, $287,000 for SPF and $222,000 for Centennial CFG. These equal a net charge-off position of $7.4 million. We have not charged off an amount less than what was determined to be the fair value of the collateral as presented in the appraisal, less estimated costs to sell (for collateral dependent loans), for any period presented. Loans partially charged-off are placed on non-accrual status until it is proven that the borrower's repayment ability with respect to the remaining principal balance can be reasonably assured. This is usually established over a period of 6-12 months of timely payment performance. 75 Table of Contents Table 15 shows the allowance for credit losses, charge-offs and recoveries as of and for the three and nine months ended September 30, 2024 and 2023. Table 15: Analysis of Allowance for Credit Losses Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands) Balance, beginning of period $ 295,856 $ 285,683 $ 288,234 $ 289,669 Loans charged off Real estate: Commercial real estate loans: Non-farm/non-residential — 1,945 1,164 2,016 Construction/land development — 150 81 175 Agricultural — 5 — 7 Residential real estate loans: Residential 1-4 family 42 103 260 192 Total real estate 42 2,203 1,505 2,390 Consumer 402 102 799 464 Commercial and industrial 741 183 4,500 7,015 Other 816 961 2,273 2,594 Total loans charged off 2,001 3,449 9,077 12,463 Recoveries of loans previously charged off Real estate: Commercial real estate loans: Non-farm/non-residential 34 25 59 517 Construction/land development 7 33 96 103 Residential real estate loans: Residential 1-4 family 54 22 149 153 Multifamily residential — — — 8 Total real estate 95 80 304 781 Consumer 13 22 74 79 Commercial and industrial 143 119 503 375 Other 268 307 836 821 Total recoveries 519 528 1,717 2,056 Net loans charged off 1,482 2,921 7,360 10,407 Provision for credit loss 18,200 2,800 31,700 6,300 Balance, September 30 $ 312,574 $ 285,562 $ 312,574 $ 285,562 Net charge-offs to average loans receivable 0.04 % 0.08 % 0.07 % 0.10 % Allowance for credit losses to total loans 2.11 2.00 2.11 2.00 Allowance for credit losses to net charge-offs 5,301.65 2,464.13 3,179.40 2,052.32 76 Table of Contents Table 16 presents the allocation of allowance for credit losses as of September 30, 2024 and December 31, 2023. Table 16: Allocation of Allowance for Credit Losses As of September 30, 2024 As of December 31, 2023 Allowance Amount % of loans (1) Allowance Amount % of loans (1) (Dollars in thousands) Real estate: Commercial real estate loans: Non-farm/non- residential $ 93,121 37.0 % $ 77,194 38.5 % Construction/land development 63,398 18.5 33,877 15.9 Agricultural residential real estate loans 3,554 2.3 1,441 2.3 Residential real estate loans: Residential 1-4 family 41,544 13.0 51,313 12.8 Multifamily residential 17,881 3.3 4,547 3.0 Total real estate 219,498 74.1 168,372 72.5 Consumer 28,113 8.2 24,728 8.0 Commercial and industrial 59,079 14.1 91,551 16.1 Agricultural 1,524 2.4 1,259 2.1 Other 4,360 1.2 2,324 1.3 Total $ 312,574 100.0 % $ 288,234 100.0 % (1) Percentage of loans in each category to total loans receivable. Investment Securities Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. The estimated effective duration of our securities portfolio was 4.6 years as of September 30, 2024. Securities held-to-maturity, which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. We had $1.28 billion of held-to-maturity securities at both September 30, 2024 and December 31, 2023. At September 30, 2024, $1.11 billion, or 86.7%, was invested in obligations of state and political subdivisions, compared to $1.11 billion, or 86.5%, as of December 31, 2023. As of September 30, 2024, $43.5 million, or 3.4%, was invested in obligations of U.S. Government-sponsored enterprises, compared to $43.3 million, or 3.4%, as of December 31, 2023. We had $125.9 million, or 9.9%, invested in U.S. government-sponsored mortgage-backed securities at September 30, 2024, compared to $130.3 million, or 10.2%, at December 31, 2023. Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity as other comprehensive (loss) income. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. Available-for-sale securities were $3.27 billion and $3.51 billion as September 30, 2024 and December 31, 2023, respectively. 77 Table of Contents As of September 30, 2024, $1.43 billion, or 43.6%, of our available-for-sale securities were invested in U.S. government-sponsored mortgage-backed securities, compared to $1.52 billion, or 43.3%, of our available-for-sale securities as of December 31, 2023. To reduce our income tax burden, $900.9 million, or 27.5%, of our available-for-sale securities portfolio as of September 30, 2024, were primarily invested in tax-exempt obligations of state and political subdivisions, compared to $916.3 million, or 26.1%, of our available-for-sale securities as of December 31, 2023. We had $311.8 million, or 9.5%, invested in obligations of U.S. Government-sponsored enterprises as of September 30, 2024, compared to $346.6 million, or 9.9%, of our available-for-sale securities as of December 31, 2023. We had $262.2 million, or 8.0%, invested in non-government-sponsored asset backed securities as of September 30, 2024, compared to $363.5 million, or 10.4%, of our available-for-sale securities as of December 31, 2023. As of September 30, 2024, $177.9 million, or 5.4%, of our available-for-sale securities were invested in private mortgage-backed securities, compared to $175.4 million, or 5.0%, of our available-for-sale securities as of December 31, 2023. Also, we had approximately $192.3 million, or 5.9%, invested in other securities as of September 30, 2024, compared to $185.6 million, or 5.3% of our available-for-sale securities as of December 31, 2023. During the quarter ended September 30, 2024, the Company recovered $330,000 in AFS reserves due to an improvement in the unrealized loss position of one of the Company's subordinated debt investments. 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. See Note 3 to the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value of investment securities. Deposits Our deposits averaged $16.86 billion and $16.85 billion for the three and nine months ended September 30, 2024, respectively. Our deposits averaged $16.68 billion and $17.17 billion for the three and nine months ended September 30, 2023, respectively. Total deposits were $16.71 billion as of September 30, 2024, and $16.79 billion as of December 31, 2023. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions. Our policy also permits the acceptance of brokered deposits. From time to time, when appropriate in order to fund strong loan demand, we accept brokered time deposits, generally in denominations of less than $250,000, from a regional brokerage firm, and other national brokerage networks. We also participate in the One-Way Buy Insured Cash Sweep (“ICS”) service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements. Management believes these sources represent a reliable and cost-efficient alternative funding source for the Company. However, to the extent that our condition or reputation deteriorates, or to the extent that there are significant changes in market interest rates which we do not elect to match, we may experience an outflow of brokered deposits. In that event we would be required to obtain alternate sources for funding. Table 17 reflects the classification of the brokered deposits as of September 30, 2024 and December 31, 2023. Table 17: Brokered Deposits September 30, 2024 December 31, 2023 (In thousands) Insured Cash Sweep and Other Transaction Accounts $ 421,274 $ 401,004 Total Brokered Deposits $ 421,274 $ 401,004 The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing. We may allow higher rate deposits to run off during periods of limited loan demand. We believe that additional funds can be attracted, and deposit growth can be realized through deposit pricing if we experience increased loan demand or other liquidity needs. 78 Table of Contents The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Reserve increased the target rate four times during 2023. 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%. On September 18, 2024, the Federal Reserve reduced the target rate to 4.75% to 5.00%. Table 18 reflects the classification of the average deposits and the average rate paid on each deposit category, which are in excess of 10 percent of average total deposits, for the three and nine months ended September 30, 2024 and 2023. Table 18: Average Deposit Balances and Rates Three Months Ended September 30, 2024 2023 Average Amount Average Rate Paid Average Amount Average Rate Paid (Dollars in thousands) Non-interest-bearing transaction accounts $ 3,993,187 — % $ 4,434,394 — % Interest-bearing transaction accounts 9,979,924 3.06 9,700,273 2.68 Savings deposits 1,115,648 0.88 1,223,663 0.79 Time deposits: $100,000 or more 1,163,122 4.35 854,338 3.46 Other time deposits 606,830 3.82 464,788 2.71 Total $ 16,858,711 2.31 % $ 16,677,456 1.87 % Nine Months Ended September 30, 2024 2023 Average Amount Average Rate Paid Average Amount Average Rate Paid (Dollars in thousands) Non-interest-bearing transaction accounts $ 4,031,447 — % $ 4,729,515 — % Interest-bearing transaction accounts 9,947,966 3.03 9,961,524 2.39 Savings deposits 1,136,431 0.87 1,284,826 0.77 Time deposits: $100,000 or more 1,135,059 4.30 752,952 2.78 Other time deposits 594,341 3.77 436,668 2.08 Total $ 16,845,244 2.27 % $ 17,165,485 1.62 % Securities Sold Under Agreements to Repurchase We enter into short-term purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) of substantially identical securities. The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the balance sheet at the amount advanced. Interest incurred on repurchase agreements is reported as interest expense. Securities sold under agreements to repurchase increased $37.3 million, or 26.3%, from $142.1 million as of December 31, 2023 to $179.4 million as of September 30, 2024. FHLB and Other Borrowed Funds The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $600.0 million at both September 30, 2024 and December 31, 2023. At September 30, 2024 and December 31, 2023, the entire $600.0 million of the outstanding balances were classified as long-term advances. The FHLB advances mature from 2025 to 2037 with fixed interest rates ranging from 3.37% to 4.84%. Expected maturities could differ from contractual maturities because FHLB may have the right to call, or the Company may have the right to prepay certain obligations. 79 Table of Contents Other borrowed funds were $700.8 million as of September 30, 2024 and were classified as short-term advances. The Company had $701.3 million in other borrowed funds as of December 31, 2023. As of both September 30, 2024 and December 31, 2023, the Company had drawn $700.0 million from the Bank Term Funding Program in the ordinary course of business, and these advances mature on January 16, 2025. Additionally, the Company had $1.24 billion and $1.33 billion at September 30, 2024 and December 31, 2023, respectively, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits. Subordinated Debentures Subordinated debentures were $439.4 million and $439.8 million as of September 30, 2024 and December 31, 2023, respectively. On April 1, 2022, the Company acquired $140.0 million in aggregate principal amount of 5.500% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2030 Notes”) from Happy, and the Company recorded approximately $144.4 million which included fair value adjustments. The 2030 Notes are unsecured, subordinated debt obligations of the Company and will mature on July 31, 2030. From and including the date of issuance to, but excluding July 31, 2025 or the date of earlier redemption, the 2030 Notes will bear interest at an initial rate of 5.50% per annum, payable in arrears on January 31 and July 31 of each year. From and including July 31, 2025 to, but excluding, the maturity date or earlier redemption, the 2030 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be 3-month Secured Overnight Funding Rate (SOFR)), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2030 Notes, plus 5.345%, payable quarterly in arrears on January 31, April 30, July 31, and October 31 of each year, commencing on October 31, 2025. The Company may, beginning with the interest payment date of July 31, 2025, and on any interest payment date thereafter, redeem the 2030 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2030 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2030 Notes at any time, including prior to July 31, 2025, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2030 Notes for U.S. federal income tax purposes or preclude the 2030 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2030 Notes plus any accrued and unpaid interest to, but excluding, the redemption date. On January 18, 2022, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $296.4 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027. The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date. Stockholders’ Equity 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 the $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 in 2024. As of September 30, 2024 and December 31, 2023, our equity to asset ratio was 17.35% and 16.73%, respectively. Book value per share was $19.91 as of September 30, 2024, compared to $18.81 as of December 31, 2023, a 7.8% annualized increase. 80 Table of Contents Common Stock Cash Dividends. We declared cash dividends on our common stock of $0.195 and $0.180 per share for the three months ended September 30, 2024 and 2023, respectively, and $0.555 and $0.54 per share for the nine months ended September 30, 2024 and 2023, respectively. The common stock dividend payout ratio for the three months ended September 30, 2024 and 2023 was 38.9% and 37.0%, respectively. The common stock dividend payout ratio for the nine months ended September 30, 2024 and 2023 was 36.9% and 35.7%, respectively. On October 18, 2024, the Board of Directors declared a regular $0.195 per share quarterly cash dividend payable December 4, 2024, to shareholders of record November 13, 2024. Stock Repurchase Program. During the first nine months of 2024, the Company repurchased a total of 3,426,028 shares with a weighted-average stock price of $24.36 per share. Shares repurchased under the program as of September 30, 2024 since its inception total 26,411,743 shares. The remaining balance available for repurchase was 13,340,257 shares at September 30, 2024. Liquidity and Capital Adequacy Requirements Risk-Based Capital. We, as well as our bank subsidiary, are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators as to components, risk weightings and other factors. In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. Basel III limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% of common equity Tier 1 capital to risk-weighted assets, which is in addition to the amount necessary to meet its minimum risk-based capital requirements. Basel III amended the prompt corrective action rules to incorporate a common equity Tier 1 ("CET1") capital requirement and to raise the capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization is required to have at least a 4.5% CET1 risk-based capital ratio, a 4% Tier 1 leverage ratio, a 6% Tier 1 risk-based capital ratio and an 8% total risk-based capital ratio. Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of September 30, 2024 and December 31, 2023, we met all regulatory capital adequacy requirements to which we were subject. On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company has elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below. 81 Table of Contents Table 19 presents our risk-based capital ratios on a consolidated basis as of September 30, 2024 and December 31, 2023. Table 19: Risk-Based Capital As of September 30, 2024 As of December 31, 2023 (Dollars in thousands) Tier 1 capital Stockholders’ equity $ 3,959,789 $ 3,791,075 ASC 326 transitional period adjustment 8,123 16,246 Goodwill and core deposit intangibles, net (1,440,198) (1,446,573) Unrealized loss on available-for-sale securities 194,862 249,075 Total common equity Tier 1 capital 2,722,576 2,609,823 Total Tier 1 capital 2,722,576 2,609,823 Tier 2 capital Allowance for credit losses 312,574 288,234 ASC 326 transitional period adjustment (8,123) (16,246) Disallowed allowance for credit losses (limited to 1.25% of risk weighted assets) (70,729) (40,509) Qualifying allowance for credit losses 233,722 231,479 Qualifying subordinated notes 439,394 439,834 Total Tier 2 capital 673,116 671,313 Total risk-based capital $ 3,395,692 $ 3,281,136 Average total assets for leverage ratio $ 21,704,064 $ 20,981,774 Risk weighted assets $ 18,578,700 $ 18,440,964 Ratios at end of period Common equity Tier 1 capital 14.65 % 14.15 % Leverage ratio 12.54 12.44 Tier 1 risk-based capital 14.65 14.15 Total risk-based capital 18.28 17.79 Minimum guidelines – Basel III Common equity Tier 1 capital 7.00 % 7.00 % Leverage ratio 4.00 4.00 Tier 1 risk-based capital 8.50 8.50 Total risk-based capital 10.50 10.50 Well-capitalized guidelines Common equity Tier 1 capital 6.50 % 6.50 % Leverage ratio 5.00 5.00 Tier 1 risk-based capital 8.00 8.00 Total risk-based capital 10.00 10.00 As of the most recent notification from regulatory agencies, our bank subsidiary was “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” we, as well as our banking subsidiary, must maintain minimum CET1 capital, leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiary’s category. Non-GAAP Financial Measurements Our accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, this report contains financial information determined by methods other than in accordance with GAAP, including earnings, as adjusted; diluted earnings per common share, as adjusted; tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity, excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted. 82 Table of Contents We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP measures and ratios in assessing our operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP. The tables below present non-GAAP reconciliations of earnings, as adjusted, and diluted earnings per share, as adjusted, as well as the non-GAAP computations of tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted. The items used in these calculations are included in financial results presented in accordance with GAAP. Earnings, as adjusted, and diluted earnings per common share, as adjusted, are meaningful non-GAAP financial measures for management, as they exclude certain items such as merger expenses and/or certain gains and losses. Management believes the exclusion of these items in expressing earnings provides a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of our business, because management does not consider these items to be relevant to ongoing financial performance. In Table 20 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated. Table 20: Earnings, As Adjusted Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands) GAAP net income available to common shareholders (A) $ 100,038 $ 98,453 $ 301,677 $ 306,686 Pre-tax adjustments: FDIC special assessment — — 2,260 — Fair value adjustment for marketable securities (1,392) (4,507) (2,121) 6,118 Gain on sale of building — — (2,059) — Recoveries on historic losses — — — (3,461) BOLI death benefits — (338) (162) (3,117) Total pre-tax adjustments (1,392) (4,845) (2,082) (460) Tax-effect of adjustments (1) (348) (1,112) (480) (30) Investment DTA write-off 2,030 — 2,030 — Total adjustments after-tax (B) (1,044) (3,733) 428 (430) Earnings, as adjusted (C) $ 98,994 $ 94,720 $ 302,105 $ 306,256 Average diluted shares outstanding (D) 199,461 202,650 200,430 203,068 GAAP diluted earnings per share: A/D $ 0.50 $ 0.49 $ 1.51 $ 1.51 Adjustments after-tax: B/D — (0.02) — — Diluted earnings per common share excluding adjustments: C/D $ 0.50 $ 0.47 $ 1.51 $ 1.51 (1) Blended statutory rate of 24.989% for 2024 and 24.6735% for 2023. 83 Table of Contents We had $1.44 billion, $1.45 billion, and $1.45 billion in total goodwill and core deposit intangibles as of September 30, 2024, December 31, 2023 and September 30, 2023, respectively. Because of our level of intangible assets and related amortization expenses, management believes tangible book value per share, return on average assets excluding intangible amortization, return on average tangible equity, return on average tangible equity excluding intangible amortization, and tangible equity to tangible assets are useful in evaluating our company. Management also believes return on average assets, as adjusted, return on average equity, as adjusted, and return on average tangible equity, as adjusted, are meaningful non-GAAP financial measures, as they exclude items such as certain non-interest income and expenses that management believes are not indicative of our primary business operating results. These calculations, which are similar to the GAAP calculations of book value per share, return on average assets, return on average equity, and equity to assets, are presented in Tables 21 through 24, respectively. Table 21: Tangible Book Value Per Share As of September 30, 2024 As of December 31, 2023 (In thousands, except per share data) Book value per share: A/B $ 19.91 $ 18.81 Tangible book value per share: (A-C-D)/B 12.67 11.63 (A) Total equity $ 3,959,789 $ 3,791,075 (B) Shares outstanding 198,879 201,526 (C) Goodwill 1,398,253 1,398,253 (D) Core deposit intangibles 42,395 48,770 Table 22: Return on Average Assets, As Adjusted Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands) Return on average assets: A/D 1.74 % 1.78 % 1.77 % 1.84 % Return on average assets, as adjusted: (A+C)/D 1.72 1.72 1.77 1.84 Return on average assets excluding intangible amortization: B/(D-E) 1.88 1.95 1.92 2.01 (A) Net income $ 100,038 $ 98,453 $ 301,677 $ 306,686 Intangible amortization after-tax 1,572 1,866 4,782 5,598 (B) Earnings excluding intangible amortization $ 101,610 $ 100,319 $ 306,459 $ 312,284 (C) Adjustments after-tax $ (1,044) $ (3,733) $ 428 $ (430) (D) Average assets 22,893,784 21,902,434 22,817,942 22,272,325 (E) Average goodwill, core deposits and other intangible assets 1,441,654 1,450,478 1,443,770 1,452,933 84 Table of Contents Table 23: Return on Average Equity, As Adjusted Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands) Return on average equity: A/D 10.23 % 10.65 % 10.53 % 11.32 % Return on average common equity, as adjusted: (A+C)/D 10.12 10.25 10.55 11.30 Return on average tangible common equity: A/(D-E) 16.26 17.62 16.91 18.90 Return on average tangible equity excluding intangible amortization: B/(D-E) 16.51 17.95 17.18 19.24 Return on average tangible common equity, as adjusted: (A+C)/(D-E) 16.09 16.95 16.94 18.87 (A) Net income $ 100,038 $ 98,453 $ 301,677 $ 306,686 (B) Earnings excluding intangible amortization 101,610 100,319 306,459 312,284 (C) Adjustments after-tax (1,044) (3,733) 428 (430) (D) Average equity 3,889,712 3,667,339 3,826,619 3,622,733 (E) Average goodwill, core deposits and other intangible assets 1,441,654 1,450,478 1,443,770 1,452,933 Table 24: Tangible Equity to Tangible Assets As of September 30, 2024 As of December 31, 2023 (Dollars in thousands) Equity to assets: B/A 17.35 % 16.73 % Tangible equity to tangible assets: (B-C-D)/(A-C-D) 11.78 11.05 (A) Total assets $ 22,823,117 $ 22,656,658 (B) Total equity 3,959,789 3,791,075 (C) Goodwill 1,398,253 1,398,253 (D) Core deposit intangibles 42,395 48,770 85 Table of Contents The efficiency ratio is a standard measure used in the banking industry and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a meaningful non-GAAP measure for management, as it excludes certain items and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding items such as merger expenses and/or certain gains, losses and other non-interest income and expenses. In Table 25 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated. Table 25: Efficiency Ratio, As Adjusted Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands) Net interest income (A) $ 215,220 $ 201,937 $ 631,632 $ 624,175 Non-interest income (B) 42,779 43,413 127,352 127,086 Non-interest expense (C) 110,045 114,762 334,726 345,688 FTE Adjustment (D) 2,616 1,293 6,136 4,415 Amortization of intangibles (E) 2,095 2,478 4,280 4,955 Adjustments: Non-interest income: Fair value adjustment for marketable securities $ 1,392 $ 4,507 $ 2,121 $ (6,118) Gain on OREO, net 85 — 151 319 Gain on branches, equipment and other assets, net 32 — 2,076 924 BOLI death benefits — 338 162 3,117 Recoveries on historic losses — — — 3,461 Total non-interest income adjustments (F) $ 1,509 $ 4,845 $ 4,510 $ 1,703 Non-interest expense: FDIC special assessment $ — $ — $ 2,260 $ — Total non-interest expense adjustments (G) $ — $ — $ 2,260 $ — Efficiency ratio (reported): ((C-E)/(A+B+D)) 41.42 % 45.53 % 42.91 % 44.76 % Efficiency ratio, as adjusted (non-GAAP): ((C-E-G)/(A+B+D-F)) 41.66 46.44 42.87 44.86 Recently Issued Accounting Pronouncements See Note 21 to the Condensed Notes to Consolidated Financial Statements for a discussion of certain recently issued and recently adopted accounting pronouncements.