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Item 2. Management’s Discussion and Analysis

2025-05-05 compared with 2024-11-01 · 332 added, 444 removed, 805 unchanged (49% of the section changed)

4 unchanged sentences

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.

As of March 31, 2025, we had, on a consolidated basis, total assets of $22.99 billion, loans receivable, net of allowance for credit losses of $14.67 billion, total deposits of $17.54 billion, and stockholders’ equity of $4.04 billion.

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

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Key Financial Measures

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

2024 2023 2024 2023

As of or for the Three Months Ended March 31,

(Dollars in thousands, except per share data)

9 unchanged sentences

Tangible book value per share (non-GAAP) (1)

12.67 10.90 12.67 10.90

Annualized net interest margin - FTE 4.44% 4.13%

1 unchanged sentence

Efficiency ratio, as adjusted (non-GAAP) (2)

41.66 46.44 42.87 44.86

Return on average assets 2.07 1.78

2 unchanged sentences

(2) See Table 29 for the non-GAAP tabular reconciliation.

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).

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.

Results of Operations for the Three Months Ended March 31, 2025 and 2024

Our net income increased $15.1 million, or 15.1%, to $115.2 million for the three-month period ended March 31, 2025, from $100.1 million for the same period in 2024.

On a diluted earnings per share basis, our earnings were $0.58 per share for the three-month period ended March 31, 2025 compared to $0.50 per share for the three-month period ended March 31, 2024.

During the three months ended March 31, 2025, the Company did not record a provision for credit losses on loans primarily due to the $4.1 million in net recoveries experienced during the quarter.

After considering the recoveries, management determined the level of the allowance for credit losses on loans was adequate.

In addition, management determined that a provision was not necessary for the unfunded commitments as the current level of the reserve was considered adequate.

During the three months ended March 31, 2025, the Company recorded $3.9 million in special income from equity investments and a $442,000 increase in the fair value of marketable securities.

Total interest expense decreased $14.4 million, or 12.9%, and non-interest income increased $3.6 million, or 8.7%.

This was partially offset by a $4.4 million, or 1.4%, decrease in total interest income and a $1.4 million, or 1.3%, increase in non-interest expense.

The decrease in interest expense was primarily due to an $8.4 million, or 58.7%, decrease in interest on FHLB and other borrowed funds and a $5.8 million, or 6.2%, decrease in interest on deposits.

The increase in non-interest income was primarily due to a $4.1 million, or 55.0%, increase in other income.

Included within other income was the $3.9 million in special income from equity investments.

The decrease in interest income resulted from a $5.9 million, or 14.5%, decrease in investment interest income and a $3.9 million, or 37.1%, decrease in interest income on deposits at other banks, which was partially offset by a $5.5 million, or 2.1%, increase in loan interest income.

The increase in non-interest expense was primarily due to an increase of $1.2 million, or 4.5%, in other operating expenses and a $945,000, or 1.6%, increase in salaries and employee benefits expense, partially offset by a $589,000, or 6.4%, decrease in data processing expense.

Our net interest margin increased from 4.13% for the three-month period ended March 31, 2024 to 4.44% for the three-month period ended March 31, 2025.

The yield on interest earning assets was 6.45% and 6.38% for the three months ended March 31, 2025 and 2024, respectively, and average interest earning assets decreased from $20.03 billion to $19.83 billion.

The decrease in average interest earning assets is primarily due to a $189.5 million decrease in average interest-bearing balances due from banks and a $416.3 million decrease in average investment securities, partially offset by a $406.4 million increase in average loans receivable.

During the first quarter of 2024, the Company held excess liquidity of approximately $500.0 million, primarily related to the Bank Term Funding Program ("BTFP") advance, which was dilutive to the net interest margin by approximately 10 basis points.

The Company paid off the advance in November 2024.

For the three months ended March 31, 2025 and 2024, we recognized $1.4 million and $2.8 million, respectively, in total net accretion for acquired loans and deposits.

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

We recognized $1.3 million in event income for the three-months ended March 31, 2025 compared to $1.1 million for the three-months ended March 31, 2024.

The overall increase in the net interest margin was due to a decrease in interest expense resulting from a decrease in interest rates paid on interest-bearing liabilities and a decrease in the average balance of interest-bearing liabilities.

Our efficiency ratio was 42.22% for the three months ended March 31, 2025, compared to 44.22% for the same period in 2024.

For the first quarter of 2025, our efficiency ratio, as adjusted (non-GAAP), was 42.84%, compared to 44.43% reported for the first quarter of 2024.

(See Table 29 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.

Our annualized return on average assets was 2.07% for the three months ended March 31, 2025, compared to 1.78% for the same period in 2024.

(See Table 26 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.

Our annualized return on average common equity was 11.75% and 10.64% for the three months ended March 31, 2025, and 2024, respectively.

(See Table 27 for the related non-GAAP financial measures and tabular reconciliation).

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.

Financial Condition as of and for the Period Ended March 31, 2025 and December 31, 2024

Our total assets as of March 31, 2025 increased $501.5 million to $22.99 billion from $22.49 billion reported as of December 31, 2024.

Cash and cash equivalents increased $385.4 million for the three months ended March 31, 2025.

Our loan portfolio balance increased to $14.95 billion as of March 31, 2025 from $14.76 billion at December 31, 2024.

The increase in loans was primarily due to $291.5 million of organic loan growth in our community banking footprint partially offset by a $103.9 million of organic loan decline from our Centennial Commercial Finance Group ("Centennial CFG") franchise.

These increases were partially offset by a $74.6 million decrease in investment securities resulting from paydowns and maturities during the first three months of 2025.

Total deposits increased $395.2 million to $17.54 billion as of March 31, 2025 from $17.15 billion as of December 31, 2024.

Stockholders’ equity increased $81.5 million to $4.04 billion as of March 31, 2025, compared to $3.96 billion as of December 31, 2024.

The $81.5 million increase in stockholders’ equity is primarily associated with the $115.2 million in net income and $31.6 million in other comprehensive income for the three months ended March 31, 2025, which was partially offset by the $38.8 million of shareholder dividends paid and stock repurchases of $29.7 million.

Our non-performing loans were $89.6 million, or 0.60% of total loans as of March 31, 2025, compared to $98.9 million, or 0.67% of total loans, as of December 31, 2024.

The allowance for credit losses as a percentage of non-performing loans increased to 312.27% as of March 31, 2025, from 278.99% as of December 31, 2024.

As of March 31, 2025, our non-performing assets decreased to $129.4 million, or 0.56% of total assets, from $142.4 million, or 0.63% of total assets, as of December 31, 2024.

Critical Accounting Policies and Estimates

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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")

• 1-4 family residential construction loans

• Other construction loans and all land development and other land loans

• Secured by farmland (including farm residential and other improvements)

• Revolving, open-end loans secured by 1-4 family residential properties and extended under lines

• Secured by first liens

• Secured by junior liens

• Secured by multifamily (5 or more) residential properties

• Loans secured by owner-occupied, nonfarm nonresidential properties

• Loans secured by other nonfarm nonresidential properties

• Loans to finance agricultural production and other loans to farmers

• Commercial and industrial loans

• Other revolving credit plans

• Automobile loans

• Other consumer loans

• Other consumer loans - Shore Premier Finance

• Obligations (other than securities and leases) of states and political subdivisions in the US

• Loans to nondepository financial institutions

• Loans for purchasing or carrying securities

• All other loans

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method ("DCF").

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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.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments and curtailments when appropriate.

The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

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We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award.

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.

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.

As of March 31, 2025, we had 217 branch locations.

There were 75 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.

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

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

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

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

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

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

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

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

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

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

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

For the three ended March 31, 2025 and 2024

Our net income increased $15.1 million, or 15.1%, to $115.2 million for the three-month period ended March 31, 2025, from $100.1 million for the same period in 2024.

On a diluted earnings per share basis, our earnings were $0.58 per share for the three-month period ended March 31, 2025 compared to $0.50 per share for the three-month period ended March 31, 2024.

During the three months ended March 31, 2025, the Company did not record a provision for credit losses on loans primarily due to the $4.1 million in net recoveries experienced during the quarter.

After considering the recoveries, management determined the level of the allowance for credit losses on loans was adequate.

In addition, management determined that a provision was not necessary for the unfunded commitments as the current level of the reserve was considered adequate.

During the three months ended March 31, 2025, the Company recorded $3.9 million in special income from equity investments and a $442,000 increase in the fair value of marketable securities.

Net Interest Income

2 unchanged sentences

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).

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.

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

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

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

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

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

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.

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.

The Federal Reserve reduced the target rate three times during 2024.

First, on September 18, 2024, the target rate was reduced to 4.75% to 5.00%, second, on November 7, 2024, the target rate was reduced to 4.50% to 4.75% and third, on December 18, 2024, the target rate was reduced to 4.25% to 4.50%.

As of March 31, 2025, the Federal Reserve has not changed the rates during 2025.

Our net interest margin increased from 4.13% for the three-month period ended March 31, 2024 to 4.44% for the three-month period ended March 31, 2025.

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

The Company paid off the advance in November 2024.

For the three months ended March 31, 2025 and 2024, we recognized $1.4 million and $2.8 million, respectively, in total net accretion for acquired loans and deposits.

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

We recognized $1.3 million in event income for the three-months ended March 31, 2025 compared to $1.1 million for the three-months ended March 31, 2024.

Net interest income on a fully taxable equivalent basis increased $11.7 million, or 5.7%, to $217.2 million for the three-month period ended March 31, 2025, from $205.5 million for the same period in 2024.

This increase in net interest income for the three-month period ended March 31, 2025 was the result of a $14.4 million decrease in interest expense, which was partially offset by a $2.7 million decrease in interest income, on a fully taxable equivalent basis.

The $14.4 million decrease in interest expense is primarily the result of the lower interest rate environment.

The lower rates on interest bearing liabilities resulted in a decrease in interest expense of approximately $10.9 million, in addition to a decrease in average interest bearing liabilities which decreased interest expense by approximately $3.6 million.

The $2.7 million decrease in interest income was also primarily the result of the lower interest rate environment.

The lower yield on earning assets resulted in a decrease in interest income of approximately $4.3 million, which was partially offset by an increase of $1.6 million in interest income due to the change in average interest earning asset balances.

Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended March 31, 2025 and 2024, as well as changes in the fully taxable equivalent net interest margin for the three months ended March 31, 2025 compared to the same period in 2024.

Analysis of Net Interest Income

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

2024 2023 2024 2023

Three Months Ended March 31,

(Dollars in thousands)

9 unchanged sentences

Changes in Fully Taxable Equivalent Net Interest Margin

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

2023 2024 vs.

Three Months Ended March 31,

(In thousands)

Increase in interest income due to change in earning assets $ 1,579

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)

Decrease in interest income due to change in earning asset yields (4,310)

Decrease in interest expense due to change in interest-bearing liabilities 3,579

Decrease in interest expense due to change in interest rates paid on interest-bearing liabilities 10,860

Increase in net interest income $ 11,708

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.

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 months ended March 31, 2025 and 2024, 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.

2 unchanged sentences

Average Balance Sheets and Net Interest Income Analysis

Three Months Ended September 30,

Expense Yield /

(Dollars in thousands)

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

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 %

Nine Months Ended September 30,

Three Months Ended March 31,

Expense Yield /

14 unchanged sentences

Total interest-bearing deposits 13,204,191 86,786 2.67 12,724,103 92,548 2.93

Federal funds purchased 26 1 5.14 59 3 6.80

Securities sold under agreement to repurchase 155,861 1,074 2.79 172,024 1,404 3.28

10 unchanged sentences

Net interest income and margin $ 217,190 4.44 % $ 205,482 4.13 %

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.

Table 5 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three months ended March 31, 2025 compared to the same period in 2024, on a fully taxable basis.

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

Volume/Rate Analysis

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

2024 over 2023 2024 over 2023

Three Months Ended March 31,

2025 over 2024

Volume Yield /

Rate Total Volume Yield /

(In thousands)

18 unchanged sentences

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.

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.

During the three months ended March 31, 2025, the Company did not record a provision for credit losses on loans primarily due to the $4.1 million in net recoveries experienced during the quarter.

After considering the recoveries, management determined the level of the allowance for credit losses on loans was adequate.

In addition, management determined that a provision was not necessary for the unfunded commitments as the current level of the reserve was considered adequate.

During the three months ended March 31, 2025, the Company determined the $2.2 million allowance for credit losses on the available for sale portfolio and the $2.0 million allowance for credit losses on the held-to-maturity portfolio was adequate.

Therefore, no additional provision was considered necessary.

Net (recoveries) charge-offs to average total loans was (0.11)% and 0.10% for the three months ended March 31, 2025 and 2024, respectively.

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.

Total non-interest income was $45.4 million for the three months ended March 31, 2025, compared to $41.8 million for the same period in 2024.

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 measures the various components of our non-interest income for the three months ended March 31, 2025 and 2024.

Non-Interest Income

Three Months Ended September 30, 2024 Change

from 2023 Nine Months Ended September 30, 2024 Change

2024 2023 2024 2023

Three Months Ended March 31, 2025 Change

(Dollars in thousands)

7 unchanged sentences

Gain on sale of SBA loans 288 198 90 45.5

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)

Loss on sale of branches, equipment and other assets, net (163) (8) (155) (1,937.5)

(Loss) gain on OREO, net (376) 17 (393) (2,311.8)

Fair value adjustment for marketable securities 442 1,003 (561) (55.9)

1 unchanged sentence

Total non-interest income $ 45,426 $ 41,799 $ 3,627 8.7 %

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:

Non-interest income increased $3.6 million, or 8.7%, to $45.4 million for the three months ended March 31, 2025 from $41.8 million for the same period in 2024.

The primary factors that resulted in this increase were the increases in other service charges and fees, cash value of life insurance and other income, which was partially offset by the decrease in fair value adjustment for marketable securities.

Additional details for the three months ended March 31, 2025 on some of the more significant changes are as follows:

• The $500,000 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.

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.

• The $647,000 increase in the cash value of life insurance is primarily related to enhancement charges related to a 1035 exchange in BOLI policies.

• The $561,000 decrease in the fair value adjustment for marketable securities is due to market fluctuations.

• The $4.1 million increase in other income is primarily due to a $4.1 million increase in fair value of equity securities, which includes $3.9 million in special income from equity investments and a $724,000 increase in loan recoveries on items charged off prior to acquisition, partially offset by a $554,000 decrease in miscellaneous 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.

Non-interest expense 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 months ended March 31, 2025 and 2024.

Non-Interest Expense

Three Months Ended September 30, 2024 Change

from 2023 Nine Months Ended September 30, 2024 Change

2024 2023 2024 2023

Three Months Ended March 31, 2025 Change

(Dollars in thousands)

17 unchanged sentences

Total non-interest expense $ 112,928 $ 111,496 $ 1,432 1.3 %

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.

Non-interest expense increased $1.4 million, or 1.3%, to $112.9 million for the three months ended March 31, 2025 from $111.5 million for the same period in 2024.

The primary factors that resulted in this increase were the increases in salaries and employee benefits and legal and accounting expense, which were partially offset by the decrease in data processing expense.

Additional details for the three months ended March 31, 2025 on some of the more significant changes are as follows:

• The $945,000 increase in salaries and employee benefits expense is primarily due to an increase in deferred loan costs.

• The $589,000 decrease in data processing expense is primarily due to relationship credits received as a result of a new contract.

• The $1.6 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.

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.

Income tax expense increased $1.7 million, or 5.5%, to $31.9 million for the three-month period ended March 31, 2025, from $30.3 million for the same period in 2024.

The effective income tax rate was 21.71% for the three months ended March 31, 2025, compared to 23.22% for the same period in 2024.

The marginal tax rate was 24.433% and 24.989% for 2025 and 2024, 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.