What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-04-27 · 256 added, 138 removed, 309 unchanged (56% of the section changed)

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net income in the first three months of 2022 was $23.6 million, which increased $659,000, or 2.9%, from $23.0 million for the comparable period of 2021 .

Diluted income per common share was $0.92 in the first three months of 2022, up 2.2% from $0.90 in the comparable period of 2021 .

The increase in net income for 2022 was primarily due to growth in net interest income of $1.2 million and a decrease in provision expense of $1.1 million, offset by a decrease in noninterest income of $1.9 million.

Pretax pre-provision earnings in the first three months of 2022 were $28.6 million, a decrease of $892,000, or 3.0%, compared to $29.5 million for the comparable period.

Net income in the first six months of 2022 was $49.3 million, which increased $2.0 million, or 4.2%, from $47.3 million for the comparable period of 2021 .

Diluted income per common share was $1.92 in the first six months of 2022 , up 3.8% from $1.85 in the comparable period of 2021 .

The increase in net income for 2022 was primarily due to growth in net interest income of $6.2 million, offset by a decrease in noninterest income of $2.7 million and an increase in noninterest expense of $1.5 million .

Pretax pre-provision earnings in the first six months of 2022 were $59.9 million, an increase of $2.0 million, or 3.5%, compared to $57.8 million for the comparable period.

Pretax pre-provision earnings is a non-GAAP measure calculated by adding net interest income to noninterest income and subtracting noninterest expense.

Annualized return on average total equity was 14.04% in the first three months of 2022 versus 14.27% in the comparable period of 2021 .

Annualized return on average total assets was 1.44% in the first three months of 2022 versus 1.58% for the comparable period of 2021 .

The Company's average equity to average assets ratio was 10.3% in the first three months of 2022 versus 11.1% in the comparable period of 2021 .

The Company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 9.22% at March 31, 2022, compared to 10.77% at March 31, 2021 and 10.70% at December 31, 2021.

The decline was a result of the yield curve steepening in the first quarter of 2022 and a corresponding decline in the market value of the Company's available-for-sale securities portfolio.

This resulted in an unrealized loss in market value of $117.4 million as of March 31, 2022, compared to an unrealized gain in market value of $20.9 million at March 31, 2021, and an unrealized gain in market value of $21.6 million at December 31, 2021.

Total assets were $6.572 billion as of March 31, 2022 versus $6.557 billion as of December 31, 2021, an increase of $14.9 million.

This increase was primarily due to a $124.0 million increase in securities available-for-sale, a $66.1 million increase in loans, net of the allowance for credit losses, and a $29.2 million increase in deferred taxes, offset by a decrease in cash and cash equivalents of $208.2 million.

Balan ce sheet growth was primarily funded through growth in deposits during the first three months of 2022.

Deposits increased $85.2 million.

Other liabilities increased by $26.0 million primarily to the valuation of swap liabilities of $19.5 million, which resulted from the increase in interest rates during the quarter.

Tota l equity decreased by $95.8 million due primarily to a reduction to accumulated other comprehensive income (loss) of $109.8 million, driven by a decrease in the fair value of available-for-sale securities caused by the yield curve steepening in the first quarter of 2022 .

Annualized return on average total equity was 15.72% in the first six months of 2022 versus 14.49% in the comparable period of 2021 .

Annualized return on average total assets was 1.52% in the first six months of 2022 versus 1.58% for the comparable period of 2021 .

The Company's average equity to average assets ratio was 9.65% in the first six months of 2022 versus 10.92% in the comparable period of 2021 .

Net income in second quarter of 2022 was $25.7 million, up 5.4% from $24.3 million for the comparable period of 2021.

Diluted earnings per common share was $1.00 in the second quarter of 2022, up 5.3% from $0.95 in the comparable period of 2021.

The increase was driven primarily by growth in net interest income of $5.0 million, offset by a decrease in noninterest income of $848,000 and an increase in noninterest expense of $1.3 million.

Additionally, the Company recorded a reversal to the provision for credit losses of $1.7 million for the second quarter of 2021, compared to no provision for credit losses recorded for the second quarter of 2022.

Pretax pre-provision earnings in the second quarter of 2022 were $31.3 million, an increase of $2.9 million, or 10.2%, compared to $28.4 million for the comparable period of 2021.

Annualized return on average total equity was 17.65% in the second quarter of 2022 versus 14.71% in the comparable period of 2021.

Annualized return on average total assets was 1.59% in the second quarter of 2022 versus 1.58% in the comparable period of 2021.

The average equity to average assets ratio was 9.03% in the second quarter of 2022 versus 10.76% the comparable period of 2021.

The Company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 8.92% at June 30, 2022, compared to 10.81% at June 30, 2021 and 10.70% at December 31, 2021.

Tangible equity and tangible assets have been negatively impacted by the decline in market value of the Company's available-for-sale investment securities portfolio.

The market value decline was a result of the yield curve steepening during the first half of 2022.

The increase in market interest rates led to an unrealized loss in market value of $175.6 million as of June 30, 2022, compared to an unrealized gain in market value of $29.9 million at June 30, 2021 and of $21.6 million at December 31, 2021.

When excluding the impact of accumulated other comprehensive income on tangible common equity, the Company's adjusted tangible common equity to adjusted tangible assets ratio was 11.08% at June 30, 2022 compared to 10.49% at June 30, 2021 and 10.47% at December 31, 2021.

The Company elected to transfer $151.4 million in net book value of municipal bonds from the available-for-sale securities portfolio to held-to-maturity designation on April 1, 2022 as a balance sheet management strategy.

Total assets were $6.265 billion as of June 30, 2022 versus $6.557 billion as of December 31, 2021, a decrease of $292.2 million.

Balance sheet contraction was driven primarily through decreases in cash and cash equivalents, deposits and borrowings during the first six months of 2022.

Cash and cash equivalents decreased $513.7 million, deposits decreased $113.8 million and borrowings decreased $75.0 million.

Offsetting these decreases were increases to loans, net of the allowance for credit losses, of $137.1 million, other assets of $58.4 million and total investment securities of $29.4 million.

Tota l equity decreased by $142.8 million due primarily to a reduction to accumulated other comprehensive income (loss) of $174.6 million.

The reduction in accumulated other comprehensive income was caused by a decrease in the fair value of available-for-sale securities due to the steepening of the yield curve during the first six months of 2022 .

The change in total equity was also impacted by net income of $49.3 million and dividends declared and paid of $0.80 per share, totaling $20.4 million.

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RESULTS OF OPERATIONS

Selected income statement information for the three months ended March 31, 2022 and 2021 is presented in the following table:

Three Months Ended March 31,

Selected income statement information for the three and six months ended June 30, 2022 and 2021 is presented in the following table:

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

(dollars in thousands) 2022 2021 2022 2021

7 unchanged sentences

Tangible capital ratio (2) 8.92 % 10.81 % 8.92 % 10.81 %

Adjusted tangible capital ratio (3) 11.08 % 10.49 % 11.08 % 10.49 %

Net charge offs (recoveries) to average loans 0.00 % (0.14) % 0.03 % (0.07) %

9 unchanged sentences

(3) Non-GAAP financial measure.

Adjusted tangible capital ratio excludes the market value impact of available-for-sale investment securities on tangible common equity and tangible assets.

See reconciliation on the next page.

(4) Non-GAAP financial measure.

Calculated by subtracting the impact PPP loans had on average earnings assets, loan interest income, average interest bearing liabilities, and interest expense.

7 unchanged sentences

A reconciliation of non-GAAP measures is provided below (in thousands, except for per share data).

Three Months Ended March 31,

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

(dollars in thousands) 2022 2021 2022 2021

3 unchanged sentences

Tangible Common Equity (A) 558,260 673,677 558,260 673,677

AOCI Market Value Adjustment 157,625 (23,618) 157,625 (23,618)

Adjusted Tangible Common Equity (C) 715,885 650,059 715,885 650,059

Total Assets $ 6,265,087 $ 6,232,914 $ 6,265,087 $ 6,232,914

2 unchanged sentences

Tangible Assets (B) 6,261,284 6,229,120 6,261,284 6,229,120

Market Value Adjustment 199,525 (29,896) 199,525 (29,896)

Adjusted Tangible Assets (D) 6,460,809 6,199,224 6,460,809 6,199,224

Tangible Capital Ratio (A/B) 8.92 % 10.81 % 8.92 % 10.81 %

Adjusted Tangible Capital Ratio (C/D) 11.08 % 10.49 % 11.08 % 10.49 %

Net Interest Income $ 48,678 $ 43,661 $ 93,558 $ 87,340

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Impact of Paycheck Protection Program on Net Interest Margin FTE.

Three Months Ended March 31,

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

2022 2021 2022 2021

Total Average Earnings Assets $ 6,157,051 $ 5,924,801 $ 6,273,914 $ 5,782,293

12 unchanged sentences

Adjusted Cost of Funds, net of PPP Impact 0.32 % 0.27 % 0.26 % 0.29 %

Net Interest Margin FTE, net of PPP Impact 2.90 % 3.06 %

Net income was $23.6 million in the first three months of 2022 , an increase of $659,000, or 2.9%, versus net income of $23.0 million in the first three months of 2021 .

The increase in net income for 2022 was primarily due to growth in net interest income of $1.2 million, or 2.7%, and a decrease in provision expense of $1.1 million, or 71.8%, offset by a decrease in noninterest income of $1.9 million, or 14.9%.

Net Interest Margin Excluding PPP Loans FTE 3.26 % 2.95 % 3.08 % 3.00 %

Net income was $49.3 million in the first six months of 2022 , an increase of $2.0 million, or 4.2%, versus net income of $47.3 million in the first six months of 2021 .

The increase in net income for 2022 was primarily due to growth in net interest income of $6.2 million, or 7.1%, offset by a a decrease to noninterest income of $2.7 million, or 11.4% and an increase to noninterest expense of $1.5 million, or 2.8%.

Additionally, the change in provision for credit losses recorded during the period impacted net income, as $417,000 provision for credit losses was recorded during the first six months of 2022 , compared to a reversal for provision expense of $223,000 during the first six months of 2021 .

Net income was $25.7 million for the three months ended June 30, 2022, an increase of $1.3 million, or 5.4%, versus net income of $24.3 million for the three months ended June 30, 2021.

The increase was primarily due to growth in net interest income which increased $5.0 million, or 11.5%, offset by a decrease to noninterest income of $848,000, or 7.5%, and an increase to noninterest expense of $1.3 million, or 4.7%.

Additionally, the provision for credit losses recorded during the period impacted net income as no provision for credit losses was recorded during the three months ended June 30, 2022, compared to a reversal for credit losses of $1.7 million during the three months ended June 30, 2021.

Net Interest Income

The following table sets forth consolidated information regarding average balances and rates:

Three Months Ended March 31,

Six Months Ended June 30,

(fully tax equivalent basis, dollars in thousands) Average Balance Interest Yield (1)/

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Tax exempt (1) 25,726 566 4.44 12,940 259 4.04

Available-for-sale (1) 1,514,024 9,108 2.44 772,247 4,984 2.62

Securities (1) 1,494,979 19,157 2.58 864,250 10,795 2.52

Short-term investments 2,223 3 0.27 2,256 1 0.09

27 unchanged sentences

The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) adjustment applicable to nondeductible interest expenses.

Taxable equivalent basis adjustments were $1.27 million, $1.13 million and $687,000 in the three-month periods ended March 31, 2022, December 31, 2021 and March 31, 2021 , respectively.

Taxable equivalent basis adjustments were $2.7 million and $1.5 million in the six-month periods ended June 30, 2022 and June 30, 2021 , respectively.

(2) Loan fees are included as taxable loan interest income.

Net loan fees attributable to PPP loans were $461,000, $2.02 million and $4.15 million for the three months ended March 31, 2022, December 31, 2021 and March 31 2021 , respectively.

Net loan fees attributable to PPP loans were $641,000 and $6.9 million for the six months ended June 30, 2022 and June 30, 2021 , respectively.

All other loan fees were immaterial in relation to total taxable loan interest income for the periods presented.

(3) Nonaccrual loans are included in the average balance of taxable loans.

Net interest income increased $1.2 million, or 2.7%, to $44.9 million for the three months ended March 31, 2022, compared with $43.7 million for the first three months of 2021 .

Growth in core loans and investment security balances coupled with the steepening yield curve positively impacted investment security and loan income and offset the decline in PPP income of $4.7 million during the quarter.

In addition, interest expense declined by $1.1 million, further benefiting the increase in net interest income.

Average earning assets increased by $753.9 million, due primarily to growth in investment securities of $741.8 million and growth in interest bearing deposits of $278.5 million.

Average loans outstanding decreased $266.3 million to $4.301 billion during the three months ended March 31, 2022, compared to $4.567 billion during the same period of 2021.

PPP loans declined by $385.2 million to $17.6 million for the first three months of 2022 compared to $402.7 million for the first three months of 2021 .

Excluding PPP loans, average core loans increased $118.9 million to $4.283 billion during the three months ended March 31, 2022, compared to $4.164 billion during the same period of 2021.

The following table sets forth consolidated information regarding average balances and rates:

Three Months Ended June 30,

(fully tax equivalent basis, dollars in thousands) Average Balance Interest Yield (1)/

Rate Average Balance Interest Yield (1)/

Earning Assets

Taxable (2)(3) $ 4,396,333 $ 44,138 4.03 % $ 4,474,844 $ 42,342 3.80 %

Tax exempt (1) 29,380 353 4.82 12,839 128 4.00

Securities(1) 1,476,144 10,049 2.73 955,242 5,811 2.44

Short-term investments 2,301 2 0.35 2,305 0 0.00

Interest bearing deposits 252,893 481 0.76 479,571 135 0.11

Total earning assets $ 6,157,051 $ 55,023 3.58 % $ 5,924,801 $ 48,416 3.28 %

Allowance for credit losses (67,527) (72,222)

Nonearning Assets

Cash and due from banks 74,158 68,798

Premises and equipment 58,978 59,848

Other nonearning assets 238,228 190,202

Total assets $ 6,460,888 $ 6,171,427

Interest Bearing Liabilities

Savings deposits $ 425,102 $ 81 0.08 % $ 359,484 $ 71 0.08 %

Interest bearing checking accounts 2,710,674 3,784 0.56 2,428,524 1,700 0.28

Time deposits:

In denominations under $100,000 189,538 307 0.65 224,025 545 0.98

In denominations over $100,000 601,877 718 0.48 741,466 1,574 0.85

Miscellaneous short-term borrowings 0 0 0.00 0 0 0.00

Long-term borrowings and subordinated debentures 54,396 54 0.40 75,000 74 0.40

Total interest bearing liabilities $ 3,981,587 $ 4,944 0.50 % $ 3,828,499 $ 3,964 0.42 %

Noninterest Bearing Liabilities

Demand deposits 1,825,327 1,633,686

Other liabilities 70,650 45,249

Stockholders' Equity 583,324 663,993

Total liabilities and stockholders' equity $ 6,460,888 $ 6,171,427

Interest Margin Recap

Interest income/average earning assets 55,023 3.58 48,416 3.28 %

Interest expense/average earning assets 4,944 0.32 3,964 0.27 %

Net interest income and margin $ 50,079 3.26 % $ 44,452 3.01 %

(1) Tax exempt income was converted to a fully taxable equivalent basis at a 21 percent tax rate.

Taxable equivalent basis adjustments were $1.4 million and $791,000 in the three-month periods ended June 30, 2022 and June 30, 2021 , respectively.

(2) Loan fees are included as taxable loan interest income.

Net loan fees attributable to PPP loans were $180,000 and $2.8 million for the three-months ended June 30, 2022 and June 30, 2021 , respectively.

All other loan fees were immaterial in relation to total taxable loan interest income for the periods presented.

(3) Nonaccrual loans are included in the average balance of taxable loans.

Net interest income increased $6.2 million, or 7.1%, to $93.6 million for the six months ended June 30, 2022, compared with $87.3 million for the first six months of 2021 .

Growth in core loans and investment security balances coupled with rising interest rates positively impacted investment security and loan income and offset the decline in PPP loan income of $8.8 million during the period.

In addition, interest expense declined by $164,000, further benefiting the increase in net interest income.

Average earning assets increased by $491.6 million, due primarily to growth in investment securities of $630.7 million.

Average loans outstanding decreased $163.6 million to $4.364 billion during the six months ended June 30, 2022, compared to $4.527 billion during the same period of 2021.

Average PPP loans decreased by $361.6 million to $13.6 million for the first six months of 2022 compared to $375.2 million for the first six months of 2021 .

Excluding PPP loans, average core loans increased $198.1 million to $4.350 billion during the six months ended June 30, 2022, compared to $4.152 billion during the

same period of 2021.

The earning asset growth was funded through an increase in deposits.

Average deposits increased $741.6 million to $5.849 billion during the three months ended March 31, 2022, compared to $5.107 billion for the same period of 2021 .

The tax equivalent net interest margin was 2.93% for the three months ended March 31, 2022 compared to 3.19% during the first three months of 2021 .

The yield on earning assets totaled 3.13% during the three months ended March 31, 2022 compared to 3.50% in the same period of 2021 .

Cost of funds (expressed as a percentage of average earning assets) totaled 0.20% during the first three months of 2022, and represented a historical low, compared to 0.31% in the same period of 2021 .

The lower margin was due to lower yields on loans and securities and excess liquidity on the Company's balance sheet, partially offset by a lower cost of funds.

The earning asset mix has changed during 2021 and 2022 to reflect increased investment securities balances and interest bearing deposits, which are lower yielding assets.

Net interest margin excluding PPP loans was 2.90% for the three months ended March 31, 2022 compared to 3.06% for the same period of 2021 .

On a linked quarter basis net interest margin, excluding PPP, expanded by three basis points to 2.90% compared to 2.87% for the three months ended December 31, 2022.

Earning assets yields benefited from the steepening of the yield curve and the Federal Reserve increase to the target Federal Funds Rate in March 2022 of 25 basis points.

Further tightening by the Federal Reserve Bank in 2022 is expected to benefit net interest margin due primarily to the repricing of variable rate loans to higher interest rates.

Variable rate loans represent 68% of total loans as of March 31, 2022.

The benefit of rising rates on the loan portfolio will be offset by excess liquidity that remains on the balance sheet.

During the first quarter of 2022, the Bank deployed additional excess liquidity of $250 million to the investment security portfolio.

Investment security portfolio and interest-bearing deposit yields are lower than traditional commercial loan yields and continue to negatively impact net interest margin.

The Bank expects the excess liquidity position to moderate over time with declines in deposits and increased loan demand.

The Bank expects to deploy future cash flows from the investment portfolio to fund loan demand and balance sheet liquidity needs.

Average deposits increased $552.4 million to $5.800 billion during the six months ended June 30, 2022, compared to $5.248 billion for the same period of 2021 .

The tax equivalent net interest margin was 3.09 % for the six months ended June 30, 2022 compared to 3.10% during the first six months of 2021 .

The yield on earning assets totaled 3.35% during the six months ended June 30, 2022 compared to 3.39% in the same period of 2021 .

Cost of funds (expressed as a percentage of average earning assets) totaled 0.26% during the first six months of 2022, compared to 0.29% in the same period of 2021 .

The lower margin was caused by reduced levels of PPP income recognition and changes in the earning asset mix during 2021 and 2022 to reflect increased investment securities and interest bearing deposits, which are lower yielding assets.

Net interest margin excluding PPP loans was 3.08% for the six months ended June 30, 2022 compared to 3.00% for the same period of 2021 .

Net interest income increased by $5.0 million, or 11.5%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

The increased level of net interest income during the second quarter of 2022 was largely driven by an increase in average earning assets of $232.3 million, due primarily to growth in securities of $520.9 million.

This earning asset growth was funded through an increase in deposits.

Average deposits increased $365.3 million to $5.753 billion for the second quarter of 2022, compared to $5.387 billion for the comparable period of 2021.

During this same period, average core deposits increased $365.4 million.

The Company defines "core deposits" as total deposits (including all deposits by municipalities and other government agencies), excluding brokered deposits.

Long-term borrowings have decreased by $20.6 million during these comparable periods due to repayment of a putable $75.0 million advance with the FHLB during the three months ended June 30, 2022.

The company’s net interest margin increased 25 basis points to 3.26% for the second quarter of 2022 compared to 3.01% for the second quarter of 2021.

The increased margin in the second quarter of 2022 compared to the prior year period was due to higher yields on loans, partially offset by a higher cost of funds.

The higher yields were driven by three Federal Reserve Bank increases to the target Federal Funds rate in March, May, and June of 2022.

The overall effect of these rate increases raised the Federal Funds rate by a cumulative 150 basis points and increased the target Federal Funds rate range from a zero-bound range of 0.00% - 0.25% prior to the first rate increase in March of 2022 to a range of 1.50 - 1.75% at June 30, 2022.

Total PPP loan income recognized for the second quarter of 2022 was $204,000 compared to $3.7 million for the second quarter of 2021, a decrease of 94%.

PPP interest and fees had a nominal impact on the second quarter 2022 net interest margin compared to net interest margin compression of 6 basis points for the second quarter 2021.

Despite the decrease in PPP loan fee income, earning asset yields increased 30 basis points from 3.28% for the second quarter of 2021 to 3.58% for the second quarter of 2022.

Offsetting the increased yield on earning assets was an increase to the company's cost of funds of 5 basis points.

Interest expense as a percentage of earning assets increased to 0.32% for the three-month period ended June 30, 2022, from 0.27% for the three-month period ended June 30, 2021.

Provision for Credit Losses

The Company recorded a provision for credit losses expense of $417,000 for the three months ended March 31, 2022 compared to a provision expense of $1.5 million during the comparable period of 2021 , a decrease of $1.1 million.

Net charge offs were $664,000 during the three month period ended March 31, 2022 compared to net charge offs of $91,000 during the comparable period of 2021 .

The Company recorded no provision for credit losses expense for the three months ended June 30, 2022 compared to a reversal for provision expense of $1.7 million during the comparable period of 2021 .

Net charge offs were $3,000 during the three month period ended June 30, 2022 compared to net recoveries of $1.6 million during the comparable period of 2021 .

The Company recorded provision for credit losses expense of $417,000 for the six months ended June 30, 2022 compared to a reversal for provision expense of $223,000 during the comparable period of 2021.

Net charge-offs were $667,000 during the six month period ended June 30, 2022 compared to net recoveries of $1.5 million during the comparable period of 2021.

Additional factors considered by management included key loan quality metrics, including reserve coverage of nonperforming loans and economic conditions in the Company’s markets, and changes in the facts and circumstances of watch list credits, which includes the security position of the borrower.

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Noninterest Income

Noninterest income categories for the three-month period ended March 31, 2022 and 2021 are shown in the following table:

Noninterest income categories for the six-month and three-month periods ended June 30, 2022 and 2021 are shown in the following table:

Six Months Ended

(dollars in thousands) 2022 2021 Dollar Change Percent Change

Wealth advisory fees $ 4,491 $ 4,256 $ 235 5.5 %

Investment brokerage fees 1,060 1,039 21 2.0

Service charges on deposit accounts 5,691 5,012 679 13.5

Loan and service fees 6,084 5,818 266 4.6

Merchant card fee income 1,719 1,388 331 23.8

Bank owned life insurance income (loss) (266) 1,461 (1,727) (118.2)

Interest rate swap fee income 404 754 (350) (46.4)

Mortgage banking income 860 1,788 (928) (51.9)

Net securities gains 0 797 (797) (100.0)

Other income 1,136 1,584 (448) (28.3)

Total noninterest income $ 21,179 $ 23,897 $ (2,718) (11.4) %

Noninterest income to total revenue 18.5 % 21.5 %

Three Months Ended

12 unchanged sentences

Noninterest income to total revenue 17.7 % 20.6 %

The Company's noninterest income decreased $1.9 million, or 14.9%, to $10.7 million for the three months ended March 31, 2022 compared to $12.6 million in the prior year period.

Noninterest income was positively impacted by elevated service charges on deposit accounts which increased $318,000, or 12.8% for these comparable periods.

In addition, merchant card fee income increased $193,000, or 31.0%, and loan and loan and service fees were up $113,000, or 4.1%.

These increases were due to an increase in economic activity within the Company's operating footprint.

Offsetting these increases were decreases of $864,000, or 62.9%, in mortgage banking income as mortgage banking has seen a decrease in loan originations during the first quarter of 2022 compared to the first quarter of 2021, due to the rise in interest rates.

In addition, bank owned life insurance income decreased by $839,000, or 111.0%, and net securities gains decreased $753,000, as there were no investment security sales in the first quarter of 2022.

The decrease in bank owned life insurance income was caused by market fluctuations in the Company's variable life insurance policies during the first quarter of 2022, which are tied to equity market returns.

The Company's noninterest income decreased $2.7 million, or 11.4%, to $21.2 million for the six months ended June 30, 2022 compared to $23.9 million in the prior year period.

Notably, the fee-based businesses of wealth advisory fees improved by 5.5%, service charges on deposit accounts improved by 13.5%, loan and service fees improved by 4.6% and merchant card fee income improved by 23.8%.

The decrease in noninterest income resulted primarily from reduced bank owned life insurance income of $1.7 million due to decline in the equity markets as well as $928,000 decline in mortgage banking income due to the impact of rising interest rates on reduced mortgage loan origination volumes.

The Company's noninterest income decreased by $848,000, or 7.5%, to $10.5 million for the second quarter of 2022, compared to $11.3 million for the second quarter of 2021.

Noninterest income was positively impacted by elevated service charges on deposit accounts which increased by $361,000, or 14.3%, as a result of increased economic activity in the Company's operating footprint.

In addition, loan and service fee income increased by $153,000, or 5.0%, merchant card fee income increased by $138,000, or 18.0% and wealth advisory fees increased by $126,000, or 6.1%.

Driving the decrease was a reduction of $888,000 in bank owned life insurance income related to the company's variable life insurance policies.

These policies are tied to the equity markets and can be subject to volatility based on market performance.

In addition, other income decreased $445,000 which was caused by a reduction in income recognized during the quarter related to various limited partnership investment holdings and other non-recurring items.

Noninterest Expense

Noninterest expense categories for the three-month period ended March 31, 2022 and 2021 are shown in the following tables:

Noninterest expense categories for the six-month and three-month periods ended June 30, 2022 and 2021 are shown in the following tables:

Six Months Ended

June 30, 2022

(dollars in thousands) 2022 2021 Dollar Change Percent Change

Salaries and employee benefits $ 29,190 $ 30,147 $ (957) (3.2) %

Net occupancy expense 3,317 2,930 387 13.2

Equipment costs 2,870 2,763 107 3.9

Data processing fees and supplies 6,284 6,523 (239) (3.7)

Corporate and business development 2,652 2,208 444 20.1

FDIC insurance and other regulatory fees 1,058 959 99 10.3

Professional fees 2,973 3,716 (743) (20.0)

Other expense 6,538 4,148 2,390 57.6

Total noninterest expense $ 54,882 $ 53,394 $ 1,488 2.8 %

Efficiency ratio 47.8 % 48.0 %

(dollars in thousands)

Three Months Ended

June 30, 2022

(dollars in thousands) 2022 2021 Dollar Change Percent Change

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Efficiency ratio 47.2 % 48.5 %

The Company’s noninterest expense increased by $223,000, or 0.8%, to $27.0 million in the first three months of 2022 compared to $26.7 million in the corresponding prior year period.

Other expense increased $995,000, or 44.3%, driven by accruals for ongoing legal matters and an increase in director share-based compensation expense, due to the appreciation of the Company's stock price.

Professional fees decreased $318,000, or 16.9%, due to reduced legal fees and a reduction in other professional fees related to the Lake City Bank Digital conversion that were incurred in 2021 and were not recurring in 2022.

Corporate and business development expense decreased $290,000, or 19.2%, and data processing fees and supplies decreased $238,000 or 7.2%.

Corporate and business development expenses were lower in the first quarter of 2022 compared to the prior year first quarter of 2021 due to lower contributions and advertising expense.

Data processing fees were lower in the first quarter of 2022 compared to the prior year first quarter of 2021 due primarily to lower processing costs associated with PPP forgiveness applications in the first quarter of 2022.

The Company's efficiency ratio was 48.5% for the three months ended March 31, 2022 compared to 47.6% for the first quarter of 2021 and 45.6% for the linked fourth quarter of 2021.

The Company's noninterest expense increased $1.5 million, or 2.8%, to $54.9 million for the six months ended June 30, 2022, from $53.4 million for the six months ended June 30, 2021.

The increase was due primarily due to an increase in other expense of $2.4 million, or 57.6%, driven by accruals for ongoing legal matters, offset by decreases in salaries and benefits of $957,000 and reduced professional fees of $743,000, or 20.0%.

The Company's noninterest expense increased by $1.3 million, or 4.7%, to $27.9 million in the second quarter of 2022, compared to $26.6 million in the second quarter of 2021.

Other expense increased $1.4 million driven by accruals for ongoing legal matters.

In addition, corporate and business development expenses increased $734,000, or 105.0%, and net occupancy expense increased $261,000, or 18.3%.

The increase in corporate and business development expenses was primarily a result of increased sponsorships and contributions, including $150,000 given in $10,000 increments to the fifteen community foundations in our market footprint in recognition of Lake City Bank's 150th anniversary.

In addition, corporate and business development expense reflects higher advertising costs and increased client development expense.

The increase to net occupancy

expense was caused by budgeted repairs to company facilities.

Salaries and employee benefits decreased by $964,000, or 6.1%, and professional fees decreased $425,000, or 23.1%.

The decrease to salary and benefits was driven by reduced deferred compensation expense, which is tied to equity market performance of the underlying funds which are directed by the plan participants, and the reduction in professional fees was a result of reduced legal expenses during the second quarter of 2022.

The Company's efficiency ratio was 47.8% for the six months ended June 30, 2022 compared to 48.0% for the first six months of 2021.

The Company's efficiency ratio was 47.2% for the second quarter of 2022 and 48.5% for the second quarter of 2021.

As previously disclosed, in the third quarter of 2019, t he Bank discovered potentially fraudulent activity by a former treasury management client involving multiple banks.

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On April 27, 2021, the bankruptcy court entered an order approving an amended plan of liquidation, which was filed by the former client, other debtors and bankruptcy plan proponents, and approving the consolidation of the assets in the aforementioned cases under the Khan IOI Consolidated Estate Trust.

On August 9, 2021, the liquidating trustee for the bankruptcy estates filed a complaint against the Bank and the Company, and has agreed to stay prosecution of the action through May 31, 2022.

On August 9, 2021, the liquidating trustee for the bankruptcy estates filed a complaint against the Bank and the Company, and has agreed to stay prosecution of the action through August 31, 2022.

The action is focused on a series of business transactions among the client, related entities, and the Bank, which the liquidating trustee alleges are voidable under applicable federal bankruptcy and state law.

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Based on current information, we have determined that a material loss is neither probable nor estimable at this time, and the Bank and the Company intend to vigorously defend themselves against all allegations asserted in the complaint.

The Company's income tax expense decreased $491,000, or 9.8%, in the three-month period ended March 31, 2022 compared to the same period in 2021.

The effective tax rate was 16.1% in the three-month period ended March 31, 2022, compared to 18.0% for the comparable period of 2021.

The Company's income tax expense decreased $612,000, or 5.7%, in the six months ended June 30, 2022 compared to the same period in 2021.

The effective tax rate was 17.0% in the six months ended June 30, 2022, compared to 18.5% for the comparable period of 2021.

The year-to-date effective tax rate for 2022 decreased as compared to the prior year primarily due to a higher percentage of income being derived from tax-advantaged sources as well as a larger tax benefit from stock-based compensation payments.

FINANCIAL CONDITION

Total assets of the Company were $6.572 billion as of March 31, 2022, an increase of $14.9 million, when compared to $6.557 billion as of December 31, 2021.

This increase was primarily due to a $124.0 million increase in securities available-for-sale, a $66.1 million increase in net loans, and an increase of $29.2 million in deferred taxes offset by a decrease in cash and cash equivalents of $208.2 million.

The outstanding balance of Paycheck Protection Program (PPP) loans at March 31, 2022, was $12.5 million versus $26.2 million at December 31, 2021.

Loans excluding PPP loans increased by $79.5 million, or 1.9%, from $4.262 billion at December 31, 2021 to $4.341 billion at March 31, 2022.

Total deposits increased $85.2 million, or 1.5%.

The increase in deposits was primarily driven by growth in core deposits of $85.0 million, or 1.5%.

Core deposits were $5.810 billion as of March 31, 2022 compared to $5.725 billion as of December 31, 2021.

Total assets of the Company were $6.265 billion as of June 30, 2022, a decrease of $292.2 million, when compared to $6.557 billion as of December 31, 2021.

This decrease was primarily due to a $513.7 million decrease in cash and cash equivalents, offset by increases in loans net of the allowance for credit losses of $137.1 million, other assets of $58.4 million and secruities of $29.4 million.

Loans excluding PPP loans increased by $157.8 million, or 3.7%, from $4.262 billion at December 31, 2021 to $4.419 billion at June 30, 2022.

Total deposits decreased $113.8 million, or 2.0%.

The decrease in deposits was primarily driven by contraction in retail and commercial deposits, which declined $117.5 million and $169.9 million, respectively.

Public funds deposits increased by $173.5 million since year end.

Core deposits were $5.612 billion as of June 30, 2022 compared to $5.725 billion as of December 31, 2021 .

Uses of Funds

Total Cash and Cash Equivalents

Total cash and cash equivalents decreased by $208.2 million, or 30.5% to $475.0 million at March 31, 2022, from $683.2 million at December 31, 2021.

Cash and cash equivalents at March 31, 2022 reflect an additional deployment of $250 million in funds to the available-for-sale investment securities portfolio during the first quarter of 2022.

Total cash and cash equivalents decreased by $513.7 million, or 75.2%, to $169.5 million at June 30, 2022, from $683.2 million at December 31, 2021.

The decrease in cash and cash equivalents at June 30, 2022 reflects an additional deployment of $250 million in funds to the available-for-sale investment securities portfolio, funding of loan growth of $157.8 million, and repayment of an FHLB advance of $75.0 million.

Cash and cash equivalents include short-term investments.

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Investment Portfolio

The amortized cost and the fair value of securities as of March 31, 2022 and December 31, 2021 were as follows:

March 31, 2022 December 31, 2021

The Company elected to transfer $151.4 million in net book value of municipal bonds from the available-for-sale securities portfolio to held-to-maturity on April 1, 2022 as an overall balance sheet management strategy.

The fair value of securities transferred was $127.0 million.

The amortized cost and the fair value of securities as of June 30, 2022 and December 31, 2021 were as follows:

June 30, 2022 December 31, 2021

(dollars in thousands) Amortized

Value Amortized

Available-for-Sale

U.S Treasury securities $ 2,249 $ 2,234 $ 900 $ 900

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State and municipal securities 692,698 597,963 742,532 767,007

Total $ 1,639,941 $ 1,522,535 $ 1,376,969 $ 1,398,558

At March 31, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S.

Total Available-for-Sale $ 1,476,185 $ 1,300,580 $ 1,376,969 $ 1,398,558

Held-to-maturity

State and municipal securities $ 127,411 $ 113,350 $ 0 $ 0

Total Held-to-Maturity $ 127,411 $ 113,350 $ 0 $ 0

Total Investment Portfolio $ 1,603,596 $ 1,413,930 $ 1,376,969 $ 1,398,558

At June 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S.

government agencies and government sponsored entities, in an amount greater than 10% of stockholders’ equity.

Management is aware that, as interest rates rise, any unrealized loss in the investment portfolio will increase, and as interest rates fall the unrealized gain in the investment portfolio will rise.

Management is aware that, as interest rates rise, any unrealized loss in the available-for-sale investment securities portfolio will increase, and as interest rates fall the unrealized gain in the investment portfolio will rise.

Since the majority of the bonds in the investment portfolio are fixed-rate, with only a few adjustable-rate bonds, we would expect our investment portfolio to follow this market value pattern.

This is taken into consideration when evaluating the gain or loss of investment securities in the portfolio and the potential for an allowance for credit losses.

Purchases of securities available-for-sale totaled $292.1 million in the first three months of 2022.

Purchases of securities available-for-sale totaled $313.9 million in the first six months of 2022.

The purchases consisted of U.S.

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The investment security purchases reflect the deployment of excess liquidity to the available-for-sale investment securities portfolio.

Investment securities represented 23.2% of total assets on March 31, 2022 compared to 21.3% of total assets on December 31, 2021.

Management expects the investment portfolio as a percent of total assets to normalize once core loan growth demand increases and investment security repayments are deployed into loan growth.

Paydowns from prepayments and scheduled payments of $26.5 million were received in the first three months of 2022, and the amortization of premiums, net of the accretion of discounts, was $1.7 million.

Maturities and calls of securities totaled $3.1 million in the first three months of 2022.

There were no sales of investment securities in the first three months of 2022.

No allowance for credit losses was recognized in the first three months of 2022.

The fair value of the investment securities portfolio as of March 31, 2022 included an unrealized losses of $177.4 million compared to unrealized gains of $21.6 million as of December 31, 2021.

Unrealized losses in the investment securities portfolio resulted from the steepening of the yield curve during the first quarter of 2022.

The investment portfolio is managed by a third-party firm to provide for an appropriate balance between liquidity, credit risk, interest rate risk management and investment return and to limit the Company’s exposure to credit risk in the investment securities portfolio to an acceptable level.

Investment securities represented 22.8% of total assets on June 30, 2022 compared to 21.3% of total assets on December 31, 2021.

The Company paused additions to the investment securities portfolio at the end of the second quarter as excess liquidity on the balance sheet was reduced by loan growth and deposit outflows during the quarter.

Management expects to use cash flows from the investment securities portfolio to help fund loan growth and for the investment securities portfolio to represent a lower percent of total assets over time.

Paydowns from prepayments and scheduled payments of $53.9 million were received in the first six months of 2022, and the amortization of premiums, net of the accretion of discounts, was $3.2 million.

Maturities and calls of securities totaled $5.7 million in the first six months of 2022.

There were no sales of available-for-sale investment securities in the first six months of 2022.

No allowance for credit losses was recognized for available-for-sale or held-to-maturity securites in the first six months of 2022.

The fair value of the investment securities portfolio as of June 30, 2022 included an unrealized losses of $175.6 million compared to unrealized gains of $21.6 million as of December 31, 2021.

Unrealized losses in the investment securities portfolio resulted from rising interest rates during the first six months of 2022.

The Company does not trade or invest in or sponsor certain unregistered investment companies defined as hedge funds and private equity funds under what is commonly referred to as the “Volcker Rule” of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Real Estate Mortgage Loans Held-for-Sale

Real estate mortgage loans held-for-sale decreased by $5.2 million, or 70.1%, to $2.2 million at March 31, 2022, from $7.5 million at December 31, 2021.

Real estate mortgage loans held-for-sale decreased by $4.8 million, or 64.6%, to $2.6 million at June 30, 2022, from $7.5 million at December 31, 2021.

The balance of this asset category is subject to a high degree of variability depending on, among other things, recent mortgage loan rates and the timing of loan sales into the secondary market.

The Company generally sells conforming qualifying mortgage loans it originates on the secondary market.

Proceeds from sales of residential mortgages totaled $18.1 million in the first three months of 2022 compared to $25.7 million in the first three months of 2021.

Management expects the volume of loans originated for sale in the secondary market to decline as compared to volumes originated in 2021 due to the rise in interest rates that have occurred in the first quarter of 2022.

Proceeds from sales of residential mortgages totaled $28.4 million in the first six months of 2022 compared to $71.0 million in the first six months of 2021.

Management expects the volume of loans originated for sale in the secondary market to decline as compared to volumes originated in 2021 due to the rise in mortgage interest rates that have occurred during the first half of 2022.

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets.

The unpaid principal balances of these loans were $381.5 million and $375.4 million as of March 31, 2022 and December 31, 2021, respectively.

The unpaid principal balances of these loans were $379.8 million and $375.4 million as of June 30, 2022 and December 31, 2021, respectively.

Loan Portfolio

The loan portfolio by portfolio segment as of March 31, 2022 and December 31, 2021 is summarized as follows:

(dollars in thousands) March 31,

The loan portfolio by portfolio segment as of June 30, 2022 and December 31, 2021 is summarized as follows:

(dollars in thousands) June 30,

2022 December 31,

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Loans, net $ 4,357,176 $ 4,220,068 $ 137,108

Total loans, excluding real estate mortgage loans held-for-sale and deferred fees, increased by $65.4 million to $4.356 billion at March 31, 2022 from $4.291 billion at December 31, 2021.

Total loans, excluding real estate mortgage loans held-for-sale and deferred fees, increased by $136.1 million to $4.427 billion at June 30, 2022 from $4.291 billion at December 31, 2021.

The increase was primarily driven by originations of loans concentrated in the commercial and industrial categories and was offset by seasonal paydowns in the agri-business and agricultural loans segments and forgiveness of outstanding PPP loans.

Total loans excluding PPP loans increased by $79.5 million, as of March 31, 2022 as compared to December 31, 2021.

The following table summarizes the Company’s non-performing assets as of March 31, 2022 and December 31, 2021:

(dollars in thousands) March 31,

Total loans excluding PPP loans increased by $157.8 million, as of June 30, 2022 as compared to December 31, 2021.

The following table summarizes the Company’s non-performing assets as of June 30, 2022 and December 31, 2021:

(dollars in thousands) June 30,

2022 December 31,

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Total troubled debt restructured loans (1) $ 0 $ 11,339

Total nonperforming assets decreased by $1.2 million, or 7.6%, to $14.1 million during the three month period ended March 31, 2022.

The ratio of nonperforming assets to total assets at March 31, 2022 decreased from 0.23% at December 31, 2021 to 0.22% at March 31, 2022.

(1) On April 1, 2022, the Company adopted certain aspects of ASU 2022-02, whereby the Company no longer recognizes or accounts for TDRs.

Adoption of this standard was retrospective to January 1, 2022.

Total nonperforming assets decreased by $2.5 million, or 16.3%, to $12.8 million during the six month period ended June 30, 2022.

The ratio of nonperforming assets to total assets at June 30, 2022 decreased from 0.23% at December 31, 2021 to 0.20% at June 30, 2022.

A loan is individually analyzed when full payment under the original loan terms is not expected.

The analysis for smaller loans that are similar in nature and which are not in nonaccrual or troubled debt restructured status, such as residential mortgage, consumer, and credit card loans, is determined based on the class of loans.

The analysis for smaller loans that are similar in nature and which are not in nonaccrual or modified status, such as residential mortgage, consumer, and credit card loans, is determined based on the class of loans.

If a loan is individually analyzed, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows or at the fair value of collateral if repayment is expected solely from the collateral.

Total individually analyzed loans decreased by $1.0 million to $24.6 million at March 31, 2022 from $25.6 million at December 31, 2021.

Total individually analyzed loans decreased by $5.6 million to $20.0 million at June 30, 2022 from $25.6 million at December 31, 2021.

Loans are charged against the allowance for credit losses when management believes that the principal is uncollectible.

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If an asset or portion, thereof is classified as a loss, the Company’s policy is to either establish specified allowances for credit losses in the amount of 100% of the portion of the asset classified loss or charge-off such amount.

At March 31, 2022, the allowance for credit losses was 1.55% of total loans outstanding, versus 1.58% of total loans outstanding at December 31, 2021.

At March 31, 2022, management believed the allowance for credit losses was at a level commensurate with the overall risk exposure of the loan portfolio.

At June 30, 2022, the allowance for credit losses was 1.53% of total loans outstanding, versus 1.58% of total loans outstanding at December 31, 2021.

At June 30, 2022, management believed the allowance for credit losses was at a level commensurate with the overall risk exposure of the loan portfolio.

However, if economic conditions deteriorate, certain borrowers may experience difficulty and the level of nonperforming loans, charge offs and delinquencies could rise and require increases in the allowance for credit losses.

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The Company manages this risk by utilizing conservative credit structures, by adjusting its pricing to the perceived risk of each individual credit and by diversifying the portfolio by customer, product, industry and market area.

As of March 31, 2022, based on management’s review of the loan portfolio, the Company had 79 credit relationships totaling $218.8 million on the classified loan list versus 81 credit relationships totaling $234.5 million on December 31, 2021.

The decrease in classified loans for the first three months of 2022 resulted primarily from paydowns to previously classified loans on the non-individually analyzed portion of the watchlist.

As of March 31, 2022, the Company had $170.3 million of assets classified as Special Mention, $48.4 million classified as Substandard, $0 classified as Doubtful and $0 classified as Loss as compared to $176.6 million, $57.9 million, $0 and $0, respectively, at December 31, 2021.

As of June 30, 2022, based on management’s review of the loan portfolio, the Company had 57 credit relationships totaling $192.1 million on the classified loan list versus 81 credit relationships totaling $234.5 million on December 31, 2021.

The decrease in classified loans for the first six months of 2022 resulted primarily from paydowns and borrower risk rating upgrades to previously classified loans on the non-individually analyzed portion of the watchlist.

As of June 30, 2022, the Company had $149.8 million of assets classified as Special Mention, $42.3 million classified as Substandard, $0 classified as Doubtful and $0 classified as Loss as compared to $176.6 million, $57.9 million, $0 and $0, respectively, at December 31, 2021.

Allowance estimates are developed by management after taking into account actual loss experience adjusted for current economic conditions and a reasonably supportable forecast period.

The Company has regular discussions regarding this methodology with regulatory authorities.

The Company has annual discussions regarding this methodology with regulatory authorities.

Allowance estimates are considered a prudent measurement of the risk in the Company’s loan portfolio based upon loan segment.

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For a more thorough discussion of the allowance for credit losses methodology see the Critical Accounting Policies section of this Item 2.

The allowance for credit losses decreased $247,000, from $67.8 million at December 31, 2021 to $67.5 million at March 31, 2022.

The allowance for credit losses decreased $250,000, from $67.8 million at December 31, 2021 to $67.5 million at June 30, 2022.

Most of the Company’s recent loan growth has been concentrated in the commercial loan portfolio, which can result in overall asset quality being influenced by a small number of credits.

Management has historically considered growth and portfolio composition when determining credit loss allocations.

The Paycheck Protection Program

During the three months ended March 31, 2022, the Company has continued processing forgiveness applications for PPP made during the first and second rounds of the PPP program.

As of March 31, 2022, the Company had $12.5 million in PPP loans outstanding, net of deferred fees, consisting of $3.1 million from PPP round one and $9.4 million from PPP round two.

There were seven PPP round one loans and 21 round two loans that had not yet been through the SBA's forgiveness process.

The balance of deferred fees not yet recognized into income was $246,000 as of March 31, 2022.

Sources of Funds

The average daily deposits and borrowings together with average rates paid on those deposits and borrowings for the three months ended March 31, 2022 and 2021 are summarized in the following table:

Three months ended March 31,

The average daily deposits and borrowings together with average rates paid on those deposits and borrowings for the six months ended June 30, 2022 and 2021 are summarized in the following table:

Six months ended June 30,

(dollars in thousands) Balance Rate Balance Rate

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Deposits and Borrowings

As of March 31, 2022, total deposits increased by $85.2 million, or 1.5%, from December 31, 2021.

Core deposits increased by $85.0 million to $5.810 billion as of March 31, 2022 from $5.725 billion as of December 31, 2021.

Total brokered deposits were $10.2 million at March 31, 2022 compared to $10.0 million at December 31, 2021 reflecting a $241,000 increase during the first three months of 2022.

Since December 31, 2021, the change in core deposits was comprised of increases in public funds deposits of $55.9 million, commercial deposits of $19.9 million, and retail deposits of $9.2 million.

Total public funds deposits, including public funds transaction accounts, were $1.341 billion at March 31, 2022 and $1.285 billion at December 31, 2021.

The following table summarizes deposit composition at March 31, 2022 and December 31, 2021:

(dollars in thousands) March 31,

As of June 30, 2022, total deposits decreased by $113.8 million, or 2.0%, from December 31, 2021.

Core deposits decreased by $113.8 million to $5.612 billion as of June 30, 2022 from $5.725 billion as of December 31, 2021.

Total brokered deposits were $10.0 million at June 30, 2022 compared to $10.0 million at December 31, 2021 reflecting a $5,000 increase during the first six months of 2022.

Since December 31, 2021, the change in core deposits was comprised of increases in public funds deposits of $173.5 million, and decreases of commercial deposits of $169.9 million, and retail deposits of $117.5 million.

funds deposits, including public funds transaction accounts, were $1.458 billion at June 30, 2022 and $1.285 billion at December 31, 2021.

The following table summarizes deposit composition at June 30, 2022 and December 31, 2021:

(dollars in thousands) June 30,

2022 December 31,

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Total deposits $ 5,621,584 $ 5,735,407 $ (113,823)

There was no change in borrowings from December 31, 2021.

During the three months ended June 30, 2022, the Company repaid a $75.0 million putable advance with the FHLB.

The Company utilizes wholesale funding, including brokered deposits and Federal Home Loan Bank advances, to supplement funding of assets, which is primarily used for loan and investment securities growth.

As of March 31, 2022, total stockholders’ equity was $609.1 million, a decrease of $95.8 million, or 13.6%, from $704.9 million at December 31, 2021.

As of June 30, 2022, total stockholders’ equity was $562.1 million, a decrease of $142.8 million, or 20.3%, from $704.9 million at December 31, 2021.

Net income of $49.3 million increased equity.

Offsetting the increase to stockholders’ equity was a decrease of $109.8 million in accumulated other comprehensive income (loss), which was primarily driven by a net decrease in the fair value of available-for-sale securities as a result of the yield curve steepening in the first quarter of 2022.

Offsetting the increase to stockholders’ equity was a decrease of $174.6 million in accumulated other comprehensive income (loss), which was primarily driven by a net decrease in the fair value of available-for-sale securities.

Dividends declared and paid of $0.80 per share, or $20.4 million, also contributed the decrease to total stockholders equity.

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banking organizations.

As of March 31, 2022, the Company's capital levels remained characterized as “well-capitalized”.

The actual capital amounts and ratios of the Company and the Bank as of March 31, 2022 and December 31, 2021, are presented in the table below.

Capital ratios for March 31, 2022 are preliminary until the Call Report and FR Y-9C are filed.

As of June 30, 2022, the Company's capital levels remained characterized as “well-capitalized”.

The actual capital amounts and ratios of the Company and the Bank as of June 30, 2022 and December 31, 2021, are presented in the table below.

Capital ratios for June 30, 2022 are preliminary until the Call Report and FR Y-9C are filed.

Actual Minimum Required For Capital Adequacy Purposes For Capital Adequacy Purposes Plus Capital Conservation Buffer Minimum Required to Be Well Capitalized Under Prompt Corrective Action Regulations

(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio

As of March 31, 2022:

As of June 30, 2022:

Total Capital (to Risk Weighted Assets)

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Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including, without limitation:

• the effects of future economic, business and market conditions and changes, including in connection with the COVID-19 pandemic, both domestic and foreign;

• the effects of future economic, business and market conditions and changes, including prevailing interest rates, the rate of inflation and the effects of the COVID-19 pandemic;

• governmental monetary and fiscal policies and the impact the current economic environment will have on these;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis