What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 144 added, 229 removed, 807 unchanged (32% of the section changed)

9 unchanged sentences

Net interest income increased $38,029 to $519,327 for 2023 as compared to $481,298 for 2022.

The increase from 2021 to 2022 was due to the continued increase in loan yields due to the current rate environment, as well as changes in the mix of earning assets during the year, partially offset by an increase in our cost of funds.

The Company has continued to focus on both growing noninterest-bearing deposits and offering competitive interest rates on interest-bearing deposits.

The increase from 2022 to 2023 was due to the continued increase in loan yields due to additional interest rate hikes by the Federal Reserve, as well as changes in the mix of earning assets during the year, partially offset by an increase in our cost of funds.

The Company increased on-balance sheet liquidity following the bank failures in March 2023 resulting in incremental interest expense, and competition for deposits increased significantly during the year driving a surge in interest expense when compared to 2022.

Net charge-offs as a percentage of average loans were 0.10% and 0.07% in 2023 and 2022, respectively.

The Company recorded a provision for credit losses on loans of $23,788 in 2022 as compared to a recovery of provision for credit losses of $1,700 in 2021.

The increase year over year is reflective of loan growth and acquisitions.

The Company recorded a provision for credit losses of $15,593 in 2023 as compared to a provision for credit losses of $23,871 in 2022.

The provision for credit losses was higher in 2022 due to the acquisition of Southeastern Commercial Finance, LLC and Republic Business Credit in March 2022 and December 2022, respectively.

Noninterest income was $113,075 for 2023 compared to $149,253 for 2022.

The decrease in noninterest income is primarily attributable to decreased mortgage production during the year.

The decrease in noninterest income is primarily attributable to net losses on sales of securities (including impairments) in connection with the repositioning of our securities portfolio.

Noninterest expense was $439,622 and $395,372 for 2023 and 2022, respectively.

The decrease in noninterest expense is primarily attributable to decreases in salaries and employee benefits, which was largely attributable to the decrease in mortgage commissions and incentives as production declined.

Data processing expense decreased $6,826 during 2022 due to the renegotiation of certain contracts.

The Company incurred a debt prepayment penalty of $6,123 during 2021 with no such penalty occurring in 2022.

The increase in noninterest expense is primarily attributable to increases in salaries and employee benefits and other noninterest expense.

Lower levels of loan production contributing to lower deferred origination costs, the acquisition of Republic Business Credit and the FDIC special assessment accrued in the fourth quarter of 2023 also contributed to the year-over-year increase in noninterest expense.

Loans, net of unearned income, were $12,351,230 at December 31, 2023 compared to $11,578,304 at December 31, 2022, an increase of 6.7%.

Deposits totaled $14,076,785 at December 31, 2023 compared to $13,486,966 at December 31, 2022.

The decrease in deposits is due to increased competition as well as a normalization of deposits following government stimulus programs in prior years.

The increase in deposits is primarily due to an increase in money market and brokered deposits offset by a decrease in noninterest-bearing deposits.

A historical look at key performance indicators is presented below.

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Allowance for Credit Losses on Loans

The accounting estimate most important to the presentation of our financial statements relates to the allowance for credit losses and the related provision for credit losses which involves considerable subjective judgment and evaluation by management.

The accounting estimate most important to the presentation of our financial statements is the allowance for credit losses and the related provision for credit losses which involves considerable subjective judgment and evaluation by management.

The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio and is maintained at a level believed adequate by management to absorb such expected credit losses, as prescribed by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic (“ASC”) 326, “Financial Instruments - Credit Losses” (“ASC 326”;

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Although we consider all reasonably-available information that we believe is relevant to making the assumptions that underlie the Company’s determination of the appropriate amount of the allowance for credit losses, future adjustments to the allowance may be necessary if actual economic or other conditions ultimately differ substantially from the assumptions we used in making the evaluation.

Additionally, banking regulators periodically review our allowance for credit losses and may require us to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.

Additionally, banking regulators periodically review our allowance for credit losses and may require us to recognize adjustments to the allowance based on their subjective judgment of information available to them at the time of their examination.

Management evaluates the adequacy of the allowance for credit losses on a quarterly basis.

Please refer to the discussion under the heading “Loans and the Allowance for Credit Losses” in Note 1, “Significant Accounting Policies,” in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, in this report for more information regarding the estimates and assumptions, and the uncertainties underlying such estimates and assumptions, involved in the calculation of the allowance for credit losses.

For more information about our loan policies and procedures for addressing credit risk, as well as for a discussion of the changes in the allowance for credit losses in 2021 and 2022, please refer to the disclosures in this Item under the heading “Risk Management – Credit Risk and Allowance for Credit Losses.”

For more information about our loan policies and procedures for addressing credit risk, as well as for a discussion of the changes in the allowance for credit losses in 2023 and 2022, please refer to the disclosures in this Item under the heading “Risk Management – Credit Risk and Allowance for Credit Losses for Loans and Unfunded Commitments.”

Business Combinations, Accounting for Purchased Loans

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Portfolio Balance % of

Treasury securities $ — — % $ 3,010 0.11 %

Obligations of other U.S.

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Securities, net of allowance for credit losses $ 2,144,743 $ 2,857,982

During 2022, primarily in the first half of the year, we deployed a portion of our excess liquidity into the securities portfolio and purchased $804,899 in investment securities, with mortgage backed securities and collateralized mortgage obligations (“CMOs”), in the aggregate, comprising approximately 62% of such purchases.

During 2023, we purchased $11,899 in investment securities.

Proceeds from the sale of securities totaled $488,981, which were primarily used to pay down FHLB borrowings, and resulted in a pre-tax loss of $22,438.

During 2023, proceeds from maturities and calls of securities totaled $258,978, and such proceeds were primarily used to fund loan growth.

During 2022, primarily in the first half of the year, we deployed a portion of our excess liquidity into the securities portfolio and purchased $804,899 in investment securities, with mortgage-backed securities and collateralized mortgage obligations (“CMOs”), in the aggregate, comprising the majority of such purchases.

CMOs are included in the “Mortgage-backed securities” line item in the above table.

The mortgage-backed securities and CMOs held in our investment portfolio are issued by government sponsored entities.

Obligations of other U.S.

Government agencies and corporations comprised approximately 21% of purchases made in 2022.

Obligations of state and political subdivisions comprised approximately 5% of purchases in 2022.

Other debt securities in our investment portfolio, consisting of corporate debt securities, issuances from the Small Business Administration (“SBA”) and subordinated debt issuances, comprised the remaining 12% of purchases made during the year.

We did not sell any securities in 2022.

During 2022, proceeds from maturities and calls of securities totaled $452,955, and such proceeds were primarily reinvested in the securities portfolio or used to fund loan growth.

During 2021, we purchased $2,160,069 in investment securities, with mortgage backed securities and CMOs, in the aggregate, comprising approximately 93% of such purchases.

Obligations of state and political subdivisions made up the remainder of the purchases made in 2021.

The carrying value of securities sold during 2021 totaled $174,285 resulting in a net gain of $2,170.

Proceeds from maturities and calls of securities during 2021 totaled $460,266, which were primarily reinvested in the securities portfolio.

Proceeds from maturities and calls of securities during 2022 totaled $452,955, which were primarily reinvested in the securities portfolio or used to fund loan growth.

During the year ended December 31, 2022, the Company transferred, at fair value, $882,927 of securities from the available for sale portfolio to the held to maturity portfolio.

The related net unrealized losses of $99,675 (after tax losses of $74,307) remained in accumulated other comprehensive income (loss) and will be amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities.

At December 31, 2022, the net unrealized after tax losses remaining to be amortized in accumulated other comprehensive income (loss) was $68,613.

No gains or losses were recognized at the time of transfer.

During 2021, the Company transferred, at fair value, $366,886 of securities from the available for sale portfolio to the held to maturity portfolio.

The related net unrealized after tax gains of $2,048 remained in accumulated other comprehensive income (loss) and will be amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities.

The related net unrealized losses of $99,675 (after tax losses of $74,307) remained in accumulated other comprehensive income (loss) and are amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities.

At December 31, 2023 and 2022, the net unrealized after tax losses remaining to be amortized in accumulated other comprehensive income (loss) was $58,522 and $68,613, respectively.

No gains or losses were recognized at the time of transfer.

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At December 31, 2022, unrealized losses of $201,299 were recorded on available for sale securities with a carrying value of $1,515,088.

The Company does not intend to sell any of the securities in an unrealized loss position, and it is not more likely than not that the Company will be required to sell any such security prior to the recovery of its amortized cost basis, which may be maturity.

Furthermore, even though a number of these securities have been in a continuous unrealized loss position for a period greater than twelve months, the Company is collecting principal and interest payments from the respective issuers as scheduled.

As a result, the Company did not record any impairment for the years ended December 31, 2022 and 2021.

At December 31, 2023, the Company had the intent to sell a portion of its securities in an unrealized loss position, and recognized a non-credit related impairment loss of $19,352 in addition to losses on sales of securities earlier in the year of $22,438.

Notwithstanding the securities sales in 2023, it is not more likely than not that the Company will be required to sell any security in the investment portfolio prior to the recovery of its amortized cost basis, which

may be maturity.

Furthermore, more than 90% of available for sale securities have the explicit or implicit backing of the United States government.

Performance of these securities has been in line with broader market price performance, indicating to management that increases in market-based, risk free rates, and not credit-related factors, are the reason for the losses.

For municipal and corporate securities, the Company considers historical experience with credit sensitive securities, current market conditions, the financial health of the issuer, current credit ratings, ratings changes and outlook, explicit and implicit guarantees, and/or insurance programs when determining the fair value of the contractual cash flows.

Based on its review of these factors as of December 31, 2023 and 2022, the Company determined that all such losses resulted from factors not deemed credit related.

As a result, no credit-related impairment was recognized in current earnings, and all unrealized losses for available for sale securities were recorded in Other comprehensive income.

The following table sets forth the scheduled maturity distribution and weighted average yield based on the amortized cost of the debt securities in our investment portfolio as of December 31, 2023.

Amortized Cost Yield

Held to Maturity:

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Maturing after ten years 200,152 2.15 %

Other debt securities

Maturing after five years through ten years 24,258 3.04 %

Maturing after ten years 34,114 2.34 %

Residential mortgage-backed securities not due at a single maturity date:

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Government agency CMO 44,514 1.79 %

Other debt securities not due at a single maturity date 62,875 3.27 %

Available for Sale:

Obligations of other U.S.

Government agencies and corporations

Maturing after one year through five years 170,000 3.32 %

Obligations of states and political subdivisions

3 unchanged sentences

Maturing after ten years 15,954 1.66 %

Other debt securities - corporate debt

Other debt securities

Maturing within one year or less 1,007 4.67 %

Maturing after one year through five years 32,748 6.83 %

8 unchanged sentences

$ 2,284,189 1.90 %

In the table above, weighted average yields on tax-exempt obligations have been computed on a fully tax equivalent basis assuming a federal tax rate of 21% and a state tax rate of 4.45%, which is net of federal tax benefit.

These yields were calculated using coupon interest and adjusting for discount accretion and premium amortization, where applicable.

In the table above, weighted average yields on tax-exempt obligations have been computed on a fully tax equivalent basis assuming a federal tax rate of 21%.

These yields were calculated using coupon interest for the month of December of 2023, adjusted for discount accretion and premium amortization, where applicable.

For more information about the Company’s securities, see Note 2, “Securities,” in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, in this report.

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Although loan fees and some interest income are derived from mortgage loans held for sale, the main source of income is gains from the sale of these loans in the secondary market.

The decline in loans held for sale year over year is directly attributable to the decreased mortgage production in 2022 when compared to 2021.

Loans held for sale fluctuates based on mortgage production volume.

Loans held for investment, which excludes loans held for sale, is the Company’s most significant earning asset, comprising 71.15% and 68.16% of total assets at December 31, 2023 and 2022, respectively.

This percentage will fluctuate based on a number of factors, including the extent of our loan growth and whether the Company has excess liquidity on its balance sheet.

The increase in the ratio of loans held for investment to total earning assets during 2022 is a result of a material increase in the demand for loans.

The tables below set forth the balance of loans outstanding by loan type and the percentage of loans, by category, to total loans at December 31:

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Commercial, financial, agricultural $ 1,871,821 15.15 % $ 1,673,883 14.46 %

$ 1,673,883 14.46 % $ 1,423,270 14.20 %

Lease financing, net of unearned discount 116,020 0.94 % 115,013 0.99 %

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Total loans, net of unearned income $ 12,351,230 100.00 % $ 11,578,304 100.00 %

(1 ) Includes PPP loans of $4,832 of $58,391 as of December 31, 2022 and 2021, respectively.

Loan concentrations exist when there are amounts loaned to a number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions.

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Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported below as due in one year or less.

See “Risk Management – Credit Risk and Allowance for Credit Losses” in this Item 7 for information regarding the risk elements applicable to, and a summary of our loan loss experience with respect to, the loans in each of the categories listed below.

See “Risk Management – Credit Risk and Allowance for Credit Losses on Loans and Unfunded Commitments” in this Item 7 for information regarding the risk elements applicable to, and a summary of our loan loss experience with respect to, the loans in each of the categories listed below.

One Year or Less After One Year

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Commercial, financial, agricultural $ 1,334,200 $ 420,489 $ 116,847 $ 285 $ 1,871,821

$ 1,103,371 $ 436,416 $ 133,798 $ 298 $ 1,673,883

Lease financing, net of unearned income 4,060 68,131 43,829 — 116,020

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Total loans, net of unearned income $ 5,640,376 $ 3,670,110 $ 2,246,439 $ 794,305 $ 12,351,230

(1 ) Includes PPP loans of $4,832 of $58,391 as of December 31, 2022 and 2021, respectively.

The following table sets forth the fixed and variable rate loans maturing or scheduled to reprice after one year as of December 31, 2023:

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Noninterest-bearing deposits were $3,583,675 and $4,558,756 at December 31, 2023 and 2022, respectively, while interest-bearing deposits were $10,493,110 and $8,928,210 at December 31, 2023 and 2022, respectively.

Interest-bearing deposits for 2022 included $233,133 of brokered deposits.

The decrease in noninterest-bearing deposits across the Company’s footprint in 2022 was primarily driven by increases in interest-bearing deposit rates.

Interest-bearing deposits included brokered deposits at December 31, 2023 and 2022 of $461,441 and $233,133, respectively.

The decrease in noninterest-bearing deposits across the Company’s footprint in 2023 and 2022 was primarily driven by increases in interest-bearing deposit rates.

Management continues to focus on growing and maintaining a stable source of funding, specifically noninterest-bearing deposits and other core deposits (that is, deposits excluding brokered deposits and time deposits greater than $250,000).

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Under certain circumstances, management may elect to acquire non-core deposits (in the form of brokered or time deposits) or public fund deposits (which are deposits of counties, municipalities or other political subdivisions).

The source of funds that we select depends on the terms and how those terms assist us in mitigating interest rate risk, maintaining our liquidity position and managing our net interest margin.

The source of funds that we select depends on the terms and how those terms assist us in mitigating interest rate risk, maintaining our liquidity position and managing our net interest margin as well as business opportunities that may accompany deposits we acquire.

Accordingly, funds are acquired to meet anticipated funding needs at the rate and with other terms that, in management’s view, best address our interest rate risk, liquidity and net interest margin parameters.

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Although the Company has focused on growing stable sources of deposits to reduce reliance on public fund deposits, it participates in the bidding process for public fund deposits when pricing and other terms make it reasonable given market conditions or when management perceives that other factors, such as the public entity’s use of our treasury management or other products and services, make such participation advisable.

Our public fund transaction accounts are principally obtained from public universities and municipalities, including school boards and utilities.

Our public fund transaction accounts are principally obtained

from public universities and municipalities, including school boards and utilities.

Public fund deposits at December 31, 2023 were $1,866,495 compared to $1,760,460 at December 31, 2022.

Deposits that are in excess of the FDIC insurance limit (or similar state deposit insurance limits) and that are otherwise uninsured were $4,114,274 and $4,353,952 at December 31, 2022 and 2021, respectively.

Deposits that are in excess of the FDIC insurance limit were $5,778,174 and $6,017,030 at December 31, 2023 and 2022, respectively.

Public fund deposits in excess of the FDIC insurance limit but that were collateralized by pledged securities in the Company's investment portfolio totaled $1,485,684.

The following table shows the maturity of time deposits at December 31, 2023 that are in excess of the FDIC insurance limit (or similar state deposit insurance limits) and that are otherwise uninsured:

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Short-term borrowings have original maturities less than one year and typically include federal funds purchased, securities sold under agreements to repurchase, and short-term FHLB advances.

During 2022, we used short-term FHLB borrowings to fund loan growth.

During 2023 and 2022, we used short-term FHLB borrowings to meet anticipated short-term liquidity needs, which varied throughout the year in response to loan demand and competition for deposits.

The weighted-average interest rates on outstanding advances at December 31, 2023 and 2022 were 5.70% and 4.57%, respectively.

The following table presents our short-term borrowings by type at December 31:

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Total short-term borrowings $ 307,577 $ 712,232

At December 31, 2022, long-term debt consists of long-term FHLB advances, our junior subordinated debentures and our subordinated notes.

At December 31, 2023, long-term debt consists of our junior subordinated debentures and our subordinated notes;

no long-term FHLB advances were outstanding.

The following table presents our long-term debt by type at December 31:

Federal Home Loan Bank advances $ — $ 417

Junior subordinated debentures $ 112,978 $ 112,042

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The Company had $2,922,315 of availability on unused lines of credit with the FHLB at December 31, 2023 compared to $3,651,678 at December 31, 2022.

The weighted-average interest rates on outstanding advances at December 31, 2022 and 2021 were 4.57% and 1.86%, respectively.

On November 23, 2021, the Company completed the public offering and sale of $200,000 of its 3.00% fixed-to-floating rate subordinated notes due December 1, 2031.

The subordinated notes were sold at par, resulting in net proceeds, after deducting underwriting discounts and offering expenses, of approximately $197,000.

The Company intends to use the net proceeds from this offering for general corporate purposes, which may include providing capital to support the Company’s organic growth or growth through strategic acquisitions, repaying indebtedness, financing investments, capital expenditures or for investments in Renasant Bank as regulatory capital.

During October and December 2021, respectively, the Company redeemed at par its $15,000 6.50% fixed-to-floating rate subordinated notes and redeemed $30,000 of its aggregate $60,000 5.00% fixed-to-floating rate subordinated notes, with the remaining $30,000 of such notes redeemed in the first quarter of 2022.

The Company owns other subordinated notes, the proceeds of which have been used for general corporate purposes similar to those described above.

The Company owns subordinated notes, the proceeds of which have been used for general corporate purposes.

The subordinated notes qualify as Tier 2 capital under the current regulatory guidelines.

The Company owns the outstanding common securities of business trusts that issued corporation-obligated mandatorily redeemable preferred capital securities to third-party investors.

debentures issued by the Company (or by companies that the Company subsequently acquired).

Finally, the Company owns the outstanding common securities of business trusts that issued corporation-obligated mandatorily redeemable preferred capital securities to third-party investors.

The trusts used the proceeds from the issuance of their preferred capital securities and common securities (collectively referred to as “capital securities”) to buy floating rate junior subordinated debentures issued by the Company (or by companies that the Company subsequently acquired).

The debentures are the trusts’ only assets and interest payments from the debentures finance the distributions paid on the capital securities.

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The following table presents the impact of these expenses and charges on reported EPS for the dates presented.

The “COVID-19 related expenses” line item in the table below primarily consists of (a) employee overtime and employee benefit accruals directly related to the Company’s response to both the COVID-19 pandemic itself and federal legislation enacted to address the pandemic, such as the CARES Act, and (b) expenses associated with supplying branches with protective equipment, sanitation supplies (such as floor markings and cautionary signage for branches, face coverings and hand sanitizer) and more frequent and rigorous branch cleaning.

The mortgage servicing rights (“MSR”) valuation adjustment, gain on the sale of MSRs and swap termination gains are discussed below under the “Noninterest Income” heading, and the debt prepayment penalty, restructuring charges and the voluntary reimbursement of certain re-presentment NSF fees are discussed below under the “Noninterest Expense” heading in this Item.

The gain on the sale of mortgage servicing rights (“MSRs”), gain on extinguishment of debt and losses on security sales are discussed below under the “Noninterest Income” heading.

Twelve Months Ended December 31,

Pre-tax After-tax Impact to Diluted EPS Pre-tax After-tax Impact to Diluted EPS

MSR valuation adjustment $ — $ — $ — $ (13,561) $ (10,522) $ (0.19)

Gain on sale of MSR $ (547) $ (444) $ — $ (2,960) $ (2,296) $ (0.04)

Swap termination gains — — — (4,676) (3,628) (0.06)

COVID-19 related expenses — — — 1,511 1,172 0.02

Restructuring charges — — — 732 568 0.01

Merger and conversion expenses — — — 1,787 1,386 0.02

Debt prepayment penalty — — — 6,123 4,751 0.08

Gain on extinguishment of debt (620) (503) (0.01) — — —

Initial provision for acquisition — — — 2,820 2,187 0.04

Voluntary reimbursement of certain re-presentment NSF fees — — — 1,255 973 0.02

Losses on security sales (including impairments) 41,790 33,926 0.60 — — —

Balances in the table above are shown to reflect impact to income if removed (i.e.

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External factors include changes in market interest rates, competition and the shape of the interest rate yield curve.

During 2022, net interest income growth was primarily driven by increasing loan yields and changes in the mix of earning assets due to loan growth.

This growth was partially offset by an increase in the cost of interest-bearing deposits and liabilities.

During 2023, net interest income growth was primarily driven by the rising rate environment throughout 2022 and 2023.

The higher interest rates benefited yields on earnings assets, which, coupled with steady loan growth, resulted in an increase in interest income year over year.

This increase was partially offset by an increase in interest expense.

The rising interest rates negatively impacted both the cost and mix of our funding sources, and management’s decision to increase on-balance sheet liquidity following the bank failures in March 2023 also resulted in higher cost of funds and interest expense.

The Company has continued its efforts to mitigate increases in the cost of funding through maintaining noninterest-bearing deposits, staying disciplined yet competitive in pricing on interest-bearing deposits in the current rate environment and accessing alternative sources of liquidity, such as brokered deposits.

In 2023, however, management’s paramount concern was ensuring the safe and sound operation of the Bank in light of industry-wide conditions, which led to the Company significantly increasing its brokered deposits and borrowed funds in the 2023 as compared to 2022 to maintain robust on-balance sheet liquidity.

The following table sets forth a summary of the changes in interest earned, on a tax equivalent basis, and interest paid resulting from changes in volume and rates for the Company for the years indicated.

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(2) changes in yield/rate (changes in yield/rate multiplied by prior volume);

and (3) changes in both yield/rate and volume (changes in yield/rate

multiplied by changes in volume).

and (3) changes in both yield/rate and volume (changes in yield/rate multiplied by changes in volume).

The changes attributable to the combined impact of yield/rate and volume have been allocated on a pro-rata basis using the absolute ratio value of amounts calculated.

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2023 2022 2023 2022

Loans held for investment excluding PPP loans 71.90 % 70.16 % 4.46 % 4.08 %

Paycheck Protection Program loans 0.10 3.19 4.91 5.52

Loans held for investment 77.89 % 72.00 % 5.97 % 4.46 %

Loans held for sale 1.18 1.38 6.51 4.52

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In 2023, interest income on loans held for investment, on a tax equivalent basis, increased $237,151 to $713,897 from $476,746 in 2022.

This increase was primarily due to the Federal Reserve aggressively raising interest rates in 2022 coupled with loan growth of 15.54% from December 31, 2021.

This increase was primarily due to additional interest rate increases by the Federal Reserve since March 2022, coupled with a $1,285,146 increase in our average balance of loans to $11,963,141 in 2023 from $10,677,995 in 2022.

The impact from interest income collected on problem loans and purchase accounting adjustments on purchased loans to total interest income on loans, loan yield and net interest margin is shown in the table below for the periods presented:

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Impact to net interest margin 0.03 % 0.05 %

(1) Includes additional interest income recognized in connection with the acceleration of paydowns and payoffs from purchased loans of $2,274 and $5,293 for the twelve months ended December 31, 2022 and 2021, respectively, which increased loan yield by 2 basis points and 4 basis points, respectively, for 2022 and 2021.

Interest income on loans held for sale, on a tax equivalent basis, decreased $3,420 to $9,212 in 2022 from $12,632 in 2021.

The increase in yields was offset by decreases in volume during 2022.

In 2022, investment income, on a tax equivalent basis, increased $21,617 to $55,405 from $33,788 in 2021.

(1) Includes additional interest income recognized in connection with the acceleration of paydowns and payoffs from purchased loans of $2,002 and $2,274 for the twelve months ended December 31, 2023 and 2022, respectively, which increased loan yield by 2 basis points for both 2023 and 2022.

Interest income on loans held for sale, on a tax equivalent basis, increased $2,595 to $11,807 in 2023 from $9,212 in 2022, due to an increase in yields during 2023, offset slightly by a decrease in the average balance of loans held for sale during the year.

In 2023, investment income, on a tax equivalent basis, decreased $3,152 to $52,253 from $55,405 in 2022, primarily due to the decrease in the balance of the securities portfolio during the year, offset by the increase in yield on securities during 2023 due to the sale or maturity of lower yielding securities.

The following table presents the taxable equivalent yield on securities for the periods presented:

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Taxable equivalent yield on securities 1.97 % 1.79 %

The increase in yield on securities during 2022 was due to purchases of higher yielding securities.

The increase in yield, coupled with growth in the securities portfolio, during 2022 led to the growth in investment income, on a tax equivalent basis.

Interest expense was $277,992 in 2023 compared to $60,512 in 2022.

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The cost of interest-bearing deposits was 2.35% and 0.40% for the same respective periods.

The increase in both deposit expense and cost is attributable to the Company’s efforts to offer competitive deposit rates in the rising interest rate environment.

During 2022, the Company continued its efforts to grow noninterest-bearing deposits.

The increase in both deposit expense and cost is attributable to the Company’s efforts to offer competitive deposit rates in the rising interest rate environment and its decision to maintain additional on-balance sheet liquidity following the bank failures and broader industry concerns about bank liquidity that arose in March 2023.

During 2023, the Company continued its efforts to maintain noninterest-bearing deposits.

Low cost deposits continue to be the preferred choice of funding;

however, the Company may rely on brokered deposits or wholesale borrowings when advantageous.

however, the Company may rely on brokered deposits or wholesale borrowings when advantageous or otherwise deemed advisable due to market conditions.

Interest expense on total borrowings was $45,661 and $25,304 for the years ending December 31, 2023 and 2022, respectively, while the cost of total borrowings was 5.13% and 4.05% for the years ended December 31, 2023 and 2022, respectively.

The increase in interest expense is a result of higher average borrowings and rates driven by an increase in short-term FHLB borrowings in the latter part of 2022.

The Company issued $200,000 of its 3.00% fixed-to-floating rate subordinated notes during 2021 and redeemed certain tranches of subordinated notes in the third quarter of 2021 and first quarter of 2022.

The increase in interest expense is a result of higher average borrowings and interest rates driven by an increase in short-term FHLB borrowings in the latter part of 2022 and beginning of 2023.

The repayment of FHLB borrowings during 2023 had a nominal impact to interest expense for the year ended December 31, 2023.

A more detailed discussion of the cost of our funding sources is set forth below under the heading “Liquidity and Capital Resources” in this item.

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Noninterest Income to Average Assets

(Excludes securities gains/losses)

Total noninterest income includes fees generated from deposit services and other fees and commissions, income from our insurance, wealth management and mortgage banking operations, realized gains on the sale of securities and all other noninterest income.

Our focus is to develop and enhance our products that generate noninterest income in order to diversify our

revenue sources.

the 2023 noninterest income to average assets ratio was negatively impacted by 13 basis points due to losses on sales and impairments of securities.

Total noninterest income includes fees generated from deposit services and other fees and commissions, income from our insurance, wealth management and mortgage banking operations, realized gains and losses on the sale or impairment of securities and all other noninterest income.

Our focus is to develop and enhance our products that generate noninterest income in order to diversify our revenue sources.

Noninterest income as a percentage of total net revenue was 17.57% and 23.36% for 2023 and 2022, respectively.

Noninterest income was $113,075 for the year ended December 31, 2023, a decrease of $36,178, or 24.24%, as compared to $149,253 for 2022.

The decrease during the year was driven by lower mortgage banking production, which is discussed below.

The decrease during the year was driven primarily by the loss on the sale of securities (including impairment charges) during 2023.

Service charges on deposit accounts include maintenance fees on accounts, per item charges, account enhancement charges for additional packaged benefits and overdraft fees.

Service charges on deposit accounts were $39,199 and $39,957 for the twelve months ended December 31, 2023 and 2022, respectively.

Overdraft fees, the largest component of service charges on deposits, increased to $21,575 for the twelve months ended December 31, 2022 compared to $19,140 for the same period in 2021.

The Company completed its plans to eliminate certain overdraft and NSF fees, which will become effective January 1, 2023.

Overdraft fees, the largest component of service charges on deposits, decreased to $20,095 for the twelve months ended December 31, 2023 compared to $21,575 for the same period in 2022.

The Company completed its plans to eliminate certain overdraft and NSF fees, which became effective January 1, 2023.

These fees totaled approximately $5,500 and $4,700 in 2022 and 2021, respectively.

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Originations of mortgage loans to be sold totaled $1,330,912 in 2023 and $1,679,356 in 2022.

The decrease in mortgage loan originations in 2022 was due to material increases in mortgage interest rates from historically low rates, significantly dampening demand for mortgages nationwide.

The decrease in mortgage loan originations in 2023 was due to the continued material increases in mortgage interest rates from historically low rates and exacerbated by a general lack of housing supply, each of which significantly dampened demand for mortgages nationwide.

In 2022, the Company sold a portion of its mortgage servicing rights portfolio with a carrying value of $15,565 for a pre-tax gain of $2,960.

there were no such sales in 2021.

Mortgage banking income was impacted in 2021 by a positive mortgage servicing rights valuation adjustment of $13,561 with no such valuation adjustment in 2022.

The Company recognized a gain of $547 in 2023 related to a holdback on those previously sold mortgage servicing rights assets.

The following table presents the components of mortgage banking income included in noninterest income at December 31:

3 unchanged sentences

Mortgage servicing income, net (2)

9,620 (3,517)

MSR valuation adjustment — 13,561

Mortgage banking income, net $ 32,413 $ 35,794

(1) Gain on sales of loans, net includes pipeline fair value adjustments

(2) Mortgage servicing income, net includes gain on sale of mortgage servicing rights of $2,960

During 2021, the Company terminated four interest rate swap contracts with notional amounts of $25,000 each.

These swaps hedged forecasted future FHLB borrowings which were no longer expected to occur at the time of termination.

As a result of these terminations, the Company recognized a gain of $4,676 for the year ended December 31, 2021.

(2) Mortgage servicing income, net includes gain on sale of mortgage servicing rights of $547 and $2,960, respectively.

Losses on sales of securities for the twelve months ended 2023 were $22,438, resulting from the sale of approximately $511,419 in securities.

The Company also determined to sell a portion of its available-for-sale securities portfolio in December of 2023 and thus recognized an impairment on those identified securities of $19,352 as of year-end (the securities were subsequently sold in January 2024).

There were no net gains or losses on sales of securities during 2022.

Gains on sales of securities for the twelve months ended 2021 were $2,170, resulting from the sale of approximately $174,285 in securities.

For more information on securities sold in 2023, see Note 2, “Securities,” in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, in this report.

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BOLI income increased to $10,463 in 2023 as compared to $9,267 in 2022.

The Company purchased $80,000 in additional BOLI policies during the first quarter of 2022 accounting for the increase in BOLI income.

In addition to the contingency income described above, other noninterest income includes income from our SBA banking division and other miscellaneous income and can fluctuate based on the claims experience in our Insurance agency, SBA production and recognition of other nonseasonal income items.

The Company purchased $80,000 in additional BOLI policies during the first quarter of 2022.

No such purchases were made in 2023.

The Company recognized a $620 gain in 2023 in connection with the extinguishment of $3,300 of its subordinated debt.

In addition to the contingency income described above, other noninterest income includes income from our SBA banking division, our capital markets division and other miscellaneous income and can fluctuate based on the claims experience in our Insurance agency, SBA production and recognition of other nonseasonal income items.

For 2023 other noninterest income included a one-time payment of $2,300 related to our participation in a recovery agreement assumed as part of a previous acquisition.

Other noninterest income was $21,035 for 2023 compared to $13,874 for 2022.

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Noninterest expense was $439,622 and $395,372 for 2023 and 2022, respectively.

As mentioned previously, the Company incurred expenses in connection with certain transactions with respect to which management is unable to accurately predict when these expenses will be incurred or, when incurred, the amount of such expenses.

The following table presents these expenses for the periods presented:

Twelve Months Ended December 31,

COVID-19 related expenses $ — $ 1,511

Restructuring charges 732 368

Merger and conversion related expenses 1,787 —

Debt prepayment penalty — 6,123

Voluntary reimbursement of certain re-presentment NSF fees 1,255 —

Salaries and employee benefits is the largest component of noninterest expense and represented 64.09% and 66.18% of total noninterest expense at December 31, 2023 and 2022, respectively.

During 2022, salaries and employee benefits decreased $18,973, or 6.76%, to $261,654 as compared to $280,627 for 2021.

The decrease in salaries and employee benefits is primarily due to a decrease in mortgage commissions and incentives, driven by the decrease in mortgage production, offset by increases in the minimum wage we pay our employees that were implemented in May 2022.

During 2023, salaries and employee benefits increased $20,114, or 7.69%, to $281,768 as compared to $261,654 for 2022.

The increase in salaries and employee benefits is primarily due to increases in the minimum wage we pay our employees that were implemented in May 2022 along with annual merit increases implemented in April 2023.

The acquisition of Republic Business Credit added $6,362 to salaries and employee benefits expense in 2023.

Compensation expense recorded in connection with awards of restricted stock, which is included within salaries and employee benefits, was $12,746 and $10,595 for 2023 and 2022, respectively.

A portion of the restricted stock awards in both years was subject to the satisfaction of performance-based conditions.

Data processing costs decreased $6,826 to $14,900 in 2022 from $21,726 in 2021, driven primarily by the Company’s renegotiation of certain vendor contracts.

Data processing costs increased $295 to $15,195 in 2023 from $14,900 in 2022.

The Company continues to examine new and existing contracts to negotiate favorable terms to offset the increased variable cost components of our data processing costs, such as new accounts and increased transaction volume.

Net occupancy and equipment expense in 2022 was $44,819, a decrease of $2,018 from $46,837 for 2021.

The decrease in net occupancy and equipment expense is primarily attributable to the restructuring and non-renewal or termination of certain branch leases.

The Company experienced a net gain of $453 in other real estate expense for 2022, compared to expenses of $253 in 2021.

Expenses on other real estate owned for 2022 include write downs of $110 of the carrying value to fair value on certain pieces of property held in other real estate owned compared to write downs of $306 in 2021.

Other real estate owned with a cost basis of $2,875 was sold during 2022, resulting in a net gain of $703, compared to other real estate owned with a cost basis of $6,166 sold during 2021 for a net gain of $176.

Net occupancy and equipment expense in 2023 was $46,471, an increase of $1,652 from $44,819 for 2022.

Professional fees include fees for legal and accounting services, such as routine litigation matters, external audit services as well as assistance in complying with newly-enacted and existing banking and governmental regulation.

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Advertising and public relations expense was $14,726 for 2023, an increase of $401 compared to $14,325 for 2022.

During 2022, the Company contributed approximately $1,350 to charitable organizations throughout Mississippi, Georgia and Alabama, for which it received a dollar-for-dollar tax credit, and such contributions are included in our advertising and public relations expense.

During 2023 and 2022, the Company contributed approximately $1,392 and $1,350, respectively, to charitable organizations throughout Mississippi, Georgia and Alabama, for which it received a dollar-for-dollar tax credit, and such contributions are included in our advertising and public relations expense.

Amortization of intangible assets totaled $5,380 for 2023 compared to $5,122 for 2022.

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Communication expenses were $8,238 for 2023 as compared to $7,958 for 2022.

The Company incurred a $6,123 debt prepayment penalty in 2021 in connection with the prepayment of a $150,000 long-term FHLB advance.

Other noninterest expense includes the provision for unfunded commitments, business development and travel expenses, other discretionary expenses, loan fees expense and other miscellaneous fees and operating expenses.

In 2022, the Company also recognized expense of $1,255 related to the voluntary reimbursement of certain re-presentment NSF fees previously charged to customers that are expected to be paid in 2023 in light of the FDIC’s recent guidance to banks regarding such fees.

Other noninterest expense includes business development and travel expenses, other discretionary expenses, loan fees expense and other miscellaneous fees and operating expenses.

Other noninterest expense was $53,906 for 2023 as compared to $32,656 for 2022.

A provision for unfunded commitments of $83 was recorded for 2022 and a negative provision (recovery) for unfunded commitments of $500 was recorded in 2021.

The increase in other noninterest expense is primarily attributable to lower deferred loan origination expense in 2023 compared to 2022 and the accrual in the fourth quarter of 2023 of an FDIC deposit insurance special assessment of $2,700.

The amount of loan origination expense deferred is directly correlated to the volume and mix of our loan production during the period.

Efficiency Ratio

Efficiency ratio (GAAP) 61.89% 65.35%

68.33% 61.88%

The efficiency ratio is a measure of productivity in the banking industry.

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That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate a dollar of revenue.) The Company calculates this ratio by dividing noninterest expense by the sum of net interest income on a fully tax equivalent basis and noninterest income.

The efficiency ratio for 2023 was negatively impacted by 496 basis points due to losses and impairments on strategic sales of securities.

We remain committed to aggressively managing our costs within the framework of our business model.

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Income tax expense for 2023 and 2022 was $32,509 and $45,240, respectively.

The effective tax rates for those years were 21.78% and 22.41%, respectively.

The effective tax rates for those years were 18.82% and 21.78%, respectively, with the decrease in rate driven by the loss we incurred in connection with our securities sales in 2023.

For additional information regarding the Company’s income taxes, please refer to in Note 14, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, in this report.

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The Company’s central appraisal review department reviews and approves third-party appraisals obtained by the Company on real estate collateral and monitors loan maturities to ensure updated appraisals are obtained.

This department is managed by a State Certified General Real Estate

Appraiser and employs three additional State Certified General Real Estate Appraisers and four real estate evaluators.

This department is managed by a State Certified General Real Estate Appraiser and employs three additional State Certified General Real Estate Appraisers and four real estate evaluators.

In addition, we maintain a loan review staff to independently monitor loan quality and lending practices.

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The allowance for credit losses is available to absorb credit losses inherent in the loans held for investment portfolio.

Loan losses are charged against the allowance for credit losses when management believes the uncollectability of a loan balance is confirmed.

Loan losses are charged against the allowance for credit losses when management confirms the uncollectability of a loan balance.

Subsequent recoveries, if any, are credited to the allowance.

Management evaluates the adequacy of the allowance on a quarterly basis.

For an in-depth discussion of our accounting policies and our methodology for determining the appropriate level of the allowance for credit losses, please refer to the information in the “Critical Accounting Policies and Estimates” section above as well as the information under the headings “Loans and the Allowance for Credit Losses” and “Business Combinations, Accounting for Purchased Credit Deteriorated Loans and Related Assets” in Note 1, “Significant Accounting Policies,” in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, in this report.

For an in-depth discussion of our accounting policies and our methodology for determining the appropriate level of the allowance for credit losses, please refer to the information in the “Critical Accounting Policies and Estimates” section above as well as the information under the headings “Loans and the Allowance for Credit Losses” and “Business Combinations, Accounting for Purchased Credit Deteriorated Loans and Related Assets” in Note 1, “Significant Accounting Policies,” and Note 4, “Allowance for Credit Losses,” in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, in this report.

In addition to its quarterly analysis of the allowance for credit losses, on a regular basis, management and the Board of Directors review loan ratios.

These ratios include the allowance for credit losses as a percentage of total loans, net charge-offs as a percentage of average loans, the provision for credit losses as a percentage of average loans, nonperforming loans as a percentage of total loans and the allowance coverage on nonperforming loans.

These ratios include the allowance for credit losses as a percentage of total loans, net charge-offs as a percentage of average loans, nonperforming loans as a percentage of total loans and the allowance coverage on nonperforming loans.

Also, management reviews past due ratios by officer, community bank and the Company as a whole.

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The provision for credit losses on loans charged to operating expense is an amount that, in the judgment of management, is necessary to maintain the allowance for credit losses on loans at a level that is believed to be adequate to meet the inherent risks of losses in our loan portfolio.

The Company recorded a provision for credit losses on loans of $23,788 during 2022, as compared to a negative provision (recovery) for credit losses on loans of $1,700 during 2021.

The Company recorded a provision for credit losses on loans of $18,793 during 2023, as compared to $23,788 during 2022.

The provision for credit losses in 2022 included an initial provision for the Southeastern Commercial Finance, LLC and Republic Business Credit acquisitions of $2,820.

The Company’s allowance for credit loss model considers economic projections, primarily the national unemployment rate and GDP, over a reasonable and supportable period of two years.

While credit metrics remained relatively stable, loan growth and acquisitions caused the Company’s model to indicate that the aforementioned provision for credit losses on loans was appropriate during 2022.

While credit metrics remained relatively stable, loan growth caused the Company’s model to indicate that the aforementioned provision for credit losses on loans was appropriate during 2023.

Provision for Credit Losses on Loans to Average Loans

0.22% (0.02)%

The table below reflects the activity in the allowance for credit losses on loans for the years ended December 31:

1 unchanged sentence

Initial allowance for purchased loans with more than insignificant credit deterioration existing at the date of acquisition 25 11,460

Provision for (recovery of) credit losses on loans 23,788 (1,700)

Provision for credit losses on loans 18,793 23,788

Commercial, financial, agricultural 8,838 5,120

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Balance at end of year $ 198,578 $ 192,090

Provision for (recovery of) credit losses on loans to average loans 0.22 % (0.02) %

Provision for credit losses on loans to average loans 0.16 % 0.22 %

Net charge-offs to average loans 0.10 % 0.07 %

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Nonaccrual loans to total loans:

0.56 % 0.49 %

The table below reflects net charge-offs to daily average loans outstanding, by loan category, during the years ended December 31:

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Total $ 12,330 $ 11,963,141 0.10% $ 7,329 $ 10,677,995 0.07%

The following table provides further details of the Company’s net charge-offs of loans secured by real estate for the years ended December 31:

The following table provides further details of the Company’s net charge-offs (recoveries) of loans secured by real estate for the years ended December 31:

Real estate – construction:

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Beginning balance $ 20,118 $ 20,035

Provision for (recovery of) credit losses on unfunded loan commitments (included in other noninterest expense) 83 (500)

(Recovery of) provision for credit losses on unfunded loan commitments (3,200) 83

Ending balance $ 16,918 $ 20,118

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Reductions in the carrying value subsequent to acquisition are charged to earnings and are included in “Other real estate owned” in the Consolidated Statements of Income.

The following table provides details of the Company’s nonperforming assets as of the dates presented.

December 31, 2022

Nonaccruing loans $ 56,545

Accruing loans past due 90 days or more 331

Total nonperforming loans 56,876

Other real estate owned 1,763

Total nonperforming assets $ 58,639

Nonperforming loans to total loans 0.49 %

Nonaccruing loans to total loans 0.49 %

Nonperforming assets to total assets 0.35 %

December 31, 2021

The following table provides details of the Company’s nonperforming assets as of December 31 for each of the years presented.

Nonaccruing loans $ 68,816 $ 56,545

6 unchanged sentences

Nonperforming assets to total assets 0.46 % 0.35 %

The level of nonperforming loans increased $6,071 from December 31, 2021, while other real estate owned decreased $777 during the same period.

The level of nonperforming loans increased $12,494 from December 31, 2022, while other real estate owned increased $7,859 during the same period.

The following table presents nonperforming loans by loan category at December 31 for each of the years presented.

Commercial, financial, agricultural $ 6,282 $ 12,543

Lease financing — 11

Real estate – construction:

Residential — 77

Commercial — —

Condominiums — —

Total real estate – construction — 77

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Total loans 30-89 days past due on which interest was still accruing were $54,031 at December 31, 2023 as compared to $58,703 at December 31, 2022.

Although not classified as nonperforming loans, another category of assets that contribute to our credit risk is restructured loans.

Restructured loans are those for which concessions have been granted to the borrower due to a deterioration of the borrower’s financial condition and are performing in accordance with the new terms.

Such concessions may include reduction in interest rates or deferral of interest or principal payments.

In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest.

Restructured loans that are not performing in accordance with their restructured terms that are either contractually 90 days past due or placed on nonaccrual status are reported as nonperforming loans.

As shown below, restructured loans totaled $22,624 at December 31, 2022 compared to $20,259 at December 31, 2021.

At December 31, 2022, loans restructured through interest rate concessions represented 19% of total restructured loans, while loans restructured by a concession in payment terms represented the remainder.

The following table provides further details of the Company’s restructured loans at December 31 for each of the years presented:

Commercial, financial, agricultural $ 351 $ 967

Real estate – 1-4 family mortgage:

Primary 10,437 11,750

Home equity 134 298

Rental/investment 234 350

Land development 88 —

Total real estate – 1-4 family mortgage 10,893 12,398

Real estate – commercial mortgage:

Owner-occupied 3,437 5,407

Non-owner occupied 7,819 1,341

Land development 72 75

Total real estate – commercial mortgage 11,328 6,823

Installment loans to individuals 52 71

Total restructured loans $ 22,624 $ 20,259

Changes in the Company’s restructured loans are set forth in the table below for the periods presented.

Balance as of January 1 $ 20,259 $ 20,448

Additional loans with concessions 10,332 12,639

Reclassified as performing 5,326 366

Reductions due to:

Reclassified as nonperforming (7,411) (4,390)

Paid in full (4,758) (7,586)

Charge-offs — (205)

Principal paydowns (1,124) (1,013)

Balance as of December 31 $ 22,624 $ 20,259

The following table shows the principal amounts of nonperforming and restructured loans as of December 31 of each year presented.

All loans where information exists about possible credit problems that would cause us to have serious doubts about the borrower’s ability to comply with the current repayment terms of the loan have been reflected in the table below.

Nonaccruing loans $ 56,545 $ 49,364

Accruing loans past due 90 days or more 331 1,441

Total nonperforming loans 56,876 50,805

Restructured loans 22,624 20,259

Total nonperforming and restructured loans $ 79,500 $ 71,064

Certain modifications of loans made to borrowers experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay (including an extension of the amortization period), or a term extension, excluding covenant waivers and modification of contingent acceleration clauses, are required to be disclosed in accordance with Accounting Standards Update 2022-02, “Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”).

At December 31, 2023, modifications meeting the disclosure criteria in ASU 2022-02 that were performing in accordance with their modified terms, including unused commitments, totaled $3,115.

Upon the Company’s determination that a modified loan has been subsequently deemed uncollectible, the loan, or portion of the loan, is charged off, the amortized cost basis of the loan is reduced by the uncollectible amount, and the allowance for credit losses is adjusted accordingly.

For more information about loan modifications made to borrowers experiencing financial difficulty, see the information under the heading “Certain Modifications to Borrowers Experiencing Financial Difficulty” in Note 3, “Loans,” in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, in this report.

The following table provides details of the Company’s other real estate owned as of December 31 for each of the years presented:

9 unchanged sentences

Dispositions (2,840) (2,875)

Other 1 (140)

Balance as of December 31 $ 9,622 $ 1,763

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EVE measures our long-term earnings exposure from changes in market rates of interest.

EVE is defined as the present value of assets minus the present value of liabilities at a point

in time for a given set of market rate assumptions.

EVE is defined as the present value of assets minus the present value of liabilities at a point in time for a given set of market rate assumptions.

An increase in EVE due to a specified rate change indicates an improvement in the long-term earnings capacity of the balance sheet assuming that the rate change remains in effect over the life of the current balance sheet.

The following table presents the projected impact of a change in interest rates on (1) static EVE and (2) earnings at risk (that is, net interest income) for the 1-12 and 13-24 month periods commencing January 1, 2023, in each case as compared to the result under rates present in the market on December 31, 2022.

under rates present in the market on December 31, 2023.

The changes in interest rates assume an instantaneous and parallel shift in the yield curve and do not take into account changes in the slope of the yield curve.

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Liquidity management is the ability to meet the cash flow requirements of customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs.

Core deposits, which are deposits excluding brokered deposits and time deposits greater than $250,000, are the major source of funds used by the Bank to meet cash flow needs.

Core deposits, which are deposits excluding time deposits greater than $250,000 and brokered deposits, are the major source of funds used by the Bank to meet short- and long-term cash flow needs.

Maintaining the ability to acquire these funds as needed in a variety of markets is the key to assuring the Bank’s liquidity.

We may also access the brokered deposit market where rates are favorable to other sources of liquidity.

As core deposit balances declined over the second half of 2022, especially in the fourth quarter, we added $233,133 of brokered deposits.

We may also choose to access the brokered deposit market where rates are favorable to other sources of liquidity.

Brokered deposits totaled $461,441 and $233,133 at December 31, 2023 and 2022, respectively, and the maturities of these deposits are described in the table under the “Contractual Obligations” heading below.

Management continually monitors the Bank’s liquidity and non-core dependency ratios to ensure compliance with targets established by the ALCO.

At December 31, 2022, the Company remains below limits on brokered deposits and other funding sources established by the ALCO.

At December 31, 2023 and 2022, the Company remained below limits on brokered deposits and other funding sources established by the ALCO.

Our investment portfolio is another alternative for meeting liquidity needs.

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Interest is charged at the prevailing market rate on these borrowings.

Federal funds are short term borrowings, generally overnight borrowings, between financial institutions, while security repurchase agreements represent funds received from customers, generally on an overnight or continuous basis, which are collateralized by investment securities owned or, at times, borrowed and re-hypothecated by the Company.

There were no federal funds purchased outstanding at December 31, 2022, and 2021.

Security repurchase agreements were $12,232 at December 31, 2022, as compared to $13,947 at December 31, 2021.

The Company had $700,000 in short-term borrowings from the FHLB (i.e., advances with original maturities less than one year) at December 31, 2022, and none at December 31, 2021.

We increased our short-term FHLB borrowings over the course of 2022 to fund our loan growth due to market pressure on deposit balances and rates.

Federal funds are short term borrowings, generally overnight borrowings, between financial institutions, while security repurchase agreements represent funds received from customers, generally on an overnight or continuous basis, that are collateralized by investment securities owned or, at times, borrowed and re-hypothecated by the Company.

There were no federal funds

purchased outstanding at December 31, 2023, and 2022, while security repurchase agreements were $7,577 at December 31, 2023, as compared to $12,232 at December 31, 2022.

The Company had $300,000 and $700,000 in short-term borrowings from the FHLB (i.e., advances with original maturities less than one year) at December 31, 2023, and 2022, respectively.

Long-term FHLB borrowings are used to match-fund fixed rate loans in order to minimize interest rate risk and also are used to meet day-to-day liquidity needs, particularly when the cost of such borrowings compares favorably to the rates that we would be required to pay to attract deposits.

At December 31, 2022, there were no outstanding long-term advances with the FHLB as compared to $417 at December 31, 2021.

At December 31, 2023 and 2022, there were no outstanding long-term advances with the FHLB.

The total amount of the remaining credit available to us from the FHLB at December 31, 2023 was $2,922,315.

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For more information about our subordinated notes, see Note 11, “Long-Term Debt” in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, in this report.

Our strategy in choosing funds is focused on minimizing cost in the context of our balance sheet composition, interest rate risk position and liquidity needs to fund loan growth.

Our strategy in choosing funding sources is focused on minimizing cost in the context of our balance sheet composition, interest rate risk position and our immediate and future liquidity needs to fund loan growth and other cash needs of customers.

Accordingly, management targets growth of non-interest bearing deposits.

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Proceeds from the sale, maturity or call of securities within our investment portfolio were $747,959 for 2023 compared to $452,955 for 2022.

These proceeds from the investment portfolio were primarily reinvested into interest-earning assets.

Proceeds from the investment portfolio were primarily used to pay down FHLB borrowings and fund loan growth.

Purchases of investment securities were $11,899 for 2023 compared to $804,899 for 2022.

Cash provided by financing activities for the year ended December 31, 2023 was $132,205 compared to $167,639 for the year ended December 31, 2022.

Overall deposits decreased $418,758 for the year ended December 31, 2022 compared to an increase of $1,846,643 for 2021.

Total deposits increased $589,819 for the year ended December 31, 2023 compared to a decrease of $418,758 for 2022.

Restrictions on Bank Dividends, Loans and Advances

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Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur.

Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the

Company’s normal credit policies.

Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company’s normal credit policies.

Collateral (e.g., securities, receivables, inventory, equipment, etc.) is obtained based on management’s credit assessment of the customer.

Loan commitments and standby letters of credit do not necessarily represent future cash requirements of the Company.

While the borrower has the ability to draw upon these commitments at any time (assuming the borrower’s compliance with the terms of the loan commitment), these commitments often expire without being drawn upon.

While the borrower has the ability to draw upon these commitments at any time (assuming the borrower’s compliance with the terms

of the loan commitment), these commitments often expire without being drawn upon.

The Company’s unfunded loan commitments and standby letters of credit outstanding at December 31, 2023 and 2022 were as follows:

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Finally, the Company enters into forward interest rate swap contracts on its FHLB borrowings and its junior subordinated debentures that are accounted for as cash flow hedges.

Under each of these contracts, the Company pays a fixed rate of interest and receives a variable rate of interest based on the three-month or one-month LIBOR plus a predetermined spread.

Under each of these contracts, the Company pays a fixed rate of interest and receives a variable rate of interest.

The Company entered into an interest rate swap contract on its subordinated notes that is accounted for as a fair value hedge.

Under this contract, the Company pays a variable rate of interest based on the three-month LIBOR plus a predetermined spread and receives a fixed rate of interest.

Under this contract, the Company pays a variable rate of interest and receives a fixed rate of interest.

For more information about the Company’s off-balance sheet transactions, see Note 13, “Derivative Instruments” and Note 18, “Commitments, Contingent Liabilities and Financial Instruments with Off-Balance Sheet Risk,” in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, in this report.

2 unchanged sentences

Book value per share was $40.92 and $38.18 at December 31, 2023 and 2022, respectively.

The decrease in shareholders’ equity was attributable to earnings retention being more than offset by changes in accumulated other comprehensive income and dividends declared.

The increase in shareholders’ equity was attributable to earnings retention, offset by changes in accumulated other comprehensive income and dividends declared.

In October 2023, the Company’s Board of Directors approved a stock repurchase program, authorizing the Company to repurchase up to $100,000 of its outstanding common stock, either in open market purchases or privately-negotiated transactions.

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Federal Reserve guidelines limit the amount of securities that, similar to our junior subordinated debentures, are includable in Tier 1 capital, but these guidelines did not impact the amount of debentures we include in Tier 1 capital.

Although our existing junior subordinated debentures are currently unaffected by these Federal Reserve guidelines, on account of changes enacted as part of the Dodd-Frank Act, any new trust preferred securities are not

includable in Tier 1 capital.

Further, if we make an acquisition now that we have exceeded $15,000,000 in assets, we will lose Tier 1 treatment of our junior subordinated debentures.

The Company has subordinated notes with a carrying value of $316,422 at December 31, 2023, and $316,091 at December 31, 2022 included in the Company’s Tier 2 capital.

As previously discussed in the “Financial Condition” section above, in the fourth quarter of 2021, the Company issued $200,000 of its 3.00% fixed-to-floating rate subordinated notes due December 1, 2031.

The Federal Reserve, the FDIC and the Office of the Comptroller of the Currency have issued guidelines governing the levels of capital that bank holding companies and banks must maintain.

Those guidelines specify capital tiers, which include the following classifications:

Those guidelines specify capital tiers, which include the following classifications (which include the “capital conservation buffer” discussed below):

Capital Tiers Tier 1 Capital to

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Critically undercapitalized Tangible Equity / Total Assets less than 2%

The following table includes the capital ratios and capital amounts for the Company and the Bank for the years presented:

The following table includes the capital ratios and capital amounts for the Company and the Bank as of the dates presented:

Actual Minimum Capital

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Requirement to be

Capitalized (including the phase-in of the Capital Conservation Buffer)

Capitalized (including the Capital Conservation Buffer)

Amount Ratio Amount Ratio Amount Ratio

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In addition, the Company believes that these non-GAAP financial measures facilitate the making of period-to-period comparisons and are meaningful indicators of its operating performance, particularly because these measures are widely used by industry analysts for companies with merger and acquisition activities.

Also, because intangible assets such as goodwill and the core deposit intangible can vary extensively from company to company and are excluded from the calculation of a financial institution’s

regulatory capital, the Company believes that the presentation of this non-GAAP financial information allows readers to more easily compare the Company’s results to information provided in other regulatory reports and the results of other companies.

Also, because intangible assets such as goodwill and the core deposit intangible can vary extensively from company to company and are excluded from the calculation of a financial institution’s regulatory capital, the Company believes that the presentation of this non-GAAP financial information allows readers to more easily compare the Company’s results to information provided in other regulatory reports and the results of other companies.

The reconciliations from GAAP to non-GAAP for these financial measures are below.

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Return on average tangible assets (non-GAAP) 0.92 % 1.09 % 1.21 %

(1) Tax effect is calculated based on the respective periods’ effective tax rate.

(1) Tax effect is calculated based on the applicable periods’ effective tax rate.

Tangible common equity ratio (Tangible shareholders’ equity to tangible assets)

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Tangible assets (non-GAAP) $ 16,350,075 $ 15,972,292 $ 15,846,530

Tangible Common Equity Ratio

Shareholders’ equity to assets (GAAP)

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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-K

Item 7. Management’s Discussion and Analysis