What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-08 · 326 added, 159 removed, 498 unchanged (49% of the section changed)

45 unchanged sentences

the emergence or continuation of widespread health emergencies or pandemics;

the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;

the Company’s potential judgments, orders, settlements, penalties, fines and reputational damage resulting from pending or future litigation and regulatory investigations, proceedings and enforcement actions;

and our ability to manage the risks involved in the foregoing.

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Financial Highlights

Performance highlights and other developments for the Company as of or for the three months ended March 31, 2024, included the following:

• For the quarter ended March 31, 2024, the Company’s return on average assets was 1.13%, while the return on average equity was 9.50%;

for the trailing quarter ended December 31, 2023, the Company’s return on average assets was 1.05%, while the return on average equity was 9.43%.

• Diluted earnings per share were $0.83 for the first quarter of 2024, compared to $0.78 for the trailing quarter and $1.07 during the first quarter of 2023.

• Net income was $27.7 million compared to $26.1 million in the trailing quarter;

Performance highlights and other developments for the Company as of or for the three and six months ended June 30, 2024, included the following:

• For the quarter ended June 30, 2024, the Company’s return on average assets was 1.19%, while the return on average equity was 9.99%;

for the trailing quarter ended March 31, 2024, the Company’s return on average assets was 1.13%, while the return on average equity was 9.50%.

• Diluted earnings per share were $0.87 for the second quarter of 2024, compared to $0.83 for the trailing quarter and $0.75 during the second quarter of 2023.

• Net income increased to $29.0 million as compared to $27.7 million in the trailing quarter;

pre-tax pre-provision net revenue was $39.5 million compared to $42.0 million in the trailing quarter.

• Deposit balances increased $62.6 million or 3.1% (annualized) from the trailing quarter.

• The loan to deposit ratio decreased to 85.1% as of March 31, 2024, as compared to 86.7% for the trailing quarter end, as a result of deposit growth during the quarter.

• The efficiency ratio improved to 57.36% for the quarter ended March 31, 2024, as compared to 58.71% for the trailing quarter end, due to management's focus on expense control as well as the absence of non-recurring costs in the quarter.

• The provision for credit losses was approximately $4.3 million during the quarter ended March 31, 2024, as compared to $6.0 million during the trailing quarter end, reflecting the risks associated with general economic trends and forecasts.

• The allowance for credit losses (ACL) to total loans was 1.83% as of March 31, 2024, compared to 1.79% as of the trailing quarter end, and 1.69% as of March 31, 2023.

Non-performing assets to total assets were 0.37% on March 31, 2024, as compared to 0.35% as of December 31, 2023, and 0.20% at March 31, 2023.

At March 31, 2024, the ACL represented 363% of non-performing loans.

• The loan to deposit ratio decreased to 83.8% as of June 30, 2024, as compared to 85.1% for the trailing quarter end, as a result of both deposit growth and loan contraction during the quarter.

• The efficiency ratio was 59.61% for the quarter ended June 30, 2024, as compared to 57.36% for the trailing quarter.

• The provision for credit losses was approximately $0.4 million during the quarter ended June 30, 2024, as compared to $4.3 million during the trailing quarter end, reflecting the continued risks associated with general economic trends and forecasts, largely offset by a decline in specific reserves and loan balances.

• The allowance for credit losses (ACL) to total loans was 1.83% as of June 30, 2024, compared to 1.83% as of the trailing quarter end, and 1.80% as of June 30, 2023.

Non-performing assets to total assets were 0.36% on June 30, 2024, as compared to 0.37% as of March 31, 2024, and 0.41% at June 30, 2023.

At June 30, 2024, the ACL represented 377% of non-performing loans.

• Average yield on earning assets was 5.24%, an increase of 11 basis points over the 5.13% in the trailing quarter.

• Net interest margin was 3.68% in the recent quarter, narrowing 13 basis points from 3.81% in the trailing quarter;

management expects that net interest margin will reach an inflection point in the second half of 2024.

• Non-interest bearing deposits averaged 33.8% of total deposits during the first quarter of 2024.

• Net interest margin (FTE) was 3.68% in the recent quarter, unchanged from the trailing quarter.

• Non-interest bearing deposits averaged 32.0% of total deposits during the second quarter of 2024.

• The average cost of total deposits was 1.45%, an increase of 24 basis points as compared to 1.21% in the trailing quarter, and an increase of 87 basis points from 0.58% in the same quarter of the prior year;

4 unchanged sentences

Three months ended

June 30, Six months ended

2024 2023 2024 2023

Net interest income $ 81,997 $ 88,601 $ 164,733 $ 181,937

37 unchanged sentences

Three months ended

(in thousands) March 31,

(in thousands) June 30,

2024 March 31,

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3.64 % 3.62 % 0.02 %

Three months ended June 30,

(in thousands) 2024 2023 Change % Change

Interest income $ 117,032 $ 107,158 $ 9,874 9.2 %

Interest expense (35,035) (18,557) (16,478) 88.8 %

Fully tax-equivalent adjustment (FTE) (1)

275 379 (104) (27.4) %

Net interest income (FTE) $ 82,272 $ 88,980 $ (6,708) (7.5) %

Net interest margin (FTE) 3.68 % 3.96 %

Acquired loans discount accretion, net:

Amount (included in interest income) $ 850 $ 1,471 $ (621) (42.2) %

Net interest margin less effect of acquired loan discount accretion (1)

3.64 % 3.89 % (0.25) %

Six months ended June 30,

(in thousands) 2024 2023 Change % Change

Interest income $ 232,449 $ 210,065 $ 22,384 10.7 %

Interest expense (67,716) (28,128) (39,588) 140.7 %

Fully tax-equivalent adjustment (FTE) (1)

550 770 (220) (28.6) %

Net interest income (FTE) $ 165,283 $ 182,707 $ (17,424) (9.5) %

Net interest margin (FTE) 3.68 % 4.08 %

Acquired loans discount accretion, net:

Amount (included in interest income) $ 2,182 $ 2,868 $ (686) (23.9) %

Net interest margin less effect of acquired loan discount accretion (1)

3.63 % 4.02 % (0.39) %

(1) Certain information included herein is presented on a FTE basis and/or to present additional financial details which may be desired by users of this financial information.

5 unchanged sentences

Despite the elevated rate environment, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, remains consistent.

During the quarter ended March 31, 2024 and March 31, 2023, the purchased loan discount accretion was $1.3 million and $1.4 million, respectively.

During the quarters ended June 30, 2024, March 31, 2024 and June 30, 2023, the purchased loan discount accretion was $0.9 million, $1.3 million and $1.5 million, respectively.

Summary of Average Balances, Yields/Rates and Interest Differential

3 unchanged sentences

Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate (dollars in thousands).

For the three months ended

March 31, 2024 March 31, 2023

Three months ended June 30,

Balance Interest

32 unchanged sentences

(3) Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of i nterest-earning assets, then annualized based on the number of days in the given period .

Net interest income (FTE) during the three months ended March 31, 2024, decreased $4.0 million or 4.6% to $83.0 million compared to $87.0 million during the three months ended December 31, 2023.

In addition, net interest margin declined 13 basis points to 3.68%, compared to the trailing quarter.

The decrease in net interest income is primarily attributed to an additional $2.4 million or 11.4% in deposit interest expense due to changes in product mix as customers continue to be drawn towards higher yielding term deposit accounts.

Deposit cost increases during the current quarter were also influenced by continued competitive pricing pressures.

Net interest income for the quarter was also impacted by an increase of $1.0 million in other borrowings costs and declines in investment income totaling $1.4 million, with a partial offset from increased loan income of $1.0 million.

As compared to the same quarter in the prior year, average loan yields increased 51 basis points from 5.21% during the three months ended March 31, 2023, to 5.72% during the three months ended March 31, 2024.

The accretion of discounts from acquired loans added 9 and 11 basis points to loan yields during the quarters ended March 31, 2024 and March 31, 2023, respectively.

The rates paid on interest bearing deposits increased by 21 basis points during the quarter ended March 31, 2024, compared to the trailing quarter.

The cost of interest-bearing deposits increased by 140 basis points between the quarter ended March 31, 2024, and the same quarter of the prior year.

In addition, the average balance of noninterest-bearing deposits decreased by $170.3 million quarter over quarter and decreased by $725.8 million from three month average for the period ended March 31, 2023 amidst a continued migration of customer funds to interest-bearing products.

As of March 31, 2024, the ratio of average total noninterest-bearing deposits to total average deposits was 33.8%, as compared to 35.2% and 41.0% at December 31, 2023 and March 31, 2023, respectively.

Net interest income (FTE) during the three months ended June 30, 2024, decreased $6.7 million or 8% to $82.3 million compared to $89.0 million during the three months ended June 30, 2023.

In addition, net interest margin declined 28 basis points to 3.68%, compared to the same quarter last year.

The decrease in net interest income is primarily attributed to an additional $17.6 million in deposit interest expense due to changes in product mix in conjunction with competitive pricing pressures.

The cost of interest-bearing deposits increased by 119 basis points between the quarter ended June 30, 2024 and the same quarter of the prior year.

In addition, the average balance of noninterest-bearing deposits decreased by $562.5 million from the three month average for the period ended June 30, 2023 as customers continue to be migrate towards higher yielding term deposit accounts.

As of June 30, 2024, the ratio of average total noninterest-bearing deposits to total average deposits was 32.0%, as compared to 33.8% and 39.2% at March 31, 2024 and June 30, 2023, respectively.

The increase in cost of interest bearing liabilities was partially offset by increased interest and fee income on loans totaling $11.5 million compared to the same quarter of the prior year.

Average loan yields increased 44 basis points from 5.38% during the three months ended June 30, 2023, to 5.82% during the three months ended June 30, 2024.

The accretion of discounts from acquired loans added 5 and 9 basis points to loan yields during the quarters ended June 30, 2024 and 2023, respectively.

Additionally, the average balance of loans during the quarter increased $324.9 million compared to the same period in the prior year.

Six months ended June 30,

Balance Interest

Expense Rates

/Paid Average

Balance Interest

Expense Rates

Loans $ 6,789,072 $ 194,713 5.77 % $ 6,440,817 $ 169,161 5.30 %

Investment securities - taxable 2,065,412 34,833 3.39 % 2,370,722 37,691 3.21 %

Investment securities - nontaxable (1)

138,534 2,382 3.46 % 185,417 3,340 3.63 %

Total investments 2,203,946 37,215 3.40 % 2,556,139 41,031 3.24 %

Cash at Federal Reserve and other banks 41,229 1,071 5.22 % 28,090 643 4.62 %

Total interest-earning assets 9,034,247 232,999 5.19 % 9,025,046 210,835 4.71 %

Other assets 784,765 838,425

Total assets $ 9,819,012 $ 9,863,471

Liabilities and shareholders’ equity:

Interest-bearing demand deposits $ 1,740,107 $ 11,162 1.29 % $ 1,665,371 $ 2,560 0.31 %

Savings deposits 2,662,595 23,159 1.75 % 2,833,365 11,090 0.79 %

Time deposits 914,042 18,229 4.01 % 351,166 2,952 1.70 %

Total interest-bearing deposits 5,316,744 52,550 1.99 % 4,849,902 16,602 0.69 %

Other borrowings 455,150 11,496 5.08 % 377,995 8,213 4.38 %

Junior subordinated debt 101,117 3,670 7.30 % 101,050 3,313 6.61 %

Total interest-bearing liabilities 5,873,011 67,716 2.32 % 5,328,947 28,128 1.06 %

Noninterest-bearing deposits 2,605,999 3,249,488

Other liabilities 168,044 185,123

Shareholders’ equity 1,171,958 1,099,913

Total liabilities and shareholders’ equity $ 9,819,012 $ 9,863,471

Net interest spread (2)

2.87 % 3.65 %

Net interest income and interest margin (3)

$ 165,283 3.68 % $ 182,707 4.08 %

(1) Fully taxable equivalent (FTE).

All yields and rates are calculated using specific day counts for the period and year as applicable.

(2) Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

Net interest income (FTE) during the six months ended June 30, 2024, decreased $17.4 million, or 10%, to $165.3 million compared to $182.7 million during the six months ended June 30, 2023.

In addition, net interest margin declined 40 basis points to 3.68%, compared to the same period in the prior year.

The decrease in net interest income is primarily attributed to an increased cost of interest bearing liabilities, primarily on deposits.

The cost of interest bearing deposits increased by 130 basis points during the six months ended June 30, 2024, compared to the same period in the prior year.

In addition, the average balance of noninterest-bearing deposits decreased by $643.5 million from the six month average for the period ended June 30, 2023 amidst a continued migration of customer funds to interest-bearing products, as discussed above.

The increases in the cost of interest bearing liabilities were partially offset by increased interest and fee income on loans.

As compared to the same period in the prior year, the average balance of loans increased $348.3 million and average loan yields increased 47 basis points from 5.30% during the six months ended June 30, 2023, to 5.77% during the six months ended June 30, 2024.

The accretion of discounts from acquired loans added 8 and 9 basis points to loan yields during the six months ended June 30, 2024 and June 30, 2023, respectively.

Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid

1 unchanged sentence

Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components.

Three months ended March 31, 2024

compared with three months ended March 31, 2023

Three months ended June 30, 2024

compared with three months ended June 30, 2023

(in thousands) Volume Rate Total

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The following commentary regarding net interest income, interest income and interest expense may be best understood while referencing the Summary of Average Balances, Yields/Rates and Interest Differential and the Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid shown above.

Net interest income (FTE) during the three months ended March 31, 2024 decreased $10.7 million to $83.0 million compared to $93.7 million during the three months ended March 31, 2023.

Net interest income (FTE) during the three months ended June 30, 2024 decreased $6.7 million to $82.3 million compared to $89.0 million during the three months ended June 30, 2023.

The overall decrease in net interest income (FTE) was due to increasing interest rates elevating interest expense on interest-bearing liabilities, most significantly deposits.

Elevated interest rates also improved interest income on earning assets by $9.8 million, partially offsetting the increases in interest expense.

Six months ended June 30, 2024

compared with six months ended June 30, 2023

(in thousands) Volume Rate Total

Increase (decrease) in interest income:

Loans $ 18,520 $ 7,032 $ 25,552

Investment securities

(11,502) 7,686 (3,816)

Cash at Federal Reserve and other banks 607 (179) 428

Total interest-earning assets 7,625 14,539 22,164

Increase (decrease) in interest expense:

Interest-bearing demand deposits 232 8,370 8,602

Savings deposits (1,349) 13,418 12,069

Time deposits 9,569 5,708 15,277

Other borrowings 3,379 (96) 3,283

Junior subordinated debt 4 353 357

Total interest-bearing liabilities 11,835 27,753 39,588

Decrease in net interest income $ (4,210) $ (13,214) $ (17,424)

Net interest income (FTE) during the six months ended June 30, 2024 decreased $17.4 million to $165.3 million compared to $182.7 million during the six months ended June 30, 2023.

The overall decrease in net interest income (FTE) was due to increasing interest rates elevating interest expense on interest-bearing liabilities, most significantly deposits and other borrowings, resulting in a net increase of $35.9 million and $3.3 million, respectively.

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Asset Quality and Credit Loss Provisioning

During the three months ended March 31, 2024, the Company recorded a provision for credit losses of $4.3 million, as compared to $6.0 million during the trailing quarter, and $4.2 million during the first quarter of 2023.

Three months ended

(dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023

During the three months ended June 30, 2024, the Company recorded a provision for credit losses of $0.4 million, as compared to $4.3 million during the trailing quarter, and $9.7 million during the second quarter of 2023.

Three months ended Six months ended

(dollars in thousands) June 30,

2024 June 30,

2023 June 30,

2024 June 30,

Addition to allowance for credit losses $ 335 $ 8,980 $ 4,350 $ 13,295

2 unchanged sentences

Total provision for (reversal of) credit losses $ 405 $ 9,650 $ 4,710 $ 13,845

The allowance for credit losses (ACL) was $124.4 million or 1.83% of total loans as of March 31, 2024.

The provision for credit losses on loans of $4.0 million during the recent quarter was the net effect of charge-offs and increases in reserves for qualitative factors and quantitative reserves under the cohort model, inclusive of a $1.5 million decrease in specific reserves for individually evaluated credits.

On a comparative basis, the provision for credit losses of $4.3 million during the three months ended March 31, 2023, was attributed to both loan growth and qualitative components of the ACL model.

For the current quarter, the qualitative components of the ACL resulted in a net increase in required reserves due primarily to year over year increases in concentrated loan growth and California unemployment trends.

The quantitative component of the ACL decreased reserve requirements by approximately $1.3 million over the trailing quarter, primarily attributed to decreases in specific reserves.

Three months ended

(dollars in thousands) March 31, 2024 March 31, 2023

The allowance for credit losses (ACL) was $123.5 million or 1.83% of total loans as of June 30, 2024.

For the current quarter, the qualitative components of the ACL that contributed to an increase in required reserves primarily related to uncertainty around US policy and related effects on domestic economic trends that are inconsistent with those desired by the FOMC.

Three months ended June 30, Six months ended June 30,

(dollars in thousands) 2024 2023 2024 2023

Balance, beginning of period $ 124,394 $ 108,407 $ 121,522 $ 105,680

5 unchanged sentences

This forecast data continues to evolve and includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date.

Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing, energy and food prices.

Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing, energy and general services.

Management notes the rapid intervals of rate increases by the Federal Reserve may create repricing risk for certain borrowers and continued inversion of the yield curve, creates informed expectations of the US potentially entering a recession within 12 months.

While projected cuts in interest rates from the Federal Reserve during 2024 may improve this outlook, the uncertainty associated with the extent and timing of these potential reductions has inhibited a material benefit to forecasted reserve levels.

As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is appropriate to cautiously maintain a reserve level that incorporates such risk factors.

Loans past due 30 days or more decreased by $2.9 million during the quarter ended March 31, 2024, to $16.5 million, as compared to $19.4 million at December 31, 2023.

Of the total $16.5 million in loans identified as past due, approximately $4.7 million is less than 90 days past due, the majority of which is well-secured.

Non-performing loans were $34.2 million at March 31, 2024, an increase of $2.4 million from $31.9 million as of December 31, 2023, and an increase of $18.2 million from $16.0 million as of March 31, 2023.

The increase in non-performing loans as compared to the trailing quarter is concentrated between non-owner occupied commercial real estate and agriculture l ending, specifically the result of declines in commodity pricing and therefore, expected revenue available to borrowers from harvest proceeds.

As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is appropriate to maintain a reserve level that incorporates such risk factors.

Loans past due 30 days or more increased by $13.9 million during the quarter ended June 30, 2024, to $30.4 million, as compared to $16.5 million at March 31, 2024.

The majority of loans identified as past due are well-secured by collateral, and approximately $13.3 million is less than 90 days delinquent.

Non-performing loans were $32.8 million at June 30, 2024, a decrease of $1.4 million from $34.2 million as of March 31, 2024, and a decrease of $4.8 million from $37.6 million as of June 30, 2023.

Management continues to proactively work with these borrowers to identify actionable and appropriate resolution strategies which are customary for the industries.

Of the $34.2 million loans designated as non-performing as of March 31, 2024, approximately $21.3 million are current with respect to payments required under their original loan agreements.

March 31, % of Loans Outstanding December 31, % of Loans Outstanding March 31 % of Loans Outstanding

(dollars in thousands) 2024 2023 2023

Of the $32.8 million loans designated as non-performing as of June 30, 2024, approximately $11.7 million are current or less than 30 days past due with respect to payments required under their existing loan agreements.

(dollars in thousands) June 30,

2024 % of Loans Outstanding March 31,

2024 % of Loans Outstanding June 30,

2023 % of Loans Outstanding

Pass $ 6,536,223 96.9 % $ 6,616,294 97.3 % $ 6,299,893 96.6 %

4 unchanged sentences

Loans past due 30+ days to total loans 0.45 % 0.24 % 0.15 %

The ratio of classified loans to total loans of 1.12% as of March 31, 2024 decreased 17 basis points from December 31, 2023 and increased 12 basis points from the comparative quarter ended 2023.

The improvement in classified loans outstanding was spread amongst several substandard relationships primarily within commercial real estate.

As a percentage of total loans outstanding, classified assets remain consistent with volumes experienced prior to the recent quantitative easing cycle spurred by the COVID pandemic, and reflects management's historically conservative approach to credit risk monitoring.

The Company's combined criticized loan balances decreased during the quarter by $6.9 million to $184.4 million as of March 31, 2024 and Management believes the associated credit risk has been adequately reserved against.

As of March 31, 2024, other real estate owned consisted of 10 properties with a carrying value of approximately $2.5 million, a decrease of $0.2 million from the trailing quarter ended.

Non-performing assets of $36.7 million at March 31, 2024, represented 0.37% of total assets, a change from the $34.6 million or 0.35% and $19.5 million or 0.20% as of December 31, 2023 and March 31, 2023, respectively.

The ratio of classified loans to total loans of 1.56% as of June 30, 2024, increased 44 basis points from March 31, 2024 and increased 56 basis points from the comparative quarter ended 2023.

The change in criticized loans outstanding as compared to the trailing quarter totaled $21.9 million.

Loans with the risk grade classification substandard increased by $28.7 million over the trailing quarter and relate primarily to five loans across two relationships totaling $25.2 million, including $18.0 million in agricultural and farmland loans and $7.2 million in non-owner occupied CRE loans.

All loans within these relationships are performing as agreed and have substantial collateral support and borrower guarantees.

As a percentage of total loans outstanding, classified assets remain consistent with volumes experienced prior to the recent quantitative easing cycle spurred by the COVID pandemic and reflect management's historically conservative approach to credit risk monitoring.

The Company's combined criticized loan balances totaled $206.3 million as of June 30, 2024, an improvement of $14.5 million from June 30, 2023.

Outstanding balances on construction loans, which have historically been associated with elevated levels of risk, experienced balance reductions of $65.6 million during the current quarter.

These reductions were primarily associated with $49.1 million in balances that were

converted to term loans upon the completion of construction and achievement of stabilized occupancy, $44.0 million in balances that paid down or paid-off, and the offsetting balance representing new draws or originations.

Further, management has taken action to proactively assess the repayment capacity of borrowers that will likely be subject to rate resets in the near term.

To date this analysis as well as management's observations of loans that have experienced a rate reset, have not resulted in the need to provide any

As of June 30, 2024, other real estate owned consisted of 10 properties with a carrying value of approximately $2.5 million, which is unchanged from the trailing quarter end.

Non-performing assets of $35.3 million at June 30, 2024, represented 0.36% of total assets, a change from the $36.7 million or 0.37% and $40.5 million or 0.41% as of March 31, 2024 and June 30, 2023, respectively.

Non-interest Income

13 unchanged sentences

Sale of customer checks 301 407 (106) (26.0) %

Loss on sale of investment securities — (164) 164 n/m

Gain (loss) on marketable equity securities (28) 42 (70) (166.7) %

Loss on sale or exchange of investment securities (45) — (45) n/m

Loss on marketable equity securities (121) (42) (79) 188.1 %

Other 203 93 110 118.3 %

1 unchanged sentence

Total non-interest income $ 15,866 $ 15,741 $ 125 0.8 %

Non-interest income increased $2.1 million or 15.7% to $15.8 million during the three months ended March 31, 2024, compared to $13.6 million during the comparative quarter ended March 31, 2023.

Service charges on deposit accounts increased by $1.2 million or 35.9% as compared to the equivalent period in 2023 following $0.9 million in waived or reversed fees due to a network outage in the earlier period.

Non-interest income increased $0.1 million or 0.8% to $15.9 million during the three months ended June 30, 2024, compared to $15.7 million during the comparative quarter ended June 30, 2023.

Interchange fees earned in the second quarter of 2023 were elevated as compared to the comparable 2024 quarter due to increased customer activity.

The remaining various components of non-interest income are largely consistent period over period.

Six months ended

(in thousands) 2024 2023 $ Change % Change

ATM and interchange fees $ 12,541 $ 13,200 $ (659) (5.0) %

Service charges on deposit accounts 9,510 8,012 1,498 18.7 %

Other service fees 2,652 2,158 494 22.9 %

Mortgage banking service fees 866 919 (53) (5.8) %

Change in value of mortgage servicing rights (136) (124) (12) 9.7 %

Total service charges and fees 25,433 24,165 1,268 5.2 %

Increase in cash value of life insurance 1,634 1,590 44 2.8 %

Asset management and commission income 2,487 2,092 395 18.9 %

Gain on sale of loans 649 501 148 29.5 %

Lease brokerage income 315 172 143 83.1 %

Sale of customer checks 613 695 (82) (11.8) %

Loss on sale of investment securities (45) (164) 119 (72.6) %

Loss on marketable equity securities (149) — (149) n/m

Other 700 325 375 115.4 %

Total other non-interest income 6,204 5,211 993 19.1 %

Total non-interest income $ 31,637 $ 29,376 $ 2,261 7.7 %

Non-interest income increased $2.3 million or 7.7% to $31.6 million during the six months ended June 30, 2024, compared to $29.4 million during the comparative six months ended June 30, 2023.

As noted above, interchange fees as driven by customer activities was elevated in the 2023 period and resulted in a decrease of $0.7 million as compared to the six months ended June 30, 2024.

Service charges on deposit accounts increased by $1.5 million or 18.7% as compared to the equivalent period in 2023 following $0.9 million in waived or reversed fees as a courtesy to customers in the 2023 year.

As noted above, elevated activity within asset management and realized gains from alternative investments contributed to the overall improvement.

Non-interest Expense

18 unchanged sentences

Courier service 559 483 76 15.7 %

Loss on disposal of fixed assets 1 18 (17) (94.4) %

Other miscellaneous expense 3,955 5,201 (1,246) (24.0) %

Total other non-interest expense 22,938 26,529 (3,591) (13.5) %

Total non-interest expense $ 58,339 $ 61,243 $ (2,904) (4.7) %

Average full time equivalent staff 1,160 1,210 (50) (4.1) %

Non-interest expense decreased $2.9 million or 4.7% to $58.3 million during the three months ended June 30, 2024, as compared to $61.2 million for the quarter ended June 30, 2023.

Regulatory assessment charges decreased $0.8 million or 42.6% following changes in various assessments as compared to the same period of 2023.

Additionally, operational losses decreased $0.8 million or 77.6% attributable to a normalized quarterly rate following non-recurring ATM burglary expenses totaling $0.7 million in the comparative period.

Finally, other miscellaneous expense declined $1.2 million or 24.0% due to non-recurring charges in the comparative period totaling $0.8 million related to non-sufficient fee refunds and elevated provision expense on real estate owned approximating $0.5 million.

Six months ended

(in thousands) 2024 2023 $ Change % Change

Base salaries, net of deferred loan origination costs $ 47,872 $ 47,059 $ 813 1.7 %

Incentive compensation 7,968 7,272 696 9.6 %

Benefits and other compensation costs 13,865 12,946 919 7.1 %

Total salaries and benefits expense 69,705 67,277 2,428 3.6 %

Occupancy 8,014 8,151 (137) (1.7) %

Data processing and software 10,201 8,670 1,531 17.7 %

Equipment 2,686 2,819 (133) (4.7) %

Intangible amortization 2,060 3,312 (1,252) (37.8) %

Advertising 1,581 1,775 (194) (10.9) %

ATM and POS network charges 3,648 3,611 37 1.0 %

Professional fees 3,154 3,574 (420) (11.8) %

Telecommunications 1,069 1,404 (335) (23.9) %

Regulatory assessments and insurance 2,395 2,785 (390) (14.0) %

Postage 648 610 38 6.2 %

Operational losses 596 1,525 (929) (60.9) %

Courier service 1,039 822 217 26.4 %

Gain on sale or acquisition of foreclosed assets (38) — (38) n/m

Loss on disposal of fixed assets 5 — 5 n/m

Loss on disposal of fixed assets 6 18 (12) (66.7) %

Other miscellaneous expense 8,079 8,684 (605) (7.0) %

2 unchanged sentences

Average full time equivalent staff 1,174 1,214 (40) (3.3) %

Non-interest expense increased $2.7 million or 5.0% to $56.5 million during the three months ended March 31, 2024, as compared to $53.8 million for the quarter ended March 31, 2023.

Total salaries and benefits expense increased by $1.7 million or 5.3% to $34.3 million, largely from annual compensation adjustments and other routine increases in benefits and compensation.

Data processing and software expenses increased by $1.1 million or 26.7% related to ongoing investments in the Company's data management and security infrastructure.

Regulatory assessment charges increased $0.5 million or 58.0% following the increase in assessment rates beginning in the second quarter of 2023.

The Company’s effective tax rate was 26.4% for the quarter and year ended March 31, 2024, as compared to 28.4% for the period ended December 31, 2023.

Non-interest expense decreased $0.2 million or 0.2% to $114.8 million during the six months ended June 30, 2024, as compared to $115.0 million for the six months ended June 30, 2023.

This was largely attributed to non-cash intangible amortization expense declines of $1.3 million or 37.8% and operational loss decreases of $0.9 million or 60.9% due to reasons described above.

These declines were partially offset by an increase of $2.4 million or 3.6% in total salaries and benefits expense to $69.7 million, largely from annual compensation adjustments and other routine increases in benefits and compensation.

Salaries expense was also impacted by an increase in average compensation per employee as various strategic talent acquisitions were made in order to further prepare the Company to execute its growth objectives beyond $10 billion in total assets.

Finally, data processing and software expenses increased by $1.5 million or 17.7% related to ongoing investments in the Company's data management and security infrastructure.

The Company’s effective tax rate was 25.8% and 26.1% for the quarter and six months ended June 30, 2024, respectively as compared to 25.6% and 26.3% for the comparative periods ended June 30, 2023, respectively.

Differences between the Company's effective tax rate and applicable federal and state blended statutory rate of approximately 29.6% are due to the proportion of non-taxable revenues, non-deductible expenses, and benefits from tax credits as compared to the levels of pre-tax earnings.

2 unchanged sentences

The following is a comparison of the quarterly change in certain assets and liabilities:

Ending balances March 31, December 31, Annualized

Ending balances June 30, March 31, Annualized

(dollars in thousands) 2024 2024 $ Change

4 unchanged sentences

Total other borrowings 247,773 392,409 (144,636) (147.4)

Loans outstanding increased by $6.2 million or 0.4% on an annualized basis during the quarter ended March 31, 2024.

Loans outstanding decreased by $58.2 million or 3.4% on an annualized basis during the quarter ended June 30, 2024.

During the quarter, loan originations/draws totaled approximately $310.1 million while payoffs/repayments of loans totaled $368.7 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $325.5 million and $321.3 million, respectively.

While origination volume decreased from the previous quarter, activity levels continue to be lower relative to the comparative period in 2023 due in part to disciplined pricing and underwriting, as well as decreased borrower demand given economic uncertainties.

Investment security balances decreased $84.3 million or 14.6% on an annualized basis as the result of net prepayments, and maturities, collectively totaling approximating $66.4 million, in addition to net decreases in the market value of securities of $15.9 million.

For the foreseeable future, management intends to utilize cash flows from the investment security portfolio and organic deposit growth to support loan growth or reduce borrowings, thus driving an improved mix of earning assets.

Deposit balances increased by $153.6 million or 7.8% annualized during the period, led by growth within time deposits.

Proceeds from the call or maturity of investment securities, and growth in deposits, during the quarter supported a net decrease of $240.2 million in short-term borrowings, which totaled $392.4 million at March 31, 2024.

Origination volume activity levels remain slightly lower relative to the comparative period in 2023 due in part to disciplined pricing and underwriting, as well as decreased borrower demand given economic uncertainties.

The increase in payoffs/repayments as compared to the trailing quarter was spread amongst numerous borrowers, regions and loan types.

Investment security balances decreased $135.5 million or 24.4% on an annualized basis as a result of net prepayments, and maturities, collectively totaling approximating $164.0 million and, to a lesser extent, sales totaling $28.6 million, partially offset by security purchases totaling $53.5 million, in addition to net increases in the market value of securities of $4.1 million.

Investment security purchases were comprised of floating rate instruments tied to SOFR with an initial weighted average coupon of 6.77% and a weighted average life of 4.7 years.

Investment security sales were primarily comprised of fixed rate instruments with a weighted average coupon of 2.39% and a weighted average life of 3.8 years.

While management intends to primarily utilize cash flows from the investment security portfolio and organic deposit growth to support loan growth, excess liquidity will be utilized for purchases of investment securities to support net interest income growth and net interest margin expansion.

Deposit balances increased by $62.6 million or 3.1% annualized during the quarter, led by growth within time deposits.

Other borrowings totaled $247.8 million at June 30, 2024, representing a net decrease of $144.6 million from the trailing quarter.

This quarter over quarter decrease was facilitated by proceeds from the sale, call or maturity of investment securities, and growth in deposits.

The following is a comparison of the year over year change in certain assets and liabilities:

Ending balances As of March 31, % Change

Ending balances As of June 30, % Change

(dollars in thousands) 2024 2023 $ Change

4 unchanged sentences

Total other borrowings 247,773 392,714 (144,941) (36.9)

Loan balances increased as a result of organic activities by approximately $378.3 million or 5.9% during the twelve-month period ending March 31, 2024.

Loan balances increased as a result of organic activities by approximately $221.8 million or 3.4% during the twelve-month period ending June 30, 2024.

Over the same period deposit balances have declined by $45.1 million or 0.6%.

The Company has offset these declines through the deployment of excess cash balances, runoff of investment security balances, and proceeds from short-term Federal Home Loan Bank (FHLB) borrowings.

The Company has offset these declines through the deployment of excess cash balances and maturity or sale of investment security balances.

Investment Securities

Investment securities available for sale decreased $84.3 million to $2.1 billion as of March 31, 2024, compared to December 31, 2023.

The decrease is attributed to $66.4 million in calls and principal repayments, in addition to $15.9 million in market value declines.

There were no sales of investment securities during the three months ended March 31, 2024.

Proceeds from the sale of investment securities totaled $24.2 million for the three months ended March 31, 2023, resulting in gross realized losses of $0.2 million.

The following table presents the available for sale debt securities portfolio by major type as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

Investment securities available for sale decreased $211.7 million to $1.9 billion as of June 30, 2024, compared to December 31, 2023.

The decrease is attributed to net prepayments, and maturities, collectively totaling approximating $221.7 million and, to a lesser extent, sales totaling $28.6 million, partially offset by security purchases totaling $53.5 million, in addition to net decreases in the market value of securities of $11.8 million.

Proceeds from the sale of available for sale investment securities totaled $28.6 million for the three and six months ended June 30, 2024, resulting in gross realized losses of $2.9 million.

The following table presents the available for sale debt securities portfolio by major type as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

(in thousands) Fair Value % Fair Value %

7 unchanged sentences

Total debt securities available for sale $ 1,940,783 100.0 % $ 2,152,504 100.0 %

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

(in thousands) Amortized

5 unchanged sentences

Total debt securities held to maturity $ 122,673 100.0 % $ 133,494 100.0 %

Investment securities held to maturity decreased $5.7 million to $127.8 million as of March 31, 2024, as compared to December 31, 2023.

Investment securities held to maturity decreased $10.8 million to $122.7 million as of June 30, 2024, as compared to December 31, 2023.

This decrease is attributable to calls and principal repayments of $10.7 million, and amortization of net purchase premiums of $0.1 million.

5 unchanged sentences

The Company makes loans to borrowers whose applications include a sound purpose, a viable repayment source and a plan of repayment established at inception and generally backed by a secondary source of repayment.

The following table shows the Company’s loan balances, net deferred loan costs and discounts, as of the dates indicated:

(in thousands) March 31, 2024 December 31, 2023

The following table shows the Company’s loan balances, net of deferred loan costs and discounts, as of the dates indicated:

(in thousands) June 30, 2024 December 31, 2023

Commercial real estate $ 4,461,111 66.2 % $ 4,394,802 64.7 %

8 unchanged sentences

“Performing nonaccrual loans” are loans that may be current for both principal and interest payments, or are less than 90 days past due, but for which payment in full of both principal and interest is not expected, and are not well secured and in the process of collection:

(in thousands) March 31,

(in thousands) June 30,

2024 December 31,

9 unchanged sentences

Allowance for credit losses to nonperforming loans 377 % 381 %

Changes in nonperforming assets during the three months ended March 31, 2024

(in thousands) Balance at

December 31, 2023 New NPA /

Changes in nonperforming assets during the three months ended June 30, 2024

(in thousands) Balance at March 31, 2024 New NPA /

Adjustments Pay-downs

/Upgrades Charge-offs/ (1)

Assets Balance at March 31, 2024

Assets Balance at June 30, 2024

Commercial real estate:

16 unchanged sentences

(1) The table above does not include deposit overdraft charge-offs.

Nonperforming assets increased during the three months ended March 31, 2024 by $2.1 million or 6.0% to $36.7 million compared to $34.6 million at December 31, 2023.

The increase in nonperforming assets during the first quarter of 2024 was primarily the result of nonperforming loan increases/down-grades, which totaled $6.3 million during the quarter.

Management is actively engaged in the collection and recovery efforts for all nonperforming assets and believes that the loan loss reserves associated with these loans is sufficient as of March 31, 2024.

Loan charge-offs during the three months ended March 31, 2024

In the first quarter of 2024, the Company recorded $1.2 million in loan charge-offs and $0.1 million in deposit overdraft charge-offs less $0.1 million in loan recoveries and $0.03 million in deposit overdraft recoveries, which collectively resulted in $1.1 million in net charge-offs.

(in thousands)

Nonperforming assets decreased during the three months ended June 30, 2024 by $1.5 million or 4.0% to $35.3 million compared to $36.7 million at March 31, 2024.

The decrease in nonperforming assets during the second quarter of 2024 was primarily the result of nonperforming loan pay-downs and upgrades, which totaled $3.0 million during the quarter, as well as $1.5 million in charge-offs.

Changes in nonperforming assets during the six months ended June 30, 2024

(in thousands) Balance at December 31, 2023 New NPA /

Adjustments Pay-downs

/Upgrades Charge-offs/ (1)

Assets Balance at June 30, 2024

Commercial real estate:

CRE non-owner occupied $ 2,024 3,624 (766) — — $ 4,882

CRE owner occupied 3,994 26 (594) — — 3,426

Multifamily — — — — — —

Farmland 14,484 — (1,413) — — 13,071

Total commercial real estate loans 20,502 3,650 (2,773) — — 21,379

SFR 1-4 1st DT liens 2,811 2,769 (365) (26) — 5,189

SFR HELOCs and junior liens 3,571 756 (996) (40) — 3,291

Other 105 195 (31) (197) — 72

Total consumer loans 6,487 3,720 (1,392) (263) — 8,552

Commercial and industrial 2,513 1,976 (866) (1,000) — 2,623

Construction 67 9 (1) — (12) 63

Agriculture production 2,321 19 (733) (1,450) — 157

Leases — — — — — —

Total nonperforming loans 31,890 9,374 (5,765) (2,713) (12) 32,774

Foreclosed assets 2,705 (223) (1) — 12 2,493

Total nonperforming assets $ 34,595 9,151 (5,766) (2,713) — $ 35,267

(1) The table above does not include deposit overdraft charge-offs.

Nonperforming assets increased during the six months ended June 30, 2024 by $0.7 million or 1.9% to $35.3 million compared to $34.6 million at December 31, 2023.

The increase in nonperforming assets during the six months ended June 30, 2024 was primarily the result of nonperforming loan increases/down-grades, which totaled $9.4 million.

Loan charge-offs during the three and six months ended June 30, 2024

In the second quarter of 2024, the Company recorded $1.5 million in loan charge-offs and $0.1 million in deposit overdraft charge-offs less $0.3 million in loan recoveries and $0.03 million in deposit overdraft recoveries, which collectively resulted in $1.2 million in net charge-offs.

During the six months ended June 30, 2024, the Company recorded $2.7 million in loan charge-offs and $0.2 million in deposit overdraft charge-offs less $0.5 million in loan recoveries and $0.1 million in deposit overdraft recoveries, which collectively resulted in $2.4 million in net charge-offs.

The Components of the Allowance for Credit Losses for Loans

The following table sets forth the allowance for credit losses for loans as of the dates indicated:

(in thousands) March 31,

(in thousands) June 30,

2024 December 31,

2023 March 31,

2023 June 30,

Allowance for credit losses:

5 unchanged sentences

For additional information regarding the allowance for loan losses, including changes in specific, formula, and environmental factors allowance categories, see “Asset Quality and Loan Loss Provisioning” at “Results of Operations” , above.

Based on the current conditions of the loan portfolio, management believes that the $124.4 million allowance for loan losses at March 31, 2024 is adequate to absorb probable losses inherent in the Bank’s loan portfolio.

Based on the current conditions of the loan portfolio, management believes that the $123.5 million allowance for loan losses at June 30, 2024 is adequate to absorb probable losses inherent in the Bank’s loan portfolio.

No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.

The following table summarizes the allocation of the allowance for credit losses between loan types and by percentage of the total allowance for credit losses on loans as of the dates indicated:

(in thousands) March 31, 2024 December 31, 2023 March 31, 2023

(in thousands) June 30, 2024 December 31, 2023 June 30, 2023

Commercial real estate $ 73,032 59.2 % $ 68,864 56.7 % $ 71,016 60.5 %

6 unchanged sentences

The following table summarizes the allocation of the allowance for credit losses as a percentage of the total loans for each loan category as of the dates indicated:

(in thousands) March 31, 2024 December 31, 2023 March 31, 2023

(in thousands) June 30, 2024 December 31, 2023 June 30, 2023

Commercial real estate 1.64 % 1.57 % 1.63 %

7 unchanged sentences

Three months ended

June 30, Six months ended

(in thousands) 2024 2023 2024 2023

1 unchanged sentence

Balance at beginning of period $ 124,394 $ 108,407 $ 121,522 $ 105,680

ACL on PCD loans — —

Provision for (reversal of) loan losses 335 8,980 4,350 13,295

4 unchanged sentences

Multifamily — — — —

Farmland — — — —

SFR 1-4 1st DT liens — — (26) —

4 unchanged sentences

Agriculture production (613) — (1,450) —

Leases — — — —

Total loans charged-off (1,610) (276) (2,885) (2,034)

4 unchanged sentences

Multifamily — — — —

Farmland — — — —

SFR 1-4 1st DT liens — — — —

SFR HELOCs and junior liens 51 37 100 102

Other 81 26 121 77

Commercial and industrial 261 123 283 176

1 unchanged sentence

Agriculture production 4 31 25 32

Leases — — — —

Total recoveries of previously charged-off loans 398 218 530 388

Net recoveries (1,143) (1,588)

Net charge-offs (1,212) (58) (2,355) (1,646)

Balance at end of period $ 123,517 $ 117,329 $ 123,517 $ 117,329

4 unchanged sentences

Foreclosed Assets, Net of Allowance for Losses

The following table details the components and summarize the activity in foreclosed assets, net of allowances for losses, for the three months ended March 31, 2024:

(in thousands) Balance at

The following table details the components and summarize the activity in foreclosed assets, net of allowances for losses, for the six months ended June 30, 2024:

(in thousands) Balance at December 31,

2023 Sales Valuation

Adjustments Transfers

from Loans Balance at March 31, 2024

from Loans Balance at June 30, 2024

Land & construction $ 154 $ — $ 39 $ 12 $ 205

2 unchanged sentences

Total foreclosed assets $ 2,705 $ — $ (224) $ 12 $ 2,493

During the three months ended March 31, 2024, the Company’s deposits increased by $153.6 million to $8.0 billion at quarter end.

There were no brokered deposits included in the deposit balances as of March 31, 2024 and December 31, 2023, respectively.

During the six months ended June 30, 2024, the Company’s deposits increased by $216.2 million to $8.1 billion at quarter end.

There were no brokered deposits included in the deposit balances as of June 30, 2024 and December 31, 2023.

Estimated uninsured deposits totaled $2.5 billion and $2.4 billion as of June 30, 2024 and December 31, 2023, respectively.

Off-Balance Sheet Arrangements

6 unchanged sentences

The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations).

During the three months ended March 31, 2024 and 2023, the Company repurchased 99,332 and 150,000 shares with market values of $3.4 million and $7.0 million, respectively.

During the quarter ended March 31, 2024, the Company repurchased 99,332 shares of common stock at an average price of $34.31 per share or 97.9% of the book value per share as of March 31, 2024.

In addition, the Company’s Tier 1 common equity and tangible capital ratios increased to 12.5% and 8.9%, respectively as of March 31, 2024, compared to 12.2% and 8.8%, respectively, as of December 31, 2023.

Total shareholders' equity increased by $3.4 million during the quarter ended March 31, 2024, as net income of $27.7 million was partially offset by a $11.2 million increase in accumulated other comprehensive losses, and cash dividend payments on common stock of approximately $11.0 million.

As a result, the Company’s book value grew to $35.06 per share at March 31, 2024, compared to $32.84 at March 31, 2023.

The Company’s tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, was $25.60 per share at March 31, 2024, as compared to $23.22 at March 31, 2023.

During the three and six months ended June 30, 2024, the Company repurchased 244,992 and 344,324 shares with market values of $9.1 million and $12.5 million, respectively.

During the six months ended June 30, 2023, the Company repurchased 150,000 shares with a market value of $7.0 million.

During the quarter ended June 30, 2024, the Company repurchased 244,992 shares of common stock at an average price of $37.04 per share or 104% of the book value per share as of June 30, 2024.

In addition, the Company’s Tier 1 common equity and tangible capital ratios increased to 12.7% and 9.1%, respectively as of June 30, 2024, compared to 12.2% and 8.8%, respectively, as of December 31, 2023.

Total shareholders' equity increased by $12.0 million during the quarter ended June 30, 2024, as net income of $29.0 million and a $2.9 million decrease in accumulated other comprehensive losses was partially offset by cash dividend payments on common stock of approximately $10.9 million and share repurchases totaling $9.1 million.

As a result, the Company’s book value grew to $35.62 per share at June 30, 2024, compared to $32.86 at June 30, 2023.

The Company’s tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, was $26.13 per share at June 30, 2024, as compared to $23.30 at June 30, 2023.

As noted above, changes in the fair value of available-for-sale investment securities, net of deferred taxes continue to create moderate levels of volatility in tangible book value per share.

Trailing Quarter Balance Sheet Change

March 31, 2024 December 31, 2023

Current Year Balance Sheet Change

June 30, 2024 December 31, 2023

Ratio Minimum

4 unchanged sentences

Leverage 11.2 % 4.0 % 10.7 % 4.0 %

See Note 10 and Note 16 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about the Company’s capital resources.

As of March 31, 2024, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depository shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings.

See Note 10 and Note 16 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about

the Company’s capital resources.

As of June 30, 2024, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depository shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings.

Each issuance under the shelf registration statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.

2 unchanged sentences

The Company's primary sources of liquidity include the following for the periods indicated:

(dollars in thousands) March 31, 2024 December 31, 2023

(dollars in thousands) June 30, 2024 December 31, 2023

Borrowing capacity at correspondent banks and FRB $ 2,998,009 $ 2,921,525

5 unchanged sentences

Total primary liquidity $ 4,222,003 $ 3,931,284

At March 31, 2024, the Company's primary sources of liquidity represented 50% of total deposits and 163% of estimated total uninsured (excluding collateralized municipal deposits and intercompany balances) deposits, respectively.

At June 30, 2024, the Company's primary sources of liquidity represented 52% of total deposits and 170% of estimated total uninsured (excluding collateralized municipal deposits and intercompany balances) deposits, respectively.

As secondary sources of liquidity, the Company's held-to-maturity investment securities had a fair value of $113.7 million, including approximately $9.0 million in net unrealized losses.

At March 31, 2024, the Company had $200.0 million of short-term fixed rate FHLB borrowings maturing on April 8, 2024.

This debt was repaid at maturity.

Separately, on April 8, 2024, the Company borrowed four tranches of short-term fixed rate advances totaling $280.0 million from the FHLB as follows:

(in thousands)

Term borrowing at FHLB, fixed rate of 5.61%, payable on June 7, 2024 $ 55,000

Term borrowing at FHLB, fixed rate of 5.59%, payable on July 8, 2024 75,000

Term borrowing at FHLB, fixed rate of 5.46%, payable on October 7, 2024 75,000

Term borrowing at FHLB, fixed rate of 5.23%, payable on April, 8, 2025 75,000

Total other borrowings $ 280,000

The Company’s profitability during the first three months of 2024 generated cash flows from operations of $25.1 million compared to $39.0 million during the first three months of 2023.

Net cash from investing activities was $60.0 million for the three months ended March 31, 2024, compared to net cash from investing activities of $115.3 million during the three months ending 2023.

Financing activities used $100.9 million during the three months ended March 31, 2024, compared to $151.1 million during the three months ended March 31, 2023.

The Company’s profitability during the first six months of 2024 generated cash flows from operations of $56.9 million compared to $56.2 million during the first six months of 2023.

Net cash from investing activities was $255.0 million for the six months ended June 30, 2024, compared to net cash from investing activities of $89.8 million during the six months ending 2023.

Financing activities used $204.1 million during the six months ended June 30, 2024, compared to $134.4 million during the six months ended June 30, 2023.

The changes in contractual obligations of the Company and Bank, to include but not limited to term subordinated debt, operating leases, deferred compensation and supplemental retirement plans as well as off-balance sheet commitments such as unfunded loans and letters of credit.

4 unchanged sentences

However, the Company and its ability to generate liquidity through either the issuance of stock or debt, also serves as a potential source of strength for the Bank.

Dividends paid by the Company to holders of its common stock used $11.0 million and $10.0 million of cash during the three months ended March 31, 2024 and 2023, respectively.

Dividends paid by the Company to holders of its common stock used $21.9 million and $19.9 million of cash during the six months ended June 30, 2024 and 2023, respectively.

The Company’s liquidity is dependent on dividends received from the Bank.

8 unchanged sentences

For a reconciliation of these non-GAAP financial measures, see the tables below:

Three months ended

(dollars in thousands) March 31,

2024 December 31,

2023 March 31,

Three months ended Six months ended

(dollars in thousands) June 30,

2024 June 30,

2023 June 30,

2024 June 30,

Net interest margin

5 unchanged sentences

Net interest margin less effect of acquired loan discount accretion (Non-GAAP) 3.64 % 3.89 % 3.63 % 4.02 %

Three months ended

(dollars in thousands) March 31,

2024 December 31,

2023 March 31,

Three months ended Six months ended

(dollars in thousands) June 30,

2024 June 30,

2023 June 30,

2024 June 30,

Pre-tax pre-provision return on average assets or equity

9 unchanged sentences

Pre-tax pre-provision return on average equity (Non-GAAP) (annualized) 13.59 % 15.54 % 13.95 % 17.65 %

Three months ended

(dollars in thousands) March 31,

2024 December 31,

2023 March 31,

Three months ended Six months ended

(dollars in thousands) June 30,

2024 June 30,

2023 June 30,

2024 June 30,

Return on tangible common equity

8 unchanged sentences

Return on average tangible common equity (Non-GAAP) 13.98 % 13.18 % 13.65 % 16.97 %

Three months ended

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2024 December 31,

2023 September 30,

2023 June 30,

2023 March 31,

Tangible shareholders' equity to tangible assets

7 unchanged sentences

Tangible shareholders' equity to tangible assets (Non-GAAP) 9.14 % 8.80 %

Three months ended

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2024 December 31,

2023 September 30,

2023 June 30,

2023 March 31,

Tangible common shareholders' equity per share

4 unchanged sentences

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