What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-06 · 174 added, 179 removed, 645 unchanged (35% of the section changed)

39 unchanged sentences

the vulnerability of the Company's operational or security systems or infrastructure, the systems of third-party vendors or other service providers with whom the Company contracts, and the Company's customers to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and data/security breaches and the cost to defend against and respond to such incidents;

the impact of the 2023 cyber security ransomware incident on our operations and reputation;

the impact of the 2023 cyber security ransomware incident, including the pending litigation, on our operations and reputation;

increased data security risks due to work from home arrangements and email vulnerability;

27 unchanged sentences

Financial Highlights

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 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.

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

• Net income was $29.1 million or $0.88 per diluted share as compared to $29.0 million or $0.87 per diluted share in the trailing quarter

• Deposit balances decreased $13.1 million or 0.7% (annualized) from the trailing quarter and have increased $27.4 million or 0.3% (annualized) from the same quarter of the prior year

• Average yield on earning assets was 5.26%, an increase of 2 basis points over the 5.24% in the trailing quarter

• 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.

• Net interest margin (FTE) was 3.71% in the recent quarter, an increase of 3 basis points over 3.68% in the trailing quarter

• Non-interest bearing deposits averaged 31.7% of total deposits during the quarter

• The average cost of total deposits was 1.52%, an increase of 7 basis points as compared to 1.45% in the trailing quarter, and an increase of 66 basis points from 0.86% in the same quarter of the prior year;

the Company's total cost of deposits have increased 148 basis points since FOMC rate actions began in March 2022, which translates to a cycle-to-date deposit beta of 31.2%

• For the quarter ended September 30, 2024, the Company’s return on average assets was 1.20%, while the return on average equity was 9.52%;

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

• Diluted earnings per share were $0.88 for the third quarter of 2024, compared to $0.87 for the trailing quarter and $0.92 during the third quarter of 2023

• The loan to deposit ratio decreased to 83.2% as of September 30, 2024, as compared to 83.8% for the trailing quarter end, as a result of loan contraction during the quarter

• The efficiency ratio was 60.02% for the quarter ended September 30, 2024, as compared to 59.61% for the trailing quarter

• The provision for credit losses was approximately $0.2 million during the quarter ended September 30, 2024, as compared to $0.4 million during the trailing quarter

• The allowance for credit losses (ACL) to total loans was 1.85% as of September 30, 2024, compared to 1.83% as of the trailing quarter end, and 1.73% as of September 30, 2023.

Non-performing assets to total assets were 0.45% on September 30, 2024, as compared to 0.36% as of June 30, 2024, and 0.33% at September 30, 2023.

At September 30, 2024, the ACL represented 297% of non-performing loans

TRICO BANCSHARES

2 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2024 2023 2024 2023

38 unchanged sentences

Three months ended

(in thousands) June 30,

2024 March 31,

(in thousands) September 30,

2024 June 30,

2024 Change % Change

9 unchanged sentences

3.66 % 3.64 % 0.02 %

Three months ended June 30,

Three months ended September 30,

(in thousands) 2024 2023 Change % Change

9 unchanged sentences

3.66 % 3.82 % (0.16) %

Six months ended June 30,

Nine months ended September 30,

(in thousands) 2024 2023 Change % Change

15 unchanged sentences

and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income.

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

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.

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

During the quarters ended September 30, 2024, June 30, 2024 and September 30, 2023, the purchased loan discount accretion was $1.0 million, $0.9 million and $1.3 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).

Three months ended June 30,

Three months ended September 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 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.

Net interest income (FTE) during the three months ended September 30, 2024, decreased $5.6 million or 6% to $82.9 million compared to $88.5 million during the three months ended September 30, 2023.

In addition, net interest margin declined 17 basis points to 3.71%, 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 decrease in net interest income is primarily attributed to an additional $13.3 million in deposit interest expense due to rate increases associated with competitive pricing pressures, and to a lesser extent, changes in product mix.

The cost of interest-bearing deposits increased by 87 basis points between the quarter ended September 30, 2024 and the same quarter of the prior year.

In addition, the average balance of noninterest-bearing deposits decreased by $423.0 million from the three month average for the period ended September 30, 2023 as customers continued to migrate towards higher yielding term deposit accounts.

As of September 30, 2024, the ratio of average total noninterest-bearing deposits to total average deposits was 31.7%, as compared to 32.0% and 36.9% at June 30, 2024 and September 30, 2023, respectively.

The increase in cost of interest bearing liabilities was partially offset by increased interest and fee income on loans totaling $6.4 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.

Average loan yields increased 32 basis points from 5.51% during the three months ended September 30, 2023, to 5.83% during the three months ended September 30, 2024.

The accretion of discounts from acquired loans added 6 and 8 basis points to loan yields during the quarters ended September 30, 2024 and 2023, respectively.

Additionally, the average balance of loans during the quarter increased $92.9 million compared to the same period in the prior year.

Six months ended June 30,

Nine months ended September 30,

Balance Interest

32 unchanged sentences

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.

Net interest income (FTE) during the nine months ended September 30, 2024, decreased $23.1 million, or 9%, to $248.2 million compared to $271.2 million during the nine months ended September 30, 2023.

In addition, net interest margin declined 32 basis points to 3.69%, 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 cost of interest bearing deposits increased by 115 basis points during the nine months ended September 30, 2024, compared to the same period in the prior year.

In addition, the average balance of noninterest-bearing deposits decreased by $569.1 million from the nine month average for the period ended September 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.

As compared to the same period in the prior year, the average balance of loans increased $262.3 million and average loan yields increased 42 basis points from 5.37% during the nine months ended September 30, 2023, to 5.79% during the nine months ended September 30, 2024.

The accretion of discounts from acquired loans added 6 and 9 basis points to loan yields during the nine months ended September 30, 2024 and September 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 June 30, 2024

compared with three months ended June 30, 2023

Three months ended September 30, 2024

compared with three months ended September 30, 2023

(in thousands) Volume Rate Total

14 unchanged sentences

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 June 30, 2024 decreased $6.7 million to $82.3 million compared to $89.0 million during the three months ended June 30, 2023.

Net interest income (FTE) during the three months ended September 30, 2024 decreased $5.6 million to $82.9 million compared to $88.5 million during the three months ended September 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 $4.8 million, partially offsetting the increases in interest expense.

Six months ended June 30, 2024

compared with six months ended June 30, 2023

Nine months ended September 30, 2024

compared with nine months ended September 30, 2023

(in thousands) Volume Rate Total

13 unchanged sentences

Decrease in net interest income $ (3,706) $ (19,367) $ (23,073)

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.

Net interest income (FTE) during the nine months ended September 30, 2024 decreased $23.1 million to $248.2 million compared to $271.2 million during the nine months ended September 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 $49.3 million and $0.3 million, respectively.

1 unchanged sentence

Asset Quality and Credit Loss Provisioning

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,

During the three months ended September 30, 2024, the Company recorded a provision for credit losses of $0.2 million, as compared to $0.4 million during the trailing quarter, and $4.2 million during the third quarter of 2023.

Three months ended Nine months ended

(dollars in thousands) September 30,

2024 September 30,

2023 September 30,

2024 September 30,

Addition to allowance for credit losses $ 320 $ 3,120 $ 4,670 $ 16,415

1 unchanged sentence

(100) 1,035 260 1,585

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

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,

Total provision for credit losses $ 220 $ 4,155 $ 4,930 $ 18,000

The provision for credit losses on loans of $0.3 million during the recent quarter was the result of net charge-offs approximating $0.1 million and decreases in reserves for qualitative factors due to improved concentration levels and overall lower loan balances, offset by a $3.7 million increase in specific reserves for individually evaluated credits within the commercial and industrial portfolio.

Three months ended September 30, Nine months ended September 30,

(dollars in thousands) 2024 2023 2024 2023

4 unchanged sentences

Balance, end of period $ 123,760 $ 115,812 $ 123,760 $ 115,812

The allowance for credit losses (ACL) was $123.8 million or 1.85% of total loans as of September 30, 2024.

The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date.

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 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 change 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 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.

Core inflation is slowing but prices remain elevated relative to wage increases, as reflected by higher living costs such as housing, energy and general services.

Actions by the Federal Reserve to cut rates during 2024 and beyond may help improve this outlook overall, but the uncertainty associated with the extent and timing of these potential reductions has inhibited a material change to forecasted reserve levels.

Furthermore, geopolitical risks remain elevated and appear to be getting worse, which may lead to further negative effects on domestic economic outcomes.

As a result, management continues to believe that certain credit weaknesses are 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 $7.5 million during the quarter ended September 30, 2024, to $37.9 million, as compared to $30.4 million at June 30, 2024.

The majority of loans identified as past due are well-secured by collateral, and approximately $16.3 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.

Non-performing loans were $41.6 million at September 30, 2024, an increase of $8.9 million from $32.8 million as of June 30, 2024, and an increase of $11.8 million from $29.8 million as of September 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 $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,

Of the $41.6 million loans designated as non-performing as of September 30, 2024, approximately $10.0 million are current or less than 30 days past due with respect to payments required under their existing loan agreements.

(dollars in thousands) September 30,

2024 % of Loans Outstanding June 30,

2024 % of Loans Outstanding September 30,

2023 % of Loans Outstanding

5 unchanged sentences

Loans past due 30+ days to total loans 0.57 % 0.45 % 0.12 %

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.

The ratio of classified loans to total loans of 1.76% as of September 30, 2024, increased 20 basis points from June 30, 2024, and increased 55 basis points from the comparative quarter ended 2023.

The change in classified loans outstanding as compared to the trailing quarter totaled $16.1 million.

Loans with the risk grade classification substandard increased by $12.7 million over the trailing quarter and relate primarily to the commercial and industrial portfolio.

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.

The Company's combined criticized loan balances totaled $222.4 million as of September 30, 2024, an increase of $46.2 million from September 30, 2023.

Outstanding balances on construction loans, which have historically been associated with elevated levels of risk, experienced balance reductions of $7.3 million during the current quarter and $44.9 million since September 30, 2023.

These reductions were primarily associated with balances that were converted to term loans upon the completion of construction and achievement of stabilized occupancy, and were partially offset by new draws or originations.

Management continues to proactively assess the repayment capacity of borrowers that will 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 resulted in an insignificant need to provide concessions to borrowers.

As of September 30, 2024, other real estate owned consisted of 10 properties with a carrying value of approximately $2.8 million, compared to 10 properties with a carrying value of approximately $2.5 million as of June 30, 2024.

Non-performing assets of $44.4 million at September 30, 2024, represented 0.45% of total assets, a change from the $35.3 million or 0.36% and $32.7 million or 0.33% as of June 30, 2024 and September 30, 2023, respectively.

Non-interest Income

1 unchanged sentence

Three months ended

September 30,

(in thousands) 2024 2023 $ Change % Change

10 unchanged sentences

Sale of customer checks 303 396 (93) (23.5) %

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

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

(Loss) gain on sale or exchange of investment securities 2 — 2 n/m

(Loss) gain on marketable equity securities 356 (81) 437 (539.5) %

Other 153 227 (74) (32.6) %

1 unchanged sentence

Total non-interest income $ 16,495 $ 15,984 $ 511 3.2 %

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

Non-interest income increased $0.5 million or 3.2% to $16.5 million during the three months ended September 30, 2024, compared to $16.0 million during the comparative quarter ended September 30, 2023.

Elevated activity and volumes of assets under management drove an increase in asset management and commission income, in addition to the benefit mentioned above related to Visa stock.

These increases were partially offset by a decline in interchange fees earned related to decreased customer activity in the third quarter of 2024 as compared to the equivalent quarter in 2023.

Nine months ended

September 30,

(in thousands) 2024 2023 $ Change % Change

10 unchanged sentences

Sale of customer checks 916 1,091 (175) (16.0) %

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

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

(Loss) gain on sale or exchange of investment securities (43) (164) 121 (73.8) %

(Loss) gain on marketable equity securities 207 (81) 288 (355.6) %

Other 853 552 301 54.5 %

1 unchanged sentence

Total non-interest income $ 48,132 $ 45,360 $ 2,772 6.1 %

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 income increased $2.8 million or 6.1% to $48.1 million during the nine months ended September 30, 2024, compared to $45.4 million during the comparative nine months ended September 30, 2023.

As noted above, interchange fees as driven by customer activities was elevated in the 2023 period and resulted in a decrease of $0.9 million as compared to the nine months ended September 30, 2024.

Meanwhile, service charges on deposit accounts increased by $1.6 million or 12.6% 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 the gain on Visa stock further contributed to the overall improvement.

Non-interest Expense

1 unchanged sentence

Three months ended

September 30,

(in thousands) 2024 2023 $ Change % Change

15 unchanged sentences

Courier service 542 492 50 10.2 %

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

(Gain) loss on sale or acquisition of foreclosed assets 26 (152) 178 (117.1) %

(Gain) loss on disposal of fixed assets 6 4 2 50.0 %

Other miscellaneous expense 4,052 4,004 48 1.2 %

2 unchanged sentences

Average full time equivalent staff 1,161 1,215 (54) (4.4) %

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

Total non-interest expense increased $1.6 million or 2.8% to $59.5 million during the three months ended September 30, 2024, as compared to $57.9 million for the quarter ended September 30, 2023.

Total salaries and benefits expense increased by $1.1 million or 3.2%, reflecting the increase of $0.8 million in salaries and $0.3 million in benefits and other costs.

Nine months ended

September 30,

(in thousands) 2024 2023 $ Change % Change

15 unchanged sentences

Courier service 1,581 1,314 267 20.3 %

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

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

(Gain) loss on sale or acquisition of foreclosed assets (12) (152) 140 (92.1) %

(Gain) loss on disposal of fixed assets 12 22 (10) (45.5) %

Other miscellaneous expense 12,131 12,688 (557) (4.4) %

2 unchanged sentences

Average full time equivalent staff 1,170 1,215 (45) (3.7) %

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.

Total non-interest expense increased $1.4 million or 0.8% to $174.3 million during the nine months ended September 30, 2024, as compared to $172.9 million for the nine months ended September 30, 2023.

This was largely attributed to an increase of $3.5 million or 3.5% in total salaries and benefits expense to $105.3 million, 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.

Additionally, data processing and software expenses increased by $1.5 million or 11.1% related to ongoing investments in the Company's data management and security infrastructure.

These increases were partially offset by declines in non-cash intangible amortization expense of $1.8 million or 37.0% and reductions in operational losses of $0.8 million or 40.0% due to non-recurring ATM burglary expenses totaling $0.7 million in the comparative period.

The Company’s effective tax rate was 26.3% and 26.1% for the quarter and nine months ended September 30, 2024, respectively as compared to 27.3% and 26.7% for the comparative periods ended September 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 June 30, March 31, Annualized

Ending balances September 30,

2024 June 30,

2024 Annualized

(dollars in thousands) $ Change

4 unchanged sentences

Total other borrowings 266,767 247,773 18,994 30.7

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

Loans outstanding decreased by $58.6 million or 3.5% on an annualized basis during the quarter ended September 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.

1 unchanged sentence

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 balances decreased $30.4 million or 5.8% on an annualized basis during the current quarter 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.

2 unchanged sentences

Deposit balances increased by $13.1 million or 0.7% 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.

Other borrowings totaled $266.8 million at September 30, 2024, representing a net decrease of $19.0 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 June 30, % Change

Ending balances As of September 30, % Change

(dollars in thousands) 2024 2023 $ Change

4 unchanged sentences

Total other borrowings 266,767 537,975 (271,208) (50.4)

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 and maturity or sale of investment security balances.

Investment Securities

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

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

September 30, 2024 December 31, 2023

(in thousands) Fair Value % Fair Value %

7 unchanged sentences

Total debt securities available for sale $ 1,979,270 100.0 % $ 2,152,504 100.0 %

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

(in thousands) Amortized

5 unchanged sentences

Total debt securities held to maturity $ 117,259 100.0 % $ 133,494 100.0 %

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

Investment securities held to maturity decreased $16.2 million to $117.3 million as of September 30, 2024, as compared to December 31, 2023.

This decrease is attributable to calls and principal repayments of $16.0 million, and amortization of net purchase premiums of $0.1 million.

6 unchanged sentences

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

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

Commercial real estate $ 4,487,524 67.1 % $ 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) June 30,

(in thousands) September 30,

2024 December 31,

9 unchanged sentences

Allowance for credit losses to nonperforming loans 297 % 381 %

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

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

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

(in thousands) Balance at June 30, 2024 New NPA /

Adjustments Pay-downs

/Upgrades Charge-offs/ (1)

Assets Balance at June 30, 2024

Assets Balance at September 30, 2024

Commercial real estate:

16 unchanged sentences

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

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.

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 June 30, 2024.

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

Nonperforming assets increased during the three months ended September 30, 2024 by $9.1 million or 25.9% to $44.4 million compared to $35.3 million at June 30, 2024.

The increase in nonperforming assets during the third quarter of 2024 was primarily the result of nonperforming loan pay-downs and upgrades, which totaled $2.8 million during the quarter, as well as $0.3 million in charge-offs.

Changes in nonperforming assets during the nine months ended September 30, 2024

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

1 unchanged sentence

/Upgrades Charge-offs/ (1)

Assets Balance at June 30, 2024

Assets Balance at September 30, 2024

Commercial real estate:

16 unchanged sentences

(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.

Nonperforming assets increased during the nine months ended September 30, 2024 by $9.8 million or 28.3% to $44.4 million compared to $34.6 million at December 31, 2023.

The increase in nonperforming assets during the nine months ended September 30, 2024 was primarily the result of nonperforming loan increases/down-grades, which totaled $21.3 million.

Loan charge-offs during the three and nine months ended September 30, 2024

In the third quarter of 2024, the Company recorded $0.4 million in loan charge-offs and $0.1 million in deposit overdraft charge-offs less $0.3 million in loan recoveries and $0.02 million in deposit overdraft recoveries, which collectively resulted in $0.1 million in net charge-offs.

During the nine months ended September 30, 2024, the Company recorded $3.3 million in loan charge-offs and $0.2 million in deposit overdraft charge-offs less $0.9 million in loan recoveries and $0.1 million in deposit overdraft recoveries, which collectively resulted in $3.0 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) June 30,

(in thousands) September 30,

2024 December 31,

2023 June 30,

2023 September 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 $123.5 million allowance for loan losses at June 30, 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 $123.8 million allowance for loan losses at September 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) June 30, 2024 December 31, 2023 June 30, 2023

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

Commercial real estate $ 71,339 57.6 % $ 68,864 56.7 % $ 66,675 57.6 %

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) June 30, 2024 December 31, 2023 June 30, 2023

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

Commercial real estate 1.59 % 1.57 % 1.53 %

7 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in thousands) 2024 2023 2024 2023

1 unchanged sentence

Balance at beginning of period $ 123,517 $ 117,329 $ 121,522 $ 105,680

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

Provision for credit losses 320 3,120 4,670 16,415

Loans charged-off:

33 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 six months ended June 30, 2024:

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

(in thousands) Balance at December 31,

1 unchanged sentence

Adjustments Transfers

from Loans Balance at June 30, 2024

from Loans Balance at September 30, 2024

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

2 unchanged sentences

Total foreclosed assets $ 2,705 $ 458 $ (5) $ (394) $ 2,764

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.

During the nine months ended September 30, 2024, the Company’s deposits increased by $203.1 million to $8.0 billion at quarter end.

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

Estimated uninsured deposits totaled $2.5 billion and $2.4 billion as of September 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 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.

During the three and nine months ended September 30, 2024, the Company repurchased zero and 344,324 shares with market values of $0.0 million and $12.5 million, respectively.

During the three and nine months ended September 30, 2023, the Company repurchased zero and 150,000 shares with market values of zero and $7.0 million, respectively.

In addition, the Company’s Tier 1 common equity and tangible capital ratios increased to 13.1% and 9.7%, respectively as of September 30, 2024, compared to 12.2% and 8.8%, respectively, as of December 31, 2023.

Total shareholders' equity increased by $64.0 million during the quarter ended September 30, 2024, as net income of $29.1 million and a $44.5 million decrease in accumulated other comprehensive losses was partially offset by cash dividend payments on common stock of approximately $10.9 million.

As a result, the Company’s book value grew to $37.55 per share at September 30, 2024, compared to $32.18 at September 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 $28.09 per share at September 30, 2024, as compared to $22.67 at September 30, 2023.

As noted previously, 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.

Current Year Balance Sheet Change

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Ratio Minimum

4 unchanged sentences

Leverage 11.6 % 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 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.

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 September 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) June 30, 2024 December 31, 2023

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

Borrowing capacity at correspondent banks and FRB $ 2,757,640 $ 2,921,525

5 unchanged sentences

Total primary liquidity $ 4,095,293 $ 3,931,284

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.

At September 30, 2024, the Company's primary sources of liquidity represented 51% of total deposits and 163% 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 $112.0 million, including approximately $5.3 million in net unrealized losses.

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.

These contractual obligations are otherwise consistent with similar balances or totals as of December 31, 2023.

The Company’s profitability during the first nine months of 2024 generated cash flows from operations of $85.5 million compared to $102.4 million during the first nine months of 2023.

Net cash from investing activities was $345.0 million for the nine months ended September 30, 2024, compared to net cash from investing activities of $13.6 million during the nine months ending 2023.

Financing activities used $209.0 million during the nine months ended September 30, 2024, compared to $84.9 million during the nine months ended September 30, 2023.

The Company is dependent upon the payment of cash dividends by the Bank to service its commitments, which have historically included dividends to shareholders, scheduled debt service payments, and general operations.

2 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 $21.9 million and $19.9 million of cash during the six months ended June 30, 2024 and 2023, respectively.

Dividends paid by the Company to holders of its common stock used $32.8 million and $29.9 million of cash during the nine months ended September 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 Six months ended

(dollars in thousands) June 30,

2024 June 30,

2023 June 30,

2024 June 30,

Three months ended Nine months ended

(dollars in thousands) September 30,

2024 September 30,

2023 September 30,

2024 September 30,

Net interest margin

5 unchanged sentences

Net interest margin less effect of acquired loan discount accretion (Non-GAAP) 3.66 % 3.82 % 3.64 % 3.95 %

Three months ended Six months ended

(dollars in thousands) June 30,

2024 June 30,

2023 June 30,

2024 June 30,

Three months ended Nine months ended

(dollars in thousands) September 30,

2024 September 30,

2023 September 30,

2024 September 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) 12.98 % 16.49 % 13.64 % 17.26 %

Three months ended Six months ended

(dollars in thousands) June 30,

2024 June 30,

2023 June 30,

2024 June 30,

Three months ended Nine months ended

(dollars in thousands) September 30,

2024 September 30,

2023 September 30,

2024 September 30,

Return on tangible common equity

8 unchanged sentences

Return on average tangible common equity (Non-GAAP) 13.13 % 15.82 % 13.47 % 16.13 %

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2024 December 31,

8 unchanged sentences

Tangible shareholders' equity to tangible assets (Non-GAAP) 9.75 % 8.80 %

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2024 December 31,

5 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