FB Financial Corp: Form 10-Q for the period ended Jun 30, 2025

The following is a discussion of our financial condition as of June 30, 2025 and December 31, 2024, and our results of operations for the three and six months ended June 30, 2025 and 2024, and should be read in conjunction with our audited consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2024, that was filed with the SEC on February 25, 2025, and with the accompanying unaudited notes to the condensed consolidated financial statements set forth in this Report.

Forward-looking statements

Certain statements contained in this Report that are not historical in nature may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding the Company’s future plans, results, strategies, and expectations, including expectations around changing economic markets and statements regarding the merger of Southern States Bancshares, Inc. (“Southern States”) with the Company (the “Merger”) and expectations with regard to the benefits of the Merger. These statements can generally be identified by the use of the words and phrases “may,” “will,” “should,” “could,” “would,” “goal,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” “aim,” “predict,” “continue,” “seek,” and other variations of such words and phrases and similar expressions. These forward-looking statements are not historical facts, and are based upon management’s current expectations, estimates, and projections, many of which, by their nature, are inherently uncertain and beyond the Company’s control. The inclusion of these forward-looking statements should not be regarded as a representation by the Company or any other person that such expectations, estimates, and projections will be achieved. Accordingly, the Company cautions shareholders and investors that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements including, without limitation, (1) current and future economic conditions, including the effects of inflation, interest rate fluctuations, changes in the economy or global supply chain, supply-demand imbalances affecting local real estate prices, and high unemployment rates in the local or regional economies in which the Company operates and/or the US economy generally, (2) changes or the lack of changes in government interest rate policies and the associated impact on the Company’s business, net interest margin, and mortgage operations, (3) increased competition for deposits, (4) changes in the quality or composition of the Company’s loan or investment portfolios, including adverse developments in borrower industries or in the repayment ability of individual borrowers or issuers of investment securities, or the impact of interest rates on the value of our investment securities portfolio, (5) any deterioration in commercial real estate market fundamentals, (6) risks associated with the Merger, including (a) the risk that the cost savings and any revenue synergies from the Merger is less than or different from expectations, (b) disruption from the Merger with customer, supplier, or employee relationships,(c) the possibility that the costs, fees, expenses and charges related to the Merger may be greater than anticipated, including as a result of unexpected or unknown factors, events, or liabilities, (d) the risks related to the integration of the combined businesses, including the risk that the integration will be materially delayed or will be more costly or difficult than expected, (e) the diversion of management time on merger-related issues, (f) the ability of the Company to effectively manage the larger and more complex operations of the combined company following the Merger, (g) the risk of expansion into new geographic or product markets, (h) reputational risk and the reaction of the parties’ customers to the Merger, (i) the Company’s ability to successfully execute its various business strategies, including its ability to execute on potential acquisition opportunities, and (j) the risk of potential litigation or regulatory action related to the Merger, (7) the Company’s ability to identify potential candidates for, consummate, and achieve synergies from, other potential future acquisitions, (8) the Company’s ability to manage any unexpected outflows of uninsured deposits and avoid selling investment securities or other assets at an unfavorable time or at a loss, (9) the Company’s ability to successfully execute its various business strategies, (10) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including legislative developments, (11) the effectiveness of the Company’s controls and procedures to detect, prevent, mitigate and otherwise manage the risk of fraud or misconduct by internal or external parties, including attempted physical-security and cybersecurity attacks, denial-of-service attacks, hacking, phishing, social-engineering attacks, malware intrusion, data-corruption attempts, system breaches, identity theft, ransomware attacks, environmental conditions, and intentional acts of destruction, (12) the Company’s dependence on information technology systems of third party service providers and the risk of systems failures, interruptions, or breaches of security, (13) the impact, extent and timing of technological changes, (14) concentrations of credit or deposit exposure, (15) the impact of natural disasters, pandemics, acts of war or terrorism, or other catastrophic events, (16) events giving rise to international or regional political instability, including the broader impacts of such events on financial markets and/or global macroeconomic environments, and/or (17) general competitive, economic, political, and market conditions. Further information regarding the Company and factors which could affect the forward-looking statements contained herein can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and in any of the Company’s subsequent filings with the SEC. Many of these factors are beyond the Company’s ability to control or predict. If one or more events related to these or other risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, actual results may differ materially from the forward-looking statements. Accordingly, shareholders and investors should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date of this Report, and the Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how they will affect the Company.

The Company qualifies all forward-looking statements by these cautionary statements.

Critical accounting policies

Our financial statements are prepared in accordance with GAAP and general practices within the banking industry. Within our financial statements, certain financial information contains approximate measurements of financial effects of transactions and impacts at the consolidated balance sheets dates and our results of operations for the reporting periods. We monitor the status of proposed and newly issued accounting standards to evaluate the impact on our financial condition and results of operations. Our accounting policies, including the impact of any newly issued accounting standards if applicable, are discussed in further detail in Note 1, “Basis of presentation and summary of significant accounting policies,” in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2024. Further, any updates made to our accounting policies since our Annual report are detailed in Note 1, "Basis of presentation," within this Report herein.

Financial highlights

The following table presents certain selected historical consolidated income statement and balance sheet data and key performance indicators and other measures as of the dates or for the periods indicated. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.

(dollars in thousands, except share data)

52

(1) Book value per share equals our total common shareholders’ equity divided by the number of shares of our common stock outstanding as of the date presented.

(2) Non-GAAP financial measure; See "GAAP reconciliation and management explanation of non-GAAP financial measures” and non-GAAP reconciliations herein.

(3) ROAA and ROAE is calculated by dividing annualized net income or loss by average assets or average equity.

(4) Includes $21.0 million, $22.4 million and $31.4 million of optional rights to repurchase delinquent GNMA loans as of June 30, 2025, June 30, 2024 and December 31, 2024, respectively.

GAAP reconciliation and management explanation of non-GAAP financial measures

We identify certain financial measures discussed in this Report as being “non-GAAP financial measures.” The non-GAAP financial measures presented in this Report are adjusted efficiency ratio (tax-equivalent basis), tangible book value per common share, tangible common equity to tangible assets and return on average tangible common equity.

In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our consolidated statements of income, balance sheets or statements of cash flows. The non-GAAP financial measures that we discuss in this Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in our selected historical consolidated financial data may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed in our selected historical consolidated financial data when comparing such non-GAAP financial measures. The following reconciliation tables provide a more detailed analysis of these, and reconciliation for, each of non-GAAP financial measures.

Core efficiency ratio (tax-equivalent basis)

The core efficiency ratio (tax-equivalent basis) is a non-GAAP measure that excludes certain gains, losses and other selected items. Our management uses this measure in its analysis of our performance. Our management believes this measure provides a greater understanding of ongoing operations and enhances comparability of results with prior periods, as well as demonstrates the effects of significant gains and charges. The most directly comparable financial measure calculated in accordance with GAAP is the efficiency ratio.

The following table presents a reconciliation of our core efficiency ratio (tax-equivalent basis) to our efficiency ratio for the periods below:

(dollars in thousands)

Tangible book value per common share and tangible common equity to tangible assets

Tangible book value per common share and tangible common equity to tangible assets are non-GAAP measures that exclude the impact of goodwill and other intangibles used by management to evaluate capital adequacy. Because intangible assets, such as goodwill and other intangibles, vary extensively from company to company, we believe that the presentation of this information allows investors to more easily compare our capital position to other companies. The most directly comparable financial measure calculated in accordance with GAAP is book value per common share and our total shareholders’ equity to total assets.

The following table presents, as of the dates set forth below, tangible common equity compared with total common shareholders’ equity, tangible book value per common share compared with our book value per common share and common equity to tangible assets compared to total common shareholders’ equity to total assets:

(dollars in thousands, except share data)

Return on average tangible common equity

Return on average tangible common equity is a non-GAAP measure that uses average shareholders’ equity and excludes the impact of goodwill and other intangibles. This measurement is used by management to provide a depiction of our profitability without being impacted by intangible assets, as intangible assets are not directly managed to generate earnings. The most directly comparable financial measure calculated in accordance with GAAP is return on average common shareholders' equity.

The following table presents, as of the dates set forth below, reconciliations of total average tangible common equity to average shareholders’ equity and return on average tangible common equity to return on average shareholders’ equity:

(dollars in thousands)

Company overview

We are a financial holding company headquartered in Nashville, Tennessee. We operate primarily through our wholly-owned subsidiary bank, FirstBank, and its subsidiaries. FirstBank provides a comprehensive suite of commercial and consumer banking services to clients in select markets in Tennessee, Alabama, Kentucky, North Carolina and Georgia. As of June 30, 2025, our footprint included 78 full-service branches serving markets across Tennessee, including Nashville, Chattanooga (including North Georgia), Knoxville, Memphis, and Jackson in addition to Bowling Green, Kentucky, and Birmingham, Florence and Huntsville, Alabama. Additionally, our banking services extend to community markets throughout our footprint. FirstBank also provides retail mortgage banking services utilizing its bank branch network and mortgage banking offices strategically located throughout the southeastern United States.

We operate through two segments, Banking and Mortgage. We generate most of our revenue in our Banking segment from interest on loans and investments, loan-related fees, trust and investment services and deposit-related fees. Our primary source of funding for our loans is customer deposits, however we have other sources of funds including unsecured credit lines, brokered CDs, and other borrowings. We generate most of our revenue in our Mortgage segment from origination fees and gains on sales in the secondary mortgage loan market, as well as from mortgage servicing revenues.

Mergers

Southern States Bancshares, Inc.

On March 31, 2025, the Company announced it had entered into an agreement and plan of merger to acquire Southern States Bancshares Inc. and its wholly-owned subsidiary, Southern States Bank, in an all-stock transaction.

On July 1, 2025 the Company completed its acquisition of Southern States. This merger strengthens the Company’s presence in existing markets, such as Birmingham and Huntsville, Alabama, while expanding the Company’s footprint further into Alabama and Georgia. At closing, Southern States had approximately $2.87 billion in total assets, loans of $2.32 billion and deposits of $2.47 billion. Under the terms of the agreement, each outstanding share of Southern States common stock was converted into the right to receive 0.80 shares of the Company’s stock. Additionally, fractional shares and outstanding stock options were settled in cash. As a result, total consideration paid was $368.4 million based on the Company’s closing stock price of $45.30 per share on June 30, 2025. The Company expects system conversions related to the transaction to be completed in the third quarter of 2025.

Overview of recent financial performance

Results of operations

Three months ended June 30, 2025 compared to three months ended June 30, 2024

We recognized net income of $2.9 million during the three months ended June 30, 2025 compared to $40.0 million for the three months ended June 30, 2024. Diluted earnings per common share were $0.06 and $0.85 for the three months ended June 30, 2025 and 2024, respectively. Our net income represented a ROAA of 0.09% and 1.30% for the three months ended June 30, 2025 and 2024, respectively, and a ROAE of 0.74% and 10.9% for the same periods. Our ROATCE for the three months ended June 30, 2025 and 2024 were 0.87% and 13.1%, respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a discussion of tangible common equity and return on average tangible common equity.

Net interest income increased to $111.4 million for the three months ended June 30, 2025 compared with $102.6 million for the three months ended June 30, 2024. Our net interest margin, on a tax-equivalent basis, increased to 3.68% for the three months ended June 30, 2025 as compared to 3.57% for the three months ended June 30, 2024. Net interest income for the three months ended June 30, 2025 reflected increases in interest income on loans HFI and investment securities and decreases in interest expense paid on interest-bearing deposits and other borrowings.

Provision for credit losses of $5.3 million was recognized for the three months ended June 30, 2025 and $2.2 million for the three months ended June 30, 2024. The increase was primarily due to the change in the CECL loss estimation methodology, including a change in forward-looking funding assumptions for residential lines and commercial lines. Refer to the section “Provision for credit losses” and “Note 1, “Basis of presentation” in this Report for further discussion on the change in the CECL loss estimation methodology.

Noninterest income for the three months ended June 30, 2025 decreased by $60.2 million to a loss of $34.6 million, compared to $25.6 million for the three months ended June 30, 2024. The decrease was driven by the recognition of a $60.5 million net loss on investment securities stemming from the sale of $266.5 million AFS debt securities during the three months ended June 30, 2025. Refer to the section “Other earning assets” for additional information on the sale of the AFS debt securities.

Noninterest expense increased to $81.3 million for the three months ended June 30, 2025, compared with $75.1 million for the three months ended June 30, 2024. The increase in noninterest expense was driven by $2.7 million in merger and integration costs associated with our merger with Southern States and an increase in other noninterest expense of $2.1 million, including modest increases across a range of expense categories.

Income tax benefit for the three months ended June 30, 2025 was $12.7 million compared to income tax expense of $10.9 million for the three months ended June 30, 2024. The change reflects the income tax effect of a $60.5 million loss on sale of AFS debt securities and a one-time tax benefit of $10.7 million due to the expiration of the statute of limitations with respect to an amended income tax return and the associated interest for the three months ended June 30, 2025.

Six months ended June 30, 2025 compared to the six months ended June 30, 2024

Our net income decreased during the six months ended June 30, 2025 to $42.3 million from $67.9 million for the six months ended June 30, 2024. Diluted earnings per common share was $0.91 and $1.45 for the six months ended June 30, 2025 and 2024, respectively. Our net income represented a ROAA of 0.65% and 1.09% for the six months ended June 30, 2025 and 2024, respectively, and a ROAE of 5.38% and 9.31% for the same periods. Our ratio of ROATCE for the six months ended June 30, 2025 and 2024 was 6.38% and 11.2%, respectively.

During the six months ended June 30, 2025, our net interest income increased to $219.1 million from $202.1 million for the six months ended June 30, 2024. Our net interest margin, on a tax-equivalent basis, increased to 3.61% for the six months ended June 30, 2025 as compared to 3.49% for the six months ended June 30, 2024. The increase in net interest margin was primarily driven by increases in interest income on loans HFI and investment securities and decreases in interest expense paid on interest-bearing deposits and other borrowings.

Provision for credit losses of $7.6 million was recognized for the six months ended June 30, 2025 and $3.0 million for the six months ended June 30, 2024. The increase was primarily due to the change in the CECL loss estimation methodology, including a change in forward-looking funding assumptions for residential lines and commercial lines. Refer to the section “Provision for credit losses” and “Note 1, “Basis of presentation” in this Report for further discussion on the change in the CECL loss estimation methodology

Noninterest income for the six months ended June 30, 2025 decreased by $45.1 million resulting in a loss of $11.5 million, compared to $33.6 million for prior year period. The decrease in noninterest income was primarily driven by the recognition of a $60.5 million net loss on investment securities stemming from the sale of $266.5 million of AFS debt securities during the six months ended June 30, 2025 compared to a net loss of $16.2 million from the sale of $207.9 million of AFS debt securities during the six months ended June 30, 2024. Refer to the section “Other earning assets” for additional information on the sale of the AFS debt securities.

Noninterest expense increased to $160.8 million for the six months ended June 30, 2025, compared with $147.5 million for the six months ended June 30, 2024. The increase in noninterest expense was reflective of an increase in salaries, commissions and benefits of $4.1 million, merger and integration costs of $3.1 million, advertising expense of $1.6 million and other expense of $4.0 million including technology and platform fee increases and modest increases across a range of other expense categories.

Income tax benefit for the six months ended June 30, 2025 was $3.2 million compared to income tax expense of $17.2 million for the six months ended June 30, 2024. The change reflects the income tax effect of a $60.5 million loss on sale of AFS debt securities, as well as a one-time tax benefit of $10.7 million due to the expiration of the statute of limitations with respect to an amended income tax return and the associated interest for the for the six months ended June 30, 2025. Income tax expense for the six months ended June 30, 2024, included the income tax effect of a $16.2 million loss on sale of AFS debt securities.

Business segment highlights

We operate our business in two business segments: Banking and Mortgage. See Note 11, “Segment reporting” in the notes to our consolidated financial statements contained herein for a description of these business segments.

Banking

Three months ended June 30, 2025 compared to three months ended June 30, 2024

The Banking segment reported a loss before taxes of $6.7 million as compared to income of $50.1 million for the previous period. Net interest income totaled $108.9 million during the three months ended June 30, 2025 compared to $101.2 million during the previous period. Provisions for credit losses on loans HFI and unfunded loan commitments resulted in $0.6 million of provision expense during the current period as compared to $2.4 million during the previous period. The Banking segment recorded a noninterest loss of $47.7 million in the current period as compared to income of $13.5 million in the previous period. This decrease was mainly attributable to a net loss on investment securities of $60.5 million from the sale of $266.5 million AFS debt securities during the three months ended June 30, 2025. Noninterest expense increased to $67.3 million for the current period compared to $62.2 million for the for the previous period due primarily to an increase in merger and integration costs associated with the Southern States merger and modest increases across a range of other expense categories.

Six months ended June 30, 2025 compared to the six months ended June 30, 2024

The Banking segment contributed $40.6 million of income before taxes for the current period as compared to $82.7 million for the previous period. Net interest income totaled $214.7 million during the six months ended June 30, 2025 compared to $199.7 million during the previous period. Provisions for credit losses on loans HFI and unfunded loan commitments resulted in $2.8 million of provision expense during the current period as compared to $3.3 million during the previous period. The Banking segment recorded noninterest loss of $37.1 million in the current period as compared to income of $8.7 million in the previous period. Similar to above, this increase was mainly attributable to a net loss on investment securities of $60.5 million from the sale of $266.5 million AFS debt securities during the six months ended June 30, 2025 compared to a net loss on investment securities of $16.2 million from the sale of $207.9 million AFS debt securities during the previous period. Noninterest expense increased to $134.2 million for the current period compared to $122.4 million for the for the previous period due primarily to an increase in salaries and benefits, merger and integration costs associated with the Southern States merger, advertising, technology and platform fees and modest increases across a range of other expense categories. Additionally, a minor franchise tax benefit was recognized in the previous period.

Mortgage

Three months ended June 30, 2025 compared to three months ended June 30, 2024

Activity in our Mortgage segment resulted in a loss before income taxes of $3.0 million for the current period, as compared to $0.8 million of income before taxes in the prior period. Net interest income was $2.5 million for the current period and $1.4 million for the prior period. Provisions for credit losses on loans HFI and unfunded loan commitments resulted in provision expense of $4.8 million during the current period compared to a reversal of $0.2 million of provision expense during the prior period. The increase in provisions for credit losses was due to a change in the CECL loss estimation methodology, which notably impacted the Company's reserves on 100% financed 1-to-4 mortgages, as well as a notable change in forecasts associated with home prices which impacted mortgage reserves more broadly. Mortgage banking income increased $1.1 million to $13.0 million during the current period compared to $11.9 million in the prior period.

The components of mortgage banking income for the three months ended June 30, 2025 and 2024 were as follows:

(dollars in thousands)

Noninterest expense for the three months ended June 30, 2025 and 2024 was $13.9 million and $12.9 million, respectively. This increase was reflective of increases in salaries and employee benefits and allocated support and overhead expenses.

Six months ended June 30, 2025 compared to the six months ended June 30, 2024

Activity in our Mortgage segment resulted in a loss before income taxes of $1.5 million for the current period, as compared to $2.5 million of income before taxes in the prior period. Net interest income was $4.4 million for the current period and $2.5 million for the prior period. Provisions for credit losses on loans HFI and unfunded loan commitments resulted in provision expense of $4.9 million during the current period compared to a reversal of $0.3 million of provision expense during the prior period. As noted above, the increase in provisions for credit losses was due to a change in the CECL loss estimation methodology, which notably impacted the Company's reserves on 100% financed 1-to-4 mortgages, as well as a notable change in forecasts associated with home prices which impacted mortgage reserves more broadly. Mortgage banking income increased $1.0 million to $25.5 million during the current period compared to $24.5 million in the prior period.

The components of mortgage banking income for the six months ended June 30, 2025 and 2024 were as follows:

(dollars in thousands)

Noninterest expense for the six months ended June 30, 2025 and 2024 was $26.6 million and $25.1 million, respectively. This increase was reflective of increases in salaries and employee benefits and allocated support and overhead expenses.

Results of operations

Throughout the following discussion of our operating results, we present our net interest income, net interest margin and core efficiency ratio on a fully tax-equivalent basis. The fully tax-equivalent basis adjusts for the tax-favored status of net interest income from certain loans and investments.

Our tax-exempt income is converted to a tax-equivalent basis by adjusting for the combined federal and blended state statutory income tax rate of 26.06% for the three and six months ended June 30, 2025 and 2024.

Net interest income

Net interest income is the principle component of our earnings and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Net interest income and margin are shaped by fluctuations in interest rates as well as changes in volume and mix of earning assets and interest-bearing liabilities.

During the three and six months ended June 30, 2025, the U.S. Treasury yield curve fell given uncertainty around tariffs and economic growth. In contrast, during the three and six months ended June 30, 2024, the U.S. Treasury yield curve remained inverted, reflecting tighter monetary policy and higher short-term interest rates. The Federal Funds Target Rate range was 4.25% - 4.50% and 5.25% - 5.50% as of June 30, 2025 and June 30, 2024, respectively.

Three months ended June 30, 2025 compared to three months ended June 30, 2024

Net interest income increased to $112.2 million for the three months ended June 30, 2025 as compared to $103.3 million for the three months ended June 30, 2024. The change in net interest income was driven by a $4.9 million increase in interest income and a decrease in interest expense of $4.1 million. The increases in net interest income and net interest margin were primarily driven by increases in interest income on loans HFI and investment securities and decreases in interest expense paid on interest-bearing deposits and other borrowings.

Interest income was $182.9 million for the three months ended June 30, 2025, compared to $178.1 million for the three months ended June 30, 2024, an increase of $4.9 million, which was primarily driven by an increase in volume of interest earning assets, most notably loans HFI, partially offset by a decrease in yields due to lower interest rates.

Interest income on loans HFI increased $3.7 million to $158.0 million for the three months ended June 30, 2025 from $154.2 million for the three months ended June 30, 2024 primarily due to increased volume partially offset by lower yields. The yield on loans HFI was 6.44% for the three months ended June 30, 2025, down 26 basis points from the three months ended June 30, 2024.

The components of our loan yield for the three months ended June 30, 2025 and 2024 were as follows:

(dollars in thousands)

(1) Includes tax equivalent adjustment using combined marginal tax rate of 26.06%.

Interest income on investment securities increased $2.5 million to $16.1 million for the three months ended June 30, 2025 from $13.5 million for the three months ended June 30, 2024 due to the increase in yield on these investments from the portfolio restructuring transactions in prior years. The yield on taxable investment securities increased 49 basis points to 3.78% for the three months ended June 30, 2025 compared to 3.29% for the three months ended June 30, 2024.

Interest expense was $70.7 million for the three months ended June 30, 2025, a decrease of $4.1 million as compared to the three months ended June 30, 2024. The decrease in interest expense was driven by a decrease in the rate paid on interest-bearing liabilities which decreased interest expense $11.1 million partially offset by an increase in the average balance of interest-bearing liabilities which increased interest expense $7.0 million over the comparative time period.

Interest expense on interest-bearing deposit accounts totaled $68.6 million for the three months ended June 30, 2025, a $2.9 million decrease from the $71.5 million recognized for the three months ended June 30, 2024. The decline in interest expense on interest-bearing deposit accounts was led by declines in money market and interest-bearing checking which decreased $1.9 million and $3.2 million, respectively, for the three months ended June 30, 2025 as compared to the same period in the previous year. Offsetting these declines in interest expense within interest-bearing deposit accounts, we experienced an increase in interest expense from brokered time deposits, which increased $3.5 million for the three months ended June 30, 2025 to the same period in the previous year, due to an increase in the average balances outstanding as we issued additional brokered deposits as part of our overall liquidity management strategy. Total cost of interest-bearing deposits was 3.10% for the three months ended June 30, 2025 compared to 3.52% for the three months ended June 30, 2024 as interest rates decrease and we continue to manage down higher cost deposits primarily in interest-bearing checking.

Interest expense recognized on other borrowings decreased $1.6 million to $4 thousand for the three months ended June 30, 2025 due to the repayment of the Bank Term Funding Program which was paid off towards the end of 2024.

Average balance and interest yield/rate analysis

The table below shows the average balances, income and expense and yield and rates of each of our interest-earning assets and interest-bearing liabilities on a tax equivalent basis, if applicable, for the periods indicated.

(dollars in thousands)

62

Yield/rate and volume analysis

The table below presents the components of the changes in net interest income for the three months ended June 30, 2025 and 2024. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volume and changes due to interest rates, with the changes in both volume and interest rates allocated to these two categories based on the proportionate absolute changes in each category.

(dollars in thousands)

Six months ended June 30, 2025 compared to the six months ended June 30, 2024

Net interest income increased $17.2 million to $220.7 million for the six months ended June 30, 2025 as compared to $203.5 million for the six months ended June 30, 2024. Net interest margin was 3.61% for the six months ended June 30, 2025 compared to 3.49% for the six months ended June 30, 2024. The increases in net interest income and net interest margin were primarily driven by increases in interest income on loans HFI and investment securities and decreases in interest expense paid on interest-bearing deposits and other borrowings.

Interest income was $363.4 million for the six months ended June 30, 2025, compared to $354.9 million for the six months ended June 30, 2024, an increase of $8.5 million, which was primarily driven by an increase in volume of interest earning assets, most notably loans HFI, partially offset by a decrease in yields due to lower interest rates.

Interest income recognized on loans HFI increased $1.0 million to $310.1 million for the six months ended June 30, 2025 from $309.2 million for the six months ended June 30, 2024. This increase was attributable to an increase in average balances of loans HFI, partially offset by a decline in the overall yield on loans HFI due to lower interest rates. The yield on loans HFI decreased 24 basis points to 6.43% for the six months ended June 30, 2025 from 6.67% for the six months ended June 30, 2024.

The components of our loan yield for the six months ended June 30, 2025 and 2024 were as follows:

(dollars in thousands)

Interest income on investment securities increased $7.3 million to $31.9 million for the six months ended June 30, 2025 from $24.6 million for the six months ended June 30, 2024. The increase was attributable to the increase in yield on these investments from the portfolio restructuring transactions in prior years. The yield on investment securities was 3.77% for the six months ended June 30, 2025, an increase of 77 basis points from 3.00% for the six months ended June 30, 2024.

Interest expense was $142.7 million for the six months ended June 30, 2025, a decrease of $8.7 million as compared to $151.4 million for the six months ended June 30, 2024. The decrease was largely attributed to a decline in the rate paid on interest-bearing deposit accounts, partially offset by increases in average balances on interest-bearing deposit accounts.

Interest expense on interest-bearing deposit accounts totaled $138.8 million for the six months ended June 30, 2025, a $5.3 million decrease from the $144.1 million recognized for the six months ended June 30, 2024. The decline in interest expense on interest-bearing deposit accounts was led by declines in money market and interest-bearing checking which decreased $5.1 million and $4.0 million, respectively, for the six months ended June 30, 2025 as compared to the same period in the previous year. Offsetting these declines in interest expense within interest-bearing deposit accounts, we experienced an increase in interest expense from brokered time deposits, which increased $6.5 million for the six months ended June 30, 2025 to the same period in the previous year, due to an increase in the average balances outstanding as we issued additional brokered deposits as part of our overall liquidity management strategy. The average rate paid on interest-bearing deposits was 3.12% for the six months ended June 30, 2025 compared to 3.51% for the six months ended June 30, 2024.

Interest expense recognized on other borrowings decreased $3.1 million to $10 thousand for the six months ended June 30, 2025 due to the repayment of the Bank Term Funding Program which was paid off towards the end of 2024.

Average balance and interest yield/rate analysis

The table below shows the average balances, income and expense and yield and rates of each of our interest-earning assets and interest-bearing liabilities on a tax equivalent basis, if applicable, for the periods indicated.

(dollars in thousands)

(1) Average balances of nonaccrual loans and overdrafts are included in average loan balances.

(2) Interest income includes the effects of taxable-equivalent adjustments using the combined federal and blended state statutory income tax rate to increase tax-exempt interest income to a tax-

equivalent basis. to increase tax-exempt interest income to a tax-equivalent basis. The net tax-equivalent adjustment amounts included in income were $1.6 million and $1.3 million for six months

ended June 30, 2025 and 2024, respectively.

(3) Includes average net unrealized losses on investment securities available for sale of $130.5 million and $196.1 million for the six months ended June 30, 2025 and 2024, respectively.

(4) Includes average of optional rights to repurchase government guaranteed GNMA mortgage loans previously sold that meet certain defined delinquency criteria of $27.9 million and $20.8 million for the six months ended June 30, 2025 and 2024, respectively.

(5) The NIM is calculated by dividing annualized net interest income, on a tax-equivalent basis, by average total earning assets.

Yield/rate and volume analysis

The tables below present the components of the changes in net interest income for the six months ended June 30, 2025 and 2024. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volume and changes due to interest rates, with the changes in both volume and interest rates allocated to these two categories based on the proportionate absolute changes in each category.

(dollars in thousands)

(1) Average loans are presented gross, including nonaccrual loans and overdrafts.

(2) Interest income includes the effects of the tax-equivalent adjustments to increase tax-exempt interest income to a tax-equivalent basis. The net taxable-equivalent adjustment amounts included was $1.6 million and $1.3 million for the six months ended June 30, 2025 and 2024, respectively.

Provision for credit losses

The provision for credit losses charged to operating expense is an amount which, in the judgment of management, is necessary to maintain the allowance for credit losses at an appropriate level under the current expected credit loss model. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity.

Our allowance for credit losses calculation as of June 30, 2025 resulted from management’s best estimate of losses over the life of loans and unfunded commitments in our portfolio in accordance with the CECL approach.

As of June 30, 2025, we utilize the discounted cash flow estimation technique, adjusted for current conditions and reasonable and supportable forecasts, to estimate the expected credit losses of its loan segments, except consumer and other loans, which utilizes the weighted average remaining maturity loss rate technique. We determined that the use of the updated estimate techniques and related inputs and assumptions enhances the transparency, accuracy and relevance of information relating to its allowance for credit losses through the application of data and calculations more clearly calibrated to our historical experience, the nature of its loan portfolio and unfunded commitments, and expectations for future economic conditions and corresponding expected credit losses.

These changes represent a change in accounting estimate under ASC 250, “Accounting Changes and Error Corrections”, and, accordingly, is applied prospectively in the period of change and did not have a material effect on the Company’s financial statements. See “Note 1, “Basis of presentation” in this Report for further discussion on the change in estimate.

The discounted cash flow was calibrated using a regression analysis that relates one or more economic variables to our historical default rates and selected peer banks for each loan segment. We determined that national unemployment, national housing price index, national commercial real estate index and prime rates were the key economic variables that were most correlated to our historical loss performance and our peer banks. Reasonable and supportable forecasts of these economic indicators are utilized within the discounted cash flow to estimate expected credit losses for each loan segment. Current and forecast economic conditions, including those affecting these and other economic variables or macroeconomic conditions, such as global conflicts or tariffs, may continue to lead to increased volatility in our calculated level of allowance for credit losses.

Prior to the changes described above, our estimates for credit losses calculation utilized lifetime loss rate model and included economic forecasts for unemployment, gross domestic product, as well as other macroeconomic events which may impact our loan portfolio. Refer to Note 1, “Basis of presentation and summary of significant accounting policies” in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, for a detailed discussion regarding ACL methodology.

Three months ended June 30, 2025 compared to three months ended June 30, 2024

We recognized a reversal of credit losses on loans HFI of $1.1 million and provision expense of $3.9 million for the three months ended June 30, 2025 and 2024, respectively. For the three months ended June 30, 2025, the reversal of credit losses on loans HFI was primarily the result of a $6.8 million reduction due to the change in the CECL loss estimation methodology, partially offset by $5.7 million of provision growth. The increase in the growth of the provision was driven by changes in balances of the underlying loan portfolio coupled with changes in the forward-looking macroeconomic outlook during the current quarter, which combined impacted residential real estate, consumer and other, and commercial and industrial loans most directly. For the three months ended June 30, 2024, the increase in the provision for credit losses on loans HFI was driven by increases in specific reserves for individually evaluated relationships offset by reductions in reserves for construction loans. The reduction for construction loans was primarily due to reduction in balances outstanding for the portfolio.

We also estimate expected credit losses on off-balance sheet loan commitments that are not accounted for as derivatives. When applying the CECL methodology to estimate expected credit loss, we consider the likelihood that funding will occur, the contractual period of exposure to credit loss, the risk of loss, historical loss experience, and current conditions along with expectations of future economic conditions. We recorded a provision expense for credit losses on unfunded commitments of $6.4 million and a reversal of provision expense of $1.7 million for the three months ended June 30, 2025 and 2024, respectively. The provision expense was due largely to a $6.5 million impact from the change in the CECL loss estimation methodology and changes in forward-looking funding assumptions which most notably impacted our residential and commercial lines. For three months ended June 30, 2024, the reversal was due to a $37.6 million decrease in our unfunded commitments during the period, including a $73.8 million decrease in our construction portfolio.

During the three months ended June 30, 2025 and 2024 it was determined that all AFS debt securities that experienced a decline in fair value below amortized cost basis were due to noncredit-related factors. Therefore, there was no provision for credit losses recognized on AFS debt securities during the three months ended June 30, 2025 and 2024.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

We recognized a provision for credit losses on loans HFI for the six months ended June 30, 2025 and 2024 of $0.8 million and $5.8 million, respectively. The current period provision on loans HFI was driven by a $7.7 million growth in provision due to the changes in balances of the underlying loan portfolio coupled with changes in the forward-looking macroeconomic outlook offset by a $6.8 million reduction from the impact of the change in the CECL loss estimation methodology. For the six months ended June 30, 2024, the provision on loans HFI was impacted by projected deterioration in the CRE portfolio which was adjusted qualitatively.

We recorded a provision for credit losses on unfunded commitments of $6.8 million and a reversal of $2.8 million for the six months ended June 30, 2025 and 2024, respectively. For the six months ended June 30, 2025, the increase in provision for credit losses on unfunded commitments was due largely to the $6.5 million impact of the change in the CECL loss estimation methodology and changes in forward-looking funding assumptions which most notably impacted our reserves for residential and commercial lines. The reversal of provision for credit losses on unfunded commitments for the six months ended June 30, 2024 was primarily due to management's concentrated effort to reduce unfunded loan commitments during the period including a $209.1 million decrease in our construction category as these projects moved to permanent financing during the period. As such, this resulted in a $2.7 million decrease in required ACL related to the unfunded commitments in our construction portfolio for the six months ended June 30, 2024.

During the six months ended June 30, 2025 and 2024, it was determined that all AFS debt securities that experienced a decline in fair value below amortized cost basis were due to noncredit-related factors. Therefore, there was no provision for credit losses recognized on AFS debt securities during the six months ended June 30, 2025 and 2024.

Noninterest income

The following table sets forth the components of noninterest income for the periods indicated:

(dollars in thousands)

Three months ended June 30, 2025 compared to three months ended June 30, 2024

Noninterest income amounted to a $34.6 million loss for the three months ended June 30, 2025, a decrease of $60.2 million, as compared to income of $25.6 million for the three months ended June 30, 2024. The decrease in noninterest income was driven by the net loss from investment securities. Excluding the recognition of the $60.5 million of net loss from investment securities sales recognized during the three months ended June 30, 2025, noninterest income was $26.0 million for the three months ended June 30, 2025.

Mortgage banking income includes origination fees, gains and losses on the sale of mortgage loans, changes in fair value of mortgage loans and related derivatives, as well as mortgage servicing income, which includes the change in fair value of MSRs and related derivatives. Mortgage banking income was $13.0 million for the three months ended June 30, 2025, an increase of $1.1 million compared to the prior period. The increase was driven by an increase in gains on sale of $2.3 million partially offset by negative fair value changes of $0.9 million from the prior period. This was impacted by the increase in interest rate lock volume of $71.5 million, or 18.6% during the current period over the same period in the prior year.

Investment services and trust income is comprised of wealth management fees and trust and insurance income. This caption increased $0.5 million during the three months ended June 30, 2025 to $3.9 million as compared to $3.4 million during the three months ended June 30, 2024.

Service charges on deposit accounts include overdraft fees, account analysis fees and other customer transaction-related service charges. Service charges on deposit accounts increased $0.2 million during the three months ended June 30, 2025 to $3.4 million as compared to $3.2 million during the three months ended June 30, 2024.

ATM and interchange fees represent income related to customers' utilization of their debit cards and interchange income. ATM and interchange fees were $2.9 million for the three months ended June 30, 2025, compared to $2.8 million for the three months ended June 30, 2024.

Net loss from investment securities was $60.5 million for the three months ended June 30, 2025. There was no net gain or loss from investment securities recognized during the same period of the prior year. The net loss from investment securities during the three months ended June 30, 2025 was the result of management's election to sell $266.5 million of AFS debt securities with the intent to utilize the proceeds to redeem outstanding subordinated and trust preferred debt, as well as originating higher yielding loans. Refer to the section “Other earnings assets” for additional information on the sale of the AFS debt securities.

Net gain on sales or write-downs of premises and equipment, other real estate owned and other assets was $0.2 million for the three months ended June 30, 2025 compared to a net loss of $0.3 million for the three months ended June 30, 2024.

Other income is comprised of income recognized that does not typically fit into income categories and includes components such as BOLI income, swap fees, and equity investments income. Other income decreased $2.1 million to $2.5 million during the three months ended June 30, 2025 as compared to $4.6 million during the three months ended June 30, 2024. This decrease was primarily related to a $2.1 million increase in BOLI income resulting from proceeds from payment of death benefits during the three months ended June 30, 2024.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

Noninterest income amounted to a $11.5 million loss for the six months ended June 30, 2025, a decrease of $45.1 million, as compared to income of $33.6 million for the six months ended June 30, 2024. Excluding the recognition of the $60.5 million and $16.2 million of net loss from investment securities sales recognized during the six months ended June 30, 2025 and 2024, respectively, noninterest income was $49.0 million and $49.8 million for the six months ended June 30, 2025 and 2024, respectively.

Mortgage banking income was $25.5 million for the six months ended June 30, 2025, an increase of $1.0 million compared to the prior period. The increase includes an increase from gains on sale and related fair value changes of $1.5 million to $18.7 million in the current period compared to $17.2 million in the prior period. This was impacted by the increase in interest rate lock volume of $76.1 million, or 10.0% during the current period over the same period in the prior year.

Investment services and trust income increased $1.0 million during the six months ended June 30, 2025 to $7.6 million as compared to $6.6 million during the six months ended June 30, 2024. The increase was primarily attributable to fees earned from higher assets under management stemming from existing account growth.

Service charges on deposit accounts increased $0.6 million during the six months ended June 30, 2025 to $6.9 million as compared to $6.3 million during the six months ended June 30, 2024.

ATM and interchange fees were $5.6 million for the six months ended June 30, 2025, compared to $5.8 million for the six months ended June 30, 2024.

Net loss from investment securities was $60.5 million for the six months ended June 30, 2025 compared to a net loss of $16.2 million for the six months ended June 30, 2024. The net loss from investment securities during the six months ended June 30, 2025 was the result of management's election to sell $266.5 million of AFS debt securities compared to $207.9 million of AFS debt securities sold during the prior year period. Refer to the section “Other earning assets” for additional information on the sale of the AFS debt securities.

Net loss on sales or write-downs of premises and equipment, other real estate owned and other assets was $0.4 million for the six months ended June 30, 2025 compared to a net gain of $0.3 million for the six months ended June 30, 2024.

Other income decreased $2.4 million to $3.9 million during the six months ended June 30, 2025 as compared to $6.3 million during the six months ended June 30, 2024. This decrease was driven by a $1.2 million loss associated with our proportionate share of loss on our equity method investment during the six months ended June 30, 2025 and a $2.1 million increase in BOLI income resulting from proceeds from payment of death benefits recognized during the six months ended June 30, 2024.

Noninterest expense

The following table sets forth the components of noninterest expense for the periods indicated:

(dollars in thousands)

Three months ended June 30, 2025 compared to three months ended June 30, 2024

Noninterest expense increased by $6.2 million, or 8.2%, during the three months ended June 30, 2025 to $81.3 million as compared to $75.1 million in the three months ended June 30, 2024. The increase in noninterest expense was driven by increases in merger and integration costs associated with the Southern States merger, as well as other expense.

Salaries, commissions and employee benefits expense is comprised of salaries and wages in addition to other employee benefit costs and represents the largest component of noninterest expense. For the three months ended June 30, 2025, salaries and employee benefits expense increased $0.4 million, to $46.6 million as compared to $46.2 million for the three months ended June 30, 2024.

Occupancy and equipment expense includes occupancy, depreciation and equipment expense. Occupancy and equipment expense of $6.7 million and $6.3 million was recognized for the three months ended June 30, 2025 and 2024.

Legal and professional fees represent fees incurred for the various support functions, which includes legal, consulting, outsourcing and other professional related fees. Legal and professional fees were $2.4 million and $2.0 million for the three months ended June 30, 2025 and 2024, respectively.

Advertising includes expenses related to sponsorships, advertising, marketing, customer relations and business development and public relations. During the three months ended June 30, 2025, advertising expense increased $0.3 million to $2.2 million compared to $1.9 million during the three months ended June 30, 2024.

Data processing is comprised of all third-party core operating system and processing charges as well as payroll processing. Data processing fees were $2.2 million for the three months ended June 30, 2025, compared to $2.3 million for the three months ended June 30, 2024.

Amortization of core deposit and other intangibles were $0.6 million for the three months ended June 30, 2025, compared to $0.8 million for the three months ended June 30, 2024.

Merger and integration costs were $2.7 million for the three months ended June 30, 2025 associated with the merger with Southern States.

Other expense is comprised of expense that does not typically fit into other expense categories and includes mortgage servicing expenses, regulatory fees and deposit insurance assessments, software license and maintenance fees and various other miscellaneous expenses. Other expense increased $2.1 million during the three months ended June 30, 2025 to $17.8 million compared to $15.7 million during the three months ended June 30, 2024. The increase was primarily driven by modest increases across a range of expense categories, including technology and platform fees, software license and maintenance fees, card transaction fees, servicing fees and other operating expenses. No single category accounted for a significant portion of the overall increase.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

Noninterest expense increased by $13.3 million, or 9.0%, during the six months ended June 30, 2025 to $160.8 million as compared to $147.5 million in the six months ended June 30, 2024. The increase in noninterest expense was attributable to increases in salaries and employee benefits, merger and integration costs associated with the Southern States merger and other noninterest expense.

Salaries, commissions and employee benefits expense increased $4.1 million, or 4.6%, to $95.0 million for the six months ended June 30, 2025 as compared to $90.8 million for the six months ended June 30, 2024. This change was driven by increases in the salaries and benefit costs, as well as higher performance-based compensation attributable to positive 2024 financial results that were paid in 2025.

Occupancy and equipment expense of $13.3 million and $12.9 million was recognized for the six months ended June 30, 2025 and 2024.

Legal and professional fees were $4.4 million and $3.9 million for the six months ended June 30, 2025 and 2024, respectively.

Advertising expense increased $1.6 million to $4.7 million during the six months ended June 30, 2025 compared to $3.0 million during the six months ended June 30, 2024. This increase was primarily attributable to customer marketing campaigns during six months ended June 30, 2025 combined with favorable, volume based marketing rebate activity recorded in the prior year period.

Data processing fees were $4.5 million for the six months ended June 30, 2025, compared to $4.7 million for the six months ended June 30, 2024.

Amortization of core deposit and other intangibles were $1.3 million for the six months ended June 30, 2025, compared to $1.5 million for the six months ended June 30, 2024.

Merger and integration costs were $3.1 million for the six months ended June 30, 2025 associated with the merger with Southern States.

Other noninterest expense increased $4.0 million during the six months ended June 30, 2025 to $34.5 million compared to $30.6 million during the six months ended June 30, 2024. The increase was primarily related to $1.4 million of technology and platform fee increases and modest increases across a range of other expense categories, including software license and maintenance fees, card transaction fees, servicing fees and other operating expenses. Additionally, a minor franchise tax benefit was recognized in the prior year period.

Efficiency ratio

The efficiency ratio is one measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net interest income and noninterest income. For an adjusted efficiency ratio, we exclude certain gains, losses and expenses we do not consider core to our business.

Our efficiency ratio was 105.7% and 77.5% for the three and six months ended June 30, 2025, respectively, and 58.6% and 62.6% for the three and six months ended June 30, 2024, respectively. Our adjusted efficiency ratio, on a tax-equivalent basis, was 56.9% and 58.4% for the three and six months ended June 30, 2025, respectively, and 58.3% and 58.2% for the three and six months ended June 30, 2024, respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a discussion of the adjusted efficiency ratio.

Income taxes

Income tax benefit was $12.7 million and $3.2 million for the three and six months ended June 30, 2025, respectively, compared to income tax expense of $10.9 million and $17.2 million for the three and six months ended June 30, 2024, respectively. This represents effective tax rates of 130.0% and (8.1)% for the three and six months ended June 30, 2025, respectively, and 21.4% and 20.2% for the three and six months ended June 30, 2024, respectively. The primary differences from the enacted rates are applicable state income taxes and certain expenses that are not deductible, reduced for non-taxable income. For the three and six months ended June 30, 2025, income tax benefit includes the income tax effect of a $60.5 million loss on sale of AFS debt securities and a one-time tax benefit of $10.7 million due to the expiration of the statute of limitations with respect to an amended income tax return and the associated interest. For the six months ended June 30, 2024, income tax expense included the income tax effect of a $16.2 million loss on sale of

AFS debt securities. There was no loss on sale of AFS debt securities for the three months ended June 30, 2024. Refer to Note 7 “Income taxes” in the notes to the consolidated financial statements for additional information regarding the our income tax benefit/expense and effective tax rates.

Financial condition

The following discussion of our financial condition compares balances as of June 30, 2025 and December 31, 2024.

Loan portfolio

The following table sets forth the balance and associated percentage of each class of financing receivable in our loan portfolio as of the dates indicated:

(dollars in thousands)

Our loans HFI portfolio is our most significant earning asset, comprising 73.9% and 73.0% of our total assets at June 30, 2025 and December 31, 2024, respectively. Our strategy is to grow our loan portfolio by originating quality commercial and consumer type loans that comply with our credit policies and that produce revenues consistent with our financial objectives. Our overall lending approach is primarily focused on providing credit to our customers directly in the markets we serve. However, we also participate in loan syndications and participations from other banks (collectively, “participated loans”). As of June 30, 2025 and December 31, 2024, loans HFI included approximately $255.6 million and $177.6 million, respectively, related to participated loans.

We also sell loan participations to unaffiliated third-parties as part of our credit risk management and balance sheet management strategy. During the three months ended June 30, 2025 and 2024, we sold $2.4 million and $9.0 million loan participations, respectively. During the six months ended June 30, 2025 and 2024, we sold $3.5 million and $17.0 million loan participations, respectively. All loans, whether or not we act as a participant, are underwritten to the same standards as all other loans we originate. We believe our loan portfolio is well-balanced, which provides us with the opportunity to grow while monitoring our loan concentrations.

Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. Our lending activity is heavily concentrated in the geographic market areas we serve, with the highest concentration in Tennessee. This geographic concentration subjects our loan portfolio to the general economic conditions within the state. The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for credit losses on loans HFI. As of June 30, 2025 and December 31, 2024, there were no concentrations of loans exceeding 10% of total loans other than our geographic exposure to Tennessee and Alabama, as well as the categories of loans disclosed in the table above. We believe our loan portfolio is diversified relative to industry concentrations across the various loan portfolio categories. For additional details related to the concentrations within our loan portfolio, refer to the industry classification and collateral property type concentration tables detailed later in this section.

Banking regulators have established guidelines of less than 100% of tier 1 capital plus allowance for credit losses in construction lending and less than 300% of tier 1 capital plus allowance for credit losses in commercial real estate lending that management monitors as part of the risk management process. The construction concentration ratio is a percentage of the outstanding construction and land development loans to total tier 1 capital plus allowance for credit losses. The commercial real estate concentration ratio is a percentage of the outstanding balance of non-owner occupied commercial real estate, multifamily, and construction and land development loans to tier 1 capital plus allowance for credit losses. Management strives to operate within the thresholds set forth above. When our ratios are in excess of one or both of these guidelines, banking regulators generally require an increased level of monitoring in these lending areas by management.

The table below shows concentration ratios for the Bank and Company as of June 30, 2025 and December 31, 2024.

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As part of our lending policy and risk management activities, we track lending exposure of commercial and industrial and owner-occupied commercial real estate by industry classification (as defined by the North American Industry Classification System) and type to determine potential risks associated with industry concentrations, and if any risk issues could lead to additional credit loss exposure. The table below provides a summary of our commercial and industrial and owner-occupied commercial real estate portfolios by industry classification.

(dollars in thousands)

(1) Nonperforming loans are those on which the accrual of interest has stopped, as well as loans that are contractually 90 days past due on which interest continues to accrue.

Additionally, we track our lending exposure of non-owner occupied commercial real estate and construction by collateral property type to determine potential risks associated with collateral types, and if any risk issues could lead to additional credit loss exposure. The table below provides a summary of our non-owner occupied commercial real estate and construction loan portfolios by collateral property type.

(dollars in thousands)

1) Nonperforming loans are those on which the accrual of interest has stopped, as well as loans that are contractually 90 days past due on which interest continues to accrue.

Loan maturity and sensitivities

The following table presents the contractual maturities of our loan portfolio as of June 30, 2025. Loans with scheduled maturities are reported in the maturity category in which the payment is due. Demand loans with no stated maturity and overdrafts are reported in the “due in 1 year or less” category. Loans that have adjustable rates are shown as amortizing to final maturity rather than when the interest rates are next subject to change. The tables do not include prepayment assumptions or scheduled repayments.

For loans due after one year or more, the following table presents the interest rate composition for loans outstanding as of June 30, 2025.

The following table presents the contractual maturities of our loan portfolio segregated into fixed and floating interest rate loans as of June 30, 2025.

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Asset quality

In order to operate with a sound risk profile, we focus on originating loans that we believe to be of high quality. We have established loan approval policies and procedures to assist us in maintaining the overall quality of our loan portfolio. When delinquencies in our loans exist, we rigorously monitor the levels of such delinquencies for any negative or adverse trends. From time to time, we may modify loans to extend the term or make other concessions, including interest rate reduction, a term extension, principal forgiveness, payment deferral, or a combination thereof, to help a borrower with a deteriorating financial condition stay current on their loan and to avoid foreclosure. Furthermore, we are committed to collecting on all of our loans. This practice leads to higher recoveries in the long-term.

Nonperforming assets

Our nonperforming assets consist of nonperforming loans, other real estate owned and other repossessed non-earning assets. As of June 30, 2025 and December 31, 2024, we had $123.0 million and $121.9 million, respectively, in nonperforming assets. Nonperforming loans are those on which the accrual of interest has stopped, as well as loans that are contractually 90 days past due on which interest continues to accrue. Accrued interest receivable written off as an adjustment to interest income amounted to $1.1 million and $0.2 million for the three months ended June 30, 2025 and 2024, respectively, and $1.3 million and $0.4 million for the six months ended June 30, 2025 and 2024, respectively. Additionally, we had net interest recoveries on nonperforming assets previously charged off of $0.4 million and $0.7 million for the three months ended June 30, 2025 and 2024, respectively, and $0.9 million and $1.0 million for the six months ended June 30, 2025 and 2024, respectively.

Nonperforming loans HFI increased by $12.2 million to $95.9 million as of June 30, 2025 compared to $83.7 million as of December 31, 2024. The increase in nonperforming loans primarily occurred in our construction and multi-family portfolios partially offset by a decrease in a our commercial and industrial portfolio.

As of June 30, 2025 and December 31, 2024, we had $21.0 million and $31.4 million, respectively, of delinquent GNMA optional repurchase loans previously sold included on our consolidated balance sheets in loans held for sale. These are considered nonperforming assets as we do not earn any interest on the unexercised option to repurchase these loans.

As of both June 30, 2025 and December 31, 2024, other real estate owned included $0.1 million of excess land and facilities held for sale resulting from our prior acquisitions. Other repossessed assets also included other repossessed non-real estate amounting to $3.2 million and $2.4 million as of June 30, 2025 and December 31, 2024, respectively.

The following table provides details of our nonperforming assets, the ratio of such loans and other nonperforming assets to total assets, and certain other related information as of the dates presented:

(dollars in thousands)

We have evaluated our loans HFI classified as nonperforming and believe all nonperforming loans have been adequately reserved for in the allowance for credit losses on loans HFI as of June 30, 2025 and December 31, 2024. Management also continually monitors past due loans for potential credit quality deterioration. Loans not considered nonperforming include loans 30-89 days past due that continue to accrue interest amounting to $64.4 million at June 30, 2025 as compared to $47.9 million at December 31, 2024. The increase from December 31, 2024 to June 30, 2025 primarily occurred within our construction and consumer and other portfolios offset with a decrease in our 1-to-4 family mortgage portfolio.

Allowance for credit losses

The allowance for credit losses represents the portion of the loan’s amortized cost basis that we do not expect to collect due to credit losses over the loan’s life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for credit losses is based on the loan’s amortized cost basis, excluding accrued interest receivable, as we promptly charge off uncollectible accrued interest receivable.

As of June 30, 2025, we utilize the discounted cash flow estimation technique, adjusted for current conditions and reasonable and supportable forecasts, to estimate the expected credit losses of its loan segments, except consumer and other loans, which as of June 30, 2025, utilize the weighted average remaining maturity loss rate technique. We determined that the use of the updated estimate techniques and related inputs and assumptions enhances the transparency, accuracy and relevance of information relating to its allowance for credit losses through the application of data and calculations more clearly calibrated to our historical experience, the nature of its loan portfolio and unfunded commitments, and expectations for future economic conditions and corresponding expected credit losses. See “Note 1, “Basis of presentation” in this Report for further discussion on the change in estimate. The changes are accounted for as a change in estimate included in the provision for credit losses and did not have a material impact to our operating results and financial condition.

Prior to June 30, 2025, our estimates for credit losses calculation utilized a lifetime loss rate model. See Note 1, “Basis of presentation and summary of significant accounting policies,” in the notes to our consolidated financial statements in our Annual Report that was filed with the SEC on February 25, 2025, for additional information regarding our estimates prior to June 30, 2025.

The following table presents the allocation of the allowance for credit losses on loans HFI by loan category as well as the ratio of loans by loan category compared to the total loan portfolio as of the dates indicated:

(dollars in thousands)

80

The following table summarizes activity in our allowance for credit losses on loans HFI during the periods indicated:

(dollars in thousands)

(1) We made certain changes to its estimation techniques and certain related inputs and assumptions in its estimates of credit losses as of June 30, 2025. See “Note 1, “Basis of presentation” in this Report for further discussion on the change in estimate. The changes are accounted for as a change in estimate included in the provision for credit losses and did not have a material impact to our operating results and financial condition.

The following tables details our provision for (reversal of) credit losses on loans HFI and net (charge-offs) recoveries to average loans HFI outstanding by loan category during the periods indicated:

(dollars in thousands)

82

(dollars in thousands)

(1) We made certain changes to its estimation techniques and certain related inputs and assumptions in its estimates of credit losses as of June 30, 2025. See “Note 1, “Basis of presentation” in this Report for further discussion on the change in estimate. The changes are accounted for as a change in estimate included in the provision for credit losses and did not have a material impact to our operating results and financial condition.

The ACL on loans HFI was $148.9 million and $151.9 million and represented 1.51% and 1.58% of loans HFI as of June 30, 2025 and December 31, 2024, respectively. For further information related to the change in the ACL refer to “Provision for credit losses” section herein and Note 3, “Loans and allowance for credit losses on loans HFI” in the notes to our consolidated financial statements.

For the both three months ended June 30, 2025 and 2024, we experienced net charge-offs of $0.5 million, or 0.02% of average loans HFI. For the six months ended June 30, 2025, we experienced net charge-offs of $3.8 million, or 0.08% of average loans HFI, compared to net charge-offs of $1.1 million, or 0.02% for the six months ended June 30, 2024. Our ratio of total nonperforming loans HFI as a percentage of total loans HFI increased by 10 basis points to 0.97% as of June 30, 2025 compared to December 31, 2024 primarily due to increases in nonperforming loans in our construction and multi-family portfolios partially offset by a decrease in a our commercial and industrial portfolio.

Management has made a concerted effort to reduce exposure to construction lending. The reduction in construction balances and the corresponding allowance reduction offset some of the additional allowance needed related to growth in other loan segments.

We also maintain an allowance for credit losses on unfunded commitments in other liabilities, which increased to $12.9 million as of June 30, 2025 from $6.1 million as of December 31, 2024 due to the change in CECL loss estimation methodology and changes in forward-looking funding assumptions which most notably impacted reserves for our residential and commercial lines.

Loans held for sale

Mortgage loans held for sale consisted of $123.2 million of residential real estate mortgage loans in the process of being sold to third-party private investors or government sponsored agencies and $21.0 million of GNMA optional repurchase loans. This compares to $95.4 million of residential real estate mortgage loans in the process of being sold to third-party private investors or government sponsored agencies and $31.4 million of GNMA optional repurchase loans as of December 31, 2024.

Deposits

Deposits represent the Bank’s primary source of funding. We continue to focus on growing core customer deposits through our relationship driven banking philosophy, community-focused marketing programs and our treasury management services.

Total deposits were $11.40 billion and $11.21 billion as of June 30, 2025 and December 31, 2024, respectively.

Noninterest-bearing deposits at June 30, 2025 and December 31, 2024 were $2.19 billion and $2.12 billion, respectively. Noninterest bearing deposits include mortgage escrow deposits which increased to $114.7 million as of June 30, 2025 from $69.0 million as of December 31, 2024.

Our interest-bearing deposits were $9.21 billion and $9.09 billion at June 30, 2025 and December 31, 2024, respectively.

Interest-bearing checking deposits decreased to $2.33 billion at June 30, 2025 as compared to $2.91 billion at December 31, 2024. The decrease was driven by management's effort to manage down higher cost deposits.

Money market and savings deposits accounts increased by $307.1 million from December 31, 2024 primarily due to a promotional rate campaign targeting new and existing customers and commercial account growth across our footprint.

Customer time deposits increased by $341.5 million from December 31, 2024, driven by a $350.0 million short-term public funds time deposit.

Additionally, brokered and internet time deposits increased by $49.6 million to $518.7 million as of June 30, 2025 compared to December 31, 2024. This growth was a product of our liquidity management strategy

We have experienced a decrease in our cost of interest-bearing deposits due to a decrease in the interest rate environment. Average deposit balances by type, together with the average rates per period are reflected in the average balance sheet amounts, interest paid, and rate analysis tables included in this management’s discussion and analysis under the subheading “Results of operations” discussion.

Our deposit base may include certain deposits from related parties as disclosed within Note 14, “Related party transactions” in the notes to our consolidated financial statements included in this Report.

The following table sets forth the distribution by type of our deposit accounts as of the dates indicated:

(dollars in thousands)

Further details related to our deposit customer base is presented below as of the dates indicated:

(dollars in thousands)

(1) Segments are determined based on the customer account level.

The tables below set forth maturity information on time deposits and amounts in excess of the FDIC insurance limit as of June 30, 2025:

(dollars in thousands)

Uninsured deposits are defined as the portion of deposit accounts in U.S. federally insured depository institutions that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as deposits and are not subject to any federal or state deposit insurance regimes. Collateralized deposits are included within our total uninsured deposits.

Further details related to our estimated insured or collateralized deposits and uninsured and uncollateralized deposits is presented below as of the dates indicated:

(1) Amounts are shown on a fully consolidated basis and exclude deposits of affiliates that are eliminated in consolidation.

(2) Amounts are shown on an unconsolidated basis consistent with regulatory reporting requirements.

Other earning assets

Securities purchased under agreements to resell (“reverse repurchase agreements”)

We enter into agreements with certain customers to purchase investment securities under agreements to resell at specific dates in the future. This investment deploys some of our liquidity position into an instrument that improves the return on those funds. Securities purchased under agreements to resell totaled $54.1 million and $61.1 million at June 30, 2025 and December 31, 2024, respectively.

Federal funds sold

Federal funds may fluctuate from period to period depending upon our liquidity position at the time and our strategy for deploying liquidity. Federal funds sold totaled $298.0 million and $64.8 million at June 30, 2025 and December 31, 2024, respectively.

AFS debt securities portfolio

Our investment portfolio objectives include maximizing total return after other primary objectives are achieved such as, but not limited to, providing liquidity, capital preservation, and pledging collateral for certain deposit types, various lines of credit and other borrowings. The investment objectives guide the portfolio allocation among security types, maturities, and other attributes.

The fair value of our AFS debt securities portfolio was $1.34 billion and $1.54 billion as of June 30, 2025 and December 31, 2024, respectively. Included in the fair value of AFS debt securities were net unrealized losses of $63.3 million and $141.4 million as of June 30, 2025 and December 31, 2024, respectively. Current net unrealized losses are driven by prevailing interest rate levels versus interest rate levels when many of the bonds were purchased.

During the three and six months ended June 30, 2025, we sold $266.5 million of mortgage-backed AFS debt securities with a weighted average yield of 1.63%. We anticipate utilizing the proceeds from this transaction to redeem outstanding subordinated and trust preferred debt, as well as originating higher yielding loans. The securities sold resulted in a net loss on securities of $60.5 million. During the three and six months ended June 30, 2025, we purchased $78.1 million and $181.8 million, respectively, of AFS debt securities. Maturities, prepayments and calls of AFS debt securities totaled $59.8 million and $134.7 million for the three and six months ended June 30, 2025, respectively.

During the six months ended June 30, 2024, we sold $207.9 million of AFS debt securities, resulting in a net loss on securities of $16.2 million. We primarily sold agency collateralized mortgage obligations, agency mortgage-backed securities, U.S. Treasury and municipal securities. We reinvested the proceeds from the sales primarily into U.S. government agency AFS debt securities. There were no AFS debt securities sold during the three months ended June 30, 2024. During the three and six months ended June 30, 2024, we purchased $85.0 million and $366.6 million, respectively, of AFS debt securities. Maturities, prepayments and calls of AFS debt securities totaled $67.6 million and $134.2 million for the three and six months ended June 30, 2024, respectively.

The following table sets forth the fair value, scheduled maturities and weighted average yields for our AFS debt securities portfolio as of the dates indicated below:

(dollars in thousands)

(1) Yields on a tax-equivalent basis.

Borrowed funds

Deposits are the primary source of funds for our lending activities and general business purposes. However, we also fund our operations through other channels, including obtaining advances from the FHLB, borrowings from the Federal Reserve’s Discount Window or one-off borrowing programs, purchasing federal funds and engaging in overnight borrowing with correspondent banks, or entering into client repurchase agreements. We use these sources of funds as part of our asset liability management process to control our long-term interest rate risk exposure, even if it may increase our short-term cost of funds.

Our level of short-term borrowing can fluctuate on a daily basis depending on funding needs and the sources of funds to satisfy those needs, in addition to the overall interest rate environment and cost of public funds.

Securities sold under agreements to repurchase and federal funds purchased

We enter into agreements with certain customers to sell certain securities under agreements to repurchase the security the following day. These agreements are made to provide customers with comprehensive treasury management products as a short-term return for their excess funds. Securities sold under agreements to repurchase totaled $11.4 million and $13.5 million at June 30, 2025 and December 31, 2024, respectively.

We also maintain lines with certain correspondent banks that provide borrowing capacity in the form of federal funds purchased. Federal funds purchased are short-term borrowings that typically mature within one to ninety days. There were no such borrowings against these lines (i.e., federal funds purchased) as of June 30, 2025 or December 31, 2024.

FHLB advances

As a member of the FHLB system, we may utilize advances from the FHLB in order to provide additional liquidity and funding. Under these short-term agreements, we maintain a line of credit that as of June 30, 2025 and December 31, 2024 had total borrowing capacity of $1.48 billion and $1.40 billion, respectively. As of June 30, 2025 and December 31, 2024, we had qualifying loans pledged as collateral securing these lines amounting to $2.71 billion and $2.61 billion, respectively. There were no FHLB advances outstanding as of June 30, 2025 or December 31, 2024.

Subordinated debt

In 2003, we formed two separate trusts which issued $9.0 million and $21.0 million of floating rate trust preferred securities as part of a pooled offering of such securities. We issued junior subordinated debentures of $9.3 million, which included proceeds of common securities which we purchased for $0.3 million, and junior subordinated debentures of $21.7 million which included proceeds of common securities of $0.7 million. The trusts were created for the sole purpose of issuing 30-year capital trust preferred securities to fund the purchase of junior subordinated debentures issued by us. Both issuances were to the trusts in exchange for the proceeds of the securities offerings, which represent the sole asset of the trusts.

Additionally, in 2020, the Bank placed $100.0 million of ten year fixed-to-floating rate subordinated notes, maturing September 1, 2030.

We anticipate utilizing a portion of the proceeds from the securities sale transaction during the three months ended June 30, 2025 to redeem our outstanding subordinated and trust preferred debt.

Further information related to our subordinated debt as of June 30, 2025 is detailed below:

(dollars in thousands)

Other borrowings

Other borrowings on our consolidated balance sheets includes our finance lease liability totaling $1.2 million as of both June 30, 2025 and December 31, 2024. In addition, other borrowings on our consolidated balance sheets include guaranteed rebooked GNMA loans previously sold that meet certain defined delinquency criteria and are eligible for repurchase totaling $21.0 million and $31.4 million as of June 30, 2025 and December 31, 2024, respectively. See Note 5, “Leases” and Note 10, “Fair value of financial instruments” within the notes to our consolidated financial statements herein for additional information regarding our finance lease and guaranteed GNMA loans eligible for repurchase, respectively.

Liquidity and capital resources

We are expected to maintain adequate liquidity at the Bank to meet the cash flow requirements of clients who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Our Liquidity Policy is intended to cause the Bank to maintain adequate liquidity and, therefore, enhance our ability to raise funds to support asset growth, meet deposit withdrawals and lending needs and otherwise sustain our operations. We accomplish this through management of the maturities of our interest-earning assets and interest-bearing liabilities. We believe that our present position is adequate to meet our current and future liquidity needs.

We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all of our short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of clients, while maintaining an appropriate balance between assets and liabilities to optimize our net interest margin. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy and the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits.

As part of our liquidity management strategy, we focus on minimizing our costs of liquidity and attempt to decrease these costs by growing our noninterest-bearing and other low-cost deposits, while replacing higher cost funding sources. While we do not control the types of deposit instruments our clients choose, we do influence those choices with the rates and the deposit specials we offer. Increasing interest rates generally attracts customers to higher cost interest-bearing deposit products as they seek to maximize their yield.

Our investment portfolio is another alternative for meeting liquidity needs. These assets generally have readily available markets that offer conversions to cash as needed. AFS debt securities within our investment portfolio are typically used to secure government, public, trust and other deposits and as collateral for short-term borrowings, letters of credit and derivative instruments. As of June 30, 2025 and December 31, 2024, we had pledged securities with carrying values of $790.2 million and $937.0 million, respectively.

Additional sources of liquidity include federal funds purchased, repurchase agreements, FHLB borrowings and lines of credit. Interest is charged at the prevailing market rate on federal funds purchased, reverse repurchase agreements and FHLB advances. Overnight advances obtained from the FHLB are used primarily to meet day to day liquidity needs, particularly when the cost of such borrowing compares favorably to the rates that we would be required to pay to attract deposits. There were no FHLB advances outstanding as of June 30, 2025 or December 31, 2024. As of June 30, 2025, we had the ability to borrow $1.48 billion through FHLB advances with remaining capacity of $1.48 billion. As of December 31, 2024, there was $1.40 billion available to borrow against with a remaining capacity of $1.40 billion.

We also maintained unsecured lines of credit with other commercial banks totaling $370.0 million as of both June 30, 2025 and December 31, 2024. These are unsecured, uncommitted lines of credit typically maturing at various times within the next twelve months. There were no such borrowings against these lines (i.e., federal funds purchased) as of June 30, 2025 or December 31, 2024. As of both June 30, 2025 and December 31, 2024, we also had $50.0 million available through the IntraFi network, which allows us to offer banking customers access to FDIC insurance protection on deposits through our Bank which exceed FDIC insurance limits.

Our current on-balance sheet liquidity and available sources of liquidity are summarized in the table below:

(dollars in thousands)

(1) Includes capacity available per internal policy in the form of brokered deposits and unsecured lines of credit.

(2) Amounts are shown on a fully consolidated basis and exclude deposits of affiliates that are eliminated in consolidation.

The Company also maintains the ability to access capital markets to meet its liquidity needs. The Company may utilize various methods to raise capital, including through the sale of common stock, preferred stock, debt securities, warrants, rights, or other securities. Specific terms and prices would be determined at the time of any such offering. In the past, the Company has utilized capital markets to generate liquidity in the form of common stock and subordinated debt primarily for the purpose of funding acquisitions.

The Company is a corporation separate and apart from the Bank and, therefore, it must provide for its own liquidity. The Company’s main source of funding is dividends declared and paid by the Bank to the Company. Statutory and regulatory limitations exist that affect the ability of the Bank to pay dividends to the Company. Management believes that these limitations will not impact the Company’s ability to meet its ongoing short-term cash obligations. For additional information regarding dividend restrictions, see the “Item 1. Business - Supervision and regulation,” “Item 1A. Risk Factors - Risks related to our business” and “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Dividends,” each of which is set forth in our Annual Report on Form 10-K for the year ended December 31, 2024.

Due to state banking laws, the Bank may not declare dividends in any calendar year in an amount exceeding the total of its net income for that year combined with its retained net income of the preceding two years, without the prior approval of the TDFI. Based upon this regulation, as of June 30, 2025 and December 31, 2024, $91.4 million and $185.9 million of the Bank’s retained earnings were available for the payment of dividends without such prior approval. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. During the three and six months ended June 30, 2025, there were $52.3 million and $62.1 million in cash dividends approved by the board for payment from the Bank to the holding company. During the three and six months ended June 30, 2024, there were $20.0 million and $28.5 million in cash dividends approved by the board for payment from the Bank to the holding company in addition to an asset dividend of an equity security amounting to $1.7 million. None of these required approval from the TDFI. Subsequent to June 30, 2025, the Board approved a dividend from the Bank to the holding company to be paid in the third quarter for $40.7 million that also did not require approval from the TDFI.

During the three and six months ended June 30, 2025, the Company declared shareholder dividends of $0.19 per share, or $8.8 million and $0.38 per share, or $17.8 million, respectively. During the three and six months ended June 30, 2024, the Company declared shareholder dividends of $0.17 per share, or $8.0 million and 0.34 per share, or $16.1 million, respectively. Subsequent to June 30, 2025, the Company declared a quarterly dividend in the amount of $0.19 per share, payable on August 26, 2025, to stockholders of record as of August 12, 2025.

Shareholders’ equity and capital management

Our total shareholders’ equity was $1.61 billion and $1.57 billion as of June 30, 2025 and December 31, 2024, respectively. The increase in shareholders’ equity was primarily attributable to net income of $42.3 million and a $44.8 million unrealized loss reclassification adjustment for loss on sale of securities included in net income, net of tax benefit. This increase was partially off-set by dividends declared of $17.8 million and stock repurchases of $44.1 million. Book value per common share was $35.17 as of June 30, 2025 and $33.59 as of December 31, 2024.

Our capital management consists of providing adequate equity to support our current and future operations. We are subject to various regulatory capital requirements administered by state and federal banking agencies, including the TDFI, Federal Reserve and the FDIC. Failure to meet minimum capital requirements may prompt certain actions by regulators that, if undertaken, could have a direct material adverse effect on our financial condition and results of operations. The Federal Reserve and the FDIC have issued guidelines governing the levels of capital that banks must maintain. As of June 30, 2025 and December 31, 2024, we met all capital adequacy requirements for which we were subject. See additional discussion regarding our capital adequacy and ratios within Note 12, “Minimum capital requirements” in the notes to our consolidated financial statements contained herein.

(1) Applicable to Bank level capital.

Capital ratios are well above regulatory requirements for well-capitalized institutions. Management uses risk-based capital ratios in its analysis of the measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company.

Interest rate sensitivity

Our market risk arises primarily from interest rate risk inherent in the normal course of lending and deposit-taking activities. Management believes that our ability to successfully respond to changes in interest rates will have a significant impact on our financial results. To that end, management actively monitors and manages our interest rate risk exposure.

The ALCO, which is authorized by our Board of Directors, monitors our interest rate sensitivity and makes decisions relating to that process. The ALCO’s goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital in either a rising or declining interest rate environment. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis.

We monitor the impact of changes in interest rates on our net interest income and economic value of equity using rate shock analysis. Net interest income simulations measure the short-term earnings exposure from changes in market rates of interest in a rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. EVE measures our long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time. A decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the balance sheet assuming that the rate change remains in effect over the life of the current balance sheet. For purposes of calculating EVE, a zero percent floor is assumed on discount factors.

The following analysis depicts the estimated impact on net interest income and EVE of immediate changes in interest rates at the specified levels for the periods presented:

(1) The percentage change represents the projected net interest income for 12 months on a flat balance sheet in a stable interest rate environment versus the projected net interest income in the various rate scenarios.

(2) The percentage change in this column represents our EVE in a stable interest rate environment versus EVE in the various rate scenarios.

The results for the net interest income simulations as of June 30, 2025 and December 31, 2024 resulted in an asset sensitive position. The primary influence of our asset sensitivity is the floating rate structure in many of our loans held for investment as well as the composition of our liabilities which is primarily customer deposits. Our floating-rate loan portfolio is indexed to market rates and the timing and magnitude of loan and deposit repricing varies in proportion to market rate fluctuations. We actively monitor and perform stress tests on our deposit betas as part of our overall management of interest rate risk. This requires the use of various assumptions based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive pricing in the market, we anticipate that our future results will likely be different from the scenario results presented above and such differences could be material.

The preceding measures assume no change in the size or asset/liability compositions of the balance sheet. Thus, the measures do not reflect the actions the ALCO may undertake in response to such changes in interest rates. The scenarios assume instantaneous movements in interest rates in increments of 100, 200, 300 and 400 basis points. As interest rates are adjusted over a period of time, it is our strategy to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk. The computation of the prospective effects of hypothetical interest rate changes requires numerous assumptions regarding characteristics of new business and the behavior of existing positions. These business assumptions are based upon our experience, business plans and published industry experience. Key assumptions employed in the model include asset prepayment speeds, competitive factors, the relative price sensitivity of certain assets and liabilities and the expected life of non-maturity deposits. Because these assumptions are inherently uncertain, actual results may differ from simulated results.

We may utilize derivative financial instruments as part of an ongoing effort to mitigate interest rate risk exposure to interest rate fluctuations and facilitate the needs of our customers. For more information about our derivative financial instruments, see Note 9, “Derivatives” in the notes to our consolidated financial statements.

Evaluation of Disclosure Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Report was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is: (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

There have been no material changes to the risk factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2024.