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美國
證券交易委員會
華盛頓特區20549
 
格式 10-Q
 
☒ 根據1934年證券交易法第13或15(d)節的季度報告
 
截至當季末 2024年9月30日
 
或者
 
☐根據1934年證券交易法第13或15(d)條款的過渡報告
 
在過渡期內                         到 ____________
 
委員會文件號： 0-19065
 
 
 
 
 
桑迪斯普林銀行股份有限公司.
(根據其章程規定的註冊人準確名稱)
 
馬里蘭州 52-1532952
（公司註冊國） （美國國稅局僱主識別號）
 
喬治亞大道17801號, 奧爾尼, 馬里蘭州
 20832
請選擇註冊人是否按Form 20-F或Form 40-F覆蓋提交年度報告。 Form 20-F [X] Form 40-F [] (郵政編碼)
 
301-774-6400
(註冊人電話號碼，包括區號)
 
在法案第12(b)條的規定下注冊的證券：
每個課程的標題交易品種註冊的每個交易所的名稱
普通股，面值每股1.00美元SASR納斯達克股票市場有限責任公司
 
請勾選以下項目：是否在過去12個月內（或在申報人有必須提供此類報告的更短期間內）提交了《證券交易所法案》第13或15(d)條規定的所有報告；是否在過去90天中一直需要提交文件？
Yes ☒ 否 ☐
 
請在複選標誌處註明公司是否已在前12個月內（或對於公司在該期內需要提交此類文件的期限縮短的情況，該期限內）通過提交所有根據規則405條的S-T法規必須提交的交互式數據文件。
Yes ☒否 ☐
 
請勾選「√」表示註冊申請人是否爲大型加速報告人、加速報告人、非加速報告人、較小報告公司或新興成長型企業。請查看《交易所法》第120億.2條中對「大型加速報告人」、「加速報告人」、「較小報告公司」和「新興成長型企業」的定義。
 
大型加速報告人 ☒ 如果是新興增長公司，請勾選是否註冊人選擇不使用執行交易所第13（a）條規定所提供的任何新的或修訂的財務會計準則的推遲過渡期。 ☐¨非加速提供者¨較小的報告公司☐新興成長型企業☐ 
 
如果是新興成長型公司，請勾選以下項目，說明公司是否選擇不使用根據《交易所法》第13(a)條規定提供的任何新的或修訂後的財務會計準則的延長過渡期。¨
 
根據檢查標記指示註冊者是否是殼公司（如《交易所法》第120億.2條所定義）
Yes ☐否 ☒
2024年11月5日，普通股的流通股數量
 
普通股，面值$1.00 - 45,135,694股


桑迪斯普林班庫有限公司。
目錄
 
  
  
  
控件壓縮綜合利潤表-未經審計，爲三個月及 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。 截至 九月 30、2024和2023年
  
三個和未經審計的簡明綜合收益報表 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。 截至 九月 30、2024和2023年
  
未經審計的股東權益變動簡明綜合報表 - 未經審計的 三個月的彙總 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。 截至 九月 30、2024和2023年
  
未經審計的現金流量簡明綜合報表 - 未經審計的 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。 截至 九月 30、2024和2023年
  
  
  
  
截至2024年6月29日，公司在管理監督下參與了評估，包括公司的行政總裁和首席財務官(其首席執行官和首席財務官，分別)就公司的披露控制和程序的設計和操作的有效性進行了評估，如1934年證券交易法規則13a-15(e)和15d-15(e)中定義的公司披露控制和程序。根據該評估，首席執行官和首席財務官得出結論，公司的披露控制和程序(根據交易所法規13a-15(e)和15d-15(e)定義)自2024年6月29日起是有效的，以確保公司在其根據交易所法規提交的報告中需要披露的信息在規定的時間內進行記錄、處理、彙總和報告，並且這些披露控制和程序是有效的，以確保公司在其交易所提交的報告中需要披露的信息被累積和傳達給其管理層，包括其主要執行和主要財務官員或執行類似職能的人，適當的允許及時做出決定。
  
 
  
  
  
  
  
  
  
  
2

第一部分
基本報表-綜合性損益表（未經審計）
桑迪斯普林銀行股份有限公司及其子公司
未經審計的簡明綜合財務狀況表
 
 9月30日,12月31日,
（單位：千美元）20242023
資產：  
現金和存放在銀行的款項$109,583 $82,257 
聯邦資金出售— 245 
銀行存款（含利息）640,763 463,396 
現金及現金等價物750,346 545,898 
按公允價值計量的待售住房抵押貸款21,489 10,836 
待售SBA貸款425 — 
持有至到期投資，以成本計量（公允價值$189,853 和 $200,411）
220,296 236,165 
可供出售的投資（按公允價值)1,149,056 1,102,681 
其他投資成本71,136 75,607 
總貸款金額11,491,921 11,366,989 
減少：授信準備金 - 貸款(131,428)(120,865)
淨貸款11,360,493 11,246,124 
資產和設備淨值57,249 59,490 
其他房地產業擁有3,265 — 
應計利息應收款45,162 46,583 
商譽363,436 363,436 
其他無形資產，淨額30,514 28,301 
其他310,206 313,051 
資產總額$14,383,073 $14,028,172 
負債：
非計息存款$2,903,063 $2,914,161 
計息存款-存款利息8,834,631 8,082,377 
存款總額11,737,694 10,996,538 
零售回購協議下出售的證券 70,767 75,032 
聯邦儲備銀行借款— 300,000 
來自FHLB的預付款450,000 550,000 
從屬債務371,251 370,803 
借款總額892,018 1,295,835 
應計利息應付及其他負債124,524 147,657 
負債合計12,754,236 12,440,030 
股東權益:
普通股 - 面值 $1.00; 已授權股數 100,000,000; 已發行股份和流通股數
45,125,078 和 44,913,561 分別爲2024年9月30日和2023年12月31日
45,125 44,914 
股票認購應收款項。748,202 742,243 
保留盈餘911,411 898,316 
累計其他綜合損失(75,901)(97,331)
股東權益合計1,628,837 1,588,142 
負債和股東權益合計$14,383,073 $14,028,172 

附帶說明是這些聲明的組成部分

3

桑迪斯普林銀行股份有限公司及其子公司
未經審計的彙總損益表
 三個月截止九個月結束
 9月30日,9月30日,
(金額以千元爲單位，除每股數據外)2024202320242023
利息收入：    
貸款利息和費用$154,339 $147,304 $456,309 $431,305 
按揭貸款持有待售的利息364 238 801 697 
Interest on SBA loans held for sale2 — 2 — 
銀行存款利息收入6,191 6,371 17,401 13,979 
Interest and dividend income on investment securities:
應稅的7,440 6,682 21,319 20,538 
Tax-advantaged1,762 1,811 5,385 5,376 
聯邦基金銷售的利息— 5 8 13 
總利息收入170,098 162,411 501,225 471,908 
利息支出:
贖回Baskets的日元數量。如果Trust的日元被提取以支付Trust的開支，需要創建籃子或在籃子贖回時發生的，用於表示Baskets的日元數量的代幣的日元數量可能會隨着時間的推移而逐漸減少。79,287 63,102 227,062 155,215 
零售回購協議利息和購買聯邦基金452 4,082 4,890 10,377 
聯邦家庭貸款銀行貸款利息5,001 6,200 16,394 21,623 
次級債務利息3,946 3,946 11,839 11,839 
總利息支出88,686 77,330 260,185 199,054 
淨利息收入81,412 85,081 241,040 272,854 
信貸損失準備金/（信貸）貸款減值6,316 2,365 9,724 (14,116)
淨利息收入經過信貸損失準備金/（信貸）貸款減值75,096 82,716 231,316 286,970 
非息收入：
存款帳戶服務費3,009 2,704 8,765 7,698 
抵押銀行業務1,529 1,682 4,524 4,744 
财富管理收入10,738 9,391 31,151 27,414 
銀行持有壽險的收入1,307 845 4,283 3,003 
銀行卡費用435 450 1,293 1,315 
其他收入2,697 2,319 7,653 6,344 
總非利息收入19,715 17,391 57,669 50,518 
非利息支出：
薪水和員工福利41,030 44,853 115,549 124,710 
場地佔用費用4,657 4,609 14,278 14,220 
設備費用3,841 3,811 11,672 11,688 
市場營銷1,320 729 3,350 3,861 
外部數據服務3,025 2,819 9,414 8,186 
FDIC保險2,773 2,333 8,635 6,846 
無形資產攤銷2,323 1,245 6,527 3,820 
專業費用和服務6,577 4,509 16,403 12,354 
其他支出7,391 7,563 23,219 22,227 
非利息支出總額72,937 72,471 209,047 207,912 
稅前收入21,874 27,636 79,938 129,576 
所得稅費用5,665 6,890 20,550 32,832 
淨利潤$16,209 $20,746 $59,388 $96,744 
每股信息：
每股基本淨利潤$0.36 $0.46 $1.32 $2.16 
每股稀釋淨利潤$0.36 $0.46 $1.31 $2.15 
每股分紅派息$0.34 $0.34 $1.02 $1.02 

The accompanying notes are an integral part of these statements

4

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/ (LOSS) – UNAUDITED
 
 Three Months EndedNine Months Ended
September 30,September 30,
(In thousands)2024202320242023
Net income$16,209 $20,746 $59,388 $96,744 
Other comprehensive income/ (loss):
Investments available-for-sale:
Net change in unrealized gains/ (losses) on investments available-for-sale34,416 (23,730)27,432 (16,555)
Related income tax (expense)/ benefit(8,634)5,873 (6,862)4,045 
Net investment gains reclassified into earnings— — — — 
Related income tax expense— — — — 
Net effect on other comprehensive income/ (loss)25,782 (17,857)20,570 (12,510)
Investments held-to-maturity:
Amortization of unrealized loss transferred from investments available-for-sale401 451 1,137 1,314 
Related income tax benefit(90)(127)(277)(347)
Net effect on other comprehensive income/ (loss)311 324 860 967 
Defined benefit pension plan:
Amortization of net loss— 10,286 — 10,737 
Related income tax benefit— (2,620)— (2,735)
Net effect on other comprehensive income/ (loss)— 7,666 — 8,002 
Total other comprehensive income/ (loss)26,093 (9,867)21,430 (3,541)
Comprehensive income$42,302 $10,879 $80,818 $93,203 

The accompanying notes are an integral part of these statements

5

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY – UNAUDITED
 
(Dollars in thousands, except per share data)Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income/ (Loss)		Total
Stockholders'
Equity
Balances at July 1, 2024$45,110 $745,336 $910,552 $(101,994)$1,599,004 
Net income— — 16,209 — 16,209 
Other comprehensive income, net of tax— — — 26,093 26,093 
Total comprehensive income42,302 
Common stock dividends - $0.34 per share
— — (15,350)— (15,350)
Stock compensation expense— 2,580 — — 2,580 
Common stock issued pursuant to:
Stock option plan - 700 shares
1 7 — — 8 
Employee stock purchase plan - 14,006 shares
13 281 — — 294 
Restricted stock vesting, net of tax withholding - 701 shares
1 (2)— — (1)
Balances at September 30, 2024$45,125 $748,202 $911,411 $(75,901)$1,628,837 
Balances at July 1, 2023$44,862 $737,740 $882,055 $(125,625)$1,539,032 
Net income— — 20,746 — 20,746 
Other comprehensive loss, net of tax— — — (9,867)(9,867)
Total comprehensive income10,879 
Common stock dividends - $0.34 per share
— — (15,289)— (15,289)
Stock compensation expense— 2,762 — — 2,762 
Common stock issued pursuant to:
Stock option plan - 17,179 shares
17 171 — — 188 
Employee stock purchase plan - 15,610 shares
16 326 — — 342 
Balances at September 30, 2023$44,895 $740,999 $887,512 $(135,492)$1,537,914 

The accompanying notes are an integral part of these statements

6

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY – UNAUDITED

(Dollars in thousands, except per share data)Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income/ (Loss)		Total
Stockholders'
Equity
Balances at January 1, 2024$44,914 $742,243 $898,316 $(97,331)$1,588,142 
Net income— — 59,388 — 59,388 
Other comprehensive loss, net of tax— — — 21,430 21,430 
Total comprehensive income80,818 
Common stock dividends - $1.02 per share
— — (46,293)— (46,293)
Stock compensation expense— 6,441 — — 6,441 
Common stock issued pursuant to:
Stock option plan - 10,638 shares
11 106 — — 117 
Employee stock purchase plan - 49,108 shares
48 965 — — 1,013 
Restricted stock vesting, net of tax withholding - 151,771
shares
152 (1,553)— — (1,401)
Balances at September 30, 2024$45,125 $748,202 $911,411 $(75,901)$1,628,837 
Balances at January 1, 2023$44,657 $734,273 $836,789 $(131,951)$1,483,768 
Net income— — 96,744 — 96,744 
Other comprehensive loss, net of tax— — — (3,541)(3,541)
Total comprehensive income93,203 
Common stock dividends - $1.02 per share
— — (46,021)— (46,021)
Stock compensation expense— 6,734 — — 6,734 
Common stock issued pursuant to:
Stock option plan - 58,100 shares
58 647 — — 705 
Employee stock purchase plan - 47,149 shares
47 1,139 — — 1,186 
Restricted stock vesting, net of tax withholding - 132,855 shares
133 (1,794)— — (1,661)
Balances at September 30, 2023$44,895 $740,999 $887,512 $(135,492)$1,537,914 

The accompanying notes are an integral part of these statements

7

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
 Nine Months Ended September 30,
(Dollars in thousands)20242023
Operating activities:  
Net income$59,388 $96,744 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization19,196 16,316 
Provision/ (credit) for credit losses9,724 (14,116)
Share based compensation expense6,441 6,734 
Deferred income tax expense205 4,744 
Originations of loans held for sale(285,227)(296,913)
Proceeds from sales of loans held for sale278,391 293,750 
Gains on sales of loans held for sale(4,242)(4,366)
Gains on sale of other real estate owned— (96)
Tax (benefit)/ deficiency associated with share based compensation513 296 
Net (increase)/ decrease in accrued interest receivable1,421 (3,928)
Net increase in other assets(6,673)(10,062)
Net increase/ (decrease) accrued expenses and other liabilities(25,984)17,979 
Other, net54 66 
Net cash provided by operating activities53,207 107,148 
Investing activities:
Sales/ (purchases) of other investments4,471 (6,305)
Purchases of investments available-for-sale(163,868)— 
Proceeds from maturities, calls and principal payments of investments available-for-sale143,533 120,520 
Proceeds from maturities, calls and principal payments of investments held-to-maturity16,776 19,052 
Net (increase)/ decrease in loans(127,598)96,764 
Proceeds from the sales of other real estate owned— 481 
Expenditures for premises and equipment(12,801)(9,914)
Net cash provided by/ (used in) investing activities(139,487)220,598 
Financing activities:
Net increase in deposits741,557 198,632 
Net increase/ (decrease) in retail repurchase agreements, federal funds purchased and Federal Reserve Bank borrowings(304,265)44,614 
Proceeds from FHLB advances— 2,030,000 
Repayment of FHLB advances(100,000)(2,030,000)
Proceeds from issuance of common stock1,248 2,051 
Stock tendered for payment of withholding taxes(1,519)(1,821)
Cash dividends paid(46,293)(45,863)
Net cash provided by financing activities290,728 197,613 
Net increase in cash and cash equivalents204,448 525,359 
Cash and cash equivalents at beginning of period545,898 192,232 
Cash and cash equivalents at end of period$750,346 $717,591 
Supplemental disclosures:
Interest payments$272,069 $170,336 
Income tax payments18,466 27,345 
Transfers from loans to other real estate owned3,265 — 

The accompanying notes are an integral part of these statements

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SANDY SPRING BANCORP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
 

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Sandy Spring Bancorp, Inc. ("Bancorp" or, together with its subsidiaries, the "Company"), a Maryland corporation, is the bank holding company for Sandy Spring Bank (the “Bank”). Independent and community-oriented, the Bank offers a broad range of commercial banking, retail banking, mortgage services and trust services throughout central Maryland, Northern Virginia, and the greater Washington, D.C. market. The Bank also offers a comprehensive menu of wealth management services through its subsidiaries, West Financial Services, Inc. (“West Financial”) and SSB Wealth Management, Inc. (d/b/a Rembert Pendleton Jackson, "RPJ”).
 
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”), prevailing practices within the financial services industry for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, the interim financial statements do not include all of the information and notes required for complete financial statements. The following summary of significant accounting policies of the Company is presented to assist the reader in understanding the financial and other data presented in this report. Operating results for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for any future periods or for the year ending December 31, 2024. In the opinion of management, all adjustments necessary for a fair presentation of the results of the interim periods have been included. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on the Company's net income and shareholders' equity. The Company has evaluated subsequent events through the date of the issuance of its financial statements.
 
These statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s 2023 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 20, 2024. There have been no significant changes to any of the Company’s accounting policies as disclosed in the 2023 Annual Report on Form 10-K.
 
Principles of Consolidation
The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary, Sandy Spring Bank, and its subsidiaries. Consolidation has resulted in the elimination of all intercompany accounts and transactions.
 
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, in addition to affecting the reported amounts of revenues earned and expenses incurred during the reporting period. Actual results could differ from those estimates. Estimates that could change significantly relate to the provision for credit losses and the related allowance, potential impairment of goodwill or other intangible assets, valuation of investment securities and the determination of whether available-for-sale debt securities with fair values less than amortized costs are impaired and require an allowance for credit losses, valuation of other real estate owned, valuation of share based compensation, the assessment that a liability should be recognized with respect to any matters under litigation, and the calculation of current and deferred income taxes.
 
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits with banks (items with stated original maturity of three months or less).
 
Revenue from Contracts with Customers
The Company’s revenue includes net interest income on financial instruments and non-interest income. Specific categories of revenue are presented in the Condensed Consolidated Statements of Income. Most of the Company’s revenue is not within the scope of Accounting Standard Codification (“ASC”) 606 – Revenue from Contracts with Customers. For revenue within the scope of ASC 606, the Company provides services to customers and has related performance obligations. The revenue from such services is recognized upon satisfaction of all contractual performance obligations. The following discusses key revenue streams within the scope of this revenue recognition guidance.
 
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West Financial and RPJ provide comprehensive investment management and financial planning services. Wealth management income is comprised of income for providing trust, estate and investment management services. Trust services include acting as a trustee for corporate or personal trusts. Investment management services include investment management, record-keeping and reporting of security portfolios. Fees for these services are recognized based on a contractually-agreed fixed percentage applied to net assets under management at the end of each reporting period. The Company does not charge/recognize any performance-based fees.
 
Service charges on deposit accounts are earned on depository accounts for consumer and commercial account holders and include fees for account and overdraft services. Account services include fees for event-driven services and periodic account maintenance activities. An obligation for event-driven services is satisfied at the time of the event when service is delivered and revenue recognized as earned. Obligation for maintenance activities is satisfied over the course of each month and revenue is recognized at month end. The overdraft services obligation is satisfied at the time of the overdraft and revenue is recognized as earned.
 
Loan Financing Receivables
The Company’s financing receivables consist primarily of loans that are stated at their principal balance outstanding, net of any unearned income, acquisition fair value marks and deferred loan origination fees and costs. Interest income on loans is accrued at the contractual rate based on the principal balance outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Loans are considered past due or delinquent when the principal or interest due in accordance with the contractual terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. Immaterial shortfalls in payment amounts do not necessarily result in a loan being considered delinquent or past due. If any payments are past due and subsequent payments are resumed without payment of the delinquent amount, the loan shall continue to be considered past due. Whenever any loan is reported delinquent on a principal or interest payment or portion thereof, the amount reported as delinquent is the outstanding principal balance of the loan.

Loans, except for consumer installment loans, are placed into non-accrual status when any portion of the loan principal or interest becomes 90 days past due. Management may determine that certain circumstances warrant earlier discontinuance of interest accruals on specific loans if an evaluation of other relevant factors (such as bankruptcy, interruption of cash flows, etc.) indicates collection of amounts contractually due is unlikely. These loans are considered, collectively, to be non-performing loans. Consumer installment loans that are not secured by real estate are not placed on non-accrual, but are charged down to their net realizable value when they are four months past due. Loans designated as non-accrual have all previously accrued but unpaid interest reversed. Interest income is not recognized on non-accrual loans. All payments received on non-accrual loans are applied using a cost-recovery method to reduce the outstanding principal balance until the loan returns to accrual status. Loans may be returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

On January 1, 2023, the Company adopted provisions of ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)", which eliminated accounting guidance for TDRs by creditors. Prior to the effective adoption date, the Company considered loans to be TDRs if their terms were restructured (e.g., interest rates, loan maturity date, payment and amortization period, etc.) in circumstances that provided a payment concession to a borrower experiencing financial difficulty. Loans could be removed from a TDR category if the borrower no longer experienced financial difficulty, a re-underwriting event took place, and the revised loan terms of the subsequent restructuring agreement were considered to be consistent with terms that could be obtained in the market for loans with comparable credit risk. Subsequent to the effective adoption date, the Company continues to offer modifications to certain borrowers experiencing financial difficulty, mainly in the form of interest rate concessions or term extensions, without classifying and accounting for them as TDRs.
 
Allowance for Credit Losses
The allowance for credit losses (“allowance” or “ACL”) represents an amount which, in management's judgment, reflects the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The allowance is measured and recorded upon the initial recognition of a financial asset. The allowance is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision or credit for credit losses, which is recorded as a current period expense.
 
Determination of the appropriateness of the allowance is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the allowance is reviewed by the Risk Committee of the Board of Directors and formally approved quarterly by that same committee of the Board.
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The Company’s methodology for estimating the allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period, which management has determined to be two years, followed by a two year reversion period, and the Company’s prepayment and curtailment rates; (2) collective qualitative factors that consider the expected impact of certain factors not fully captured in the collective quantified reserve, including concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early delinquencies, and factors related to credit administration, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations; and (3) individual allowances on collateral-dependent loans where borrowers are experiencing financial difficulty or when the Company determines that the foreclosure is probable. The Company excludes accrued interest from the measurement of the allowance as the Company has a non-accrual policy to reverse any accrued, uncollected interest income as loans are moved to non-accrual status.

Loans are pooled into segments based on the similar risk characteristics of the underlying borrowers, in addition to consideration of collateral type, industry and business purpose of the loans. Portfolio segments used to estimate the allowance are the same as portfolio segments used for general credit risk management purposes. Refer to Note 3 for more details on the Company’s portfolio segments.

The Company applies two calculation methodologies to estimate the collective quantified component of the allowance: expected loss method and weighted average remaining life method. Allowance estimates on commercial acquisition, development and construction (“AD&C”) and residential construction segments are based on the weighted average remaining life method. Allowance estimates on all other portfolio segments are based on the expected loss method. Collective calculation methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a two-year economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period expected losses revert back to the historical mean over the next two years on a straight-line basis. Economic variables that have the most significant impact on the allowance include: unemployment rate, gross domestic product, commercial real estate price index, residential real estate house price index and business bankruptcies. Contractual loan level cash flows within the expected loss methodology are adjusted for the Company’s historical prepayment and curtailment rate experience.

The individual reserve assessment is applied to collateral dependent loans where borrowers are experiencing financial difficulty or when the Company determines that a foreclosure is probable. The determination of the fair value of the collateral depends on whether a repayment of the loan is expected to be from the sale or the operation of the collateral. When a repayment is expected from the operation of the collateral, the Company uses the present value of expected cash flows from the operation of the collateral as the fair value. When the repayment of the loan is expected from the sale of the collateral the fair value of the collateral is based on an observable market price or the collateral’s appraised value, less estimated costs to sell. Third-party appraisals used in the individual reserve assessment are conducted at least annually with underlying assumptions that are reviewed by management. Third-party appraisals may be obtained on a more frequent basis if deemed necessary. Internal evaluations of collateral value are conducted quarterly to ensure any further deterioration of the collateral value is recognized on a timely basis. During the individual reserve assessment, management also considers the potential future changes in the value of the collateral over the remainder of the loan’s remaining life. The Company may receive updated appraisals which contradict the preliminary determination of fair value used to establish an individual allowance on a loan. In these instances the individual allowance is adjusted to reflect the Company’s evaluation of the updated appraised fair value. In the event a loss was previously determined and the loan was charged down to the estimated fair value based on a previous appraisal, the balance of the partially charged-off loan is not subsequently increased, but could be further decreased depending on the direction of the change in fair value. Payments on fully or partially charged-off loans are accounted for under the cost-recovery method. Under this method, all payments received are applied on a cash basis to reduce the outstanding principal balance, then to recognize a recovery of all previously charged-off amounts before any interest income may be recognized. Based on the individual reserve assessment, if the Company determines that the fair value of the collateral is less than the amortized cost basis of the loan, an individual allowance will be established measured as the difference between the fair value of the collateral (less costs to sell) and the amortized cost basis of the loan. Once a loss has been determined, the loan is charged-down to its estimated fair value.

Large groups of smaller non-accrual homogeneous loans are not individually evaluated for allowance and include residential permanent and construction mortgages and consumer installment loans. These portfolios are reserved for on a collective basis using historical loss rates of similar loans over the weighted average life of each portfolio.

Unfunded lending commitments are reviewed to determine if they are considered unconditionally cancellable. The Company establishes reserves for unfunded commitments that do not meet that criteria as a liability in the Condensed Consolidated Statements of Condition. Changes to the liability are recorded through the provision for credit losses in the Condensed
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Consolidated Statements of Income. The establishment of the reserves for unfunded commitments considers both the likelihood that the funding will occur and an estimate of the expected credit losses over the life of the respective commitments.

Management believes it uses relevant information available to make determinations about the allowance and reserve for unfunded commitments and that it has established the existing reserves in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.
 
Held-to-maturity debt securities
Debt securities that are purchased with the positive intent and ability to be held until their maturity are classified as held-to-maturity (“HTM”). HTM debt securities are recorded at cost adjusted for amortization of premiums and accretion of discounts. Transfers of debt securities from available-for-sale ("AFS") category to HTM category are made at fair value as of the transfer date. The unrealized gain or loss at the date of transfer continues to be reported in accumulated other comprehensive income and in the carrying amount of the HTM securities. Both amounts are amortized over the remaining life of the security as a yield adjustment in interest income and effectively offset each other.

Leases
The Company determines if an arrangement is a lease at inception. All of the Company’s leases are currently classified as operating leases and are included in other assets and other liabilities on the Company’s Condensed Consolidated Statements of Condition. Periodic operating lease costs are recorded in occupancy expenses of premises on the Company's Condensed Consolidated Statements of Income.
 
Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease arrangements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the expected future lease payments over the remaining lease term. In determining the present value of future lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The operating ROU assets are adjusted for any lease payments made at or before the lease commencement date, initial direct costs, any lease incentives received and, for acquired leases, any favorable or unfavorable fair value adjustments. The present value of the lease liability may include the impact of options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options provided in the lease terms. Lease expense is recognized on a straight-line basis over the expected lease term. Lease agreements that include lease and non-lease components, such as common area maintenance charges, are accounted for separately.
 
Segment Reporting
Operating segments are components of a business about which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance. While the Company’s chief operating decision maker has some limited financial information about the Bank's various financial products and services, that information is not complete since it does not include a full allocation of revenue, costs, and capital from key corporate functions; therefore, the Company evaluates financial performance on the Company-wide basis. Management continues to evaluate these business units for separate reporting as facts and circumstances change.

Goodwill and Other Intangible Assets
Goodwill represents the excess purchase price paid over the fair value of the net assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The current accounting guidance provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company assesses qualitative factors on a quarterly basis. Based on the assessment of these qualitative factors, if it is determined that it is more likely than not that the fair value of a reporting unit remains in excess of the carrying value, then performing a quantitative impairment test is not necessary. However, if it is determined that it is more likely than not that the carrying value exceeds the fair value, a quantitative analysis is required to determine whether an impairment exists.

As of October 1, 2023, the Company’s annual goodwill impairment assessment date, the Company performed an impairment test for its two reporting units: Community Banking and Investment Management. The results of the 2023 annual goodwill
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impairment test for the two reporting units, which included both qualitative and quantitative assessments, indicated that the estimated fair value of each reporting unit exceeded its carrying amount and that the goodwill assigned to the Community Banking reporting unit may be at risk of impairment in future periods. The Company provided detailed disclosures regarding the 2023 impairment analysis and the results of the testing in its annual financial statements for the year ended December 31, 2023 in its 2023 Annual Report on Form 10-K. In addition to the annual impairment testing process, on a quarterly basis, the Company monitors each reporting unit for any triggering events and performs qualitative assessments of impairment indicators.

During the third quarter of 2024, the Company determined that there were no triggering events and completed the qualitative assessment of impairment indicators, which included an assessment of changes in macroeconomic conditions and comparison of the actual operating performance to the forecast used in the most recent annual impairment test. Based on these considerations, the Company concluded that it was more-likely-than-not that the fair value of our reporting units remained above the respective carrying amounts as of September 30, 2024.

On October 21, 2024, Bancorp entered into an Agreement and Plan of Merger with Atlantic Union. Refer to Note 17 for more details on the announced transaction. Management is currently reviewing and evaluating the terms of the transaction and their impact on the goodwill as a part of its annual goodwill impairment assessment.

Other intangible assets have finite lives and are reviewed for impairment annually. These assets are amortized over their estimated useful lives on a straight-line or sum-of-the-years basis over varying periods that initially did not exceed 15 years. Intangible assets are reviewed or analyzed periodically to determine if it appears that their value has diminished beyond the value in the financial statements. The review or analysis of the intangible assets did not indicate that any impairment occurred during the third quarter of 2024.

Adopted Accounting Pronouncements
In March 2023, the FASB issued ASU 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method". ASU 2023-02 allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The amendment in this ASU also removes the specialized guidance for low-income-housing tax credit investments that are not accounted for using the proportional amortization method and instead require that those LIHTC investments be accounted for using the guidance in other GAAP. The Company fully adopted this update effective January 1, 2024 on a prospective basis. The adoption of this pronouncement did not have a material impact on the Condensed Consolidated Financial Statements.

Pending Accounting Pronouncements applicable to the Company
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which requires public entities to disclose information about their reportable segments' significant expenses on an interim and annual basis. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Entities must adopt this ASU on a retrospective basis. Early adoption is permitted. Currently, the Company does not expect that the adoption of this standard will have a material impact on its Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. ASU 2023-09 improves the transparency of income tax disclosures by requiring entities to provide greater disaggregation of information on income taxes paid and on the rate reconciliation disclosures. This pronouncement also requires qualitative discussion of the primary state and local jurisdictions for income taxes and the type of reconciling categories. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company does not expect that the adoption of this standard will have a material impact on its Consolidated Financial Statements.
 
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NOTE 2 – INVESTMENTS
Investments available-for-sale and held-to-maturity
The amortized cost and estimated fair values of investments available-for-sale and held-to-maturity at the dates indicated are presented in the following table:
 September 30, 2024December 31, 2023
(In thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value		Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
Available-for-sale debt securities:
U.S. treasuries and government agencies$87,237 $— $(2,430)$84,807 $101,678 $— $(4,751)$96,927 
State and municipal303,844 1 (38,656)265,189 311,505 1 (43,292)268,214 
Mortgage-backed and asset-backed848,681 1,638 (51,259)799,060 807,636 181 (70,277)737,540 
Total available-for-sale debt securities$1,239,762 $1,639 $(92,345)$1,149,056 $1,220,819 $182 $(118,320)$1,102,681 
Held-to-maturity debt securities:
Mortgage-backed and asset-backed220,296 — (30,443)189,853 236,165 — (35,754)200,411 
Total held-to-maturity debt securities$220,296 $— $(30,443)$189,853 $236,165 $— $(35,754)$200,411 
Total debt securities$1,460,058 $1,639 $(122,788)$1,338,909 $1,456,984 $182 $(154,074)$1,303,092 
 
Any unrealized losses in the U.S. treasuries and government agencies, state and municipal, mortgage-backed and asset-backed available-for-sale debt securities at September 30, 2024 are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required at September 30, 2024. Unrealized losses on available-for-sale debt securities are expected to recover over time as these securities approach maturity. The Company does not intend to sell, nor is it more likely than not it will be required to sell, these securities and has sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value.

All held-to-maturity investments are either issued by a direct governmental entity or a government-sponsored entity and have no historical evidence supporting expected credit losses. Therefore, the Company has estimated these losses at zero and will monitor this assumption in the future for any economic or governmental policies that could affect this assumption.

The available-for-sale and held-to-maturity mortgage-backed securities portfolio at September 30, 2024 is composed entirely of either the most senior tranches of GNMA, FNMA or FHLMC collateralized mortgage obligations ($470.5 million), GNMA, FNMA or FHLMC mortgage-backed securities ($556.0 million) or SBA asset-backed securities ($42.5 million).

Accrued interest receivable on investment securities totaled $6.3 million at September 30, 2024 and $5.4 million at December 31, 2023, and is excluded from the amortized cost and fair value of the securities.
 
Gross unrealized losses and fair value by length of time that the individual available-for-sale debt securities have been in an unrealized loss position at the dates indicated are presented in the following table:
 September 30, 2024
 Number
of
Securities		Less Than 12 Months12 Months or MoreTotal
(Dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. treasuries and government agencies8 $— $— $84,807 $2,430 $84,807 $2,430 
State and municipal118 1,781 167 250,438 38,489 252,219 38,656 
Mortgage-backed and asset-backed328 94,330 401 607,324 50,858 701,654 51,259 
Total454 $96,111 $568 $942,569 $91,777 $1,038,680 $92,345 

 December 31, 2023
 Number
of
Securities		Less Than 12 Months12 Months or MoreTotal
(Dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. treasuries and government agencies10 $— $— $96,927 $4,751 $96,927 $4,751 
State and municipal123 4,162 84 262,081 43,208 266,243 43,292 
Mortgage-backed and asset-backed321 22,731 106 691,281 70,171 714,012 70,277 
Total454 $26,893 $190 $1,050,289 $118,130 $1,077,182 $118,320 
 
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The Company has allocated mortgage-backed securities into the four maturity groupings reflected in the following tables using the expected average life of the individual securities based on statistics provided by independent third-party industry sources. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.

The estimated fair values and amortized costs of available-for-sale and held-to-maturity debt securities by contractual maturity are provided in the following tables:

September 30, 2024December 31, 2023
(In thousands)Fair ValueAmortized CostFair ValueAmortized Cost
Available-for-sale debt securities
U.S. treasuries and government agencies:
One year or less$36,945 $37,703 $17,798 $17,979 
One to five years47,862 49,534 79,129 83,699 
Five to ten years— — — — 
After ten years— — — — 
State and municipal:
One year or less28,604 28,708 22,345 22,793 
One to five years26,274 27,069 33,282 34,288 
Five to ten years57,006 65,025 46,355 54,487 
After ten years153,305 183,042 166,232 199,937 
Mortgage-backed and asset-backed:
One year or less27,138 27,224 20,814 21,111 
One to five years21,587 21,922 29,823 30,666 
Five to ten years265,069 281,025 256,924 280,209 
After ten years485,266 518,510 429,979 475,650 
Total available-for-sale debt securities$1,149,056 $1,239,762 $1,102,681 $1,220,819 

September 30, 2024December 31, 2023
(In thousands)Fair ValueAmortized CostFair ValueAmortized Cost
Held-to-maturity debt securities
Mortgage-backed and asset-backed:
One year or less$— $— $— $— 
One to five years— — — — 
Five to ten years28,886 31,051 31,434 34,458 
After ten years160,967 189,245 168,977 201,707 
Total held-to-maturity debt securities$189,853 $220,296 $200,411 $236,165 

At September 30, 2024 and December 31, 2023, available-for-sale and held-to-maturity debt securities with a book value of $435.8 million and $729.0 million, respectively, were pledged and designated as collateral for certain government deposits, public and trust funds, securities sold under repurchase agreements and other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agencies securities, exceeded ten percent of stockholders' equity at September 30, 2024 and December 31, 2023.
 

Other investments
Other investments are presented in the following table:
(In thousands)September 30, 2024December 31, 2023
Federal Reserve Bank stock, at cost$39,268 $39,125 
Federal Home Loan Bank of Atlanta stock, at cost31,191 35,805 
Other677 677 
Total other investments, at cost$71,136 $75,607 
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NOTE 3 – LOANS
Outstanding loan balances at September 30, 2024 and December 31, 2023 are net of unearned income, including net deferred loan fees of $6.6 million and $7.0 million, respectively, at the end of each period. Accrued interest receivable of $38.9 million and $41.2 million at September 30, 2024 and December 31, 2023, respectively, are excluded from the amortized cost of the loans.
The loan portfolio segment balances at the dates indicated are presented in the following table:
(In thousands)September 30, 2024December 31, 2023
Commercial real estate:
Commercial investor real estate$4,868,467 $5,104,425 
Commercial owner-occupied real estate1,737,327 1,755,235 
Commercial AD&C1,255,609 988,967 
Commercial business1,620,926 1,504,880 
Total commercial loans9,482,329 9,353,507 
Residential real estate:
Residential mortgage1,529,786 1,474,521 
Residential construction53,639 121,419 
Consumer426,167 417,542 
Total residential and consumer loans2,009,592 2,013,482 
    Total loans$11,491,921 $11,366,989 
 
Portfolio Segments
The Company currently manages its credit products and the respective exposure to credit losses (credit risk) by the following specific portfolio segments (classes) which are levels at which the Company develops and documents its systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are:
 
•Commercial investor real estate loans - Commercial investor real estate loans consist of loans secured by nonowner-occupied properties where an established banking relationship exists and involves investment properties for warehouse, retail, and office space with a history of occupancy and cash flow. This commercial investor real estate category contains mortgage loans to the developers and owners of commercial real estate where the borrower intends to operate or sell the property at a profit and use the income stream or proceeds from the sale(s) to repay the loan.

•Commercial owner-occupied real estate loans - Commercial owner-occupied real estate loans consist of commercial mortgage loans secured by owner-occupied properties where an established banking relationship exists and involves a variety of property types to conduct the borrower’s operations. The decision to extend a loan is based upon the borrower’s financial health and the ability of the borrower and the business to repay. The primary source of repayment for this type of loan is the cash flow from the operations of the business.

•Commercial acquisition, development and construction loans - Commercial acquisition, development and construction loans are intended to finance the construction of commercial properties and include loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of additional factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.

•Commercial business loans - Commercial business loans are made to provide funds for equipment and general corporate needs. Repayment of a loan primarily comes from the funds obtained from the operation of the borrower’s business. Commercial business loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory.

•Residential mortgage loans - The residential mortgage loans category contains permanent mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios, and collateral values. Loans may be either conforming or non-conforming.
16

 
•Residential construction loans - The Company makes residential construction loans generally to provide interim financing on residential property during the construction period. Borrowers are typically individuals who will ultimately occupy the single-family dwelling. Loan funds are disbursed periodically as pre-specified stages of completion are attained based upon site inspections.

•Consumer loans - This category of loans includes primarily home equity loans and lines, installment loans, personal lines of credit, and other loans. The home equity category consists mainly of revolving lines of credit to consumers which are secured by residential real estate. These loans are typically secured with second mortgages on the homes. Other consumer loans include installment loans used by customers to purchase automobiles, boats and recreational vehicles.

NOTE 4 – CREDIT QUALITY ASSESSMENT
Allowance for Credit Losses
Summary information on the allowance for credit losses on loans for the period indicated is provided in the following table:
 Nine Months Ended September 30,
(In thousands)20242023
Balance at beginning of period$120,865 $136,242 
Provision/ (credit) for credit losses - loans (1)
12,602 (11,320)
Loan charge-offs(2,810)(2,518)
Loan recoveries771 956 
Net charge-offs(2,039)(1,562)
Balance at period end$131,428 $123,360 
 (1) Excludes the total credit to the provision on unfunded loan commitments for the nine months ended September 30, 2024 and September 30, 2023 of $2.9 million and $2.8 million, respectively.

The following table provides summary information regarding collateral dependent loans individually evaluated for credit loss at the dates indicated:
(In thousands)September 30, 2024December 31, 2023
Collateral dependent loans individually evaluated for credit loss with an allowance$96,088 $72,179 
Collateral dependent loans individually evaluated for credit loss without an allowance25,131 15,989 
Total individually evaluated collateral dependent loans$121,219 $88,168 
Allowance for credit losses related to loans evaluated individually$37,326 $24,000 
Allowance for credit losses related to loans evaluated collectively94,102 96,865 
Total allowance for credit losses - loans$131,428 $120,865 
 
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The following tables provide information on the activity in the allowance for credit losses by the respective loan portfolio segment for the period indicated:
 For the Nine Months Ended September 30, 2024
 Commercial Real EstateResidential Real Estate 
(Dollars in thousands)Commercial
Investor R/E		Commercial
Owner-
Occupied R/E		Commercial
AD&C		Commercial
Business		Residential
Mortgage		Residential
Construction		ConsumerTotal
Balance at beginning of period$61,439 $7,536 $8,287 $31,932 $8,890 $729 $2,052 $120,865 
Provision/ (credit) for credit losses - loans(6,616)(1,296)19,008 805 355 (420)766 12,602 
Charge-offs(401)— (135)(1,803)(50)— (421)(2,810)
Recoveries9 81 330 31 52 — 268 771 
Net (charge-offs)/ recoveries(392)81 195 (1,772)2 — (153)(2,039)
Balance at end of period$54,431 $6,321 $27,490 $30,965 $9,247 $309 $2,665 $131,428 
Total loans$4,868,467 $1,737,327 $1,255,609 $1,620,926 $1,529,786 $53,639 $426,167 $11,491,921 
Allowance for credit losses on loans to total loans ratio1.12 %0.36 %2.19 %1.91 %0.60 %0.58 %0.63 %1.14 %
Average loans$4,964,914 $1,740,608 $1,139,517 $1,546,498 $1,512,209 $87,177 $418,591 $11,409,514 
Annualized net charge-offs/ (recoveries) to average loans0.01 %(0.01)%(0.02)%0.15 %— %— %0.05 %0.02 %
Balance of loans individually evaluated for credit loss$70,720 $9,639 $31,816 $9,044 $— $— $— $121,219 
Allowance related to loans evaluated individually$16,286 $1,059 $13,444 $6,537 $— $— $— $37,326 
Individual allowance to loans evaluated individually ratio23.03 %10.99 %42.26 %72.28 %— %— %— %30.79 %
Contractual balance of individually evaluated loans$72,313 $10,803 $31,829 $10,236 $— $— $— $125,181 
Balance of loans collectively evaluated for credit loss$4,797,747 $1,727,688 $1,223,793 $1,611,882 $1,529,786 $53,639 $426,167 $11,370,702 
Allowance related to loans evaluated collectively$38,145 $5,262 $14,046 $24,428 $9,247 $309 $2,665 $94,102 
Collective allowance to loans evaluated collectively ratio0.80 %0.30 %1.15 %1.52 %0.60 %0.58 %0.63 %0.83 %

 For the Year Ended December 31, 2023
 Commercial Real EstateResidential Real Estate 
(Dollars in thousands)Commercial
Investor R/E		Commercial
Owner-
Occupied R/E		Commercial
AD&C		Commercial
Business		Residential
Mortgage		Residential
Construction		ConsumerTotal
Balance at beginning of period$64,737 $11,646 $18,646 $28,027 $9,424 $1,337 $2,425 $136,242 
Provision for credit losses - loans(3,323)(4,215)(10,359)4,051 (488)(608)1,048 (13,894)
Charge-offs— — — (449)(160)— (2,005)(2,614)
Recoveries25 105 — 303 114 — 584 1,131 
Net (charge-offs)/ recoveries25 105 — (146)(46)— (1,421)(1,483)
Balance at end of period$61,439 $7,536 $8,287 $31,932 $8,890 $729 $2,052 $120,865 
Total loans$5,104,425 $1,755,235 $988,967 $1,504,880 $1,474,521 $121,419 $417,542 $11,366,989 
Allowance for credit losses on loans to total loans ratio1.20 %0.43 %0.84 %2.12 %0.60 %0.60 %0.49 %1.06 %
Average loans$5,133,279 $1,766,839 $1,023,669 $1,440,382 $1,380,496 $187,599 $421,963 $11,354,227 
Net charge-offs/ (recoveries) to average loans— %(0.01)%— %0.01 %— %— %0.34 %0.01 %
Balance of loans individually evaluated for credit loss$72,218 $4,640 $1,259 $10,051 $— $— $— $88,168 
Allowance related to loans evaluated individually$15,353 $1,159 $102 $7,386 $— $— $— $24,000 
Individual allowance to loans evaluated individually ratio21.26 %24.98 %8.10 %73.49 %— %— %— %27.22 %
Contractual balance of individually evaluated loans$72,712 $5,623 $1,270 $11,500 $— $— $— $91,105 
Balance of loans collectively evaluated for credit loss$5,032,207 $1,750,595 $987,708 $1,494,829 $1,474,521 $121,419 $417,542 $11,278,821 
Allowance related to loans evaluated collectively$46,086 $6,377 $8,185 $24,546 $8,890 $729 $2,052 $96,865 
Collective allowance to loans evaluated collectively ratio0.92 %0.36 %0.83 %1.64 %0.60 %0.60 %0.49 %0.86 %

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Credit Quality
The following tables provide information on the credit quality of the loan portfolio for the periods indicated below:
 For the Nine Months Ended September 30, 2024
 Commercial Real EstateResidential Real Estate
(In thousands)Commercial
Investor R/E		Commercial
Owner-
Occupied R/E		Commercial
AD&C		Commercial
Business		Residential
Mortgage		Residential
Construction		ConsumerTotal
Analysis of non-accrual loan activity:        
Balance at beginning of period$58,658 $4,640 $1,259 $10,051 $12,332 $443 $4,102 $91,485 
Loans placed on non-accrual5,342 5,397 31,694 3,087 1,496 — 1,179 48,195 
Non-accrual balances transferred to OREO(3,265)— — — — — — (3,265)
Non-accrual balances charged-off(402)— (134)(1,801)— — — (2,337)
Net payments or draws(2,755)(398)(1,003)(2,293)(1,261)96 (925)(8,539)
Non-accrual loans brought current— — — — (571)— (98)(669)
Balance at end of period$57,578 $9,639 $31,816 $9,044 $11,996 $539 $4,258 $124,870 


 For the Year Ended December 31, 2023
 Commercial Real EstateResidential Real Estate
(In thousands)Commercial
Investor R/E		Commercial
Owner-
Occupied R/E		Commercial
AD&C		Commercial
Business		Residential
Mortgage		Residential
Construction		ConsumerTotal
Analysis of non-accrual loan activity:        
Balance at beginning of period$9,943 $5,019 $— $7,322 $7,439 $— $5,059 $34,782 
Loans placed on non-accrual62,725 — 2,111 6,271 7,871 449 2,450 81,877 
Non-accrual balances transferred to OREO— — — — — — — — 
Non-accrual balances charged-off— — — (441)(160)— (1,757)(2,358)
Net payments or draws(14,010)(379)(852)(2,588)(1,667)(6)(1,528)(21,030)
Non-accrual loans brought current— — — (513)(1,151)— (122)(1,786)
Balance at end of period$58,658 $4,640 $1,259 $10,051 $12,332 $443 $4,102 $91,485 


 September 30, 2024
 Commercial Real EstateResidential Real Estate
(In thousands)Commercial
Investor R/E		Commercial
Owner-
Occupied R/E		Commercial
AD&C		Commercial
Business		Residential
Mortgage		Residential
Construction		ConsumerTotal
Performing loans:        
Current$4,804,222 $1,726,532 $1,221,424 $1,610,802 $1,503,638 $51,100 $419,921 $11,337,639 
30-59 days5,882 1,156 2,369 1,030 12,826 2,000 1,335 26,598 
60-89 days785 — — 50 927 — 653 2,415 
Total performing loans4,810,889 1,727,688 1,223,793 1,611,882 1,517,391 53,100 421,909 11,366,652 
Non-performing loans:
Non-accrual loans57,578 9,639 31,816 9,044 11,996 539 4,258 124,870 
Loans greater than 90 days past due— — — — 399 — — 399 
Total non-performing loans57,578 9,639 31,816 9,044 12,395 539 4,258 125,269 
Total loans$4,868,467 $1,737,327 $1,255,609 $1,620,926 $1,529,786 $53,639 $426,167 $11,491,921 

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 December 31, 2023
 Commercial Real EstateResidential Real Estate
(In thousands)Commercial
Investor R/E		Commercial
Owner-
Occupied R/E		Commercial
AD&C		Commercial
Business		Residential
Mortgage		Residential
Construction		ConsumerTotal
Performing loans:        
Current$5,044,647 $1,748,449 $986,859 $1,494,426 $1,445,785 $118,976 $409,607 $11,248,749 
30-59 days1,120 2,056 849 383 14,026 2,000 3,298 23,732 
60-89 days— 90 — — 2,036 — 535 2,661 
Total performing loans5,045,767 1,750,595 987,708 1,494,809 1,461,847 120,976 413,440 11,275,142 
Non-performing loans:
Non-accrual loans58,658 4,640 1,259 10,051 12,332 443 4,102 91,485 
Loans greater than 90 days past due— — — 20 342 — — 362 
Total non-performing loans58,658 4,640 1,259 10,071 12,674 443 4,102 91,847 
Total loans$5,104,425 $1,755,235 $988,967 $1,504,880 $1,474,521 $121,419 $417,542 $11,366,989 

The following tables present the average principal balance of total non-accrual loans and contractual interest due on non-accrual loans for the periods indicated below:
 For the Nine Months Ended September 30, 2024
 Commercial Real EstateResidential Real Estate
(In thousands)Commercial
Investor R/E		Commercial
Owner-
Occupied R/E		Commercial
AD&C		Commercial
Business		Residential
Mortgage		Residential
Construction		ConsumerTotal
Average non-accrual loans for the period$56,218 $7,812 $11,500 $8,221 $12,019 $540 $4,223 $100,533 
Contractual interest income due on non-
accrual loans during the period
$2,677 $394 $144 $491 $463 $20 $310 $4,499 

 For the Year Ended December 31, 2023
 Commercial Real EstateResidential Real Estate
(In thousands)Commercial
Investor R/E		Commercial
Owner-
Occupied R/E		Commercial
AD&C		Commercial
Business		Residential
Mortgage		Residential
Construction		ConsumerTotal
Average non-accrual loans for the period$28,650 $4,795 $812 $9,640 $10,547 $223 $4,146 $58,813 
Contractual interest income due on non-
accrual loans during the period
$760 $298 $41 $716 $432 $6 $299 $2,552 
 
There was no interest income recognized on non-accrual loans during the nine months ended September 30, 2024. See Note 1 for additional information on the Company's policies for non-accrual loans. Loans designated as non-accrual have all previously accrued but unpaid interest reversed from interest income. During the nine months ended September 30, 2024 new loans placed on non-accrual status totaled $48.2 million and the related amount of reversed uncollected accrued interest was $1.4 million.

The credit quality indicators for commercial loans are developed through review of individual borrowers on an ongoing basis. Each borrower is evaluated at least annually with more frequent evaluations of classified and criticized loans. The indicators represent the rating for loans as of the date presented and are based on the most recent credit review performed. These credit quality indicators are defined as follows:

Pass - A pass rated credit is not adversely classified because it does not display any of the characteristics for adverse classification.

Special mention – A special mention credit has potential weaknesses that deserve management’s close attention. If uncorrected, such weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.

Substandard – A substandard loan is inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful – A loan that is classified as doubtful has all the weaknesses inherent in a loan classified as substandard with added characteristics that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values.
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Loss – Loans classified as a loss are considered uncollectible and of such little value that their continuing to be carried as a loan is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.
21

The following table provides information about credit quality indicators by the year of origination as of September 30, 2024:
 September 30, 2024
 Term Loans by Origination YearRevolving 
(In thousands)20242023202220212020PriorLoansTotal
Commercial Investor R/E:        
Pass$260,574 $298,081 $1,320,775 $1,124,987 $547,597 $1,135,568 $23,369 $4,710,951 
Special Mention— — 4,100 — 18,957 37,849 — 60,906 
Substandard— — — 32,867 5,881 57,862 — 96,610 
Doubtful— — — — — — — — 
Total$260,574 $298,081 $1,324,875 $1,157,854 $572,435 $1,231,279 $23,369 $4,868,467 
Current period gross charge-offs$— $— $— $357 $— $44 $— $401 
Commercial Owner-Occupied R/E:
Pass$138,665 $107,779 $337,859 $307,138 $225,020 $573,158 $5,826 $1,695,445 
Special Mention— 3,111 1,787 57 953 9,795 — 15,703 
Substandard— — 2,296 2,895 332 20,656 — 26,179 
Doubtful— — — — — — — — 
Total$138,665 $110,890 $341,942 $310,090 $226,305 $603,609 $5,826 $1,737,327 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Commercial AD&C:
Pass$271,589 $281,782 $324,070 $132,419 $— $— $189,667 $1,199,527 
Special Mention— 1,673 — 22,593 — — — 24,266 
Substandard— — 27,994 893 1,571 1,358 — 31,816 
Doubtful— — — — — — — — 
Total$271,589 $283,455 $352,064 $155,905 $1,571 $1,358 $189,667 $1,255,609 
Current period gross charge-offs$— $— $135 $— $— $— $— $135 
Commercial Business:
Pass$272,957 $158,931 $297,879 $173,027 $76,056 $152,933 $441,806 $1,573,589 
Special Mention364 448 5,800 2,794 269 895 18,557 29,127 
Substandard150 3,173 1,301 1,515 681 5,485 5,905 18,210 
Doubtful— — — — — — — — 
Total$273,471 $162,552 $304,980 $177,336 $77,006 $159,313 $466,268 $1,620,926 
Current period gross charge-offs$— $— $212 $231 $— $1,360 $— $1,803 
Residential Mortgage:
Beacon score:
660-850$24,440 $43,161 $520,653 $398,546 $160,929 $277,431 $— $1,425,160 
600-659647 1,629 8,990 15,456 2,409 24,345 — 53,476 
540-599— 1,497 3,237 2,897 3,126 10,994 — 21,751 
less than 540— 731 2,180 6,283 1,864 18,341 — 29,399 
Total$25,087 $47,018 $535,060 $423,182 $168,328 $331,111 $— $1,529,786 
Current period gross charge-offs$— $— $— $50 $— $— $— $50 
Residential Construction:
Beacon score:
660-850$7,686 $18,354 $15,032 $6,614 $749 $150 $— $48,585 
600-659— — 1,107 — — 1,308 — 2,415 
540-599539 — — — — — — 539 
less than 540100 — 500 — 1,500 — — 2,100 
Total$8,325 $18,354 $16,639 $6,614 $2,249 $1,458 $— $53,639 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Consumer:
Beacon score:
660-850$12,252 $8,048 $3,801 $1,520 $722 $26,061 $332,190 $384,594 
600-659276 2,069 295 16 36 2,201 16,692 21,585 
540-59962 160 801 154 50 2,048 4,191 7,466 
less than 54089 772 333 253 177 3,084 7,814 12,522 
Total$12,679 $11,049 $5,230 $1,943 $985 $33,394 $360,887 $426,167 
Current period gross charge-offs$— $4 $— $5 $— $16 $396 $421 
Total loans$990,390 $931,399 $2,880,790 $2,232,924 $1,048,879 $2,361,522 $1,046,017 $11,491,921 

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 The following table provides information about credit quality indicators by the year of origination as of December 31, 2023:
 December 31, 2023
 Term Loans by Origination YearRevolving 
(In thousands)20232022202120202019PriorLoansTotal
Commercial Investor R/E:        
Pass$405,740 $1,395,973 $1,195,708 $634,361 $511,146 $848,958 $23,653 $5,015,539 
Special Mention9,250 — 316 — — 1,978 — 11,544 
Substandard30,792 465 30,927 — — 14,410 748 77,342 
Doubtful— — — — — — — — 
Total$445,782 $1,396,438 $1,226,951 $634,361 $511,146 $865,346 $24,401 $5,104,425 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Commercial Owner-Occupied R/E:
Pass$136,072 $361,247 $318,269 $238,761 $235,145 $428,846 $5,621 $1,723,961 
Special Mention406 70 2,240 875 2,267 8,616 — 14,474 
Substandard2,562 3,634 801 343 5,866 3,594 — 16,800 
Doubtful— — — — — — — — 
Total$139,040 $364,951 $321,310 $239,979 $243,278 $441,056 $5,621 $1,755,235 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Commercial AD&C:
Pass$334,918 $288,732 $178,889 $28,954 $— $— $155,889 $987,382 
Special Mention— — — — — — — — 
Substandard1,016 569 — — — — — 1,585 
Doubtful— — — — — — — — 
Total$335,934 $289,301 $178,889 $28,954 $— $— $155,889 $988,967 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Commercial Business:
Pass$247,081 $344,034 $202,020 $92,198 $62,413 $118,061 $410,856 $1,476,663 
Special Mention532 45 180 1,037 1,040 294 3,635 6,763 
Substandard6,725 2,073 2,281 917 1,925 1,571 5,962 21,454 
Doubtful— — — — — — — — 
Total$254,338 $346,152 $204,481 $94,152 $65,378 $119,926 $420,453 $1,504,880 
Current period gross charge-offs$— $9 $324 $— $— $116 $— $449 
Residential Mortgage:
Beacon score:
660-850$31,853 $476,631 $394,414 $166,387 $41,473 $266,927 $— $1,377,685 
600-659781 7,022 18,284 2,009 1,882 24,040 — 54,018 
540-599— 1,545 2,698 2,371 1,891 9,377 — 17,882 
less than 540229 2,042 3,351 2,424 2,533 14,357 — 24,936 
Total$32,863 $487,240 $418,747 $173,191 $47,779 $314,701 $— $1,474,521 
Current period gross charge-offs$— $— $43 $— $10 $107 $— $160 
Residential Construction:
Beacon score:
660-850$21,975 $68,273 $21,897 $2,478 $150 $— $— $114,773 
600-6591,641 500 1,319 1,500 — 1,243 — 6,203 
540-599443 — — — — — — 443 
less than 540— — — — — — — — 
Total$24,059 $68,773 $23,216 $3,978 $150 $1,243 $— $121,419 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Consumer:
Beacon score:
660-850$11,452 $4,960 $1,823 $519 $1,662 $24,543 $333,382 $378,341 
600-6591,209 192 237 425 209 3,954 12,668 18,894 
540-59924 374 87 47 500 2,868 5,920 9,820 
less than 540384 215 132 50 288 2,803 6,615 10,487 
Total$13,069 $5,741 $2,279 $1,041 $2,659 $34,168 $358,585 $417,542 
Current period gross charge-offs$— $20 $28 $— $15 $1,735 $207 $2,005 
Total loans$1,245,085 $2,958,596 $2,375,873 $1,175,656 $870,390 $1,776,440 $964,949 $11,366,989 

23

Modifications to Borrowers Experiencing Financial Difficulty
As a part of our risk management practices, we may consider modifying a loan for a borrower experiencing a financial difficulty that provides a certain degree of a payment relief. Modification types primarily include a reduction in the interest rate or an extension of the existing term. We do not provide modifications that result in the reduction of the outstanding principal balance.

The following table presents the amount of the loans modified during the periods indicated below to borrowers experiencing financial difficulty, disaggregated by the loan portfolio segment, type of modification granted and the financial effect of loans modified:

For the Three Months Ended September 30, 2024
Interest rate reductionTerm extensionRate reduction & Term extensionTotalInterest rate reductionTerm extension
(in thousands)AmountAmountAmountAmount% of total loan segmentWeighted AverageWeighted Average
Commercial Investor R/E$— $29,477 $— $29,477 0.6 %— %5 Months
Commercial Owner-Occupied R/E— 5,504 — 5,504 0.3 %— %6 Months
Commercial AD&C1,673 — — 1,673 0.1 %2.0 %—
Commercial Business14 16,229 305 16,548 1.0 %1.7 %8 Months
All Other loans— — — — — %— %—
Total$1,687 $51,210 $305 $53,202 0.5 %

For the Three Months Ended September 30, 2023
Interest rate reductionTerm extensionRate reduction & Term extensionTotalInterest rate reductionTerm extension
(in thousands)AmountAmountAmountAmount% of total loan segmentWeighted AverageWeighted Average
Commercial Investor R/E$748 $4,591 $13,696 $19,035 0.4 %1.6 %7 Months
Commercial Owner-Occupied R/E— 859 — 859 — %— %5 Months
Commercial AD&C— — — — — %— %—
Commercial Business— 3,587 — 3,587 0.2 %— %8 Months
All Other loans— — — — — %— %—
Total$748 $9,037 $13,696 $23,481 0.2 %
For the Nine Months Ended September 30, 2024
Interest rate reductionTerm extensionRate reduction & Term extensionTotalInterest rate reductionTerm extension
(in thousands)AmountAmountAmountAmount% of total loan segmentWeighted AverageWeighted Average
Commercial Investor R/E$— $35,924 $— $35,924 0.7 %— %11 Months
Commercial Owner-Occupied R/E— 5,974 — 5,974 0.3 %— %6 Months
Commercial AD&C1,673 122 — 1,795 0.1 %2.0 %17 Months
Commercial Business21 16,520 385 16,926 1.0 %1.8 %13 Months
All Other loans— 539 — 539 — %— %9 Months
Total$1,694 $59,079 $385 $61,158 0.5 %

24

For the Nine Months Ended September 30, 2023
Interest rate reductionTerm extensionRate reduction & Term extensionTotalInterest rate reductionTerm extension
(in thousands)AmountAmountAmountAmount% of total loan segmentWeighted AverageWeighted Average
Commercial Investor R/E$29,088 $6,998 $13,696 $49,782 1.0 %1.5 %12 Months
Commercial Owner-Occupied R/E— 3,573 — 3,573 0.2 %— %10 Months
Commercial AD&C— 1,039 — 1,039 0.1 %— %7 Months
Commercial Business— 5,438 — 5,438 0.4 %— %13 Months
All Other loans— — — — — %— %—
Total$29,088 $17,048 $13,696 $59,832 0.5 %

Unfunded loan commitments on modifications for borrowers experiencing financial difficulty totaled $3.4 million at September 30, 2024. These commitments are not included in the table above.

The following table presents the performance of loans that have been modified during the periods indicated:

For the Nine Months Ended September 30, 2024
(in thousands)Current30-89 days past due90+ days past dueTotal
Commercial Investor R/E$29,458 $4,143 $2,323 $35,924 
Commercial Owner-Occupied R/E5,974 — — 5,974 
Commercial AD&C1,673 — 122 1,795 
Commercial Business16,395 481 50 16,926 
All Other loans— — 539 539 
Total$53,500 $4,624 $3,034 $61,158 

For the Nine Months Ended September 30, 2023
(in thousands)Current30-89 days past due90+ days past dueTotal
Commercial Investor R/E$48,548 $1,234 $— $49,782 
Commercial Owner-Occupied R/E3,234 339 — 3,573 
Commercial AD&C350 689 — 1,039 
Commercial Business5,438 — — 5,438 
All Other loans— — — — 
Total$57,570 $2,262 $— $59,832 

There were four loans for $2.4 million that defaulted (defined as new non-accrual or 90 days past due) during the nine months ended September 30, 2024 and that had been modified in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension (or a combination thereof) within the previous 12 months preceding the payment default when the debtor was experiencing financial difficulty at the time of the modification.

Other Real Estate Owned
Other real estate owned ("OREO") totaled $3.3 million at September 30, 2024 as compared to none at December 31, 2023. There were $1.0 million in consumer mortgage loans secured by residential real estate property for which formal foreclosure proceedings were in process as of September 30, 2024.

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NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS
The amount of goodwill by reporting units is presented in the following table:
(In thousands)Community
Banking		Investment
Management		Total
Balances at December 31, 2023$331,689 $31,747 $363,436 
No activity— — — 
Balances at September 30, 2024$331,689 $31,747 $363,436 

The gross carrying amounts and accumulated amortization of intangible assets and goodwill are presented at the dates indicated in the following table:
 September 30, 2024Weighted
Average
Remaining
Life		December 31, 2023Weighted
Average
Remaining
Life
(Dollars in thousands)Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount		Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount
Amortizing intangible assets:        
Core deposit intangibles$29,038 $(22,395)$6,643 4.2 years$29,038 $(20,181)$8,857 5.5 years
Software intangibles18,188 (3,452)14,736 3.8 years10,422 (183)10,239 4.8 years
Other identifiable intangibles13,906 (8,993)4,913 7.1 years13,906 (7,949)5,957 7.7 years
Total amortizing intangible assets$61,132 $(34,840)$26,292 $53,366 $(28,313)$25,053 
Non-amortizing intangible assets:
Intangible projects in process(1)
4,222 — 4,222 $3,248 $— $3,248 
Total intangible assets$65,354 $(34,840)$30,514 $56,614 $(28,313)$28,301 
Goodwill$363,436 $363,436 $363,436 $363,436 
(1) Capitalized costs on internal-use licensed software-related projects that are currently in the development/implementation phase.

The following table presents the estimated future amortization expense for amortizing intangible assets within the years ending December 31:
(In thousands)Amount
Remaining 2024$2,533 
20257,460 
20266,161 
20274,928 
20283,622 
Thereafter1,588 
Total amortizing intangible assets$26,292 
 
NOTE 6 – DEPOSITS
The following table presents the composition of deposits at the dates indicated:
 
(In thousands)September 30, 2024December 31, 2023
Noninterest-bearing deposits$2,903,063 $2,914,161 
Interest-bearing deposits:
Demand1,456,606 1,463,679 
Money market savings3,033,302 2,628,918 
Regular savings1,744,214 1,275,225 
Time deposits of less than $250,0001,873,594 2,068,259 
Time deposits of $250,000 or more726,915 646,296 
Total interest-bearing deposits8,834,631 8,082,377 
Total deposits$11,737,694 $10,996,538 

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NOTE 7 – BORROWINGS
Subordinated Debt
On March 15, 2022, the Company completed an offering of $200.0 million aggregate principal amount Fixed to Floating Rate Subordinated Notes due in 2032. The notes bear a fixed interest rate of 3.875% per year through March 29, 2027. Commencing on March 30, 2027, the notes will bear interest at a floating rate per annum equal to the benchmark rate (which is expected to be the three-month SOFR rate) plus a spread of 196.5 basis points, payable quarterly in arrears. The total amount of debt issuance costs incurred was $3.1 million, which are being amortized through the contractual life of the debt. The entire amount of the subordinated debt is considered Tier 2 capital under current regulatory guidelines.

On November 5, 2019, the Company completed an offering of $175.0 million aggregate principal amount Fixed to Floating Rate Subordinated Notes due in 2029. The notes bear a fixed interest rate of 4.25% per year through November 14, 2024. Beginning November 15, 2024, the interest rate will become a floating rate equal to three-month SOFR plus 288 basis points (including a benchmark adjustment of 26 basis points) through the remaining maturity or early redemption date of the notes. The interest will be paid in arrears semi-annually during the fixed rate period and quarterly during the floating rate period. The Company incurred $2.9 million of debt issuance costs, which are being amortized through the contractual life of the debt. The entire amount of the subordinated debt is considered Tier 2 capital under current regulatory guidelines.

The following table provides information on subordinated debt as of the date indicated:
(In thousands)September 30, 2024December 31, 2023
Fixed to floating rate subordinated debt, 3.875%
$200,000 $200,000 
Fixed to floating rate subordinated debt, 4.25%
175,000 175,000 
    Total subordinated debt375,000 375,000 
Less: Debt issuance costs(3,749)(4,197)
Long-term borrowings$371,251 $370,803 
 
Other Borrowings
At September 30, 2024 and December 31, 2023, the Company had $70.8 million of outstanding retail repurchase agreements.

The Company had no outstanding federal funds purchased at September 30, 2024 or December 31, 2023. The available borrowing federal funds capacity under unsecured lines of credit with correspondent banks was $829.0 million at September 30, 2024 and $1.2 billion at December 31, 2023. During the first quarter of 2024, the Company fully paid off $300.0 million of outstanding borrowings through the Federal Reserve's Bank Term Funding Program.
 
The Company had secured lines of credit available from the Federal Reserve Bank and correspondent banks of $771.8 million and $651.3 million at September 30, 2024 and December 31, 2023, respectively, collateralized by loans, with no borrowings outstanding at the end of either period.

At September 30, 2024, the Company had the ability to pledge collateral at prevailing market rates under a line of credit with the FHLB of $3.4 billion. FHLB availability based on pledged collateral at September 30, 2024 amounted to $3.0 billion, with $450.0 million outstanding. At December 31, 2023, the Company had the ability to pledge collateral at prevailing market rates under a line of credit with the FHLB of $3.6 billion. The availability of FHLB borrowings based on the collateral pledged at December 31, 2023 was $3.1 billion with $550.0 million outstanding.

Under a blanket lien, the Company has pledged qualifying residential mortgage loans amounting to $1.4 billion, commercial real estate loans amounting to $3.9 billion, home equity lines of credit (“HELOC”) amounting to $220.9 million, and multifamily loans amounting to $559.3 million at September 30, 2024, as collateral under the borrowing agreement with the FHLB. At December 31, 2023, the Company had pledged collateral of qualifying mortgage loans of $1.4 billion, commercial real estate loans of $4.0 billion, HELOC loans of $209.2 million, and multifamily loans of $538.6 million under the FHLB borrowing agreement.

NOTE 8 – STOCKHOLDERS' EQUITY
On March 30, 2022, the Company's Board of Directors authorized a stock repurchase plan that permits the repurchase of up to $50.0 million of the Company's common stock. During 2022, the Company repurchased and retired 625,710 common shares at an average price of $39.93 per share for the total cost of $25.0 million. The Company did not repurchase any shares of its common stock during 2023 or during the nine months ended September 30, 2024. Under the current authorization, common stock with a total value of up to $25.0 million remains available to be repurchased.

27

NOTE 9 – SHARE BASED COMPENSATION
On May 22, 2024, the Company's shareholders approved the Sandy Spring Bancorp, Inc. 2024 Equity Plan (the "2024 Plan"), which replaces the Company’s 2015 Omnibus Incentive Plan. The 2024 Plan provides for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, and restricted stock units to officers, employees and non-employee directors. Awards may be subject to performance conditions.

The 2024 Plan authorizes the issuance of up to 700,000 shares of common stock, subject to adjustment, has a term of 10 years, and is administered by the Compensation Committee of the Board of Directors. There were 670,910 shares available for issuance under the 2024 Plan at September 30, 2024.
 
Compensation expense is recognized on a straight-line basis over the vesting period of the respective stock option, restricted stock, restricted stock unit grant or performance share units. The Company recognized compensation expense of $2.6 million and $2.8 million for the three months ended September 30, 2024 and 2023, respectively, and of $6.4 million and $6.7 million for the nine months ended September 30, 2024 and 2023, respectively, related to restricted stock award grants, restricted stock unit grants and performance share unit grants. The total of unrecognized compensation cost related to restricted stock awards, restricted stock unit grants, and performance share unit grants was approximately $6.5 million as of September 30, 2024. That cost is expected to be recognized over a weighted average period of approximately 1.91 years.

During the nine months ended September 30, 2024, the Company granted 344,748 restricted stock units and performance share units, of which 87,846 units are subject to achievement of certain performance conditions measured over a three-year performance period, and 256,902 restricted stock units are subject to a three year vesting schedule. The Company did not grant any stock options under the 2024 Plan during the nine months ended September 30, 2024.

A summary of the activity for the Company’s restricted stock, restricted stock units and performance share units for the period indicated is presented in the following table:
 Number
of
Common
Shares/Units		Weighted
Average
Grant-Date
Fair Value
Non-vested at January 1, 2024458,929 $32.90 
Granted344,748 $22.28 
Vested(215,642)$33.87 
Forfeited/ cancelled(8,263)$27.88 
Non-vested at September 30, 2024579,772 $26.55 

A summary of share option activity for the period indicated is reflected in the following table:
 Number
of
Common
Shares		Weighted
Average
Exercise
Share Price		Weighted
Average
Contractual
Remaining
Life (Years)		Aggregate
Intrinsic
Value
(in thousands)
Balance at January 1, 202480,195 $19.07 1.2 years$621 
Granted— $— 
Exercised(10,638)$10.96 $150 
Forfeited— $— 
Expired(6,981)$41.97 
Balance at September 30, 202462,576 $17.89 1.0 year$894 
Exercisable at September 30, 202462,576 $17.89 1.0 years$894 

NOTE 10 – PENSION PLAN
Defined Benefit Pension Plan
The Company previously maintained a qualified noncontributory, defined benefit pension plan (the “Plan”).

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On March 30, 2022, the Board of Directors approved the termination of the Plan to be effective as of June 30, 2022. The Company executed plan amendments regarding the Plan termination and received a determination letter from the Internal Revenue Service (“IRS”) as to the tax-qualified status of the Plan at the time of termination. The Company also filed appropriate notices and documents related to the Plan’s termination and wind-down with the Pension Benefit Guaranty Corporation (“PBGC”).

Plan participants made elections for lump-sum distributions or annuity benefits. Both lump-sum distributions and transfer of annuity benefits to a highly-rated insurance company were completed in August 2023. In order to fully fund the Plan, the Company made a $1.3 million cash contribution. As a result of the pension termination, the Company incurred a one-time settlement expense of $8.2 million, which was recognized in salaries and employee benefits expense in 2023.

The components of net periodic benefit cost for the periods indicated are presented in the following table:
 Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2024202320242023
Interest cost on projected benefit obligation$— $146 $— $1,021 
Expected return on plan assets— (124)— (870)
Recognized net actuarial loss— 75 — 526 
Pension settlement expense— 8,157 — 8,157 
Other— 71 — 71 
Net periodic benefit cost$— $8,325 $— $8,905 


NOTE 11 – NET INCOME PER COMMON SHARE
The calculation of net income per common share for the periods indicated is presented in the following table:
 Three Months Ended September 30,Nine Months Ended September 30,
(Dollars and amounts in thousands, except per share data)2024202320242023
Net income$16,209 $20,746 $59,388 $96,744 
Distributed and undistributed earnings allocated to participating securities(4)(27)(37)(192)
Net income attributable to common shareholders$16,205 $20,719 $59,351 $96,552 
Total weighted average outstanding shares45,132 44,940 45,074 44,887 
    Less: Weighted average participating securities(12)(59)(28)(89)
Basic weighted average common shares45,120 44,881 45,046 44,798 
    Dilutive weighted average common stock equivalents123 79 110 115 
Diluted weighted average common shares45,243 44,960 45,156 44,913 
Basic net income per common share$0.36 $0.46 $1.32 $2.16 
Diluted net income per common share$0.36 $0.46 $1.31 $2.15 
Anti-dilutive shares3 23 41 38 

NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE INCOME/ (LOSS)
Comprehensive income/ (loss) is defined as net income/ (loss) plus transactions and other occurrences that are the result of non-owner changes in equity. For Condensed Consolidated Financial Statements presented for the Company, non-owner changes in equity are comprised of unrealized gains or losses on investments available-for-sale and held-to-maturity, and any minimum pension liability adjustments.
 
29

The following table presents the activity in net accumulated other comprehensive income/ (loss) and the components of the activity for the periods indicated:
(In thousands)Unrealized Gains/(Losses)
on Debt Securities
Available-for-Sale		Defined Benefit
Pension Plan		Unrealized Losses
on Debt Securities Transferred from
Available-for-Sale to Held-to-Maturity		Total
Balance at January 1, 2024$(88,169)$— $(9,162)$(97,331)
Other comprehensive loss before reclassification from accumulated other comprehensive loss, net of tax20,570 — — 20,570 
Reclassifications from accumulated other comprehensive loss to earnings, net of tax— — 860 860 
Current period change in other comprehensive loss, net of tax20,570 — 860 21,430 
Balance at September 30, 2024$(67,599)$— $(8,302)$(75,901)
 
(In thousands)Unrealized Gains/
(Losses) on
Debt Securities
Available-for-Sale		Defined Benefit
Pension Plan		Unrealized Losses
on Debt Securities Transferred from
Available-for-Sale to Held-to-Maturity		Total
Balance at January 1, 2023$(113,513)$(8,002)$(10,436)$(131,951)
Other comprehensive income before reclassification, net of tax(12,510)— — (12,510)
Pension termination - final valuation of plan assets— 1,531 — 1,531 
Reclassifications from accumulated other comprehensive income, net of tax— 6,471 967 7,438 
Current period change in other comprehensive income, net of tax(12,510)8,002 967 (3,541)
Balance at September 30, 2023$(126,023)$— $(9,469)$(135,492)

The following table provides the information on the reclassification adjustments out of accumulated other comprehensive income/ (loss) for the periods indicated that had an impact on the Condensed Consolidated Statements of Income:
 Nine Months Ended September 30,
(In thousands)20242023
Amortization of unrealized losses on debt securities transferred from available-for-sale to held-to-maturity:
Affected line item in the Statements of Income:
Interest and dividends on investment securities (1)
$(1,137)$(1,314)
Income before taxes(1,137)(1,314)
Tax benefit277 347 
Net loss$(860)$(967)
Amortization of defined benefit pension plan items:
Affected line item in the Statements of Income:
Recognized actuarial loss (2)
$— $(526)
Pension settlement expense (2)
— (8,157)
Income before taxes— (8,683)
Tax benefit— 2,212 
Net loss$— $(6,471)
(1)Amortization of unrealized losses on held-to-maturity debt securities is fully offset by accretion of a discount on held-to-maturity debt securities with no overall impact on net income and yield.
(2)This amount is included in the computation of net periodic benefit cost. See Note 10 for additional information on the pension plan.

NOTE 13 – LEASES
The Company leases real estate properties for its network of bank branches, financial centers and corporate offices. All of the Company’s leases are currently classified as operating. Most lease agreements include one or more options to renew, with renewal terms that can extend the original lease term from one to twenty years or more. The Company does not sublease any of its leased real estate properties.
 
30

The following table provides information regarding the Company's leases as of the dates indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Components of lease expense:
  Operating lease cost (resulting from lease payments)$2,580 $2,668 $7,722 $8,095 
Supplemental cash flow information related to leases:
  Operating cash flows from operating leases$2,783 $2,862 $8,403 $8,612 
  ROU assets obtained in the exchange for lease liabilities due to:
      New leases$— $— $1,402 $703 
      Acquisitions$— $— $— $— 
September 30, 2024December 31, 2023
Supplemental balance sheet information related to leases:
  Operating lease ROU assets$38,371 $40,362 
  Operating lease liabilities$45,385 $48,058 
Other information related to leases:
  Weighted average remaining lease term of operating leases5.1 years5.6 years
  Weighted average discount rate of operating leases3.77%3.61%
 
ROU assets and lease liabilities are recorded in other assets and other liabilities, respectively, in the Condensed Consolidated Statements of Condition. Operating lease cost is recorded in the occupancy expense of premises in the Condensed Consolidated Statements of Income.

At September 30, 2024, the maturities of the Company’s operating lease liabilities were as follows:
 
(In thousands)Amount
Maturity: 
Remaining 2024$2,841 
202510,988 
202610,305 
20278,882 
20287,393 
Thereafter9,591 
Total undiscounted lease payments50,000 
Less: Present value discount(4,615)
Lease liability$45,385 
 
The Company had no operating lease that has not yet commenced operations at September 30, 2024. The Company does not have any lease arrangements with any of its related parties as of September 30, 2024.

NOTE 14 – DERIVATIVES
Customer Interest Rate Swaps
The Company has entered into interest rate swaps (“swaps”) with qualifying commercial banking customers to facilitate their risk management strategies and financing needs. These swaps provide customers with the ability to convert variable rates into fixed rates. They are economically hedged by offsetting interest rate swaps that the Company executes with derivative counterparties in order to offset its exposure on the fixed components of the customers' swaps. Swaps qualify as derivatives, but are not designated as hedging instruments. Fair values of the swaps are carried as both gross assets and gross liabilities in other
31

assets and other liabilities, respectively, in the Condensed Consolidated Statements of Condition. The associated changes in fair values of gross assets and gross liabilities net to zero in the Condensed Consolidated Statements of Income.

Mortgage Banking Derivatives
The Company enters into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The loans are sold to the secondary market on either a mandatory or best efforts basis. Loans sold on a mandatory basis are not committed to an investor until the loan is closed with the borrower. The Company enters into forward to-be-announced (“TBA”) sales contracts to manage the interest rate risk between the interest rate lock commitment and the funding of those loans. Loans sold on a best efforts basis are committed to an investor simultaneous to the interest rate lock commitment with the borrower, and as a result, the Company does not enter into a separate forward TBA contract to offset the fair value risk as the investor accepts such risk. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives but are not designated as hedging instruments.

Fair Values of Derivative Instruments on the Balance Sheet
Derivatives are carried at fair value and are classified under other assets and other liabilities in the Condensed Consolidated Statements of Condition. Changes in fair value are recognized in earnings. None of the Company's derivatives are designated in a qualifying hedging relationship.


The table below presents the fair value of the Company’s derivative financial instruments as of September 30, 2024 and December 31, 2023:

September 30, 2024December 31, 2023
(In thousands)NotionalAssetLiabilityNotionalAssetLiability
Derivatives
Loan Swaps:
Interest Rate Swaps$532,102 $11,806 $11,806 $495,750 $15,867 $15,867 
Mortgage Banking Derivatives:
Interest Rate Lock Commitments26,479408—16,608358—
Forward TBA Contracts28,750—711,750—102
Total Derivatives$587,331 $12,214 $11,813 $524,108 $16,225 $15,969 

Effect of Derivatives on the Income Statement
The table below presents the changes in the fair value of the Company’s derivative financial instruments reflected within non-interest income on the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023, respectively.


Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)Location of Gain/(Loss)2024202320242023
Interest rate lock commitmentsMortgage banking activities$(90)$(45)$49 $133 
Forward TBA contractsMortgage banking activities(66)(48)95 (59)
Total$(156)$(93)$144 $74 

 
NOTE 15 – LITIGATION
In the ordinary course of business, the Company and its subsidiaries are subject to various pending or threatened legal proceedings in which claims for monetary damages are asserted. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these legal matters will have a material adverse effect on the Company's financial condition, operating results or liquidity.
 
NOTE 16 – FAIR VALUE
GAAP provides entities the option to measure eligible financial assets, financial liabilities and commitments at fair value (i.e. the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a commitment. Subsequent changes in fair value must be recorded in
32

earnings. The Company applies the fair value option on residential mortgage loans held for sale. The fair value option on residential mortgage loans held for sale allows the recognition of gains on the sale of mortgage loans to more accurately reflect the timing and economics of the transaction.
 
The standard for fair value measurement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below.

Basis of Fair Value Measurement:
Level 1- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2- Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3- Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).
 
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
 
Changes to interest rates may result in changes in the cash flows due to prepayments or extinguishments. Accordingly, changes to interest rates could result in higher or lower measurements of the fair values.
 
Assets and Liabilities
Residential mortgage loans held for sale
Residential mortgage loans held for sale are valued based on quotations from the secondary market for similar instruments and are classified as Level 2 in the fair value hierarchy.
 
Investment securities available-for-sale
U.S. treasuries and government agencies securities and mortgage-backed and asset-backed securities
Valuations are based on active market data and use of evaluated broker pricing models that vary based by asset class and includes available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, descriptive terms, and databases coupled with extensive quality control programs. Quality control evaluation processes use available market, credit and deal level information to support the evaluation of the security. Additionally, proprietary models and pricing systems, mathematical tools, actual transacted prices, integration of market developments and experienced evaluators are used to determine the value of a security based on a hierarchy of market information regarding a security or securities with similar characteristics. The Company does not adjust the quoted price for such securities. Such instruments are classified within Level 2 in the fair value hierarchy.
 
State and municipal securities
The Company primarily uses prices obtained from third-party pricing services to determine the fair value of securities. The Company independently evaluates and corroborates the fair value received from pricing services through various methods and techniques, including references to dealer or other market quotes, by reviewing valuations of comparable instruments, and by comparing the prices realized on the sale of similar securities. Such securities are classified within Level 2 in the fair value hierarchy.

Interest rate swap agreements
Interest rate swap agreements are measured by alternative pricing sources using a discounted cash flow method that incorporates current market interest rates. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These characteristics classify interest rate swap agreements as Level 2 in the fair value hierarchy.
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Assets Measured at Fair Value on a Recurring Basis
The following tables set forth the Company’s financial assets and liabilities at the dates indicated that were accounted for or disclosed at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
 September 30, 2024
 Quoted Prices in
Active Markets for
Identical Assets		Significant Other
Observable Inputs		Significant
Unobservable
Inputs		 
(In thousands)(Level 1)(Level 2)(Level 3)Total
Assets:    
Residential mortgage loans held for sale (1)
$— $21,489 $— $21,489 
Available-for-sale debt securities:
U.S. treasuries and government agencies— 84,807 — 84,807 
State and municipal— 265,189 — 265,189 
Mortgage-backed and asset-backed— 799,060 — 799,060 
Total available-for-sale debt securities— 1,149,056 — 1,149,056 
Interest rate swap agreements— 11,806 — 11,806 
Total assets$— $1,182,351 $— $1,182,351 
Liabilities:
Interest rate swap agreements$— $(11,806)$— $(11,806)
Total liabilities$— $(11,806)$— $(11,806)
 (1) The outstanding principal balance for residential loans held for sale as of September 30, 2024 was $21.0 million.
 December 31, 2023
 Quoted Prices in
Active Markets for
Identical Assets		Significant Other
Observable Inputs		Significant
Unobservable
Inputs		 
(In thousands)(Level 1)(Level 2)(Level 3)Total
Assets:    
Residential mortgage loans held for sale (1)
$— $10,836 $— $10,836 
Investments available-for-sale:
U.S. treasuries and government agencies— 96,927 — 96,927 
State and municipal— 268,214 — 268,214 
Mortgage-backed and asset-backed— 737,540 — 737,540 
Total investments available-for-sale— 1,102,681 — 1,102,681 
Interest rate swap agreements— 15,867 — 15,867 
Total assets$— $1,129,384 $— $1,129,384 
Liabilities:
Interest rate swap agreements$— $(15,867)$— $(15,867)
Total liabilities$— $(15,867)$— $(15,867)
 (1) The outstanding principal balance for residential loans held for sale as of December 31, 2023 was $10.5 million.

Assets Measured at Fair Value on a Nonrecurring Basis
The following tables set forth the Company’s financial assets subject to fair value adjustments on a nonrecurring basis at the date indicated that are valued at the lower of cost or market. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
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 September 30, 2024
(In thousands)Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)		TotalTotal Losses
Loans(1)
$— $— $— $— $— 
Other real estate owned— — 3,265 3,265 — 
Total$— $— $3,265 $3,265 $— 


 December 31, 2023
(In thousands)Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)		TotalTotal Losses
Loans (1)
$— $— $— $— $— 
Other real estate owned— — — — — 
Total$— $— $— $— $— 
(1) Represent outstanding collateral-dependent non-accrual loans that were written down to the fair value of the underlying collateral. Fair values are determined using actual market prices (Level 2), independent third-party valuations and borrower records, discounted as appropriate (Level 3).
  
At September 30, 2024, collateral dependent loans totaling $121.2 million had an estimated fair value of $83.9 million as a result of individual credit loss allowances of $37.3 million based on the most recent value of the collateral. Collateral dependent loans totaling $88.2 million had an estimated fair value of $64.2 million at December 31, 2023 as a result of individual credit loss allowances of $24.0 million.

Fair value of the collateral dependent loans is measured based on the loan’s observable market price or the fair value of the collateral (less estimated selling costs). Collateral may be real estate and/or business assets such as equipment, inventory and/or accounts receivable. The value of business equipment, inventory and accounts receivable collateral is based on net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical experience, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional individual reserve and adjusted accordingly, based on the factors identified above.
 
OREO is adjusted to fair value upon acquisition of the real estate collateral. Subsequently, OREO is carried at the lower of carrying value or fair value. The estimated fair value for OREO included in Level 3 is determined by independent market based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement. If the fair value of the collateral deteriorates subsequent to initial recognition, the Company records the OREO as a nonrecurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods.
 
Fair Value of Financial Instruments
The Company discloses fair value information, based on the exit price notion, of financial instruments that are not measured at fair value in the financial statements. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists.
 
Quoted market prices, where available, are shown as estimates of fair market values. Because no quoted market prices are available for a significant portion of the Company's financial instruments, the fair value of such instruments has been derived based on the amount and timing of future cash flows and estimated discount rates based on observable inputs (“Level 2”) or unobservable inputs (“Level 3”).

Present value techniques used in estimating the fair value of many of the Company's financial instruments are significantly affected by the assumptions used. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate cash settlement of the instrument. Additionally, the accompanying estimates of fair values are only representative of the fair values of the individual financial assets and liabilities, and should not be considered an indication of the fair value of the Company. Management utilizes internal models used in asset
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liability management to determine the fair values disclosed below. Other investments include FRB and FHLB stock, whose carrying amounts approximate fair values based on the redemption provisions of each entity.

The carrying amounts and fair values of the Company’s financial instruments at the dates indicated are presented in the following tables:
   Fair Value Measurements
 September 30, 2024Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable Inputs
(Level 3)
(In thousands)Carrying
Amount		Estimated
Fair
Value
Financial assets:     
Cash and cash equivalents$750,346 $750,346 $750,346 $— $— 
Residential mortgage loans held for sale21,489 21,489 — 21,489 — 
Available-for-sale debt securities1,149,056 1,149,056 — 1,149,056 — 
Held-to-maturity debt securities220,296 189,853 — 189,853 — 
Other investments71,136 71,136 — 71,136 — 
Loans, net of allowance11,360,493 10,794,898 — — 10,794,898 
Interest rate swap agreements11,806 11,806 — 11,806 — 
Accrued interest receivable45,162 45,162 45,162 — — 
Bank owned life insurance170,584 170,584 — 170,584 — 
Financial liabilities:
Time deposits$2,600,509 $2,604,437 $— $2,604,437 $— 
Other deposits9,137,185 9,137,185 9,137,185 — — 
Securities sold under retail repurchase agreements and
federal funds purchased70,767 70,767 — 70,767 — 
Advances from FHLB450,000 450,665 — 450,665 — 
Subordinated debt371,251 361,491 — — 361,491 
Interest rate swap agreements11,806 11,806 — 11,806 — 
Accrued interest payable18,483 18,483 18,483 — — 

   Fair Value Measurements
 December 31, 2023Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable Inputs
(Level 3)
(In thousands)Carrying
Amount		Estimated
Fair
Value
Financial assets:     
Cash and cash equivalents$545,898 $545,898 $545,898 $— $— 
Residential mortgage loans held for sale10,836 10,836 — 10,836 — 
Investments available-for-sale1,102,681 1,102,681 — 1,102,681 — 
Held-to-maturity debt securities236,165 200,411 — 200,411 — 
Other investments75,607 75,607 — 75,607 — 
Loans, net of allowance11,246,124 10,476,059 — — 10,476,059 
Interest rate swap agreements15,867 15,867 — 15,867 — 
Accrued interest receivable46,583 46,583 46,583 — — 
Bank owned life insurance158,921 158,921 — 158,921 — 
Financial liabilities:
Time deposits$2,714,555 $2,704,013 $— $2,704,013 $— 
Other deposits8,281,983 8,281,983 8,281,983 — — 
Securities sold under retail repurchase agreements and
federal funds purchased375,032 375,032 — 375,032 — 
Advances from FHLB550,000 547,271 — 547,271 — 
Subordinated debt370,803 348,185 — — 348,185 
Interest rate swap agreements15,867 15,867 — 15,867 — 
Accrued interest payable30,367 30,367 30,367 — — 

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NOTE 17 – SUBSEQUENT EVENTS
On October 21, 2024, Bancorp entered into an Agreement and Plan of Merger with Atlantic Union Bankshares Corporation (“Atlantic Union”). The merger agreement provides that Bancorp will merge with and into Atlantic Union, with Atlantic Union continuing as the surviving entity. Immediately following the merger of Bancorp and Atlantic Union, the Bank will merge with and into Atlantic Union's wholly owned bank subsidiary, Atlantic Union Bank, with Atlantic Union Bank continuing as the surviving bank. Subject to the terms and conditions of the merger agreement, at the effective time of the merger, each outstanding share of Bancorp common stock will be converted into the right to receive 0.900 shares of Atlantic Union common stock, with cash to be paid in lieu of any fractional shares. The board of directors of the combined company will consist of 17 directors, comprised of the current 14 Atlantic Union board members and three of Bancorp's board members, including Daniel J. Schrider, Chairman, President and CEO of Bancorp and the Bank. The merger is expected to close in the third quarter of 2025, subject to satisfaction of customary closing conditions.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
This report, as well as other periodic reports filed with the Securities and Exchange Commission, and written or oral communications made from time to time by or on behalf of Sandy Spring Bancorp, Inc. and its subsidiaries (the “Company”), may contain statements relating to future events or future results of the Company that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may.” Forward-looking statements include statements of our goals, intentions and expectations; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits.
 
Forward-looking statements reflect our expectation or prediction of future conditions, events or results based on information currently available. These forward-looking statements are subject to significant risks and uncertainties that may cause actual results to differ materially from those in such statements. These principal risks and uncertainties include, but are not limited to, the risks identified in Item 1A of the Company’s 2023 Annual Report on Form 10-K, Item 1A of Part II of this report and the following:

•changes in general business and economic conditions nationally or in the markets that we serve;
•changes in consumer and business confidence, investor sentiment, or consumer spending or savings behavior;
•changes in the level of inflation;
•changes in the demand for loans, deposits and other financial services that we provide;
•the possibility that future credit losses may be higher than currently expected;
•the impact of the interest rate environment on our business, financial condition and results of operations;
•the impact of compliance with changes in laws, regulations and regulatory interpretations, including changes in income taxes;
•changes in credit ratings assigned to us or our subsidiaries;
•the ability to realize benefits and cost savings from, and limit any unexpected liabilities associated with, any business combinations;
•competitive pressures among financial services companies;
•the ability to attract, develop and retain qualified employees;
•our ability to maintain the security of our data processing and information technology systems;
•the impact of changes in accounting policies, including the introduction of new accounting standards;
•the impact of judicial or regulatory proceedings;
•the impact of fiscal and governmental policies of the United States federal government;
•the impact of health emergencies, epidemics or pandemics;
•the effects of climate change;
•the impact of natural disasters, extreme weather events, military conflict, terrorism or other geopolitical events.
•the possibility that the Company's pending merger with Atlantic Union may be more expensive or take longer to complete than anticipated and that the anticipated benefits of the proposed merger, including anticipated cost savings and strategic gains, may not be realized fully or at all or may take longer to realize than expected;
•the impact of significant transaction and merger-related costs to be incurred in connection with the transactions contemplated by the merger agreement (the “merger agreement”) entered into by and between the Company and Atlantic Union;
•the possibility that regulatory approvals for the proposed merger with Atlantic Union may not be received, may take longer than expected or may impose conditions that are not currently anticipated, cannot be met, or that could have an adverse effect on the combined company following the proposed merger;
•reputational risk and the risk of adverse reaction of our, Atlantic Union’s and our respective affiliates’ customers, vendors, employees or other business partners to the proposed merger;
•the diversion of management’s attention from ongoing business operations and opportunities as a result of matters relating to the proposed merger;
•the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement;
•risks related to our business to which we will be subject after the closing of the merger, including our commercial real estate loan portfolio;
•the possibility that the combined company may not effectively manage its expanded operations following the completion of the merger;
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•business uncertainties and contractual restrictions that we and Atlantic Union are subject to while the proposed merger is pending;
•the prevention or delay of completion of the proposed merger by any shareholder litigation that may be instituted against us or Atlantic Union; and
•the possibility that important conditions, including approval of the merger agreement by our stockholders and Atlantic Union shareholders and of the issuance of shares of common stock by Atlantic Union shareholders are not satisfied or waived;
 
Forward-looking statements speak only as of the date of this report. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of this report or to reflect the occurrence of unanticipated events except as required by federal securities laws.

The Company
Sandy Spring Bancorp, Inc. is the bank holding company for Sandy Spring Bank. Throughout this report, references to the
“Company,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of Sandy Spring Bancorp, Inc. and its subsidiaries. “Bancorp” refers solely to the parent holding company, and the “Bank” refers solely to Bancorp’s subsidiary bank, Sandy Spring Bank. Bancorp is the bank holding company for the Bank, which is a community banking organization that focuses its lending and other services on businesses and consumers in the local market area. At September 30, 2024, the Company had $14.4 billion in total assets, compared to $14.0 billion at December 31, 2023. Bancorp is registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended, and is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).
 
The Bank is an independent and community-oriented bank that offers a broad range of commercial banking, retail banking, mortgage and trust services throughout central Maryland, Virginia, and the greater Washington, D.C. market. Through its subsidiaries, West Financial Services, Inc. ("West Financial") and SSB Wealth Management, Inc. (d/b/a Rembert Pendleton Jackson, "RPJ”), the Bank also offers wealth management services.

The Bank is a state-chartered bank subject to supervision and regulation by the Federal Reserve and the State of Maryland. Deposit accounts of the Bank are insured by the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (the “FDIC”) to the maximum amount permitted by law. The Bank is a member of the Federal Reserve System and is an Equal Housing Lender. Bancorp, the Bank, and its other subsidiaries are Affirmative Action/Equal Opportunity Employers.

Recent Developments
On October 21, 2024, Bancorp entered into an Agreement and Plan of Merger with Atlantic Union. The merger agreement provides that the Company will merge with and into Atlantic Union, with Atlantic Union continuing as the surviving entity. Immediately following the merger of Bancorp and Atlantic Union, the Bank will merge with and into Atlantic Union's wholly owned bank subsidiary, Atlantic Union Bank, with Atlantic Union Bank continuing as the surviving bank. Subject to the terms and conditions of the merger agreement, at the effective time of the merger, each outstanding share of Bancorp common stock will be converted into the right to receive 0.900 shares of Atlantic Union common stock, with cash to be paid in lieu of any fractional shares. The board of directors of the combined company will consist of 17 directors, comprised of the current 14 Atlantic Union board members and three of Bancorp’s board members, including Daniel J. Schrider, Chairman, President and CEO of Bancorp and the Bank. The merger is expected to close in the third quarter of 2025, subject to satisfaction of customary closing conditions. The Company has incurred and will incur significant expense in connection with the negotiation and completion of the transactions contemplated by the merger agreement. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employment-related costs, public company filing fees and other regulatory fees, and other related costs. Additional unanticipated costs may be incurred in the integration of our business with the business of Atlantic Union.

Current Quarter Financial Overview
For the quarter ended September 30, 2024, we reported net income of $16.2 million ($0.36 per diluted common share), compared to net income of $22.8 million ($0.51 per diluted common share) for the second quarter of 2024 and $20.7 million ($0.46 per diluted common share) for the third quarter of 2023. The current quarter's core earnings were $17.9 million ($0.40 per diluted common share), compared to $24.4 million ($0.54 per diluted common share) for the quarter ended June 30, 2024 and $27.8 million ($0.62 per diluted common share) for the quarter ended September 30, 2023. Core earnings exclude the after-tax impact of amortization of intangibles, investment securities gains or losses and other non-recurring or extraordinary items. The current quarter's decline in net income and core earnings as compared to the linked quarter was driven by higher provision for credit losses combined with higher non-interest expense, partially offset by higher net interest income.

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The current quarter reflects the following:
 
•Total assets at September 30, 2024 increased by 3% to $14.4 billion compared to $14.0 billion at June 30, 2024.

•Total loans remained level at $11.5 billion as of September 30, 2024 compared to June 30, 2024. During the current quarter, we reduced our concentration in the commercial investor real estate segment by $64.9 million, while the AD&C and commercial business loans and lines portfolios increased by $71.3 million and $19.4 million, respectively. Total residential mortgage and consumer loan portfolios remained relatively unchanged during this period.

•Deposits increased $397.5 million or 4% to $11.7 billion at September 30, 2024 compared to $11.3 billion at June 30, 2024, as interest-bearing deposits increased by $425.8 million, while noninterest-bearing deposits declined $28.3 million. Strong growth in the interest-bearing deposit categories was mainly experienced within money market, time deposits and savings accounts, which grew by $185.2 million, $151.5 million, and $66.1 million, respectively, compared to the linked quarter. The decline in noninterest-bearing deposit categories was driven by lower balances in personal and small business checking accounts. Total deposits, excluding brokered deposits, increased by $351.7 million or 3% quarter-over-quarter and represented 94% of total deposits as of September 30, 2024.

•The ratio of non-performing loans to total loans was 1.09% at September 30, 2024 compared to 0.81% at June 30, 2024 and 0.46% at September 30, 2023. The current quarter's increase in non-performing loans was mainly related to a single AD&C loan that was placed on non-accrual status during the current period. Net charge-offs for the current quarter totaled $0.7 million.

•Net interest income for the third quarter of 2024 grew $1.1 million or 1% compared to the previous quarter and declined $3.7 million or 4% compared to the third quarter of 2023. During the recent quarter, interest income increased by $5.0 million, while interest expense increased by $3.9 million.

•The net interest margin was 2.44% for the third quarter of 2024 compared to 2.46% for the second quarter of 2024 and 2.55% for the third quarter of 2023. During the current quarter, the net interest margin was negatively impacted by a reversal of previously accrued uncollected interest income on a single large AD&C loan placed on a non-accrual status. Compared to the linked quarter, the rate paid on interest-bearing liabilities increased seven basis points, while the yield on interest-earning assets increased three basis points.

•Provision for credit losses directly attributable to the funded loan portfolio was $6.3 million for the current quarter compared to $3.0 million in the previous quarter and $3.2 million in the prior year quarter. The current quarter's provision expense is mainly attributable to higher individual reserves on collateral-dependent loans, primarily related to a single AD&C loan due to the borrower-specific circumstances, partially offset by lower qualitative adjustments due to the reduction in commercial investor real estate loans. In addition, during the current quarter, the provision for unfunded commitments was insignificant compared to a credit of $1.9 million from the previous quarter.

•Non-interest income for the third quarter of 2024 increased by 1% or $0.1 million compared to the linked quarter and grew by 13% or $2.3 million compared to the prior year quarter. The quarter-over-quarter increase was mainly driven by higher wealth management income and other income, generated by higher credit-related fees, which was mostly offset by lower BOLI income due to a receipt of one-time mortality proceeds during the prior quarter.

•Non-interest expense for the third quarter of 2024 increased $4.8 million or 7% compared to the second quarter of 2024 and $0.5 million or 1% compared to the prior year quarter. The quarterly increase in non-interest expense was primarily due to higher salaries and benefits along with an increase in professional fees and services.

•Return on average assets (“ROA”) for the quarter ended September 30, 2024 was 0.46% and return on average tangible common equity (“ROTCE”) was 5.88% compared to 0.66% and 8.27%, respectively, for the second quarter of 2024 and 0.58% and 7.42%, respectively, for the third quarter of 2023. On a non-GAAP basis, the current quarter's core ROA was 0.50% and core ROTCE was 5.88% compared to 0.70% and 8.27%, respectively, for the previous quarter and 0.78% and 9.51%, respectively, for the third quarter of 2023.

•The GAAP efficiency ratio was 72.12% for the third quarter of 2024, compared to 68.19% for the second quarter of 2024 and 70.72% for the third quarter of 2023. The non-GAAP efficiency ratio was 69.06% for the third quarter of 2024 compared to 65.31% for the second quarter of 2024 and 60.91% for the third quarter of 2023. The increase in non-GAAP efficiency ratio (reflecting a decrease in efficiency) in the current quarter compared to the previous quarter was the result of higher non-interest expense in the current quarter.
40


Summary of Comparative Third Quarter Results
 
Balance Sheet and Credit Quality
Total assets were $14.4 billion at September 30, 2024 compared to $14.1 billion at September 30, 2023. Total loans increased $191.6 million or 2% to $11.5 billion at September 30, 2024 compared to $11.3 billion at September 30, 2023. The overall increase in total commercial loans was driven by the $316.9 million increase in AD&C segment and the $166.2 million increase in commercial business loans and lines, partially offset by the $269.2 million decline in the commercial investor real estate loans. Total residential mortgage loans grew $97.7 million, while residential construction loans declined $106.7 million due to the migration of construction loans into the residential mortgage portfolio.

Total deposits grew $586.7 million or 5% to $11.7 billion at September 30, 2024 compared to $11.2 billion at September 30, 2023. During this period, total interest-bearing deposits increased $697.5 million or 9%, while noninterest-bearing deposits declined $110.8 million or 4%. Growth within interest-bearing deposit categories was driven by savings accounts, which increased by $734.8 million, which was partially offset by the $330.0 million decrease in time deposit accounts. We reduced our brokered time deposits by $463.1 million year-over-year. Core deposits, which exclude brokered deposits, increased $994.8 million or 10% year-over-year and represented 94% of total deposits as of September 30, 2024 compared to 90% at September 30, 2023, reflecting the stability and strength of the core deposit base. The deposit growth experienced during the preceding twelve months resulted in the loan to deposit ratio declining to 98% at September 30, 2024 from 101% at September 30, 2023. Total uninsured deposits at September 30, 2024 were approximately 37% of total deposits. The Company offers its customers reciprocal deposit arrangements, which provide FDIC deposit insurance for accounts that would otherwise exceed deposit insurance limits. At September 30, 2024 balances in the Company's reciprocal deposit accounts increased by $57.7 million or 6% during the previous twelve months.

Total borrowings declined by $395.2 million or 31% at September 30, 2024 as compared to the previous year. During the first quarter of 2024, we fully paid off $300.0 million of outstanding borrowings through the Federal Reserve Bank's Bank Term Funding Program. Additionally, during the previous twelve months, FHLB advances declined by $100.0 million. At September 30, 2024, available unused sources of liquidity, which consists of available FHLB borrowings, fed funds, available funds through the Federal Reserve Bank's discount window, as well as excess cash and unpledged investment securities totaled $6.3 billion or 146% of uninsured deposits. At September 30, 2024, total cash and cash equivalents were $750.3 million, an increase of $32.8 million or 5% compared to September 30, 2023.

The tangible common equity ratio increased to 8.83% of tangible assets at September 30, 2024, compared to 8.42% at September 30, 2023. This increase reflected the effect of tangible capital growth of 7%.

At September 30, 2024, the Company had a total risk-based capital ratio of 15.53%, a common equity tier 1 risk-based capital ratio of 11.27%, a tier 1 risk-based capital ratio of 11.27%, and a tier 1 leverage ratio of 9.59%. These risk-based capital ratios compare to a total risk-based capital ratio of 14.85%, a common equity tier 1 risk-based capital ratio of 10.83%, a tier 1 risk-based capital ratio of 10.83%, and a tier 1 leverage ratio of 9.50% at September 30, 2023. The increase across all risk-based capital ratios during the current quarter as compared to the prior year quarter was driven by reduced risk weightings applied on certain consumer loan unfunded commitment categories.

Non-performing loans include non-accrual loans and accruing loans 90 days or more past due. At September 30, 2024, non-performing loans totaled $125.3 million, compared to $93.0 million at June 30, 2024 and $51.8 million at September 30, 2023. The ratio of non-performing loans to total loans was 1.09% at September 30, 2024 compared to 0.81% at June 30, 2024. These levels of non-performing loans compare to 0.46% at September 30, 2023. The current quarter's increase in non-performing loans was mainly related to a single AD&C loan with the total outstanding principal balance of $28.0 million, which was placed on a non-accrual status during the current period. Total net charge-offs for the current quarter amounted to $0.7 million compared to $0.2 million for the second quarter of 2024 and $0.1 million for the third quarter of 2023.

At September 30, 2024, the allowance for credit losses was $131.4 million or 1.14% of outstanding loans and 105% of non-performing loans, compared to $125.9 million or 1.10% of outstanding loans and 135% of non-performing loans at the end of the previous quarter, and $123.4 million or 1.09% of outstanding loans and 238% of non-performing loans at the end of the third quarter of 2023. The increase in the allowance for the current quarter compared to the previous quarter mainly reflects higher individual reserves on collateral-dependent non-accrual loans, primarily driven by the aforementioned AD&C lending relationship, partially offset by lower qualitative adjustments as a result of declines in commercial investor real estate loans.

41

Quarterly Results of Operations
Net income was $16.2 million ($0.36 per diluted common share) for the three months ended September 30, 2024 compared to $20.7 million ($0.46 per diluted common share) for the prior year quarter. The decline in quarterly net income was primarily attributable to the year-over-year increase in provision for credit losses coupled with the decline in net interest income, as a result of the higher interest rate environment and an associated increase in funding costs, partially offset by higher non-interest income.

Net interest income decreased $3.7 million or 4% for the third quarter of 2024 compared to the third quarter of 2023, as the $7.7 million growth in interest income was more than offset by interest expense growth of $11.4 million. The provision for credit losses was $6.3 million for the third quarter of 2024 compared to $2.4 million for the third quarter of 2023. Non-interest income for the current quarter increased by 13% or $2.3 million compared to the prior year quarter. This increase was the cumulative result of the increase in wealth management income, higher BOLI mortality-related income, and higher service charges on deposits. Non-interest expense increased $0.5 million or 1% for the third quarter of 2024, compared to the prior year quarter. The prior year quarter included $8.2 million of pension settlement expense related to the termination of the Company's pension plan. Excluding this item, non-interest expense for the third quarter of 2024 increased $8.6 million or 13% compared to the third quarter of 2023, due to higher salaries expense and increase in professional fees.
42

Results of Operations
For the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

We recorded net income of $59.4 million for the nine months ended September 30, 2024 compared to net income of $96.7 million for the same period in the prior year. Core earnings were $64.3 million for the nine months ended September 30, 2024 compared to $107.2 million for the same period in the prior year. Core earnings exclude the after-tax impact of amortization of intangibles, investment securities gains or losses and other non-recurring or extraordinary items. Year-to-date net income and core earnings declined as a result of lower net interest income in combination with higher provision for credit losses, which was partially offset by higher non-interest income. Pre-tax, pre-provision net income declined to $89.7 million for the nine months ended September 30, 2024 compared to $115.5 million for the prior year period as a result of lower net interest income.

Net Interest Income
For the nine months ended September 30, 2024, net interest income decreased $31.8 million compared to the prior year period as a result of the $61.1 million increase in interest expense, partially offset by the $29.3 million increase in interest income. Interest expense growth was primarily due to the additional interest expense associated with savings, time deposit and money market accounts. On a tax-equivalent basis, net interest income for the nine months ended September 30, 2024 declined to $244.4 million compared to $275.9 million for the nine months ended September 30, 2023 as a result of the aforementioned increase in interest expense outpacing the growth in interest income.

Our net interest margin declined to 2.44% for the nine months ended September 30, 2024, compared to 2.75% for the prior year period, primarily as a result of higher funding cost due to the higher interest rate environment and market competition for deposits over the period. For the comparative period, the average yield on earning assets improved 29 basis points while the average rate paid on interest-bearing liabilities rose 73 basis points, resulting in margin compression of 31 basis points. During the comparative period, average interest-bearing liabilities grew by 4%, while average interest-earning assets stayed relatively unchanged.

At both September 30, 2024 and September 30, 2023, average total loans comprised 85% of average interest-earnings assets, with an average yield of 5.36% and 5.09%, respectively. In addition, the average yield on investment securities increased to 2.44% for the current year compared to 2.22% for the prior year. These portfolio yield movements resulted in the rise in the overall yield on interest-earnings assets to 5.03% at September 30, 2024 from 4.74% at September 30, 2023.

Average rate paid on average interest-bearing liabilities grew by 73 basis points as the average rate increased from 2.91% for the nine months ended September 30, 2023 to 3.64% for the nine months ended September 30, 2024 driven by the 91 basis point increase in the average rate paid on interest-bearing deposits, partially offset by the 13 basis point reduction in the average rate paid on borrowings. Average rates paid on interest-bearing deposits increased in all deposit categories. Average interest-bearing deposits increased 9% for the current year compared to the same period for the prior year, driven by a 143% increase in savings accounts. The percentage of average noninterest-bearing deposits to total average deposits decreased to 25% in the current year compared to 29% in the prior year due to declines in commercial and small business checking deposit balances. Reduction in the average rate paid on borrowings during the current year period as compared to the prior year period was driven by lower average rate paid on FHLB advances, which declined from 4.54% to 4.37%.
43

Consolidated Average Balances, Yields and Rates
 Nine Months Ended September 30,
 20242023
(Dollars in thousands and tax-equivalent)Average
Balances
Interest (1)
Annualized
Average
Yield/Rate		Average
Balances


Interest (1)
Annualized
Average
Yield/Rate
Assets:      
Commercial investor real estate loans$4,964,914 $176,504 4.75 %$5,136,059 $177,067 4.61 %
Commercial owner-occupied real estate loans1,740,608 63,090 4.84 1,770,812 61,038 4.61 
Commercial AD&C loans1,139,517 68,779 8.06 1,044,907 61,005 7.81 
Commercial business loans1,546,498 79,026 6.83 1,442,858 68,258 6.33 
Total commercial loans9,391,537 387,399 5.51 9,394,636 367,368 5.23 
Residential mortgage loans1,512,209 41,968 3.70 1,356,530 35,925 3.53 
Residential construction loans87,177 3,208 4.92 202,856 5,302 3.49 
Consumer loans418,591 25,693 8.20 422,861 24,403 7.72 
Total residential and consumer loans2,017,977 70,869 4.69 1,982,247 65,630 4.42 
Total loans (2)
11,409,514 458,268 5.36 11,376,883 432,998 5.09 
Residential mortgage loans held for sale14,197 801 7.52 13,192 697 7.04 
SBA loans held for sale22 2 11.28 — — — 
Taxable securities1,195,481 21,319 2.38 1,275,407 20,538 2.15 
Tax-advantaged securities339,881 6,785 2.66 360,348 6,727 2.49 
Total investment securities (3)
1,535,362 28,104 2.44 1,635,755 27,265 2.22 
Interest-bearing deposits with banks434,083 17,401 5.35 368,829 13,979 5.07 
Federal funds sold288 8 3.79 433 13 4.00 
Total interest-earning assets13,393,466 504,584 5.03 13,395,092 474,952 4.74 
Less: allowance for credit losses - loans(122,971)(125,558) 
Cash and due from banks83,265 94,960  
Premises and equipment, net59,124 70,130  
Other assets638,838 609,301  
Total assets$14,051,722 $14,043,925  
Liabilities and Stockholders' Equity:    
Interest-bearing demand deposits$1,467,517 $18,858 1.72 %$1,413,876 $10,465 0.99 %
Regular savings deposits1,602,997 42,597 3.55 660,211 7,831 1.59 
Money market savings deposits2,847,006 79,190 3.72 3,067,810 68,976 3.01 
Time deposits2,586,639 86,417 4.46 2,658,225 67,943 3.42 
Total interest-bearing deposits8,504,159 227,062 3.57 7,800,122 155,215 2.66 
Federal funds purchased and Federal Reserve Bank borrowings99,303 3,847 5.17 264,580 9,816 4.96 
Repurchase agreements66,134 1,043 2.11 62,126 561 1.21 
Advances from FHLB501,277 16,394 4.37 637,015 21,623 4.54 
Subordinated debentures371,009 11,839 4.25 370,412 11,839 4.26 
Total borrowings1,037,723 33,123 4.26 1,334,133 43,839 4.39 
Total interest-bearing liabilities9,541,882 260,185 3.64 9,134,255 199,054 2.91 
Noninterest-bearing demand deposits2,768,331 3,218,226 
Other liabilities150,827 169,291 
Stockholders' equity1,590,682 1,522,153 
Total liabilities and stockholders' equity$14,051,722 $14,043,925 
Tax-equivalent net interest income and spread$244,399 1.39 %$275,898 1.83 %
Less: tax-equivalent adjustment3,359 3,044 
Net interest income$241,040 $272,854 
Interest income/earning assets5.03 %4.74 %
Interest expense/earning assets2.59 1.99 
Net interest margin2.44 %2.75 %
(1)Tax-equivalent income has been adjusted using the combined marginal federal and state rate of 25.48% and 25.37% for 2024 and 2023, respectively. The annualized taxable-equivalent adjustments utilized in the above table to compute yields aggregated to $3.4 million and $3.0 million in 2024 and 2023, respectively.
(2)Non-accrual loans are included in the average balances.
(3)Investments available-for-sale are presented at amortized cost.
44


Effect of Volume and Rate Changes on Tax-Equivalent Net Interest Income
The following table analyzes the reasons for the changes from year-to-year in the principal elements that comprise tax-equivalent net interest income:
 
2024 vs. 2023
2023 vs. 2022
 Increase
Or
(Decrease)		Due to Change In Average:*Increase
Or
(Decrease)		Due to Change In Average:*
(Dollars in thousands and tax equivalent)VolumeRateVolumeRate
Interest income from earning assets:      
  Commercial investor real estate loans$(563)$(5,927)$5,364 $38,822 $19,190 $19,632 
  Commercial owner-occupied real estate loans2,052 (1,031)3,083 2,912 1,626 1,286 
  Commercial AD&C loans7,774 5,743 2,031 23,184 (2,159)25,343 
  Commercial business loans10,768 5,128 5,640 18,888 3,810 15,078 
  Residential mortgage loans6,043 4,257 1,786 9,293 7,434 1,859 
  Residential construction loans(2,094)(3,746)1,652 190 (365)555 
  Consumer loans1,290 (244)1,534 11,291 (2)11,293 
  Residential mortgage loans held for sale104 55 49 193 (72)265 
  SBA loans held for sale 2 2 — — — — 
  Taxable securities781 (1,334)2,115 6,066 890 5,176 
  Tax-exempt securities58 (390)448 (1,806)(2,146)340 
  Interest-bearing deposits with banks3,422 2,608 814 12,734 1,736 10,998 
  Federal funds sold(5)(5)— 9 (1)10 
Total tax-equivalent interest income29,632 5,116 24,516 121,776 29,941 91,835 
Interest expense on funding of earning assets:
  Interest-bearing demand deposits8,393 411 7,982 8,952 (70)9,022 
  Regular savings deposits34,766 18,659 16,107 7,769 9 7,760 
  Money market savings deposits10,214 (5,237)15,451 61,573 (646)62,219 
  Time deposits18,474 (1,865)20,339 61,343 9,943 51,400 
Federal funds purchased and Federal Reserve Bank borrowings(5,969)(6,387)418 8,688 4,614 4,074 
  Repurchase agreements482 38 444 457 (75)532 
  Advances from FHLB(5,229)(4,447)(782)18,557 13,730 4,827 
  Subordinated debentures— 23 (23)1,709 1,780 (71)
Total interest expense61,131 1,195 59,936 169,048 29,285 139,763 
Tax-equivalent net interest income$(31,499)$3,921 $(35,420)$(47,272)$656 $(47,928)
*Variances that are the combined effect of volume and rate, but cannot be separately identified, are allocated to the volume and rate variances based on their respective relative amounts.
 
Interest Income
The Company’s total tax-equivalent interest income increased 6% to $504.6 million for the first nine months of 2024 compared to $475.0 million for the prior year period as interest income increased in most of the major earning asset categories led by the $20.0 million interest income growth in commercial loans and, to a lesser extent, the $5.2 million growth in interest income earned on residential and consumer loans. The increase in interest income was driven by commercial loans, predominantly from business loans and lines segment and, to a lesser degree, commercial real estate loans.
 
Average interest-earning assets were relatively unchanged for the nine months ended September 30, 2024 compared to the same period for 2023. During the comparative period, total average commercial real estate loans declined 1%, while average commercial business loans and lines rose 7%. Average residential mortgage loans increased 11% during the same time period predominantly due to a migration of residential construction loans into the mortgage portfolio. Compared to the prior year, the yield on average loans increased 27 basis points. The average balance of the investment portfolio decreased 6% for the first nine months of 2024 compared to the first nine months of 2023, while interest income increased by 3% due to a 22 basis point increase in the average yield.

Overall, the average yield on interest-earning assets grew to 5.03% for the first nine month of 2024 compared to 4.74% for the prior year period as average yields on loans and investment securities increased compared to the same period of the prior year, reflecting general market interest rates during the previous twelve months.
45


Interest Expense
For the first nine months of 2024, interest expense increased by $61.1 million compared to the first nine months of 2023, driven by the $71.8 million increase in interest-bearing deposits interest expense, partially offset by the $10.7 million reduction in interest expense on borrowings. This increase from period to period was due to the increase in market interest rates on deposit products coupled with the increase in average balances of interest-bearing deposits. The impact of the rise in rates resulted in the average rate paid on interest-bearing liabilities for the year-to-date rising to 3.64% from 2.91% for the prior year period. During this period, the average balance of saving accounts grew significantly, as our customers moved their funds from noninterest-bearing products to higher yielding deposits accounts to take advantage of competitive deposit rates. Average noninterest-bearing deposits decreased to 25% of average deposits in the current period compared to 29% in the prior year’s first nine months.

Non-interest Income
Non-interest income amounts and trends are presented in the following table for the periods indicated:
 
 Nine Months Ended September 30,
2024/2023
2024/2023
(Dollars in thousands)20242023$ Change% Change
Service charges on deposit accounts8,765 7,698 1,067 13.9
Mortgage banking activities4,524 4,744 (220)(4.6)
Wealth management income31,151 27,414 3,737 13.6
Income from bank owned life insurance4,283 3,003 1,280 42.6
Bank card fees1,293 1,315 (22)(1.7)
Other income7,653 6,344 1,309 20.6
Total non-interest income$57,669 $50,518 $7,151 14.2
 
For the nine months ended September 30, 2024, non-interest income increased 14% to $57.7 million compared to $50.5 million for the nine months ended September 30, 2023. This increase is mainly the cumulative result of higher wealth management income driven by higher assets under management and overall favorable market performance during the current year, increased other income due to credit-related fees, higher BOLI mortality-related income, due to receipt of death proceeds during the current period, and higher service fees on deposit accounts.

Further detail of non-interest income activity for the first nine months of 2024 versus 2023 is provided as follows:
 
•Service charges on deposit accounts increased 14% as the growth in service charge income on commercial demand deposit accounts increased 21% along with the 9% increase in returned check charges.
•Income from mortgage banking activities decreased 5% as a result of lower sales volume, which was partially offset by higher margins generated on loan sales during the current year as compared to the prior year.
•Wealth management income, comprised of income from trust and estate services and investment management fees earned by the Company’s investment management subsidiaries, increased by 14% due to favorable market performance and an increase in assets under management. Overall, total assets under management increased to $6.6 billion at September 30, 2024 compared to $5.5 billion at September 30, 2023.
•Bank-owned life insurance income increased 43% mainly as a result of receipt of $0.7 million in death proceeds during the current year coupled higher yields and returns on policies.
•Bank card fee income was level during the current year compared to the prior year.
•Other income increased by 21% or $1.3 million, as a result of an increase in lending-related fees.

46

Non-interest Expense
Non-interest expense amounts and trends are presented in the following table for the periods indicated:
 
 Nine Months Ended September 30,
2024/2023
2024/2023
(Dollars in thousands)20242023$ Change% Change
Salaries and employee benefits$115,549 $124,710 $(9,161)(7.3)%
Occupancy expense of premises14,278 14,220 58 0.4 
Equipment expense11,672 11,688 (16)(0.1)
Marketing3,350 3,861 (511)(13.2)
Outside data services9,414 8,186 1,228 15.0 
FDIC insurance8,635 6,846 1,789 26.1 
Amortization of intangible assets6,527 3,820 2,707 70.9 
Professional fees and services16,403 12,354 4,049 32.8 
Other expenses23,219 22,227 992 4.5 
Total non-interest expense$209,047 $207,912 $1,135 0.5 

Non-interest expense increased to $209.0 million for the nine months ended September 30, 2024, compared to $207.9 million for the nine months ended September 30, 2023. The drivers of the increase in non-interest expense were the $4.0 million increase in professional fees, the $2.7 million increase in amortization of intangible assets, the $1.8 million increase in FDIC expense, the $1.2 million increase in outside data services, and the $1.0 million increase in other expenses. These increases were offset by the $9.2 million decrease in salaries and employee benefits and the $0.5 million decrease in marketing expense.

Further detail by category of non-interest expense activity for the first nine months of 2024 versus 2023 is provided as follows:

•Salaries and employee benefits, the largest component of non-interest expense, decreased 7% or $9.2 million. Prior year expense included pension settlement expense of $8.2 million and severance expense of $1.9 million. Excluding these expenses, salaries and benefits increased by $0.9 million or 1%.
•Combined occupancy and equipment expenses were level during the current year compared to the prior year.
•Marketing expense decreased 13% due to the prior period's higher advertising costs, which focused on deposit gathering efforts.
•Outside data services expense increased 15% due to the increase in volume-based components of contractual-based services.
•FDIC insurance increased 26% for 2024 as a result of the changes in company specific risk measure values used in the determination of the assessment rate.
•Amortization of intangible assets increased as a result of additional software licensed intangible assets placed into production during the current year.
•Professional fees and services grew 33% mainly as a result of an increase in utilization of IT consulting services to assist in the implementation of enhanced data capabilities and various other software platforms.
•Other non-interest expenses increased $1.0 million due to a variety of general operating costs.

Income Taxes
The Company had income tax expense of $20.6 million in the first nine months of 2024, compared to income tax expense of $32.8 million in the first nine months of 2023, as a result of the decrease in current year-to-date pre-tax earnings compared to the prior year's pre-tax earnings. The effective tax rate for the first nine months of 2024 was 25.7%, compared to a tax rate of 25.3% for the same period in 2023. The increase in the current year's effective tax rate is the result of pre-tax income containing a lower proportion of income permanently excludable for income tax purposes compared to the prior year period.
 
Operating Expense Performance
Management views the GAAP efficiency ratio as an important financial measure of expense performance and cost management. The ratio expresses the level of non-interest expense as a percentage of total revenue (net interest income plus total non-interest income). Lower ratios indicate improved productivity.
 
Non-GAAP Financial Measures
We also use a traditional efficiency ratio that is a non-GAAP financial measure of operating expense control and efficiency of operations. Management believes that its traditional efficiency ratio better focuses attention on the operating performance over time than does a GAAP efficiency ratio, and that it is highly useful in comparing period-to-period operating performance of our core business operations. It is used by management as part of its assessment of its performance in managing non-interest
47

expense. However, this measure is supplemental, and is not a substitute for an analysis of performance based on GAAP measures. The reader is cautioned that the non-GAAP efficiency ratio used by us may not be comparable to GAAP or non-GAAP efficiency ratios reported by other financial institutions.
 
In general, the efficiency ratio is non-interest expense as a percentage of net interest income plus non-interest income. Non-interest expense used in the calculation of the non-GAAP efficiency ratio excludes the amortization of intangibles, and other non-core expenses, such as severance expense, pension settlement expense and contingent payment expense. Income for the non-GAAP efficiency ratio includes the favorable effect of tax-exempt income, and excludes securities gains and losses, which vary widely from period to period without appreciably affecting operating expenses, and other non-recurring gains (if any). For the nine months ended September 30, 2024, the GAAP efficiency ratio was 69.98% compared to 64.29% for the same period in 2023. The current period's erosion in the GAAP efficiency ratio compared to the prior year period is directly related to the decline in revenues and a slight increase in non-interest expense during the period. The non-GAAP efficiency ratio for the current year was 67.04% compared to 59.42% for the prior year. The current year’s non-GAAP efficiency ratio compared to the prior year indicates a decline in efficiency and is the result of the 7% decrease in non-GAAP revenue combined with the 4% growth in non-GAAP non-interest expense.
 
In addition, we use pre-tax, pre-provision net income, as a measure of the level of certain recurring income before taxes. Management believes this provides financial statement users with a useful metric of the run-rate of revenues and expenses that is readily comparable to other financial institutions. This measure is calculated by adding/ (subtracting) the provision (credit) for credit losses and the provision for income taxes back to/from net income. This metric declined for the first nine months of 2024 compared to the same period for 2023, due primarily to the decline in net interest income.

We have presented core earnings, core earnings per share, core return on average assets ("core ROA") and core return on average tangible common equity ("core ROTCE") in order to present metrics that are more comparable to prior periods to provide an indication of the core performance of the Company year over year. Core earnings reflect net income exclusive of amortization of intangible assets, investment securities gains or losses and other non-recurring or extraordinary items, such as pension settlement expense, severance expense and contingent payment expense, all net of tax. Core earnings were $64.3 million ($1.42 per diluted common share) for the nine months ended September 30, 2024, compared to $107.2 million ($2.39 per diluted common share) for the nine months ended September 30, 2023. Average tangible assets and average tangible common equity represent average assets and average stockholders’ equity adjusted for average goodwill and average intangible assets. The ROA for the first nine months of 2024 was 0.56% compared to 0.92% for the same period of the prior year. For the nine months ended September 30, 2024, the non-GAAP core ROA was 0.61% compared to 1.02% for the same period in the prior year. ROTCE was 7.17% for the first nine months of 2024 compared to 11.67% for the first nine months of 2023. The non-GAAP core ROTCE was 7.17% for the first nine months of 2024 compared to 12.56% for the first nine months of 2023.

48

GAAP and Non-GAAP Efficiency Ratios and Measures
 Nine Months Ended September 30,
(Dollars in thousands)20242023
Pre-tax pre-provision net income:
Net income$59,388$96,744
Plus/ (less) non-GAAP adjustments:
Income tax expense20,55032,832
Provision/ (credit) for credit losses9,724(14,116)
Pre-tax pre-provision net income$89,662$115,460
Efficiency ratio (GAAP):
Non-interest expense$209,047$207,912
Net interest income plus non-interest income$298,709$323,372
Efficiency ratio (GAAP)69.98 %64.29 %
Efficiency ratio (non-GAAP):
Non-interest expense$209,047$207,912
Less non-GAAP adjustments:
Amortization of intangible assets6,5273,820
Severance expense—1,939
Pension settlement expense—8,157
Contingent payment expense—36
Non-interest expense - as adjusted$202,520$193,960
Net interest income plus non-interest income$298,709$323,372
Plus non-GAAP adjustment:
Tax-equivalent income3,3593,044
Less/ (plus) non-GAAP adjustment:
Investment securities gains/ (losses)——
Net interest income plus non-interest income - as adjusted$302,068$326,416
Efficiency ratio (non-GAAP)67.04 %59.42 %
 
49

GAAP and Non-GAAP Performance Ratios
 Nine Months Ended September 30,
(Dollars in thousands)20242023
Core earnings (non-GAAP):
Net income$59,388$96,744
Plus/ (less) non-GAAP adjustments (net of tax):
Amortization of intangible assets4,8642,851
Severance expense—1,445
Pension settlement expense—6,088
Contingent payment expense—27
Core earnings (non-GAAP)$64,252$107,155
Core earnings per common share (non-GAAP):
Weighted-average common shares outstanding - diluted (GAAP)45,156,52144,912,803
Earnings per diluted common share (GAAP)$1.31$2.15
Core earnings per diluted common share (non-GAAP)$1.42$2.39
Core return on average assets (non-GAAP):
Average assets (GAAP)$14,051,722$14,043,925
Return on average assets (GAAP)0.56 %0.92 %
Core return on average assets (non-GAAP)0.61 %1.02 %
Return/ Core return on average tangible common equity (non-GAAP):
Net Income (GAAP)$59,388$96,744
Plus: Amortization of intangible assets (net of tax)4,8642,851
Net income before amortization of intangible assets$64,252$99,595
Core return on average tangible common equity (non-GAAP):
Average assets (GAAP)$14,051,722$14,043,925
Average goodwill(363,436)(363,436)
Average other intangible assets, net(29,940)(18,068)
Average tangible assets (non-GAAP)$13,658,346$13,662,421
Average total stockholders' equity (GAAP)$1,590,682$1,522,153
Average goodwill(363,436)(363,436)
Average other intangible assets, net(29,940)(18,068)
Average tangible common equity (non-GAAP)$1,197,306$1,140,649
Return on average tangible common equity (non-GAAP)7.17 %11.67 %
Core return on average tangible common equity (non-GAAP)7.17 %12.56 %
Average tangible common equity to average tangible assets (non-GAAP)8.77 %8.35 %

50

Results of Operations
For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Net income was $16.2 million ($0.36 per diluted common share) for the three months ended September 30, 2024 compared to $20.7 million ($0.46 per diluted common share) for the prior year quarter. The current quarter's core earnings were $17.9 million ($0.40 per diluted common share) compared to $27.8 million ($0.62 per diluted common share) for the quarter ended September 30, 2023. The decline in the current quarter's net income and core earnings compared to the prior year quarter was the result of lower net interest income coupled with higher provision for credit losses, partially offset by higher non-interest income.

Net Interest Income
Net interest income for the third quarter of 2024 decreased $3.7 million or 4% compared to the third quarter of 2023, driven by higher interest expense as a result of higher funding costs, which outpaced growth in interest income. During the past twelve months, the rising interest rate environment was primarily responsible for a $7.7 million increase in interest income. This growth in interest income was more than offset by the $11.4 million growth in interest expense as funding costs have also risen in response to the higher rate environment and significant competition for deposits. Interest income growth occurred in most of the categories of commercial and residential mortgage loans and, to a lesser degree, in consumer loans and investment securities. Interest expense grew during the current quarter compared to the prior year quarter primarily due to the growth in and higher rates paid across all interest-bearing deposit categories, partially offset by lower cost of borrowings.

The net interest margin was 2.44% for the third quarter of 2024 compared to 2.55% for the third quarter of 2023. The contraction of the net interest margin for the current quarter was due to the higher rate paid on interest-bearing liabilities, which outpaced the increase in the yield on interest-earning assets. The overall rate and yield increases were driven by the higher interest rate environment over the preceding twelve months coupled with the competition for deposits in the market, and customers' movement of excess funds out of noninterest-bearing accounts into higher yielding products. As compared to the prior year quarter, the yield on interest-earning assets increased 23 basis points, while the rate paid on interest-bearing liabilities rose 39 basis points resulting in margin compression of 11 basis points. During the comparative period, average interest-earning assets remained relatively unchanged, while average interest-bearing liabilities grew by 3%.

For the quarter ended September 30, 2024, average total loans comprised 85% of average interest-earning assets compared to 84% for the quarter ended September 30, 2023, with average yields of 5.38% and 5.18%, respectively. In addition, the average yield on investment securities increased to 2.52% for the current quarter compared to 2.25% for the prior year quarter. These portfolio yield movements resulted in the rise in the overall average yield on interest-earning assets to 5.06% for the quarter ended September 30, 2024 from 4.83% for the quarter ended September 30, 2023.

The average rate paid on average interest-bearing liabilities grew by 39 basis points as the average rate paid increased from 3.29% for the third quarter of 2023 to 3.68% for the third quarter of 2024, driven by the 51 basis point increase in the average rate paid on interest-bearing deposits, partially offset by the 20 basis point decrease in the average rate paid on borrowings. The increase in the average rate paid on interest-bearing deposits was driven by increases in rates paid in all deposit categories, while the decline in the average rate paid on borrowings reflected the impact of the lower funding cost of advances from the FHLB, as well as the full payoff of outstanding borrowings from the Federal Reserve Bank through the Bank Term Funding Program during the first quarter of 2024. Average interest-bearing deposits increased 8% for the current quarter compared to the same period for the prior year, driven by the 99% increase in average savings accounts. The percentage of average noninterest-bearing deposits to total average deposits decreased to 24% in the current quarter compared to 27% in the third quarter of 2023 due to the decline in commercial checking deposit balances.
51

Consolidated Average Balances, Yields and Rates
 Three Months Ended September 30,
 20242023
(Dollars in thousands and tax-equivalent)Average
Balances
Interest (1)
Annualized
Average
Yield/Rate		Average
Balances
Interest (1)
Annualized
Average
Yield/Rate
Assets:      
Commercial investor real estate loans$4,874,003 $58,133 4.74 %$5,125,459 $60,482 4.68 %
Commercial owner-occupied real estate loans1,741,663 21,609 4.94 1,769,717 20,865 4.68 
Commercial AD&C loans1,253,035 24,553 7.80 995,682 20,503 8.17 
Commercial business loans1,579,001 26,953 6.79 1,442,518 23,343 6.42 
Total commercial loans9,447,702 131,248 5.53 9,333,376 125,193 5.32 
Residential mortgage loans1,526,445 14,223 3.73 1,406,929 12,550 3.57 
Residential construction loans64,684 876 5.39 174,204 1,680 3.83 
Consumer loans421,003 8,653 8.18 421,189 8,491 8.00 
Total residential and consumer loans2,012,132 23,752 4.71 2,002,322 22,721 4.52 
Total loans (2)
11,459,834 155,000 5.38 11,335,698 147,914 5.18 
Residential mortgage loans held for sale19,889 364 7.32 13,714 238 6.93 
SBA loans held for sale65 2 11.28 — — — 
Taxable securities1,197,301 7,440 2.49 1,239,564 6,682 2.16 
Tax-advantaged securities334,077 2,222 2.66 349,778 2,269 2.59 
Total investment securities (3)
1,531,378 9,662 2.52 1,589,342 8,951 2.25 
Interest-bearing deposits with banks463,531 6,191 5.31 505,017 6,371 5.00 
Federal funds sold— — — 346 5 5.38 
Total interest-earning assets13,474,697 171,219 5.06 13,444,117 163,479 4.83 
Less: allowance for credit losses - loans(125,962)(122,348)
Cash and due from banks82,172 93,354 
Premises and equipment, net58,035 71,956 
Other assets647,095 599,263 
Total assets$14,136,037 $14,086,342 
Liabilities and Stockholders' Equity:
Interest-bearing demand deposits$1,427,739 $6,256 1.74 %$1,419,934 $4,229 1.18 %
Regular savings deposits1,718,475 15,341 3.55 861,634 5,571 2.57 
Money market savings deposits3,018,799 28,999 3.82 2,866,744 25,122 3.48 
Time deposits2,534,605 28,691 4.50 2,887,311 28,180 3.87 
Total interest-bearing deposits8,699,618 79,287 3.63 8,035,623 63,102 3.12 
Federal funds purchased and Federal Reserve Bank borrowings8,543 118 5.53 300,435 3,726 4.92 
Repurchase agreements63,436 334 2.09 67,298 356 2.10 
Advances from FHLB458,152 5,001 4.34 558,696 6,200 4.40 
Subordinated debentures371,156 3,946 4.25 370,565 3,946 4.26 
Total borrowings901,287 9,399 4.15 1,296,994 14,228 4.35 
Total interest-bearing liabilities9,600,905 88,686 3.68 9,332,617 77,330 3.29 
Noninterest-bearing demand deposits2,783,906 3,041,101 
Other liabilities143,849 174,071 
Stockholders' equity1,607,377 1,538,553 
Total liabilities and stockholders' equity$14,136,037 $14,086,342 
Tax-equivalent net interest income and spread$82,533 1.38 %$86,149 1.54 %
Less: tax-equivalent adjustment1,121 1,068 
Net interest income$81,412 $85,081 
Interest income/earning assets5.06 %4.83 %
Interest expense/earning assets2.62 2.28 
Net interest margin2.44 %2.55 %
(1)Tax-equivalent income has been adjusted using the combined marginal federal and state rate of 25.48% and 25.37% for 2024 and 2023, respectively. The annualized taxable-equivalent adjustments utilized in the above table to compute yields aggregated to $1.1 million and $1.1 million in 2024 and 2023, respectively.
(2)Non-accrual loans are included in the average balances.
(3)Investments available-for-sale are presented at amortized cost.
52

Interest Income
Total tax-equivalent interest income increased $7.7 million for the third quarter of 2024 compared to the prior year quarter, led by the $6.1 million increase in commercial loans interest income. During the comparative period, average interest-earning assets stayed relatively unchanged as average total loans increased by 1%, while average investment securities declined 4%.
 
The average yield on interest-earning assets improved to 5.06% for the current quarter compared to 4.83% for the same period of the prior year. Average yields on loans and investment securities for the current quarter increased by 20 and 27 basis points, respectively, compared to the prior year quarter, reflecting general market interest rates during the previous twelve months.

Interest Expense
Interest expense increased $11.4 million in the third quarter of 2024 compared to the third quarter of 2023. The increase from period to period was driven by the increase in market interest rates coupled with the increase in average balances in interest-bearing deposits. The impact of the rise in rates resulted in the average rate on interest-bearing liabilities for the current quarter rising to 3.68% from 3.29% for the prior year quarter. During this period, the total average balance of savings accounts grew significantly as a result of the increase in average rate offered on this product from 2.57% in the prior year quarter to 3.55% in the current year quarter. Increases in rates paid on interest-bearing deposits over the preceding twelve months were partially offset by the lower average rate paid on FHLB advances, which declined to 4.34% in the third quarter of 2024 compared to 4.40% in the third quarter of 2023, as well as the impact of the full payoff of outstanding borrowings through the Federal Reserve Bank's Bank Term Funding Program during the first quarter of 2024.
 
Non-interest Income
Non-interest income amounts and trends are presented in the following table for the periods indicated:
 
 Three Months Ended September 30,
2024/2023
2024/2023
(Dollars in thousands)20242023$ Change% Change
Service charges on deposit accounts3,009 2,704 305 11.3
Mortgage banking activities1,529 1,682 (153)(9.1)
Wealth management income10,738 9,391 1,347 14.3
Income from bank owned life insurance1,307 845 462 54.7
Bank card fees435 450 (15)(3.3)
Other income2,697 2,319 378 16.3
Total non-interest income$19,715 $17,391 $2,324 13.4
 
Total non-interest income for the third quarter of 2024 increased by 13% or $2.3 million compared to the prior year quarter. The current quarter's increase in non-interest income as compared to the prior year quarter was mainly driven by higher wealth management income, BOLI mortality-related income, and other income.

Further detail by category of non-interest income activity for the third quarter of 2024 versus the third quarter of 2023 is provided as follows:

•Service charges on deposit accounts increased $0.3 million or 11% as commercial checking accounts service charges and return check charges increased 19% and 4%, respectively.
•Income from mortgage banking activities decreased by $0.2 million or 9% reflecting lower margins realized on mortgage loans sold during the current quarter as compared to the prior year quarter.
•Wealth management income increased $1.3 million or 14% in the third quarter of 2024 compared to the third quarter of 2023 as a result of favorable market performance and growth of assets under management, which increased to $6.6 billion at September 30, 2024 from $5.5 billion at September 30, 2023.
•Income from bank owned life insurance grew $0.5 million or 55% as a result of increased yields and higher returns on policies.
•Other income increased $0.4 million or 16% due to higher lending-related fees.


53

Non-interest Expense
Non-interest expense amounts and trends are presented in the following table for the periods indicated:
 
 Three Months Ended September 30,
2024/2023
2024/2023
(Dollars in thousands)20242023$ Change% Change
Salaries and employee benefits$41,030 $44,853 $(3,823)(8.5)%
Occupancy expense of premises4,657 4,609 48 1.0 
Equipment expense3,841 3,811 30 0.8 
Marketing1,320 729 591 81.1 
Outside data services3,025 2,819 206 7.3 
FDIC insurance2,773 2,333 440 18.9 
Amortization of intangible assets2,323 1,245 1,078 86.6 
Professional fees and services6,577 4,509 2,068 45.9 
Other expenses7,391 7,563 (172)(2.3)
Total non-interest expense$72,937 $72,471 $466 0.6 

Total non-interest expense for the third quarter of 2024 increased by $0.5 million or 1% compared to the third quarter of 2023. The prior year quarter included $8.2 million of pension settlement expense related to the termination of the Company's pension plan. Excluding this expense from the prior year quarter, total non-interest expense increased by $8.6 million or 13%, due to increase in salaries and benefits, higher professional fees, and an increase in amortization of intangible assets.

Further detail by category of non-expense income activity for the third quarter of 2024 versus the third quarter of 2023 is provided as follows:
 
•Salaries and employee benefits, the largest component of non-interest expenses, decreased $3.8 million or 9%. Prior year quarter expense included pension settlement expense of $8.2 million. Excluding this expense from the prior year quarter, total salaries and benefits expense increased $4.3 million or 12%, due to increase in salaries and incentive based compensation.
•Occupancy and equipment expenses for the quarter were relatively unchanged compared to the prior year quarter.
•Marketing expense increased $0.6 million due to higher spending on various advertising campaigns.
•FDIC insurance expense increased $0.4 million as a result of company specific risk measure values used in the determination of the assessment rate.
•Amortization of intangible assets increased by $1.1 million primarily as a result of an increase in software licensed intangible assets placed into production during the current period.
•Professional fees and services increased 46% primarily due to the increase in utilization of IT consulting services.
•Other non-interest expense decreased 2% due to a decline in a variety of general operating expenses.

Income Taxes
Income tax expense was $5.7 million in the third quarter of 2024 compared to income tax expense of $6.9 million in the third quarter of 2023. The resulting effective tax rate was 25.9% for the third quarter of 2024 compared to an effective tax rate of 24.9% for the third quarter of 2023. The increase in the current year's effective tax rate is the result of pre-tax income containing a lower proportion of income permanently excludable for income tax purposes compared to the prior year quarter.
  
Non-GAAP Financial Measures
The GAAP efficiency ratio in the third quarter of 2024 was 72.12% compared to 70.72% for the third quarter of 2023. The non-GAAP efficiency ratio was 69.06% in the third quarter of 2024 compared to 60.91% in the third quarter of 2023. The increase in both the GAAP and non-GAAP efficiency ratios (reflecting a decrease in efficiency) in the current quarter compared to the third quarter of the prior year were the result of declines in net revenue combined with increases in non-interest expense. Pre-tax pre-provision net income decreased 6% for the current quarter compared to the prior year quarter due to the decline in net interest income.

Current quarter's core earnings were $17.9 million ($0.40 per diluted common share), compared to $27.8 million ($0.62 per diluted common share) for the quarter ended September 30, 2023. Return on average assets for the quarter ended September 30, 2024 was 0.46% and return on average tangible common equity was 5.88% compared to 0.58% and 7.42%, respectively, for the third quarter of 2023. On a non-GAAP basis, the current quarter's core ROA was 0.50% and core ROTCE was 5.88% compared to core ROA of 0.78% and core ROTCE of 9.51% for the third quarter of 2023.

54

GAAP and Non-GAAP Efficiency Ratios and Measures
 Three Months Ended September 30,
(Dollars in thousands)20242023
Pre-tax pre-provision net income:  
Net income$16,209$20,746
Plus/ (less) non-GAAP adjustments:
Income tax expense5,6656,890
Provision for credit losses6,3162,365
Pre-tax pre-provision net income$28,190$30,001
Efficiency ratio (GAAP):
Non-interest expense$72,937$72,471
Net interest income plus non-interest income$101,127$102,472
Efficiency ratio (GAAP)72.12 %70.72 %
Efficiency ratio (non-GAAP):
Non-interest expense$72,937$72,471
Less/ (plus) non-GAAP adjustments:
Amortization of intangible assets2,3231,245
Pension settlement expense—8,157
Non-interest expense - as adjusted$70,614$63,069
Net interest income plus non-interest income$101,127$102,472
Plus non-GAAP adjustment:
Tax-equivalent income1,1211,068
Less/ (plus) non-GAAP adjustment:
Investment securities gains/ (losses)——
Net interest income plus non-interest income - as adjusted$102,248$103,540
Efficiency ratio (non-GAAP)69.06 %60.91 %
 







55

GAAP and Non-GAAP Performance Ratios
 Three Months Ended September 30,
(Dollars in thousands)20242023
Core earnings (non-GAAP):
Net income (GAAP)$16,209$20,746
Plus/ (less) non-GAAP adjustments (net of tax):
Amortization of intangible assets1,727932
Pension settlement expense—6,088
Core earnings (non-GAAP)$17,936$27,766
Core earnings per common share (non-GAAP):
Weighted-average common shares outstanding - diluted (GAAP)45,242,92044,960,455
Earnings per diluted common share (GAAP)$0.36$0.46
Core earnings per diluted common share (non-GAAP)$0.40$0.62
Core return on average assets (non-GAAP):
Average assets (GAAP)$14,136,037$14,086,342
Return on average assets (GAAP)0.46 %0.58 %
Core return on average assets (non-GAAP)0.50 %0.78 %
Return/ Core return on average tangible common equity (non-GAAP):
Net Income (GAAP)$16,209$20,746
Plus: Amortization of intangible assets (net of tax)1,727932
Net income before amortization of intangible assets$17,936$21,678
Core return on average tangible common equity (non-GAAP):
Average assets (GAAP)$14,136,037$14,086,342
Average goodwill(363,436)(363,436)
Average other intangible assets, net(30,679)(16,777)
Average tangible assets (non-GAAP)$13,741,922$13,706,129
Average total stockholders' equity (GAAP)$1,607,377$1,538,553
Average goodwill(363,436)(363,436)
Average other intangible assets, net(30,679)(16,777)
Average tangible common equity (non-GAAP)$1,213,262$1,158,340
Return on average tangible common equity (non-GAAP)5.88 %7.42 %
Core return on average tangible common equity (non-GAAP)5.88 %9.51 %
Average tangible common equity to average tangible assets (non-GAAP)8.83 %8.45 %
56

FINANCIAL CONDITION
Total assets at September 30, 2024 increased $354.9 million or 3% to $14.4 billion compared to December 31, 2023. Total loan balances increased $124.9 million or 1% compared to December 31, 2023. Commercial investor real estate loans decreased $236.0 million or 5%, while AD&C and commercial business loans and lines grew $266.6 million or 27% and $116.0 million or 8%, respectively, during this period. Total residential mortgage loans increased by 4%, primarily as a result of migration of mortgage construction loans into the mortgage permanent portfolio during the current year. Deposit balances increased to $11.7 billion at September 30, 2024 compared to $11.0 billion at December 31, 2023, driven by the 9% increase in interest-bearing deposits, as a result of offering competitive high yields in savings products along with the growth in money market accounts. The increase in deposits along with the stability of loan balances resulted in the loan-to-deposit ratio declining to 98% at September 30, 2024 from 103% at December 31, 2023.
 
Analysis of Loans
A comparison of the loan portfolio at the dates indicated is presented in the following table:

 September 30, 2024December 31, 2023Period-to-Period Change
(Dollars in thousands)Amount%Amount%Amount%
Commercial real estate:      
Commercial investor real estate$4,868,467 42.4 %$5,104,425 44.9 %$(235,958)(4.6)
Commercial owner-occupied real estate1,737,327 15.1 1,755,235 15.4 (17,908)(1.0)
Commercial AD&C1,255,609 10.9 988,967 8.7 266,642 27.0
Commercial business1,620,926 14.1 1,504,880 13.3 116,046 7.7
Total commercial loans9,482,329 82.5 9,353,507 82.3 128,822 1.4
Residential real estate:
Residential mortgage1,529,786 13.3 1,474,521 13.0 55,265 3.7
Residential construction53,639 0.5 121,419 1.1 (67,780)(55.8)
Consumer426,167 3.7 417,542 3.6 8,625 2.1
Total residential and consumer loans2,009,592 17.5 2,013,482 17.7 (3,890)(0.2)
Total loans$11,491,921 100.0 %$11,366,989 100.0 %$124,932 1.1

Total loans increased $124.9 million or 1% to $11.5 billion at September 30, 2024 compared to $11.4 billion at December 31, 2023. Portfolio mix during the first nine months of 2024 remained relatively unchanged compared to the prior year-end. During the current year, the commercial AD&C portfolio increased by 27% mainly due to draws on existing loans, while commercial business loans and lines increased by 8%. Commercial investor real estate loans declined by 5% during the current year, as we reduced concentrations in specific industries within this segment. Residential mortgage loans increased by 4% mainly due to migration of residential construction loans into the residential permanent portfolio, as a number of construction projects were completed.
57

Analysis of Investment Securities
The composition of investment securities at the periods indicated is presented in the following table:

 September 30, 2024December 31, 2023Period-to-Period Change
(Dollars in thousands)Amount%Amount%Amount%
Available-for-sale debt securities, at fair value:      
U.S. treasuries and government agencies$84,807 5.9 %$96,927 6.9 %$(12,120)(12.5)%
State and municipal265,189 18.4 268,214 19.0 (3,025)(1.1)
Mortgage-backed and asset-backed799,060 55.5 737,540 52.1 61,520 8.3 
Total available-for-sale debt securities1,149,056 79.8 1,102,681 78.0 46,375 4.2 
Held-to-maturity debt securities, at amortized cost:
Mortgage-backed and asset-backed220,296 15.3 236,165 16.7 (15,869)(6.7)
Total held-to-maturity debt securities220,296 15.3 236,165 16.7 (15,869)(6.7)
Other investments, at cost:     
Federal Reserve Bank stock39,268 2.7 39,125 2.8 143 0.4 
Federal Home Loan Bank of Atlanta stock31,191 2.2 35,805 2.5 (4,614)(12.9)
Other677 — 677 — — — 
Total other investments71,136 4.9 75,607 5.3 (4,471)(5.9)
Total securities$1,440,488 100.0 %$1,414,453 100.0 %$26,035 1.8 
 
The investment portfolio consists primarily of U.S. Treasuries, U.S. Agency securities, U.S. Agency mortgage-backed securities, U.S. Agency collateralized mortgage obligations, asset-backed securities and state and municipal securities. Total investment securities, which are a source of liquidity for the Company and a contributor to interest income, increased 2% from December 31, 2023 to September 30, 2024. Total unrealized losses on investments available-for-sale declined $27.4 million, from $118.1 million at December 31, 2023 to $90.7 million at September 30, 2024, due to a decline in market interest rates during the period. Unrealized losses on available-for-sale debt securities at September 30, 2024 are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required at September 30, 2024. These unrealized losses are expected to recover over time as available-for-sale securities approach maturity. We do not intend to sell, nor is it more likely than not that we will be required to sell, these securities, and we have sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value.

At September 30, 2024, 98% of the available-for-sale and held-to-maturity debt securities were invested in Aaa/AAA or Aa/AA-rated securities. The average duration of the portfolio was 4.1 years at September 30, 2024 as compared to 4.6 years at December 31, 2023. Weighted average tax equivalent yield of the total debt securities portfolio was 2.44% at September 30, 2024. The composition and duration of the investment portfolio has resulted in a portfolio with low credit risk that is expected to provide the liquidity needed to meet lending and other funding demands. The portfolio is monitored on a continual basis with consideration given to interest rate trends and the structure of the yield curve and with constant assessment of economic projections and analysis.

Other Earning Assets
Residential mortgage loans held for sale increased to $21.5 million at September 30, 2024, compared to $10.8 million at December 31, 2023, as a result of the associated timing of origination and sale volumes that has occurred during the period. We continue to sell a portion of our residential mortgage loan production in the secondary market. The aggregate of interest-bearing deposits with banks and federal funds sold increased by $177.1 million to $640.8 million at September 30, 2024 compared to December 31, 2023, as a result of deposit growth during the current year partially offset by a full payoff of $300.0 million in outstanding borrowings through the Federal Reserve Bank's Bank Term Funding Program.
 
58

Deposits
The composition of deposits for the periods indicated is presented in the following table:
 
 September 30, 2024December 31, 2023Period-to-Period Change
(Dollars in thousands)Amount%Amount%Amount%
Noninterest-bearing deposits$2,903,063 24.7 %$2,914,161 26.5 %$(11,098)(0.4)%
Interest-bearing deposits:  
Demand1,456,606 12.4 1,463,679 13.3 (7,073)(0.5)
Money market savings3,033,302 25.8 2,628,918 23.9 404,384 15.4 
Regular savings1,744,214 14.9 1,275,225 11.6 468,989 36.8 
Time deposits of less than $250,0001,873,594 16.0 2,068,259 18.8 (194,665)(9.4)
Time deposits of $250,000 or more726,915 6.2 646,296 5.9 80,619 12.5 
Total interest-bearing deposits8,834,631 75.3 8,082,377 73.5 752,254 9.3 
Total deposits$11,737,694 100.0 %$10,996,538 100.0 %$741,156 6.7 
 
Deposits and Borrowings
Total deposits increased $741.2 million or 7% to $11.7 billion at September 30, 2024 from December 31, 2023, as interest-bearing deposits grew $752.3 million or 9%, while noninterest-bearing deposits remained level. The growth in interest-bearing deposits during the current year was mainly attributable to savings and money market accounts, which increased $469.0 million and $404.4 million, respectively. Time deposits declined by $114.0 million, driven by the $210.0 million reduction in brokered time deposits partially offset by the $95.9 million growth in core time deposits. Total core deposits, which exclude brokered relationships, increased by $909.4 million or 9% during the current year and represented 94% of total deposits at September 30, 2024 as compared to 92% at December 31, 2023.

The total amount of deposits not covered by FDIC deposit insurance was approximately $4.3 billion or 37% of total deposits at September 30, 2024. This estimate is based on the determination of known deposit account relationships of each depositor and the insurance guidelines provided by the FDIC. Commercial accounts represented 79% of uninsured deposits, while retail accounts accounted for 21% of the uninsured deposit total. Management mitigates outflows of uninsured deposits by providing reciprocal deposit arrangements, which provide FDIC deposit insurance for accounts that would otherwise exceed deposit insurance limits. These deposits increased $47.2 million or 5% during the first nine months of 2024.

Total borrowings during the first nine months of 2024 decreased by $403.8 million compared to amounts at December 31, 2023, driven by a full payoff of $300.0 million in outstanding borrowings through the Federal Reserve Bank's Bank Term Funding Program facility. In addition, FHLB advances were reduced by $100.0 million during the current year. The Company currently carries $371.3 million in subordinated debt, which is accounted for as Tier 2 capital in accordance with regulatory guidelines. At September 30, 2024, available unused sources of liquidity, which consists of available FHLB borrowings, fed funds, funds through the Federal Reserve Bank's discount window, as well as excess cash and unpledged investment securities, totaled $6.3 billion or 146% of uninsured deposits.

Capital Management
Management monitors historical and projected earnings, dividends, and asset growth, as well as risks associated with the various types of on and off-balance sheet assets and liabilities, in order to determine appropriate capital levels. Total stockholders' equity totaled $1.6 billion at both September 30, 2024 and December 31, 2023. The ratio of average equity to average assets was 11.37% for the quarter ended September 30, 2024, as compared to 10.97% for the quarter ended December 31, 2023.

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Risk-Based Capital Ratios
Bank holding companies and banks are required to maintain capital ratios in accordance with guidelines adopted by the federal bank regulators. These guidelines are commonly known as risk-based capital guidelines. The actual regulatory ratios and required ratios for capital adequacy are summarized for the Company in the following table.
 Ratios at
Minimum Value(1)
Well-Capitalized(2)
 September 30, 2024December 31, 2023
Tier 1 leverage9.59%9.51%4.00%5.00%
Common equity Tier 111.27%10.90%4.50%6.50%
Tier 1 capital to risk-weighted assets11.27%10.90%6.00%8.00%
Total capital to risk-weighted assets15.53%14.92%8.00%10.00%
(1)    Minimum requirements to remain adequately capitalized.
(2)    Well-capitalized under prompt corrective action regulations.
 
As of September 30, 2024, the most recent notification from our primary regulator categorized the Bank as a "well-capitalized" institution under the prompt corrective action rules of the Federal Deposit Insurance Act. Designation as a well-capitalized institution under these regulations is not a recommendation or endorsement of the Company or the Bank by federal bank regulators.
 
The minimum capital level requirements applicable to the Company and the Bank are: (1) a common equity Tier 1 capital ratio of 4.5%; (2) a Tier 1 capital ratio of 6%; (3) a total capital ratio of 8%; and (4) a Tier 1 leverage ratio of 4%. The rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses to executive officers if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
 
The increases across all risk-based capital ratios at September 30, 2024 compared to December 31, 2023 were mainly driven by a reduction in risk weightings applied on certain consumer loan unfunded commitment categories that met the regulatory capital requirements coupled with the growth in Tier 1 and total capital during the current year.
 
Tangible Common Equity
Tangible common equity, tangible assets, and tangible book value per share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity and tangible assets exclude the balances of goodwill and other intangible assets from total stockholders' equity and total assets. Management believes that this non-GAAP financial measure provides information to investors that may be useful in understanding our financial condition. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies.
 
Tangible common equity increased to 8.83% of tangible assets at September 30, 2024, compared to 8.77% at December 31, 2023. This increase during the current year mainly reflected the impact of the $38.5 million increase in tangible common equity, while tangible assets grew $352.7 million.

A reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets along with tangible book value per share, book value per share and related non-GAAP tangible common equity ratio are provided in the following table:
 
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Tangible Common Equity Ratio – Non-GAAP
(Dollars in thousands, except per share data)September 30, 2024December 31, 2023
Tangible common equity ratio:  
Total stockholders' equity$1,628,837 $1,588,142 
Goodwill(363,436)(363,436)
Other intangible assets, net(30,514)(28,301)
Tangible common equity$1,234,887 $1,196,405 
Total assets$14,383,073 $14,028,172 
Goodwill(363,436)(363,436)
Other intangible assets, net(30,514)(28,301)
Tangible assets$13,989,123 $13,636,435 
Outstanding common shares45,125,078 44,913,561 
Tangible common equity ratio8.83 %8.77 %
Book value per common share$36.10 $35.36 
Tangible book value per common share$27.37 $26.64 
 
Credit Risk
Our fundamental lending business is based on understanding, measuring and controlling the credit risk inherent in the loan portfolio. Accordingly, our loan portfolio is subject to varying degrees of credit risk. Credit risk entails both general risks, which are inherent in the process of lending, and risk specific to individual borrowers. Our credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry or collateral type. Typically, each consumer and residential lending product has a generally predictable level of credit losses based on historical loss experience. Residential mortgage and home equity loans and lines generally have the lowest credit loss experience. Loans secured by personal property, such as auto loans, generally experience medium credit losses. Unsecured loan products, such as personal revolving credit, have the highest credit loss experience and, for that reason, we have chosen not to engage in a significant amount of this type of lending. Credit risk in commercial lending can vary significantly, as losses as a percentage of outstanding loans can shift widely during economic cycles and are particularly sensitive to changing economic conditions. Generally, improving economic conditions result in improved operating results on the part of commercial customers, enhancing their ability to meet their particular debt service requirements. Improvements, if any, in operating cash flows can be offset by the impact of rising interest rates that may occur during improved economic times. Inconsistent economic conditions may have an adverse effect on the operating results of commercial customers, reducing their ability to meet debt service obligations.
 
To control and manage credit risk, management has a credit process in place to reasonably ensure that credit standards are maintained along with an in-house loan administration, accompanied by various oversight and review procedures. The primary purpose of loan underwriting is the evaluation of specific lending risks and involves the analysis of the borrower’s ability to service the debt as well as the assessment of the value of the underlying collateral. Oversight and review procedures include monitoring the credit quality of the portfolio, providing early identification of potential problem credits and proactive management of problem credits.

We recognize a lending relationship as non-performing when either the loan becomes 90 days delinquent or as a result of factors, such as bankruptcy, interruption of cash flows, etc., considered at a monthly credit committee meeting. Classification as a non-accrual loan is based on a determination that we may not collect all principal and/or interest payments according to contractual terms. When a loan is placed on non-accrual status, all previously accrued but unpaid interest is reversed from interest income. Payments received on non-accrual loans are first applied to the remaining principal balance of the loans. Additional recoveries are credited to the allowance up to the amount of all previous charge-offs.

The level of non-performing loans to total loans increased to 1.09% at September 30, 2024 compared to 0.81% at December 31, 2023. Non-performing loans were $125.3 million at September 30, 2024 compared to $91.8 million at December 31, 2023. An increase in non-performing loans during the current year was mainly related to a single AD&C loan with the total outstanding principal balance of $28.0 million, which was placed on a non-accrual status. Loans greater than 90 days or more were $0.4 million at both September 30, 2024 and December 31, 2023.
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While the diversification of the lending portfolio among different commercial, residential and consumer product lines along with different market conditions of the D.C. suburbs, Northern Virginia and Baltimore metropolitan area has mitigated some of the risks in the portfolio, local economic conditions and levels of non-performing loans may continue to be influenced by the conditions being experienced in various business sectors of the economy on both a regional and national level.
 
Our methodology for evaluating whether a loan shall be placed on non-accrual status begins with risk-rating credits on an individual basis and includes consideration of the borrower’s overall financial condition, payment record and available cash resources that may include the sufficiency of collateral value and, in a select few cases, verifiable support from financial guarantors. In measuring an allowance on an individual basis, we evaluate primarily the value of the collateral (adjusted for estimated costs to sell) or projected cash flows generated by the operation of the collateral as the primary sources of repayment of the loan. Consideration is given to the existence of guarantees and the financial strength and wherewithal of the guarantors involved in any loan relationship. Guarantees may be considered as a source of repayment based on the guarantor’s financial condition and payment capacity. Accordingly, absent a verifiable payment capacity, a guarantee alone would not be sufficient to avoid classifying the loan as non-accrual.
 
Management has established a credit process that dictates that structured procedures be performed to monitor these loans between the receipt of an original appraisal and the updated appraisal. These procedures include the following:
•An internal evaluation is updated periodically to include borrower financial statements and/or cash flow projections.
•The borrower may be contacted for a meeting to discuss an updated or revised action plan which may include a request for additional collateral.
•Re-verification of the documentation supporting our position with respect to the collateral securing the loan.
•At a monthly credit committee meeting, the loan may be downgraded and a specific allowance may be decided upon in advance of the receipt of the appraisal.
•Upon receipt of the updated appraisal (or based on an updated internal financial evaluation) the loan balance is compared to the appraisal and a specific allowance is decided upon for the particular loan, typically for the amount of the difference between the appraised value (adjusted for estimated costs to sell) and the loan balance.
•Evaluation of whether adverse changes in the value of the collateral are expected over the remainder of the loan’s expected life.
•We individually assess the allowance for credit losses based on the fair value of the collateral for any collateral dependent loans where the borrower is experiencing financial difficulty or when we determine that the foreclosure is probable. We will charge-off the excess of the loan amount over the fair value of the collateral adjusted for the estimated selling costs.
 
We may extend the maturity of a performing or current loan that may have some inherent weakness associated with the loan. However, we generally follow a policy of not extending maturities on non-performing loans under existing terms. Maturity date extensions only occur under revised terms that clearly place us in a position to increase the likelihood of or assure full collection of the loan under the contractual terms and/or terms at the time of the extension that may eliminate or mitigate the inherent weakness in the loan. These terms may incorporate, but are not limited to additional assignment of collateral, significant balance curtailments/liquidations and assignments of additional project cash flows. Guarantees may be a consideration in the extension of loan maturities. As a general matter, we do not view the extension of a loan to be a satisfactory approach to resolving non-performing credits. On an exception basis, certain performing loans that have displayed some inherent weakness in the underlying collateral values, an inability to comply with certain loan covenants which are not affecting the performance of the credit or other identified weakness may be extended.
 
We sell a portion of our fixed-rate residential mortgage originations in the secondary mortgage market. Concurrent with such sales, we are required to make customary representations and warranties to the purchasers about the mortgage loans and the manner in which they were originated. The related sale agreements grant the purchasers recourse back to us, which could require us to repurchase loans or to share in any losses incurred by the purchasers. This recourse exposure typically extends for a period of six to twelve months after the sale of the loan although the time frame for repurchase requests can extend for an indefinite period. Such transactions could be due to a number of causes including borrower fraud or early payment default. We have received a very limited number of repurchase and indemnity demands from purchasers for such events and routinely monitor our exposure. We maintain a liability of $0.5 million for probable losses due to repurchases.

Mortgage loan servicing rights are accounted for at amortized cost and are monitored for impairment on an ongoing basis. The amortized cost of our mortgage loan servicing rights was $0.3 million at both September 30, 2024 and December 31, 2023.

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Analysis of Credit Risk
The following table presents information with respect to non-performing assets and 90-day delinquencies as of the periods indicated:
 
(Dollars in thousands)September 30, 2024December 31, 2023
Non-accrual loans:  
Commercial real estate:  
Commercial investor real estate$57,578 $58,658 
Commercial owner-occupied real estate9,639 4,640 
Commercial AD&C31,816 1,259 
Commercial business9,044 10,051 
Residential real estate:
Residential mortgage11,996 12,332 
Residential construction539 443 
Consumer4,258 4,102 
Total non-accrual loans124,870 91,485 
Loans 90 days past due:
Commercial real estate:
Commercial investor real estate— — 
Commercial owner-occupied real estate— — 
Commercial AD&C— — 
Commercial business— 20 
Residential real estate:
Residential mortgage399 342 
Residential construction— — 
Consumer— — 
Total 90 days past due loans399 362 
Total non-performing loans125,269 91,847 
Other real estate owned, net3,265 — 
Total non-performing assets$128,534 $91,847 
Non-accrual loans to total loans1.09 %0.80 %
Non-performing loans to total loans1.09 %0.81 %
Non-performing assets to total assets0.89 %0.65 %
Allowance for credit losses to non-accrual loans105.25 %132.11 %
Allowance for credit losses to non-performing loans104.92 %131.59 %

Allowance for Credit Losses - Loans
The allowance for credit losses represents management’s estimate of the portion of our loans’ amortized cost basis not expected to be collected over the loans’ contractual life. As a part of the credit oversight and review process, we maintain an allowance for credit losses (the “allowance”). The following allowance section should be read in conjunction with “Allowance for Credit Losses” section in Note 1 – Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements. We exclude accrued interest from the measurement of the allowance as the Company has a non-accrual policy to reverse any accrued, uncollected interest income when loans are placed on non-accrual status.
 
The appropriateness of the allowance is determined through ongoing evaluation of the credit portfolio, and involves consideration of a number of factors. Determination of the allowance is inherently subjective and requires significant estimates, including consideration of current conditions and future economic forecasts, which may be susceptible to significant volatility. The forecasted economic metrics with the greatest impact are the expected future unemployment rate, the expected level of business bankruptcies, gross domestic product, and, to a lesser degree, the commercial real estate price index and residential real estate house price index. In addition to these metrics, management has included the potential impact of the recession among the qualitative factors applied in the determination of the allowance. Expected losses can vary significantly from the amounts actually observed. Loans deemed uncollectible are charged off against the allowance, while recoveries are credited to
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the allowance when received. Management adjusts the level of the allowance through the provision for credit losses in the Condensed Consolidated Statement of Income.
 
For the nine months ended September 30, 2024, provision for credit losses was $9.7 million as compared to a credit of $14.1 million for the same period in 2023. The current year's provision was primarily due to an increase in individual reserves on collateral-dependent non-accrual loans, as well as adjustments applied to specific industries within the commercial real estate segment during the first quarter of 2024. The prior year's credit to provision was mainly attributable to the improving regional forecasted unemployment rate observed during the first half of 2023, and the declining probability of economic recession.

At September 30, 2024, the allowance for credit losses was $131.4 million as compared to $120.9 million at December 31, 2023. The allowance for credit losses as a percent of total loans was 1.14% and 1.06% at September 30, 2024 and December 31, 2023, respectively. The allowance for credit losses represented 105% of non-performing loans at September 30, 2024 as compared to 132% at December 31, 2023. The allowance attributable to the commercial portfolio represented 1.26% of total commercial loans while the portion attributable to total combined consumer and mortgage loans was 0.61%. With respect to the total commercial portion of the allowance, 26% of this portion is allocated to the commercial business loan portfolio, resulting in the ratio of the allowance for commercial business loans to total commercial business loans of 1.91%. The allowance coverage ratio for the investor real estate portfolio decreased to 1.12% at September 30, 2024 compared to 1.20% at December 31, 2023 due to the reduction in loan balances and the related specific industry concentrations with the commercial investor real estate segment. The ratio of the allowance attributable to AD&C loans was 2.19% at the end of the current quarter, compared to 0.84% at December 31, 2023. This increase in the AD&C allowance ratio was predominantly the result of higher individual reserves on collateral-dependent non-accrual loans, primarily related to a single large lending relationship.
 
The current methodology for assessing the appropriate allowance includes: (1) a collective quantified reserve that reflects our historical default and loss experience adjusted for expected economic conditions over a reasonable and supportable forecast period and our prepayment and curtailment rates, (2) collective qualitative factors that consider concentrations of the loan portfolio, expected changes to the economic forecasts, large lending relationships, early delinquencies, and factors related to credit administration, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations, and (3) individual allowances on collateral-dependent loans where borrowers are experiencing financial difficulty or where we determined that foreclosure is probable. Under the current methodology, 67% of the total allowance is attributable to the historical default and loss experience coupled with individual reserves, while 33% of the allowance is attributable to the collective qualitative factors applied to determine the allowance.
 
The quantified collective portion of the allowance is determined by pooling loans into segments based on the similar risk characteristics of the underlying borrowers, in addition to consideration of collateral type, industry and business purpose of the loans. We selected two collective methodologies, the expected loss and weighted average remaining life methodologies. Collective calculation methodologies use our historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a two-year economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period expected losses revert back to the historical mean over the next two years on a straight-line basis.
 
Economic variables which have the most significant impact on the allowance include:
•unemployment rate;
•gross domestic product;
•number of business bankruptcies; and
•commercial real estate price index and residential real estate house price index.
 
The collective quantified component of the allowance is supplemented by a qualitative component to address various risk characteristics of our loan portfolio including:
•trends in early delinquencies;
•changes in the risk profile related to large loans in the portfolio;
•concentrations of loans to specific industry segments;
•expected changes in economic conditions;
•changes in our credit administration and loan portfolio management processes; and
•probability of the near-term recession and its impact on estimated losses.

The individual reserve assessment is applied to collateral dependent loans where borrowers are experiencing financial difficulty or when we determined that foreclosure is probable. The determination of the fair value of the collateral depends on whether a repayment of the loan is expected to be from the sale or the operation of the collateral. When repayment is expected from the operation of the collateral, we use the present value of expected cash flows from the operation of the collateral as the fair value.
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When repayment of the loan is expected from the sale of the collateral the fair value of the collateral is based on an observable market price or the appraised value less estimated cost to sell. The balance of collateral-dependent loans individually assessed for the allowance was $121.2 million, with individual allowances of $37.3 million against those loans at September 30, 2024.
 
If an updated appraisal is received subsequent to the preliminary determination of an individual allowance or partial charge-off, and it is less than the initial appraisal used in the initial assessment, an additional individual allowance or charge-off is taken on the related credit. Partially charged-off loans are not written back up based on updated appraisals and always remain on non-accrual with any and all subsequent payments first applied to the remaining balance of the loan as principal reductions. No interest income is recognized on loans that have been partially charged-off.
 
A current appraisal on large loans is usually obtained if the appraisal on file is more than 12 months old and there has been a material change in market conditions, zoning, physical use or the adequacy of the collateral based on an internal evaluation. Our policy is to strictly adhere to regulatory appraisal standards. If an appraisal is ordered, no more than a 30-day turnaround is requested from the appraiser, who is selected by Credit Administration from an approved appraiser list. After receipt of the updated appraisal and completion of the internal review, the assigned credit officer will recommend to the Chief Credit Officer whether an individual allowance or a charge-off should be taken. The Chief Credit Officer has the authority to approve an individual allowance or charge-off between monthly credit committee meetings to ensure that there are no significant time lapses during this process. The Company's borrowers are concentrated in nine counties in Maryland, three counties in Virginia and in Washington D.C. Certain loan terms may create concentrations of credit risk and increase our exposure to loss. These include terms that permit the deferral of principal payments or payments that are smaller than normal interest accruals (negative amortization); loans with high loan-to-value ratios; loans, such as option adjustable-rate mortgages, that may expose the borrower to future increases in repayments that are in excess of increases that would result solely from increases in market interest rates; and interest-only loans. We do not make loans that provide for negative amortization or option adjustable-rate mortgages.

The following table presents an allocation of the allowance for credit losses by portfolio as of each period end. The allowance is allocated in the following table to various loan categories based on the methodology used to estimate credit losses; however, the allocation does not restrict the usage of the allowance for any specific loan category.

(In thousands)September 30, 2024December 31, 2023
Commercial real estate:Amount% of loans to total loansAmount% of loans to total loans
Commercial investor real estate$54,431 42.4 %$61,439 44.9 %
Commercial owner-occupied real estate6,321 15.1 7,536 15.4 
Commercial AD&C27,490 10.9 8,287 8.7 
Commercial business30,965 14.1 31,932 13.3 
Total commercial119,207 82.5 109,194 82.3 
Residential real estate:
Residential mortgage9,247 13.3 8,890 13.0 
Residential construction309 0.5 729 1.1 
Consumer2,665 3.7 2,052 3.6 
Total residential and consumer12,221 17.5 11,671 17.7 
Total allowance for credit losses - loans$131,428 100.0 %$120,865 100.0 %

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Summary of Loan Credit Loss Experience
The following table presents the activity in the allowance for credit losses on loans for the periods indicated:
 Nine Months EndedYear Ended
(Dollars in thousands)September 30, 2024December 31, 2023
Balance, January 1$120,865 $136,242 
Provision/ (credit) for credit losses - loans12,602 (13,894)
Loan charge-offs:
Commercial real estate:
Commercial investor real estate(401)— 
Commercial owner-occupied real estate— — 
Commercial AD&C(135)— 
Commercial business(1,803)(449)
Residential real estate:
Residential mortgage(50)(160)
Residential construction— — 
Consumer(421)(2,005)
Total charge-offs(2,810)(2,614)
Loan recoveries:
Commercial real estate:
Commercial investor real estate9 25 
Commercial owner-occupied real estate81 105 
Commercial AD&C330 — 
Commercial business31 303 
Residential real estate:
Residential mortgage52 114 
Residential construction— — 
Consumer268 584 
Total recoveries771 1,131 
Net (charge-offs)/ recoveries(2,039)(1,483)
Balance, period end$131,428 $120,865 
Annualized net charge-offs/ (recoveries) to average loans0.02 %0.01 %
Allowance for credit losses on loans to loans1.14 %1.06 %
 

Market Risk Management
Our net income is largely dependent on our net interest income. Net interest income is susceptible to interest rate risk to the extent that interest-bearing liabilities mature or re-price on a different basis than interest-earning assets. When interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and stockholders' equity.
 
Our interest rate risk management goals are (1) to increase net interest income at a growth rate consistent with the growth rate of total assets, and (2) to minimize fluctuations in net interest income as a percentage of interest-earning assets. Management attempts to achieve these goals by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of floating-rate assets; by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched; by maintaining a pool of administered core deposits; and by adjusting pricing rates to market conditions on a continuing basis.
 
Our Board of Directors has established a comprehensive interest rate risk management policy, which is administered by management’s Asset Liability Management Committee (“ALCO”). The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income or “NII” at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at risk) resulting from a hypothetical change in U.S. Treasury interest rates for maturities from one day to thirty years. Management measures the potential adverse impacts that changing interest rates may have on its short-term earnings, long-term value, and liquidity by employing simulation analysis through the
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use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors embedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used by us. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. As an example, certain types of money market deposit accounts are assumed to reprice at 40 to 100% of the interest rate change in each of the up rate shock scenarios even though this is not a contractual requirement. As a practical matter, management would likely lag the impact of any upward movement in market rates on these accounts as a mechanism to manage our net interest margin. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.
 
We prepare a current base case and multiple alternative simulations at least once per quarter and report the analysis to the Board of Directors. In addition, more frequent forecasts are produced when interest rates are particularly uncertain or when other business conditions, such as periods of economic uncertainty or market liquidity concerns, so dictate.
 
Our statement of condition is subject to quarterly testing for eight alternative interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/- 100, 200, 300, and 400 basis points (“bp”), although we may elect not to use particular scenarios if they are determined to be impractical in a current rate environment. It is management’s goal to structure the statement of condition so that net interest income at risk over a twelve-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.
 
Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.

The following table presents estimated changes in net interest income utilizing an instantaneous parallel rate shocks in various interest rate scenarios:

Estimated Changes in Net Interest Income
Change in Interest Rates:+ 400 bp+ 300 bp+ 200 bp+ 100 bp- 100 bp- 200 bp-300 bp-400 bp
Policy Limit23.50%17.50%15.00%10.00%10.00%15.00%17.50%23.50%
September 30, 2024(5.23%)(3.80%)(2.39%)(1.14%)1.79%3.72%5.82%8.81%
December 31, 2023(2.42%)(1.71%)(0.99%)(0.40%)1.13%2.09%2.84%3.87%
 
As reflected in the table above, the measures of net interest income at risk at September 30, 2024 stayed relatively stable as compared to December 31, 2023. The modest increase in net interest income at risk during the current year is a result of a higher proportion of variable rate and soon to be repricing assets and liabilities on the balance sheet compared to year end, in the form of more floating rate loans as well as holding more cash and maturing securities on the asset side and more high yield savings accounts and soon to be repricing term deposits.

We augment our quarterly interest rate shock analysis with alternative external interest rate scenarios on a monthly basis. These alternative interest rate scenarios may include parallel rate ramps and non-parallel yield curve twists. If a measure of risk produced by the alternative simulations of the entire statement of condition violates policy guidelines, ALCO is required to develop a plan to restore the measure of risk to a level that complies with policy limits within two quarters.

The following table presents estimated changes in net interest income utilizing parallel rate ramps in various interest rate scenarios:

Estimated Changes in Net Interest Income
Change in Interest Rates:+ 400 bp+ 300 bp+ 200 bp+ 100 bp- 100 bp- 200 bp-300 bp-400 bp
September 30, 2024(4.52%)(3.29%)(2.07%)(0.99%)1.43%2.94%4.51%6.15%
December 31, 2023(1.81%)(1.24%)(0.68%)(0.25%)0.81%1.54%2.22%2.87%

The measures of equity value at risk indicate our ongoing economic value by considering the effects of changes in interest rates on all of our cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value of our net assets.
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Estimated Changes in Economic Value of Equity at Risk
Change in Interest Rates:+ 400 bp+ 300 bp+ 200 bp+ 100 bp- 100 bp- 200 bp-300 bp-400 bp
Policy Limit35.00%25.00%20.00%10.00%10.00%20.00%25.00%35.00%
September 30, 2024(23.43%)(16.92%)(10.46%)(4.63%)4.05%6.74%7.12%1.90%
December 31, 2023(24.78%)(18.31%)(11.90%)(5.75%)5.55%9.92%12.93%12.49%
 
Overall, the measure of the economic value of equity ("EVE") at risk declined in most of the rate change scenarios from December 31, 2023 to September 30, 2024. The slight decrease in EVE at risk is a reflection of a higher proportion of variable rate and soon to be repricing assets and liabilities.

Liquidity Management
Liquidity is measured by a financial institution's ability to raise funds through loan repayments, maturing investments, deposit growth, borrowed funds, capital and the sale of highly marketable assets such as investment securities and residential mortgage loans. In assessing liquidity, management considers operating requirements, the seasonality of deposit flows, investment, loan and deposit maturities and calls, expected funding of loans and deposit withdrawals, and the market values of available-for-sale investments, so that sufficient funds are available on a short notice to meet obligations as they arise and to ensure that we are able to pursue new business opportunities. Accordingly, management evaluates these metrics on a monthly basis to ensure that policy parameters are adequately addressed. We perform liquidity stress testing at least quarterly which includes systemic and idiosyncratic scenarios. Testing at the end of the third quarter of 2024 indicated that the Company demonstrates sufficient liquidity in most severe scenarios. At September 30, 2024, our liquidity position, considering both internal and external sources available, exceeded anticipated short-term and long-term needs.
 
Liquidity is measured using an approach designed to take into account core deposits, in addition to factors already discussed above. Management considers core deposits, defined to include all deposits other than brokered and outsourced deposits, to be a relatively stable funding source. Core deposits, which exclude brokered deposit relationships, equaled 94% of total deposits at September 30, 2024. At September 30, 2024, available unused liquidity, which consists of available FHLB borrowings, fed funds, funds through the Federal Reserve Bank's discount window, as well as excess cash and unpledged investment securities totaled $6.3 billion or 146% of uninsured deposits. Under the approach, implemented by the Funding and Liquidity Subcommittee of ALCO under formal policy guidelines, our liquidity position is measured weekly, looking forward at thirty day intervals from 30 to 360 days. The measurement is based upon the projection of funds sold or purchased position, along with ratios and trends developed to measure dependence on purchased funds and core growth. At September 30, 2024, our liquidity and funds availability provides it with the requisite flexibility in funding and other liquidity demands.
 
Our external sources of funds available that can be drawn upon when required are available lines of credit with the FHLB and the Federal Reserve Bank and correspondent banks. At September 30, 2024, we had the ability to pledge collateral at prevailing market rates under a line of credit with the FHLB of $3.4 billion. FHLB availability based on pledged collateral at September 30, 2024 amounted to $3.0 billion, with $450.0 million outstanding against it. The secured lines of credit at the Federal Reserve Bank and correspondent banks totaled $771.8 million, all of which was available for borrowing based on pledged collateral, with no borrowings against it as of September 30, 2024. In addition, we have federal funds borrowing capacity under unsecured lines of credit with correspondent banks of $829.0 million with no amount outstanding at September 30, 2024. Based upon its liquidity analysis, including external sources of liquidity available, management believes the liquidity position was appropriate at September 30, 2024.

Bancorp is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, Bancorp is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. Bancorp’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to Bancorp in any calendar year, without the receipt of prior approval from the Federal Reserve Bank, cannot exceed net income for that year to date period plus retained net income (as defined) for the preceding two calendar years. Quarterly, management evaluates the capacity to pay dividends under various stress scenarios and provides that recommendation to the Board of Directors. Based on this requirement, as of September 30, 2024, the Bank could have declared a dividend of up to $146.0 million to Bancorp. At September 30, 2024, Bancorp had liquid assets of $120.1 million.
 
Arrangements to fund credit products or guarantee financing take the form of loan commitments (including lines of credit on revolving credit structures) and letters of credit. Approvals for these arrangements are obtained in the same manner as loans. Generally, cash flows, collateral value and risk assessment are considered when determining the amount and structure of credit arrangements.
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Commitments to extend credit in the form of consumer, commercial real estate and business at the dates indicated were as follows:
(In thousands)September 30, 2024December 31, 2023
Commercial real estate development and construction$385,207 $572,540 
Residential real estate-development and construction665,021 713,903 
Real estate-residential mortgage26,479 16,608 
Lines of credit, principally home equity and business lines2,440,629 2,405,150 
Standby letters of credit89,735 71,817 
Total commitments to extend credit and available credit lines$3,607,071 $3,780,018 
 
Commitments to extend credit are agreements to provide financing to a customer with the provision that there are no violations of any condition established in the agreement. Commitments generally have interest rates determined by current market rates, expiration dates or other termination clauses and may require payment of a fee. Lines of credit typically represent unused portions of lines of credit that were provided and remain available as long as customers comply with the requisite contractual conditions. Commitments to extend credit are evaluated, processed and/or renewed regularly on a case by case basis, as part of the credit management process. The total commitment amount or line of credit amounts do not necessarily represent future cash requirements, as it is highly unlikely that all customers would draw on their lines of credit in full at one time.

As of September 30, 2024, the total reserve for unfunded commitments was $1.5 million and is accounted for in other liabilities in the Condensed Consolidated Statements of Financial Condition. See Note 1 – Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements for more information on the accounting policy for the allowance for unfunded commitments.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
See “Financial Condition - Market Risk Management” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, above, which is incorporated herein by reference.

Item 4. CONTROLS AND PROCEDURES
 
The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated as of the last day of the period covered by this report, the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
 
In the normal course of business, we become involved in litigation arising from the banking, financial and other activities we conduct. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising from these matters will have a material effect on our financial condition, operating results or liquidity.
 
Item 1A. Risk Factors
 
The most significant risk factors affecting our business include the factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2023 under Item 1A, “Risk Factors” and in the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements. Except as set forth below, there have been no material changes in the risk factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Risks Related to the Pending Merger with Atlantic Union

We and Atlantic Union have, and the combined company following the merger will, incur significant transaction and merger-related costs in connection with the transactions contemplated by the merger agreement.

We and Atlantic Union have incurred and expect to incur significant non-recurring costs associated with combining the operations of the Company with Atlantic Union’s operations. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employment-related costs, public company filing fees and other regulatory fees, printing costs, and other related costs. Additional unanticipated costs may be incurred in the integration of our business with the business of Atlantic Union, and there are many factors beyond our or Atlantic Union’s control that could affect the total amount or timing of integration costs. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

Whether or not the merger is consummated, we, Atlantic Union, and the combined company will incur substantial expenses in pursuing the merger and this may adversely impact our and the combined company’s earnings. Completion of the transactions contemplated by the merger agreement will be conditioned upon customary closing conditions, including the receipt of required governmental authorizations, consents, orders, and approvals, including approval by certain federal banking regulators. We and Atlantic Union intend to pursue all required approvals in accordance with the merger agreement. However, there can be no assurance that such approvals will be obtained without additional cost, on the anticipated timeframe, or at all.

Regulatory approvals for the merger and/or bank merger may not be received, may take longer than expected or may impose conditions that are not currently anticipated, cannot be met, or that could have an adverse effect on the combined company following the merger and/or bank merger.

Before the proposed merger and the bank merger may be completed, various approvals, consents, and non-objections must be obtained from bank regulatory authorities, including the Federal Reserve. In determining whether to grant these approvals, regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to any or all of the following: an adverse development in any party’s regulatory standing or any other factors considered by regulators in granting such approvals; governmental, political, or community group inquiries, investigations or opposition; or changes in legislation or the political or regulatory environment generally, including as a result of changes of the U.S. executive administration, or Congressional leadership and regulatory agency leadership.

Even if the approvals are granted, they may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations, or restrictions or that such conditions, limitations, obligations, or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reduce the anticipated benefits of the merger if the merger were completed successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, limitations, obligations, or restrictions will not result in the delay or abandonment of the merger. The completion of the merger is conditioned on the receipt of the requisite regulatory approvals without the imposition of any materially burdensome regulatory condition and the expiration of all statutory waiting periods. Additionally, the completion of the merger is conditioned on the absence of certain orders, injunctions, or decrees issued by any court or any governmental entity of
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competent jurisdiction that would prevent, prohibit, or make illegal the completion of the merger, the bank merger, or any of the other transactions contemplated by the merger agreement.

Despite the parties’ expected commitment to use their reasonable best efforts to respond to any request for information and resolve any objection that may be asserted by any governmental entity with respect to the merger agreement, neither party is required under the terms of the merger agreement to take any action, commit to take any action, or agree to any condition or restriction in connection with obtaining these approvals, that would reasonably be expected to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the proposed merger (measured on a scale relative only to the size of Bancorp and its subsidiaries, taken as a whole (without Atlantic Union and its subsidiaries)).

The merger agreement may be terminated in accordance with its terms and the merger may not be completed. Such failure to complete the transactions contemplated by the merger agreement could cause our results to be adversely affected, our stock price to decline, or have a material and adverse effect on our stock price and results of operations.

If the transactions contemplated by the merger agreement, including the merger, are not completed for any reason, including as a result of Atlantic Union’s shareholders failing to approve the merger agreement or the issuance of the shares of Atlantic Union common stock constituting the merger consideration, or our stockholders failing to approve the merger agreement, there may be various adverse consequences, and we and/or Atlantic Union may experience negative reactions from the financial markets and from our respective customers and employees. For example, either party’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of its management on the merger, without realizing any of the anticipated benefits of completing the merger. Moreover, our stock price may decline because costs related to such transactions, such as legal, accounting, and financial advisory fees, must be paid even if such transactions, including the merger, are not completed. Moreover, we may be required to pay a termination fee of $56.0 million to Atlantic Union upon a termination of the merger agreement in certain circumstances. In addition, if the transactions contemplated by the merger agreement are not completed, whether because of the failure to receive required regulatory approvals in a timely fashion or because one of the parties has breached its obligations in a way that permits Atlantic Union to terminate the merger agreement, or for any other reason, our stock price may decline to the extent that the current market price reflects a market assumption that the merger will be beneficial and will be completed. We and/or Atlantic Union also could be subject to litigation related to any failure to complete the merger or to proceedings commenced against either company to perform our obligations under the merger agreement.

The future results of the combined company following the merger may suffer if the combined company does not effectively manage its expanded operations.

Following the merger, the size of the business of the combined company will increase significantly beyond the current size of either our or Atlantic Union’s business. The combined company’s future success will depend, in part, upon its ability to manage this expanded business, which may pose challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. The combined company may also face increased scrutiny from governmental authorities as a result of the significant increase in the size of its business.

Both Atlantic Union Bank and the Bank are regulated and supervised by the Federal Reserve as well as the Consumer Financial Protection Bureau. In addition, at the state level, Atlantic Union Bank is chartered by the Commonwealth of Virginia and is supervised and regularly examined by the Bureau of Financial Institutions, a division of the Virginia State Corporation Commission, while the Bank is a state-chartered bank and trust company subject to supervision by the Office of Financial Regulation, part of the Maryland Department of Labor. The laws, regulations and regulatory guidance applicable to both banks will therefore differ in ways that may affect the operations of the combined company. Additionally, the internal policies of Atlantic Union Bank and the Bank with regards to their investment portfolios may differ on factors such as hold limits per bond issuer, life of the bond, or credit risk appetite. As a result, there are assets on the balance sheet of the Bank that the bank subsidiary of the combined company is not expected to hold, whether based on differences in regulatory oversight or internal policies, and Atlantic Union may dispose of such assets contemporaneous or subsequent to the closing of the merger. The disposition of certain assets in a high-interest rate environment, such as we have in the past experienced, are currently experiencing and may experience again in the future, could result in a sale of assets at a market price that is different than the estimated book value of such assets and impact regulatory capital ratios at the time of the closing of the merger. Further, Atlantic Union may replace such disposed assets with lower-yielding investments, any of which could impact its future earnings and return on equity.

There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings or other benefits currently anticipated from the merger.

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We and Atlantic Union will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees, customers (including depositors and borrowers), suppliers and vendors may have an adverse effect on us and Atlantic Union. These uncertainties may impair our and Atlantic Union’s ability to attract, retain and motivate key personnel and customers (including depositors and borrowers) until the merger is completed, as such personnel and customers may experience uncertainty about their future roles and relationships following the completion of the merger. Additionally, these uncertainties could cause customers and others that deal with us or Atlantic Union to seek to change existing business relationships with us or Atlantic Union or fail to extend an existing relationship with us or Atlantic Union, as applicable. Competitors may target each party’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger.

In addition, subject to certain exceptions, we and Atlantic Union have agreed to operate our respective businesses in the ordinary course consistent with past practice in all material respects before closing, and we and Atlantic Union have agreed not to take certain actions, which could cause us or Atlantic Union to be unable to pursue other beneficial opportunities that may arise before the completion of the merger.

Shareholder litigation could prevent or delay the completion of the merger or otherwise negatively impact our business, financial condition and results of operations.

Shareholders of Atlantic Union and/or stockholders of the Company may file lawsuits against Atlantic Union, the Company and/or the directors and officers of either company in connection with the merger. One of the conditions to the closing is that no law, order, injunction or decree issued by any court or governmental entity of competent jurisdiction that would prevent, prohibit or make illegal the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement be in effect. If any plaintiff were successful in obtaining an injunction prohibiting Atlantic Union or the Company from completing the merger, the bank merger or any of the other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in significant costs to either party, including any cost associated with the indemnification of its directors and officers. We and Atlantic Union may incur costs relating to the defense or settlement of any shareholder lawsuits filed in connection with the merger. Shareholder lawsuits may divert management attention from management of each company’s business or operations. Such litigation could have an adverse effect on such party’s business, financial condition and results of operations and could prevent or delay the completion of the merger.

The merger will not be completed unless important conditions are satisfied or waived, including approval of the merger agreement by Atlantic Union shareholders and Company stockholders and approval of the issuance of Atlantic Union shares in the merger by Atlantic Union shareholders.

Specified conditions set forth in the merger agreement must be satisfied or waived to complete the merger. If the conditions are not satisfied or, subject to applicable law, waived, the merger will not occur or will be delayed and each of Atlantic Union and us may lose some or all of the intended benefits of the merger.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
On March 30, 2022, our Board of Directors authorized a stock repurchase plan that permits the repurchase of up to $50.0 million of the Company's common stock. During 2022, the Company repurchased 625,710 shares of its common stock at an average price of $39.93 per share. The Company did not repurchase any shares of its common stock during 2023 or the nine months ended September 30, 2024. Under the current authorization, common stock with a total value of up to $25.0 million remains available to be repurchased.

Item 3. Defaults Upon Senior Securities – None
 

Item 4. Mine Safety Disclosures – Not applicable
 

Item 5. Other Information
During the fiscal quarter ended September 30, 2024, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K.

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Item 6. Exhibits
  
Exhibit 2.1
Exhibit 10.1
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)
Exhibit 101.SCH
XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB
XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104
Cover Page Interactive Data File (embedded within the Inline XBRL document)

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Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
SANDY SPRING BANCORP, INC.
(Registrant)
 
By: /s/ Daniel J. Schrider
Daniel J. Schrider
President and Chief Executive Officer
Date: November 8, 2024
By: /s/ Charles S. Cullum
Charles S. Cullum
Executive Vice President and Chief Financial Officer
Date: November 8, 2024

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