Bank First Corp

Previous wording

The Company accounted for this transaction under the acquisition method of accounting, and thus, the financial position and results of operations of Hometown prior to the consummation date are not included in the accompanying consolidated financial statements. The acquisition method of accounting required assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determines the fair value of core deposit intangibles, securities, premises and equipment, loans, other assets and liabilities, deposits and borrowings with the assistance of third-party valuations, appraisals, and third-party advisors. The estimated fair values are subject to refinement for up to one year after the consummation as additional information becomes available relative to the closing date fair values.

Current wording

The Company accounted for this transaction under the acquisition method of accounting, and thus, the financial position and results of operations of Hometown prior to the consummation date are not included in the accompanying consolidated financial statements. The acquisition method of accounting required assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determines the fair value of core deposit intangibles, securities, premises and equipment, loans, other assets and liabilities, deposits and borrowings with the assistance of third-party valuations, appraisals, and third-party advisors. The estimated fair values were subject to refinement for up to one year after the consummation as additional information becomes available relative to the closing date fair values.

Previous wording

Net interest and dividend income decreased by $1.3 million to $33.0 million for the three months ended June 30, 2024 comparedto $34.3 million for three months ended June 30, 2023. The decrease in net interest income was primarily due to increased cost of funding liabilities. The momentum of these increases has begun to slow while average rates on earned on interest-earning assets continued a steady move higher. Total average interest-earning assets were $3.70 billion for the three months ended June 30, 2024, up from $3.68 billion for the same period in 2023. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve.

Current wording

Net interest and dividend income increased by $1.8 million to $35.9 million for the three months ended September 30, 2024 compared to $34.1 million for three months ended September 30, 2023. The increase in net interest income was primarily due to repricing of new and renewed loans in a higher interest rate environment, as well as steady growth in interest-bearing assets. Total average interest-earning assets were $3.83 billion for the three months ended September 30, 2024, up from $3.67 billion for the same period in 2023. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve.

Previous wording

Interest Income. Total interest income increased $3.4 million, or 7.4%, to $49.3 million for the three months ended June 30, 2024 compared to $45.9 million for the same period in 2023. The increase in total interest income was primarily due to an increase in the average interest rate earned on interest-earning assets. The average balance of interest-earning assets increased by $13.0 million during the three months ended June 30, 2024 compared to the same period in 2023 and the average interest rate earned on these assets increased by 0.36% in the year-over-year second quarters.

Current wording

Interest Income. Total interest income increased $7.0 million, or 15.0%, to $54.0 million for the three months ended September 30, 2024 compared to $47.0 million for the same period in 2023. The increase in total interest income was primarily due to an increase in the average interest rate earned on interest-earning assets. The average balance of interest-earning assets increased by $162.3 million during the three months ended September 30, 2024 compared to the same period in 2023 and the average interest rate earned on these assets increased by 0.53% in the year-over-year third quarters. Further, a previously purchased loan with remaining

Previous wording

Interest Expense. Interest expense increased $4.7 million, or 40.2%, to $16.3 million for the three months ended June 30, 2024 compared to $11.7 million for the same period in 2023. The increase in interest expense was primarily due to higher crediting interest rates on interest-bearing liabilities.

Current wording

Interest Expense. Interest expense increased $5.2 million, or 40.4%, to $18.1 million for the three months ended September 30, 2024 compared to $12.9 million for the same period in 2023. The increase in interest expense was primarily due to higher crediting interest rates on interest-bearing liabilities.

Previous wording

Interest expense on interest-bearing deposits increased by $5.7 million to $15.8 million for the three months ended June 30, 2024 compared to $10.1 million for the same period in 2023. The average balance and cost of interest-bearing deposits was $2.42 billion and 2.63% for the three months ended June 30, 2024, compared to $2.32 billion and 1.74% for the same period in 2023.

Current wording

Interest expense on interest-bearing deposits increased by $4.9 million to $16.5 million for the three months ended September 30, 2024 compared to $11.6 million for the same period in 2023. The average balance and rate of interest-bearing deposits was $2.44 billion and 2.69% for the three months ended September 30, 2024, compared to $2.32 billion and 1.99% for the same period in 2023.

Previous wording

We did not record a provision for credit loss during the three months ended June 30, 2024 or 2023. Economic forecasts, primarily US gross domestic product and unemployment projections, were little changed during the second quarter of 2024 resulting in consistent economic and qualitative factors in the Current Expected Credit Losses (“CECL”) methodology. We recorded net recoveries of $0.2 million during the three months ended June 30, 2024 compared to net recoveries of $0.1 million during the three months ended June 30, 2023. Metrics regarding the credit quality of the Bank’s loan portfolio continue to show very little in terms of stress. Also, due to a reduction in unfunded loan commitments and an increase in outstanding loans, the Bank moved $0.5 million from its ACL-Unfunded Commitments to its ACL – Loans during the second quarter of 2024. While this move had no impact on the Bank’s profitability for the quarter, it did increase the allowance for potential loan credit losses to correspond with the increase in overall loan portfolio balances. The ACL - Loans was $45.1 million, or 1.32% of total loans, at June 30, 2024 compared to $43.4 million, or 1.31% of total loans at June 30, 2023.

Current wording

We did not record a provision for credit loss during the three months ended September 30, 2024 or 2023. Economic forecasts, primarily US gross domestic product and unemployment projections, were little changed during the third quarter of 2024 resulting in consistent economic and qualitative factors in the Current Expected Credit Losses (“CECL”) methodology. We recorded net charge offs of $0.3 million during the three months ended September 30, 2024 compared to net recoveries of $0.1 million during the three months ended September 30, 2023. Other than a $0.3 million charge-off during the third quarter of 2024, related to a single customer relationship, the Bank’s loan portfolio continues to exhibit very little credit stress. Due to a reduction in unfunded loan commitments and an increase in outstanding loans, the Bank moved $0.4 million from its ACL-Unfunded Commitments to its ACL – Loans during the third quarter of 2024. While this move had no impact on the Bank’s profitability for the quarter, it did increase the allowance for potential loan credit losses to correspond with the increase in overall loan portfolio balances. The ACL - Loans was $45.2 million, or 1.30% of total loans, at September 30, 2024 compared to $43.4 million, or 1.29% of total loans at September 30, 2023.

Previous wording

Noninterest income increased $1.3 million to $5.9 million for the three months ended June 30, 2024 compared to$4.6 million for the same period in 2023. Due to the sale of 100% of the Bank’s member interest in UFS on October 1, 2023, no income from UFS was recorded in the second quarter of 2024, compared to income of $0.8 million during the second quarter of 2023. Service charges increased by 19.0% from the prior-year second quarter primarily due to a recently negotiated vendor incentive program related to the Bank’s credit and debit card payments processing. Positive valuation adjustments to the Bank’s MSRs totaling $0.3 million during the second quarter of 2024 compared favorably to $0.5 million in negative valuation adjustments during the second quarter of 2023.

Current wording

Noninterest income decreased $0.4 million to $4.9 million for the three months ended September 30, 2024 compared to$5.3 million for the same period in 2023. Service charges increased by 20.0% from the prior-year third quarter primarily due to prepayment and referral fees on loans. Net gains on the sales of mortgage loans increased by 52.0% from the third quarter of 2023 to the third quarter of 2024, attributed to a rise in secondary market loan origination activity resulting from declining interest rates. Due to the sale of 100% of the Bank’s member interest in UFS on October 1, 2023, no income from UFS was recorded in the third quarter of 2024, compared to income of $0.8 million during the third quarter of 2023. Negative valuation adjustments to the Bank’s MSRs totaling $0.3 million during the third quarter of 2024 compared unfavorably to $0.2 million in positive valuation adjustments during the third quarter of 2023.

Previous wording

Results of Operations for the Six months Ended June 30, 2024 and June 30, 2023

Current wording

Results of Operations for the Nine Months Ended September 30, 2024 and September 30, 2023

Previous wording

General**.** Net income increased $6.7 million to $31.5 million for six months ended June 30, 2024, comparedto $24.8 million for the same period in 2023. This increase was partially due to the added scale of operations resulting from the Hometown acquisition during the first quarter of 2023. The first six months of 2023 was also negatively impacted by $1.5 million in acquisition expenses and a $3.6 million provision for credit losses related to the acquired loans from Hometown. Offsetting these factors was the absence of income from UFS during the first six months of 2024 compared to $1.7 million in income provided by UFS during the first six months of 2023.

Current wording

General**.** Net income increased $8.4 million to $48.0 million for nine months ended September 30, 2024, comparedto $39.6 million for the same period in 2023. This increase was partially due to the added scale of operations resulting from the Hometown acquisition during the first quarter of 2023. Further, average rates on interest-earning assets have consistently risen, while the rise in rates paid on deposit accounts has started to decelerate. The first nine months of 2023 was also negatively impacted by $1.8 million in acquisition expenses and a $3.6 million provision for credit losses related to the acquired loans from Hometown. The absence of income from UFS during the first nine months of 2024 compared to $2.4 million in income provided by UFS during the first nine months of 2023.

Previous wording

Net interest and dividend income decreased by $0.1 million to $66.4 million for the six months ended June 30, 2024 compared to $66.5 million for six months ended June 30, 2023. The decrease in net interest income was primarily due to increases in rates paid on interest-bearing liabilities outpacing increasing rates earned on interest-earning assets over the last twelve months. Comparing the first six months of 2024 to the first six months of 2023, rates earned on interest-earning assets increased by 0.48% while rates paid on interest-bearing liabilities increased by 0.89%. Tax equivalent net interest margin decreased 0.14% to 3.62% for the six months ended June 30, 2024, down from 3.76% for the same period in 2023. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve.

Current wording

Net Interest Income**.** Net interest and dividend income increased by $1.6 million to $102.2 million for the nine months ended September 30, 2024 compared to $100.6 million for nine months ended September 30, 2023. As discussed earlier, the rise in net interest income was mainly driven by the repricing of new and renewed loans in a higher interest rate environment and overall growth in interest-earning assets. Comparing the first nine months of 2024 to the first nine months of 2023, rates earned on interest-earning assets increased by 0.49% while rates paid on interest-bearing liabilities increased by 0.81%. Tax equivalent net interest margin decreased 0.07% to 3.67% for the nine months ended September 30, 2024, down from 3.74% for the same period in 2023. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve.

Previous wording

Interest Income. Total interest income increased $11.8 million, or 13.6%, to $98.6 million for the six months ended June 30, 2024 compared to $86.8 million for the same period in 2023. The increase in total interest income was primarily due to the aforementioned increase in rates earned on interest-earning assets over the last twelve months. The average balance of interest-earning assets increased by $114.5 million during the first six months of 2024 compared to the same period in 2023 and the average interest rate earned on these assets increased from 4.89% for the first half of 2023 to 5.37% during the first half of 2024.

Current wording

Interest Income. Total interest income increased $18.9 million, or 14.1%, to $152.7 million for the nine months ended September 30, 2024 compared to $133.8 million for the same period in 2023. The increase in total interest income was primarily due to the aforementioned increase in rates earned on interest-earning assets over recent quarters. The average balance of interest-earning assets increased by $130.5 million during the first nine months of 2024 compared to the same period in 2023 and the average interest rate earned on these assets increased from 4.97% for the first three quarters of 2023 to 5.46% during the first three quarters of 2024.

Previous wording

Interest Expense. Interest expense increased $11.9 million, or 58.7%, to $32.3 million for the six months ended June 30, 2024 compared to $20.3 million for the same period in 2023. The increase in interest expense was primarily due to elevated crediting rates on interest-bearing liabilities. The average balance of interest-bearing liabilities increased by $103.2 million during the first six months of 2024 compared to the same period in 2023 and the average interest rate paid on these balances was 1.72% for the first half of 2023 compared to 2.61% for the first half of 2024.

Current wording

Interest Expense. Interest expense increased $17.1 million, or 51.6%, to $50.4 million for the nine months ended September 30, 2024 compared to $33.3 million for the same period in 2023. The increase in interest expense was primarily due to elevated crediting rates on interest-bearing liabilities. The average balance of interest-bearing liabilities increased by $126.4 million during the first nine months of 2024 compared to the same period in 2023 and the average interest rate paid on these balances was 1.86% for the first three quarters of 2023 compared to 2.67% for the first three quarters of 2024.

Previous wording

Interest expense on interest-bearing deposits totaled $31.2 million and $17.5 million for the six months ended June 30, 2024 and 2023, respectively. The average cost of interest-bearing deposits was 2.57% for the six months ended June 30, 2024, compared to 1.55% for the same period in 2023.

Current wording

Interest expense on interest-bearing deposits totaled $47.7 million and $29.2 million for the nine months ended September 30, 2024 and 2023, respectively. The average cost of interest-bearing deposits was 2.61% for the nine months ended September 30, 2024, compared to 1.70% for the same period in 2023.

Previous wording

We recorded a provision for credit losses of $0.2 million for the six months ended June 30, 2024 compared to $4.2 million for the same period in 2023. The increased provision for the first six months of 2023 was primarily related to loans acquired from Hometown. We recorded net recoveries of $0.8 million for the six months ended June 30, 2024 compared to net recoveries of $0.1 million for the same period in 2023. The ACL was $45.1 million, or 1.32% of total loans, at June 30, 2024 compared to $43.4 million, or 1.31% of total loans at June 30, 2023.

Current wording

Provision for Credit Losses. We recorded a provision for credit losses of $0.2 million for the nine months ended September 30, 2024 compared to $4.2 million for the same period in 2023. The increased provision for the first nine months of 2023 was primarily related to loans acquired from Hometown. We recorded net recoveries of $0.5 million for the nine months ended September 30, 2024 compared to net recoveries of $0.1 million for the same period in 2023. Also, due to a reduction in unfunded loan commitments and an increase in outstanding loans, the Bank moved $0.9 million from its ACL-Unfunded Commitments to its ACL – Loans during the first nine months of 2024. The ACL was $45.2 million, or 1.30% of total loans, at September 30, 2024 compared to $43.4 million, or 1.29% of total loans at September 30, 2023.

Previous wording

Noninterest income decreased $0.1 million to $10.3 million for the six months ended June 30, 2024 compared to $10.4 million for the same period in 2023. While total noninterest income was little changed in the year-over-year first six months, components of noninterest income did show variability. Service charges and income provided by the Bank’s member interest in Ansay increased $0.4 million and $0.3 million, respectively, for the first six months of 2024 compared to the same period in 2023. Offsetting these increases, the sale of 100% of the Bank’s member interest in UFS on October 1, 2023, lead to no income from UFS being recorded in the half of 2024, compared to income of $1.7 million during the second quarter of 2023.

Current wording

Noninterest income decreased $0.5 million to $15.2 million for the nine months ended September 30, 2024 compared to $15.7 million for the same period in 2023. Service charges and income provided by the Bank’s member interest in Ansay increased $0.7 million and $0.6 million, respectively, for the first nine months of 2024 compared to the same period in 2023. Offsetting these increases, the sale of 100% of the Bank’s member interest in UFS on October 1, 2023, lead to no income from UFS being recorded in the first three quarters of 2024, compared to income of $2.4 million during the first three quarters of 2023. Negative valuation

Previous wording

Noninterest Expense. Noninterest expense decreased $0.2 million to $39.4 million for the six months ended June 30, 2024 compared to $39.6 million for the same period in 2023. Data processing expense increased by $0.5 million, or 13.8%, over the first half of 2024 compared to the first half of 2023 due to added scale from the acquisition of Hometown, which occurred during the first half of 2023. Expenses related to this acquisition totaled $1.5 million during the first half of 2023. The lack of a similar acquisition during the first half of 2024 caused decreases in the areas of postage, stationary, supplies and outside service fees expense period-over-period. Finally, gains on sales and valuations of OREO totaling $0.5 million during the first half of 2024 compared favorably to losses of $0.5 million during the first half of 2023.

Current wording

Noninterest Expense. Noninterest expense increased $0.2 million to $59.5 million for the nine months ended September 30, 2024 compared to $59.3 million for the same period in 2023. Data processing expense increased by $0.9 million, or 14.6%, over the first three quarters of 2024 compared to the first three quarters of 2023 due to the aforementioned project-related costs for upgrading the Bank’s online customer platform and the increased scale from the acquisition of Hometown, completed in February of 2023. Expenses related to this acquisition totaled $1.8 million during the first nine months of 2023. The lack of a similar acquisition during the first three quarters of 2024 caused decreases in the areas of postage, stationary, supplies and outside service fees expense period-over-period. Finally, gains on sales and valuations of OREO totaling $0.5 million during the first three quarters of 2024 compared favorably to losses of $0.5 million during the first three quarters of 2023.

Previous wording

Income Tax Expense. We recorded a provision for income taxes of $5.6 million for the six months ended June 30, 2024 compared to a provision of $8.3 million for the same period during 2023, reflecting effective tax rates of 15.1% and 25.1%, respectively. On July 5, 2023, Wisconsin passed its 2023 state budget which included a provision exempting income earned from certain commercial loans of $5.0 million or less from state taxability. As a result of this legislation, income from a significant portion of the Company’s loans will no longer be subject to taxation in its home state. Final rules relating to qualifying loans under this legislation were not published until the first quarter of 2024. Based on these final rules, the Company was able to further reduce its estimated tax liability from 2023 by $1.3 million, resulting in the lower provision for income taxes and effective tax rate during the first half of 2024. The effective tax rates were reduced from the statutory federal and state income tax rates during both periods as a result of tax-exempt interest income produced by certain qualifying loans and investments in the Bank’s portfolios.

Current wording

Income Tax Expense. We recorded a provision for income taxes of $9.7 million for the nine months ended September 30, 2024 compared to a provision of $13.2 million for the same period during 2023, reflecting effective tax rates of 16.8% and 24.9%, respectively. As previously noted, the Company’s home state passed tax legislation during the third quarter of 2023 which exempted income from a significant portion of the Company’s loans from taxation in Wisconsin. As a result of the lower anticipated future effective tax rate, the Company determined that a $2.9 million allowance was required to be made against its deferred tax asset during the third quarter of 2023. . Final rules relating to qualifying loans under this legislation were not published until the first quarter of 2024. Based on these final rules, the Company was able to further reduce its estimated tax liability from 2023 by $1.3 million, resulting in the lower provision for income taxes and effective tax rate during the first nine months of 2024. The effective tax rates were reduced from the statutory federal and state income tax rates during both periods as a result of tax-exempt interest income produced by certain qualifying loans and investments in the Bank’s portfolios.

Previous wording

Total Assets. Total assets decreased $76.0 million, or 1.8%, to $4.15 billion at June 30, 2024, from $4.22 billion at December 31, 2023.

Current wording

Total Assets. Total assets increased $72.6 million, or 1.7%, to $4.29 billion at September 30, 2024, from $4.22 billion at December 31, 2023.

Previous wording

Cash and Cash Equivalents. Cash and cash equivalents decreased by $148.5 million to $99.0 million at June 30, 2024, from $247.5 million at December 31, 2023. This decline was primarily the result of funds being invested in growth in the Bank’s loan portfolio as well as a reduction in deposits and securities sold under repurchase agreements. Securities sold under repurchase agreements reported in prior periods related to one customer who discontinued this arrangement during the first quarter of 2024. These declines were partially offset by increases in notes payable through the first half of 2024.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents decreased by $43.1 million to $204.4 million at September 30, 2024, from $247.5 million at December 31, 2023. This decline was primarily the result of funds being invested in growth in the Bank’s loan portfolio as well as a reduction in deposits and securities sold under repurchase agreements. Securities sold under repurchase agreements reported in prior periods related to one customer who discontinued this arrangement during the first quarter of 2024. These declines were partially offset by increases in notes payable through the first nine months of 2024.

Previous wording

Investment Securities. The carrying value of total investment securities decreased by $6.9 million to $238.6 million at June 30, 2024, from $245.5 million at December 31, 2023.

Current wording

Investment Securities. The carrying value of total investment securities decreased by $7.8 million to $237.7 million at September 30, 2024, from $245.5 million at December 31, 2023.

Previous wording

Loans. Net loans increased by $84.2 million, totaling $3.38 billion at June 30, 2024 compared to $3.30 billion at December 31, 2023.

Current wording

Loans. Net loans increased by $126.3 million, totaling $3.43 billion at September 30, 2024 compared to $3.30 billion at December 31, 2023.

Previous wording

Borrowings. At June 30, 2024, borrowings consisted of advances from the FHLB of Chicago and subordinated debt to other banks and an individual. FHLB borrowings increased $55.1 million, or 156.1%, to $90.3 million at June 30, 2024 from $35.3 million at December 31, 2023. These additional borrowings are intended to provide liquidity to support near-term loan growth. Subordinated debt remained stable at $12.0 million at June 30, 2024 and December 31, 2023. A junior subordinated debenture totaling $4.1 million, which was part of the acquisition of Hometown, was repaid in full during the first quarter of 2024.

Current wording

Borrowings. At September 30, 2024, borrowings consisted of advances from the FHLB of Chicago and subordinated debt to other banks and an individual. FHLB borrowings increased $100.0 million, or 283.7%, to $135.3 million at September 30, 2024 from $35.3 million at December 31, 2023. These additional borrowings are intended to provide liquidity to support near-term loan growth. Subordinated debt remained stable at $12.0 million at September 30, 2024 and December 31, 2023. A junior subordinated debenture totaling $4.1 million, which was part of the acquisition of Hometown, was repaid in full during the first quarter of 2024.

Previous wording

Stockholders’ Equity. Total stockholders’ equity decreased $5.2 million, or 0.8%, to $614.6 million at June 30, 2024 from $619.8 million at December 31, 2023. Repurchases of the Company’s common stock totaling $30.2 million and dividends declared totaling $7.1 million offset the positive impact of earnings totaling $31.5 million during the first six months of the year.

Current wording

Stockholders’ Equity. Total stockholders’ equity increased $9.1 million, or 1.5%, to $628.9 million at September 30, 2024 from $619.8 million at December 31, 2023. Repurchases of the Company’s common stock totaling $31.7 million and dividends declared totaling $11.1 million offset the positive impact of earnings totaling $48.0 million during the first nine months of the year.

Previous wording

Our loan portfolio is our most significant earning asset, comprising 82.7% and 79.2% of our total assets as of June 30, 2024 and December 31, 2023, respectively. Our strategy is to grow our loan portfolio by originating quality commercial and consumer loans that comply with our credit policies and that produce revenues consistent with our financial objectives. We believe our loan portfolio is well-balanced, which provides us with the opportunity to grow while monitoring our loan concentrations.

Current wording

Our loan portfolio is our most significant earning asset, comprising 80.9% and 79.2% of our total assets as of September 30, 2024 and December 31, 2023, respectively. Our strategy is to grow our loan portfolio by originating quality commercial and consumer loans that comply with our credit policies and that produce revenues consistent with our financial objectives. We believe our loan portfolio is well-balanced, which provides us with the opportunity to grow while monitoring our loan concentrations.

Previous wording

Loans increased $85.7 million, or 2.6%, to $3.43 billion as of June 30, 2024 as compared to $3.34 billion as of December 31, 2023. This increase during the first six months of 2024 was primarily driven by solid demand for new credit from our existing customer relationships. This growth was comprised of an increase of $19.5 million or 4.0% in commercial and industrial loans, an increase of $25.9 million or 2.9% in owner occupied commercial real estate loans, stable non-owner occupied commercial real estate and multi-family loans, an increase of $29.1 million or 14.5% in construction and development loans, an increase of $8.4 million or 1.0% in residential 1-4 family loans and an increase of $2.0 million in consumer and other loans.

Current wording

Loans increased $127.9 million, or 3.8%, to $3.47 billion as of September 30, 2024 as compared to $3.34 billion as of December 31, 2023. This increase during the first nine months of 2024 was primarily driven by solid demand for new credit from our existing customer relationships. This growth was comprised of an increase of $29.9 million or 6.1% in commercial and industrial loans, an increase of $44.1 million or 4.9% in owner occupied commercial real estate loans, a decrease of $9.0 million or 1.9% in non-owner occupied commercial real estate, a decrease of $3.3 million or 1.0% in multi-family loans, an increase of $45.6 million or 22.7% in construction and development loans, an increase of $15.6 million or 1.8% in residential 1-4 family loans and an increase of $4.9 million or 7.5% in consumer and other loans.

Previous wording

Our directors and officers and their associates are customers of, and have other transactions with, the Bank in the normal course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collection or present other unfavorable features. At June 30, 2024 and December 31, 2023, total loans outstanding to such directors and officers and their associates were $75.7 million and $63.9 million, respectively. During the six months ended June 30, 2024, $16.4 million in additions due to director and officer updates, $5.5 million of additions and $10.1 million of repayments were made to these loans. At June 30, 2024 and December 31, 2023, all of the loans to directors and officers were performing according to their original terms.

Current wording

Our directors and officers and their associates are customers of, and have other transactions with, the Bank in the normal course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collection or present other unfavorable features. At September 30, 2024 and December 31, 2023, total loans outstanding to such directors and officers and their associates were $79.8 million and $63.9 million, respectively. During the nine months ended September 30, 2024, $17.7 million in additions due to director and officer updates, $41.9 million of additions and $43.7 million of repayments were made to these loans. At September 30, 2024 and December 31, 2023, all of the loans to directors and officers were performing according to their original terms.

Previous wording

Commercial and Industrial (C&I). Our C&I portfolio totaled $507.4 million and $487.9 million at June 30, 2024 and December 31, 2023, respectively, and represented 15% of our total loans at both of those dates.

Current wording

Commercial and Industrial (C&I). Our C&I portfolio totaled $517.8 million and $487.9 million at September 30, 2024 and December 31, 2023, respectively, and represented 15% of our total loans at both of those dates.

Previous wording

Commercial Real Estate (CRE). Our CRE loan portfolio totaled $1.73 billion and $1.70 billion at June 30, 2024 and December 31, 2023, respectively, and represented 51% of our total loans at both of those dates. The growth in our CRE loan portfolio through the first six months of 2024 consisted primarily of owner occupied commercial real estate while nonowner occupied commercial real estate and multi-family real estate, typically perceived as containing a higher risk of credit losses, remained stable. Management views owner occupied CRE as an extension of C&I lending as typically the primary repayment source on these loans is operating profits from the underlying business.

Current wording

Commercial Real Estate (CRE). Our CRE loan portfolio totaled $1.73 billion and $1.70 billion at September 30, 2024 and December 31, 2023, respectively, and represented 50% of our total loans at both of those dates. The growth in our CRE loan portfolio through the first nine months of 2024 consisted primarily of owner occupied commercial real estate while non-owner occupied commercial real estate and multi-family real estate, typically perceived as containing a higher risk of credit losses, declined slightly. Management views owner occupied CRE as an extension of C&I lending as typically the primary repayment source on these loans is operating profits from the underlying business.

Previous wording

Our CRE loans are secured by a variety of property types including multifamily dwellings, retail facilities, office buildings, commercial mixed use, lodging and industrial and warehouse properties. We do not have any specific industry or customer concentrations in our CRE portfolio. Our commercial real estate loans are generally for terms up to ten years, with loan-to-values that generally do not exceed 80%. Amortization schedules are long term and thus a balloon payment is generally due at maturity. Under most circumstances, the Bank will offer to rewrite or otherwise extend the loan at prevailing interest rates.

Current wording

Our CRE loans are secured by a variety of property types including multi-family dwellings, retail facilities, office buildings, commercial mixed use, lodging and industrial and warehouse properties. We do not have any specific industry or customer concentrations in our CRE portfolio. Our commercial real estate loans are generally for terms up to ten years, with loan-to-values that generally do not exceed 80%. Amortization schedules are long term and thus a balloon payment is generally due at maturity. Under most circumstances, the Bank will offer to rewrite or otherwise extend the loan at prevailing interest rates.

Previous wording

Construction and Development (C&D). Our C&D loan portfolio totaled $229.9 million and $200.8 million at June 30, 2024 and December 31, 2023, respectively, and represented 7% and 6% of our total loans at June 30, 2024 and December 31, 2023, respectively. It is typical for our C&D loans to increase through the middle of each year as this represents the primary construction season in our operating markets.

Current wording

Construction and Development (C&D). Our C&D loan portfolio totaled $246.4 million and $200.8 million at September 30, 2024 and December 31, 2023, respectively, and represented 7% and 6% of our total loans at September 30, 2024 and December 31, 2023, respectively.

Previous wording

Residential 1 – 4 Family. Residential 1 – 4 family loans held in portfolio amounted to $897.1 million and $888.6 million at June 30, 2024 and December 31, 2023, respectively, and represented 26% and 27% of our total loans at those dates.

Current wording

Residential 1 – 4 Family. Residential 1 – 4 family loans held in portfolio amounted to $904.3 million and $888.6 million at September 30, 2024 and December 31, 2023, respectively, and represented 26% and 27% of our total loans at those dates.

Previous wording

We were servicing mortgage loans sold to others without recourse of approximately $1.16 billion at June 30, 2024 and $1.18 billion at December 31, 2023.

Current wording

We were servicing mortgage loans sold to others without recourse of approximately $1.17 billion at September 30, 2024 and $1.18 billion at December 31, 2023.

Previous wording

Loans sold with the retention of servicing assets result in the capitalization of servicing rights. Loan servicing rights are carried at fair value. The net balance of capitalized servicing rights amounted to $13.7 million at June 30, 2024 and December 31, 2023.

Current wording

Loans sold with the retention of servicing assets result in the capitalization of servicing rights. Loan servicing rights are carried at fair value. The net balance of capitalized servicing rights amounted to $13.4 million and $13.7 million at September 30, 2024 and December 31, 2023, respectively.

Previous wording

Consumer Loans. Our consumer loan portfolio totaled $53.2 million and $51.0 million at June 30, 2024 and December 31, 2023, respectively, and represented 1% of our total loans at those dates. Consumer loans include secured and unsecured loans, lines of credit and personal installment loans.

Current wording

Consumer Loans. Our consumer loan portfolio totaled $55.6 million and $51.0 million at September 30, 2024 and December 31, 2023, respectively, and represented 2% of our total loans at those dates. Consumer loans include secured and unsecured loans, lines of credit and personal installment loans.

Previous wording

Other Loans. Our other loans totaled $14.8 million and $15.0 million at June 30, 2024 and December 31, 2023, respectively, and are immaterial to the overall loan portfolio. The other loans category consists primarily of over-drafted depository accounts, loans utilized to purchase or carry securities and loans to nonprofit organizations.

Current wording

Other Loans. Our other loans totaled $15.2 million and $15.0 million at September 30, 2024 and December 31, 2023, respectively, and are immaterial to the overall loan portfolio. The other loans category consists primarily of over-drafted depository accounts, loans utilized to purchase or carry securities and loans to nonprofit organizations.

Previous wording

Loans are typically placed on nonaccrual status when any payment of principal and/or interest is 90 days or more past due, unless the collateral is sufficient to cover both principal and interest and the loan is in the process of collection. Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions, that the principal or interest will not be collectible in the normal course of business. We monitor closely the performance of our loan portfolio. In addition to the monitoring and review of loan performance internally, we have also contracted with an independent organization to review our commercial and retail loan portfolios. The status of delinquent loans, as well as situations identified as potential problems, is reviewed on a regular basis by senior management. The increase in nonaccrual loans during the first six months of 2024 primarily related to one customer relationship, acquired as part of the Hometown acquisition, that was moved from accrual status during the first quarter.

Current wording

Loans are typically placed on nonaccrual status when any payment of principal and/or interest is 90 days or more past due, unless the collateral is sufficient to cover both principal and interest and the loan is in the process of collection. Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions, that the principal or interest will not be collectible in the normal course of business. We monitor closely the performance of our loan portfolio. In addition to the monitoring and review of loan performance internally, we have also contracted with an independent organization to review our commercial and retail loan portfolios. The status of delinquent loans, as well as situations identified as potential problems, are reviewed on a regular basis by senior management. The increase in nonaccrual loans during the first nine months of 2024 primarily related to one customer relationship, acquired as part of the Hometown acquisition, that was moved from accrual status during the first quarter.

Previous wording

For further details on the Company’s ACL – Loans, refer to the footnotes pretend along with the consolidated financial statements elsewhere in this report.

Current wording

For further details on the Company’s ACL – Loans, refer to the footnotes along with the consolidated financial statements elsewhere in this report.

Previous wording

At June 30, 2024, the ACL - Loans was $45.1 million (representing 1.32% of period end loans). The ACL – Loans has remained consistent over recent quarters as economic conditions and the Company’s overall asset quality remain strong. The Company recorded net recoveries totaling $0.8 million during the first half of 2024.

Current wording

At September 30, 2024, the ACL - Loans was $45.2 million (representing 1.30% of period end loans). The ACL– Loans has remained consistent over recent quarters as economic conditions and the Company’s overall asset quality remain strong. As previously mentioned, the Bank reallocated $0.9 million of ACL from unfunded commitments to ACL for loans in response to a decrease in unfunded loan commitments and an increase in loan balances. The Company recorded net recoveries totaling $0.5 million during the first nine months of 2024.

Previous wording

Deposits. Our current deposit products include non-interest bearing and interest-bearing checking accounts, savings accounts, money market accounts, and certificate of deposits. As of June 30, 2024, deposit liabilities accounted for approximately 82.0% of our total liabilities and equity. We accept deposits primarily from customers in the communities in which our branches and offices are located, as well as from small businesses and other customers throughout our lending area. We rely on our competitive pricing and products, quality customer service, and convenient locations and hours to attract and retain deposits. Deposit rates and terms are based primarily on current business strategies, market interest rates, liquidity requirements and our deposit growth goals.

Current wording

Deposits. Our current deposit products include non-interest bearing and interest-bearing checking accounts, savings accounts, money market accounts, and certificate of deposits. As of September 30, 2024, deposit liabilities accounted for approximately 81.1% of our total liabilities and equity. We accept deposits primarily from customers in the communities in which our branches and offices are located, as well as from small businesses and other customers throughout our lending area. We rely on our competitive pricing and products, quality customer service, and convenient locations and hours to attract and retain deposits. Deposit rates and terms are based primarily on current business strategies, market interest rates, liquidity requirements and our deposit growth goals.

Previous wording

Total deposits were $3.40 billion and $3.43 billion as of June 30, 2024 and December 31, 2023, respectively. Noninterest-bearing deposits at June 30, 2024 and December 31, 2023, were $975.8 million and $1.05 billion, respectively, while interest-bearing deposits were $2.42 billion and $2.38 billion at June 30, 2024 and December 31, 2023, respectively. Like most in the banking industry, the Bank has seen a shift in its deposit portfolio from noninterest-bearing deposits to interest-bearing deposits as prevailing interest rates have increased over the last several quarters.

Current wording

Total deposits were $3.48 billion and $3.43 billion as of September 30, 2024 and December 31, 2023, respectively. Noninterest-bearing deposits at September 30, 2024 and December 31, 2023, were $1.02 billion and $1.05 billion, respectively, while interest-bearing deposits were $2.46 billion and $2.38 billion at September 30, 2024 and December 31, 2023, respectively. Like most in the banking industry, the Bank has seen a shift in its deposit portfolio from noninterest-bearing deposits to interest-bearing deposits as prevailing interest rates have increased over the last several quarters.