INDEPENDENT BANK CORP MI

Previous wording

Recent Developments. Pressures from various global and national macroeconomic conditions, including heightened inflation, uncertainty regarding future interest rates, foreign currency exchange rate fluctuations, recent adverse weather conditions, escalating tensions in the Middle East, the continuation of the Russia-Ukraine war, and potential governmental responses to these events, continue to create significant economic uncertainty. The extent to which these pressures may impact our business, results of operations, asset valuations, financial condition, and customers will depend on future developments, which continue to be highly uncertain and difficult to predict. Material adverse impacts may include all or a combination of valuation impairments on our intangible assets, securities available for sale ("AFS"), securities held to maturity ("HTM"), loans, capitalized mortgage loan servicing rights or deferred tax assets.

Current wording

Recent Developments. Pressures from various global and national macroeconomic conditions, including heightened inflation, uncertainty regarding future interest rates, foreign currency exchange rate fluctuations, recent adverse weather conditions, the continuation of the Russia-Ukraine and Israel-Hamas wars, and potential governmental responses to these events, continue to create significant economic uncertainty. The extent to which these pressures may impact our business, results of operations, asset valuations, financial condition, and customers will depend on future developments, which continue to be highly uncertain and difficult to predict. Material adverse impacts may include all or a combination of valuation impairments on our intangible assets, securities available for sale ("AFS"), securities held to maturity ("HTM"), loans, capitalized mortgage loan servicing rights or deferred tax assets.

Previous wording

It is against this backdrop that we discuss our results of operations and financial condition for the first quarter of 2024 as compared to earlier periods.

Current wording

It is against this backdrop that we discuss our results of operations and financial condition for the second quarter of 2024 as compared to earlier periods.

Previous wording

Summary. We recorded net income of $16.0 million and $13.0 million during the three months ended March 31, 2024 and 2023, respectively. The increase in 2024 first quarter results as compared to 2023 is due to increases in net interest income and non-interest income that were partially offset by increases in non-interest expense and income tax expense.

Current wording

Summary. We recorded net income of $18.5 million and $14.8 million during the three months ended June 30, 2024 and 2023, respectively. The increase in 2024 second quarter results as compared to 2023 is due to an increase in net interest income and a decrease in the provision for credit losses that were partially offset by increases in non-interest expense and income tax expense and a decrease in non-interest income.

Previous wording

Net interest income. Net interest income is the most important source of our earnings and thus is critical in evaluating our results of operations. Changes in our net interest income are primarily influenced by our level of interest-earning assets and the income or yield that we earn on those assets and the manner and cost of funding our interest-earning assets. Certain macro-economic factors can also influence our net interest income such as the level and direction of interest rates, the difference between short-term and long-term interest rates (the steepness of the yield curve) and the general strength of the economies in which we are doing business. Finally, risk management plays an important role in our level of net interest income. The ineffective management of credit risk and interest-rate risk in particular can adversely impact our net interest income.

Current wording

the income or yield that we earn on those assets and the manner and cost of funding our interest-earning assets. Certain macro-economic factors can also influence our net interest income such as the level and direction of interest rates, the difference between short-term and long-term interest rates (the steepness of the yield curve) and the general strength of the economies in which we are doing business. Finally, risk management plays an important role in our level of net interest income. The ineffective management of credit risk and interest-rate risk in particular can adversely impact our net interest income.

Previous wording

Our net interest income totaled $40.2 million during the first quarter of 2024, an increase of $1.8 million, or 4.6% from the year-ago period. This increase primarily reflects a $213.9 million increase in average interest-earning assets that was partially offset by a two basis point decrease in our tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”).

Current wording

Our net interest income totaled $41.3 million during the second quarter of 2024, an increase of $3.0 million, or 7.8% from the year-ago period. This increase primarily reflects a $130.0 million increase in average interest-earning assets and a 16 basis point increase in our tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”).

Previous wording

The increase in average interest-earning assets in 2024 as compared to 2023 primarily reflects growth in commercial and mortgage loans funded from an increase in deposits.

Current wording

The increase in average interest-earning assets in both the three and six month periods in 2024 as compared to the same periods in 2023 primarily reflects growth in commercial and mortgage loans funded from an increase in deposits.

Previous wording

The two basis point decrease in our net interest margin during the first quarter of 2024 is attributed to a 70 basis point increase in interest expense as a percent of average interest-earning assets which was partially offset by a 68 basis point increase in interest income as a percent of average interest-earning assets. These increases are primarily attributed to the 100 basis point increase in the federal funds rate since January of 2023. Our net interest margin has been negatively impacted by changes in funding mix (such as shifting from non-interest bearing deposits to interest-bearing deposits and an increase in time deposits) as well as higher deposit pricing sensitivity to the increases in interest rates discussed above. This change in funding mix and pricing is expected to continue to have an impact on our net interest margin during 2024. See Asset/liability management.

Current wording

The increases in our net interest margin during the three and six month periods in 2024 is attributed to increases in interest income as a percent of average interest-earning assets ("Asset Yield") that were only partially offset by increases in interest expense as a percent of average interest-earning assets ("Cost of Funds"). These increases are primarily attributed to the increases in the federal funds rate since January of 2023. Our Asset Yield has been positively impacted by new loans being originated at higher rates than existing loans being paid off as well as a shift in earning asset mix from generally lower rate investment securities to higher rate loans while our Cost of Funds has been negatively impacted by changes in funding mix (such as shifting from non-interest bearing deposits to interest-bearing deposits and an increase in time deposits) as well as higher deposit pricing sensitivity to the increases in interest rates discussed above. This change in funding mix and pricing is expected to continue to have an impact on our Cost of Funds during 2024. See Asset/liability management.

Previous wording

Our net interest income is also impacted by our level of non-accrual loans. In the first quarter of 2024, non-accrual loans averaged $3.9 million. In the first quarter of 2023, non-accrual loans averaged $4.0 million. In addition, in the first quarter of 2024 we had net recoveries of $0.3 million of unpaid interest on loans placed on or taken off non-accrual or on loans previously charged-off compared to net recoveries of $0.1 million during the same period in 2023.

Current wording

Our net interest income is also impacted by our level of non-accrual loans. In the second quarter and first six months of 2024, non-accrual loans averaged $4.0 million and $3.9 million, respectively. In the second quarter and first six months of 2023, non-accrual loans averaged $3.9 million and $3.8 million, respectively. In addition, in the second quarter and first six months of 2024 we had net recoveries of $0.1 million and $0.4 million, respectively of unpaid interest on loans placed on or taken off non-accrual or on loans previously charged-off compared to net recoveries of $0.3 million and $0.4 million, respectively, during the same periods in 2023.

Previous wording

Provision for credit losses. The provision for credit losses was an expense of $0.7 million and an expense of $2.2 million for the three months ended March 31, 2024 and 2023, respectively. The expense provision on loans of $1.87 million reflects our assessment of the allowance for credit losses (the “ACL”) on loans taking into consideration factors such as loan growth, loan mix, levels of non-performing and classified loans, economic conditions and loan net charge-offs. While we use relevant information to recognize losses on loans, additional provisions for related losses may be necessary based on changes in economic conditions, customer circumstances and other credit risk factors. See “Portfolio Loans and asset quality” for a discussion of the various components of the ACL on loans and their impact on the provision for credit losses on loans in 2024. The increase in the provision for credit losses on loans from the prior year quarter to date period is primarily due to an increase in specific reserves on one commercial credit and changes in retail loan prepayment speeds. The credit provision on securities HTM of $1.13 million reflects the recovery of a previously charged off corporate security during the first quarter. (See "Securities.")

Current wording

Provision for credit losses. The provision for credit losses was an expense of $0.02 million and an expense of $3.32 million for the three months ended June 30, 2024 and 2023, respectively. During the six-month periods ended June 30, 2024 and 2023, the provision for credit losses was an expense of$0.76 million and a expense of $5.48 million, respectively. The provision reflects our assessment of the allowance for credit losses (the “ACL”) taking into consideration factors such as loan growth, loan mix, levels of non-performing and classified loans, economic conditions and loan net charge-offs. While we use relevant information to recognize losses on loans, additional provisions for related losses may be necessary based on changes in economic conditions, customer circumstances and other credit risk factors. See “Portfolio Loans and asset quality” for a discussion of the various components of the ACL and their impact on the provision for credit losses in 2024. The decrease in the provision for credit losses expense from the prior year period is primarily due toa decrease in net newly allocated losses in the commercial loan portfolio primarily driven by a large specific reserve in the prior year as well as a decrease in loan growth and a decrease in the adjustment to allocations based on subjective factors.

Previous wording

Non-interest income. Non-interest income is a significant element in assessing our results of operations. Non-interest income totaled $12.6 million during the first quarter of 2024 compared to $10.6 million in the first quarter of 2023.

Current wording

Non-interest income. Non-interest income is a significant element in assessing our results of operations. Non-interest income totaled $15.2 million during the second quarter of 2024 compared to $15.4 million in the second quarter of 2023. For the first six months of 2024, non-interest income totaled $27.7 million compared to $26.0 million for the first six months of 2023.

Previous wording

(1) Mortgage loan sales in 2024 and 2023 include $6.76 million and $41.24 million, respectively of portfolio loan transactions done for interest rate risk purposes.

Current wording

(1)Mortgage loan salesin the second quarters of 2024 and 2023 include$1.4 million and$10.2 million, respectively, of portfolio loan transactions. Mortgage loan sales during the firstsix months of 2024 and 2023 include $8.1 million and$51.5 million, respectively, of portfolio loan transactions. These transactions were performed for interest rate risk purposes.

Previous wording

Mortgage loans originated decreased in 2024 as compared to 2023 due primarily to higher mortgage loan interest rates in 2024 reduceing this activity. Mortgage loans sold decreased in 2024 as compared to 2023 due to lower portfolio loan sales.

Current wording

Mortgage loans originated decreased in 2024 as compared to 2023 due primarily to higher mortgage loan interest rates in 2024 reducing this activity. Mortgage loans sold decreased in 2024 as compared to 2023 due to lower portfolio loan sales.

Previous wording

We recorded a net loss of $0.3 million and a net loss $0.2 million on securities AFS for the first three months of 2024 and 2023, respectively. We recorded no credit related charges in either 2024 or 2023 on securities AFS. See “Securities” below and note #3 to the Condensed Consolidated Financial Statements.

Current wording

We recorded a net loss of $0.3 million and a net loss $0.2 million on securities AFS for the first six months of 2024 and 2023, respectively. We recorded no credit related charges in either 2024 or 2023 on securities AFS. See “Securities” below and note #3 to the Condensed Consolidated Financial Statements.

Previous wording

Mortgage loan servicing, net, generated income of $2.7 million and $0.7 million in the first quarters of 2024 and 2023, respectively. The significant variance in mortgage loan servicing, net is primarily due to changes in the fair value of capitalized mortgage loan servicing rights associated with changes in interest rates and the associated expected future prepayment levels and expected float rates.

Current wording

Mortgage loan servicing, net, generated income of $2.1 million and $3.7 million in the second quarters of 2024 and 2023, respectively. For the first six months of 2024 and 2023, mortgage loan servicing, net, generated income of $4.8 million and $4.4 million, respectively. The significant variances in mortgage loan servicing, net are primarily due to changes in the fair value of capitalized mortgage loan servicing rights associated with changes in interest rates and the associated expected future prepayment levels and expected float rates.

Previous wording

At March 31, 2024 we were servicing approximately $3.55 billion in mortgage loans for others on which servicing rights have been capitalized. This servicing portfolio had a weighted average coupon rate of 3.94% and a weighted average service fee of approximately 25.6 basis points. Capitalized mortgage loan servicing rights at March 31, 2024 totaled $43.6 million, representing approximately 122.8 basis points on the related amount of mortgage loans serviced for others.

Current wording

At June 30, 2024 we were servicing approximately $3.55 billion in mortgage loans for others on which servicing rights have been capitalized. This servicing portfolio had a weighted average coupon rate of 4.01% and a weighted average service fee of approximately 25.6 basis points. Capitalized mortgage loan servicing rights at June 30, 2024 totaled $44.4 million, representing approximately 125.3 basis points on the related amount of mortgage loans serviced for others.

Previous wording

Non-interest expense increased by $1.2 million to $32.2 million during the three-period ended March 31, 2024 compared to the same period in 2023.

Current wording

Non-interest expense increased by $1.1 million to $33.3 million and increased by $2.3 million to $65.5 million during the three- and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023.

Previous wording

Compensation and employee benefits expenses, in total, increased $1.4 million on a quarterly comparative basis compared to the same period in 2023.

Current wording

Compensation and employee benefits expenses, in total, increased $0.6 million on a quarterly comparative basis and increased $2.1 million for the first six months of 2024 compared to the same periods in 2023.

Previous wording

Compensation expense was relatively unchanged in the first quarter of 2024 compared to the same period in 2023. Salary increases that were predominantly effective on January 1, 2024, were offset by a decrease in mortgage lending and other retail personnel.

Current wording

Compensation expense decreased by $0.1 million and $0.1 million in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023. These comparative decreases in 2024 were primarily due to a decrease in mortgage lending and other retail personnel that was only partially offset by salary increases that were predominantly effective on January 1, 2024.

Previous wording

Performance-based compensation increased by $1.2 million in the first quarter of 2024, compared to the same period in 2023. The increase is primarily due to higher expected incentive compensation payout for salaried and hourly employees.

Current wording

Performance-based compensation increased by $0.7 million and $1.9 million in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023. The increases were primarily due to higher expected incentive compensation payout for salaried and hourly employees.

Previous wording

Data processing expense increased by $0.3 million in the first quarter of 2024 compared to the same prior year period due in part to core data processor annual asset growth and CPI related cost increases as well as well as new solutions implemented during this time frame.

Current wording

Data processing expense increased by $0.4 million and $0.6 million in the second quarter and first six months of 2024, respectively, compared to the same prior year periods due in part to core data processor annual asset growth and CPI related cost increases as well as new solutions implemented during this time frame.

Previous wording

Legal and professional decreased by $0.1 million in the first quarter of 2024 compared to the same prior year period due primarily to lower litigation related costs.

Current wording

Communications decreased by $0.1 million and$0.2 millionin the second quarter and first six months of 2024, respectively, compared to the same periods in 2023 due primarily to lower telephony and networking related costs.

Previous wording

Costs (recoveries) related to unfunded lending commitments decreased by $0.2 million in the first quarter of 2024 compared to the same prior year period due primarily to a decrease in lending commitment balances.

Current wording

Costs (recoveries) related to unfunded lending commitments decreased by $0.2 million and $0.4 million in the second quarter and first six months of 2024, respectively compared to the same prior year periods. The decrease in the first six months of 2023 is due to decreases in both the balance of lending commitments and the loss rates applied to those lending commitments.

Previous wording

Income tax expense. We recorded an income tax expense of $3.8 million in the first quarter of 2024. This compares to an income tax expense of $2.9 million in the first quarter of 2023. The changes in expense for the first three months of 2024 compared to the same period in 2023 is primarily due to changes in pretax income.

Current wording

Income tax expense. We recorded an income tax expense of $4.6 million and $8.5 million in the second quarter and the first six months of 2024, respectively. This compares to an income tax expense of $3.4 million and $6.3 million in the second quarter and the first six months of 2023, respectively. The changes in expense for the first six months of 2024 compared to the same period in 2023 is primarily due to changes in pretax income.

Previous wording

Summary. Our total assets decreased by $32.5 million during the first three months of 2024. Loans, excluding loans held for sale, were $3.84 billion at March 31, 2024, compared to $3.79 billion at December 31, 2023. Commercial loans and mortgage loans each increased while installment loans decreased during the first three months of 2024. (See “Portfolio Loans and asset quality.”)

Current wording

Summary. Our total assets increased by $13.8 million during the first six months of 2024. Loans, excluding loans held for sale, were $3.85 billion at June 30, 2024, compared to $3.79 billion at December 31, 2023. Commercial loans and mortgage loans each increased while installment loans decreased during the first six months of 2024. (See “Portfolio Loans and asset quality.”)

Previous wording

Deposits totaled $4.58 billion at March 31, 2024, a decrease of $40.5 million from December 31, 2023. The decrease in deposits from December 31, 2023, is due to scheduled maturities of brokered time deposits.

Current wording

Deposits totaled $4.61 billion at June 30, 2024, a decrease of $8.6 million from December 31, 2023. The decrease in deposits from December 31, 2023, is due to scheduled maturities of brokered time deposits and a decrease in non-interest bearing deposits.

Previous wording

On April 1, 2022, we transferred certain securities AFS with an amortized cost and unrealized loss at the date of transfer of $418.1 million and $26.5 million, respectively to securities HTM. The transfer was made at fair value, with the unrealized loss becoming part of the purchase discount which will be accreted over the remaining life of the securities. The other comprehensive loss component is separated from the remaining available for sale securities and is accreted over the remaining life of the securities transferred. Based upon our liquidity and capital resources (as explained in more detail

Current wording

On April 1, 2022, we transferred certain securities AFS with an amortized cost and unrealized loss at the date of transfer of $418.1 million and $26.5 million, respectively to securities HTM. The transfer was made at fair value, with the unrealized loss becoming part of the purchase discount which will be accreted over the remaining life of the securities. The other comprehensive loss component is separated from the remaining available for sale securities and is accreted over the remaining life of the securities transferred. Based upon our liquidity and capital resources (as explained in more detail below under "Liquidity and capital resources"), we believe that we have the ability and intent to hold these securities until they mature, at which time we would receive full value for these securities.

Previous wording

Securities AFS in unrealized loss positions are evaluated quarterly for impairment related to credit losses. For securities AFS in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities AFS that do not meet this criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, adverse conditions specifically related to the security and the issuer and the impact of changes in market interest rates on the market value of the security, among other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an ACL is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, net of applicable taxes. No ACL for securities AFS was needed at March 31, 2024. The decrease in unrealized losses during the first three months of 2024 is primarily attributed to pay downs of security balances and par reversion. See note #3 to the Condensed Consolidated Financial Statements included within this report for further discussion.

Current wording

Securities AFS in unrealized loss positions are evaluated quarterly for impairment related to credit losses. For securities AFS in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities AFS that do not meet this criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, adverse conditions specifically related to the security and the issuer and the impact of changes in market interest rates on the market value of the security, among other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an ACL is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income (loss), net of applicable taxes. No ACL for securities AFS was needed at June 30, 2024. The decrease in unrealized losses during the first six months of 2024 is primarily attributed to pay downs of security balances, par reversion and the narrowing of certain interest rate spreads. See note #3 to the Condensed Consolidated Financial Statements included within this report for further discussion.

Previous wording

Sales of securities were as follows (See “Non-interest income.”):

Current wording

Sales of securities available for sale were as follows (See “Non-interest income.”):

Previous wording

We generally retain loans that may be profitably funded within established risk parameters. (See “Asset/liability management.”) As a result, we may hold adjustable-rate and fixed rate jumbo mortgage loans as Portfolio Loans, while 15- and 30-year fixed-rate non-jumbo mortgage loans are generally sold to mitigate exposure to changes in interest rates. (See “Non-interest income.”) The retention of newly originated fixed rate jumbo mortgage loans has declined relative to the prior year as the growth in mortgage loans during the first three months of 2023 has primarily been attributed to the origination of adjustable-rate mortgage loans and advances on adjustable rate construction mortgage loans and home equity lines of credit. (See “Asset/liability management.”).

Current wording

We generally retain loans that may be profitably funded within established risk parameters. (See “Asset/liability management.”) As a result, we may hold adjustable-rate and fixed rate jumbo mortgage loans as Portfolio Loans, while 15- and 30-year fixed-rate conforming mortgage loans are generally sold to mitigate exposure to changes in interest rates. (See “Non-interest income.”) The growth in mortgage loans during the first six months of 2024 has primarily been attributed to the origination of adjustable-rate mortgage loans and advances on adjustable rate construction mortgage loans and home equity lines of credit. (See “Asset/liability management.”).

Previous wording

Non-performing loans have remained relatively stable as a percent of Portfolio Loans since year-end 2023, reflec ting generally improving economic conditions and our ongoing collection efforts. Our collection and resolution efforts have generally resulted in a positive trend in non-performing loans.

Current wording

Non-performing loans have declined modestly as a percent of Portfolio Loans since year-end 2023, reflecting our ongoing collection efforts. Our collection and resolution efforts have generally resulted in a positive trend in non-performing loans.

Previous wording

Other real estate and repossessed assets totaled $1.06 million and $0.57 million at March 31, 2024, and December 31, 2023, respectively.

Current wording

Other real estate and repossessed assets totaled $0.95 million and $0.57 million at June 30, 2024, and December 31, 2023, respectively.

Previous wording

The ACL increased $1.7 million to $56.3 million at March 31, 2024 from $54.7 million at December 31, 2023, and was equal to 1.47% and 1.44% of total Portfolio Loans at March 31, 2024, and December 31, 2023, respectively.

Current wording

The ACL increased $1.6 million to $56.2 million at June 30, 2024 from $54.7 million at December 31, 2023, and was equal to 1.46% and 1.44% of total Portfolio Loans at June 30, 2024, and December 31, 2023, respectively.

Previous wording

Since December 31, 2023, the ACL related to specific loans increased $1.0 million due primarily to one commercial loan addition in the first quarter of 2024. The ACL related to pooled analysis of loans and subjective factors increased $0.5 million and $0.2 million, respectively due primarily to loan growth.

Current wording

Since December 31, 2023, the ACL related to specific loans increased $0.8 million due primarily to one commercial loan addition during the first quarter of 2024. The ACL related to pooled analysis of loans and subjective factors increased $0.6 million and $0.2 million, respectively due in part to loan growth.

Previous wording

Deposits totaled $4.58 billion and $4.62 billion at March 31, 2024, and December 31, 2023, respectively. The decrease in deposits is primarily due to decreases in non-interest bearing and brokered time deposits that were partially offset by growth in savings and interest-bearing checking deposits, reciprocal deposits and time deposits. Reciprocal deposits totaled $893.6 million and $832.0 million at March 31, 2024 and December 31, 2023, respectively. These deposits represent demand, money market and time deposits from our customers that have been placed through IntraFi Network. This service allows our customers to access multi-million dollar FDIC deposit insurance on deposit balances greater than the standard FDIC insurance maximum.

Current wording

Deposits totaled $4.61 billion and $4.62 billion at June 30, 2024, and December 31, 2023, respectively. The decrease in deposits is primarily due to decreases in non-interest bearing and brokered time deposits that were partially offset by growth in savings and interest-bearing checking deposits, reciprocal deposits and time deposits. Reciprocal deposits totaled$925.8 million and$832.0 million at June 30, 2024 and December 31, 2023, respectively. These deposits represent demand, money market and time deposits from our customers that have been placed through IntraFi Network. This service allows our customers to access multi-million dollar FDIC deposit insurance on deposit balances greater than the standard FDIC insurance maximum.

Previous wording

(1) These amounts exclude intercompany related deposits of $51.3 million and $51.2 million respectively. Uninsured deposits reported in our Call Report at March 31, 2024 and December 31, 2023 totaled $1,028.7 million and $1,013.2 million, respectively.

Current wording

(1) These amounts exclude intercompany related deposits of $51.4 million and $51.2 million respectively. Uninsured deposits reported in our Call Report at June 30, 2024 and December 31, 2023 totaled $1,029.6 million and $1,013.2 million, respectively.

Previous wording

As described above, we have utilized wholesale funding, including federal funds purchased, FHLB and FRB borrowings and Brokered CDs to augment our core deposits and fund a portion of our assets. At March 31, 2024, our use of such wholesale funding sources (including reciprocal deposits) amounted to approximately $1.09 billion, or 23.6% of total funding (deposits and all borrowings, excluding subordinated debt and debentures). Because wholesale funding sources are affected by general market conditions, the availability of such funding may be dependent on the confidence these sources have in our financial condition and operations. The continued availability to us of these funding sources is not certain, and Brokered CDs may be difficult for us to retain or replace at attractive rates as they mature. Our liquidity may be constrained if we are unable to renew our wholesale funding sources or if adequate financing is not available in the future at acceptable rates of interest or at all. Our financial performance could also be affected if we are unable to maintain our access to funding sources or if we are required to rely more heavily on more expensive funding sources. In such case, our net interest income and results of operations could be adversely affected.

Current wording

As described above, we have utilized wholesale funding, including federal funds purchased, FHLB and FRB borrowings and Brokered CDs to augment our core deposits and fund a portion of our assets. At June 30, 2024, our use of such wholesale funding sources (including reciprocal deposits) amounted to approxim ately $1.10 billion, or 23.6% of total funding (deposits and all borrowings, excluding subordinated debt and debentures). Because wholesale funding sources are affected by general market conditions, the availability of such funding may be dependent on the confidence these sources have in our financial condition and operations. The continued availability to us of these funding sources is not certain, and Brokered CDs may be difficult for us to retain or replace at attractive rates as they mature. Our liquidity may be constrained if we are unable to renew our wholesale funding sources or if adequate financing is not available in the future at acceptable rates of interest or at all. Our financial performance could also be affected if we are unable to maintain our access to funding sources or if we are required to rely more heavily on more expensive funding sources. In such case, our net interest income and results of operations could be adversely affected.

Previous wording

We historically employed derivative financial instruments to manage our exposure to changes in interest rates. During the first three months of 2024 and 2023, we entered into $29.5 million and $19.5 million (aggregate notional amounts), respectively, of interest rate swaps with commercial loan customers, which were offset with interest rate swaps that the Bank entered into with a broker-dealer. We recorded $0.3 million and $0.4 million of fee income related to these transactions during the first three months of 2024 and 2023, respectively. See note #6 to the Condensed Consolidated Financial Statements included within this report for more information on our derivative financial instruments.

Current wording

We historically employed derivative financial instruments to manage our exposure to changes in interest rates. During the first six months of 2024 and 2023, we entered into $54.5 million and $57.4 million (aggregate notional amounts), respectively, of interest rate swaps with commercial loan customers, which were offset with interest rate swaps that the Bank entered into with a broker-dealer. We recorded $0.6 million and $1.0 million of fee income related to these transactions during the first six months of 2024 and 2023, respectively. See note #6 to the Condensed Consolidated Financial Statements included within this report for more information on our derivative financial instruments.

Previous wording

Our primary sources of funds include our deposit base, secured advances from the FHLB and FRB, federal funds purchased borrowing facilities with other banks, and access to the capital markets (for Brokered CDs). At March 31, 2024, in addition to liquidity available from our normal operating, funding and investing activities we had unused credit lines with the FHLB and FRB of approximately $1.072 billion and $496.0 million, respectively. We also had approximately $811.3 million in fair value of unpledged securities AFS and HTM at March 31, 2024, which could be pledged for an estimated additional borrowing capacity at the FHLB and FRB of approximately $754.9 million.

Current wording

Our primary sources of funds include our deposit base, secured advances from the FHLB and FRB, federal funds purchased, borrowing facilities with other banks, and access to the capital markets (for Brokered CDs). At June 30, 2024, in addition to liquidity available from our normal operating, funding and investing activities we had unused credit lines with the FHLB and FRB of approximately $1.001 billion and $438.5 million, respectively. We also had approximately $787.4 million in fair value of unpledged securities AFS and HTM at June 30, 2024, which could be pledged for an estimated additional borrowing capacity at the FHLB and FRB of approximately $732.5 million.

Previous wording

that can be withdrawn upon demand are usually predictable and the total balances of these accounts have generally grown or have been stable over time as a result of our marketing and promotional activities. However, there can be no assurance that historical patterns of renewing time deposits or overall growth or stability in deposits will continue in the future.

Current wording

At June 30, 2024, we had $746.9 million of time deposits that mature in the next 12 months. Historically, a majority of these maturing time deposits are renewed by our customers. Additionally, $3.78 billion of our deposits at June 30, 2024, were in account types from which the customer could withdraw the funds on demand. Changes in the balances of deposits that can be withdrawn upon demand are usually predictable and the total balances of these accounts have generally grown or have been stable over time as a result of our marketing and promotional activities. However, there can be no assurance that historical patterns of renewing time deposits or overall growth or stability in deposits will continue in the future.

Previous wording

We currently have four special purpose entities with $39.7 million of outstanding cumulative trust preferred securities as of March 31, 2024. These special purpose entities issued common securities and provided cash to our parent company that in turn issued subordinated debentures to these special purpose entities equal to the trust preferred securities and common securities. The subordinated debentures represent the sole asset of the special purpose entities. The common securities and subordinated debentures are included in our Condensed Consolidated Statements of Financial Condition.

Current wording

We currently have four special purpose entities with $39.8 million of outstanding cumulative trust preferred securities as of June 30, 2024. These special purpose entities issued common securities and provided cash to our parent company that in turn issued subordinated debentures to these special purpose entities equal to the trust preferred securities and common securities. The subordinated debentures represent the sole asset of the special purpose entities. The common securities and subordinated debentures are included in our Condensed Consolidated Statements of Financial Condition.