GERMAN AMERICAN BANCORP INC

Previous wording

This section presents an analysis of the consolidated financial condition of the Company as of June 30, 2024 and December 31, 2023 and the consolidated results of operations for the three and six months ended June 30, 2024 and 2023. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

This section presents an analysis of the consolidated financial condition of the Company as of September 30, 2024 and December 31, 2023 and the consolidated results of operations for the three and nine months ended September 30, 2024 and 2023. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

Net income for the quarter ended June 30, 2024 totaled $20,530,000, or $0.69 per share, a decrease of 8% on a per share basis compared with the second quarter 2023 net income of $22,123,000, or $0.75 per share. Net income for the six months ended June 30, 2024 totaled $39,552,000, or $1.33 per share, a decrease of 8% on a per share basis compared with the six months ended June 30, 2023 net income of $42,930,000, or $1.45 per share. The decline in both periods was largely driven by a reduced net interest margin.

Current wording

Net income for the quarter ended September 30, 2024 totaled $21,048,000, or $0.71 per share, a decrease of 3% on a per share basis compared with the third quarter 2023 net income of $21,451,000, or $0.73 per share. Net income for the nine months ended September 30, 2024 totaled $60,600,000, or $2.04 per share, a decrease of 6% on a per share basis compared with the nine months ended September 30, 2023 net income of $64,381,000, or $2.18 per share.

Previous wording

Net income for the three and six months ended June 30, 2024 was impacted by the Company’s sale of substantially all of the assets of its wholly-owned subsidiary, German American Insurance, Inc. (“GAI”), to Hilb Group, an industry-leading insurance broker. The all-cash sale price totaled $40.0 million, and resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share.

Current wording

Net income for the nine months ended September 30, 2024 was impacted by the Company’s sale of substantially all of the assets of its wholly-owned subsidiary, German American Insurance, Inc. (“GAI”), to Hilb Group, an industry-leading insurance broker on June 1, 2024. The all-cash sale price totaled $40.0 million, and resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share.

Previous wording

Net income for the three and six months ended June 30, 2024 was also impacted by a securities portfolio restructuring transaction whereby available securities totaling approximately $375.3 million in book value were identified in late June 2024 to be sold. The approximate loss on these securities totaled $34,893,000, $27,189,000 after tax, or $0.92 per share, and was included in earnings for the second quarter of 2024.

Current wording

Net income for the nine months ended September 30, 2024 was also impacted by a securities portfolio restructuring transaction whereby available securities totaling approximately $375.3 million in book value were identified in late June 2024 to be sold. The approximate loss on these securities totaled $34,893,000, $27,189,000 after tax, or $0.92 per share, and was included in earnings for the second quarter of 2024.

Previous wording

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale debt securities in an unrealized loss position, the Company assesses 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 available-for sale debt securities that do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, the Company compares 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 allowance for credit losses 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 allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at June 30, 2024. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of June 30, 2024, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $18,000 and gross unrealized losses totaled approximately $275,505,000. The net amount of these two items, net of applicable taxes, is included in other comprehensive income (loss).

Current wording

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale debt securities in an unrealized loss position, the Company assesses 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 available-for sale debt securities that do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, the Company compares 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 allowance for credit losses 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 allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at September 30, 2024. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of September 30, 2024, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $6,633,000 and gross unrealized losses totaled approximately $227,813,000. The net amount of these two items, net of applicable taxes, is included in other comprehensive income (loss).

Previous wording

Net income for the quarter ended June 30, 2024 totaled $20,530,000, or $0.69 per share, a decrease of 8% on a per share basis compared with the second quarter 2023 net income of $22,123,000, or $0.75 per share. Net income for the six months ended June 30, 2024 totaled $39,552,000, or $1.33 per share, a decrease of 8% on a per share basis compared with the six months ended June 30, 2023 net income of $42,930,000, or $1.45 per share. The decline in both periods was largely driven by a reduced net interest margin.

Current wording

Net income for the quarter ended September 30, 2024 totaled $21,048,000, or $0.71 per share, a decrease of 3% on a per share basis compared with the third quarter 2023 net income of $21,451,000, or $0.73 per share. Net income for the nine months ended September 30, 2024 totaled $60,600,000, or $2.04 per share, a decrease of 6% on a per share basis compared with the nine months ended September 30, 2023 net income of $64,381,000, or $2.18 per share.

Previous wording

Net income for the three and six months ended June 30, 2024 was impacted by the previously discussed sale of substantially all of the assets of German American Insurance, Inc. to Hilb Group, an industry-leading insurance broker. The all-cash sale price totaled $40.0 million and resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share.

Current wording

Net income for the nine months ended September 30, 2024 was impacted by the previously discussed sale of substantially all of the assets of German American Insurance, Inc. to Hilb Group, an industry-leading insurance broker. The all-cash sale price totaled $40.0 million and resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share.

Previous wording

Net income for the three and six months ended June 30, 2024 was also impacted by the aforementioned securities portfolio restructuring transaction whereby available securities totaling approximately $375.3 million in book value were identified to be sold. The approximate loss on these securities totaled $34,893,000, $27,189,000 after tax, or $0.92 per share, and was included in earnings for the second quarter of 2024.

Current wording

Net income for the nine months ended September 30, 2024 was also impacted by the aforementioned securities portfolio restructuring transaction whereby available securities totaling approximately $375.3 million in book value were identified to be sold. The approximate loss on these securities totaled $34,893,000, $27,189,000 after tax, or $0.92 per share, and was included in earnings for the second quarter of 2024.

Previous wording

The following table summarizes net interest income (on a tax-equivalent basis) for the six months ended June 30, 2024 and 2023. For tax-equivalent adjustments, an effective tax rate of 21% was used for both periods(1).

Current wording

The following table summarizes net interest income (on a tax-equivalent basis) for the nine months ended September 30, 2024 and 2023. For tax-equivalent adjustments, an effective tax rate of 21% was used for both periods(1).

Previous wording

During the second quarter of 2024, net interest income, on a non tax-equivalent basis, totaled $45,971,000, a decline of $2,287,000, or 5%, compared to the second quarter of 2023 net interest income of $48,258,000. During the first half of 2024, net interest income, on a non tax-equivalent basis, totaled $90,965,000, a decrease of $6,302,000, or 6%, compared to the first half of 2023 net interest income of $97,267,000. The decline in net interest income for both periods was primarily attributable to a decline in the Company’s net interest margin.

Current wording

During the third quarter of 2024, net interest income, on a non tax-equivalent basis, totaled $48,594,000, an increase of $1,035,000, or 2%, compared to the third quarter of 2023 net interest income of $47,559,000. The improvement in net interest income during the third quarter of 2024 compared with the third quarter of 2023 was primarily attributable to a higher level of earning assets, most notably an increased loan portfolio, partially offset by a lower net interest margin. During the first nine months of 2024, net interest income, on a non tax-equivalent basis, totaled $139,559,000, a decrease of $5,267,000, or 4%, compared to the first nine months of 2023 net interest income of $144,826,000. The decline in net interest income for the first nine months of 2024 compared to the same period of 2023 was primarily attributable to a decline in the Company’s net interest margin.

Previous wording

The tax equivalent net interest margin for the quarter ended June 30, 2024 was 3.34% compared with 3.63% in the second quarter of 2023. The tax equivalent net interest margin for the six months ended June 30, 2024 was 3.34% compared with 3.66% for the same period of 2023. The cost of funds continued to accelerate higher in both periods due to highly competitive deposit pricing in the marketplace, customers actively looking for yield opportunities within and outside the banking industry and a continued shift in the Company’s deposit composition to a higher level of time deposits.

Current wording

The tax equivalent net interest margin for the quarter ended September 30, 2024 was 3.47% compared with 3.57% in the third quarter of 2023. The tax equivalent net interest margin for the nine months ended September 30, 2024 was 3.39% compared with 3.63% for the same period of 2023. The cost of funds continued to accelerate higher in both periods due to highly competitive deposit pricing in the marketplace, customers actively looking for yield opportunities within and outside the banking industry and a continued shift in the Company’s deposit composition to a higher level of time deposits. The decline in the net interest margin in both the three and nine months ended September 30, 2024 compared to the same periods of 2023 was largely driven by the increased cost of funds and a lower level of accretion of loan discounts on acquired loans.

Previous wording

The Company’s net interest margin and net interest income have been impacted by accretion of loan discounts on acquired loans. Accretion of discounts on acquired loans totaled $275,000 during the second quarter of 2024 and $716,000 during the second quarter of 2023. Accretion of discounts on acquired loans totaled $635,000 and $1,246,000 for the first half of 2024 and 2023, respectively. Accretion of loan discounts on acquired loans contributed approximately 2 basis points to the net interest margin in the second quarter of 2024 and 5 basis points in the second quarter of 2023. Accretion of loan discounts on acquired loans contributed approximately 1 basis point to the net interest margin in the first half of 2024 compared to 5 basis points in the first half of 2023.

Current wording

The Company’s net interest margin and net interest income have been impacted by accretion of loan discounts on acquired loans. Accretion of discounts on acquired loans totaled $237,000 during the third quarter of 2024 and $1,288,000 during the third quarter of 2023. Accretion of discounts on acquired loans totaled $889,000 and $2,533,000 for the first nine months of 2024 and 2023, respectively. Accretion of loan discounts on acquired loans contributed approximately 2 basis points to the net interest margin in the third quarter of 2024 and 9 basis points in the third quarter of 2023. Accretion of loan discounts on acquired loans contributed approximately 2 basis points to the net interest margin in the first nine months of 2024 compared to 6 basis points in the first nine months of 2023.

Previous wording

The Company provides for credit losses through regular provisions to the allowance for credit losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations of the allowance. During the quarter ended June 30, 2024, the Company recorded a provision for credit losses of $625,000 compared with a provision for credit losses of $550,000 during the second quarter of 2023. During the six months ended June 30, 2024, the Company recorded a provision for credit losses of $1,525,000 compared with a provision for credit losses of $1,650,000 for the first half of 2023.

Current wording

The Company provides for credit losses through regular provisions to the allowance for credit losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations of the allowance. During the quarter ended September 30, 2024, the Company recorded a provision for credit losses of $625,000 compared with a provision for credit losses of $900,000 during the third quarter of 2023. During the nine months ended September 30, 2024, the Company recorded a provision for credit losses of $2,150,000 compared with a provision for credit losses of $2,550,000 for the first half of 2023.

Previous wording

Net charge-offs totaled $433,000, or 4 basis points, on an annualized basis, of average loans outstanding during the second quarter of 2024 compared with $599,000, or 6 basis points, on an annualized basis, of average loans during the second quarter of 2023. Net charge-offs totaled $1,344,000, or 7 basis points, on an annualized basis, of average loans outstanding during the six months ended June 30, 2024 compared with $1,552,000, or 8 basis points, on an annualized basis, of average loans outstanding during the same period of 2023.

Current wording

Net charge-offs totaled $447,000, or 4 basis points, on an annualized basis, of average loans outstanding during the third quarter of 2024 compared with $520,000, or 5 basis points, on an annualized basis, of average loans during the third quarter of 2023. Net charge-offs totaled $1,791,000, or 6 basis points, on an annualized basis, of average loans outstanding during the nine months ended September 30, 2024 compared with $2,072,000, or 7 basis points, on an annualized basis, of average loans outstanding during the same period of 2023.

Previous wording

The provision for credit losses made during the three and six months ended June 30, 2024 was made at a level deemed necessary by management to absorb expected losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.

Current wording

The provision for credit losses made during the three and nine months ended September 30, 2024 was made at a level deemed necessary by management to absorb expected losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.

Previous wording

Wealth management fees increased $871,000, or 30%, during the second quarter of 2024 compared with the second quarter of 2023. The increase during the second quarter of 2024 was largely attributable to increased assets under management due to healthy capital markets and strong new business results as compared with the second quarter of 2023.

Current wording

Wealth management fees increased $623,000, or 21%, during the third quarter of 2024 compared with the third quarter of 2023. The increase during the third quarter of 2024 compared with the third quarter of 2023 was driven by increased assets under management due to healthy capital markets and continued strong new business results.

Previous wording

Net gains on sales of loans increased $339,000, or 54%, compared with the second quarter of 2023. The increase during the second quarter of 2024 compared with the second quarter of 2023 was largely related to a higher volume of sales. Loan sales totaled $33.0 million during the second quarter of 2024 compared with $24.8 million during the second quarter of 2023.

Current wording

Net gains on sales of loans increased $90,000, or 15%, compared with the third quarter of 2023. The increase during the third quarter of 2024 compared with the third quarter of 2023 was largely related to a higher volume of sales. Loan sales totaled $40.3 million during the third quarter of 2024 compared with $33.8 million during the third quarter of 2023.

Previous wording

During the six months ended June 30, 2024, non-interest income totaled $34,745,000, an increase of $4,882,000, or 16%, compared with the first six months of 2023. The first six months of 2024 non-interest income was positively impacted by the aforementioned net proceeds of the sale of the GAI assets totaling approximately $38,323,000 and negatively impacted by $34,893,000 related to the net loss recognized on the securities restructuring transaction.

Current wording

During the nine months ended September 30, 2024, non-interest income totaled $48,546,000, an increase of $3,879,000, or 9%, compared with the first nine months of 2023. The first nine months of 2024 non-interest income was positively impacted by the aforementioned net proceeds of the sale of the GAI assets totaling approximately $38,323,000 and negatively impacted by $34,893,000 related to the net loss recognized on the securities restructuring transaction.

Previous wording

Wealth management fees increased $1,593,000, or 29%, during the first half of 2024 compared with the same period of 2023. The increase during the first half of 2024 was largely attributable to increased assets under management due to healthy capital markets and strong new business results as compared with the first half of 2023.

Current wording

Wealth management fees increased $2,216,000, or 26%, during the first nine months of 2024 compared with the same period of 2023. The increase during the first nine months of 2024 was largely attributable to increased assets under management due to healthy capital markets and strong new business results as compared with the first nine months of 2023.

Previous wording

Insurance revenues declined $624,000, or 29%, during the quarter ended June 30, 2024, compared with the second quarter of 2023. The decline during the second quarter of 2024 compared with the second quarter of 2023 was the result of the sale of the assets of GAI effective June 1, 2024, with only two months of revenue being recognized by the Company during the second quarter of 2024.

Current wording

Insurance revenues declined $2,946,000, or 40%, during the first nine months of 2024 compared with the same period of 2023. The decline during the first nine months of 2024 compared with the same period of 2023 was the result of the sale of the assets of GAI effective June 1, 2024, with only five months of revenue being recognized by the Company.

Previous wording

The second quarter of 2024 includes $38,323,000 in net proceeds for the sale of the GAI assets. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.

Current wording

The first nine months of 2024 included $38,323,000 in net proceeds for the sale of the GAI assets. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.

Previous wording

Net gains on sales of loans increased $503,000, or 41%, during the first half of 2024 compared with the first half of 2023. The increase during the first half of 2024 compared with the same period of 2023 was largely related to a higher volume of sales and modestly higher prices. Loan sales totaled $57.0 million during the first half of 2024 compared with $48.2 million during the same period of 2023.

Current wording

Net gains on sales of loans increased $593,000, or 32%, during the first nine months of 2024 compared with the first nine months of 2023. The increase during the first nine months of 2024 compared with the same period of 2023 was largely related to a higher volume of sales and modestly higher pricing for loans sold. Loan sales totaled $97.3 million during the first nine months of 2024 compared with $82.0 million during the same period of 2023.

Previous wording

The net loss on securities during the six months ended June 30, 2024 totaled $34,858,000 and was related to the net loss recognized on the securities restructuring transaction previously discussed.

Current wording

The net loss on securities during the nine months ended September 30, 2024 totaled $34,788,000 and was primarily related to the net loss recognized on the securities restructuring transaction previously discussed.

Previous wording

Salaries and benefits increased $854,000, or 4%, during the quarter ended June 30, 2024 compared with the second quarter of 2023. The increase in salaries and benefits during the second quarter of 2024 compared with the same period of 2023 was primarily related to an increase in costs of incentive compensation plans.

Current wording

Salaries and benefits decreased $629,000, or 3%, during the quarter ended September 30, 2024 compared with the third quarter of 2023. The decline in salaries and benefits during the third quarter of 2024 compared with the same period of 2023 was primarily due to a lower level of full-time equivalent employees resulting from the sale of the assets of GAI during the second quarter of 2024.

Previous wording

Data processing fees increased $216,000, or 8%, during the second quarter of 2024 compared with the second quarter of 2023. The increase during the second quarter of 2024 compared with the second quarter of 2023 was largely driven by costs associated with enhancements to the Company’s digital banking systems.

Current wording

Data processing fees increased $437,000, or 16%, during the third quarter of 2024 compared with the third quarter of 2023. The increase during the third quarter of 2024 compared with the third quarter of 2023 was largely driven by costs associated with enhancements to the Company’s digital banking systems.

Previous wording

Professional fees increased $1,848,000, or 114%, in the second quarter of 2024 compared with the second quarter of 2023. The increase during the second quarter of 2024 compared with the second quarter of 2023 was largely attributable to the professional fees associated with the sale of assets of GAI and the recently announced pending merger transaction with Heartland totaling $1,904,000.

Current wording

Professional fees increased $683,000, or 56%, in the third quarter of 2024 compared with the third quarter of 2023. The increase during the third quarter of 2024 compared with the same period of 2023 was primarily attributable to the professional fees associated with the pending merger transaction with Heartland.

Previous wording

Intangible amortization expense consists primarily of amortization associated with the core deposit intangible of acquired deposit portfolios. The core deposit intangibles are generally amortized on an accelerated basis over a period of six to ten years. Intangible Amortization decreased $202,000, or 28%, during the quarter ended June 30, 2024 compared with the same period of the prior year. The decrease in the second quarter of 2024 compared with the same period of the prior year was primarily attributable to the accelerated method for which the intangible assets are amortized.

Current wording

Intangible amortization expense consists primarily of amortization associated with the core deposit intangible of acquired deposit portfolios. The core deposit intangibles are generally amortized on an accelerated basis over a period of six to ten years. Intangible Amortization decreased $201,000, or 29%, during the quarter ended September 30, 2024 compared with the same period of the prior year with the decrease in the third quarter of 2024 primarily attributable to the accelerated method for which the intangible assets are amortized.

Previous wording

During the six months ended, June 30, 2024, non-interest expense totaled $74,412,000, an increase of $1,070,000, or 1%, compared to the first half of 2023. The increase in non-interest expenses during the first half of 2024 was primarily the result of professional fees related to the previously mentioned GAI asset sale and the recently announced pending merger transaction with Heartland, which totaled approximately $1,904,000.

Current wording

During the nine months ended September 30, 2024, non-interest expense totaled $110,538,000, an increase of $1,775,000, or 2%, compared to the first nine months of 2023. The increase in non-interest expenses during the first half of 2024 was primarily the result of professional fees related to the previously mentioned GAI asset sale and the pending merger transaction with Heartland, which totaled approximately $2,636,000.

Previous wording

Data processing fees increased $272,000, or 5%, during the first half of 2024 compared with the first half of 2023, largely driven by costs associated with enhancements to the Company’s digital banking systems.

Current wording

Data processing fees increased $709,000, or 9%, during the first three quarters of 2024 compared with the first nine months of 2023, largely driven by costs associated with enhancements to the Company’s digital banking systems as well as costs related to continued data system enhancements.

Previous wording

Professional fees increased $1,881,000, or 59%, during the six months ended June 30, 2024 compared with the same period of 2023. The increase during the first six months of 2024 compared with the first six months of 2023 was largely attributable to the professional fees associated with the sale of assets of GAI and the recently announced pending merger transaction with Heartland totaling $1,904,000.

Current wording

Professional fees increased $2,564,000, or 58%, during the nine months ended September 30, 2024 compared with the same period of 2023. The increase during the first nine months of 2024 compared with the first nine months of 2023 was largely attributable to the professional fees associated with the sale of assets of GAI and the pending merger transaction with Heartland totaling $2,636,000.

Previous wording

Intangible amortization expense consists primarily of amortization associated with the core deposit intangible of acquired deposit portfolios. Intangible Amortization decreased $409,000, or 27%, during the six months ended June 30, 2024 compared with the same period of the prior year which was largely related to the accelerated method for which the intangible assets are amortized.

Current wording

Intangible amortization expense consists primarily of amortization associated with the core deposit intangible of acquired deposit portfolios. Intangible Amortization decreased $610,000, or 28%, during the nine months ended September 30, 2024 compared with the same period of the prior year which was largely related to the accelerated method for which the intangible assets are amortized.

Previous wording

The Company’s effective income tax rate was 22.8% and 17.7%, respectively, during the three months ended June 30, 2024 and 2023. The Company’s effective income tax rate was 20.5% and 17.7%, respectively, during the six months ended June 30, 2024 and 2023. The increase in effective tax rate for the three months and six months ended June 30, 2024 as compared to the same periods of the prior year were primarily attributable to the previously mentioned sale of GAI assets and the securities restructuring transaction. The effective tax rate in all periods presented was lower than the blended statutory rate resulting primarily from the Company’s tax-exempt investment income on securities, loans and company-owned life insurance, income tax credits generated from affordable housing projects, and income generated by subsidiaries domiciled in a state with no state or local income tax.

Current wording

The Company’s effective income tax rate was 17.9% and 17.6%, respectively, during the three months ended September 30, 2024 and 2023. The Company’s effective income tax rate was 19.6% and 17.7%, respectively, during the nine months ended September 30, 2024 and 2023. The increase in effective tax rate for the nine months ended September 30, 2024 as compared to the same period of the prior year was primarily attributable to the previously mentioned sale of GAI assets and the securities restructuring transaction. The effective tax rate in all periods presented was lower than the blended statutory rate resulting primarily from the Company’s tax-exempt investment income on securities, loans and company-owned life insurance, income tax credits generated from affordable housing projects, and income generated by subsidiaries domiciled in a state with no state or local income tax.

Previous wording

Total assets for the Company totaled $6.217 billion at June 30, 2024, representing an increase of $64.7 million compared with December 31, 2023. The increase in total assets at June 30, 2024 compared with December 31, 2023 was largely related to an increase in total loans and federal funds sold and other short-term investments, partially offset by a decline in the securities portfolio.

Current wording

Total assets for the Company totaled $6.261 billion at September 30, 2024, representing an increase of $108.7 million compared with December 31, 2023. The increase in total assets at September 30, 2024 compared with December 31, 2023 was largely related to an increase in total loans and federal funds sold and other short-term investments, partially offset by a decline in the securities portfolio.

Previous wording

Securities available-for-sale declined $223.0 million as of June 30, 2024 compared with December 31, 2023. The decline at June 30, 2024 in the available-for-sale securities portfolio compared with year end 2023 was largely the result of the Company’s utilization of cash flows from the securities portfolio to fund loan growth in addition to the timing of the sale and reinvestment of proceeds related to the restructuring transaction.

Current wording

Securities available-for-sale declined $48.8 million as of September 30, 2024 compared with December 31, 2023. The decline at September 30, 2024 in the available-for-sale securities portfolio compared with year end 2023 was largely the result of the Company’s utilization of cash flows from the securities portfolio to fund loan growth.

Previous wording

During June 2024, the Company commenced a securities portfolio restructuring transaction whereby available-for-sale securities totaling approximately $375 million in book value were identified to be sold. As of June 30, 2024, $175 million of securities had been sold with the remaining $200 million sold during early July 2024. The tax-equivalent yield on the bonds sold was approximately 3.12% with a duration of approximately 7 years. Approximately $80 million of the proceeds of the securities sold were reinvested into the securities portfolio as of June 30, 2024. It is anticipated the remainder of the proceeds from the sale will be reinvested back into the securities portfolio.

Current wording

During June 2024, the Company commenced a securities portfolio restructuring transaction whereby available-for-sale securities totaling approximately $375 million in book value were identified to be sold. As of June 30, 2024, $175 million of securities had been sold with the remaining $200 million sold during early July 2024. The tax-equivalent yield on the bonds sold was approximately 3.12% with a duration of approximately 7 years. Approximately $80 million of the proceeds of the securities sold were reinvested into the securities portfolio as of June 30, 2024 with the remainder reinvested during the third quarter of 2024.

Previous wording

June 30, 2024 total loans increased $66.4 million, or 3% on an annualized basis, compared with December 31, 2023. The increase during the first half of 2024 compared with December 31, 2023 was broad-based across most segments of the portfolio. Commercial and industrial loans increased $2.9 million, or 1% on an annualized basis, commercial real estate loans increased $50.6 million, or 5% on an annualized basis, and retail loans grew by $22.9 million, or 6% on an annualized basis. Partially offsetting these increases was a decline in agricultural loans of $10.1 million, or 5% on an annualized basis, as line of credit utilization declined in this segment.

Current wording

September 30, 2024 total loans increased $91.5 million, or 3% on an annualized basis, compared with December 31, 2023. The increase during the first nine months of 2024 compared with December 31, 2023 was broad-based across most segments of the portfolio. Commercial and industrial loans increased $8.6 million, or 2% on an annualized basis, commercial real estate loans increased $58.1 million, or 4% on an annualized basis, and retail loans grew by $31.1 million, or 5% on an annualized basis. Partially offsetting these increases was a decline in agricultural loans of $6.3 million, or 2% on an annualized basis, as line of credit utilization declined in this segment.

Previous wording

The Company’s commercial real estate loan portfolio is further diversified by occupancy type, with approximately 76% of the CRE portfolio being non-owner occupied at June 30, 2024 (which is 41% of the Company’s overall loan portfolio), and 24% of the CRE portfolio being owner occupied (which is 13% of the Company’s total loan portfolio). At December 31, 2023, the Company’s commercial real estate loan portfolio was diversified by occupancy type, with approximately 77% of the CRE portfolio being non-owner occupied (which was 41% of the Company’s overall loan portfolio), and 23% of the CRE portfolio being owner occupied (which was 12% of the Company’s total loan portfolio).

Current wording

The Company’s commercial real estate loan portfolio is further diversified by occupancy type, with approximately 77% of the CRE portfolio being non-owner occupied at September 30, 2024 (which is 41% of the Company’s overall loan portfolio), and 23% of the CRE portfolio being owner occupied (which is 12% of the Company’s total loan portfolio). At December 31, 2023, the Company’s commercial real estate loan portfolio was diversified by occupancy type, with approximately 77% of the CRE portfolio being non-owner occupied (which was 41% of the Company’s overall loan portfolio), and 23% of the CRE portfolio being owner occupied (which was 12% of the Company’s total loan portfolio).

Previous wording

The Company’s allowance for credit losses totaled $43.9 million at June 30, 2024 compared to $43.8 million at December 31, 2023. The allowance for credit losses represented 1.09% of period-end loans at June 30, 2024 compared with 1.10% at December 31, 2023. Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses. As of June 30, 2024, the Company held net discounts on acquired loans of $3.3 million.

Current wording

The Company’s allowance for credit losses totaled $44.1 million at September 30, 2024 compared to $43.8 million at December 31, 2023. The allowance for credit losses represented 1.09% of period-end loans at September 30, 2024 compared with 1.10% at December 31, 2023. Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses. As of September 30, 2024, the Company held net discounts on acquired loans of $3.1 million.

Previous wording

Non-performing assets totaled $7.3 million at June 30, 2024 compared to $9.2 million at December 31, 2023. Non-performing assets represented 0.12% of total assets at June 30, 2024 compared to 0.15% at year-end 2023. Non-performing loans totaled $7.3 million at June 30, 2024 compared to $9.2 million at December 31, 2023. Non-performing loans represented 0.18% of total loans at June 30, 2024 compared to 0.23% at December 31, 2023.

Current wording

Non-performing assets totaled $9.7 million at September 30, 2024 compared to $9.2 million at December 31, 2023. Non-performing assets represented 0.15% of total assets at September 30, 2024 consistent with 0.15% at year-end 2023. Non-performing loans totaled $9.7 million at September 30, 2024 compared to $9.2 million at December 31, 2023. Non-performing loans represented 0.24% of total loans at September 30, 2024 compared to 0.23% at December 31, 2023.

Previous wording

June 30, 2024 total deposits increased $60.6 million, or 2% on an annualized basis, compared to December 31, 2023. The increase at June 30, 2024 compared to December 31, 2023 was largely attributable to seasonal inflows of public entity funds. The Company has continued to see customer movement from both interest bearing and non-interest bearing transactional accounts to time deposits due primarily to a higher interest rate environment. Non-interest bearing deposits have remained relatively stable as a percent of total deposits with June 30, 2024 non-interest deposits totaling 27% of total deposits while non-interest deposits totaled 28% of total deposits at December 31, 2023. The deposit base remains diverse with stable and manageable exposure to uninsured and uncollaterized deposits of approximately 22% of total deposits.

Current wording

September 30, 2024 total deposits increased $18.3 million, or approximately 1% on an annualized basis, compared to December 31, 2023. The Company has continued to see customer movement from both interest bearing and non-interest bearing transactional accounts to time deposits due primarily to a higher interest rate environment. Non-interest bearing deposits have remained relatively stable as a percent of total deposits with September 30, 2024 non-interest deposits totaling 27% of total deposits while non-interest deposits totaled 28% of total deposits at December 31, 2023. The deposit base remains diverse with stable and manageable exposure to uninsured and uncollaterized deposits of approximately 22% of total deposits.