FIRST INTERSTATE BANCSYSTEM INC

Previous wording

Fully-Taxable Equivalent Basis. The Company adjusts its net interest income to include its FTE interest income and exclude purchase accounting interest accretion on acquired loans. Interest income, yields, and ratios on an FTE basis are considered non-GAAP financial measures. Net interest margin (FTE) is calculated as annualized net interest income on a FTE basis divided by adjusted average earning assets. Management believes net interest income on an FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal statutory tax rate of 21 percent. These measures are considered standard measures of comparison within the banking industry. We encourage readers to consider the Unaudited Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure. See Non-GAAP Financial Measures included herein for a reconciliation to the most directly comparable GAAP financial measures.

Current wording

Fully-Taxable Equivalent Basis. The Company adjusts its net interest income to include its interest income on a fully-taxable equivalent (FTE) basis and further adjusts to exclude purchase accounting interest accretion on acquired loans. Interest income, yields, and ratios on an FTE basis are considered non-GAAP financial measures. Net interest margin (FTE) is calculated as annualized net interest income on a FTE basis divided by average earning assets. Management believes net interest income on an FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal statutory tax rate of 21 percent. These measures are considered standard measures of comparison within the banking industry. We encourage readers to consider the Unaudited Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure. See Non-GAAP Financial Measures included herein for a reconciliation to the most directly comparable GAAP financial measures.

Previous wording

The Company has ample liquidity and the capital ratios exceed all regulatory requirements to be deemed “well-capitalized” as of March 31, 2024. Our deposit base is diversified, including by depositor, which includes individuals, businesses across multiple industries, governmental units, and other entities, as well as geographically, across the communities we serve. As of March 31, 2024, our FDIC insured deposits consisted of 66.0% of total deposits, including accounts eligible for pass-through insurance.

Current wording

The Company has ample liquidity and the capital ratios exceed all regulatory requirements to be deemed “well-capitalized” as of June 30, 2024. Our deposit base is diversified, including by depositor, which includes individuals, businesses across multiple industries, governmental units, and other entities, as well as geographically, across the communities we serve.

Previous wording

As of April 30, 2024, the Bank had available borrowing capacity of $4.0 billion with the FHLB and $1.2 billion with the FRB based on pledged investment securities and loan collateral.

Current wording

As of June 30, 2024, our FDIC insured deposits consisted of 64.6% of total deposits, including accounts eligible for pass-through insurance. As of July 29, 2024, the Bank had available borrowing capacity of $4.2 billion with the FHLB and $1.0 billion with the Federal Reserve Bank (“FRB”) based on pledged investment securities and loan collateral.

Previous wording

U.S. inflation data hit a multi-decade high in June 2022, climbing to 9.1%, as reported by the Bureau of Labor Statistics, decreasing to 3.0% in June 2023, with a modest increase to 3.5% in March 2024. While our operating expenses are affected by general inflation, the asset and liability structure of the Company largely consists of monetary items. Monetary items, such as cash, investments, loans, deposits and other borrowings, are assets and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes in interest rates have a more significant impact on a financial institution’s performance than does general inflation. However, inflation may have negative impacts on the Company’s clients and their customers, impacting their ability or willingness to repay loans or maintain deposits.

Current wording

U.S. inflation data hit a multi-decade high in June 2022, climbing to 9.1%, as reported by the Bureau of Labor Statistics, however we’ve now seen a meaningful decrease to 3.0% as of June 2024. While our operating expenses are affected by general inflation, the asset and liability structure of the Company largely consists of monetary items. Monetary items, such as cash, investments, loans, deposits and other borrowings, are assets and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes in interest rates have a more significant impact on a financial institution’s performance than does general inflation. However, despite the more recent declines, inflationary pressures from the last two years may still have negative impacts on the Company’s clients and their customers, impacting their ability or willingness to repay loans or maintain deposits.

Previous wording

The Federal Reserve stated its current objective is to return the rate of inflation to 2% and it has been aggressively acting to achieve this goal. In response to sustained inflationary pressures, the Federal Reserve increased short-term interest rates 525 basis points between March 16, 2022 and July 26, 2023. With general inflationary pressures easing, the Federal Reserve has paused activity with the short-term interest rates since July 2023 and has not yet provided definitive guidance on any further increases or decreases of short-term interest rates.

Current wording

The Federal Reserve stated its current objective is to return the rate of inflation to 2.0% and it is closely monitoring the progress that has been made to achieve this goal. The Federal Reserve increased short-term interest rates 525 basis points between March 16, 2022 and July 29, 2023. With general inflationary pressures easing, the Federal Reserve has paused activity with the short-term interest rates since July 2023 and has not yet provided definitive guidance on any further changes to short-term interest rates.

Previous wording

The Company’s quarterly yield on interest earning assets increased to 4.74% as of March 31, 2024 from 4.69% as of December 31, 2023, and 4.43% as of March 31, 2023.

Current wording

The Company’s quarterly yield on interest earning assets increased to 4.80% as of June 30, 2024 from 4.74% as of March 31, 2024, and 4.52% as of June 30, 2023.

Previous wording

Increases in short-term interest rates have also impacted the Company’s cost of funds, primarily as a result of the shift of non-interest-bearing deposits into higher-cost interest-bearing and time deposit balances and variable rate debt. The Company’s cost of funds increased to 1.87% during the three months ended March 31, 2024, from 1.72% during the three months ended December 31, 2023, and 1.10% during the three months ended March 31, 2023. Overall, the change in the mix and cost of funds has offset the changes in the mix and yield on earning assets, resulting in compression of the Company’s net interest margin to 2.91% during the three months ended March 31, 2024, from 2.99% during the three months ended December 31, 2023, and 3.33% during the three months ended March 31, 2023. The Company’s FTE net interest margin decreased to 2.93% during the three months ended March 31, 2024, from 3.01% during the three months ended December 31, 2023, and 3.36% during the three months ended March 31, 2023.

Current wording

The sustained level of short-term interest rates have also impacted the Company’s cost of funds, primarily resulting from the shift of non-interest-bearing deposits into higher-cost, interest-bearing, and time deposit balances as well as variable rate debt. The Company’s cost of funds decreased slightly to 1.86% during the three months ended June 30, 2024, from 1.87% during the three months ended March 31, 2024, and increased from 1.43% during the three months ended June 30, 2023. During the first half of 2024, the change in the mix and yield on earning assets has offset the changes in the mix and cost of funds, resulting in an increase of the Company’s net interest margin during the three months ended June 30, 2024 to 2.97% from 2.91% during the three months ended March 31, 2024. The change in mix and cost of funds more than offset the change in the mix and yield on earning assets as the net interest margin declined from 3.09% for the three months ended June 30, 2023. The Company’s FTE net interest margin increased to 3.00% during the three months ended June 30, 2024, from 2.93% during the three months ended March 31, 2024, and decreased from 3.12% during the three months ended June 30, 2023.

Previous wording

While gross domestic product has expanded at or above 2.0% from the second quarter of 2022 through the fourth quarter of 2023, it is unclear whether the volatility of 2020 through 2022 in the economic performance of the U.S. economy will re-emerge leading to an economic slowdown, downturn, or recession or whether its regular pattern of growth will continue. Any economic slowdown, downturn, or recession could impact the Company and one of its primary lending sources, by impacting the level of deposits held by our clients, whether through a higher volume of withdrawals or through a lower volume of deposits. The credit quality of the Company’s loans may also be impacted if clients must weather adverse economic conditions which could result in an increase in credit losses or other related expenses.

Current wording

A slowdown, downturn, or recession in the U.S. economy could impact the Company by impacting the level of deposits held by our clients, whether through a higher volume of withdrawals or through a lower volume of deposits. Client deposits are one of the Company’s primary lending sources. The credit quality of the Company’s loans may also be impacted if clients must weather adverse economic conditions which could result in an increase in credit losses or other related expenses.

Previous wording

As a banking institution, we manage and evaluate our financial condition and our results of operations. We monitor and evaluate the levels and trends of the line items included in our balance sheet and statements of income, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against both our own historical levels as well as the financial condition and performance of comparable banking institutions in our region and nationally.

Current wording

As a banking institution, we manage and evaluate our financial condition and our results of operations. We monitor and evaluate the levels and trends of the line items included in our balance sheet and statements of income, as well as various financial ratios that are commonly used in our industry and monitored by our regulators. We analyze these ratios and financial trends against both our own historical levels as well as the financial condition and performance of comparable banking institutions in our region and nationally.

Previous wording

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant accounting policies we follow are summarized in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as referenced in Note 1 to the unaudited financial statements in this quarterly report. There have been no material changes in our critical accounting estimates and policies described in our Annual Report on Form 10-K for the year ended December 31, 2023, during the quarterly period covered by this quarterly report.

Current wording

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant accounting policies we follow are summarized in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, and are also referenced in Note 1 to the unaudited financial statements in this quarterly report. There have been no material changes during the second quarter of 2024 in our critical accounting estimates and policies from the critical accounting estimates and policies as described in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

The preparation of financial statements in conformity with GAAP requires management to measure the Company’s financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on our operations is reflected in increased operating expenses. Management considers changes in interest rates to impact our financial condition and results of operations to a far greater degree than changes in prices due to inflation. We manage our interest rate risk in several ways. Refer to “Note – Derivatives and Hedging Activities” in the accompanying “Notes to Unaudited Consolidated Financial Statements” for further discussion on how we manage interest rate risk. There can be no assurance that we will not be materially adversely affected by future changes in interest rates, as interest rates are highly sensitive to many factors that are beyond our control.

Current wording

The preparation of financial statements in conformity with GAAP requires management to measure the Company’s financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. We manage our interest rate risk in several ways. Refer to “Note – Derivatives and Hedging Activities” in the accompanying “Notes to Unaudited Consolidated Financial Statements” for further discussion on how we manage interest rate risk. There can be no assurance that we will not be materially adversely affected by future changes in interest rates, as interest rates are highly sensitive to many factors that are beyond our control.

Previous wording

The following discussion and analysis is intended to provide detail about the results of our operations and financial condition.

Current wording

The following discussion and analysis is intended to provide detail about the results of our operations and financial condition. More information regarding the results as of December 31, 2023 can be found in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

Net income increased $2.1 million to $58.4 million, or $0.57 per share, during the three months ended March 31, 2024, as compared to net income of $56.3 million, or $0.54 per share, for the same period in 2023. The increase during the quarter ended March 31, 2024 when compared to the same period in 2023 was primarily attributable to an increase in non-interest income as a result of a $23.4 million loss on the disposition of available-for-sale investment securities during the 2023 period. This increase was partially offset by lower net interest income as a result of higher interest expense on deposits and other borrowed funds.

Current wording

Net income decreased $4.9 million to $118.4 million, or $1.15 per share during the six months ended June 30, 2024, as compared to net income of $123.3 million, or $1.19 per share for the same period in 2023. The decrease during the six months ended June 30, 2024 when compared to the same period in 2023 was primarily attributable to lower net interest income resulting from higher interest expense on interest-bearing liabilities. This decrease was partially offset by an increase in non-interest income resulting from a $23.4 million loss on the disposition of available-for-sale investment securities during the 2023 period as well as from lower non-interest expenses during the 2024 period.

Previous wording

For the periods indicated, the following table presents condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities.

Current wording

For the periods indicated, the following table presents average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities.

Previous wording

Net interest income decreased $38.8 million during the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to an increase in interest expense resulting from higher costs of interest-bearing liabilities.

Current wording

Net interest income decreased $16.7 million during the three months ended June 30, 2024, as compared to the same period in 2023, primarily due to an increase in interest expense resulting from higher costs of interest-bearing liabilities.

Previous wording

Net interest income included interest accretion related to the fair valuation of acquired loans of $6.5 million during the three months ended March 31, 2024, compared to interest accretion of $5.2 million during the three months ended March 31, 2023.

Current wording

Net interest income included interest accretion related to the fair valuation of acquired loans of $5.1 million during the three months ended June 30, 2024, compared to interest accretion of $4.6 million during the three months ended June 30, 2023.

Previous wording

Our net interest margin ratio decreased 42 basis points to 2.91% for the three months ended March 31, 2024, as compared to 3.33% for the same period in 2023 and our net FTE interest margin ratio, a non-GAAP financial measure, decreased 43 basis points for the three months ended March 31, 2024, as compared to the same period in 2023. Exclusive of the impact of interest accretion on acquired loans, the net FTE interest margin ratio, decreased 45 basis points to 2.84% during the three months ended March 31, 2024, as compared to 3.29% for the same period in 2023. The decreases in net interest margin ratio were primarily a result of higher interest bearing deposit and borrowing costs and a less favorable funding mix, which were partially offset by loan yield expansion and modestly favorable change in the mix of earning assets.

Current wording

Our net interest margin ratio decreased 12 basis points to 2.97% for the three months ended June 30, 2024, as compared to 3.09% for the same period in 2023 and our net FTE interest margin ratio, a non-GAAP financial measure, decreased 12 basis points for the three months ended June 30, 2024, as compared to the same period in 2023. Exclusive of the impact of interest accretion on acquired loans, the net FTE interest margin ratio, decreased 13 basis points to 2.92% during the three months ended June 30, 2024, as compared to 3.05% for the same period in 2023. The decreases in net interest margin ratio were primarily a result of higher interest bearing deposit and borrowing costs and a less favorable funding mix, which were partially offset by loan yield expansion and a modestly favorable change in the mix of earning assets.

Previous wording

The table below sets forth a summary of the changes in interest income and interest expense resulting from estimated changes in average asset and liability balances (volume) and estimated changes in average interest rates (referred to as “rate”) for the three months ended March 31, 2024 and 2023. Changes which are not due solely to volume or rate have been allocated to these categories based on the respective percent changes in average volume and average rate as they compare to each other.

Current wording

The table below sets forth a summary of the changes in interest income and interest expense resulting from estimated changes in average asset and liability balances (volume) and estimated changes in average interest rates (referred to as “rate”) for the three and the six months ended June 30, 2024 and 2023. Changes which are not due solely to volume or rate have been allocated to these categories based on the respective percent changes in average volume and average rate as they compare to each other.

Previous wording

The table below provides a reconciliation of the GAAP measure of net interest margin to the non-GAAP measure of net FTE interest margin.

Current wording

The table below provides a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measure.

Previous wording

The Company had a $5.3 million provision for credit losses during the three months ended March 31, 2024, as compared to $15.2 million during same period in 2023. The provision incorporated the impact of net charge-offs of $8.4 million, or an annualized 0.18% of average loans outstanding during the three months ended March 31, 2024, as compared to $6.2 million, or an annualized 0.14%, during the same period in 2023. Net loan charge-offs in the first quarter of 2024 were composed of charge-offs of $11.0 million and recoveries of $2.6 million.

Current wording

The Company had a $9.0 million provision for credit losses, which included a provision for credit losses of $18.6 million on loans held for investment and a reduction of credit losses for unfunded commitments of $9.6 million during the three months ended June 30, 2024, as compared to an $11.7 million provision for credit losses during same period in 2023. The provision incorporated the impact of credit movement during the quarter, changes in loan balances, and net charge-offs of $13.5 million, or an annualized 0.30% of average loans outstanding during the three months ended June 30, 2024, as compared to $11.4 million, or an annualized 0.25% of average loans outstanding during the same period in 2023. Net loan charge-offs in the second quarter of 2024 were composed of charge-offs of $16.3 million, including a $6.8 million charge-off related to a construction real estate loan, and recoveries of $2.8 million.

Previous wording

Total non-interest income increased $25.7 million for the three months ended March 31, 2024, as compared to the same period in 2023. The increase was primarily the result of the realized loss of $23.4 million on the disposition of available-for-sale investment securities and a $1.9 million loss related to the fair value of loans held for sale recognized through other income during the three months ended March 31, 2023.

Current wording

Total non-interest income decreased $1.5 million for the three months ended June 30, 2024, as compared to the same period in 2023 and increased $24.2 million for the six months ended June 30, 2024, as compared to the same period in 2023. The decrease for the three months ended June 30, 2024 reflects lower incentives related to growth in our credit card volume. The increase for the six months ended June 30, 2024 was primarily the result of the realized loss of $23.4 million on the disposition of available-for-sale investment securities and a $1.9 million loss related to the fair value of loans held for sale recognized through other income during the six months ended June 30, 2023, which is partially offset by lower incentives related to growth in our credit card volume during the six months ended June 30, 2024.

Previous wording

Non-interest expense decreased $5.6 million during the three months ended March 31, 2024 compared to the same period in 2023 driven by a lower employee benefits and other expenses which were partially offset by increases in professional fees, OREO expenses, and FDIC insurance premiums.

Current wording

Non-interest expense decreased $7.0 million during the three months ended June 30, 2024 compared to the same period in 2023 and decreased $12.6 million during the six months ended June 30, 2024 as compared to the same period in 2023. The decreases were driven by lower salaries and wages, employee benefits, software costs, and other expenses. These decreases were partially offset by increases in OREO expenses and FDIC insurance premiums.

Previous wording

Employee benefits expense decreased $3.5 million during the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to lower health insurance costs of $2.1 million and lower payroll taxes of $1.8 million, partially offset by higher long-term incentive accruals of $0.6 million.

Current wording

Employee benefits expense decreased $2.4 million during the three months ended June 30, 2024 and decreased $5.9 million during the six months ended June 30, 2024, as compared to the same periods in 2023. The decreases are primarily due to lower health insurance costs and lower payroll taxes, partially offset by higher long-term incentive accruals.

Previous wording

Outsourced technology services expense decreased $1.1 million during the three months ended March 31, 2024, as compared to the same period in 2023 primarily due to a decrease in software maintenance costs.

Current wording

Outsourced technology services expense decreased $1.3 million during the three months ended June 30, 2024, as compared to the same period in 2023 and decreased $2.4 million during the six months ended June 30, 2024, as compared to the same periods in 2023, primarily due to cost efficiencies realized related to software maintenance costs.

Previous wording

Professional fees increased $2.3 million during the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to an increase in audit fees related to certain control deficiencies and higher fees related to a change in audit firm, along with consulting services related to process improvements.

Current wording

Professional fees decreased $0.2 million during the three months ended June 30, 2024 and increased $2.1 million during the six months ended June 30, 2024, as compared to the same periods in 2023. The increase during the six months ended June 30, 2024 was primarily due to an increase in audit fees, along with consulting services related to process improvements.

Previous wording

FDIC insurance premiums increased $1.7 million during the three months ended March 31, 2024 compared to the same period in 2023, primarily resulting from a $1.5 million special assessment accrual recorded during the three months ended March 31, 2024.

Current wording

FDIC insurance premiums increased $1.9 million during the three months ended June 30, 2024 and increased $3.6 million during the six months ended June 30, 2024, compared to the same periods in 2023, primarily resulting from a $1.5 million special assessment accrual recorded during the six months ended June 30, 2024.

Previous wording

Other expenses primarily include advertising and public relations costs; office supply, postage, freight, telephone, and travel expenses; donations expense; debit and credit card expenses; board of director fees; legal expenses; and other losses. Other expenses decreased $5.0 million during the three months ended March 31, 2024 compared to the same period in 2023, primarily resulting from decreases in fraud losses, travel costs, and heightened awareness of our cost saving initiatives.

Current wording

Other expenses primarily include advertising and public relations costs; office supply, postage, freight, telephone, and travel expenses; donations expense; debit and credit card expenses; board of director fees; legal expenses; and other losses. Other expenses decreased $4.0 million during the three months ended June 30, 2024 and decreased $9.0 million during the six months ended June 30, 2024, compared to the same periods in 2023, primarily resulting from decreases in credit card reward accruals, new market tax credit amortization expenses, which moved to income tax expenses, as a result of the adoption of ASU 2023-02, fraud losses, travel costs, and continued focus on our cost saving initiatives.

Previous wording

Total assets decreased $526.4 million, or 1.7%, to $30,144.8 million as of March 31, 2024, from $30,671.2 million as of December 31, 2023, primarily due to decreases in investment securities and loans. Significant fluctuations in balance sheet accounts are discussed below. More information regarding the results as of December 31, 2023 can be found in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Total assets decreased $381.7 million, or 1.2%, to $30,289.5 million as of June 30, 2024, from $30,671.2 million as of December 31, 2023, primarily due to decreases in investment securities, partially offset by an increase in cash and cash equivalents. Significant fluctuations in balance sheet accounts are discussed below. More information regarding the results as of December 31, 2023 can be found in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

We manage our investment portfolio primarily as a source of liquidity. In doing so, we seek to obtain the highest risk adjusted return within our risk tolerance and liquidity guidelines, while satisfying the pledging requirements for deposits of state and political subdivisions and securities sold under repurchase agreements. Our portfolio principally comprises U.S. treasuries, U.S. government agency residential and commercial mortgage-backed securities and collateralized mortgage obligations, U.S. government agency, collateralized loan obligations, corporate securities, and tax-exempt securities. Federal funds sold and interest-bearing deposits in the Bank are additional investments that are classified as cash equivalents rather than as investment securities. Investment securities classified as available-for-sale are recorded at fair value, while investment securities classified as held-to-maturity are recorded at amortized cost. Unrealized gains or losses, net of the deferred tax effect, on available-for-sale securities are reported as increases or decreases in accumulated other comprehensive income or loss, a component of stockholders’ equity.

Current wording

We manage our investment portfolio primarily as a source of liquidity. In doing so, we seek to obtain the highest risk adjusted return within our risk tolerance and liquidity guidelines, while satisfying the pledging requirements for deposits of state and political subdivisions and securities sold under repurchase agreements. Our portfolio is primarily comprised of U.S. treasuries, U.S. government agency residential and commercial mortgage-backed securities and collateralized mortgage obligations, U.S. government agency, collateralized loan obligations, corporate securities, and tax-exempt securities. Federal funds sold and interest-bearing deposits in the Bank are additional investments that are classified as cash equivalents rather than as investment securities. Investment securities classified as available-for-sale are recorded at fair value, while investment securities classified as held-to-maturity are recorded at amortized cost. Unrealized gains or losses, net of the deferred tax effect, on available-for-sale securities are reported as increases or decreases in accumulated other comprehensive income or loss, a component of stockholders’ equity.

Previous wording

Investment securities decreased $423.3 million, or 4.7%, to $8,626.1 million, or 28.6% of total assets, as of March 31, 2024, from $9,049.4 million, or 29.5% of total assets, as of December 31, 2023. The decrease was primarily resulting from normal pay-downs and maturities and $26.4 million decline in fair market values, partially offset by $77.2 million of reinvestment into investment securities.

Current wording

Investment securities decreased $647.8 million, or 7.2%, to $8,401.6 million, or 27.7% of total assets, as of June 30, 2024, from $9,049.4 million, or 29.5% of total assets, as of December 31, 2023. The decrease was primarily resulting from normal pay-downs and maturities and $23.9 million decline in fair market values, partially offset by $77.2 million of reinvestment into investment securities.

Previous wording

As of March 31, 2024 and December 31, 2023, the estimated duration of our investment portfolio was 3.6 years.

Current wording

As of June 30, 2024 and December 31, 2023, the estimated duration of our investment portfolio was 3.5 years.

Previous wording

As of March 31, 2024 and December 31, 2023, we had $7,024.8 million and $8,284.5 million, respectively, of investment securities that had been in a continuous loss position for more than twelve months. At March 31, 2024 and December 31, 2023, the Company hadno allowance for credit losses on available-for-sale securities and an allowance for credit losses on held-to maturity securities classified as corporate and municipal securities of $0.7 million and $0.8 million, respectively.

Current wording

As of June 30, 2024 and December 31, 2023, we had $6,706.0 million and $8,284.5 million, respectively, of investment securities that had been in a continuous loss position for more than twelve months. At June 30, 2024 and December 31, 2023, the Company hadno allowance for credit losses on available-for-sale securities and an allowance for credit losses on held-to maturity securities classified as corporate and municipal securities of $0.7 million and $0.8 million, respectively.

Previous wording

Loans held for investment, net of deferred fees and costs, decreased $76.8 million as of March 31, 2024 as compared to December 31, 2023, primarily due to seasonal pay downs in agricultural loans.

Current wording

Loans held for investment, net of deferred fees and costs, decreased $44.6 million as of June 30, 2024 as compared to December 31, 2023.

Previous wording

Non-accrual loans. We generally place loans on non-accrual status when they become 90 days past due unless they are well secured and in the process of collection or if the collection of principal and interest is in doubt. When a loan is placed on non-accrual status, any interest previously accrued but not collected is reversed from income. Non-accrual loans increased approximately $65.6 million, or 61.7%, to $172.0 million, as of March 31, 2024, from $106.4 million as of December 31, 2023, primarily driven by a loan downgrade related to a single $54.4 million commercial and industrial loan relationship. As of March 31, 2024 there were approximately $52.8 million of non-accrual loans for which there was no related allowance for credit losses, as these loans had sufficient collateral securing the loan for repayment.

Current wording

Non-accrual loans. We generally place loans on non-accrual status when they become 90 days past due unless they are well secured and in the process of collection or if the collection of principal and interest is in doubt. When a loan is placed on non-accrual status, any interest previously accrued but not collected is reversed from income. Non-accrual loans increased approximately $59.2 million, or 55.6%, to $165.6 million, as of June 30, 2024, from $106.4 million as of December 31, 2023, primarily driven by a loan downgrade in the first quarter of 2024 related to a single $54.4 million commercial and industrial loan relationship. As of June 30, 2024 there were approximately $57.9 million of non-accrual loans for which there was no related allowance for credit losses, as these loans had sufficient collateral securing the loan for repayment.

Previous wording

Loans contractually past due 90 days or more and still accruing interest. Loans past due 90 days or more accruing interest were $3.0 million as of March 31, 2024, a decrease of $1.9 million, or 38.8%, from $4.9 million as of December 31, 2023.

Current wording

Loans contractually past due 90 days or more and still accruing interest. Loans past due 90 days or more accruing interest were $2.6 million as of June 30, 2024, a decrease of $2.3 million, or 46.9%, from $4.9 million as of December 31, 2023.

Previous wording

Other Real Estate Owned (“OREO”). OREO consists of real property acquired through foreclosure on the collateral underlying defaulted loans. We initially record OREO at fair value less estimated selling costs. Any excess of loan carrying value over the fair value of the real estate at the time it is acquired, is recorded as a charge against the allowance for credit losses. Estimated losses that result from the ongoing periodic valuation of these properties are charged to earnings in the period in which they are identified. OREO decreased $2.1 million, or 12.7%, to $14.4 million as of March 31, 2024, from $16.5 million as of December 31, 2023 resulting from valuation write-downs of two specific OREO properties.

Current wording

Other Real Estate Owned (“OREO”). OREO consists of real property acquired through foreclosure on the collateral underlying defaulted loans. We initially record OREO at fair value less estimated selling costs. Any excess of loan carrying value over the fair value of the real estate at the time it is acquired, is recorded as a charge against the allowance for credit losses. Estimated losses that result from the ongoing periodic valuation of these properties are charged to earnings in the period in which they are identified. OREO decreased $9.8 million, or 59.4%, to $6.7 million as of June 30, 2024, from $16.5 million as of December 31, 2023 resulting from the disposal of a $9.0 million agricultural real estate property.

Previous wording

(3)General valuation allowances determined based on asset quality trends, industry concentrations, environmental risks, changes in portfolio composition, and other qualitative risk factors, both internal and external to the Company. Other qualitative factors, including changes in loan and lending policies, collateral quality, underwriting standards and personnel, credit review quality, and model imprecision, are also considered.

Current wording

(3)Qualitative allowance adjustments are determined based on asset quality trends, industry concentrations, environmental risks, changes in portfolio composition, and other qualitative risk factors, both internal and external to the Company. Other qualitative factors, including changes in loan and lending policies, collateral quality, underwriting standards and personnel, credit review quality, and model imprecision, are also considered.

Previous wording

Our allowance for credit losses was $227.7 million, or 1.25% of loans held for investment as of March 31, 2024 compared to $227.7 million, or 1.25% of loans held for investment, as of December 31, 2023. The Company’s allowance for off-balance sheet credit losses was $15.4 million as of March 31, 2024, compared to $18.4 million as of December 31, 2023, due to a decline in off-balance sheet commitments.

Current wording

Our allowance for credit losses was $232.8 million, or 1.28% of loans held for investment as of June 30, 2024 compared to $227.7 million, or 1.25% of loans held for investment, as of December 31, 2023. The Company’s allowance for off-balance sheet credit losses was $5.8 million as of June 30, 2024, compared to $18.4 million as of December 31, 2023, due to a decline in off-balance sheet commitments.

Previous wording

Although we have established our allowance for credit losses in accordance with GAAP in the United States and we believe that the allowance for credit losses is appropriate to provide for known and expected losses in the portfolio at all times, future provisions will be subject to on-going evaluations of the risks in the loan portfolio. If the economy declines or asset quality deteriorates, material additional provisions could be required.

Current wording

Although we have established our allowance for credit losses in accordance with GAAP in the United States and we believe that the allowance for credit losses is appropriate to provide for known and expected losses in the portfolio, future provisions will be subject to on-going evaluations of the risks in the loan portfolio. If the economy declines or asset quality deteriorates, material additional provisions could be required.

Previous wording

Total liabilities decreased $508.6 million, or 1.9%, to $26,935.1 million as of March 31, 2024, from $27,443.7 million as of December 31, 2023, primarily due to decreases in deposits and other borrowed funds, partially offset by an increase in long-term debt. Significant fluctuations in liability accounts are discussed below.

Current wording

Total liabilities decreased $379.5 million, or 1.4%, to $27,064.2 million as of June 30, 2024, from $27,443.7 million as of December 31, 2023, primarily due to decreases in deposits and other borrowed funds, partially offset by an increase in long-term debt resulting from a restructure of our short-term borrowings during the first quarter of 2024. Significant fluctuations in liability accounts are discussed below.