FIRST INTERSTATE BANCSYSTEM INC

Previous wording

The following discussion of our consolidated financial data reflects our historical results of operations and financial condition and should be read in conjunction with our financial statements and related notes thereto presented elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023, including the audited financial statements and related notes contained therein, as previously filed with the Securities and Exchange Commission, or SEC.

Current wording

The following discussion of our consolidated financial data reflects our historical results of operations and financial condition and should be read in conjunction with our financial statements and accompanying notes presented elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023, including the audited financial statements and related notes contained therein, as previously filed with the Securities and Exchange Commission, or SEC.

Previous wording

In addition to financial measures presented in accordance with GAAP, this document contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding our results of operations or financial position. The Company’s management believes that the non-GAAP financial measures provide additional understanding of ongoing operations and enhance comparability of results of operations with prior periods presented without the impact of items or events that may obscure trends in the Company’s underlying performance. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

Current wording

In addition to financial measures presented in accordance with generally accepted accounting principles (“GAAP”) in the United States, this document contains non-GAAP financial measures where management believes it would be helpful to understand our results of operations or financial position. The Company’s management believes that the non-GAAP financial measures provide additional intelligence about ongoing operations and enhance comparability of results of operations with prior periods by presenting financial results without the impact of items or events that may obscure trends in the Company’s underlying performance. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

Previous 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.

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 an 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

Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently. These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results.

Current wording

Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that other companies might calculate these measures differently. These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results.

Previous wording

We are a financial and bank holding company focused on community banking. Since our incorporation in Montana in 1971, we have grown both organically and through strategic acquisitions. We operate 304 banking offices, including branches and detached drive-up facilities, in communities across fourteen states—Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming. Through our bank subsidiary, First Interstate Bank, we deliver a comprehensive range of banking products and services—including online and mobile banking—to individuals, businesses, government entities, and others throughout our market areas. We are proud to provide lending opportunities to clients that participate in a wide variety of industries, including:

Current wording

We are a financial and bank holding company focused on community banking. Since our incorporation in Montana in 1971, we have grown both organically and through strategic acquisitions. We operate 299 banking offices, including branches and detached drive-up facilities, in communities across fourteen states—Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming. Through our bank subsidiary, First Interstate Bank, we deliver a comprehensive range of banking products and services—including online and mobile banking—to individuals, businesses, government entities, and others throughout our market areas. We are proud to provide lending opportunities to clients that participate in a wide variety of industries, including:

Previous wording

Our principal business activity is lending to, accepting deposits from, and conducting financial transactions with and for individuals, businesses, governmental units, and other entities located in the communities we serve. We derive our income principally from interest charged on loans and, to a lesser extent, from interest and dividends earned on fixed income investments.

Current wording

Our principal business activity is lending to, accepting deposits from, and conducting financial transactions with or for individuals, businesses, governmental units, and other entities located in the communities we serve. We derive our income principally from interest charged on loans and, to a lesser extent, from interest and dividends earned on fixed income investments.

Previous 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.

Current wording

As of September 30, 2024, our FDIC insured deposits consisted of 65.0% of total deposits, including accounts eligible for pass-through insurance. As of October 28, 2024, the Bank had available borrowing capacity of $4.7 billion with the FHLB and $0.9 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, 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.

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 have now seen a meaningful decrease to 2.4% as of September 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 the Company’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 2.0% 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.

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, since July 2023, the Federal Reserve had paused any further changes to short-term interest rates only to decrease them by 50 basis points in September 2024. While many financial industry experts have speculated that rates will decline further in the near-term, the Federal Reserve 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 4.80% as of June 30, 2024 from 4.74% as of March 31, 2024, and 4.52% as of June 30, 2023.

Current wording

The Company’s quarterly yield on interest earning assets increased to 4.83% as of September 30, 2024 from 4.80% as of June 30, 2024, and 4.63% as of September 30, 2023.

Previous 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.

Current wording

The sustained elevation 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 was stable at 1.86% during the three months ended September 30, 2024 and June 30, 2024, and increased from 1.59% during the three months ended September 30, 2023. During the third quarter of 2024, the change in the mix and yield on earning assets 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 September 30, 2024 to 3.01% from 2.97% during the three months ended June 30, 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 3.05% for the three months ended September 30, 2023. The Company’s FTE net interest margin increased to 3.04% during the three months ended September 30, 2024, from 3.00% during the three months ended June 30, 2024, and decreased from 3.07% during the three months ended September 30, 2023.

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 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.

Current wording

As a banking institution, we monitor and evaluate our financial condition and our results of operations by examining the levels and trends of the line items included in our balance sheet and statements of income, as well as the 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, 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.

Current wording

Our consolidated financial statements are prepared in accordance with GAAP 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 third 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

Net income decreased $7.0 million to $60.0 million, or $0.58 per share, during the three months ended June 30, 2024, as compared to net income of $67.0 million, or $0.65 per share, for the same period in 2023, and is primarily attributable to lower net interest income resulting from higher interest expense on interest-bearing liabilities during the 2024 period. This decrease in net interest income was partially offset by lower non-interest expenses.

Current wording

Net income decreased $17.2 million to $55.5 million, or $0.54 per share, during the three months ended September 30, 2024, as compared to net income of $72.7 million, or $0.70 per share, for the same period in 2023, and is primarily attributable to a higher provision for credit losses and lower net interest income. Lower net interest income resulted from higher interest expense on interest-bearing liabilities during the 2024 period. This decrease in net interest income was partially offset by higher non-interest income, lower tax expense, and lower non-interest expenses.

Previous 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.

Current wording

Net income decreased $22.1 million to $173.9 million, or $1.69 per share during the nine months ended September 30, 2024, as compared to net income of $196.0 million, or $1.89 per share for the same period in 2023. The decrease during the nine months ended September 30, 2024 when compared to the same period in 2023 was primarily attributable to lower net interest income, which has resulted from higher interest expense on interest-bearing liabilities and higher provision expense. 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

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.

Current wording

Net interest income decreased $8.2 million during the three months ended September 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 deposits, partially offset by an increase in interests income on loans.

Previous 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.

Current wording

Net interest income included interest accretion related to the fair valuation of acquired loans of $4.4 million during the three months ended September 30, 2024, compared to interest accretion of $5.2 million during the three months ended September 30, 2023.

Previous 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.

Current wording

Our net interest margin ratio decreased 4 basis points to 3.01% for the three months ended September 30, 2024, as compared to 3.05% for the same period in 2023 and our net FTE interest margin ratio, a non-GAAP financial measure, decreased 3 basis points for the three months ended September 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 3 basis points to 2.97% during the three months ended September 30, 2024, as compared to 3.00% for the same period in 2023. The decreases in net interest margin ratio were primarily a result of higher interest bearing deposit costs and higher FHLB and BTFP borrowings, which were partially offset by increases in interest earned on our loans and a modestly favorable change in the mix of earning assets.

Previous wording

Net interest income decreased $55.5 million during the six 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 deposits, partially offset by an increase in interest income on loans.

Current wording

Net interest income decreased $63.7 million during the nine months ended September 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 deposits, partially offset by an increase in interest income on loans.

Previous wording

Net interest income included interest accretion related to the fair valuation of acquired loans of $11.6 million during the six months ended June 30, 2024, compared to interest accretion of $9.8 million for the same period in 2023.

Current wording

Net interest income included interest accretion related to the fair valuation of acquired loans of $16.0 million during the nine months ended September 30, 2024, compared to interest accretion of $15.0 million for the same period in 2023.

Previous wording

Our net FTE interest margin ratio, a non-GAAP measure, decreased 28 basis points for the six 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 29 basis points to 2.88% during the six months ended June 30, 2024, as compared to 3.17% for the same period in 2023.

Current wording

Our net FTE interest margin ratio, a non-GAAP measure, decreased 19 basis points for the nine months ended September 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 20 basis points to 2.91% during the nine months ended September 30, 2024, as compared to 3.11% for the same period in 2023.

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 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.

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 nine months ended September 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 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.

Current wording

The Company had a $19.8 million provision for credit losses, which included a provision for credit losses of $20.0 million on loans held for investment and a reduction of credit losses for unfunded commitments of $0.2 million during the three months ended September 30, 2024, as compared to an $0.1 million reduction of credit losses during same period in 2023. The provision incorporated the impact of credit movement during the quarter, changes in loan balances, the attributes of the current portfolio, asset quality metrics, a review of the current economic outlook, and net charge-offs of $27.4 million, or an annualized 0.60% of average loans outstanding during the three months ended September 30, 2024, as compared to net charge-offs of $1.1 million, or an annualized 0.02% of average loans outstanding during the same period in 2023. Net loan charge-offs in the third quarter of 2024 were composed of charge-offs of $29.1 million, primarily consisting of a $15.9 million commercial real estate loan and a $6.2 million construction real estate loan. These charge-offs were offset by recoveries of $1.7 million.

Previous wording

The provision during the six months ended June 30, 2024 of $14.3 million included a provision for credit losses on loans held for investment of $27.0 million, a reduction of credit losses on unfunded commitments of $12.6 million, and a reduction of credit losses on investment securities of $0.1 million. This compares to a provision for credit losses of $26.9 million during the same period in 2023. The allowance for credit losses is updated quarterly based on the attributes of the current loan and investment securities portfolios, asset quality metrics, and a review of the current economic outlook.

Current wording

The provision during the nine months ended September 30, 2024 of $34.1 million included a provision for credit losses on loans held for investment of $47.0 million, a reduction of credit losses on unfunded commitments of $12.8 million, and a reduction of credit losses on investment securities of $0.1 million. This compares to a provision for credit losses of $26.8 million during the same period in 2023. The allowance for credit losses is updated quarterly based on the attributes of the current loan and investment securities portfolios, asset quality metrics, and a review of the current economic outlook.

Previous 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.

Current wording

Total non-interest income increased $4.4 million for the three months ended September 30, 2024, as compared to the same period in 2023 and increased $28.6 million for the nine months ended September 30, 2024, as compared to the same period in 2023. The increase for the three months ended September 30, 2024 reflects a $2.6 million gain on the sale of a branch. The increase for the nine months ended September 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 nine months ended September 30, 2023, and a gain on the sale of a branch during the nine months ended September 30, 2024.

Previous 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.

Current wording

Non-interest expense decreased $1.7 million during the three months ended September 30, 2024 compared to the same period in 2023 driven by lower other expenses and professional fees, which were partially offset by higher salaries and wages, that included $3.8 million in CEO transition related expenses. Non-interest expense decreased $14.3 million during the nine months ended September 30, 2024 as compared to the same period in 2023. The decreases were driven by lower employee benefits, software costs, and other expenses. These decreases were partially offset by increases in salaries and wages that included $3.8 million in CEO transition expenses, expenses related to OREO, and FDIC insurance premiums, driven by $1.5 million in FDIC special assessment accruals in the first quarter of 2024.

Previous wording

Salaries and wages expense decreased $1.8 million during the three months ended June 30, 2024 and decreased $2.2 million during the six months ended June 30, 2024, as compared to the same periods in 2023. The decreases during the three and the six months ended June 30, 2024 are primarily due to lower salaries and wages and net severance costs as a result of staffing reductions, which were partially offset by higher short-term incentive accruals.

Current wording

Salaries and wages expense increased $5.5 million during the three months ended September 30, 2024 and increased $3.3 million during the nine months ended September 30, 2024, as compared to the same periods in 2023. The increases during the three and the nine months ended September 30, 2024 are primarily due to the accrual of $3.8 million for transition expenses related to the CEO’s pending retirement, lower deferred loan costs, and higher short-term incentive accruals over the prior year, which were offset by lower salaries and wages and net severance costs as a result of staffing reductions.

Previous 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.

Current wording

Employee benefits expense was stable during the three months ended September 30, 2024 and decreased $5.9 million during the nine months ended September 30, 2024, as compared to the same periods in 2023. The decrease was 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 $1.3 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.

Current wording

Outsourced technology services expense increased $0.1 million during the three months ended September 30, 2024, as compared to the same period in 2023 and decreased $2.3 million during the nine months ended September 30, 2024, as compared to the same periods in 2023. The decrease was primarily due to lower software maintenance costs.

Previous 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.

Current wording

FDIC insurance premiums increased $0.2 million during the three months ended September 30, 2024 and increased $3.8 million during the nine months ended September 30, 2024, compared to the same periods in 2023, primarily resulting from a $1.5 million special assessment accrual recorded during the nine months ended September 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 $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.

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 $5.8 million during the three months ended September 30, 2024 and decreased $14.8 million during the nine months ended September 30, 2024, compared to the same periods in 2023, primarily resulting from decreases in donation expense, credit card reward accruals, reclassifications of 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

Our effective tax rate was 23.5% for the three months ended June 30, 2024 compared to 22.9% for the three months ended June 30, 2023 and 23.7% for the six months ended June 30, 2024 compared to 23.5% for the same period in 2023. Differences between the Company's effective tax rate and applicable federal and state blended statutory rate of approximately 24.9% are due to the proportion of non-taxable revenues, non-deductible expenses, and net benefits from tax credits as compared to the levels of pre-tax earnings. Additionally, in connection with the Company’s adoption of ASU 2023-02 on January 1, 2024, the Company began recording proportional amortization of New Market Tax Credits as a component of income tax expense instead of other expenses.

Current wording

Our effective tax rate was 23.7% for the three months ended September 30, 2024 compared to 23.2% for the three months ended September 30, 2023 and 23.7% for the nine months ended September 30, 2024 compared to 23.4% for the same period in 2023. Differences between the Company's effective tax rate and applicable federal and state blended statutory rate of approximately 24.9% are due to the proportion of non-taxable revenues, non-deductible expenses, and net benefits from tax credits as compared to the levels of pre-tax earnings. Additionally, in connection with the Company’s adoption of ASU 2023-02 on January 1, 2024, the Company began recording proportional amortization of New Market Tax Credits as a component of income tax expense instead of other expenses.

Previous 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.

Current wording

Total assets decreased $1,075.7 million, or 3.5%, to $29,595.5 million as of September 30, 2024, from $30,671.2 million as of December 31, 2023, primarily due to decreases in investment securities and loans held for investment which supported declines in deposits and securities sold under repurchase agreements, which was 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 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.

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. Treasury notes, state, county, and municipal, U.S. government agency, U.S. government agency residential and commercial mortgage-backed securities and collateralized mortgage obligations, collateralized loan obligations, private mortgage-backed, and corporate 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 $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.

Current wording

Investment securities decreased $773.8 million, or 8.6%, to $8,275.6 million, or 28.0% of total assets, as of September 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, partially offset by $134.6 million increase in fair market values and $102.2 million of reinvestment into investment securities.

Previous wording

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

Current wording

As of September 30, 2024 and December 31, 2023, the estimated duration of our investment portfolio was 3.4 and 3.5 years, respectively.

Previous 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.

Current wording

As of September 30, 2024 and December 31, 2023, we had $6,662.4 million and $8,284.5 million, respectively, of investment securities that had been in a continuous loss position for more than twelve months. At September 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 $44.6 million as of June 30, 2024 as compared to December 31, 2023.

Current wording

Loans held for investment, net of deferred fees and costs, decreased $252.5 million as of September 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 $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.

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 $66.3 million, or 62.3%, to $172.7 million as of September 30, 2024, from $106.4 million as of December 31, 2023, primarily driven by the categorization of a single $54.4 million commercial and industrial loan relationship to non-accrual in the first quarter of 2024. As of September 30, 2024 there were approximately $60.7 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 $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.

Current wording

Loans contractually past due 90 days or more and still accruing interest. Loans past due 90 days or more accruing interest were $1.8 million as of September 30, 2024, a decrease of $3.1 million, or 63.3%, from $4.9 million as of December 31, 2023.