HAWTHORN BANCSHARES INC

Previous wording

Crucial to the Company’s community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services. Through the branch network of its subsidiary bank, Hawthorn Bank (the Bank), the Company, with $1.8 billion in assets at March 31, 2024, provides a broad range of commercial and personal banking services. The Bank’s specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate, Small Business Administration loans, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts. Other financial services that the Company provides include trust services that include estate planning, investment and asset management services and a comprehensive suite of cash management services. The geographic areas in which the Company provides products and services include the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area.

Current wording

Crucial to the Company’s community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services. Through the branch network of its subsidiary bank, Hawthorn Bank (the "Bank"), the Company, with $1.8 billion in assets at June 30, 2024, provides a broad range of commercial and personal banking services. The Bank’s specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate, Small Business Administration loans, comprehensive suite of cash management services, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts. Other financial services that the Company provides include trust services that include estate planning, investment and asset management services. The geographic areas in which the Company provides products and services include the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area.

Previous wording

The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. The operations of the Bank are supervised and regulated by the FDIC and the Missouri Division of Finance. Periodic examinations of the Bank are conducted by representatives of the FDIC and the Missouri Division of Finance. Such regulations, supervision and examinations are principally for the benefit of depositors, rather than for the benefit of shareholders. The Company is subject to supervision and examination by the Board of Governors of the Federal Reserve System.

Current wording

The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. The Bank is supervised and regulated by the FDIC and the Missouri Division of Finance. Regular examinations are conducted by representatives of these regulatory bodies. Such regulations, supervision and examinations are principally for the benefit of depositors, rather than for the benefit of shareholders. The Company is also subject to supervision and examination by the Board of Governors of the Federal Reserve System.

Previous wording

Consolidated net incomeof $4.5 million, or $0.63 per diluted share, for the three months ended March 31, 2024 increased $1.2 million, or 36.2%, compared to $3.3 million, or $0.47 per diluted share, for the three months ended March 31, 2023. The results reflect the Company's focus to improve profitability from core businesses while managing expenses. For the three months ended March 31, 2024, the return on average assets was 0.97%, the return on average stockholders’ equity was 13.12%, and the efficiency ratio was 70.8%.

Current wording

For the six months ended June 30, 2024 consolidated net income increased $3.3 million, or 56.1%, to $9.1 million, or $1.29 per diluted share, compared to $5.8 million, or $0.83 per diluted share, for the six months ended June 30, 2023. For the six months ended June 30, 2024, the return on average assets was 0.99%, the return on average stockholders’ equity was 13.43%, and the efficiency ratio was 68.5%.

Previous wording

Net interest incomeof $14.7 million for the three months ended March 31, 2024 increased $0.8 million compared to $13.9 million for the three months ended March 31, 2023. Net interest margin, on a fully taxable equivalent basis ("FTE"), was 3.39% for the three months ended March 31, 2024, an increase from 3.16% for the three months ended March 31, 2023. The change to net interest margin on a fully taxable equivalent basis is discussed in greater detail under the Average Balance Sheet Dataand Rate and Volume Analysis sections below.

Current wording

Net interest incomeof $28.9 million for the six months ended June 30, 2024 increased $0.7 million compared to $28.2 million for the six months ended June 30, 2023. Net interest margin, on a FTE basis, was 3.36% for the six months ended June 30, 2024, an increase from 3.17% for the six months ended June 30, 2023. The change to net interest margin on a FTE basis is discussed in greater detail under the Average Balance Sheet Dataand Rate and Volume Analysis sections below.

Previous wording

Non-interest expense for the three months ended March 31, 2024 was $12.6 million, an increase of $0.1 million, or 0.8%, from the three months ended March 31, 2023. The Company continues to establish a unified company culture and improving operational efficiencies. The Company began investing in new technologies and utilizing consulting and professional services to accomplish these goals. These changes are discussed in greater detail under the Non-interest Income and Expense section below.

Current wording

Non-interest expense was $12.0 million and $24.6 million the three and six months ended June 30, 2024, respectively, compared to $12.7 million and $25.2 million for the three and six months ended June 30, 2023, respectively. The decreases are primarily due to operating within a unified company culture, focusing on core business lines and improving operational efficiencies. The Company began investing in new technologies and utilizing consulting and professional services to accomplish these goals. These changes are discussed in greater detail under the Non-interest Income and Expense section below.

Previous wording

Loans – Loans held for investment decreased $20.3 million, or 1.3%, to $1.5 billion as of March 31, 2024 as compared to December 31, 2023 and decreased $23.2 million, or 1.5%, from March 31, 2023.

Current wording

Loans – Loans held for investment decreased $40.6 million to $1.50 billion as of June 30, 2024 compared to $1.54 billion as of December 31, 2023 and decreased $64.7 million compared to $1.56 billion as of June 30, 2023.

Previous wording

Asset quality – Non-performing loans totaled $8.5 million at March 31, 2024, an increase from $6.4 million at December 31, 2023, and a decrease of $11.1 million from $19.6 million at March 31, 2023. The decrease in non-performing loans in the current quarter compared to the prior year quarter is primarily due to three large non-accrual loan relationships returning to accruing status. The allowance for credit losses to total loans was 1.56% at March 31, 2024, compared to 1.54% at December 31, 2023 and 1.43% at March 31, 2023. These changes are discussed in greater detail under the Lending and Credit Management section below.

Current wording

Asset quality – Non-performing loans totaled $4.4 million as of June 30, 2024, a decrease from $6.4 million as of December 31, 2023, and an increase from $3.8 million as of June 30, 2023. The decrease in non-performing loans at June 30, 2024 compared to December 31, 2023 is primarily due to a $1.8 million charged off commercial loan relationship and a $2.7 million commercial real estate loan that was placed in non-accrual status in the first quarter and proceeded to foreclosure in the second quarter. The allowance for credit losses to total loans was 1.47% at June 30, 2024, compared to 1.54% at December 31, 2023 and 1.42% at June 30, 2023. These changes are discussed in greater detail under the Lending and Credit Management section below.

Previous wording

Federal Home Loan Bank ("FHLB") advances and other borrowings– Total FHLB advances and other borrowings increased $2.0 million, or 1.9%, to $109.0 million as of March 31, 2024 compared to $107.0 million as of December 31, 2023, and increased $16.0 million, or 17.2%, compared to $93.0 million as of March 31, 2023.

Current wording

Federal Home Loan Bank ("FHLB") advances and other borrowings– Total FHLB advances and other borrowings decreased $7.9 million to $99.1 million as of June 30, 2024 compared to $107.0 million as of December 31, 2023, and decreased $65.2 million compared to $164.3 million as of June 30, 2023

Previous wording

Capital – The Company maintains its “well capitalized” regulatory capital position. At March 31, 2024, capital ratios were as follows: total risk-based capital to risk-weighted assets 13.92%; tier 1 capital to risk-weighted assets 12.51%; tier 1 leverage 10.71%; and common equity to assets 7.45%.

Current wording

Capital – The Company maintains its “well capitalized” regulatory capital position. At June 30, 2024, capital ratios were as follows: total risk-based capital to risk-weighted assets 14.30%; tier 1 capital to risk-weighted assets 12.94%; tier 1 leverage 10.94%; and common equity to assets 7.48%.

Previous wording

Net interest income is the largest source of revenue resulting from the Company’s lending, investing, borrowing, and deposit gathering activities. It is affected both by changes in the level of interest rates and changes in the amounts and mix of interest-earning assets and interest-bearing liabilities. The following table presents average balance sheet data, net interest income, average yields of earning assets, average costs of interest-bearing liabilities, net interest spread and net interest margin on a fully taxable equivalent basis for each of the three month periods ended March 31, 2024 and 2023, respectively. The average balances used in this table and other statistical data were calculated using average daily balances.

Current wording

Net interest income is the largest source of revenue resulting from the Company’s lending, investing, borrowing, and deposit gathering activities. It is affected both by changes in the level of interest rates and changes in the amounts and mix of interest-earning assets and interest-bearing liabilities. The following table presents average balance sheet data, net interest income, average yields of earning assets, average costs of interest-bearing liabilities, net interest spread and net interest margin on a FTE basis for each of the three and six month periods ended June 30, 2024 and 2023, respectively. The average balances used in this table and other statistical data were calculated using average daily balances.

Previous wording

(1)Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the three months ended March 31, 2024 and 2023. Such adjustments totaled $0.2 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

(1)Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for both the three months ended June 30, 2024 and 2023. Such adjustments totaled $0.2 million and $0.3 million for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest earning assets and interest-bearing liabilities, identifying changes related to volumes and rates for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, respectively. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.

Current wording

The following table summarizes the changes in net interest income on a FTE basis, by major category of interest earning assets and interest-bearing liabilities, identifying changes related to volumes and rates for the three and six months ended June 30, 2024 compared to the three and six months ending ended June 30, 2023, respectively. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.

Previous wording

(1)Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the three months ended March 31, 2024 and 2023, respectively. Such adjustments totaled $0.2 million for the three months ended March 31, 2024 compared to $0.3 million for the three months ended March 31, 2023.

Current wording

(1)Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the three and six months ended June 30, 2024 and 2023. Such adjustments totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2024, respectively, compared to $0.3 million and $0.6 million for the three and six months ended June 30, 2023, respectively.

Previous wording

Financial results for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 reflected an increase in net interest income, on a fully taxable equivalent basis, of $0.7 million, or 4.7%. Measured as a percentage of average earning assets, the net interest margin (expressed on a fully taxable equivalent basis) increased to 3.39% for the three months ended March 31, 2024 compared to 3.16% for the three months ended March 31, 2023.

Current wording

Financial results for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 reflected a decrease in net interest income, on a FTE basis, of $0.1 million, or 0.9%, and financial results for the the six months ended June 30, 2024 compared to the six months ended June 30, 2023 reflected an increase of $0.5 million, or 1.9%. Measured as a percentage of average earning assets, the net interest margin (expressed on a FTE basis) increased to 3.33% for the quarter ended June 30, 2024 compared to 3.19% for the quarter ended June 30, 2023, and increased to 3.36% for the six months ended June 30, 2024 compared to 3.17% for the six months ended June 30, 2023.

Previous wording

Average interest-earning assets decreased $60.3 million, or 3.3%, to $1.77 billion for the three months ended March 31, 2024 compared to $1.83 billion for the three months ended March 31, 2023, and average interest-bearing liabilities decreased $20.5 million, or 1.5%, to $1.31 billion for the three months ended March 31, 2024 compared to $1.33 billion for the three months ended March 31, 2023.

Current wording

Average interest-earning assets decreased $75.3 million, or 4.1%, to $1.75 billion for the six months ended June 30, 2024 compared to $1.83 billion for the six months ended June 30, 2023, and average interest-bearing liabilities decreased $28.8 million, or 2.2%, to $1.30 billion for the six months ended June 30, 2024 compared to $1.33 billion for the six months ended June 30, 2023.

Previous wording

Total interest income (expressed on a fully taxable equivalent basis) was $24.3 million for the three months ended March 31, 2024 compared to $21.3 million for the three months ended March 31, 2023. The Company’s rates earned on interest earning assets were 5.50% for the three months ended March 31, 2024 compared to 4.70% for the three months ended March 31, 2023.

Current wording

Total interest income (expressed on a FTE basis) was $23.8 million and $48.0 million for the three and six months ended June 30, 2024, respectively, compared to $22.2 million and $43.5 million for the three and six months ended June 30, 2023, respectively. The Company’s rates earned on interest earning assets were consistent at 5.50% for the three and six months ended June 30, 2024, respectively, compared to 4.88% and 4.79% for the three and six months ended June 30, 2023, respectively.

Previous wording

Interest income on loans held for investment was $21.8 million for the three months ended March 31, 2024 compared to $18.9 million for the three months ended March 31, 2023.

Current wording

Interest income on loans held for investment was $21.6 million and $43.4 million for the three and six months ended June 30, 2024, respectively, compared to $20.2 million and $39.1 million for the three and six months ended June 30, 2023, respectively.

Previous wording

Average loans outstanding remained consistent at $1.52 billion for both the three months ended March 31, 2024 and 2023. The average yield on loans increased to 5.75% for the three months ended March 31, 2024 compared to 5.03% for the three months ended March 31, 2023. See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio.

Current wording

Average loans outstanding decreased $19.8 million, or 1.3%, to $1.52 billion for the six months ended June 30, 2024 compared to $1.54 billion for the six months ended June 30, 2023. The average yield on loans increased to 5.75% for the six months ended June 30, 2024 compared to 5.13% for the six months ended June 30, 2023. See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio.

Previous wording

Interest income on available-for-sale securitieswas $1.5 million for the three months ended March 31, 2024 compared to $1.7 million for the three months ended March 31, 2023.

Current wording

Interest income on available-for-sale securitieswas $1.5 million and $3.0 million for the three and six months ended June 30, 2024, respectively, compared to $1.7 million and $3.5 million for the three and six months ended June 30, 2023, respectively.

Previous wording

Average securities decreased $70.5 million, or 27.6%, to $184.5 million for the three months ended March 31, 2024 compared to $255.0 million for the three months ended March 31, 2023. The average yield on securities increased to 3.22% for the three months ended March 31, 2024 compared to 2.73% for the three months ended March 31, 2023. The Company elected to reposition its balance sheet during the fourth quarter of 2023 by selling $83.7 million in book value of investment securities, with an average yield of 1.57%. See the Liquidity Management section for further discussion.

Current wording

Average securities decreased $72.2 million, or 28.3%, to $183.3 million for the six months ended June 30, 2024 compared to $255.6 million for the six months ended June 30, 2023. The average yield on securities increased to 3.29% for the six months ended June 30, 2024 compared to 2.72% for the six months ended June 30, 2023. During the fourth quarter of 2023, the Company repositioned its balance sheet by selling $83.7 million in book value of investment securities, with an average yield of 1.57%. See the Liquidity Management section for further discussion.

Previous wording

Total interest expense increased to $9.3 million for the three months ended March 31, 2024 compared to $7.0 million for the three months ended March 31, 2023. The Company’s rates paid on interest bearing liabilities were 2.85% for the three months ended March 31, 2024 compared to 2.13% for the three months ended March 31, 2023. See the Liquidity Management section for further discussion.

Current wording

Total interest expense was $9.4 million and $18.7 million for the three and six months ended June 30, 2024, respectively, compared to $7.7 million and $14.7 million for the three and six months ended June 30, 2023, respectively. The Company’s rates paid on interest bearing liabilities were 2.94% and 2.89% for the three and six months ended June 30, 2024, respectively, compared to 2.34% and 2.24% for the three and six months ended June 30, 2023, respectively. See the Liquidity Management section for further discussion.

Previous wording

Interest expense on deposits increased to $7.5 million for the three months ended March 31, 2024 compared to $5.6 million for the three months ended March 31, 2023.

Current wording

Interest expense on deposits was $7.6 million and $15.0 million for the three and six months ended June 30, 2024, respectively, compared to $6.0 million and $11.5 million for the three and six months ended June 30, 2023, respectively.

Previous wording

Average interest-bearing deposits decreased $29.6 million, or 2.5%, to $1.15 billion for the three months ended March 31, 2024 compared to $1.18 billion for the three months ended March 31, 2023. The average cost of deposits increased to 2.61% for the three months ended March 31, 2024 compared to 1.91% for the three months ended March 31, 2023.

Current wording

Average interest-bearing deposits decreased $26.8 million, or 2.3%, to $1.14 billion for the six months ended June 30, 2024 compared to $1.17 billion for the six months ended June 30, 2023. The average cost of deposits increased to 2.65% for the six months ended June 30, 2024 compared to 1.99% for the six months ended June 30, 2023.

Previous wording

Interest expense on borrowings increased to $1.8 million for the three months ended March 31, 2024 compared to $1.4 million for the three months ended March 31, 2023.

Current wording

Interest expense on borrowings was $1.8 million and $3.7 million for the three and six months ended June 30, 2024, respectively, compared to $1.7 million and $3.2 million for the three and six months ended June 30, 2023, respectively.

Previous wording

Average borrowings increased $9.1 million, or 6.0%, to $160.6 million for the three months ended March 31, 2024 compared to $151.5 million for the three months ended March 31, 2023. The average cost of borrowings increased to 4.61% for the three months ended March 31, 2024 compared to 3.84% for the three months ended March 31, 2023. The increase in cost of funds primarily resulted from higher market interest rates.

Current wording

Average borrowings decreased $2.0 million, or 1.2%, to $157.4 million for the six months ended June 30, 2024 compared to $159.4 million for the six months ended June 30, 2023. The average cost of borrowings increased to 4.67% for the six months ended June 30, 2024 compared to 4.02% for the six months ended June 30, 2023. The increase in average cost of borrowings was primarily a result from higher market interest rates.

Previous wording

Real estate servicing fees, net of the change in valuation of mortgage servicing rights (MSRs) decreased $0.2 million, or 98.4%, from the three months ended March 31, 2023. On January 31, 2024 the Company sold its servicing portfolio and the balance of the serviced loans transferred on April 30, 2024. At March 31, 2024, the balance of the servicing portfolio for loans sold to the secondary market was $215.2 million of mortgage loans at March 31, 2024 compared to $220.7 million and $235.2 million at December 31, 2023 and March 31, 2023, respectively.

Current wording

Real estate (costs) servicing fees, net of the change in valuation of mortgage servicing rights (MSRs) decreased to $(0.05) million for the second quarter ended June 30, 2024 compared to $0.1 million for the second quarter ended June 30, 2023, and decreased to $(0.05) million for the six months ended June 30, 2024 compared to $0.3 million for the six months ended June 30, 2023. On January 31, 2024, the Company sold its servicing portfolio and the balance of the serviced loans transferred on April 30, 2024. The remaining servicing fees and costs were settled during the second quarter of 2024.

Previous wording

Gain on sales of mortgage loans decreased to $0.3 million for the three months ended March 31, 2024 compared to $0.5 million for the three months ended March 31, 2023. The Company sold $15.1 million of loans for the three months ended March 31, 2024 compared to $20.2 million for the three months ended March 31, 2023.

Current wording

Gain on sales of mortgage loans decreased to $0.4 million for the second quarter ended June 30, 2024 compared to $0.7 million for the second quarter ended June 30, 2023, and decreased to $0.7 million for the six months ended June 30, 2024 compared to $1.2 million for the six months ended June 30, 2023. The Company sold $21.7 million and $38.0 million of mortgage loans for the three and six months ended June 30, 2024, respectively, compared to $26.9 million and $47.2 million for the three and six months ended June 30, 2023, respectively.

Previous wording

Salaries decreased $0.2 million, or 4.3%, to $5.2 million for the three months ended March 31, 2024 compared to $5.5 million for the three months ended March 31, 2023. The decrease was primarily due to a planned reduction of full-time employees during the fourth quarter of 2023.

Current wording

Salaries decreased $0.2 million, or 3.0%, to $5.4 million for the second quarter ended June 30, 2024 compared to $5.6 million for the second quarter ended June 30, 2023, and decreased $0.4 million, or 3.6%, to $10.6 million for the six months ended June 30, 2024 compared to $11.0 million for the six months ended June 30, 2023. The decrease was primarily due to a planned reduction of full-time employees during the fourth quarter of 2023.

Previous wording

Legal, examination and professional fees increased $0.3 million, or 63.0%, to $0.8 million for the three months ended March 31, 2024 compared to $0.5 million for the three months ended March 31, 2023. The increase was primarily due to consulting, audit, and legal fees related to strategic planning initiatives. Included in this increase was a settlement agreement resulting from terminating a contract related to a digital account opening project canceled in the fourth quarter of 2023.

Current wording

Legal, examination and professional fees increased $0.1 million, or 15.6%, to $0.5 million for the second quarter ended June 30, 2024 compared to $0.4 million for the second quarter ended June 30, 2023, and increased $0.4 million, or 40.8%, to $1.3 million for the six months ended June 30, 2024 compared to $0.9 million for the six months ended June 30, 2023. The increase was primarily due to consulting, audit, and legal fees related to strategic planning initiatives. Included in this increase was a settlement agreement resulting from terminating a contract related to a digital account opening project canceled in the fourth quarter of 2023.

Previous wording

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements was 17.8% for both the three months ended March 31, 2024 and 2023. The effective tax rate for each of the three months ended March 31, 2024 and 2023, is lower than the U.S. federal statutory rate of 21% primarily due to tax-free revenues.

Current wording

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements was 18.2% and 18.0% for the three and six months ended June 30, 2024, respectively, compared to 17.2% and 17.6% for the three and six months ended June 30, 2023, respectively. The effective tax rate for each of the three and six months ended June 30, 2024 and 2023, respectively, is lower than the U.S. federal statutory rate of 21% primarily due to tax-free revenues.

Previous wording

Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 81.5% of total assets as of March 31, 2024 compared to 80.8% as of December 31, 2023.

Current wording

Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 79.9% of total assets as of June 30, 2024 compared to 80.8% as of December 31, 2023.

Previous wording

The Company extends credit to its local community markets through traditional real estate mortgage products. The Company does not participate in credit extension to sub-prime residential real estate markets. The Company does not lend funds for transactions defined as “highly leveraged” by bank regulatory authorities or for foreign loans. Additionally, the Company does not have any concentrations of loans exceeding 10% of total loans that are not otherwise disclosed in the loan portfolio composition table. The Company does not have any interest-earning assets that would have been included in non-accrual, past due, or restructured loans if such assets were loans.

Current wording

The Company extends credit to its local community markets through traditional real estate mortgage products. The Company does not participate in credit extension to sub-prime residential real estate markets. The Company does not lend funds for transactions defined as “highly leveraged” by bank regulatory authorities or for foreign loans. Additionally, the Company does not have any concentrations of loans exceeding 10% of total loans that are not otherwise disclosed in the loan portfolio composition table.

Previous wording

Total non-performing assets were $10.5 million, or 0.69% of total loans, at March 31, 2024 compared to $8.2 million, or 0.53% of total loans, at December 31, 2023.

Current wording

Total non-performing assets were $8.1 million, or 0.54% of total loans, at June 30, 2024 compared to $8.2 million, or 0.53% of total loans, at December 31, 2023.

Previous wording

There were $0.6 million in loans past due 90 days and still accruing interest at March 31, 2024 compared to $0.1 million at December 31, 2023. Other real estate and repossessed assets were $1.9 million and $1.7 million at March 31, 2024 and December 31, 2023, respectively. There were no non-accrual loans added to other real estate owned and repossessed assets during either of the three months ended March 31, 2024 and 2023.

Current wording

There were $1.0 million in loans past due 90 days and still accruing interest at June 30, 2024 compared to $0.1 million at December 31, 2023. Other real estate and repossessed assets were $3.6 million and $1.7 million at June 30, 2024 and December 31, 2023, respectively. There were $2.7 million and $0.04 million in non-accrual loans added to other real estate owned and repossessed assets during the six months ended June 30, 2024 and 2023, respectively.

Previous wording

The allowance for credit losses was $23.7 million, or 1.56%, of loans outstanding at March 31, 2024 compared to $23.7 million, or 1.54%, of loans outstanding at December 31, 2023. The ratio of the allowance for credit losses to non-performing loans was 276.93% at March 31, 2024, compared to 370.25% at December 31, 2023.

Current wording

The allowance for credit losses was $22.0 million, or 1.47%, of loans outstanding at June 30, 2024 compared to $23.7 million, or 1.54%, of loans outstanding at December 31, 2023. The ratio of the allowance for credit losses to non-performing loans was 495.38% at June 30, 2024, compared to 370.25% at December 31, 2023.

Previous wording

The Company recognized a release of provision for credit losses of $0.2 million for the three months ended March 31, 2024, compared to a $0.7 million provision for credit losses for the three months ended March 31, 2023. The release of the provision expense was a result of a decrease in overall unfunded commitments and a reduction in pooled reserves on primarily commercial, residential construction and multifamily commitments.

Current wording

The Company recognized a provision for credit losses of $0.5 million and $0.2 million for the three and six months ended June 30, 2024, respectively, compared to no provision and a $0.7 million provision for credit losses for the three and six months ended June 30, 2023, respectively. The increase in provision expense resulted from the increase in reserves related to unfunded commitments. .

Previous wording

The Company’s net charge-offs were comparable at $0.1 million for both the three months ended March 31, 2024 and 2023.

Current wording

The Company’s net charge-offs were comparable at $2.0 million for both the three and six months ended June 30, 2024 compared to net recoveries of $0.1 million and $0.04 million for the three and six months ended June 30, 2023, respectively. The charge-offs in the current quarter primarily related to one commercial loan relationship that was completely reserved for in the prior quarter.

Previous wording

The Company designates certain long-term fixed rate personal real estate loans as held for sale. These loans are initially measured at fair value under the fair value option election with subsequent changes in fair value recognized in mortgage banking income. The loans are primarily sold to Freddie Mac, Fannie Mae, and PennyMac and other various secondary market investors. At March 31, 2024, the carrying amount of these loans was $2.9 million compared to $3.9 million at December 31, 2023.

Current wording

The Company designates certain long-term fixed rate personal real estate loans as held for sale. These loans are initially measured at fair value under the fair value option election with subsequent changes in fair value recognized in mortgage banking income. The loans are primarily sold to Freddie Mac, Fannie Mae, and PennyMac and other various secondary market investors. At June 30, 2024, the carrying amount of these loans was $1.4 million compared to $3.9 million at December 31, 2023.

Previous wording

The Company generally does not retain long-term fixed rate residential mortgage loans in its portfolio. Fixed rate loans conforming to standards required by the secondary market are offered to qualified borrowers but are not funded until the Company has a non-recourse purchase commitment from the secondary market at a predetermined price. During the three months ended March 31, 2024, the Company sold approximately $15.1 million of loans to investors compared to $20.2 million for the three months ended March 31, 2023. On January 31, 2024 the Company sold its servicing portfolio and the balance of the serviced loans transferred on April 30, 2024. At March 31, 2024, the Company was servicing approximately $215.2 million of loans sold to the secondary market compared to $220.7 million at December 31, 2023, and $235.2 million at March 31, 2023.

Current wording

The Company generally does not retain long-term fixed rate residential mortgage loans in its portfolio. Fixed rate loans conforming to standards required by the secondary market are offered to qualified borrowers but are not funded until the Company has a non-recourse purchase commitment from the secondary market at a predetermined price. During the six months ended June 30, 2024, the Company sold approximately $38.0 million of loans to investors compared to $47.2 million for the six months ended June 30, 2023. On January 31, 2024, the Company sold its servicing portfolio and the balance of the serviced loans transferred on April 30, 2024. The Company was servicing approximately $231.1 million of loans sold to the secondary market at June 30, 2023.

Previous wording

The fair value of the available-for-sale investment portfolio was $183.5 million at March 31, 2024 and included an unrealized net loss of $30.0 million. The portfolio includes projected maturities and mortgage-backed securities pay-downs of approximately $3.1 million over the next twelve months, which offer resources to meet either new loan demand or reductions in the Company’s borrowings.

Current wording

Federal funds sold and resale agreements normally have overnight maturities and are used for general daily liquidity purposes. The fair value of the available-for-sale investment portfolio was $185.3 million at June 30, 2024 and included an unrealized net loss of $31.2 million. The portfolio includes projected maturities and mortgage-backed securities pay-downs of approximately $2.1 million over the next twelve months, which offer resources to meet either new loan demand or reductions in the Company’s borrowings.