National Bank Holdings Corp

Previous wording

The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes as of and for the three months ended March 31, 2024, and with our annual report onForm 10-K (file number 001-35654), which includes our audited consolidated financial statements and related notes as of and for the years ended December 31, 2023, 2022 and 2021. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that may cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” located elsewhere in this quarterly report and in Item 1A “Risk Factors” in the annual report onForm 10-K, referenced above, and should be read herewith.

Current wording

The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes as of and for the three and six months ended June 30, 2024, and with our annual report onForm 10-K (file number 001-35654), which includes our audited consolidated financial statements and related notes as of and for the years ended December 31, 2023, 2022 and 2021. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that may cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” located elsewhere in this quarterly report and in Item 1A“Risk Factors” in the annual report onForm 10-K, referenced above, and should be read herewith.

Previous wording

Our focus is on building relationships by creating a win-win scenario for our clients and our Company. We believe in providing solutions and services to our clients that are based on fairness and simplicity. We have established a solid financial services franchise with a sizable presence for deposit gathering and building client relationships necessary for growth. We have executed on strategic acquisition opportunities to expand our presence in attractive markets and to diversify our revenue streams. Additionally, we are innovating and building strategic fintech partnerships with the goal of delivering a comprehensive digital financial ecosystem for our clients. We are focused on providing small and medium-sized businesses with alternative digital access to address borrowing, depository and cash management needs, while also providing information management and access to digital payment tools, under the safety of a regulated bank. We believe that our established presence in our core markets of Colorado, the greater Kansas City region, Utah, Wyoming, Texas, New Mexico and Idaho, as well as our ongoing investment in digital solutions and strategic acquisitions, position us well for growth opportunities. As of March 31, 2024, we had $9.9 billion in assets, $7.6 billion in loans, $8.5 billion in deposits, $1.2 billion in equity and $0.9 billion in assets under management in our trust and wealth management business.

Current wording

Our focus is on building relationships by creating a win-win scenario for our clients and our Company. We believe in providing solutions and services to our clients that are based on fairness and simplicity. We have established a solid financial services franchise with a sizable presence for deposit gathering and building client relationships necessary for growth. We have executed on strategic acquisition opportunities to expand our presence in attractive markets and to diversify our revenue streams. Additionally, we are innovating and building strategic fintech partnerships with the goal of delivering a comprehensive digital financial ecosystem for our clients. We are focused on providing small and medium-sized businesses with alternative digital access to address borrowing, depository and cash management needs, while also providing information management and access to digital payment tools, under the safety of a regulated bank. We believe that our established presence in our core markets of Colorado, the greater Kansas City region, Utah, Wyoming, Texas, New Mexico and Idaho, as well as our ongoing investment in digital solutions and strategic acquisitions position us well for growth opportunities. As of June 30, 2024, we had $9.9 billion in assets, $7.7 billion in loans, $8.4 billion in deposits, $1.2 billion in equity and $0.9 billion in assets under management in our trust and wealth management business.

Previous wording

Additionally, we face continual challenges implementing our business strategy. These include growing our assets, particularly loans, and deposits amidst intense competition, changing interest rates, adhering to changes in the regulatory environment and identifying and consummating disciplined acquisition and other expansionary opportunities in a very competitive and inflationary environment.

Current wording

Additionally, we face continual challenges implementing our business strategy. These include growing our assets, particularly loans, and deposits amidst intense competition, changing interest rates, adhering to changes in the regulatory environment and identifying and consummating disciplined acquisition and other expansionary opportunities in a very competitive and inflationary environment. In connection with our digital growth strategy and our digital solution 2UniFi, we have made and will continue to make investments in and also partner with third party fintech companies. The innovations these companies develop for utilization by 2UniFi may prove more difficult to successfully integrate into our existing operations and may require additional operational and control systems to manage fraud, operational, legal and compliance risks.

Previous wording

excluding accumulated other comprehensive loss, net of tax,” “net income excluding other intangible assets amortization expense, after tax,” “non-interest expense excluding other intangible assets amortization,” “efficiency ratio excluding other intangible assets amortization FTE,” “pre-provision net revenue,” “tangible common book value, excluding accumulated other comprehensive loss (income), net of tax,” “tangible common book value per share, excluding accumulated other comprehensive loss, net of tax,” “net income excluding the impact of other intangible assets amortization expense, after tax,” “net income excluding the impact of other intangible assets amortization expense, after tax,” and “fully taxable equivalent” metrics, are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as “non-GAAP financial measures.” We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on an FTE basis. We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

Current wording

Certain of the financial measures and ratios we present, including “tangible assets,” “average tangible assets,” “return on average tangible assets,” “tangible common equity,” “tangible common equity to tangible assets,” “return on average tangible common equity,” “tangible common book value,” “tangible common book value per share,” “tangible common equity to tangible assets,” “tangible common book value, excluding accumulated other comprehensive loss, net of tax,” “tangible common book value per share, excluding accumulated other comprehensive loss, net of tax,” “net income excluding other intangible assets amortization expense, after tax,” “non-interest expense excluding other intangible assets amortization,” “efficiency ratio excluding other intangible assets amortization FTE,” “pre-provision net revenue,” “tangible common book value, excluding accumulated other comprehensive loss, net of tax,” “tangible common book value per share, excluding accumulated other comprehensive loss, net of tax,” “net income excluding the impact of other intangible assets amortization expense, after tax,” “net income excluding the impact of other intangible assets amortization expense, after tax,” and “fully taxable equivalent” metrics, are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as “non-GAAP financial measures.” We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on an FTE basis. We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

Previous wording

These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance. A reconciliation of our GAAP financial measures to the comparable non-GAAP financial measures is as follows:

Current wording

These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance.

Previous wording

On March 6, 2024, the U.S. Securities and Exchange Commission (“SEC”) adopted a new set of rules that require a wide range of climate-related disclosures, including material climate-related risks, information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition, Scope 1 and Scope 2 Greenhouse Gas emissions on a phased-in basis by certain larger registrants when those emissions are material and the filing of an attestation report covering the same, and disclosure of the financial statement effects of severe weather events and other natural conditions including costs and losses. Compliance dates under the final rule are phased in by registrant category. Multiple lawsuits have been filed challenging the SEC’s

Current wording

On March 6, 2024, the U.S. Securities and Exchange Commission (“SEC”) adopted a new set of rules that require a wide range of climate-related disclosures. The disclosures will include material climate-related risks, information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition, Scope 1 and Scope 2 Greenhouse Gas emissions and disclosure of the financial statement effects of severe weather events and other natural conditions including costs and losses. Disclosures on Greenhouse Gas emissions will be subject to adoption on a phased-in basis by certain larger registrants when those emissions are material, and an attestation report covering the same will also need to be filed. Compliance dates under the final rule are phased in by registrant category. Multiple lawsuits have been filed challenging the SEC’s new climate rules, which have been consolidated and will be heard in the U.S. Court of Appeals for the Eighth Circuit. On April 4, 2024, the SEC issued an order staying the final rules until judicial review is complete.

Previous wording

Total assets were $9.9 billion at March 31, 2024, increasing $16.4 million, or 0.2%, from December 31, 2023. Cash and cash equivalents increased $102.1 million, or 53.5%, from December 31, 2023, and investment securities increased $42.6 million, or 3.5%. Loans totaled $7.6 billion at March 31, 2024, compared to $7.7 billion at December 31, 2023, and the allowance for credit losses decreased $0.3 million to $97.6 million at March 31, 2024. During the first quarter of 2024, lower cost demand, savings, and money market deposits ("transaction deposits") increased $313.4 million, or 17.5% annualized, to $7.5 billion, compared to December 31, 2023. Total deposits increased $327.4 million, or 16.1% annualized, to $8.5 billion at March 31, 2024, compared to December 31, 2023.

Current wording

Total assets were $9.9 billion at June 30, 2024, increasing $19.8 million, or 0.2%, from December 31, 2023. Cash and cash equivalents decreased $45.8 million from December 31, 2023, and investment securities increased $31.9 million. Loans totaled $7.7 billion at June 30, 2024 and December 31, 2023, and the allowance for credit losses decreased $1.5 million to $96.5 million at June 30, 2024. During

Previous wording

Available-for-sale investment securities totaled $685.7 million at March 31, 2024, compared to $628.8 million at December 31, 2023, an increase of $56.8 million, or 9.0%. During the three months ended March 31, 2024, purchases of available-for sale securities totaled $106.6 million. There were no purchases of available-for-sale securities during the three months ended March 31, 2023. Maturities and paydowns of available-for-sale securities totaled $45.7 million and $22.5 million during the three months ended March 31, 2024 and 2023, respectively.

Current wording

Total investment securities available-for-sale increased 9.9% during the six months ended June 30, 2024 to $0.7 billion. Purchases of available-for-sale securities during the six months ended June 30, 2024 totaled $138.4 million. There were no purchases of available-for-sale securities during the six months ended June 30, 2023. Paydowns and maturities totaled $72.1 million and $47.6 million during the six months ended June 30, 2024 and 2023, respectively.

Previous wording

Available-for-sale investment securities are summarized as follows as of the dates indicated. The weighted average yield was calculated based on amortized cost. Yields on tax exempt securities have not been adjusted for tax exempt status.

Current wording

Our available-for-sale investment securities portfolio is summarized in the following table as of the dates indicated. The weighted average yield was calculated based on amortized cost. Yields on tax exempt securities have not been adjusted for tax exempt status.

Previous wording

As of March 31, 2024 and December 31, 2023, nearly all of the available-for-sale investment portfolio was backed by mortgages. The residential mortgage pass-through securities portfolio is comprised of both fixed rate and adjustable rate FHLMC, FNMA and GNMA securities. The other mortgage-backed securities are comprised of securities backed by FHLMC, FNMA and GNMA securities.

Current wording

As of June 30, 2024 and December 31, 2023, nearly all the available-for-sale investment portfolio was backed by mortgages. The residential mortgage pass-through securities portfolio is comprised of both fixed rate and adjustable rate FHLMC, FNMA and GNMA securities. The other mortgage-backed securities are comprised of securities backed by FHLMC, FNMA and GNMA securities.

Previous wording

Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments. The estimated weighted average life of the available-for-sale mortgage-backed securities portfolio was 4.9 years and 5.2 years at March 31, 2024 and December 31, 2023, respectively. This estimate is based on assumptions and actual results may differ. At March 31, 2024 and December 31, 2023, the duration of the total available-for-sale investment portfolio was 4.1 years and 4.3 years, respectively.

Current wording

Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments. The estimated weighted average life of the available-for-sale mortgage-backed securities portfolio was 4.8 years and 5.2 years at June 30, 2024 and December 31, 2023, respectively. This estimate is based on assumptions and actual results may differ. At June 30, 2024 and December 31, 2023, the duration of the total available-for-sale investment portfolio was 3.9 years and 4.3 years, respectively.

Previous wording

At March 31, 2024 and December 31, 2023, adjustable rate securities comprised 11.9% and 13.0%, respectively, of the available-for-sale MBS portfolio. The remainder of the portfolio was comprised of fixed rate amortizing securities with 10 to 30 year contractual maturities, with a weighted average coupon of 2.16% per annum and 1.73% per annum at March 31, 2024 and December 31, 2023, respectively.

Current wording

At June 30, 2024 and December 31, 2023, adjustable rate securities comprised 11.8% and 13.0%, respectively, of the available-for-sale MBS portfolio. The remainder of the portfolio was comprised of fixed rate amortizing securities with 10 to 30 year contractual maturities, with a weighted average coupon of 2.29% per annum and 1.73% per annum at June 30, 2024 and December 31, 2023, respectively.

Previous wording

The available-for-sale investment portfolio included $103.1 million of unrealized losses at March 31, 2024. At December 31, 2023, the available-for-sale investment portfolio included $99.0 million of unrealized losses. We believe any unrealized losses are a result of prevailing interest rates, and as such, we do not believe that any of the securities with unrealized losses were impaired. Management believes that default of the available-for-sale securities is highly unlikely. FHLMC, FNMA and GNMA guaranteed mortgage-backed securities and U.S. Treasury securities have a long history of zero credit losses, an explicit guarantee by the U.S. government (although limited for FNMA and FHLMC securities) and yields that generally trade based on market views of prepayment and liquidity risk rather than credit risk.

Current wording

The available-for-sale investment portfolio included $103.8 million of unrealized losses and $0.2 million of unrealized gains at June 30, 2024. At December 31, 2023, the available-for-sale investment portfolio included $99.0 million of unrealized losses and $0.1 million of unrealized gains. We believe any unrealized losses are a result of prevailing interest rates, and as such, we do not believe that any of the securities with unrealized losses were impaired. Management believes that default of the available-for-sale securities is highly unlikely. FHLMC, FNMA and GNMA guaranteed mortgage-backed securities and U.S. Treasury securities have a long history of zero credit losses, an explicit guarantee by the U.S. government (although limited for FNMA and FHLMC securities) and yields that generally trade based on market views of prepayment and liquidity risk rather than credit risk.

Previous wording

Our investment security portfolio consists of high-quality securities, which are largely backed by either U.S. government agencies or U.S. government sponsored entities. We regularly model liquidity stress scenarios to assess potential liquidity issues. The results of our stress testing on our debt security portfolio at March 31, 2024, illustrated that we would continue to meet all capital adequacy requirements.

Current wording

Our investment security portfolio consists of high-quality securities, which are largely backed by either U.S. government agencies or U.S. government sponsored entities. We regularly model liquidity stress scenarios to assess potential liquidity issues. The results of

Previous wording

Held-to-maturity investment securities totaled $570.9 million at March 31, 2024, compared to $585.1 million at December 31, 2023, a decrease of $14.2 million, or 2.4%. There were no purchases of held-to-maturity securities during the three months ended March 31, 2024. During the three months ended March 31, 2023, purchases of held-to-maturity securities totaled $2.5 million. Maturities and paydowns of held-to-maturity securities totaled $14.4 million and $16.2 million during the three months ended March 31, 2024 and 2023, respectively.

Current wording

Held-to-maturity investment securities totaled $554.7 million at June 30, 2024, compared to $585.1 million at December 31, 2023, a decrease of $30.4 million, or 5.2%. There were no purchases of held-to-maturity securities during the six months ended June 30, 2024. Purchases during the six months ended June 30, 2023 totaled $2.5 million. Paydowns and maturities totaled $30.7 million and $34.9 million during the six months ended June 30, 2024 and 2023, respectively.

Previous wording

The fair value of the held-to-maturity investment portfolio included $85.1 million of unrealized losses and $42 thousand of unrealized gains at March 31, 2024. At December 31, 2023, the held-to-maturity investment portfolio included $81.0 million of unrealized losses and $0.2 million of unrealized gains.

Current wording

The fair value of the held-to-maturity investment portfolio included $85.8 million of unrealized losses at June 30, 2024. At December 31, 2023, the held-to-maturity investment portfolio included $81.0 million of unrealized losses and $0.2 million of unrealized gains.

Previous wording

Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments. The estimated weighted average expected life of the held-to-maturity mortgage-backed securities portfolio as of March 31, 2024 and December 31, 2023 was 5.8 years and 5.7 years, respectively. This estimate is based on assumptions and actual results may differ. The duration of the total held-to-maturity investment portfolio was 4.6 years for both March 31, 2024 and December 31, 2023.

Current wording

Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments. The estimated weighted average expected life of the held-to-maturity mortgage-backed securities portfolio as of June 30, 2024 and December 31, 2023 was 5.6 years and 5.7 years, respectively. This estimate is based on assumptions and actual results may differ. The duration of the total held-to-maturity investment portfolio was 4.4 years and 4.6 years as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

Non-marketable securities included FRB stock, FHLB stock and other non-marketable securities. During the three months ended March 31, 2024, purchases of non-marketable securities totaled $10.3 million, and proceeds from non-marketable securities totaled $27.1 million. Purchases consisted primarily of FHLB stock, and proceeds consisted of redemptions of FHLB stock. Changes in the Company’s FHLB stock holdings were directly correlated to FHLB line of credit advances and paydowns. During the three months ended March 31, 2023, purchases of non-marketable securities totaled $35.9 million, and proceeds from non-marketable securities totaled $4.7 million.

Current wording

Non-marketable securities included FRB stock, FHLB stock, convertible preferred stock and equity method investments. During the six months ended June 30, 2024, purchases of non-marketable securities totaled $16.9 million, and proceeds from redemptions and sales of non-marketable securities totaled $30.8 million. Purchases consisted primarily of FHLB stock, and proceeds consisted of redemptions of FHLB stock. During the six months ended June 30, 2023, purchases of non-marketable securities totaled $77.1 million, and proceeds from redemptions and sales of non-marketable securities totaled $73.4 million. Changes in the Company’s FHLB stock holdings were directly correlated to FHLB line of credit advances and paydowns.

Previous wording

Other non-marketable securities consist of equity method investments and convertible preferred stock without a readily determinable fair value. During the three months ended March 31, 2024 and 2023, the Company recorded net unrealized losses on equity method investments totaling $49.7 thousand and $0.2 million, respectively. These gains and losses were recorded in other non-interest income in the Company’s consolidated statements of operations. No impairments were recorded during the three months ended March 31, 2024 or 2023.

Current wording

Non-marketable securities also include equity method investments. During the three and six months ended June 30, 2024, the Company recorded net unrealized gains on equity method investments totaling $0.3 million. During the three and six months ended June 30, 2023, the Company recorded net unrealized losses on equity method investments totaling $0.1 million and $0.4 million, respectively. These gains and losses were recorded in other non-interest income in the Company’s consolidated statements of operations.

Previous wording

The Company maintains a granular and well-diversified loan portfolio with self-imposed concentration limits. At March 31, 2024, loans totaled $7.6 billion, compared to $7.7 billion at December 31, 2023.

Current wording

The Company maintains a granular and well-diversified loan portfolio with self-imposed concentration limits. The loan portfolio increased $23.4 million, or 0.6% annualized, from December 31, 2023 to June 30, 2024. Loan fundings during the six months ended June 30, 2024 totaled $705.2 million, led by commercial loan fundings of $480.8 million.

Previous wording

Our commercial and industrial loan portfolio is highly diversified across industry sectors and geography. At March 31, 2024, there were no industry sectors representing more than 15.0% of our total loan portfolio. Key segments included government/non-profit loans of $780.0 million, or 10.3% of total loans, and health care/hospital loans of $423.0 million, or 5.6% of total loans.

Current wording

Our commercial and industrial loan portfolio is highly diversified across industry sectors and geography. At June 30, 2024, there were no industry sectors representing more than 15.0% of our total loan portfolio. Key segments included government/non-profit loans of $778.0 million, or 10.1% of total loans, and health care/hospital loans of $498.5 million, or 6.5% of total loans.

Previous wording

Non-owner occupied CRE loans were 166.7% of the Company’s risk based capital, or 24.6% of total loans, and no specific property type comprised more than 10.0% of total loans. The Company maintains little exposure to non-owner occupied CRE retail properties and office properties, comprising 3.4% of total loans. Multi-family loans totaled $348.5 million, or 4.6% of total loans, as of March 31, 2024.

Current wording

Non-owner occupied CRE loans were 165.0% of the Company’s risk based capital, or 24.2% of total loans, and no specific property type comprised more than 10.0% of total loans. The Company maintains little exposure to non-owner occupied CRE retail properties and office properties, comprising 3.4% of total loans. Multifamily loans totaled $356.9 million, or 4.6% of total loans, as of June 30, 2024.

Previous wording

The agriculture industry continues to be impacted by elevated and volatile commodity prices and intermittent disruptions in supply chains. Our food and agribusiness portfolio is 4.0% of total loans and is well-diversified across food production, crop and livestock types. Crop and livestock loans represent 1.0% of total loans. We have maintained relationships with food and agribusiness clients that generally possess low leverage and, correspondingly, low bank debt to assets, minimizing any potential credit losses in the future.

Current wording

The agriculture industry continues to be impacted by elevated and volatile commodity prices and intermittent disruptions in supply chains. Our food and agribusiness portfolio is 3.8% of total loans and is well-diversified across food production, crop and livestock types. Crop and livestock loans represent 0.9% of total loans. We have maintained relationships with food and agribusiness clients that generally possess low leverage and, correspondingly, low bank debt to assets, minimizing any potential credit losses in the future.

Previous wording

New loan origination is a direct result of our ability to recruit and retain top banking talent, connect with clients in our markets and provide needed services at competitive rates. Loan fundings totaled $1.3 billion over the past 12 months, led by commercial loan fundings of $0.8 billion. Fundings are defined as closed-end funded loans and revolving lines of credit advances, net of any current period paydowns. Management utilizes this more conservative definition of fundings to better approximate the impact of fundings on loans outstanding and ultimately net interest income.

Current wording

New loan origination is a direct result of our ability to recruit and retain top banking talent, connect with clients in our markets and provide needed services at competitive rates. Loan fundings totaled $1.5 billion over the past 12 months, led by commercial loan fundings of $1.0 billion. Fundings are defined as closed-end funded loans and revolving lines of credit advances, net of any current period paydowns. Management utilizes this more conservative definition of fundings to better approximate the impact of fundings on loans outstanding and ultimately net interest income.

Previous wording

Included in the table above are quarterly net (paydowns) fundings under revolving lines of credit totaling $(59,523), $16,954, ($12,877), $13,766 and ($7,096) for the dates noted, respectively.

Current wording

Included in fundings are net fundings (paydowns) under revolving lines of credit totaling $19,281, $(59,523), $16,954, ($12,877) and $13,766 for the dates noted in the table above, respectively.

Previous wording

The Company’s policy is to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with lending laws, the respective loan agreements, and credit monitoring and remediation procedures that may include modifying a loan to provide a concession by the Company to the borrower from their original terms due to borrower financial difficulties in order to facilitate repayment. Such modified loans are considered troubled debt modifications (“TDM”). TDMs may include principal forgiveness, interest rate reductions, other-than-insignificant-payment delays, term extensions or any combination thereof. Assets that have been foreclosed on or acquired through deed-in-lieu of foreclosure are classified as OREO until sold, and are carried at the fair value of the collateral less estimated costs to sell, with any initial valuation adjustments charged to the ACL and any subsequent declines in carrying value charged to impairments on OREO.

Current wording

The Company’s policy is to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with lending laws, the respective loan agreements, and credit monitoring and remediation procedures that may include modifying a loan to provide a concession by the Company to the borrower from their original terms due to borrower financial difficulties in order to facilitate repayment. Such modified loans are considered TDMs. TDMs may include principal forgiveness, interest rate reductions, other-than-insignificant-payment delays, term extensions or any combination thereof. Assets that have been foreclosed on or acquired through deed-in-lieu of foreclosure are classified as OREO until sold, and are carried at the fair value of the collateral less estimated costs to sell, with any initial valuation adjustments charged to the ACL and any subsequent declines in carrying value charged to impairments on OREO.

Previous wording

Non-performing assets consist of non-accrual loans and OREO. Interest income that would have been recorded had non-accrual loans performed in accordance with their original contract terms during the three months ended March 31, 2024 and 2023 was $0.6 million and $0.1 million, respectively.

Current wording

Non-performing assets consist of non-accrual loans and OREO. Interest income that would have been recorded had non-accrual loans performed in accordance with their original contract terms during the three and six months ended June 30, 2024 was $0.4 million and $1.0 million, respectively, and $0.7 million and $0.8 million during the three and six months ended June 30, 2023, respectively.

Previous wording

During the first quarter of 2024, total non-performing loans increased $7.6 million from December 31, 2023. Loans 30-89 days past due and still accruing interest were 0.05% and 0.16% of total loans at March 31, 2024 and December 31, 2023, respectively. Loans 90 days or more past due and still accruing interest were zero percent and 0.01% at March 31, 2024 and December 31, 2023, respectively.

Current wording

During the six months ended June 30, 2024, total non-performing loans decreased $2.2 million from December 31, 2023. Loans 30-89 days past due and still accruing interest were 0.35% and 0.16% of total loans at March 31, 2024 and December 31, 2023, respectively. A significant portion of the increase in the loans 30-89 days past due was a result of temporary payment delays that were administrative in nature and have been addressed subsequent to quarter end. Loans 90 days or more past due and still accruing interest were 0.05% and 0.01% at June 30, 2024 and December 31, 2023, respectively.

Previous wording

The ACL represents the amount that we believe is necessary to absorb estimated lifetime credit losses inherent in the loan portfolio at the balance sheet date and involves a high degree of judgment and complexity. The Company utilizes a DCF model developed within a third-party software tool to establish expected lifetime credit losses for the loan portfolio. The ACL is calculated as the difference between the amortized cost basis and the projections from the DCF analysis. The DCF model allows for individual life of loan cash flow modeling, excluding extensions and renewals, using loan-specific interest rates and repayment schedules including estimated prepayment rates and loss recovery timing delays. The model incorporates forecasts of certain national macro-economic factors, including unemployment rates, home price index (“HPI”), retail sales and gross domestic product (“GDP”), which drive correlated loss rates. The determination and application of the ACL accounting policy involves judgments, estimates and uncertainties that are

Current wording

The ACL represents the amount that we believe is necessary to absorb estimated lifetime credit losses inherent in the loan portfolio at the balance sheet date and involves a high degree of judgment and complexity. The Company utilizes a DCF model developed within a third-party software tool to establish expected lifetime credit losses for the loan portfolio. The ACL is calculated as the difference between the amortized cost basis and the projections from the DCF analysis. The DCF model allows for individual life of loan cash flow modeling, excluding extensions and renewals, using loan-specific interest rates and repayment schedules including estimated prepayment rates and loss recovery timing delays. The model incorporates forecasts of certain national macro-economic factors,

Previous wording

Net charge-offs on loans during the three months ended March 31, 2023 totaled $0.3 million, and the ratio of annualized net charge-offs to average total loans totaled 0.01%. During the first quarter of 2023, the Company recorded an increase in the allowance for credit losses of $1.0 million driven by loan growth. Specific reserves on loans totaled $4.4 million at March 31, 2023.

Current wording

Net charge-offs on loans during the three and six months ended June 30, 2024 totaled $4.1 million and $4.2 million, respectively, and the ratio of annualized net charge-offs to average total loans totaled 0.22% and 0.11%, respectively. Specific reserves on loans totaled $6.9 million at June 30, 2024.

Previous wording

Net charge-offs on loans during the three months ended March 31, 2024 totaled $0.1 million, and the ratio of annualized net charge-offs to average total loans totaled 0.00%. During the first quarter of 2024, the Company recorded a decrease in the allowance for credit losses of $0.3 million. Specific reserves on loans totaled $9.8 million at March 31, 2024.

Current wording

Net charge-offs on loans during the three and six months ended June 30, 2023 totaled $0.3 million and $0.6 million, respectively, and the ratio of annualized net charge-offs to average total loans totaled 0.02% and 0.02%, respectively. Specific reserves on loans totaled $6.0 million at June 30, 2023.

Previous wording

The Company has elected to exclude AIR from the ACL calculation. As of March 31, 2024 and December 31, 2023, AIR from loans totaled $45.9 million and $42.4 million, respectively. When a loan is placed on non-accrual, any recorded AIR is reversed against interest income.

Current wording

The Company has elected to exclude AIR from the ACL calculation. As of June 30, 2024 and December 31, 2023, AIR from loans totaled $42.5 million and $42.4 million, respectively. When a loan is placed on non-accrual, any recorded AIR is reversed against interest income.

Previous wording

After considering the above mentioned factors, we believe that the ACL of $97.6 million is adequate to cover estimated lifetime losses inherent in the loan portfolio at March 31, 2024. However, it is likely that future adjustments to the ACL will be necessary. Any changes to the underlying assumptions, circumstances or estimates, including but not limited to changes in the underlying macro-economic forecast, used in determining the ACL, could negatively or positively affect the Company's results of operations, liquidity or financial condition.

Current wording

After considering the above mentioned factors, we believe that the ACL of $96.5 million is adequate to cover estimated lifetime losses inherent in the loan portfolio at June 30, 2024. However, it is likely that future adjustments to the ACL will be necessary. Any changes to the underlying assumptions, circumstances or estimates, including but not limited to changes in the underlying macro-economic forecast, used in determining the ACL, could negatively or positively affect the Company's results of operations, liquidity or financial condition.

Previous wording

The following schedule presents, by class stratification, the changes in the ACL during the periods listed:

Current wording

The following schedules present, by class stratification, the changes in the ACL during the periods listed:

Previous wording

At March 31, 2024 and December 31 2023, time deposits that were scheduled to mature within 12 months totaled $746.1 million and $689.0 million, respectively. Of the time deposits scheduled to mature within 12 months at March 31, 2024, $222.2 million were in denominations of $250,000 or more, and $523.9 million were in denominations less than $250,000. Approximately 79% of our total deposits were FDIC insured at March 31, 2024. Additionally, the Company participates in the IntraFi Cash Service program, which allows depositors to receive reciprocal FDIC insurance coverage. The Company had $930.9 million and $944.3 million of deposits in the program as of March 31, 2024 and December 31, 2023, respectively.

Current wording

At June 30, 2024 and December 31, 2023, time deposits that were scheduled to mature within 12 months totaled $789.9 million and $689.0 million, respectively. Of the time deposits scheduled to mature within 12 months at June 30, 2024, $241.3 million were in denominations of $250,000 or more, and $548.6 million were in denominations less than $250,000. Approximately 79% of our total deposits were FDIC insured at June 30, 2024. Additionally, the Company participates in the IntraFi Cash Service program, which

Previous wording

The Company holds a subordinated note purchase agreement to issue and sell a fixed-to-floating rate note totaling $40.0 million. The balance on the note at March 31, 2024 and December 31, 2023, net of long-term debt issuance costs totaling $0.3 million, totaled $39.7 million. Interest expense totaling $0.3 million and $0.3 million was recorded in the consolidated statements of operations during the three months ended March 31, 2024 and 2023, respectively.

Current wording

The Company holds a subordinated note purchase agreement to issue and sell a fixed-to-floating rate note totaling $40.0 million. The balance on the note at June 30, 2024 and December 31, 2023, net of long-term debt issuance costs totaling $0.3 million, totaled $39.7 million. Interest expense totaling $0.3 million and $0.6 million was recorded in the consolidated statements of operations during the three and six months ended June 30, 2024, respectively. During the three and six months ended June 30, 2023, interest expense totaled $0.3 million and $0.6 million, respectively.

Previous wording

related to the acquisition totaling $0.4 million, totaled $14.6 million. At December 31, 2023, the balance on the notes, net of the fair value adjustment from the acquisition totaling $0.5 million, totaled $14.5 million. Interest expense related to the notes totaling $0.1 million and $0.1 million was recorded in the consolidated statements of operations during the three months ended March 31, 2024 and 2023, respectively.

Current wording

As part of the acquisition of BOJH on October 1, 2022, the Company assumed three subordinated note purchase agreements to issue and sell fixed-to-floating rates totaling $15.0 million. The balance on the notes at June 30, 2024, net of a fair value adjustment related to the acquisition totaling $0.4 million, totaled $14.6 million. At December 31, 2023, the balance on the notes, net of the fair value adjustment from the acquisition totaling $0.5 million, totaled $14.5 million. Interest expense related to the notes totaling $0.1 million and $0.3 million was recorded in the consolidated statements of operations during the three and six months ended June 30, 2024, respectively. During the three and six months ended June 30, 2023, interest expense related to the notes totaled $0.1 million and $0.3 million, respectively.

Previous wording

As of March 31, 2024 and December 31, 2023, the Company sold securities under agreements to repurchase totaling $19.6 million for both periods. In addition, as a member of the FHLB, the Company has access to a line of credit and term financing from the FHLB with total available credit of $1.8 billion at March 31, 2024. The Company may utilize the FHLB line of credit as a funding mechanism for originated loans and loans held for sale. The Banks had no outstanding borrowings with the FHLB at March 31, 2024. At December 31, 2023, the Company had $340.0 million of outstanding borrowings with the FHLB. The Company may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged at March 31, 2024 or December 31, 2023. Loans pledged were $2.5 billion and $2.6 billion at March 31, 2024 and December 31, 2023, respectively. The Company incurred $3.2 million and $7.1 million of interest expense related to FHLB advances or other short-term borrowings for the three months ended March 31, 2024 and 2023, respectively.

Current wording

As of June 30, 2024 and December 31, 2023, the Company sold securities under agreements to repurchase totaling $19.5 million and $19.6 million, respectively. In addition, as a member of the FHLB, the Company has access to a line of credit and term financing from the FHLB with total available credit of $1.8 billion at June 30, 2024. The Company may utilize the FHLB line of credit as a funding mechanism for originated loans and loans held for sale. At June 30, 2024 and December 31, 2023, the Banks had $35.0 million and $340.0 million, respectively, of outstanding borrowings with the FHLB. The Company may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged at June 30, 2024 or December 31, 2023. Loans pledged were $2.6 billion at June 30, 2024 and December 31, 2023, respectively. The Company incurred $0.1 million and $3.3 million of interest expense related to FHLB advances or other short-term borrowings for the three and six months ended June 30, 2024, respectively. During the three and six months ended June 30, 2023, interest expense related to FHLB advances or other short-term borrowings totaled $5.6 million and $12.7 million, respectively.

Previous wording

Net income totaled $31.4 million, or $0.82 per diluted share, during the three months ended March 31, 2024, compared to $40.3 million, or $1.06 per diluted share, during the three months ended March 31, 2023. The decrease in net income was largely driven by lower net interest income due to an increase in cost of funds outpacing the increase in interest income. The return on average tangible assets was 1.39% and 1.80% during the three months ended March 31, 2024 and 2023, respectively, and the return on average tangible common equity was 15.14% and 20.86%, respectively.

Current wording

Net income totaled $26.1 million and $57.5 million, or $0.68 and $1.50 per diluted share, during the three and six months ended June 30, 2024, respectively. During the three and six months ended June 30, 2023, net income totaled $32.6 million and $72.8 million, or $0.85 and $1.91 per diluted share, respectively. The decrease in net income was largely driven by lower net interest income due to an increase in cost of funds outpacing the increase in interest income. The return on average tangible assets was 1.17% and 1.28% during the three and six months ended June 30, 2024, respectively, and the return on average tangible common equity was 12.44% and 13.77%, respectively.

Previous wording

The effects of trade-date accounting of investment securities for which the cash had not settled are not considered interest earning assets and are excluded from this presentation for time frames prior to their cash settlement, as are the market value adjustments on the investment securities available-for-sale and loans.

Current wording

The effects of trade-date accounting of investment securities for which the cash had not settled are not considered interest earning assets and are excluded from this presentation for timeframes prior to their cash settlement, as are the market value adjustments on the investment securities available-for-sale and loans.