National Bank Holdings Corp

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 December 31, 2023, we had $9.9 billion in assets, $7.7 billion in loans, $8.2 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 December 31, 2024, we had $9.8 billion in assets, $7.8 billion in loans, $8.2 billion in deposits, $1.3 billion in equity and $994.3 million in assets under management in our trust and wealth management business.

Previous wording

Macroeconomic pressures have resulted in volatility and uncertainty in the banking industry. Increases in interest rates, declines in the fair value of securities, lack of available funding, uninsured deposits and risk from concentrations in loan and deposit segments along with declines in commercial real estate property values are drawing increased scrutiny on financial institutions. Liquidity within the financial services sector has tightened, and we expect the intense competition for deposits throughout our markets to continue. While these are widespread challenges for the banking industry, the Company has not experienced a material impact to our financial condition, operations, customer base, liquidity, capital position or risk profile.

Current wording

Macroeconomic pressures have resulted in volatility and uncertainty in the banking industry. The sustained higher-interest rate environment, declines in the fair value of securities, lack of available funding, uninsured deposits and risk from concentrations in loan and deposit segments along with declines in commercial real estate property values are drawing increased scrutiny on financial institutions. Liquidity within the financial services sector has tightened, and we expect the intense competition for deposits throughout our markets to continue. While these are widespread challenges for the banking industry, the Company has not experienced a material impact to our financial condition, operations, client base, liquidity, capital position or risk profile.

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

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 difficult to successfully integrate into our existing operations and may require additional operational and control systems to manage fraud, cybersecurity, operational, legal and compliance risks.

Previous wording

Future growth in our interest income will ultimately be dependent on our ability to originate high-quality loans and other high-quality earning assets such as investment securities as well as our ability to access liquidity and manage our cost of funds. During the years ended December 31, 2023 and 2022, the Federal Reserve increased prevailing interest rates by a total of 100 and 425 basis points, respectively. Our future earnings will be impacted by the Federal Reserve’s future interest rate policy decisions. Management employs risk management policies to monitor and limit exposure to changes in market rates, which is discussed in more detail in the Asset/Liability Management and Interest Rate Risk section of Management’s Discussion and Analysis.

Current wording

Future growth in our interest income will ultimately be dependent on our ability to originate high-quality loans and other high-quality earning assets such as investment securities as well as our ability to access liquidity and manage our cost of funds. During the years ended December 31, 2023 and 2022, the Federal Reserve increased prevailing interest rates by a total of 100 and 425 basis points, respectively. In the second half of 2024, the Federal Reserve decreased the prevailing interest rates by a total of 100 basis points. While further cuts in 2025 remain unclear, our future earnings will be impacted by the Federal Reserve’s future interest rate policy decisions. Management employs risk management policies to monitor and limit exposure to changes in market rates, which is discussed in more detail in the Asset/Liability Management and Interest Rate Risk section of Management’s Discussion and Analysis.

Previous 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,” “adjusted non-interest expense,” “non-interest expense to average assets, adjusted,” “adjusted net income,” “adjusted net income excluding other intangible assets amortization expense, after tax,” “adjusted earnings per share – diluted,” “adjusted return on average tangible assets,” “adjusted return on average tangible common equity,” “non-interest expense adjusted for other intangible assets amortization and acquisition-related expenses,” “non-interest expense adjusted for acquisition-related expenses,” “efficiency ratio adjusted for other intangible assets amortization and acquisition-related expenses,” “pre-provision net revenue,” “pre-provision net revenue adjusted for acquisition-related expenses,” “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,” “adjusted net income excluding other intangible assets amortization expense, after tax,” “net income adjusted for the impact of other intangible assets amortization expense and acquisition-related expenses, 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 the impact of other intangible assets amortization expense, after tax,” “adjusted net income,” “adjusted net income, after tax,” “adjusted net income excluding the impact of other intangible assets amortization expense, after tax,” “adjusted earnings per share – diluted,” “adjusted return on average tangible assets,” “adjusted return on average tangible common equity,” “efficiency ratio excluding other intangible assets amortization FTE, adjusted,” “efficiency ratio excluding other intangible assets amortization, loss on security sales and acquisition-related expenses FTE,” “pre-provision net revenue,” “pre-provision net revenue FTE, adjusted for loss on security sales and acquisition-related expenses,” “non-interest income adjusted for loss on security sales,” “non-interest expense adjusted for acquisition-related expenses,” “non-interest expense excluding other intangible assets amortization and acquisition-related expenses,” 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

The determination of the ACL, which represents management’s estimate of lifetime credit losses inherent in our loan portfolio at the balance sheet date, involves a high degree of judgment and complexity. The Company estimates the collective ACL by first disaggregating the loan portfolio into segments based upon broad characteristics such as primary use and underlying collateral. Within these segments, the portfolio is further disaggregated into classes of loans with similar attributes and risk characteristics. The collective ACL is determined at the class level, analyzing loss history based upon specific loss drivers and risk factors affecting each loan class. The Company utilizes a discounted cash flow (“DCF”) model that incorporates forecasts of certain national macroeconomic factors (reasonable and supportable forecasts) which drive the losses predicted in establishing the Company’s collective ACL. Management accounts for the inherent uncertainty of the underlying economic forecast by reviewing and weighting alternate forecast scenarios. For periods beyond the reasonable and supportable forecast period, the Company reverts to historical long-term average loss rates on a straight-line basis. Additionally, the collective ACL calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on our financial condition. For further discussion of the ACL, see notes 2 and 7 to our consolidated financial statements.

Current wording

The determination of the ACL, which represents management’s estimate of lifetime credit losses inherent in our loan portfolio at the balance sheet date, involves a high degree of judgment and complexity. The Company estimates the ACL by first disaggregating the loan portfolio into segments based upon broad characteristics such as primary use and underlying collateral. Within these segments, the portfolio is further disaggregated into classes of loans with similar attributes and risk characteristics. The ACL is determined at the class level, analyzing loss history based upon specific loss drivers and risk factors affecting each loan class. The Company utilizes a discounted cash flow (“DCF”) model developed within a third-party software tool that incorporates forecasts of certain national macroeconomic factors (reasonable and supportable forecasts) which drive the losses predicted in establishing the Company’s ACL. Management accounts for the inherent uncertainty of the underlying economic forecast by reviewing and weighting alternate forecast scenarios. For periods beyond the reasonable and supportable forecast period, the Company reverts to historical long-term average loss rates on a straight-line basis. Additionally, the ACL calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on our financial condition. For further discussion of the ACL, see notes 2 and 7 to our consolidated financial statements.

Previous wording

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740):Improvements to Income Tax Disclosures. The update requires public business entities to disclose specific categories related to rate reconciliation. It also requires more detailed information for reconciling items, provided certain quantitative thresholds are met. The amendments in this update are effective for fiscal years beginning after December 15, 2024 and are to be applied on a prospective basis. Early adoption is permitted. The Company is evaluating the impact from ASU 2023-09, and does not expect the adoption of this pronouncement to have a material impact on its financial statements apart from the inclusion of additional disclosures.

Current wording

In November 2024, the FASB issued ASU 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses. The update requires public business entities to disclose specific components of certain expense categories. This includes expense categories such as employee compensation, depreciation, and intangible asset amortization. The amendments in this update are effective for fiscal years beginning after December 15, 2026 and are to be applied on a prospective basis with an option for retrospective application. Early adoption is permitted. The Company is evaluating the impact from ASU 2024-03, and does not expect the adoption of this pronouncement to have a material impact on its financial statements apart from the inclusion of additional disclosures.

Previous wording

Total assets were $9.9 billion at December 31, 2023, compared to $9.6 billion at December 31, 2022, an increase of $0.3 billion, or 3.9%. At December 31, 2023, cash and cash equivalents decreased $4.7 million, compared to December 31, 2022, and investment securities decreased $143.9 million, or 10.6%. Total loans increased $0.5 billion, or 6.6% compared to December 31, 2022, and the allowance for credit losses totaled $97.9 million, or 1.27% of total loans, at December 31, 2023. At December 31, 2023, lower cost demand, savings, and money market deposits ("transaction deposits") totaled $7.2 billion, compared to $7.0 billion at December 31, 2022. Total deposits increased $0.3 billion to $8.2 billion at December 31, 2023, compared to December 31, 2022. FHLB advances totaled $340.0 million at December 31, 2023, compared to $385.0 million at December 31, 2022.

Current wording

Total assets were $9.8 billion at December 31, 2024, compared to $9.9 billion at December 31, 2023. At December 31, 2024, cash and cash equivalents decreased $63.0 million, compared to December 31, 2023, and investment securities decreased $153.2 million, or 12.6%, primarily due to sales during the fourth quarter of 2024 as part of the Company’s strategic balance sheet management. Total loans increased $52.4 million, or 0.7% compared to December 31, 2023, and the allowance for credit losses totaled $94.5 million, or 1.22% of total loans, at December 31, 2024. At December 31, 2024 and 2023, lower cost demand, savings, and money market deposits ("transaction deposits") totaled $7.2 billion, representing 87.6% and 88.0% of total deposits, respectively. Total deposits increased $47.5 million to $8.2 billion at December 31, 2024, compared to December 31, 2023. FHLB advances totaled $50.0 million at December 31, 2024, compared to $340.0 million at December 31, 2023.

Previous wording

Total investment securities available-for-sale were $628.8 million at December 31, 2023, compared to $706.3 million at December 31, 2022, a decrease of $77.5 million, or 11.0%. There were no purchases or sales of available-for-sale securities during 2023. During 2022, purchases of available-for-sale securities totaled $259.8 million. Maturities and paydowns of available-for-sale securities during 2023 and 2022 totaled $92.0 million and $141.9 million, respectively. During 2022, the Company sold $128.4 million of the available-for-sale securities acquired through the BOJH acquisition.

Current wording

Total investment securities available-for-sale were $527.5 million at December 31, 2024, compared to $628.8 million at December 31, 2023, a decrease of $101.3 million, or 16.1%. During the year ended December 31, 2024, purchases of available-for-sale securities totaled $185.7 million. During 2024, the Company sold $132.1 million of AFS investment securities on the open market as part of the Company’s strategic balance sheet management resulting in a pre-tax loss of $6.6 million. Proceeds from the sale have been redeployed into higher yielding securities during the first quarter of 2025. During 2023, the Company did not purchase or sell available-for-sale securities. Maturities and paydowns of available-for-sale securities during 2024 and 2023 totaled $157.5 million and $92.0 million, 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

Available-for-sale investment securities are 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 December 31, 2023 and 2022, 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 Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Government National Mortgage Association (“GNMA”) securities. The other mortgage-backed securities (“MBS”) are comprised of securities backed by FHLMC, FNMA and GNMA securities.

Current wording

As of December 31, 2024 and 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 Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Government National Mortgage Association (“GNMA”) securities. The other mortgage-backed securities (“MBS”) 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 5.2 years and 5.4 years at December 31, 2023 and December 31, 2022, respectively. This estimate is based on assumptions and actual results may differ. At December 31, 2023 and December 31, 2022, the duration of the total available-for-sale investment portfolio was 4.3 years and 4.4 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 5.3 years and 5.2 years at December 31, 2024 and December 31, 2023, respectively. This estimate is based on assumptions and actual results may differ. At December 31, 2024 and December 31, 2023, the duration of the total available-for-sale investment portfolio was 4.3 years.

Previous wording

At December 31, 2023 and 2022, adjustable rate securities comprised 13.0% and 11.5%, respectively, of the available-for-sale mortgage-backed security 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 1.73% per annum and 1.75% per annum at December 31, 2023 and 2022, respectively.

Current wording

At December 31, 2024 and 2023, adjustable rate securities comprised 5.9% and 13.0%, respectively, of the available-for-sale mortgage-backed security 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 2.31% per annum and 1.73% per annum at December 31, 2024 and 2023, respectively.

Previous wording

The available-for-sale investment portfolio included $99.0 million of unrealized losses and $57 thousand of unrealized gains at December 31, 2023. At December 31, 2022, the available-for-sale investment portfolio included $113.5 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 $90.9 million of unrealized losses and $0.5 million of unrealized gains at December 31, 2024. At December 31, 2023, the available-for-sale investment portfolio included $99.0 million of unrealized losses and $57 thousand 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 December 31, 2023, 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.

Previous wording

At December 31, 2023, we held $585.1 million of held-to-maturity investment securities, compared to $651.5 million at December 31, 2022, a decrease of $66.5 million, or 10.2%. Purchases of held-to-maturity securities totaled $2.5 million and $101.7 million during 2023 and 2022, respectively. Maturities and paydowns of held-to-maturity securities totaled $69.6 million and $133.4 million during 2023 and 2022, respectively.

Current wording

At December 31, 2024, we held $533.1 million of held-to-maturity investment securities, compared to $585.1 million at December 31, 2023, a decrease of $51.9 million, or 8.9%. Purchases of held-to-maturity securities totaled $10.5 million and $2.5 million during 2024 and 2023, respectively. Maturities and paydowns of held-to-maturity securities totaled $63.1 million and $69.6 million during 2024 and 2023, respectively.

Previous wording

The fair value of the held-to-maturity investment portfolio included $81.0 million of unrealized losses and $0.2 million of unrealized gains at December 31, 2023. At December 31, 2022, the held-to-maturity investment portfolio included $91.8 million of unrealized losses and $0.2 million of unrealized gains.

Current wording

The fair value of the held-to-maturity investment portfolio included $81.8 million of unrealized losses and $51 thousand of unrealized gains at December 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.

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 December 31, 2023 and December 31, 2022 was 5.7 years and 6.0 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 and 4.8 years as of December 31, 2023 and December 31, 2022, 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 expected life of the held-to-maturity mortgage-backed securities portfolio as of December 31, 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 December 31, 2024 and December 31, 2023, respectively.

Previous wording

Non-marketable securities included FRB stock, FHLB stock and other non-marketable securities. During the year ended December 31, 2023, purchases of non-marketable securities, consisting primarily of FHLB stock, totaled $106.2 million and proceeds of non-marketable securities, consisting of redemptions of FHLB stock, totaled $100.0 million. The changes in the Company’s FHLB stock holdings are directly correlated to FHLB line of credit advances and paydowns. During the year ended December 31, 2022, purchases totaled $37.3 million and were comprised of FHLB stock, FRB stock and other non-marketable securities. Proceeds from other non-marketable securities totaled $4.2 million during the year ended December 31, 2022.

Current wording

Non-marketable securities included FRB stock, FHLB stock, convertible preferred stock and equity method investments. During the year ended December 31, 2024, purchases of non-marketable securities totaled $44.9 million, and proceeds from redemptions and sales of non-marketable securities totaled $57.5 million. During the year ended December 31, 2023, purchases of non-marketable securities totaled $106.2 million, and proceeds from redemptions and sales of non-marketable securities totaled $100.0 million. Changes in the Company’s FHLB stock holdings were directly correlated to FHLB line of credit advances and paydowns. Purchases consisted primarily of FHLB stock, and proceeds consisted primarily of redemptions of FHLB stock.

Previous wording

The Company maintains a granular and well-diversified loan portfolio with self-imposed concentration limits. The loan portfolio increased $478.3 million, or 6.6%, from December 31, 2022 to December 31, 2023, led by commercial loan fundings of $247.3 million.

Current wording

The Company maintains a granular and well-diversified loan portfolio with self-imposed concentration limits. The loan portfolio increased $52.4 million, or 0.7%, from December 31, 2023 to December 31, 2024, led by an increase in commercial loans of $171.4 million.

Previous wording

Our commercial and industrial loan portfolio is highly diversified across industry sectors and geography. As of December 31, 2023, there were no industry sectors representing more than 15% of our total loan portfolio. Key segments included government/non-profit loans of $787.1 million, or 10.2% of total loans, and health care/hospital loans of $430.5 million, or 5.6% of total loans.

Current wording

Our commercial and industrial loan portfolio is highly diversified across industry sectors and geography. As of December 31, 2024, there were no industry sectors representing more than 15.0% of our total loan portfolio. Key sectors included government/non-profit loans of $825.6 million, or 10.7% of total loans, and health care/hospital loans of $584.9 million, or 7.5% of total loans. The commercial and industrial portfolio also includes loans to companies that operate in the transportation industry. The transportation industry, trucking in particular, experienced some economic challenges in 2024. As a result of these industry challenges, some of the transportation loans may be subject to higher credit risk. The Company’s exposure to this industry is small, consisting of $205.2 million, or 2.6% of total loans, at December 31, 2024.

Previous wording

Non-owner occupied CRE loans were 169.9% of the Company’s risk based capital, or 24.1% of total loans, and no specific property type comprised more than 5.0% of total loans. The Company maintains very little exposure to non-owner occupied CRE retail properties and office properties, comprising 2.0% and 1.3% of total loans, respectively. Multi-family loans totaled $312.9 million, or 4.1% of total loans as of December 31, 2023.

Current wording

Non-owner occupied CRE loans were 152.6% of the Company’s risk based capital, or 23.4% of total loans, and no specific property type comprised more than 10.0% of total loans. The Company maintains very little exposure to non-owner occupied CRE retail properties and office properties, comprising 2.0% and 1.3% of total loans, respectively. Multi-family loans totaled $321.8 million, or 4.2% of total loans as of December 31, 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 only 4.2% of total loans and is well-diversified across food production, crop and livestock types. Crop and livestock loans represent 1.2% 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 volatile commodity prices and generally by higher input costs, combining to stress margins. Our food and agribusiness portfolio is 3.9% of total loans and is well-diversified across food production, crop and livestock types. Crop and livestock loans represent 1.1% 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 $1.5 billion over the past 12 months, led by commercial loan fundings of $0.9 billion. Fundings are defined as closed end funded loans and revolving lines of credit

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 during 2024, 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 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 fundings under revolving lines of credit totaling $96,903, $124,834, $21,762 and $66,430 for the dates noted, respectively.

Current wording

Included in fundings are net fundings (paydowns) under revolving lines of credit totaling $64,375, $16,302, $19,281 and $(59,523) for the dates noted in the table above, respectively.

Previous wording

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

Current wording

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

Previous wording

Asset quality is fundamental to our success and remains a strong point, driven by our disciplined adherence to our self-imposed concentration limits across industry sector and real estate property type. Accordingly, for the origination of loans, we have established a credit policy that allows for responsive, yet controlled lending with credit approval requirements that are scaled to loan size. Within the scope of the credit policy, each prospective loan is reviewed in order to determine the appropriateness and the adequacy of the loan characteristics and the security or collateral prior to making a loan. We have established underwriting standards and loan origination procedures that require appropriate documentation, including financial data and credit reports. For loans secured by real property, we require property appraisals, title insurance or a title opinion, hazard insurance and flood insurance, in each case where appropriate.

Current wording

have established a credit policy that allows for responsive, yet controlled lending with credit approval requirements that are scaled to loan size. Within the scope of the credit policy, each prospective loan is reviewed in order to determine the appropriateness and the adequacy of the loan characteristics and the security or collateral prior to making a loan. We have established underwriting standards and loan origination procedures that require appropriate documentation, including financial data and credit reports. For loans secured by real property, we require property appraisals, title insurance or a title opinion, hazard insurance and flood insurance, in each case where appropriate.

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”). In March 2022, the FASB issued ASU 2022-02,Financial Instruments—Credit Losses (Topic 326):Troubled Debt Restructurings and Vintage Disclosures, which became effective for the Company on January 1, 2023. The guidance eliminates the accounting for troubled debt restructures and requires that an entity evaluate whether loan modifications represent a new loan or a continuation of an existing loan. Such troubled debt modifications 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 troubled debt modifications (“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 2023 and 2022 was $0.6 million and $0.7 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 2024 and 2023 was $2.0 million and $0.6 million, respectively.

Previous wording

Past due status is monitored as an indicator of credit deterioration. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of

Current wording

Past due status is monitored as an indicator of credit deterioration. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Loans that are 90 days or more past due are put on non-accrual status unless the loan is well secured and in the process of collection.

Previous wording

During 2023, total non-performing loans increased $11.7 million, from December 31, 2022. During 2023, accruing TDMs increased $10.5 million. Total non-performing assets to total loans and OREO totaled 0.42% at December 31, 2023, compared to 0.28% at December 31, 2022.

Current wording

During 2024 and 2023, total non-performing loans totaled $36.0 million and $28.2 million, respectively. During 2024 and 2023, accruing TDMs totaled $15.3 million and $15.1 million, respectively. Total non-performing assets to total loans and OREO totaled 0.47% and 0.42% at December 31, 2024 and 2023, respectively.

Previous wording

Loans 30-89 days past due and still accruing interest were 0.16% and 0.04% of total loans at December 31, 2023 and December 31, 2022, respectively. Loans 90 days or more past due and still accruing interest were 0.01% and zero percent of total loans for December 31, 2023 and 2022, respectively.

Current wording

Loans 30-89 days past due and still accruing interest were 0.30% and 0.16% of total loans at December 31, 2024 and December 31, 2023, respectively. Loans 90 days or more past due and still accruing interest were 0.19% and 0.01% of total loans for December 31, 2024 and 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 subject to change. For periods beyond the reasonable and supportable forecast period, we revert to historical long-term average loss rates on a straight-line basis.

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 lifetime 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 subject to change. For periods beyond the reasonable and supportable forecast period, the Company reverts to historical long-term average loss rates on a straight-line basis.

Previous wording

We measure expected credit losses for loans on a pooled basis when similar risk characteristics exist. We have identified four primary loan segments within the ACL model that are further stratified into 11 loan classes to provide more granularity in analyzing loss history and to allow for more definitive qualitative adjustments based upon specific risk factors affecting each loan class. Generally, the underlying risk of loss for each of these loan segments will follow certain norms/trends in various economic environments. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Following are the loan classes within each of the four primary loan segments:

Current wording

affecting each loan class. Generally, the underlying risk of loss for each of these loan segments will follow certain norms/trends in various economic environments. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Following are the loan classes within each of the four primary loan segments:

Previous wording

Loans on non-accrual, in bankruptcy and TDMs with a balance greater than $250,000 are excluded from the pooled analysis and are evaluated individually. If management determines that foreclosure is probable, expected credit losses are evaluated based on the criteria listed below, adjusted for selling costs as appropriate. Typically, these loans consist of commercial, commercial real estate and agriculture loans and exclude homogeneous loans such as residential real estate and consumer loans. Specific allowances are determined by collectively analyzing:

Current wording

Loans on non-accrual, in bankruptcy and TDMs with a balance greater than $250 thousand are excluded from the pooled analysis and are evaluated individually. If management determines that foreclosure is probable, expected credit losses are evaluated based on the criteria listed below, adjusted for selling costs as appropriate. Typically, these loans consist of commercial, commercial real estate and agriculture loans and exclude homogeneous loans such as residential real estate and consumer loans. Specific allowances are determined by collectively analyzing:

Previous wording

The collective resulting ACL for loans is calculated as the sum of the general reserves, specific reserves on individually evaluated loans, and qualitative factor adjustments. While these amounts are calculated by individual loan or on a pool basis by segment and class, the entire ACL is available for any loan that, in our judgment, should be charged-off. The determination and application of the ACL accounting policy involves judgments, estimates, and uncertainties that are subject to change. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on our financial condition, liquidity or results of operations.

Current wording

The resulting ACL for loans is calculated as the sum of the general reserves, specific reserves on individually evaluated loans, and qualitative factor adjustments. While these amounts are calculated by individual loan or by segment and class, the entire ACL is available for any loan that, in our judgment, should be charged off. The determination and application of the ACL accounting policy involves judgments, estimates, and uncertainties that are subject to change. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on our financial condition, liquidity or results of operations.

Previous wording

Net charge-offs on loans during the year ended December 31, 2023 totaled $1.1 million, and the ratio of net charge-offs to average total loans totaled 0.02%. During the year ended December 31, 2023, the Company recorded an increase in the allowance for credit losses of $8.4 million, driven by loan growth and an increase in specific reserves. Specific reserves on loans totaled $8.6 million at December 31, 2023.

Current wording

Net charge-offs on loans during the year ended December 31, 2024 totaled $9.8 million, and the ratio of net charge-offs to average total loans totaled 0.13%. Net charge-offs on loans during the year ended December 31, 2023 totaled $1.1 million, and the ratio of net charge-offs to average total loans totaled 0.02%.

Previous wording

The Company has elected to exclude accrued interest receivable (“AIR”) from the ACL calculation. As of December 31, 2023 and December 31, 2022, AIR from loans totaled $42.4 million and $31.8 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 accrued interest receivable (“AIR”) from the ACL calculation. As of December 31, 2024 and December 31, 2023, AIR from loans totaled $41.5 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 $97.9 million is adequate to cover estimated lifetime losses inherent in the loan portfolio at December 31, 2023. 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 $94.5 million is adequate to cover estimated lifetime losses inherent in the loan portfolio at December 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.

Previous wording

At December 31, 2023 and 2022, time deposits that were scheduled to mature within 12 months totaled $689.0 million and $469.8 million, respectively. Of the time deposits scheduled to mature within 12 months at December 31, 2023, $212.7 million were in denominations of $250,000 or more, and $476.3 million were in denominations less than $250,000. Approximately 67% and 70% of our total deposits were FDIC insured at December 31, 2023 and 2022, respectively. Additionally, the Company participates in the IntraFi Cash Service program, which allows depositors to receive reciprocal FDIC insurance coverage. The Company had $944.3 million and $268.8 million of deposits in the program as of December 31, 2023 and 2022, respectively.

Current wording

At December 31, 2024 and 2023, time deposits that were scheduled to mature within 12 months totaled $822.6 million and $689.0 million, respectively. Of the time deposits scheduled to mature within 12 months at December 31, 2024, $248.3 million were in denominations of $250 thousand or more, and $574.3 million were in denominations less than $250 thousand. Approximately 78% of our total deposits were FDIC insured at December 31, 2024. Additionally, the Company participates in the IntraFi Cash Service program, which allows depositors to receive reciprocal FDIC insurance coverage. The Company had $1.0 billion and $0.9 billion of deposits in the program as of December 31, 2024 and 2023, respectively.