Business First Bancshares Inc

Previous wording

•risks relating to the proposed acquisition of Oakwood Bancshares, Inc. (“Oakwood”) including, without limitation: the timing of consummation of the proposed merger; the risk that any condition to closing of the proposed merger may not be satisfied or waived; the risk that the merger may not be completed at all; the diversion of management time on issues related to the proposed merger; unexpected transaction costs, including the costs of integrating operations; the risks that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the merger being lower than expected; the risk of deposit and customer attrition; any changes in deposit mix; unexpected operating and other costs, which may differ or change from expectation; the risk of customer and employee loss and business disruptions, including, without limitation, as the result of difficulties in maintaining relationships with employees; increased competitive pressures on solicitations of customers by competitors; as well as difficulties and risks inherent with entering new markets;

Current wording

•risks relating to the Oakwood Merger and Oakwood Bank Merger (each as defined herein); unexpected costs associated with the integration of operations; the risks that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the merger being lower than expected; the risk of deposit and customer attrition; any changes in deposit mix; unexpected operating and other costs, which may differ or change from expectation; the risk of customer and employee loss and business disruptions, including, without limitation, as the result of difficulties in maintaining relationships with employees and; increased competitive pressures on solicitations of customers by competitors;

Previous wording

The following discussion and analysis focuses on significant changes in the financial condition of Business First and its subsidiaries from December 31, 2023 to June 30, 2024, and its results of operations for the three and six months ended June 30, 2024. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this reportand should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and the notes thereto (the “Notes”) and (ii) our Annual Report on Form 10-K for the year ended December 31, 2023, including the audited consolidated financial statements and notes thereto, management’s discussion and analysis, and the risk factor disclosures contained therein. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that Business First believes are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Forward-Looking Statements,” “Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. Business First assumes no obligation to update any of these forward-looking statements.

Current wording

The following discussion and analysis focuses on significant changes in the financial condition of Business First and its subsidiaries from December 31, 2023 to September 30, 2024, and its results of operations for the three and nine months ended September 30, 2024. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this reportand should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and the notes thereto (the “Notes”) and (ii) our Annual Report on Form 10-K for the year ended December 31, 2023, including the audited consolidated financial statements and notes thereto, management’s discussion and analysis, and the risk factor disclosures contained therein. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that Business First believes are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Forward-Looking Statements,” “Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. Business First assumes no obligation to update any of these forward-looking statements.

Previous wording

We are a registered financial holding company headquartered in Baton Rouge, Louisiana. Through our wholly-owned subsidiary, b1BANK, a Louisiana state chartered bank, we provide a broad range of financial services tailored to meet the needs of small-to-midsized businesses and professionals. Since our inception in 2006, our priority has been and continues to be creating shareholder value through the establishment of an attractive commercial banking franchise in Louisiana and across our region. We consider our primary market to include the State of Louisiana, the Dallas/Fort Worth metroplex, and Houston. We currently operate out of banking centers and loan production offices across Louisiana and Texas. As of June 30, 2024, we had total assets of $6.7 billion, total loans of $5.2 billion, total deposits of $5.6 billion, and total shareholders’ equity of $664.5 million.

Current wording

We are a registered financial holding company headquartered in Baton Rouge, Louisiana. Through our wholly-owned subsidiary, b1BANK, a Louisiana state chartered bank, we provide a broad range of financial services tailored to meet the needs of small-to-midsized businesses and professionals. Since our inception in 2006, our priority has been and continues to be creating shareholder value through the establishment of an attractive commercial banking franchise in Louisiana and across our region. We consider our primary market to include the State of Louisiana, the Dallas/Fort Worth metroplex, and Houston. We currently operate out of banking centers and loan production offices across Louisiana and Texas. As of September 30, 2024, we had total assets of $6.9 billion, total loans of $5.2 billion, total deposits of $5.6 billion, and total shareholders’ equity of $699.5 million.

Previous wording

On April 11, 2023, the Bank opened two new lines of credit for additional contingent liquidity, totaling $851.1 million and $1.0 billion as of June 30, 2024, and December 31, 2023, respectively, through the Federal Reserve discount window. The Bank has not yet drawn on either of the lines of credit as of the date of this report.

Current wording

On April 11, 2023, the Bank opened two new lines of credit for additional contingent liquidity, totaling $921.9 million and $1.0 billion as of September 30, 2024, and December 31, 2023, respectively, through the Federal Reserve discount window. The Bank has not yet drawn on either of the lines of credit as of the date of this report.

Previous wording

The financial highlights as of and for the six months ended June 30, 2024, include:

Current wording

The financial highlights as of and for the nine months ended September 30, 2024, include:

Previous wording

•Total loans held for investmentof $5.2 billion, a $170.1 million, or 3.4%, increase from December 31, 2023.

Current wording

•Total loans held for investmentof $5.2 billion, a $227.3 million, or 4.6%, increase from December 31, 2023.

Previous wording

•Total deposits of $5.6 billion, a $314.9 million, or 6.0%, increase from December 31, 2023.

Current wording

•Total deposits of $5.6 billion, a $392.2 million, or 7.5%, increase from December 31, 2023.

Previous wording

•Net income available to common shareholdersof $28.1 million for the six months ended June 30, 2024, a $4.0 million, or 12.4%, decrease from the six months ended June 30, 2023.

Current wording

•Net income available to common shareholdersof $44.6 million for the nine months ended September 30, 2024, a $6.6 million, or 12.9%, decrease from the nine months ended September 30, 2023.

Previous wording

•Allowance for credit losses of 0.86% of total loans held for investment, compared to 0.88% as of December 31, 2023, and a ratio of nonperforming loans to total loans held for investment of 0.43%, compared to 0.34% as of December 31, 2023.

Current wording

•Allowance for credit losses of 0.86% of total loans held for investment, compared to 0.88% as of December 31, 2023, and a ratio of nonperforming loans to total loans held for investment of 0.50%, compared to 0.34% as of December 31, 2023.

Previous wording

•Earnings per common sharefor the first six months of 2024 of $1.11 per basic common share and $1.10 per diluted common share, compared to $1.28 per basic common share and $1.27 per diluted common share for the first six months of 2023.

Current wording

•Earnings per common sharefor the first nine months of 2024 of $1.77 per basic common share and $1.75 per diluted common share, compared to $2.04 per basic common share and $2.02 per diluted common share for the first nine months of 2023.

Previous wording

•Return on average assetsof 0.84% over the first six months of 2024, compared to 1.04% for the first six months of 2023.

Current wording

•Return on average assetsof 0.89% over the first nine months of 2024, compared to 1.09% for the first nine months of 2023.

Previous wording

•Return on average common equityof 9.73% over the first six months of 2024, compared to 12.39% for the first six months of 2023.

Current wording

•Return on average common equityof 10.08% over the first nine months of 2024, compared to 13.00% for the first nine months of 2023.

Previous wording

•Capital ratios for Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 9.49%, 9.29%, 10.57% and 12.88%, respectively, compared to 9.52%, 9.15%, 10.46% and 12.85% at December 31, 2023.

Current wording

•Capital ratios for Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 9.61%, 9.42%, 10.69% and 12.99%, respectively, compared to 9.52%, 9.15%, 10.46% and 12.85% at December 31, 2023.

Previous wording

•Book value per common share of $23.24, an increase of 2.9% from $22.58 at December 31, 2023.

Current wording

•Book value per common share of $24.59, an increase of 8.9% from $22.58 at December 31, 2023.

Previous wording

Results of Operations for the Three and Six Months Ended June 30, 2024, and 2023

Current wording

Results of Operations for the Three and Nine Months Ended September 30, 2024, and 2023

Previous wording

For the three months ended June 30, 2024, net income available to common shareholders was $15.9 million, or $0.63 per basic common share and $0.62 per diluted common share, compared to net income of $18.4 million, or $0.73 per basic and diluted common share, for the three months ended June 30, 2023. Return on average assets, on an annualized basis, decreased to 0.95% for the three months ended June 30, 2024, from 1.18% for the three months ended June 30, 2023. Return on average equity, on an annualized basis, decreased to 10.94% for the three months ended June 30, 2024, as compared to 13.99% for the three months ended June 30, 2023.

Current wording

For the three months ended September 30, 2024, net income available to common shareholders was $16.5 million, or $0.65 per basic and diluted common share, compared to net income of $19.1 million, or $0.76 per basic and diluted common share, for the three months ended September 30, 2023. Return on average assets, on an annualized basis, decreased to 0.97% for the three months ended September 30, 2024, from 1.17% for the three months ended September 30, 2023. Return on average equity, on an annualized basis, decreased to 10.76% for the three months ended September 30, 2024, as compared to 14.16% for the three months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, net income available to common shareholders was $28.1 million, or $1.11 per basic common share and $1.10 per diluted common share, compared to net income of $32.1 million, or $1.28 per basic common share and $1.27 per diluted common share, for the six months ended June 30, 2023. Return on average assets, on an annualized basis, decreased to 0.84% for the six months ended June 30, 2024, from 1.04% for the six months ended June 30, 2023. Return on average equity, on an annualized basis, decreased to 9.73% for the six months ended June 30, 2024, as compared to 12.39% for the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, net income available to common shareholders was $44.6 million, or $1.77 per basic common share and $1.75 per diluted common share, compared to net income of $51.2 million, or $2.04 per basic common share and $2.02 per diluted common share, for the nine months ended September 30, 2023. Return on average assets, on an annualized basis, decreased to 0.89% for the nine months ended September 30, 2024, from 1.09% for the nine months ended September 30, 2023. Return on average equity, on an annualized basis, decreased to 10.08% for the nine months ended September 30, 2024, as compared to 13.00% for the nine months ended September 30, 2023.

Previous wording

For the three months ended June 30, 2024, net interest income totaled $54.0 million, and net interest margin and net interest spread were 3.45% and 2.47%, respectively, compared to $53.3 million, 3.63%, and 2.75%, respectively, for the three months ended June 30, 2023. The average yield on the loan portfolio was 7.07% for the three months ended June 30, 2024, compared to 6.54% for the three months ended June 30, 2023, and the average yield on total interest-earning assets was 6.38% for the three months ended June 30, 2024, compared to 5.84% for the three months ended June 30, 2023. For the three months ended June 30, 2024, overall cost of funds (which includes noninterest-bearing deposits) increased 76 basis points compared to the three months ended June 30, 2023, primarily due to the Federal Reserve increasing rates during 2023.

Current wording

For the three months ended September 30, 2024, net interest income totaled $56.1 million, and net interest margin and net interest spread were 3.51% and 2.54%, respectively, compared to $55.3 million, 3.61%, and 2.68%, respectively, for the three months ended September 30, 2023. The average yield on the loan portfolio was 7.12% for the three months ended September 30, 2024, compared to 6.84% for the three months ended September 30, 2023, and the average yield on total interest-earning assets was 6.42% for the three months ended September 30, 2024, compared to 6.10% for the three months ended September 30, 2023. For the three months ended September 30, 2024, overall cost of funds (which includes noninterest-bearing deposits) increased 48 basis points compared to the three months ended September 30, 2023, primarily due to the Federal Reserve increasing rates during 2023.

Previous wording

For the six months ended June 30, 2024, net interest income totaled $105.5 million, and net interest margin and net interest spread were 3.39% and 2.42%, respectively, compared to $106.1 million, 3.69%, and 2.85%, respectively, for the six months ended June 30, 2023. The average yield on the loan portfolio was 6.97% for the six months ended June 30, 2024, compared to 6.44% for the six months ended June 30, 2023, and the average yield on total interest-earning assets was 6.28% for the six months ended June 30, 2024, compared to 5.75% for the six months ended June 30, 2023. For the six months ended June 30, 2024, overall cost of funds (which includes noninterest-bearing deposits) increased 88 basis points compared to the six months ended June 30, 2023, primarily due to the Federal Reserve increasing rates during 2023.

Current wording

For the nine months ended September 30, 2024, net interest income totaled $161.7 million, and net interest margin and net interest spread were 3.43% and 2.46%, respectively, compared to $161.4 million, 3.66%, and 2.79%, respectively, for the nine months ended September 30, 2023. The average yield on the loan portfolio was 7.02% for the nine months ended September 30, 2024, compared to 6.58% for the nine months ended September 30, 2023, and the average yield on total interest-earning assets was 6.33% for the nine months ended September 30, 2024, compared to 5.87% for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, overall cost of funds (which includes noninterest-bearing deposits) increased 74 basis points compared to the nine months ended September 30, 2023, primarily due to the Federal Reserve increasing rates during 2023.

Previous wording

The following tables present, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three and six months ended June 30, 2024, and 2023, interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield. The average total loans reflected below are net of deferred loan fees and discounts. Acquired loans were recorded at fair value at acquisition and accrete/amortize discounts and premiums as an adjustment to yield. Averages presented in the tables below, and throughout this report, are month-end averages.

Current wording

The following tables present, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three and nine months ended September 30, 2024, and 2023, interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield. The average total loans reflected below are net of deferred loan fees and discounts. Acquired loans were recorded at fair value at acquisition and accrete/amortize discounts and premiums as an adjustment to yield.

Previous wording

Our provision for credit losses is a charge to income in order to bring our allowance for credit losses to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the allowance for credit losses see “—Financial Condition—Allowance for Credit Losses.” The provision for credit losses was $1.3 million for the three months ended June 30, 2024, and $538,000 for the same period in 2023. For the six months ended June 30, 2024, and 2023, the provision for credit losses was $2.5 million and $3.8 million, respectively. The higher provision for the three months ended June 30, 2024, compared to the same period in 2023 relates primarily to higher net charge-offs in the current period, caused primarily by the resolution of two commercial relationships totaling $613,000 of net charge-offs. The lower provision for the six months ended June 30, 2024, compared to the same period in 2023 relates primarily to an improved macro-economic and market outlook in the current six-month period. Additionally, net charge-offs were elevated during the six months ended June 30, 2023 due to the resolution of certain acquired credit deteriorated loans.

Current wording

Our provision for credit losses is a charge to income in order to bring our allowance for credit losses to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the allowance for credit losses see “—Financial Condition—Allowance for Credit Losses.” The provision for credit losses was $1.7 million for the three months ended September 30, 2024, and $604,000 for the same period in 2023. For the nine months ended September 30, 2024, and 2023, the provision for credit losses was $4.2 million and $4.4 million, respectively. The higher provision for the three months ended September 30, 2024, compared to the same period in 2023 relates primarily to deterioration in the economic forecast in the current period, as compared to the prior period. Additionally, during the three months ended September 30, 2023, certain nonperforming loans were resolved through charge-offs, with the remaining portfolio requiring a lower reserve replenishment rate. The lower provision for the nine months ended September 30, 2024, compared to the same period in 2023 relates primarily to an improved macro-economic and market outlook in the current nine-month period. Additionally, net charge-offs were elevated during the nine months ended September 30, 2023 due to the resolution of certain acquired credit deteriorated loans.

Previous wording

Our primary sources of noninterest income are service charges on deposit accounts, debit card and automated teller machine (“ATM”) fee income, income from bank-owned life insurance, fees and brokerage commissions and pass-through income from other investments (small business investment company (“SBIC”) partnerships and fintech technology (“Fintech”) funds. The following tables present, for the periods indicated, the major categories of noninterest income:

Current wording

Our primary sources of noninterest income are service charges on deposit accounts, debit card and automated teller machine (“ATM”) fee income, income from bank-owned life insurance, fees and brokerage commissions and pass-through income from other investments (small business investment company (“SBIC”) partnerships and financial technology (“Fintech”) funds. The following tables present, for the periods indicated, the major categories of noninterest income:

Previous wording

Total noninterest income increased $218,000, or 1.8%, for the three months ended June 30, 2024 from the same period in 2023. The increase is primarily due to the increases in the gains on sales of loans of $2.0 million, other income of $744,000, debit card and ATM fee income of $304,000 and swap fee income of $278,000, offset with the gain on the extinguishment of debt of $941,000 which occurred in the same period in 2023 and $2.4 million less in pass-through income from other investments from the same period in 2023.

Current wording

Total noninterest income increased $891,000, or 9.0%, for the three months ended September 30, 2024 from the same period in 2023. The increase is primarily due to the increases in other income of $731,000, debit card and ATM fee income of $283,000, swap fee income of $929,000, and pass-through income from other investments of $347,000, offset with the gain on the sale of a branch of $932,000 and a gain on the extinguishment of debt of $517,000 which occurred in the same period in 2023.

Previous wording

Total noninterest income increased $1.2 million, or 6.0%, for the six months ended June 30, 2024 from the same period in 2023. The increase is primarily due to the increases in the gains on sales of loans of $1.5 million, other income of $1.4 million and swap fee income of $501,000, offset with the gain on the extinguishment of debt of $941,000 which occurred in the same period in 2023 and $2.3 million less in pass-through income from other investments from the same period in 2023.

Current wording

Total noninterest income increased $2.1 million, or 7.0%, for the nine months ended September 30, 2024 from the same period in 2023. The increase is primarily due to the increases in the gains on sales of loans of $1.3 million, other income of $1.9 million and swap fee income of $1.4 million, offset with the gain on the extinguishment of debt of $1.5 million and the gain on the sale of a branch of $932,000 which occurred in the same period in 2023 and $2.0 million less in pass-through income from other investments from the same period in 2023.

Previous wording

For the three months ended June 30, 2024, total noninterest expense increased $3.4 million, or 8.6%, from the three months ended June 30, 2023, primarily attributed to the increase in salaries and employee benefits of $3.2 million, or 14.3%.

Current wording

For the three months ended September 30, 2024, total noninterest expense increased $3.8 million, or 10.0%, from the three months ended September 30, 2023, primarily attributed to the increase in salaries and employee benefits of $2.4 million, or 10.6%.

Previous wording

For the six months ended June 30, 2024, total noninterest expense increased $7.3 million, or 9.3%, from the six months ended June 30, 2023, primarily attributed to the increase in salaries and employee benefits of $5.4 million, or 11.9%.

Current wording

For the nine months ended September 30, 2024, total noninterest expense increased $11.1 million, or 9.5%, from the nine months ended September 30, 2023, primarily attributed to the increase in salaries and employee benefits of $7.8 million, or 11.5%.

Previous wording

For the three months ended June 30, 2024, income tax expense totaled $4.6 million, a decrease of $746,000, or 14.1%, compared to $5.3 million for the same period in 2023. Our effective tax rates for the three months ended June 30, 2024, and 2023 were 21.0% and 21.2%, respectively.

Current wording

For the three months ended September 30, 2024, income tax expense totaled $4.9 million, a decrease of $581,000, or 10.5%, compared to $5.5 million for the same period in 2023. Our effective tax rates for the three months ended September 30, 2024, and 2023 were 21.6% and 21.2%, respectively.

Previous wording

For the six months ended June 30, 2024, income tax expense totaled $8.2 million, a decrease of $1.3 million, or 13.9%, compared to $9.5 million for the same period in 2023. Our effective tax rates for the six months ended June 30, 2024, and 2023 were 21.0% and 21.5%, respectively.

Current wording

For the nine months ended September 30, 2024, income tax expense totaled $13.1 million, a decrease of $1.9 million, or 12.6%, compared to $15.0 million for the same period in 2023. Our effective tax rates for the nine months ended September 30, 2024, and 2023 were 21.3% and 21.4%, respectively.

Previous wording

Our total assets increased $119.3 million, or 1.8%, from December 31, 2023, to June 30, 2024, due primarily from the increase in our loan portfolio.

Current wording

Our total assets increased $304.1 million, or 4.6%, from December 31, 2023, to September 30, 2024, due primarily from the increase in our loan portfolio.

Previous wording

As of June 30, 2024, total loans, excluding mortgage loans held for sale, were $5.2 billion, an increase of $170.1 million, or 3.4%, compared to $5.0 billion as of December 31, 2023. Additionally, $680,000, and $835,000 in loans were classified as loans held for sale as of June 30, 2024, and December 31, 2023, respectively.

Current wording

As of September 30, 2024, total loans, excluding mortgage loans held for sale, were $5.2 billion, an increase of $227.3 million, or 4.6%, compared to $5.0 billion as of December 31, 2023. Additionally, $835,000 in loans were classified as loans held for sale as of December 31, 2023, and none at September 30, 2024.

Previous wording

Total loans held for investment as a percentage of total deposits were 92.8% and 95.1% as of June 30, 2024, and December 31, 2023, respectively. Total loans held for investment as a percentage of total assets were 77.0% and 75.8% as of June 30, 2024, and December 31, 2023, respectively.

Current wording

Total loans held for investment as a percentage of total deposits were 92.5% and 95.1% as of September 30, 2024, and December 31, 2023, respectively. Total loans held for investment as a percentage of total assets were 75.8% as of both September 30, 2024, and December 31, 2023, respectively.

Previous wording

Real Estate: Construction loans decreased $32.3 million, or 4.8%, to $637.5 million as of June 30, 2024, from $669.8 million as of December 31, 2023.

Current wording

Real Estate: Construction loans decreased $15.4 million, or 2.3%, to $654.4 million as of September 30, 2024, from $669.8 million as of December 31, 2023.

Previous wording

Commercial loans increased $161.6 million, or 11.9%, to $1.5 billion as of June 30, 2024, from $1.4 billion as of December 31, 2023.

Current wording

Commercial loans increased $137.6 million, or 10.1%, to $1.5 billion as of September 30, 2024, from $1.4 billion as of December 31, 2023.

Previous wording

Consumer and other loans decreased $828,000, or 1.3%, to $63.0 million as of June 30, 2024, from $63.8 million as of December 31, 2023.

Current wording

Consumer and other loans increased $5.2 million, or 8.2%, to $69.0 million as of September 30, 2024, from $63.8 million as of December 31, 2023.

Previous wording

We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and the timely resolution of problem assets. We had $24.3 million and$18.8 million in nonperforming assets as of June 30, 2024, and December 31, 2023, respectively. We had $22.4 million in nonperforming loans as of June 30, 2024, compared to $17.1 million as of December 31, 2023. The increase in nonperforming assets from December 31, 2023, to June 30, 2024, is primarily due to two lending relationships secured by residential real estate and one commercial loan that is unsecured.

Current wording

We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and the timely resolution of problem assets. We had $27.8 million and$18.8 million in nonperforming assets as of September 30, 2024, and December 31, 2023, respectively. We had $26.1 million in nonperforming loans as of September 30, 2024, compared to $17.1 million as of December 31, 2023. The increase in nonperforming assets from December 31, 2023, to September 30, 2024, is primarily due to two lending relationships secured by residential real estate, one secured by commercial real estate, and one commercial loan that is unsecured.

Previous wording

Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness; however, such concerns are not so pronounced that we generally expect to experience significant loss within the short-term.

Current wording

Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness; however, such concerns are not so pronounced that we generally expect to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating.

Previous wording

As of June 30, 2024, the allowance for credit losses totaled $44.5 million, or 0.86%, of total loans held for investment. As of December 31, 2023, the allowance for credit losses totaled $43.7 million, or 0.88%, of total loans held for investment.

Current wording

As of September 30, 2024, the allowance for credit losses totaled $45.0 million, or 0.86%, of total loans held for investment. As of December 31, 2023, the allowance for credit losses totaled $43.7 million, or 0.88%, of total loans held for investment.

Previous wording

We use our securities portfolio to provide a source of liquidity, an appropriate return on funds invested, manage interest rate risk, meet collateral requirements, and meet regulatory capital requirements. As of June 30, 2024, the carrying amount of investment securities totaled $875.0 million, a decrease of $4.5 million, or 0.5%, compared to $879.6 million as of December 31, 2023. The decrease was primarily due to unrealized losses and paydowns in the first six months of 2024. Securities represented 13.1% and 13.4% of total assets as of June 30, 2024, and December 31, 2023, respectively.

Current wording

We use our securities portfolio to provide a source of liquidity, an appropriate return on funds invested, manage interest rate risk, meet collateral requirements, and meet regulatory capital requirements. As of September 30, 2024, the carrying amount of investment securities totaled $916.1 million, an increase of $36.5 million, or 4.2%, compared to $879.6 million as of December 31, 2023. The increase was primarily due to unrealized gains in the first nine months of 2024. Securities represented 13.3% and 13.4% of total assets as of September 30, 2024, and December 31, 2023, respectively.

Previous wording

The contractual maturity of mortgage-backed securities, collateralized mortgage obligations and asset-backed securities is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities and asset-backed securities are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly paydowns on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal and, consequently, the average life of this security will be lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. The weighted average life of our investment portfolio was 4.80 years with an estimated effective duration of 3.84 years as of June 30, 2024.

Current wording

The contractual maturity of mortgage-backed securities, collateralized mortgage obligations and asset-backed securities is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities and asset-backed securities are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly paydowns on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal and, consequently, the average life of this security will be lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. The weighted average life of our investment portfolio was 4.49 years with an estimated effective duration of 3.77 years as of September 30, 2024.

Previous wording

As of June 30, 2024, and December 31, 2023, the Company held other equity securities of $38.8 million and $33.9 million, respectively, comprised mainly of FHLB stock, small business investment companies (“SBICs”) and financial technology (“Fintech”) fund investments.

Current wording

As of September 30, 2024, and December 31, 2023, the Company held other equity securities of $39.6 million and $33.9 million, respectively, comprised mainly of FHLB stock, small business investment companies (“SBICs”) and financial technology (“Fintech”) fund investments.