EAGLE BANCORP INC

Previous wording

The Company was organized in October 1997, to be the holding company for the Bank. The Bank was organized in 1998 as an independent, community oriented, full service banking alternative to the super regional financial institutions that dominate the Company's primary market area. The Company's philosophy is to provide superior, personalized service to its customers. The Company focuses on relationship banking, providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive, personalized fashion. The Bank currently has a total of twelve branch offices, including six in Suburban Maryland, three in Northern Virginia, and three in Washington, D.C. The Bank also operates four lending offices, with two in Suburban Maryland, one in Northern Virginia, and one in Washington, D.C. In April 2024, one branch was closed as it had an expiring lease. The branch's clients will be served from our other branches, and through digital channels.

Current wording

The Company was organized in October 1997, to be the holding company for the Bank. The Bank was organized in 1998 as an independent, community oriented, full service banking alternative to the super regional financial institutions that dominate the Company's primary market area. The Company's philosophy is to provide superior, personalized service to its customers. The Company focuses on relationship banking, providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive, personalized fashion. The Bank currently has a total of twelve branch offices, including six in Suburban Maryland, three in Northern Virginia, and three in Washington, D.C. The Bank also operates four lending offices, with two in Suburban Maryland, one in Northern Virginia, and one in Washington, D.C.

Previous wording

When the impact of the provision is excluded, pre-provision net revenue ("PPNR"), a non-GAAP measure, was $38.3 million for the three months ended March 31, 2024, as compared to $38.1 million for the same period in 2023. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Current wording

When the impact of the provision and goodwill impairment are excluded, pre-provision net revenue ("PPNR"), a non-GAAP measure, was $34.4 million for the three months ended June 30, 2024, as compared to $42.4 million for the same period in 2023. The $8.1 million decrease was primarily due to lower noninterest income and higher noninterest expenses, primarily FDIC insurance. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Previous wording

The net interest margin, which measures the difference between interest income and interest expense (i.e. net interest income) as a percentage of earning assets, was 2.43% for the three months ended March 31, 2024 and 2.77% for the same period in 2023. The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below.

Current wording

The net interest margin, which measures the difference between interest income and interest expense (i.e. net interest income) as a percentage of earning assets, was 2.40% for the three months ended June 30, 2024 and 2.49% for the same period in 2023. The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below.

Previous wording

For the three months ended March 31, 2024 and 2023, the Company had average assets of $12.8 billion and $11.4 billion, respectively, the increase of which was primarily attributable to an increase in average interest-bearing deposits with other banks and other short-term investments over the comparative period. For the three months ended March 31, 2024 and 2023, the Company had average common equity of $1.3 billion and $1.2 billion, respectively. For the three months ended March 31, 2024 and 2023, the Company had average tangible common equity, a non-GAAP measure, of $1.2 billion and $1.1 billion, respectively. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Current wording

For the three months ended June 30, 2024 and 2023, the Company had average assets of $12.4 billion and $12.0 billion, respectively, the increase in which was primarily attributable to an increase in average interest-bearing deposits with other banks and other short-term investments over the comparative period. For the three months ended June 30, 2024 and 2023, the Company had average common equity of $1.3 billion and $1.2 billion, respectively. For the three months ended June 30, 2024 and 2023, the Company had average tangible common equity, a non-GAAP measure, of $1.2 billion and $1.1 billion, respectively. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Previous wording

For the three months ended March 31, 2024, the Company reported an annualized return on average assets ("ROAA") of (0.01)%, as compared to 0.86% for the same period in 2023. The annualized return on average common equity ("ROACE") for the three months ended March 31, 2024 was (0.11)% as compared to 7.92% for the same period in 2023. The annualized return on average tangible common equity ("ROATCE"), a non-GAAP measure, for the three months ended March 31, 2024 was (0.11)% as compared to 8.65% for the same period in 2023. The decline in returns was primarily attributable to a reduction in net income to a net loss. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Current wording

For the three months ended June 30, 2024, the Company reported an annualized return on average assets ("ROAA") of (2.7)%, as compared to 0.96% for the same period in 2023. The annualized return on average common equity ("ROACE") for the three months ended June 30, 2024 was (26.7)% as compared to 9.2% for the same period in 2023. The annualized return on average tangible common equity ("ROATCE") for the three months ended June 30, 2024 was (29.0)% as compared to 10.1% for the same period in 2023. The adverse change in returns was primarily attributable to the recognition of goodwill impairment. Excluding the goodwill impairment charge, operating annualized ROAA (non-GAAP) was 0.7%, operating annualized return on common equity (non-GAAP) was 6.5%, and operating annualized return on tangible common equity (non-GAAP) was 7.0%. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Previous wording

Net loss for the three months ended March 31, 2024 was $338 thousand, as compared to net income of $24.2 million for the same period in 2023, a decrease of $24.6 million, or 101.4%.

Current wording

Net loss for the six months ended June 30, 2024 was $84.1 million, as compared to net income of $52.9 million for the same period in 2023, a decrease of $137.0 million, or 259.0%.

Previous wording

The decrease of $24.6 million to net loss for the three months ended March 31, 2024 from net income for the same period in 2023 was due primarily to an increase in provision for credit losses of $29.0 million, partially offset by a reduction of income tax expenses of $3.9 million. For more information on the drivers and the components of these changes, see the "Provision for Credit Losses" and "Income Tax Expenses" sections below.

Current wording

The decrease of $137.0 million to net loss for the six months ended June 30, 2024 from net income for the same period in 2023 was primarily attributable to the recognition of goodwill impairment of $104.2 million and an increase in provision for credit losses of $32.7 million, partially offset by a reduction of income tax expenses of $7.6 million. For more information on the drivers and the components of these changes, see the "Provision for Credit Losses" and "Income Tax Expenses" sections below.

Previous wording

Total revenue (i.e. net interest income plus noninterest income) was $78.3 million for the three months ended March 31, 2024, as compared to $78.7 million for the same period in 2023.

Current wording

Total revenue (i.e. net interest income plus noninterest income) was $155.0 million for the six months ended June 30, 2024, as compared to $159.1 million for the same period in 2023.

Previous wording

Average loans (excluding loans held for sale) increased to $8.0 billion for the three months ended March 31, 2024 compared to $7.7 billion for the same period in 2023. Average interest bearing deposits increased to $7.4 billion for the three months ended March 31, 2024 from $5.5 billion for the three months ended March 31, 2023, while average noninterest bearing demand deposits decreased to $2.1 billion for the three months ended March 31, 2024 from $3.3 billion for the three months ended March 31, 2023. Additionally, average borrowings increased from $1.3 billion in the three months ended March 31, 2023 to $1.8 billion in the three months ended March 31, 2024.

Current wording

Average loans increased to $8.0 billion for the six months ended June 30, 2024 compared to $7.8 billion for the same period in 2023. Average interest bearing deposits increased to $7.3 billion for the six months ended June 30, 2024 from $5.6 billion for the six months ended June 30, 2023, while average noninterest bearing demand deposits decreased to $2.1 billion for the six months ended June 30, 2024 from $3.0 billion for the six months ended June 30, 2023. Additionally, average borrowings remained steady at $1.7 billion for the six months ended June 30, 2024 and 2023.

Previous wording

The table below presents the average balances and rates of the major categories of the Company's assets and liabilities for the three months ended March 31, 2024 and 2023. Included in the tables are measurements of interest rate spread and margin. Interest rate spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest rate paid on interest bearing liabilities. While the interest rate spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin, together with net interest income, provides a better measurement of performance. The net interest margin (as compared to net interest spread) includes the effect of noninterest bearing sources in its calculation. Net interest margin is net interest income expressed as a percentage of average earning assets.

Current wording

The tables below present the average balances and rates of the major categories of the Company's assets and liabilities for the three and six months ended June 30, 2024 and 2023. Included in the tables are measurements of interest rate spread and margin. Interest rate spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest rate paid on interest bearing liabilities. While the interest rate spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin, together with net interest income, provides a better measurement of performance. The net interest margin (as compared to net interest spread) includes the effect of noninterest bearing sources in its calculation. Net interest margin is net interest income expressed as a percentage of average earning assets.

Previous wording

(1)Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $5.1 million and $3.7 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

(1)Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $4.8 million and $4.2 million for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

The rate/volume table below presents the composition of the change in net interest income for the period indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest bearing liabilities, and the changes in net interest income due to changes in interest rates.

Current wording

The rate/volume tables below presents the composition of the change in net interest income for the period indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest bearing liabilities, and the changes in net interest income due to changes in interest rates.

Previous wording

The provision for credit losses on loans for the three months ended March 31, 2023 was $4.9 million. The provision was primarily driven by adjustments to the qualitative components of the CECL model owing to the high inflationary environment and uncertainty in the macroeconomic outlook and the related changes in economic growth and the broader economy, changes in the qualitative and economic component of the model associated with CRE office properties, as well as the increases in total loans.

Current wording

The change in provision for credit losses during the six months ended June 30, 2024, was primarily attributable to an updated valuation for a CRE office property collateralizing a lending relationship with two loans outstanding, the total of which was partially charged off in the first quarter 2024. Additionally, the increase in the provision was driven by adjustments to the qualitative components of the CECL model owing to the high inflationary environment and uncertainty in the macroeconomic outlook and the related changes in economic growth and the broader economy, changes in the qualitative and economic component of the model associated with CRE office properties, as well as the increases in total loans.

Previous wording

During the three months ended March 31, 2024 and 2023, the provision for credit losses for the held-to-maturity securities portfolio was $1 thousand and $1.2 million, respectively, which, in 2023, were recorded primarily on several corporate bonds. During the three months ended March 31, 2023, the provision for credit losses for the available-for-sale securities portfolio was $14 thousand. There was no provision for credit losses on the available-for-sale securities portfolio for the three months ended March 31, 2024.

Current wording

The provision for credit losses for the held-to-maturity securities portfolio was recorded primarily on several corporate bonds. During the three months ended June 30, 2024 and 2023, the provision for credit losses for the held-to-maturity securities portfolio was of $55 thousand and $2 thousand, respectively. During the six months ended June 30, 2024 and 2023, the provision for credit losses for the held-to-maturity securities portfolio was $56 thousand and $1.2 million, respectively. There was no provision for credit losses on the available-for-sale securities portfolio for the three and six months ended June 30, 2024. During the three and six months ended June 30, 2023, provisions of $0 and $14 thousand, respectively.

Previous wording

The provision for unfunded commitments is presented separately on the Consolidated Statements of Operations. This provision considers the probability that unfunded commitments will fund. During the three months ended March 31, 2024 and 2023, provisions of $456 thousand and $848 thousand, respectively, were incurred for unfunded commitments.

Current wording

The provision for unfunded commitments is presented separately on the Consolidated Statements of Operations. This provision considers the probability that unfunded commitments will fund. During the three months ended June 30, 2024 and 2023, provisions of $608 thousand and $318 thousand, respectively, were incurred for unfunded commitments. During the six months ended June 30, 2024 and 2023, provisions of $1.1 million and $1.2 million, respectively, were incurred for unfunded commitments.

Previous wording

Noninterest income includes service charges on deposits, gain on sale of loans, gains and losses on sale of investment securities, income from bank owned life insurance ("BOLI") and other income. The following table summarizes the comparative noninterest income for the three months ended March 31, 2024 and 2023:

Current wording

Noninterest income includes service charges on deposits, gain on sale of loans, gains and losses on sale of investment securities, income from bank owned life insurance ("BOLI") and other income. The following table summarizes the comparative noninterest income for the three and six months ended June 30, 2024 and 2023:

Previous wording

Total noninterest expense includes salaries and employee benefits, premises and equipment expenses, marketing and advertising, data processing, legal, accounting and professional, Federal Deposit Insurance Corporation ("FDIC") insurance assessments, and other expenses. The following table summarizes the comparative noninterest expense for the three months ended March 31, 2024 and 2023:

Current wording

Total noninterest expense includes salaries and employee benefits, premises and equipment expenses, marketing and advertising, data processing, legal, accounting and professional, Federal Deposit Insurance Corporation ("FDIC") insurance assessments, and other expenses. The following table summarizes the comparative noninterest expense for the three and six months ended June 30, 2024 and 2023:

Previous wording

The major components of other expenses include franchise taxes, director compensation and insurance expense. The decrease in other expenses over the comparative three months ended March 31, 2024 and 2023 was primarily due to a reduction in director fees of $1.3 million and a $857 thousand recovery of real estate taxes.

Current wording

The major components of other expenses include franchise taxes, director compensation and insurance expense. Other expenses increased to $3.9 million from $3.3 million, or 16.7%, for the three months ended June 30, 2024, compared to the same three month period in 2023. The increase in other expenses over the comparative three months was primarily due to two nonrecurring expenses ($325 thousand legal settlement and a $200 thousand non-loan charge-off). For the six month period ended June 30, 2024 other expenses decreased to $6.0 million from $7.9 million, or 24.2%, for the same period in 2023. The decrease in other expenses over the comparative six months ended June 30, 2024 and 2023 was primarily due to a reduction in director fees.

Previous wording

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 51.09% for the three months ended March 31, 2024, as compared to 51.55% for the same period in 2023. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures. The improvement in the efficiency ratio for the three months ended March 31, 2024 as compared to the same three month period in 2023 was primarily driven by the decrease in noninterest expenses outpacing the decreases in net interest income and noninterest income.

Current wording

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 191.03% and 120.34% for the three months and six months ended June 30, 2024, respectively as compared to 47.23% and 49.37% for the same periods in 2023. The adverse change in the efficiency ratio was primarily driven by the recognition of goodwill impairment of $104.2 million. Excluding the goodwill impairment charge, the operating efficiency ratio (non-GAAP) was 55.19% and 53.12% for the three and six months ended June 30, 2024, respectively. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Previous wording

The Company's tax provision for the three months ended March 31, 2024 was $3.0 million, compared to $6.9 million for the three months ended March 31, 2023. The decrease in the tax provision over the comparative three months ended March 31, 2024 and 2023 was primarily due to decreases in pre-tax income period over period.

Current wording

For the three and six months ended June 30, 2024 the tax provision was $4.4 million and $7.4 million, respectively, compared to $8.2 million and $15.1 million for the three and six months ended June 30, 2023. The decrease in the tax provision over the comparative three and six months ended June 30, 2024 and 2023 was primarily due to decreases in pre-tax income period over period. The change in the effective tax rate over the comparative three and six months ended June 30, 2024 and 2023 was primarily driven by the impairment of the goodwill which is not deductible for tax purposes.

Previous wording

Total assets were $11.6 billion and $11.7 billion at March 31, 2024 and December 31, 2023, respectively. Assets remained at similar levels from December 31, 2023 to March 31, 2024 with minor changes in the asset mix. The decrease in total assets of $51.9 million (or 0.4%) from December 31, 2023 to March 31, 2024 was primarily due to decreases in investment securities and interest-bearing deposits with other banks and other short-term investments, the total of which was partially offset by an increase in loans.

Current wording

Total assets were $11.3 billion and $11.7 billion at June 30, 2024 and December 31, 2023, respectively. The decrease in total assets of $362.5 million, or 3.1%, from December 31, 2023 to June 30, 2024 was primarily due to decreases in investment securities and interest-bearing deposits with other banks, and the impairment charge of goodwill related to a 2014 acquisition.

Previous wording

The largest component of assets, total loans, had an amortized cost basis of $8.0 billion at March 31, 2024, a 0.2% increase from the balance at December 31, 2023. The increase in loans over the three months ended March 31, 2024, was driven primarily by increased fundings of ongoing construction projects for commercial and residential properties, partially offset by decreases in income producing - CRE, owner occupied - CRE and commercial loans.

Current wording

The largest component of assets, total loans, had an amortized cost basis of $8.0 billion at June 30, 2024, a 0.4% increase from the balance at December 31, 2023. The change in loans was a combination of increases in CRE, both owner occupied and income producing, partially offset by a reduction in commercial loans.

Previous wording

Investment securities, at amortized cost net of the ACL, totaled $2.6 billion at March 31, 2024 as compared to $2.7 billion at December 31, 2023, a decrease of $69.7 million, or 2.6%, that was primarily driven by the pay down of principal on mortgage-backed securities ("MBS") and calls of securities. At March 31, 2024 and December 31, 2023, investment securities available-for-sale had an amortized cost of $1.6 billion and $1.7 billion, respectively, and a fair value of $1.4 billion and $1.5 billion, respectively. Additionally, March 31, 2024 and December 31, 2023, investment securities held-to-maturity had an amortized cost, less an ACL of $2.0 million, of $1.0 billion and an estimated fair value of $878.2 million and $901.6 million, respectively.

Current wording

Investment securities, at amortized cost net of the ACL, totaled $2.6 billion at June 30, 2024 as compared to $2.7 billion at December 31, 2023, a decrease of $116.7 million, or 4.3%, that was primarily driven by the pay down of principal on mortgage-backed securities ("MBS") and calls of securities. At June 30, 2024 and December 31, 2023, investment securities available-for-sale had an amortized cost of $1.6 billion and $1.7 billion, respectively, and a fair value of $1.4 billion and $1.5 billion, respectively. Additionally, June 30, 2024 and December 31, 2023, investment securities held-to-maturity had an amortized cost (net of ACL of $2.0 million) of $1.0 billion and an estimated fair value of $856.3 million and $901.6 million, respectively.

Previous wording

In terms of funding, total deposits at March 31, 2024 were $8.5 billion, down from $8.8 billion at December 31, 2023, a decline of 3.5%. Total borrowings (excluding customer repurchase agreements) were $1.7 billion and $1.4 billion at March 31, 2024 and December 31, 2023, respectively. The decrease in deposits was primarily attributable to first quarter seasonality, while the increase in borrowings, attributable to net fundings on the Company's secured borrowings, was primarily to meet funding needs, including to fund loan growth, given the decrease in deposits.

Current wording

In terms of funding, total deposits at June 30, 2024 were $8.3 billion, down from $8.8 billion at December 31, 2023, a decline of 6.1%. Total borrowings (excluding customer repurchase agreements) were $1.7 billion and $1.4 billion at June 30, 2024 and December 31, 2023, respectively. The decrease in deposits was primarily attributable to a decline in deposits from a third party payment processor related to the fluctuations in deposit levels resulting from its business, as well as declines in some public and brokered funding.

Previous wording

The Company's capital ratios remain substantially in excess of regulatory minimum and buffer requirements. Regulatory ratios based on risk-weighted assets experienced minor fluctuations of less than 1% from December 31, 2023 to March 31, 2024. The total risk based capital ratio was 14.87% at March 31, 2024, as compared to 14.79% at December 31, 2023. The common equity tier 1 capital ("CET1") risk based capital ratio was 13.80% at March 31, 2024, as compared to 13.90% at December 31, 2023. The tier 1 risk based capital ratio was 13.80% at March 31, 2024, as compared to 13.90% at December 31, 2023. The tier 1 leverage ratio was 10.26% at March 31, 2024, as compared to 10.73% at December 31, 2023.

Current wording

The Company's capital ratios remain substantially in excess of regulatory minimum and buffer requirements. Regulatory ratios based on risk-weighted assets experienced minor fluctuations of less than 1% from December 31, 2023 to June 30, 2024. The total risk based capital ratio was 15.07% at June 30, 2024, as compared to 14.79% at December 31, 2023. The common equity tier 1 capital ("CET1") risk based capital ratio was 13.92% at June 30, 2024, as compared to 13.90% at December 31, 2023. The tier 1 risk based capital ratio was 13.92% at June 30, 2024, as compared to 13.90% at December 31, 2023. The tier 1 leverage ratio was 10.58% at June 30, 2024, as compared to 10.73% at December 31, 2023.

Previous wording

The ratio of common equity to total assets was 10.85% at March 31, 2024, as compared to 10.92% at December 31, 2023 as common equity levels remained consistent over the three months ended March 31, 2024. Book value per share was $41.72 at March 31, 2024, a 2.0% decrease over $42.58 at December 31, 2023.

Current wording

The ratio of common equity to total assets was 10.35% at June 30, 2024, as compared to 10.92% at December 31, 2023 as common equity levels declined 8.2% over the six months ended June 30, 2024. Book value per share was $38.75 at June 30, 2024, a 9.0% decrease over $42.58 at December 31, 2023. These declines were primarily due to the goodwill impairment charge of $104.2 million.

Previous wording

In addition, the tangible common equity ratio was 10.03% at March 31, 2024, as compared to 10.12% at December 31, 2023. Tangible book value per share was $38.26 at March 31, 2024, a 2.1% decrease from $39.08 at December 31, 2023. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Current wording

In addition, the tangible common equity ratio was 10.35% at June 30, 2024, as compared to 10.12% at December 31, 2023. Tangible book value per share was $38.74 at June 30, 2024, a 0.9% decrease from $39.08 at December 31, 2023. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Previous wording

Loans outstanding were $8.0 billion at March 31, 2024, an increase of $14.0 million, or 0.2%, from the balance at December 31, 2023. The loan portfolio has continued to grow in the three months ended March 31, 2024, driven by increased fundings of ongoing construction projects for commercial and residential properties, partially offset by a reduction in CRE loans. Market rates in 2024 for our new loan originations remained consistent with the market rates at the end of 2023, reflecting that the Federal Reserve has not raised short-term interest rates in 2024. We continue to see opportunities for growth in the commercial real estate market in our focused sectors; our processes for evaluating these opportunities are designed to ensure they are subject to reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Following origination, we continue to monitor our borrowers' business plans and identify primary and alternative sources for loan repayment and, if necessary, obtain collateral to mitigate credit loss in the event of default.

Current wording

Loans outstanding were $8.0 billion at June 30, 2024, an increase of $33.0 million, or 0.4%, from the balance at December 31, 2023. The loan portfolio has continued to grow in the six months ended June 30, 2024, driven by increased fundings of income producing CRE and ongoing construction projects for commercial and residential properties, partially offset by a reduction in commercial loans. Market rates in 2024 for our new loan originations remained consistent with the market rates at the end of 2023, reflecting that the Federal Reserve has not raised short-term interest rates in 2024. We continue to see opportunities for growth in the commercial real estate market in our focused sectors; our processes for evaluating these opportunities are designed to ensure they are subject to reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Following origination, we continue to monitor our borrowers' business plans and identify primary and alternative sources for loan repayment and, if necessary, obtain collateral to mitigate credit loss in the event of default.

Previous wording

(1)Excludes accrued interest receivable of $46.3 million and $45.3 million at March 31, 2024 and December 31, 2023, respectively, which is recorded in other assets.

Current wording

(1)Excludes accrued interest receivable of $46.8 million and $45.3 million at June 30, 2024 and December 31, 2023, respectively, which is recorded in other assets.

Previous wording

The Company's concentration in the Washington, D.C. metro area includes "Washington's Maryland Suburbs," which comprise Frederick, Prince George's and Montgomery counties and "Northern Virginia," which comprises Alexandria, Arlington, Falls Church, Fairfax, Loudoun and Prince William counties. At March 31, 2024, 31.8%, 26.9%, 24.2%, 5.4% and 11.7% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively. At December 31, 2023, 31.5%, 26.4%, 25.1%, 5.5% and 11.5% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively. While we remain cautious with regard to CRE market conditions, principally office, the strength of the Washington D.C. metro area in certain sectors, particularly multi-family CRE and the housing market, continue to drive premiums for well-located properties.

Current wording

The Company's concentration in the Washington, D.C. metro area includes "Washington's Maryland Suburbs," which comprise Frederick, Prince George's and Montgomery counties and "Northern Virginia," which comprises Alexandria, Arlington, Falls Church, Fairfax, Loudoun and Prince William counties. At June 30, 2024, 31.1%, 27.6%, 24.5%, 5.4% and 11.4% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively. At December 31, 2023, 31.5%, 26.4%, 25.1%, 5.5% and 11.5% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively. While we remain cautious with regard to CRE market conditions, principally office, the strength of the Washington D.C. metro area in certain sectors, particularly multi-family CRE and the housing market, continue to drive premiums for well-located properties.

Previous wording

As part of its lending strategy, the Company maintains a substantial portfolio of CRE loans, with $6.2 billion and $6.1 billion, or 77.1% and 77.0% of total loans, of amortized cost outstanding at March 31, 2024 and December 31, 2023, respectively. Management meets regularly in order to monitor its existing CRE loan portfolio and to evaluate the pipeline for CRE loan investment. The Company has remained focused on monitoring sectors that have had a lasting impact from the ramifications of the COVID-19 pandemic, particularly income producing CRE loans collateralized by office properties, which comprised approximately $898.7 million and $949.0 million, or 11.2% and 11.9% of total loans, at March 31, 2024 and December 31, 2023, respectively. Office loans within Washington D.C., Washington's Maryland Suburbs and Northern Virginia were $829.5 million and $879.0 million, or 10.4% and 11.0% of total loans, at March 31, 2024 and December 31, 2023, respectively. As a percentage of total income producing - CRE office loans, 37.4%, 31.4% and 23.5% were located in Washington's Maryland Suburbs, Northern Virginia, and Washington, D.C. at March 31, 2024.

Current wording

As part of its lending strategy, the Company maintains a substantial portfolio of CRE loans, with $6.4 billion and $6.1 billion, or 80.5% and 77.0% of total loans, of amortized cost outstanding at June 30, 2024 and December 31, 2023, respectively. Management meets regularly in order to monitor its existing CRE loan portfolio and to evaluate the pipeline for CRE loan investment. The Company has remained focused on monitoring sectors that have had a lasting impact from the ramifications of the COVID-19 pandemic, particularly income producing CRE loans collateralized by office properties, which comprised approximately $887.4 million and $949.0 million, or 11.1% and 11.9% of total loans, at June 30, 2024 and December 31, 2023, respectively. Office loans within Washington D.C., Washington's Maryland Suburbs and Northern Virginia were $818.2 million and $879.0 million, or 10.2% and 11.0% of total loans, at June 30, 2024 and December 31, 2023, respectively. As a percentage of total income producing - CRE office loans, 37.9%, 30.6% and 23.9% were located in Washington's Maryland Suburbs, Northern Virginia, and Washington, D.C., respectively, at June 30, 2024.

Previous wording

The following table summarizes the Company's income producing - commercial real estate loans, at principal, at March 31, 2024:

Current wording

The following table summarizes the Company's income producing - commercial real estate loans, at principal, at June 30, 2024. Additionally, we present the three most recent quarters' data for percent of principal by loan size and geographical concentration a comparative analysis :

Previous wording

At March 31, 2024, $248.9 million of principal of loans collateralized by office properties were criticized or classified.

Current wording

At June 30, 2024, $247.5 million of principal of loans collateralized by office properties were criticized or classified.

Previous wording

(2)Income producing CRE office loans, which had total principal of $898.7 million at March 31, 2024 and are included within income producing - commercial real estate, had principal of $323.8 million, $559.8 million, and $15.1 million aggregated with one year or less, over one year to five years, and over five years to fifteen years remaining until contractual maturity, respectively. Approximately $107.8 million and $368.8 million of income producing CRE office loans as of March 31, 2024 were due to mature within three months and 18 months, respectively.

Current wording

(2)Income producing CRE office loans, which had total principal of $887.4 million at June 30, 2024 and are included within income producing - commercial real estate, had principal of $297.9 million, $574.1 million, $15.2 million, and $0.2 million aggregated with one year or less, over one year to five years, over five years to fifteen years, and over fifteen years remaining until contractual maturity, respectively. Approximately $126.4 million and $361.1 million of income producing CRE office loans as of June 30, 2024 were due to mature within three months and 18 months, respectively.

Previous wording

The ACL is an estimate based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio and internal loan processes of the Company and Bank. A full discussion of the accounting for ACL is contained in Note 1 to the Consolidated Financial Statements and activity in the ACL is contained in Note 4 to the Consolidated Financial Statements. Also, please refer to the discussion under the caption "Provision for Credit Losses" for a discussion of the Company's calculation of the provision for credit losses during the three months ended March 31, 2024 and 2023.

Current wording

The ACL is an estimate based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio and internal loan processes of the Company and Bank. A full discussion of the accounting for ACL is contained in Note 1 to the Consolidated Financial Statements and activity in the ACL is contained in Note 4 to the Consolidated Financial Statements. Also, please refer to the discussion under the caption "Provision for Credit Losses" for a discussion of the Company's calculation of the provision for credit losses during the six months ended June 30, 2024 and 2023.

Previous wording

The ACL for loans at March 31, 2024, or $99.7 million, reflected a $13.7 million increase from December 31, 2023, or $85.9 million, reflecting a provision for credit losses of $35.2 million and $21.4 million in net charge-offs during the three months ended March 31, 2024. Net charge-offs, on an annualized basis, represented 1.07% of average loans for the three months ended March 31, 2024, an increase from net charge-offs of $975 thousand during the three months ended March 31, 2023, which represented 0.05% of average loans, excluding loans held for sale, on an annualized basis. Net charge-offs during the three months ended March 31, 2024 included $20.6 million of charge offs on one CRE office lending relationship. At March 31, 2024, the ACL for loans represented 1.25% of total loans outstanding, as compared to 1.08% at December 31, 2023. The ACL represented 109% of nonperforming loans at March 31, 2024, as compared to 131% at December 31, 2023. Refer to the "Provision for Credit Losses" section of Management's Discussion and Analysis of Financial Condition and Results of Operations for more information on the provision for credit losses.

Current wording

The ACL for loans at June 30, 2024 at $106.3 million, reflected a $20.4 million increase from December 31, 2023 when it was $85.9 million, reflecting a provision for credit losses of $44.1 million and $23.7 million in net charge-offs during the six months ended June 30, 2024. Net charge-offs, on an annualized basis, represented 0.59% of average loans for the six months ended June 30, 2024, an increase from net charge-offs of $6.6 million during the six months ended June 30, 2023, which represented 0.17% of average loans, excluding loans held for sale, on an annualized basis. Net charge-offs during the six months ended June 30, 2024 included $20.1 million of charge offs on one CRE office lending relationship. At June 30, 2024, the ACL for loans represented 1.33% of total loans outstanding, as compared to 1.08% at December 31, 2023. The ACL represented 114% of nonperforming loans at June 30, 2024, as compared to 131% at December 31, 2023. Refer to the "Provision for Credit Losses" section of Management's Discussion and Analysis of Financial Condition and Results of Operations for more information on the provision for credit losses.

Previous wording

The Company believes it has taken a prudent posture with respect to risk rating its loan portfolio. As of March 31, 2024 and December 31, 2023, loans rated special mention had an amortized cost of $265.3 million and $207.1 million, respectively, and loans rated substandard had an amortized cost of $361.8 million and $335.8 million, respectively. The increases in special mention loans were primarily attributable to additions in CRE loans, particularly in income producing - commercial real estate and commercial construction loans, and commercial loans. At March 31, 2024, 97.5% and $73.9% of special mention and substandard loans, respectively, were current. Based upon their status as potential problem loans, loans risk rated special mention or substandard receive heightened scrutiny and ongoing intensive risk management. Additionally, the Company's loan loss allowance methodology incorporates increased reserve factors for certain loans considered potential problem loans as compared to the general portfolio.

Current wording

The Company believes it has taken a prudent posture with respect to risk rating its loan portfolio. As of June 30, 2024 and December 31, 2023, loans rated special mention had an amortized cost of $307.9 million and $207.1 million, respectively, and loans rated substandard had an amortized cost of $403.3 million and $335.8 million, respectively. The increases in special mention loans were primarily attributable to additions in CRE loans, particularly in income producing - commercial real estate and commercial construction loans, and commercial loans. The increases in substandard loans were primarily attributable to additions in CRE loans, particularly in owner occupied - commercial real estate loan and commercial construction loans. At June 30, 2024, 100% and 74% of special mention and substandard loans, respectively, were current. Based upon their status as potential problem loans, loans risk rated special mention or substandard receive heightened scrutiny and ongoing intensive risk management. Additionally, the Company's loan loss allowance methodology incorporates increased reserve factors for certain loans considered potential problem loans as compared to the general portfolio.

Previous wording

At March 31, 2024 and December 31, 2023, the Company's performing office coverage ratio, which calculates the ACL attributable to loans collateralized by performing office properties as a percentage of total loans, was 3.67% and 1.91%, respectively.

Current wording

At June 30, 2024 and December 31, 2023, the Company's performing office coverage ratio, which calculates the ACL attributable to loans collateralized by performing office properties as a percentage of total loans, was 4.05% and 1.91%, respectively.

Previous wording

The following table reflects the allocation of the ACL at the dates indicated. The allocation of the allowance at March 31, 2024 includes ACL of $387 thousand against individually assessed loans of $92.1 million, as compared to ACL of $641 thousand against individually assessed loans of $66.1 million at December 31, 2023. The allocation of the allowance to each category is not necessarily indicative of future losses or charge-offs and does not restrict the use of the allowance to absorb losses in any category.

Current wording

The following table reflects the allocation of the ACL at the dates indicated. The allocation of the allowance at June 30, 2024 includes ACL of $2.3 million against individually assessed loans of $98.1 million, as compared to ACL of $641 thousand against individually assessed loans of $66.1 million at December 31, 2023. The allocation of the allowance to each category is not necessarily indicative of future losses or charge-offs and does not restrict the use of the allowance to absorb losses in any category.

Previous wording

The Company's level of nonperforming assets, which comprise the amortized cost of loans delinquent 90 days or more and nonaccrual loans, which includes the nonperforming portion of loan modifications, and the carrying value of OREO, totaled $92.3 million at March 31, 2024 representing 0.79% of total assets, as compared to $66.6 million of nonperforming assets, or 0.57% of total assets, at December 31, 2023. The increase is primarily due to the increase in nonperforming loans discussed below.

Current wording

The Company's level of nonperforming assets, which comprise the amortized cost of loans delinquent 90 days or more and nonaccrual loans, which includes the nonperforming portion of loan modifications, and the carrying value of OREO, totaled $98.9 million at June 30, 2024 representing 0.88% of total assets, as compared to $66.6 million of nonperforming assets, or 0.57% of total assets, at December 31, 2023. The increase is primarily due to the increase in nonperforming loans discussed below.