EAGLE BANCORP INC

Previous wording

A consequence of lending activities is that we may incur credit losses, so we record an allowance for credit losses ("ACL") with respect to loan receivables and a reserve for unfunded commitments ("RUC") as estimates of those losses. The amount of the ACL on loans is based on management's assessment of current expected credit losses ("CECL") in the portfolio. The amount of such losses will vary depending upon the risk characteristics of the loan portfolio as affected by economic conditions such as changes in interest rates, the financial performance of borrowers and regional unemployment rates, which management estimates by using a national forecast and estimating a regional adjustment based on historical differences between the two.

Current wording

A consequence of lending activities is that we may incur credit losses, so we record an allowance for credit losses ("ACL") with respect to loan receivables and a reserve for unfunded commitments ("RUC") as estimates of those losses. The amount of the ACL on loans is based on management's assessment of current expected credit losses ("CECL") in the portfolio.

Previous wording

During the three months ended June 30, 2024, Management determined that a triggering event had occurred as a result of the share price trading under book value for more than four quarters. During the past twelve months ended June 30, 2024, changes in macroeconomic conditions, market volatility due to rising interest rates resulted in fluctuations of the Company's stock price with a sustained decrease. As a result of the triggering event, the Company engaged a third-party service provider to assist Management with the determination of the fair value of the Company in the second quarter of 2024. The resulting calculations indicated that the fair value did not exceed the carrying amount of the Company's only reporting unit as of May 31, 2024 which resulted in a determination that goodwill had become fully impaired. The goodwill impairment charge of $104.2 million reduced fully the carrying value of the Company's goodwill. The impaired goodwill is primarily related to the acquisition of the Virginia Heritage Bank in October 2014. The impairment charge did not impact our cash flows, liquidity ratios, core operating performance, or regulatory capital ratios.

Current wording

During the second quarter ended June 30, 2024, Management determined that a triggering event had occurred as a result of the share price trading under book value for more than four quarters due to changes in macroeconomic conditions and market volatility in the financial markets and the banking industry due to the impact from rising interest rates which resulted in fluctuations of the Company's stock price with a sustained decrease. As a result of the triggering event, the Company engaged a third-party service provider to assist Management with the determination of the fair value of the Company in the second quarter of 2024. The resulting calculations indicated that the fair value did not exceed the carrying amount of the Company's only reporting unit as of May 31, 2024 which resulted in a determination that goodwill had become fully impaired. The goodwill impairment charge of $104.2 million reduced fully the carrying value of the Company's goodwill as of May 31, 2024. The impaired goodwill is primarily related to the acquisition of the Virginia Heritage Bank in October 2014. The impairment charge did not impact our cash flows, liquidity ratios, core operating performance, or regulatory capital ratios.

Previous wording

The decrease in net income of $112.5 million for the three months ended June 30, 2024 relative to the same period in 2023 was primarily due to the recognition of goodwill impairment of $104.2 million. Other factors contributing to the decline in net income were an increase in provision for credit losses of $3.7 million and a decrease in noninterest income of $3.3 million, partially offset by a reduction of income tax expense of $3.8 million. The increase in the provision was due to an updated scoring of qualitative factors and an increase in the provision attributable to the reserve on the performing CRE office portfolio. The increase in operating noninterest expense (non-GAAP) was due to higher FDIC insurance fees, and the decrease in noninterest income was attributable to several one time items in the same period in 2023. The reduction in income tax expense was due to lower pre-tax income period over period. 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

Net income for the three months ended September 30, 2024 was $21.8 million as compared to net income of $27.4 million for the same period in 2023, a $5.6 million decrease. This decrease was primarily due to an increase in provision for credit losses of $4.5 million and an increase in noninterest expense of $6.0 million, partially offset by a reduction of income tax expense of $2.3 million. The increase in the provision was due to an updated scoring of qualitative factors and an increase in the provision attributable to the reserve on the performing CRE office portfolio. The increase in noninterest expense was due to higher FDIC insurance fees. The reduction in income tax expense was due to lower pre-tax income period over period.

Previous wording

Total revenue (i.e. net interest income plus noninterest income) was $76.7 million for the three months ended June 30, 2024 as compared to $80.4 million for the same period in 2023. The most significant portion of revenue is net interest income, which was $71.4 million for the three months ended June 30, 2024, compared to $71.8 million for the same period in 2023. The primary driver for lower total revenue was lower noninterest income, which decreased $3.3 million from the same period last year.

Current wording

Total revenue (i.e. net interest income plus noninterest income) was $78.8 million for the three months ended September 30, 2024 as compared to $77.1 million for the same period in 2023. The most significant portion of revenue is net interest income, which was $71.8 million for the three months ended September 30, 2024, compared to $70.7 million for the same period in 2023, and was the primary driver for higher total revenue period over period. Refer to the "Net Interest Income and Net Interest Margin" section below for additional details.

Previous 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.

Current wording

When the impact of the provision is excluded, pre-provision net revenue ("PPNR"), a non-GAAP measure, was $35.2 million for the three months ended September 30, 2024, as compared to $39.4 million for the same period in 2023. The $4.2 million decrease was primarily due to an increase in noninterest expenses driven by higher FDIC insurance fees, partially offset by higher net interest income as discussed in the "Net Interest Income and Net Interest Margin" below. 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 2.40% 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.

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 2.37% for the three months ended September 30, 2024 and 2.43% 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

Total noninterest income for the three months ended June 30, 2024 decreased to $5.3 million from $8.6 million for the same period in 2023, a 38.0% decrease. Noninterest income decreased primarily due to lower other income. Other income for the three months ended June 30, 2024 decreased to $2.9 million from $6.2 million for the same period in 2023, a 52.9% decrease primarily based on the prior year period including several one time items. For further information on the components and drivers of these changes, see the "Noninterest Income" section below.

Current wording

Total noninterest income for the three months ended September 30, 2024 increased to $7.0 million from $6.3 million for the same period in 2023, a 9.5% increase. For further information on the components and drivers of these changes, see the "Noninterest Income" section below.

Previous wording

Noninterest expense totaled $146.5 million for the three months ended June 30, 2024, as compared to $38.0 million for same period in 2023, a $108.5 million increase. The increase in noninterest expense was primarily due to the recognition of goodwill impairment of $104.2 million. Excluding the goodwill impairment charge, operating noninterest expense (non-GAAP) was $42.3 million. The $4.3 million increase in operating noninterest expense (non-GAAP) was primarily due to higher FDIC insurance fees. Additional details on other noninterest expenses are provided in "Noninterest Expense" section below. 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

Noninterest expense totaled $43.6 million for the three months ended September 30, 2024, as compared to $37.6 million for same period in 2023, a $6.0 million increase. The increase in noninterest expense was primarily due to higher FDIC insurance fees. Additional details on other noninterest expenses are provided in "Noninterest Expense" section below.

Previous 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.

Current wording

For the three months ended September 30, 2024 and 2023, the Company had average assets of $12.4 billion and $11.9 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 September 30, 2024 and 2023, the Company had average common equity of $1.2 billion and $1.2 billion, respectively. For the three months ended September 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 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.

Current wording

For the three months ended September 30, 2024, the Company reported an annualized return on average assets ("ROAA") of 0.7%, as compared to 0.9% for the same period in 2023. The annualized return on average common equity ("ROACE") for the three months ended September 30, 2024 was 7.2% as compared to 8.8% for the same period in 2023. The annualized return on average tangible common equity ("ROATCE") for the three months ended September 30, 2024 was 7.2% as compared to 9.6% for the same period in 2023. The adverse change in returns was primarily attributable to the reduction in net income. 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 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.

Current wording

Net loss for the nine months ended September 30, 2024 was $62.3 million, as compared to net income of $80.3 million for the same period in 2023, a decrease of $142.6 million. This decrease was primarily attributable to the recognition of goodwill impairment of $104.2 million in the second quarter of 2024 and an increase in provision for credit losses of $37.2 million, partially offset by a reduction of income tax expenses of $10.0 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

When the impact of the provision and goodwill impairment are excluded, operating pre-provision net revenue ("PPNR"), a non-GAAP measure, was $72.7 million for the six months ended June 30, 2024, as compared to $80.6 million for the same period in 2023. The $7.9 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.

Current wording

When the impact of the provision and goodwill impairment are excluded, operating pre-provision net revenue ("PPNR"), a non-GAAP measure, was $107.8 million for the nine months ended September 30, 2024, as compared to $120.0 million for the same period in 2023. The $12.2 million decrease was primarily due to an increase in noninterest expenses driven by higher FDIC insurance fees. 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

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.

Current wording

Total revenue (i.e. net interest income plus noninterest income) was $233.8 million for the nine months ended September 30, 2024, as compared to $236.2 million for the same period in 2023.

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 2.42% for the six months ended June 30, 2024 and 2.63% 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 nine months ended September 30, 2024 and 2.56% 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

The efficiency ratio was 120.34% for the six months ended June 30, 2024 as compared to 49.37% for the same period in 2023. Excluding the goodwill impairment charge, the operating efficiency ratio (non-GAAP) was 53.12%. 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

The efficiency ratio, inclusive of the goodwill impairment charge, was 98.43% for the nine months ended September 30, 2024 as compared to 49.19% for the same period in 2023. Excluding the goodwill impairment charge, the operating efficiency ratio (non-GAAP) was 53.87%. 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 six months ended June 30, 2024 and 2023, the Company had average assets of $12.6 billion and $11.7 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 six months ended June 30, 2024 and 2023, the Company had average common equity of $1.3 billion and $1.2 billion, respectively. For the six 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.

Current wording

For the nine months ended September 30, 2024 and 2023, the Company had average assets of $12.5 billion and $11.8 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 nine months ended September 30, 2024 and 2023, the Company had average common equity of $1.3 billion and $1.2 billion, respectively. For the nine months ended September 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 six months ended June 30, 2024, the Company reported an annualized ROAA of (1.35)%, as compared to 0.91% for the same period in 2023. The annualized ROACE for the six months ended June 30, 2024 was (13.25)% as compared to 8.58% for the same period in 2023. The annualized ROATCE, a non-GAAP measure, for the six months ended June 30, 2024 was (14.4)% as compared to 9.37% for the same period in 2023. The adverse change in returns was primarily attributable to the recognition of goodwill impairment of $104.2 million in 2024. Excluding the goodwill impairment charge, operating annualized ROAA (non-GAAP) in 2024 was 0.32%, operating annualized return on common equity (non-GAAP) was 3.15%, and operating annualized return on tangible common equity (non-GAAP) was 3.43%. 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 nine months ended September 30, 2024, the Company reported an annualized ROAA, inclusive of the goodwill impairment charge, of (0.67)%, as compared to 0.91% for the same period in 2023. The annualized ROACE for the nine months ended September 30, 2024 was (6.65)% as compared to 8.66% for the same period in 2023. The annualized ROATCE, a non-GAAP measure, for the nine months ended September 30, 2024 was (7.0)% as compared to 9.45% for the same period in 2023. The adverse change in returns was primarily attributable to the recognition of goodwill impairment of $104.2 million in 2024. Excluding the goodwill impairment charge, operating annualized ROAA (non-GAAP) in 2024 was 0.45%, operating annualized return on common equity (non-GAAP) was 4.47%, and operating annualized return on tangible common equity (non-GAAP) was 4.72%. 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 interest income was $71.4 million for the three months ended June 30, 2024, as compared to $71.8 million for the same period in 2023. Net interest income decreased for the three months ended June 30, 2024 primarily due to increases in average deposit rates (4.31% compared to 4.00%), increases in interest bearing deposits ($7.2 billion vs $6.0 billion), increases in other borrowing rates (5.07% compared to 4.85%). This was partially offset by higher average loan balances ($8.0 billion compared to $7.8 billion) and yields (6.91% compared to 6.64%) as compared to June 30, 2023.

Current wording

Net interest income was $71.8 million for the three months ended September 30, 2024, as compared to $70.7 million for the same period in 2023. Net interest income increased for the three months ended September 30, 2024 primarily due to an increase in average loan balances ($8.0 billion compared to $7.8 billion) and yields increased from 6.73% to 6.93%. Additionally, average balances for interest bearing deposits with other banks increased from $1.1 billion to $1.6 billion. These increases were offset by higher average balances in total interest bearing deposits from $6.7 billion to $7.4 billion.

Previous wording

The net interest margin decreased by 9 basis points in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, (from 2.49% to 2.40%). The yield on earning assets increased by 27 basis points (from 5.44% to 5.71%) while cost of funds increased 41 basis points (from 3.20% to 3.61%). Average loans were $8.0 billion for the three months ended June 30, 2024 compared to $7.8 billion for the same period in 2023. Additionally, average borrowings decreased from $2.1 billion in the three months ended June 30, 2023 to $1.7 billion in the three months ended June 30, 2024. Overall yields on interest earning assets moved higher during the three months ended June 30, 2024 as compared to the same period in 2023, as variable rate loans adjusted upwards. Additionally, rates on interest bearing liabilities moved higher during the three months ended June 30, 2024 as compared to the same period in 2023, as funding costs increased.

Current wording

The net interest margin decreased by 6 basis points in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, (from 2.43% to 2.37%). The yield on earning assets increased by 19 basis points (from 5.54% to 5.73%) while cost of funds increased 30 basis points (from 3.39% to 3.69%). Average loans were $8.0 billion for the three months ended September 30, 2024 compared to $7.8 billion for the same period in 2023. Additionally, average short-term borrowings were unchanged at $1.6 billion for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Overall yields on interest earning assets moved higher during the three months ended September 30, 2024 as compared to the same period in 2023, as variable rate loans adjusted upwards. Additionally, rates on interest bearing liabilities moved higher during the three months ended September 30, 2024 as compared to the same period in 2023, as funding costs increased.

Previous wording

Net interest income was $146.1 million for the six months ended June 30, 2024, as compared to $146.8 million for the same period in 2023. Net interest income decreased for the six months ended June 30, 2024 primarily due to increases in average deposit rates (4.30% compared to 3.89%), increases in interest bearing deposits ($7.3 billion vs $5.6 billion), increases in other borrowing rates (4.90% compared to 4.87%). This was partially offset by higher average loan balances ($8.0 billion compared to $7.8 billion) and yields (6.93% compared to 6.50%) as compared to June 30, 2023.

Current wording

Net interest income was $217.9 million for the nine months ended September 30, 2024, as compared to $217.6 million for the same period in 2023. Net interest income increased for the nine months ended September 30, 2024 primarily due to higher average loan balances ($8.0 billion compared to $7.8 billion) and yields (6.93% compared to 6.58%) as compared to September 30, 2023. This was partially offset by increases in average deposit rates (4.32% compared to 4.03%), increases in interest bearing deposits ($7.3 billion vs $6.0 billion) and increases in other borrowing rates (4.94% compared to 4.83%) for the nine months ended September 30, 2024 as compared to the same period in 2023.

Previous wording

The net interest margin decreased by 21 basis points in the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 (from 2.63% to 2.42%). The yield on earning assets increased by 40 basis points (from 5.31% to 5.71%) while cost of funds increased 68 basis points (from 2.92% to 3.60%). Overall yields on interest earning assets moved higher during the six months ended June 30, 2024 as compared to the same period in 2023, as variable rate loans adjusted upwards. Additionally, rates on interest bearing liabilities moved higher during the six months ended June 30, 2024 as compared to the same period in 2023, as funding costs increased.

Current wording

The net interest margin decreased by 16 basis points in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 (from 2.56% to 2.40%). The yield on earning assets increased by 33 basis points (from 5.39% to 5.72%) while cost of funds increased 55 basis points (from 3.08% to 3.63%). Overall yields on interest earning assets moved higher during the nine months ended September 30, 2024 as compared to the same period in 2023, as variable rate loans adjusted upwards. Additionally, rates on interest bearing liabilities moved higher during the nine months ended September 30, 2024 as compared to the same period in 2023, as funding costs increased due to a combination of interest rates and mix of funding sources utilized.

Previous 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.

Current wording

Average loans increased to $8.0 billion for the nine months ended September 30, 2024 compared to $7.8 billion for the same period in 2023. Average interest bearing deposits increased to $7.3 billion for the nine months ended September 30, 2024 from $6.0 billion for the nine months ended September 30, 2023, while average noninterest bearing demand deposits decreased to $2.0 billion for the nine months ended September 30, 2024 from $2.8 billion for the nine months ended September 30, 2023. Additionally, average short-term borrowings remained unchanged at $1.7 billion for the nine months ended September 30, 2024 and 2023.

Previous 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.

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 nine months ended September 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 $4.8 million and $4.2 million for the three months ended June 30, 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 $3.9 million and $4.1 million for the three months ended September 30, 2024 and 2023, respectively.

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 $9.1 million and $7.9 million for the six months ended June 30, 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 $12.9 million and $12.0 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous 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.

Current wording

The rate/volume tables below present 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

During the three months ended June 30, 2024, the Company recorded a provision for credit losses of $8.9 million on its loan portfolio and incurred $2.3 million in net charge-offs to its ACL. The provision for credit losses on loans for the same period in 2023 was $5.3 million and there were $5.6 million of net charge-offs in its ACL. During the six months ended June 30, 2024, the Company recorded a provision for credit losses of $44.1 million and net charge-offs of $23.7 million on its loan portfolio. The provision for credit losses on loans for the same period in 2023 was $10.2 million and there were $6.6 million of net charge-offs in its ACL

Current wording

During the three months ended September 30, 2024, the Company recorded a provision for credit losses of $10.9 million on its loan portfolio and incurred $5.3 million in net charge-offs to its ACL. The provision for credit losses on loans for the same period in 2023 was $5.6 million and there were $340 thousand of net charge-offs in its ACL. During the nine months ended September 30, 2024, the Company recorded a provision for credit losses of $54.9 million and net charge-offs of $29.0 million on its loan portfolio. The provision for credit losses on loans for the same period in 2023 was $15.8 million and there were $6.9 million of net charge-offs in its ACL.

Previous 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.

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 September 30, 2024 and 2023, there was a reversal of provision for credit losses of $775 thousand and a provision expense of $1 thousand, respectively, for the held-to-maturity securities portfolios. During the nine months ended September 30, 2024 and 2023, there was a reversal of provision for credit losses of $719 thousand and a provision expense of $1.2 million, respectively, for the held-to-maturity securities portfolios. There was no provision for credit losses on the available-for-sale securities portfolio for the three and nine months ended September 30, 2024 and 2023.

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 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.

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 September 30, 2024 and 2023, a reversal of provision of $1.6 million and $839 thousand, respectively, were recorded for unfunded commitments. During the nine months ended September 30, 2024 and 2023, a provision reversal of $529 thousand and provision expense of $327 thousand, respectively, were recorded 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 and six months ended June 30, 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 nine months ended September 30, 2024 and 2023:

Previous wording

Total noninterest income for the three and six months ended June 30, 2024 decreased to $5.3 million and $8.9 million from $8.6 million and $12.3 million for the three and six months ended June 30, 2023. The decrease was primarily based on the prior year period nonrecurring items including income from SBIC fund and swap fees.

Current wording

Total noninterest income for the nine months ended September 30, 2024 decreased to $15.9 million from $18.6 million for the nine months ended September 30, 2023. The decrease was primarily based on the prior year period nonrecurring items including income from Small Business Investment Companies ("SBIC") fund and swap fees.

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 and six months ended June 30, 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 nine months ended September 30, 2024 and 2023:

Previous wording

Total noninterest expense was $146.5 million for the three months ended June 30, 2024, as compared to $38.0 million for the three months ended June 30, 2023, a 285.7% increase. Total noninterest expense was $186.5 million for the six months ended June 30, 2024, as compared to $78.6 million for the six months ended June 30, 2023, a 137.4% increase. The increase for three and six months ended June 30, 2024 was primarily due to the goodwill impairment charge of $104.2 million to reduce fully the carrying value of the Company's goodwill. Refer to the "Critical Accounting Policies" section for additional details. Excluding the goodwill impairment charge, total operating noninterest expense (non-GAAP) was $42.3 million and $82.3 million for the three months and six months ended June 30, 2024. Refer to the "Use of Non-GAAP Financial Measures" section for additional details and a reconciliation of GAAP to non-GAAP financial measures.

Current wording

Total noninterest expense was $230.1 million for the nine months ended September 30, 2024, as compared to $116.2 million for the nine months ended September 30, 2023, a 98.0% increase. The increase for the nine months ended September 30, 2024 was primarily due to the goodwill impairment charge of $104.2 million to reduce fully the carrying value of the Company's goodwill. Refer to the "Critical Accounting Policies" section for additional details. Excluding the goodwill impairment charge, total operating noninterest expense (non-GAAP) was $125.9 million for the nine months ended September 30, 2024. Refer to the "Use of Non-GAAP Financial Measures" section for additional details and a reconciliation of GAAP to non-GAAP financial measures.

Previous wording

Salaries and employee benefits were $21.8 million and $22.0 million, respectively, for the three months ended June 30, 2024 and June 30, 2023. Salaries and employee benefits were $43.5 million and $46.1 million, respectively, for the six months ended June 30, 2024 and June 30, 2023. The decrease in salaries and employee benefits over the comparative six months ended June 30, 2024 and 2023 was primarily due to reduced headcount and reduced incentive accruals and related taxes.

Current wording

Salaries and employee benefits were $21.7 million and $21.5 million, respectively, for the three months ended September 30, 2024 and September 30, 2023. Salaries and employee benefits were $65.2 million and $67.7 million, respectively, for the nine months ended September 30, 2024 and September 30, 2023. The decrease in salaries and employee benefits over the comparative nine months ended September 30, 2024 and 2023 was primarily due to reduced incentive accruals, payroll taxes and healthcare costs.

Previous wording

FDIC insurance expense was $5.9 million for the three months ended June 30, 2024 compared to $2.6 million, for the same period in 2023, a 129% increase. FDIC insurance expense was $12.3 million for the six months ended June 30, 2024 compared to $4.1 million, for the same period in 2023, a 203% increase. The increase in FDIC insurance expense over the comparative three and six months ended June 30, 2024 and 2023 was primarily due to increases in FDIC deposit insurance assessments.

Current wording

FDIC insurance expense was $7.4 million for the three months ended September 30, 2024 compared to $3.3 million, for the same period in 2023, a 121% increase. FDIC insurance expense was $19.7 million for the nine months ended September 30, 2024 compared to $7.4 million, for the same period in 2023, a 166% increase. The increase in FDIC insurance expense over the comparative three and nine months ended September 30, 2024 and 2023 was primarily due to increases in FDIC deposit insurance assessments.

Previous wording

Marketing expenses were $1.7 million and $0.9 million, respectively, for the three months ended June 30, 2024 and June 30, 2023, an 88% increase. Marketing expenses were $2.5 million and $1.5 million, respectively, for the six months ended June 30, 2024 and June 30, 2023, a 66% increase. The increase in marketing expenses over the comparative three and six months ended June 30, 2024 and 2023 was primarily due to higher marketing expenses related to our digital banking channel.

Current wording

Marketing expenses were $1.6 million and $0.8 million, respectively, for the three months ended September 30, 2024 and September 30, 2023, an 107% increase. Marketing expenses were $4.1 million and $2.3 million, respectively, for the nine months ended September 30, 2024 and September 30, 2023, an 80% increase. The increase in marketing expenses over the comparative three and nine months ended September 30, 2024 and 2023 was primarily due to higher marketing expenses related to our digital banking channel.

Previous wording

Legal, accounting and professional fees were $2.7 million and $5.2 million for the three and six months ended June 30, 2024, respectively, compared to $2.6 million and $5.9 million for the three and six months ended June 30, 2023, respectively, an increase of $56 thousand and a decrease of $0.7 million for the comparative periods, respectively.

Current wording

Legal, accounting and professional fees were $3.4 million and $8.6 million for the three and nine months ended September 30, 2024, respectively, compared to $2.2 million and $8.1 million for the three and nine months ended September 30, 2023, respectively, an increase of $1.2 million and an increase of $0.5 million for the comparative periods, respectively.

Previous 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.

Current wording

The major components of other expenses include franchise taxes, director compensation and insurance expense. Other expenses decreased to $3.3 million from $3.5 million, or 6.6%, for the three months ended September 30, 2024, compared to the same three month period in 2023. For the nine month period ended September 30, 2024 other expenses decreased to $9.3 million from $11.5 million, or 19.1%, for the same period in 2023. The decrease in other expenses over the comparative nine months ended September 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 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.

Current wording

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 55.35% and 98.43% for the three months and nine months ended September 30, 2024, respectively as compared to 48.83% and 49.19% for the same periods in 2023. The adverse change in the efficiency ratio for the nine months ended September 30, 2024 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 53.87% for the nine months ended September 30, 2024. 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

As a percentage of average assets, total noninterest expense (annualized) was 4.77% for the three months ended June 30, 2024 as compared to 1.27% for the same period in 2023. As a percentage of average assets, total noninterest expense (annualized) was 2.98% for the six months ended June 30, 2024, as compared to 1.35% for the same period in 2023. Excluding the goodwill impairment charge, total operating noninterest expense (non-GAAP) (annualized) as a percentage of average assets was 1.38% and 1.32% for the three and six months ended June 30, 2024. 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

As a percentage of average assets, total noninterest expense (annualized) was 1.40% for the three months ended September 30, 2024 as compared to 1.25% for the same period in 2023. As a percentage of average assets, total noninterest expense (annualized) was 2.46% for the nine months ended September 30, 2024, as compared to 1.32% for the same period in 2023. Excluding the goodwill impairment charge, total operating noninterest expense (non-GAAP) (annualized) as a percentage of average assets was 1.35% for the nine months ended September 30, 2024. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.