Burke & Herbert Financial Services Corp.

Previous wording

The Bank’s primary market area includes northern Virginia and West Virginia, and it has over 75 branches and other commercial loan offices across Delaware, Kentucky, Maryland, Virginia, and West Virginia. The Company’s branch locations accept business and consumer deposits from a diverse customer base. The Company’s deposit products include checking, savings, and term certificate accounts. The Company’s loan portfolio includes commercial and consumer loans, a substantial portion of which are secured by real estate.

Current wording

The Bank’s primary market area includes northern Virginia and West Virginia, and it has over 75 branches and commercial loan offices across Delaware, Kentucky, Maryland, Virginia, and West Virginia. The Company’s branch locations accept business and consumer deposits from a diverse customer base. The Company’s deposit products include checking, savings, and term certificate accounts. The Company’s loan portfolio includes commercial and consumer loans, a substantial portion of which are secured by real estate.

Previous wording

As of June 30, 2024, we had total consolidated assets of $7.8 billion, gross loans of $5.6 billion, total deposits of $6.6 billion, and total shareholders’ equity of $693.1 million. As of June 30, 2024, we had 850 full-time employees. None of our employees are covered by a collective bargaining agreement.

Current wording

As of September 30, 2024, we had total consolidated assets of $7.9 billion, gross loans of $5.6 billion, total deposits of $6.6 billion, and total shareholders’ equity of $738.1 million. As of September 30, 2024, we had 857 full-time employees. None of our employees are covered by a collective bargaining agreement.

Previous wording

The commercial real estate (“CRE”) sector has been impacted significantly by rising interest rates and higher vacancies, increasing the prospect of default that borrowers may face due to the record amount of upcoming maturities. In addition, the office market continues to struggle with fewer employees in the office after the COVID-19 pandemic. The Bank continues to monitor its commercial real estate portfolio by reviewing various credit risk and concentration reports. The Bank’s exposure to commercial real estate at June 30, 2024, was $2.5 billion or 45.3% of its gross loan portfolio, not including owner-occupied commercial real estate and acquisition, construction & development. Commercial real estate as a percent of total assets at June 30, 2024, was 32.6%, not including owner-occupied commercial real estate and acquisition, construction & development. Including owner-occupied commercial real estate and acquisition, construction & development, total exposure was at $3.6 billion or 65.0% of our total gross loans and 46.7% of total assets at June 30, 2024.

Current wording

The commercial real estate (“CRE”) sector has been impacted significantly by rising interest rates and higher vacancies, increasing the prospect of default that borrowers may face due to the record amount of upcoming maturities. In addition, the office market continues to struggle with fewer employees in the office after the COVID-19 pandemic. The Bank continues to monitor its commercial real estate portfolio by reviewing various credit risk and concentration reports. The Bank’s exposure to commercial real estate at September 30, 2024, was $2.5 billion, or 45.4%, of its gross loan portfolio, not including owner-occupied commercial real estate and acquisition, construction & development. Commercial real estate as a percent of total assets at September 30, 2024, was 32.1%, not including owner-occupied commercial real estate and acquisition, construction & development. Including owner-occupied commercial real estate and acquisition, construction & development, total exposure was at $3.6 billion, or 64.8%, of our total gross loans and 45.9% of total assets at September 30, 2024.

Previous wording

The Bank believes its underwriting and monitoring standards for commercial real estate loans are sufficient to evaluate its loan portfolio and keep it from incurring significant losses. The largest concentration of the Bank’s commercial real estate loans are in Virginia (approximately 45.7%) and the Bank does not have significant exposure to any economic areas of the country that are underperforming the national economy. Additionally, the Bank’s overall exposure to the “Office Building / Condo” collateral type is 16.9% of total commercial real estate loans, including owner-occupied commercial real estate and acquisition, construction & development. The Bank believes that the combined loan portfolio is well-diversified, generally seasoned, manageable, and will outperform the industry in terms of performance through the economic cycle; however, our underwriting, review, and monitoring cannot eliminate all of the risks related to these loans. For further discussion see Part II, Item 1A. “Risk Factors”.

Current wording

The Bank believes its underwriting and monitoring standards for commercial real estate loans are sufficient to evaluate its loan portfolio and keep it from incurring significant losses. The largest concentration of the Bank’s commercial real estate loans are in Virginia (approximately 46.1%), and the Bank does not have significant exposure to any economic areas of the country that are underperforming the national economy. Additionally, the Bank’s overall exposure to the “Office Building / Condo” collateral type is 17.2% of total commercial real estate loans, including owner-occupied commercial real estate and acquisition, construction & development. The Bank believes that the combined loan portfolio is well-diversified, generally seasoned, manageable, and will outperform the industry in terms of performance through the economic cycle; however, our underwriting, review, and monitoring cannot eliminate all of the risks related to these loans. For further discussion see Part II, Item 1A. “Risk Factors”.

Previous wording

For further discussion see Part II, Item 1A. “Risk Factors”. The measures taken followed meetings convened by a subcommittee provided for in our Asset/Liability policy more fully described in Item 3. — Quantitative and Qualitative Disclosures About Market Risk.

Current wording

For further discussion see Part II, Item 1A. “Risk Factors”. The measures were taken following meetings convened by a subcommittee provided for in our Asset/Liability policy more fully described in Item 3. — Quantitative and Qualitative Disclosures About Market Risk.

Previous wording

Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth. See Note 6 - Advances and Other Borrowings and Note 10 - Commitments and Contingencies, in Notes to Consolidated Financial Statements for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations.

Current wording

Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth. See Note 6 -Borrowed Funds and Note 10 - Commitments and Contingencies, in Notes to Consolidated Financial Statements for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations.

Previous wording

The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of June 30, 2024, and June 30, 2023, and the selected income statement data for the three months and six months ended June 30, 2024, and June 30, 2023, have been derived from our consolidated financial statements included elsewhere in this Form 10-Q and in other filings we have submitted with the SEC and should be read in conjunction with the other information contained in this Form 10-Q.

Current wording

The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of September 30, 2024, and September 30, 2023, and the selected income statement data for the three months and nine months ended September 30, 2024, and September 30, 2023, have been derived from our consolidated financial statements included elsewhere in this Form 10-Q and in other filings we have submitted with the SEC and should be read in conjunction with the other information contained in this Form 10-Q.

Previous wording

Net loss applicable to common shares for the six months ended June 30, 2024, was $11.9 million compared to net income applicable to common shares of $13.6 million for the six months ended June 30, 2023. The $25.5 million decrease in net income applicable to common shares was primarily the result of merger related expenses and one-time CECL Day 2 provision for non-PCD assets acquired in the Merger for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Current wording

Net income applicable to common shares for the nine months ended September 30, 2024, was $15.5 million compared to net income applicable to common shares of $17.6 million for the nine months ended September 30, 2023. The $2.1 million decrease in net income applicable to common shares was primarily the result of merger related expenses and one-time CECL Day 2 provision for non-PCD assets acquired in the Merger for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Previous wording

Net interest income increased by $33.3 million to $81.9 million for the six months ended June 30, 2024, compared to $48.6 million for the six months ended June 30, 2023. The main driver for this increase was the impact of the Merger.

Current wording

Net interest income increased by $83.6 million to $155.1 million for the nine months ended September 30, 2024, compared to $71.5 million for the nine months ended September 30, 2023. The main driver for this increase was the impact of the Merger.

Previous wording

For the six months ended June 30, 2024, the Company recorded credit provision expense of $23.2 million compared to a provision of $0.7 million for the six months ended June 30, 2023. For the six months ended June 30, 2024, the Company recognized a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger, which resulted in a higher credit provision expense for the six months ended June 30, 2024, compared to the six months ended, June 30, 2023.

Current wording

For the nine months ended September 30, 2024, the Company recorded credit provision expense of $23.4 million compared to a provision of $1.0 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, the Company recognized a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger, which resulted in a higher credit provision expense for the nine months ended September 30, 2024, compared to the nine months ended, September 30, 2023.

Previous wording

Non-interest income increased by $4.9 million, or 55.7%, to $13.8 million for the six months ended June 30, 2024, as compared to $8.8 million for the six months ended June 30, 2023, as a result of the Merger. In addition, the Company liquidated the majority of the acquired securities portfolio that resulted in a gain on sale of securities of $0.6 million.

Current wording

Non-interest income increased by $11.2 million, or 85.7%, to $24.4 million for the nine months ended September 30, 2024, as compared to $13.1 million for the nine months ended September 30, 2023, as a result of the Merger. In addition, the Company liquidated the majority of the acquired securities portfolio that resulted in a gain on sale of securities of $0.6 million.

Previous wording

Non-interest expense increased by $43.9 million, or 105.2%, to $85.6 million for the six months ended June 30, 2024, compared to $41.7 million for the six months ended June 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as part of the Merger Agreement), and other expenses related to the Merger. For the six months ended June 30, 2024, the Company incurred $24.4 million of expenses related to the Merger with Summit.

Current wording

Non-interest expense increased by $72.3 million, or 112.7%, to $136.4 million for the nine months ended September 30, 2024, compared to $64.1 million for the nine months ended September 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as part of the Merger Agreement), and other expenses related to the Merger. For the nine months ended September 30, 2024, the Company incurred $27.5 million of expenses related to the Merger with Summit.

Previous wording

The tax-adjusted net interest margin was 3.56% for the six months ended June 30, 2024, compared to 2.96% for the six months ended June 30, 2023. The increase in tax-adjusted net interest margin was primarily driven by the effect of the Merger and the acquisition of additional, higher-yielding interest-earning assets.

Current wording

The tax-adjusted net interest margin was 3.78% for the nine months ended September 30, 2024, compared to 2.90% for the nine months ended September 30, 2023. The increase in tax-adjusted net interest margin was primarily driven by the effect of the Merger and the acquisition of additional, higher-yielding interest-earning assets.

Previous wording

The yield for the loan portfolio was 6.72% for the six months ended June 30, 2024, compared to 4.94% for the six months ended June 30, 2023. The increase was primarily the result of the effect of the Merger which resulted in the acquisition of additional, higher-yielding loans.

Current wording

The yield for the taxable loan portfolio was 7.01% for the nine months ended September 30, 2024, compared to 5.01% for the nine months ended September 30, 2023. The increase was primarily the result of the effect of the Merger which resulted in the acquisition of additional, higher-yielding loans.

Previous wording

The tax-adjusted yield on the total investment securities portfolio was 3.76% for the six months ended June 30, 2024, compared to 3.45% for the six months ended June 30, 2023. The increase was partly due to higher yields in our investment portfolio in addition to the Merger, which resulted in the acquisition of additional securities with higher tax-adjusted yields.

Current wording

The tax-adjusted yield on the total investment securities portfolio was 3.81% for the nine months ended September 30, 2024, compared to 3.42% for the nine months ended September 30, 2023. The increase was partly due to higher yields in our investment portfolio in addition to the Merger, which resulted in the acquisition of additional securities with higher tax-adjusted yields.

Previous wording

The yield on interest-bearing deposits increased to 2.73% during the six months ended June 30, 2024, from 1.50% during the six months ended June 30, 2023. The increase was a result of the Merger which resulted in the assumption of additional interest-bearing deposits with higher interest rates and to a lesser extent by higher market interest rates.

Current wording

The yield on interest-bearing deposits increased to 2.86% during the nine months ended September 30, 2024, from 1.70% during the nine months ended September 30, 2023. The increase was a result of the Merger which resulted in the assumption of additional interest-bearing deposits with higher interest rates and to a lesser extent by higher market interest rates.

Previous wording

The yield on our short-term borrowings for the six months ended June 30, 2024, was 4.58%, compared to 4.66% for the six months ended June 30, 2023. The decrease was due to the cash flow hedges that effectively lowered our yield on short-term borrowings. The yield on our subordinated debt acquired in the Merger was 10.30%.

Current wording

The yield on our short-term borrowings for the nine months ended September 30, 2024, was 4.42%, compared to 4.67% for the nine months ended September 30, 2023. The decrease was due to decreases in the Federal Funds Rate and other short-term market rates. The yield on our subordinated debt acquired in the Merger was 10.21%.

Previous wording

The following table sets forth the major components of net interest income and the related yields and rates for the six months ended June 30, 2024, and June 30, 2023, for comparison (dollars in thousands).

Current wording

The following table sets forth the major components of net interest income and the related yields and rates for the nine months ended September 30, 2024, and September 30, 2023, for comparison (dollars in thousands).

Previous wording

The following table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Interest income and interest expense for the six months ended June 30, 2024, and June 30, 2023, are annualized using an actual days over calendar year method. The volume variances are equal to the increase or decrease in average balance multiplied by current period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances. Variances attributable to both rate and volume changes are calculated by multiplying the change in rate by the change in average balance and are allocated to the volume variance. See table below (in thousands).

Current wording

The following table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Interest income and interest expense for the nine months ended September 30, 2024, and September 30, 2023, are annualized using an actual days over calendar year method. The volume variances are equal to the increase or decrease in average balance multiplied by current period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances. Variances attributable to both rate and volume changes are calculated by multiplying the change in rate by the change in average balance and are allocated to the volume variance. See table below (in thousands).

Previous wording

Total interest income was $134.8 million for the six months ended June 30, 2024, compared to $71.4 million for the six months ended June 30, 2023, an increase of 88.7%. The increase in interest income was due to the effect of the Merger and the acquisition of additional interest-earning assets. Interest income on loans increased by $61.7 million and interest income on securities increased $1.7 million, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Current wording

Total interest income was $253.4 million for the nine months ended September 30, 2024, compared to $108.7 million for the nine months ended September 30, 2023, an increase of 133.1%. The increase in interest income was due to the effect of the Merger and the acquisition of additional interest-earning assets. Interest income on loans increased by $139.0 million and interest income on securities increased $4.6 million, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Previous wording

Total interest expense was $52.9 million for the six months ended June 30, 2024, compared to $22.9 million for the six months ended June 30, 2023. The increase in interest expense was a result of the Merger and the assumption of additional interest-bearing liabilities. Interest expense on interest-bearing deposits and borrowed funds increased by $27.9 million and $0.3 million, respectively, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Interest on subordinated debt assumed in the Merger was $1.9 million for the six months ended June 30, 2024.

Current wording

Total interest expense was $98.3 million for the nine months ended September 30, 2024, compared to $37.3 million for the nine months ended September 30, 2023. The increase in interest expense was a result of the Merger and the assumption of additional interest-bearing liabilities. Interest expense on interest-bearing deposits and borrowed funds increased by $56.0 million and $0.3 million, respectively, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Interest on subordinated debt assumed in the Merger was $4.7 million for the nine months ended September 30, 2024.

Previous wording

The provision for credit losses was $23.2 million for the six months ended June 30, 2024, compared to a provision of $0.7 million for the six months ended June 30, 2023. The increased provision expense was due to a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger and acquired commitments for unfunded commitments for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

Current wording

The provision for credit losses was $23.4 million for the nine months ended September 30, 2024, compared to a provision of $1.0 million for the nine months ended September 30, 2023. The increased provision expense was due to a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger and acquired commitments for unfunded commitments for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

Previous wording

Non-interest income increased 55.7% for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase was primarily driven by the Merger. The largest increase was a $2.3 million increase in service charges and fees for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. A majority of the securities acquired in the Merger were sold, resulting in gains of $0.6 million for the six months ended June 30, 2024, compared to losses of $0.1 million during the six months ended June 30, 2023. Loan swap fees included in other non-interest income increased $0.1 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Other categories of non-interest income also increased due to the Merger, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Current wording

Non-interest income increased 85.7% for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was primarily driven by the Merger. The largest increase was a $6.2 million increase in service charges and fees for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. A majority of the securities acquired in the Merger were sold, resulting in gains of $0.6 million for the nine months ended September 30, 2024, compared to losses of $0.1 million during the nine months ended September 30, 2023. Loan swap fees included in other non-interest income increased $0.1 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Other categories of non-interest income also increased due to the Merger, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Previous wording

Non-interest expense increased $43.9 million or 105.2% for the six months ended June 30, 2024, compared to June 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as contemplated by the Merger Agreement), and other expenses related to the Merger. For the six months ended June 30, 2024, the Company incurred $24.4 million of non-interest expense related to the Merger with Summit that are included in non-interest expense for the six months ended June 30, 2024. Other non-interest expense included $9.5 million of these costs, while the remaining amount of the total is included in the other line items of non-interest expense. See Note 16 —Business Combination in Notes to Consolidated Financial Statements for further information on Merger-related expenses and Note 13 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Current wording

Non-interest expense increased $72.3 million, or 112.7%, for the nine months ended September 30, 2024, compared to September 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as contemplated by the Merger Agreement), and other expenses related to the Merger. For the nine months ended September 30, 2024, the Company incurred $27.5 million of merger-related expenses within non-interest expense for the nine months ended September 30, 2024. Other non-interest expense included $11.3 million of these costs, while the remaining amount of the total is included in the other line items of non-interest expense. See Note 16 — Business Combination in Notes to Consolidated Financial Statements for further information on merger-related expenses and Note 13 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Previous wording

Income tax benefit was $1.5 million for the six months ended June 30, 2024, a decrease of $2.9 million from the tax provision for the six months ended June 30, 2023. The decrease was due to the decrease in net income and resulting net loss for the six months ended June 30, 2024, when compared to the six months ended June 30, 2023. For the six months ended June 30, 2024, the effective tax benefit was 11.2% while the effective tax rate was 9.4%, for June 30, 2023.

Current wording

Income tax expense was $3.7 million for the nine months ended September 30, 2024, an increase of $1.9 million from the tax provision for the nine months ended September 30, 2023. The increase was due to changes in estimated tax rates, additional estimated state tax liability, and tax credits resulting from the Merger for the nine months ended September 30, 2024, when compared to the nine months ended September 30, 2023. For the nine months ended September 30, 2024, the effective tax rate was 19.0%, while the effective tax rate was 9.6% for the nine months ended September 30, 2023.

Previous wording

Net loss applicable to common shares for the three months ended June 30, 2024, was $17.1 million, compared to net income applicable to common shares of $6.0 million during the three months ended June 30, 2023. The $23.2 million decrease was primarily the result of Merger related expenses and one-time CECL Day 2 provision for non-PCD assets acquired in the merger for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

Net income applicable to common shares for the three months ended September 30, 2024, was $27.4 million, compared to net income applicable to common shares of $4.1 million during the three months ended September 30, 2023. The $23.3 million increase was primarily due to results that reflect combined income after the Merger completion for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

Net interest income increased by $36.0 million to $59.8 million for the three months ended June 30, 2024, compared to $23.8 million for the three months ended June 30, 2023. The main driver for this increase was the impact of the Merger.

Current wording

Net interest income increased by $50.3 million to $73.2 million for the three months ended September 30, 2024, compared to $22.9 million for the three months ended September 30, 2023. The main driver for this increase was the impact of the Merger.

Previous wording

For the three months ended June 30, 2024, the Company recorded credit provision expense of $23.9 million compared to a provision of $0.2 million for the three months ended June 30, 2023. For the three months ended June 30, 2024, the Company recognized a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger, which resulted in a higher credit provision expense for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

For the three months ended September 30, 2024, the Company recorded credit provision expense of $0.1 million compared to a provision of $0.2 million for the three months ended September 30, 2023. For the three months ended September 30, 2024, the Company recognized less credit loss expense on loans and off-balance sheet credit exposures which led to a decrease in credit provision expense for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

Non-interest expense increased by $43.1 million, or 201.8%, to $64.4 million for the three months ended June 30, 2024, as compared to $21.3 million for the three months ended June 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as part of the Merger Agreement), and other expenses related to the Merger. For the three months ended June 30, 2024, the Company incurred $23.8 million of expenses related to the Merger with Summit.

Current wording

Non-interest expense increased by $28.4 million, or 126.7%, to $50.8 million for the three months ended September 30, 2024, as compared to $22.4 million for the three months ended September 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, and other expenses related to the Merger. For the three months ended September 30, 2024, the Company incurred $3.1 million of expenses related to the Merger with Summit.

Previous wording

The tax-adjusted net interest margin was 4.06% for the three months ended June 30, 2024, compared to 2.87% for the three months ended June 30, 2023. The increase in tax-adjusted net interest margin was primarily driven by the effect of the merger and the acquisition of additional, higher-yielding interest-earning assets.

Current wording

The tax-adjusted net interest margin was 4.07% for the three months ended September 30, 2024, compared to 2.76% for the three months ended September 30, 2023. The increase in tax-adjusted net interest margin was primarily driven by the effect of the Merger and the acquisition of additional, higher-yielding interest-earning assets.

Previous wording

The yield for the loan portfolio was 7.33% for the three months ended June 30, 2024, compared to 5.07% for the three months ended June 30, 2023. The increase was primarily the result of the effect of the Merger which resulted in the acquisition of additional, higher-yielding loans.

Current wording

The yield for the taxable loan portfolio was 7.34% for the three months ended September 30, 2024, compared to 5.15% for the three months ended September 30, 2023. The increase was primarily the result of the effect of the Merger, which resulted in the acquisition of additional, higher-yielding loans.

Previous wording

The tax-adjusted yield on the total investment securities portfolio was 4.05% for the three months ended June 30, 2024, compared to 3.45% for the three months ended June 30, 2023. The increase was partly due to higher yields in our investment portfolio in addition to the Merger, which resulted in the acquisition of additional securities with higher tax-adjusted yields.

Current wording

The tax-adjusted yield on the total investment securities portfolio was 3.91% for the three months ended September 30, 2024, compared to 3.37% for the three months ended September 30, 2023. The increase was partly due to higher yields in our investment portfolio in addition to the Merger, which resulted in the acquisition of additional securities with higher tax-adjusted yields.

Previous wording

The yield on interest-bearing deposits increased to 2.90% during the three months ended June 30, 2024, from 1.88% during the three months ended June 30, 2023. The increase was a result of the Merger which resulted in the assumption of additional interest-bearing deposits with higher interest rates and to a lesser extent by higher market interest rates.

Current wording

The yield on interest-bearing deposits increased to 3.02% during the three months ended September 30, 2024, from 2.09% during the three months ended September 30, 2023. The increase was a result of the Merger, which resulted in the assumption of additional interest-bearing deposits with higher interest rates, and to a lesser extent, by higher market interest rates compared to the prior year quarter.

Previous wording

The yield on our short-term borrowings for the three months ended June 30, 2024, was 4.38%, compared to 4.61% for the three months ended June 30, 2023. The decrease was due to cash flow hedges that effectively lowered our yield on short-term borrowings. The yield on our subordinated debt assumed in the Merger was 10.30%.

Current wording

The yield on our short-term borrowings for the three months ended September 30, 2024, was 4.06%, compared to 4.69% for the three months ended September 30, 2023. The decrease was due to decreases in the Federal Funds Rate and other short-term market rates. The yield on our subordinated debt assumed in the Merger was 10.16%.

Previous wording

Total interest income was $96.1 million for the three months ended June 30, 2024, compared to $37.1 million for the three months ended June 30, 2023, an increase of 158.9%. The increase in interest income was due to the effect of the Merger and the acquisition of additional interest-earning assets. Interest income on loans increased by $56.4 million and interest income on securities increased $2.7 million, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

Total interest income was $118.5 million for the three months ended September 30, 2024, compared to $37.3 million for the three months ended September 30, 2023, an increase of 218.0%. The increase in interest income was due to the effect of the Merger and the acquisition of additional interest-earning assets. Interest income on loans increased by $77.3 million and interest income on securities increased $2.9 million, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

Total interest expense was $36.3 million for the three months ended June 30, 2024, compared to $13.3 million for the three months ended June 30, 2023. The increase in interest expense was a result of the Merger and the assumption of additional interest-bearing liabilities. Interest expense on interest-bearing deposits and borrowed funds increased by $20.3 million and $0.8 million, respectively, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Interest on subordinated debt acquired in the Merger was $1.9 million for the three months ended June 30, 2024.

Current wording

Total interest expense was $45.3 million for the three months ended September 30, 2024, compared to $14.4 million for the three months ended September 30, 2023. The increase in interest expense was a result of the Merger and the assumption of additional interest-bearing liabilities. Interest expense on interest-bearing deposits increased by $28.2 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Interest on subordinated debt acquired in the Merger was $2.8 million for the three months ended September 30, 2024, while interest expense on short-term borrowings amounted to $3.1 million for the three months ended September 30, 2024.

Previous wording

The provision for credit losses was $23.9 million for the three months ended June 30, 2024, compared to a provision of $0.2 million for the three months ended June 30, 2023. The increased provision expense was due to a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger and acquired commitments for unfunded commitments for three months ended June 30, 2023, compared to the three months ended June 30, 2023. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

Current wording

The provision for credit losses was $0.1 million for the three months ended September 30, 2024, compared to a provision of $0.2 million for the three months ended September 30, 2023. The decreased provision expense is a function of the Merger closing last quarter and the Day 2 non-PCD provision expense captured for the acquired portfolio, resulting in a lower credit loss expense on loans and off-balance sheet credit exposures, compared to the three months ended September 30, 2023. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

Previous wording

Non-interest income increased 105.5% for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was primarily driven by the Merger. The largest increase was a $2.3 million increase in service charges and fees for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. A portion of securities acquired in the Merger were sold, resulting in gains of $0.6 million for the three months ended June 30, 2023, compared to losses of $0.1 million during the three months ended June 30, 2023. Loan swap fees included in other non-interest income increased $0.1 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Other categories of non-interest income also increased due to the Merger, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

Non-interest income increased 147.5% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase was primarily driven by the Merger. The largest increase was a $3.9 million increase in service charges and fees for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. All other categories of non-interest income also increased due to the Merger for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

Non-interest expense increased $43.1 million or 201.8% for the three months ended June 30, 2024, compared to June 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations, change-in-control salary and benefit payments, funding a charitable donation (as part of the Merger Agreement), and other Merger-related expenses. For the three months ended June 30, 2024, the Company incurred $23.8 million of non-interest expense related to the Merger with Summit that are included in other non-interest expense for the three months ended June 30, 2024. See Note 16 — Business Combination in Notes to Consolidated Financial Statements for further information on Merger-related expenses and Note 13 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Current wording

Non-interest expense increased $28.4 million, or 126.7%, for the three months ended September 30, 2024, compared to September 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations and other merger-related expenses. For the three months ended September 30, 2024, the Company incurred $3.1 million of merger-related expenses within non-interest expense for the three months ended September 30, 2024. See Note 16 — Business Combination in Notes to Consolidated Financial Statements for further information on merger-related expenses and Note 13 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Previous wording

Income tax benefit was $2.2 million for the three months ended June 30, 2024, a decrease of $3.0 million from the tax provision for the three months ended June 30, 2023. The decrease was due to the decrease in net income and resulting net loss for the three months ended June 30, 2024, when compared to the three months ended June 30, 2023. For the three months ended June 30, 2024, the effective tax benefit was 11.3% while the effective tax rate was 12.0% for June 30, 2023.

Current wording

Income tax expense was $5.2 million for the three months ended September 30, 2024, an increase of $4.7 million from the tax provision for the three months ended September 30, 2023. The increase was due to the increase in net income for the three months ended September 30, 2024, when compared to the three months ended September 30, 2023. For the three months ended September 30, 2024, the effective tax rate was 15.8%, while the effective tax rate was 10.3% for September 30, 2023.