NewzIntel.com

Category: Taxation

  • MIL-OSI Australia: Tax return due date looms for more than 1.5 million taxpayers

    Source: Australian Department of Revenue

    The Australian Taxation Office (ATO) is urging Australians who have not yet lodged their income tax returns to lodge, or get on the books with a registered tax practitioner before 31 October, to avoid potential penalties.

    ATO Assistant Commissioner Rob Thomson said over 9.4 million Australians have already lodged, with a further 1.5 million self-preparer taxpayers expected to need to lodge this year.

    ‘The ATO is receiving a spike of lodgments, with an average of almost 60 thousand individuals lodging each day in October as the deadline approaches. In fact, we’ve had over 1 million lodgments so far this month alone.’

    ‘Firstly, a reminder to those who’ve done the right thing and deliberately held off finalising their tax return until pre-filled information is available, now’s the time to log back into the App or myTax, finalise and press lodge.’

    ‘For those who haven’t yet started, it’s not scary or complicated. People with simple affairs will find that you should be able to lodge your tax return in the time it takes to cook a frozen pizza,’ Mr Thomson said.

    ‘We’re all guilty of sometimes leaving things to the last minute, but taking half an hour this weekend to complete your tax return will save you time and money in the long run, as penalties can apply if you lodge late.’

    If you need a helping hand, or have more complex tax affairs, you may like to engage with a registered tax practitioner. To check whether an agent is registered, visit the Tax Practitioners’ Board RegisterExternal Link.

    ‘If you’re going to engage a registered tax professional and you’re not already on their books, you should do this before 31 October,’ Mr Thomson said.

    Additionally, the Tax Help program is a free and confidential service open to people who earn $60,000 or less each year and have simple tax affairs. The program is available until the end of October.

    Rob’s reminders

    1. Prefill: ‘The ATO has now pre-filled tax returns with information from most banks, employers, government agencies and private health insurers – all you need to do is check it and add anything that’s missing.’
    2. What you can claim: ‘Make sure you’re claiming what you’re entitled to – and nothing you’re not with our 40 occupation and industry specific guides on the ATO website.’
    3. Record keeping: ‘When you claim a deduction, you need to have a record to prove it, usually a receipt. Remember that a credit card or bank statement usually isn’t enough on its own. The ATO app is a good way to keep all your receipts in one place.’
    4. Payment due date: ‘Regardless of when you lodge your tax return, your due date for payment of a tax bill is 21 November 2024. Those who lodge through a registered tax practitioner may have longer.’

    Lodgments by state and territory*

    • NSW: 2.81 million
    • VIC: 2.34 million
    • QLD: 2 million
    • WA: 1.1 million
    • SA: 650,000
    • TAS: 210,000
    • ACT: 170,000
    • NT: 90,000

    *Approximate values as at 17 October 2024

    Notes to journalists

    MIL OSI News –

  • MIL-OSI Australia: VIPER Taskforce execute 27 warrants and lay Commonwealth charge of directing a criminal organisation

    Source: Australian Department of Revenue

    Detectives from the VIPER and Lunar taskforces have this morning charged eight people with Commonwealth offences for their part in directing and assisting an organised crime syndicate.

    It will be alleged the syndicate was leasing stores, employing staff as supervisors, store managers and couriers and commencing deliveries under the guise of operating the stores as legitimate gifts and confectionary stores, while selling only illicit tobacco and related products.

    Investigators have obtained transactional records which reflect the syndicate earned over $30 million in a 12-month period through the sale of illicit tobacco in these stores.

    Supported by the Australian Federal Police (AFP), the Australian Taxation Office (ATO), Australian Border Force’s (ABF) Illicit Tobacco Taskforce and Therapeutic Goods Administration (TGA), officers today executed more than 27 search warrants across Victoria as part of an ongoing investigation targeting serious organised crime in the illicit tobacco market.

    With assistance from Taskforce Lunar, the Armed Crime Squad, the Illicit Firearms Squad, Financial Crime Squad, Criminal Proceeds Squad, Joint Organised Crime Taskforce, Echo Taskforce, Cybercrime Squad, Joint Anti-Child Exploitation Team, Wyndham, Knox, Hobsons Bay, Echuca, Cobram, Ararat, Northern Grampians and Geelong Crime Investigation Units, Westgate Divisional Response Unit, Eastern Region Crime Squad and State Highway Patrol, search warrants were executed from 5am this morning at tobacco stores, warehouses and residential addresses statewide.

    Three industrial properties in Truganina were searched, as well as residential addresses in Truganina, Hoppers Crossing (3), Glen Waverley, Lara, Grovedale, Footscray and Mount Cottrell, and tobacco stores in Herne Hill, Bell Park, Grovedale, Werribee (2), Dallas, Kensington, Boronia, Ararat (3), Kyabram, Echuca (2) and Yarrawonga.

    A 25-year-old Hoppers Crossing man was arrested at Melbourne Airport just before 6:00 am.

    He has since been charged with the Commonwealth offence of directing the activities of a criminal organisation, possess tobacco products with the intent of defrauding the revenue (Customs Act 1901), possess proceeds of crime and sell/distribute e-cigarettes.

    He will appear at Melbourne Magistrates’ Court later today.

    Directing the activities of a criminal organisation carries a maximum penalty of 15 years in prison.

    Four other people were arrested and have been charged with the same offences.

    They include:

    • a 26-year-old Hoppers Crossing man, who will appear at Melbourne Magistrates’ Court later today
    • a 21-year-old Hoppers Crossing man, who will appear at Melbourne Magistrates’ Court later today
    • a 50-year-old Grovedale woman, and
    • a 51-year-old Glen Waverley man, both of whom have been bailed to appear at Melbourne Magistrates’ Court on Monday (28 October).

    Five other people were arrested, including:

    • a 25-year-old Hoppers Crossing man, who was arrested in Ararat and charged with support a criminal organisation and illicit tobacco offences
    • a 46-year-old Ararat man, who was arrested in Ararat and charged with support a criminal Organisation and illicit tobacco offences
    • a 38-year-old Tarneit man who was arrested attempting to remove stock from a retail outlet in Werribee. He was charged with support a criminal organisation and illicit tobacco offences
    • a 50-year-old Mount Cotterill man was arrested in relation to illicit tobacco and possession of commercial cigarette manufacturing equipment located. He was released and is expected to be charged on summons, and
    • a 21-year-old Yarrawonga man was interviewed and released, he is also expected to be charged on summons.

    During the warrants, police seized a Lamborghini Coupe and Range Rover from the Hoppers Crossing address, at least 600,000 illicit tobacco sticks, over 75 kgs of loose-leaf tobacco and a significant quantity of cash from the residential addresses as well as utilities and vans investigators will allege were used in the distribution of illicit tobacco.

    Searches of the tobacco stores are still underway with total seizures to be confirmed.

    The investigation commenced in December 2023 to specifically target and disrupt the trade of illicit tobacco and e-cigarettes linked to this organised crime syndicate.

    Over 130 members were involved in today’s activities, including the entirety of the VIPER Taskforce office.

    Victoria Police continues to support local councils and the Victorian Department of Health who have responsibility for tobacco and vape enforcement and compliance.

    Detectives continue to work alongside external agencies such as the ABF, Australian Criminal Intelligence Commission, AFP, TGA, ATO and interstate counterparts.

    Victoria Police has identified a number of state, national and global organised crime syndicates involved in the illicit tobacco conflict.

    These syndicates are comprised of personnel from Middle Eastern organised crime groups and outlaw motorcycle gangs who are then engaging local networked youth and youth gangs to carry out the offending.

    Investigators continue to appeal to anyone, especially store owners and staff, who have information about these incidents and who is responsible to come forward.

    Anyone with information about these incidents or with further information about serious and organised crime linked to the illicit tobacco trade is urged to contact Crime Stoppers on 1800 333 000 or submit a confidential crime report at www.crimestoppersvic.com.auExternal Link

    Victoria Police quotes

    Crime Command Assistant Commissioner Martin O’Brien said:

    “Organised crime syndicates and their serious offending linked to the infiltration of the tobacco industry remain a top priority for Victoria Police.

    Those involved have the potential and the propensity to commit serious acts of violence and given their complete disregard for the safety of others, pose a serious risk to the community. Their criminality cannot be tolerated.

    The disruption of this syndicate today will have a substantial impact on the illicit tobacco trade. These were significant players who we believe were directing the activity of a criminal organisation, turning a huge profit at the expense of others.

    We have said a number of times that Victoria Police is focused on targeting syndicate leaders, directors, facilitators and organisers. That remains critical for us, and we are doing absolutely everything we can to bring this criminality to an end and to make involvement in illicit tobacco as hostile a proposition as possible for organised crime groups.”

    ABF quotes

    Assistant Commissioner Tony Smith said:

    “ABF continues to work closely with our partners to disrupt and deter attempts by criminal syndicates seeking to profit from the illicit tobacco trade in Australia.

    We remain committed to seizing illicit tobacco and dismantling these supply chains which we know criminals use to make immense profits as well as to fund a whole host of other nefarious criminal enterprises.”

    ATO quotes

    Acting Assistant Commissioner Justin Clarke said:

    “Today’s whole of government response has been a successful step forward in addressing the Victorian tobacco dispute. These arrests and seizures show our commitment to stamping out illicit tobacco and removing it from our communities.

    With the help of our partners, we continue to support coordinated efforts to detect, disrupt, and dismantle these organised crime syndicates who use profits from illicit tobacco to fund other serious illegal activities.

    Organised crime costs Australians around $60 billion each yearExternal Link and the illicit tobacco trade not only takes away vital funding from essential community services, but it also disadvantages small businesses who do the right thing.”

    MIL OSI News –

  • MIL-OSI Australia: Medium and emerging private groups tax performance program

    Source: Australian Department of Revenue

    About the program

    We use a risk-based approach to:

    • identify groups with higher risk and consequence tax reporting
    • support them in meeting tax obligations.

    By doing this we strengthen community confidence that they are paying the right amount of tax.

    Information and findings we gather from working with medium and emerging private groups improves our awareness of the population and risk environment. It also complements our development of a range of differentiated response strategies.

    Through the medium and emerging private groups tax performance program, we have improved our knowledge and understanding of:

    • business operating environments
    • tax risks and issues that are present or may be emerging.

    We have learned from our work across the different industries and risks over the past few years. We are well-positioned and capable to respond to existing and emerging risks and issues with effective strategies and tailored activity.

    Who is covered by the program

    The program covers both:

    • private groups linked to Australian resident individuals who, together with their associates, control wealth between $5 million and $50 million
    • businesses with an annual turnover of more than $10 million, that are not public or foreign owned and are not linked to a high wealth private group.

    Our focus is on engaging with:

    • larger and higher risk private groups and entities
    • private groups experiencing rapid growth, increasing foreign links, looking to expand offshore or where controlling individuals are transitioning to retirement
    • foreign investment focused on acquiring high value assets in Australia and structured wealth extraction
    • private groups with higher risk issues or concerns.

    The program doesn’t cover private groups or businesses that are already part of the:

    We use data-matching and analytic models to identify wealthy individuals and link them to associated entities. We consider the group of entities together.

    The private group approach helps us understand your business better. It enables us to provide a tailored experience, including focusing on specific potential areas of risk and entities within the group.

    For more, read about the:

    How we tailor our approach to you

    We continue to improve our understanding of medium and emerging business and the environment within which you operate.

    To support our understanding, we use sophisticated data and analytics techniques. We use intelligence and insights gathered through our engagements to identify trends, priority and emerging risks specific to medium and emerging private groups.

    Through our increased understanding, we tailor our approach and develop strategies to support you to identify and mitigate tax risks within your private group.

    We’ll work with you by:

    Types of engagement you can expect

    Our engagement with you may include:

    • review of areas of correct tax reporting risk specific to your business
    • pre-lodgment compliance agreement for commercial deals and restructure events
    • leveraged engagements for areas of potential risk that are generally more easily resolved.

    We will work with you to resolve any concerns or issues that arise from our risk modelling and analysis of data from:

    Reviews

    We will streamline our engagement with you for simple issues and potential risks. We may require an extensive review for complex matters involving multiple issues and risks.

    Our reviews focus on specific risks and issues. In most cases, we aim to complete our reviews within 180 days.

    Reviews generally focus on issues that can be resolved by getting more information from you. For example, this could be completing a specific action such as lodging an outstanding return or schedule.

    We monitor many potential risks and issues. Some focus areas include:

    • where we have identified income from third-party information attributable to you but did not see this income reported on your tax returns or activity statements
    • where an entity in your group has not lodged tax returns or activity statements resulting in a shortfall of tax paid
    • late or incorrect lodgments of tax returns, schedules or activity statements
    • instances where you do not appear to have enough income to cover your expenses or to acquire the assets that you own
    • inappropriately accessing tax concessions, credits and offsets that you are not entitled to
    • large, one-off, or unusual transactions, including the transfer or shifting of wealth
    • trust structures
    • wealth extraction, including Division 7A, where we seek verification of complying loan agreements, genuine repayments and minimum yearly repayments.

    We encourage and support good tax governance as it helps taxpayers to meet their taxation obligations. However, it’s not a risk factor we consider in the program reviews.

    GST integrated reviews

    We also undertake goods and services tax (GST) integrated reviews as part of the program.

    These reviews consider potential GST risks or issues. We will request information and documentation from you in support of your GST treatment.

    Characteristics of medium and emerging groups

    Medium and emerging groups have certain characteristics and attributes. See more about the:

    Overall demographics

    There are around 273,000 private groups that are part of the program. These groups report holding approximately $3.2 trillion in net assets and contributing more than $61.3 billion in tax revenue.

    A typical medium and emerging group consists of 5 entities with a mix of:

    • companies
    • trusts
    • other entities.

    The profile of a typical medium and emerging group includes:

    • 5 entities consisting of 2 companies, 2 trusts and another entity such as a self-managed super fund
    • individuals
    • a group head aged 63 years old
    • 14 employees
    • total income of $651,000
    • net wealth of $7.9 million
    • income tax of $104,300
    • net GST of $18,200
    • pay as you go (PAYG) withholding of $92,600.

    Typical medium and emerging group

    Groups by location

    The population is mainly located on the east coast (over 84%) and distributed across Australia as follows:

    • New South Wales – 106,519
    • Victoria – 81,984
    • Queensland – 39,213
    • Western Australia – 22,206
    • South Australia – 15,393
    • Australian Capital Territory – 3,583
    • Tasmania – 3,324
    • Northern Territory – 948

    Medium and emerging groups by location

    Groups by entity type

    The program includes more than 1.4 million entities. Group structures may be complex and some groups may have many associated entities.

    There may be a combination of various entity types with companies, partnerships and trust structures operating within and outside of consolidated groups.

    The program includes:

    • 470,453 companies
    • 475,267 individuals
    • 328,870 trusts
    • 151,334 super funds
    • 61,959 partnerships.

    Medium and emerging groups by entity type

    Groups by industry

    A wide range of different industries are represented in the population. The 5 main industries represent more than half of businesses.

    The industries include:

    • financial and insurance services – 26.2%
    • other industries – 22.8%
    • professional, scientific and technical services – 9.5%
    • construction – 6.6%
    • agriculture, forestry and fishing – 6.4%
    • health care and social assistance – 6.3%
    • rental, hiring and real estate services – 5%
    • retail trade – 4.3%
    • wholesale trade – 3.7%
    • manufacturing – 3.4%
    • accommodation and food services – 1.9%
    • transport, postal and warehousing – 1.5%
    • other services – 1.2%
    • administrative and support services – 1.2%

    Medium and emerging groups by industry type

    How much tax they pay

    The population:

    • owns $3.2 trillion in net assets
    • earns $1.10 trillion in total income
    • pays over $61.3 billion income tax
    • pays over $18.9 billion in net GST
    • employs more than 7.5 million people, paying $42.4 billion in PAYG withholding.

    Tax governance and reporting

    Effective tax governance means having oversight frameworks with clear processes and procedures. This supports decision making and ensures you meet your tax and super obligations.

    When we engage with you as part of the medium and emerging program, we don’t consider or review your tax governance processes. However, good tax governance does help support taxpayers to meet their taxation obligations.

    To ensure your risks are mitigated and to improve certainty that the group is paying the right amount, you need:

    • good tax governance
    • internal controls
    • business processes and procedures.

    Clearly defining and documenting the roles and responsibilities within a group and sharing them with advisors is a key governance requirement.

    To ensure correct tax treatment and reporting, it is important to maintain:

    • oversight and independent approval of the preparation of tax returns and BAS
    • segregation of duties with review
    • checking of material transactions.

    Well-designed control systems and reporting frameworks with good governance, checking and review are key to:

    • ensuring accurate treatment
    • record keeping
    • identifying errors or mistakes and correcting them.

    In broad terms a business with a focus on ensuring risk and issue mitigation will apply:

    • well-designed and documented corporate and tax governance frameworks
    • internal controls and compliance practices appropriate to the size and complexity of the business
    • systems that respond to business growth and increasing complexity through improvement in governance focus and sophistication, internal controls, recording and reporting
    • use of automated and integrated business systems that are regularly reviewed for suitability and accurate performance
    • suitably capable and skilled personnel with regular development and ongoing responsibility to understand, manage and report tax obligations
    • segregation of duties across reporting and approval functions
    • regular review and reconciliation of business systems reporting
    • review of the tax treatment of large, unusual and irregular transactions
    • established procedures for monitoring tax reporting and correcting mistakes and errors
    • ensuring that large, unusual and irregular transactions including those between group members and associates, are properly recorded and included in tax returns
    • seeking advice as business grows and for the treatment of new, unusual, one-off and large transactions.

    For more information you can:

    For more support, see:

    MIL OSI News –

  • MIL-OSI Australia: The Tax Institute’s National GST Conference: ATO update for public and multinational businesses

    Source: Australian Department of Revenue

    Rebecca Saint, Deputy Commissioner, Public Groups and
    Virginia Gogan, Senior Director Public Groups
    Speech at The Tax Institute’s National GST Conference
    17 October 2024
    (Check against delivery)

    Introduction

    Thank you to the Tax Institute for having us at this conference. It’s a pleasure to come speak to you all today.

    It’s been 5 years since responsibility for GST compliance for large business moved to Public Groups. The move has allowed us to better combine our expertise in GST with our deep insights into large business.

    Supported by Government funding to improve assurance and compliance in the large market, we embarked on an ambitious program to generate long term change in the market. We’ve taken on a number of difficult long-term systemic issues, such as governance (including systems and controls), apportionment issues related to financial supplies and product classification.

    Whilst there is still a way to go, we are encouraged by the positive results and we are starting to envisage the future world of GST compliance for large business beyond what you see today. We will cover some of this in our presentation today.

    We will cover:

    • where we are at in our engagement with the market for GST
    • our observations on the GST risk focus area in this market, and
    • our future directions for large business compliance programs going forward.

    The importance of large business tax compliance

    Firstly, it’s useful to set the scene with some key facts and figures.

    The significant monetary contribution and position of influence of large business in the tax system shapes the way we think about compliance for this market. Understanding these drivers also helps in understanding the rationale as to why Government directs funding to specific programs in this market.

    Public and multinational businesses are the largest contributors to the GST system.

    In the 2023 financial year, GST revenue was around 14% of the ATO’s overall net tax collections. In the same year, over 60% of the $77.3 billion in net GST liabilities collected by the ATO were from public and multinational businesses.

    This is reflected in PG populations with:

    • top 100 taxpayers making up 13% of net GST liabilities or $10 billion
    • top 1000 taxpayers making up 37% or $28.6 billion, and
    • the Medium and Emerging population at 11% or $8.9 billion.

    The numbers demonstrate the important role of large business in the level of GST contribution and Government budgets. The heavy reliance on large business for revenue collection is not unique to GST and we see similar reliance for corporate tax. However, the settings of GST mean the concentration of GST collection differs to that income tax. For income tax, corporate tax is highly concentrated in large mining and resource companies, the big banks and a few retailers or telcos. In comparison we see GST as being more spread across the Top 100 and Top 1,000 populations with the bulk of collections coming from the wholesale, retail and services sectors – miners’ exports are GST-free, and banks are mostly input taxed.

    We often talk about the role that large business play beyond their significant revenue contribution. The perception of compliance by large business supports the health of the tax system as a whole. The willingness of individual and small business taxpayers to voluntarily meet their obligations is indirectly impacted by whether they consider there is fairness in the system.

    Whilst public scrutiny more commonly focusses on the income tax contribution and compliance of large business, ultimately perceptions of tax compliance generally are important. At one level GST compliance is more observable to the broader community, with many engaging directly with GST treatments through roles in different parts of the supply chain and consumers engaging with marketing of GST free supplies. This provides both positive and downside opportunities for business.

    Proving GST compliance – justified trust

    Evolution of the justified trust program

    A key platform for our engagement with public and multinational businesses is through the Justified Trust assurance programs. These programs are important in giving us high levels of confidence that we know which large businesses are meeting their Australian income tax and GST obligations. This gives Government and the community confidence that the right amount of tax is being paid by large business.

    We are specifically funded to undertake the justified programs with GST being funded by the GST Compliance Program and income tax being funded through the Tax Avoidance Taskforce.

    Under the assurance programs, the ATO provides positive assurance that taxpayers are paying the right amount of tax, rather than confirming that certain risks do not arise. Whilst the pillars of justified trust are the same for income tax and GST, our compliance stance for the taxes differs. We will explore some of these differences when discussing the programs.

    Top 100

    The Top 100 program covers the largest public and multinational businesses. Top 100 taxpayers are under continual monitoring for income tax. However, for GST, for those taxpayers that have met the governance requirements and achieved at least overall medium assurance, we will generally adopt a periodic review stance. The exception being for high-risk industries such as financial services who may have more intensive engagement.

    What this means for the vast bulk of GST remitters, is that if they meet the necessary requirements in their initial assurance review, our justified trust engagement will be more limited until a refresh year. However, we will continue to monitor their affairs at some level.

    We have now completed an initial assurance review for one or more GST reporters in around 88% of the top 100 economic groups. This means that the vast bulk of Top 100 taxpayers could already be benefiting from periodic review stances. There may be opportunity to evolve this approach further, which we will talk about later in this presentation.

    We have recently re-focussed our efforts in the Top 100 program to real time engagement. The program has always been intended to work this way – given our focus is on prevention before correction, however we have not lived up to this ideal.

    The shift to real-time is designed to provide greater tax certainty for Top 100 taxpayers and the ATO. Transactions and business changes will be considered closer to the time of event and may include both income tax and GST considerations. This may include both income tax and GST. Compliance teams will make decisions as to what if any further investigation or verification may be required. Pre-lodgment Compliance Reviews (PCRs) will be on strict time-lines, to prevent gap or open years arising. We have made changes to our internal work processes to make this happen.

    The shift to real time will come with mutual obligations for business and the ATO. Top 100 taxpayers will have agreed disclosure frameworks that set out the principles of what and the timing of disclosures throughout the year. For GST, there are also specific disclosure requirements for certain industries given the GST risks that arise – such as for large banks.

    Top 1000

    The Top 1000 program assures the largest public and multinational businesses outside of the Top 100. It is an integrated review where we assure both income tax and GST as part of a combined assurance review.

    We have completed 735 reviews for GST across the various phases of the program. 395 entities have received a GST assurance rating, with 59 of these receiving an assurance rating for a second time. The increasing number of second time reviews, particularly for income tax, is giving us insights to the ‘stickiness’ of tax assurance ratings and improvements for big business.

    Due to differences in timing as to when the programs commenced, income tax is ahead of GST. Positively, we have seen most taxpayers either maintain or improve their ratings. We have observed similar positive trends for GST although the numbers are much less. This insight is what gives us confidence that we can take a more tailored lighter approach to assurance for taxpayers that have already demonstrated high levels of compliance.

    In March this year, we announced a recalibration of the entities that would be included in the program. We originally used a $250 million total business income threshold to determine who came within the program. However, over the 8 years since commencement we have observed considerable growth in population. As a result, the Top 1000 program has been covering more than 1000 entities which was not enabling us to achieve a 4-year rolling review cycle.

    Going forward, we will be applying an assurance approach to taxpayers that are the largest 1000 outside of the Top 100 population. Based on our current analysis, for the 2025 financial year, the largest 1000 had a turnover of approximately $350 million.

    We now also differentiate between two different groups in the Top 1000. About a third of the largest 1000 taxpayers exceed $1 billion in turnover. Given the significance of that level of economic activity, these entities will be classed as our ‘significant taxpayers’, and we will apply a different approach to assure them. The remaining entities will form our ‘general taxpayer’ population.

    Differentiating within the population allows us to take different approaches in our assurance program. It also provides opportunities for us to consider opportunities for different services for ‘significant taxpayers’, given their size and contribution.

    In addition to our Justified Trust program, we have risk-based engagements on specific GST risks. These risk-based engagements are important to ensure we continue to target the highest priority GST risks for public and multinational business, including for entities outside our Top 100 and Top 1000 programs.

    Program results – Latest Top 100 and Top 1000 findings for GST

    Each year we publish a raft of information to provide insights about the tax performance and compliance of large business. This includes the findings reports for our Justified Trust programs, with the latest reports for 2024 being published in September.

    At the highest level, this is a good news story. For GST, in both programs, we have observed an increase in the number of taxpayers obtaining high assurance.

    For Top 100 taxpayers:

    • 30% attained overall high assurance, a significant increase from the figure of 23% as at the end of June 2023
    • 63% attained medium assurance, which has fallen from 70% as at the end of June 2023, and
    • overall low assurance ratings have remained stable at 2%.

    For Top 1000 taxpayers:

    • 37% of taxpayers attained an overall high assurance outcome at their most recent review, which is also a significant increase from the figure as at end of June last year of 31%. This is due to 44% of taxpayers who were reviewed in 2024 achieving an overall high assurance rating.
    • 59% of taxpayers attained medium assurance (down from 65%) and we only have 4% of the population with a low assurance rating, which remains relatively constant compared to previous years. This usually occurs where we see an absence of evidence of a governance framework, combined with a low assurance rating for the GAT, and specific issues of concern with low assurance or red flags.
    • At the conclusion of the review, if we have identified areas of concern, we will either provide recommendations for the taxpayer to undertake (including a client next action, where we typically make recommendations and require the taxpayer to advise us of what they have done to address our recommendations) or we may consider intervention through a formalised ATO next actions product. In 2024, approximately 2% of taxpayers were escalated for a further ATO action for GST via a risk review or audit.

    We are also seeing marked improvements in GST governance. We rate GST governance using stage ratings. At least a stage 2 rating, which means your documented GST control framework exists and has been designed effectively, is required to obtain overall high assurance.

    For Top 100 taxpayers:

    • 56% attained a stage 2 or stage 3 rating for GST governance – which is an increase from 45% as at 30 June 2023.
    • Stage 3 was achieved by 9% of GST reporters reviewed, meaning that the documented GST control framework is both designed and operating effectively in practice.

    For Top 1000 taxpayers:

    • 42% attained a stage 2 or 3 rating, which was an increase from 35% in 2023. This positive shift reflects that for those reviewed in 2024, 50% achieved a stage 2 or 3 rating for GST governance.
    • Governance continues to be the main reason that taxpayers are prevented from achieving an overall high assurance rating in the Top 1000 program, with 40% of those achieving medium assurance prevented from high assurance solely due to their stage 1 governance rating.

    We also continue to see improvements in GST Analytical Tool, or GAT ratings, with the majority of taxpayers being able to reconcile the accounting and GST results and explain any differences with reference to objective evidence. A stage 2 or 3 GAT rating was attained by 86% of taxpayers in the Top 100. In the Top 1000, the majority of taxpayers achieved a high assurance rating for the GAT, with 74% of taxpayers able to reconcile the accounting and GST results and able to explain any differences with reference to objective evidence.

    The GAT is a useful tool for taxpayers to check how their various streams of economic activity are treated for GST purposes and have confidence in relation to their GST outcomes. Taxpayers are encouraged to embed the GAT as part of their own governance processes.

    Errors and amendments

    Notwithstanding improvements in governance and tax control frameworks, we continue to see a significant rate of voluntary disclosures of GST errors with the root cause being deficiencies in governance controls and systems.

    In the Top 1000, about 40% of combined assurance reviews carried out in 2024 involved a voluntary disclosure for GST – either at the notification of the review, or throughout the review. For the voluntary disclosures we received in our Top 1000 reviews in the 2024 financial year, almost 30% of those taxpayers had previously made a voluntary disclosure when they had been subject to a prior review in our Top 1000 program, with some of those being disclosures for the same issue previously identified (with penalties being applied as appropriate).

    In the Top 100, about 44% of the completed reviews had issues or concerns with correct reporting of GST obligations. The amounts of these errors were commonly not material in dollar terms. However, in some cases the amounts of errors were large and, in a small number of cases, failure to take reasonable care penalties applied due to the taxpayer’s circumstances.

    Where errors are identified, we focus on understanding how the error occurred and reviewing the taxpayer’s processes and procedures to make sure they are designed effectively to prevent the error from recurring.

    We acknowledge even taxpayers that have a strong governance framework in place will have errors from time to time. Whilst a voluntary disclosure may be an indication of a good governance process to detect errors, the timing of these indicate that it is not necessarily happening as a result of the governance processes in place, but rather as a result of our review notification.  In some cases, we also see recurrent errors being made.

    We see best practice processes where businesses have a process for detecting and remediating errors on a regular basis, not just as a result of ATO contact. We encourage all businesses to embed such processes. If the ATO is to lessen the intensity through the justified trust program, we need to be confident that businesses have got appropriate processes in place to address these issues.

    As you would be aware, the Commissioner has published draft guidance on Division 93 of the GST Act earlier this year, which is about the four-year time limit on claiming input tax credits or fuel tax credits.

    You should actively consider Division 93 when periods are close to the expiry of the 4-year entitlement period, given that putting in an amendment request is not sufficient for input tax credits to be taken into account in an assessment. That is, the amendment request actually needs to be processed by the ATO within the 4-year limit.

    If you are submitting an amendment request for periods close to the expiry of the 4-year period, I encourage you to proactively consider the application of Division 93 in the circumstances. We strongly recommend that you not wait until year 4 and do sweeps much more frequently to reduce the potential impact.

    If you are making the voluntary disclosure to one of our case teams, it will take our case teams some time to consider the requests. We also may require evidence to verify the entitlement to the additional input tax credits. We also appreciate that in many cases taxpayers may wish to engage with the team prior to finalising amendments to protect against penalties, which is a practice we encourage – but you should be conscious of, and proactively raise, any periods that are close to expiry of the four-year period. Again, we encourage you not to leave this to the last year.

    In circumstances where taxpayers seek to change long standing positions to uplift GST recovery, you can expect this will attract additional scrutiny – for instance where an apportionment methodology is changed for periods to increase the rates claimed. You can expect that this will likely take us longer to review and may require further engagement and information from you. You should factor this into your timeframes.

    Just as the Division 93 Miscellaneous tax ruling raises issues for taxpayers to consider, there are also aspects that the ATO will need to consider in our compliance activities. In those cases where there may be additional liabilities and additional input tax credits may also arise, there may be a reluctance of taxpayers to provide an extension to the period of review. This is perhaps understandable if the taxpayer is at risk of the ATO making adjustments, and for those periods there is no legal basis for the Commissioner to give the taxpayer any GST credits that they would otherwise have been entitled to as a result of the audit adjustment. In these cases, both the ATO and the taxpayer will need to co-operate to ensure timely and efficient resolution of issues.

    GST risk focus areas

    Financial services and insurance

    We continue to have a focus on financial services and insurance to ensure compliance with the specific provisions that apply in this area. The types of issues we have recently seen that cause us concern are:

    • ‘Set and forget’ approaches to apportionment models without consideration of whether the method is fair and reasonable, or in relation to claiming reduced input tax credits based on general ledger codes, without conducting periodic self-review transactional analysis.
    • We’ve also observed that while financial institutions generally are within the green zone (low risk) of PCG 2019/8, we continue to have concerns with a small number who adopt high risk positions in their apportionment methodologies, including continual use of retrospective amendments for earlier periods to uplift their claims.
    • Lack of understanding and controls to identify reverse charge transactions is also a concern. In this regard we highlight our guidance on the ATO’s expectations around controls to ensure correct application of these provisions and examples of best practice that can be adopted.
    • For super funds, an example of an issue we have seen is the inappropriate allocation of administrator costs to investment activities leading to excessive input tax recovery.
    • For general insurers, we have seen issues with a lack of controls around decreasing adjustments – for instance to ensure these are only claimed on taxable policies where the insured does not have full entitlement to input tax credits.
    • We continue to see errors where large businesses fail to undertake the financial acquisitions threshold test monthly, and do not correctly recover input tax credits on costs related to significant and unusual transactions such as takeovers.

    Generally, we encourage taxpayers in the financial services and insurance industry to review the relevant practical guidance we have issued. This includes considering the use of the GST data tests for the financial services and insurance industry as part of reviewing the correctness of GST reporting – these are also the ones we incorporate into our reviews.

    Touching on one point raised earlier in the conference, we do want to urge caution around market views on the application of the appeal decision of the Full Federal Court in Commissioner of Taxation v Hannover Life Re of Australasia Ltd.

    That appeal, in relation to overheads, was decided on the particular unchallenged facts and evidence before the Court. The legal analysis adopted in respect to considering the application of Division 11 remains consistent with the ATO’s conventional understanding of relevant legal precedent on the topic. In particular:

    • it is necessary to consider the precise nature of the relationship between an acquisition and related supplies when determining creditable purpose
    • the fact that an input taxed supply is interdependent, and cannot be made without a GST-free or taxable supply also being made, or that other supplies may arise automatically as a result of the making of an input taxed supply, will not of itself determine the creditable purpose of the relevant acquisition.

    The ATO does not consider that any published guidance or advice need be changed in light of the decision. That is the ATO considers the outcome results in a ‘business as usual’ outcome. For instance, we do not agree there is any broader impact in relation to apportionment for credit cards, or for super funds. We encourage taxpayers to read our Decision Impact Statement for the decision.

    Taxpayers will continue to need to consider the extent to which particular acquisitions relate to input taxed supplies, and to the extent apportionment is required, their apportionment models should appropriately adhere to the relevant legal principles in determining any applied extent of credible purpose rate. To try and emulate the conclusions of the Hannover case in relation to ‘overheads’, without consideration of the relationship between particular acquisitions and supplies, may result in an overclaiming of GST.

    The ATO does not consider that the decision offers any judicial justification for any substantially new apportionment method for ‘overheads’. Accordingly, taxpayers should be wary of any claim that the case can permit a material uplift in GST recovery, even if their circumstances have some similarities to the Hannover case. Such an approach may risk a shortfall occurring.

    We also encourage taxpayers to take note of our recent guidance (PDF 107KB) This link will download a file around the eligibility of super funds and investor-directed portfolio services investment platforms to claim reduced input tax credits on adviser fees.

    Product classification

    As our colleague Andrea Wood discussed earlier today, the ATO has been working to provide public advice and guidance on priority food and health product classification issues, with the aim of providing certainty and stability to the industry.

    We recently published a further draft of our Determination on food of a kind marketed as a prepared meal. This incorporates a practical compliance approach to assist taxpayers in determining whether or not certain salad products are food of a kind marketed as a prepared meal. This incorporates threshold tests that refer to objective attributes involving size and composition.

    We’ve developed this approach to address industry feedback that more practical guidance is needed to provide certainty on how to correctly classify these products. We have released the guidance on prepared meals in draft because we recognise this is a new approach and we are seeking industry feedback. This forms part of a layered approach to provide certainty to the market – including principled public advice and guidance, and detailed food list updates that cover more specific categories of products.

    There has been significant work and consultation in providing ATO public advice and guidance to ensure clarity on priority issues involving food and health products – including the guidance on combination foods, and sunscreen products, and upcoming guidance on formula products.

    We have also published a webpage that we will regularly update with emerging GST issues for food and health products, to promote consistency and give the industry early insights into practical issues we are observing.

    The product classification cluster has also published a self-review guide and checklist to assist taxpayers in the industry to undertake regular self-reviews of their GST classification, which I strongly encourage all industry participants to use as part of reviewing the GST classification of their food and health products.

    We expect that in future we will undertake further compliance activity to ensure consistent adoption of the views in ATO guidance once finalised – likely in the form of targeted mailouts focusing on manufacturers and wholesalers.

    We work to ensure consistency across the market, and encourage taxpayers to review our recent guidance to ensure they have appropriate governance controls to ensure correct classification of products.

    Property, construction and retirement villages

    We have had a focus on ensuring a good understanding of what risks arise in the property, construction and retirement village segments of the public and multinational market, through both our assurance programs and risk-based engagements.

    In particular we have had a recent focus on build to rent developments – we have observed that taxpayers are treating the relevant supplies as being input taxed in line with our expectations, and the main issues arising have involved adjustments (for instance, failure to make adjustments under Division 135 when a property is acquired as a GST-free going concern).

    We will continue to engage with taxpayers across a variety of business models – including purpose built student accommodation, retirement villages, accommodation providers and hybrid property types.

    Correct reporting

    In addition to our assurance programs, we engage in a targeted way where we potential correct reporting risks may arise (for instance, in the gambling industry under Division 126 and the sharing economy), or in relation to refunds that may be high risk.

    While we have observed some improvements following the release of the relevant legislative instrument in 2023, we continue to have concerns about situations where recipient created tax invoices are issued without appropriate agreements, or issued to the incorrect supplier or to suppliers who are no longer GST-registered, or in some cases were never GST-registered. These issues can lead to GST shortfalls.

    International GST

    Another one of our risk focus areas is ensuring that Australian GST obligations are being met by offshore entities making supplies to Australian consumers.

    Since the introduction of the laws that require offshore supplies of digital products and services, and low value imported goods, to register and remit GST on these supplies, we have collected $7.8 billion in revenue. In the 2024 financial year, we collected $1.6 billion in revenue, which was a 14.7% increase from the prior year.

    We currently have 2,685 non-residents registered under these measures, which is also a 13.8% increase from the prior year.

    We are making better use of data, particularly banking data, to improve our holistic understanding of the offshore population and tailoring our risk treatment strategies to obtain greater assurance that offshore businesses who fall within the Australian GST regime are registered, are lodging, and paying the correct amount of GST.

    Our leadership in OECD Working Party 9 (WP9) on Consumption Tax allows us to play a significant role in global collaboration to better understand the impact of global digitalisation and develop administrative best practice to address fraud and non-compliance in digital trade. We will continue to leverage our strong domestic and global relationships to support multilateral arrangements that enable the exchange of crucial GST information such as payment data, enhanced intelligence sharing, and compliance insights through international administrative cooperation. This will allow us to bridge critical data gaps and more efficiently and effectively manage international GST risks.

    The role of advisors

    I want to touch on the role that advisors play in the system. The Commissioner in his keynote address earlier today recognised the important role that advisors play in supporting taxpayers to meet their tax obligations.

    The ATO has been focussed on the role of advisors in supporting large business. This includes initiatives such as the Large Market Advisor Principles, which we facilitated by working closely with the big 4 advisory firms. These principles provide an objective and transparent basis against which firms, their clients and the community, can be confident that the firms are not engaged in marketing or promotion of tax avoidance or other high-risk arrangements. All firms offering tax advisory services may choose to adopt the principles and we actively encourage firms to do so.

    The ATO’s focus is not limited to advisors in the large-market and we have dedicated programs in other business lines. We work closely with other lines and co-ordinate our actions in relation to advisors working across markets. For us this is predominantly the Private Wealth line.

    Most tax professionals act in a way that supports the integrity of the tax system. However, we’ll act quickly where we detect advisors who undermine the integrity of the system or facilitate non-compliance by large business. Whilst we are not the regulator of the tax profession, we have teams with responsibility for monitoring and addressing advisor behaviours.

    Ultimately, we’re interested in tax risk. In this respect, we are agnostic as to which advisor a business may choose. However, if an advisor is directly linked to possible facilitation and promotion of tax schemes or is influencing their clients to adopt high risk tax positions, we will take action. This may include seeking the client list of the advisor and using that as a basis for determining the targets of our compliance activity. In this way, we can shut down schemes more quickly and effectively.

    An important part of our approach to large business is to provide transparency to taxpayers on our risk parameters. This includes working with the tax profession to explain areas of concern at an early stage, to support them in providing appropriate advice to taxpayers. This enables taxpayers to make informed decisions about their levels of compliance risk. Our goal is to only have taxpayers entering into disputes with us where they know what our position is and have made a conscious decision to operate contrary to it.

    We accept that there will be differences of opinion on the operation of the law. However, we expect advisors to clearly articulate the risk of dispute with the ATO to their clients when providing advice. This is consistent with the principles in the Large Market Advisor Principles and other professional obligations such as the recent Revisions to the Code Addressing Tax Planning and Related ServicesExternal Link released by the International Ethical Standards Board for AccountantsExternal Link.

    Behaviours we have seen that cause us concern for GST include practitioners who advise clients to claim refunds without appropriate evidence to substantiate the claims or which are contrary to published ATO views without making their client fully aware of the tax technical and tax administrative risks of that course, and even in some cases, that it might not align with (or be directly contrary to) the client’s tax governance and tax risk policies. We note that commonly such arrangements are associated with retrospective input tax credit claims, with the adviser’s fees being calculated as a percentage of GST refund received. 

    Whilst not illegal, these business models bring high levels of risk for businesses. We have long been concerned with the exercise of “grave digging”. We have an even greater level of concern when there is a lack of substantiation and taxpayers seemingly are not advised of the legal and compliance risk associated with the activities.

    We have also observed issues with independence requirements of initiatives in our justified trust program. In an attempt to help businesses, we introduced an initiative that allowed businesses to engage an independent agent to conduct data testing as an alternative to the ATO doing this. Engaging an advisor on a contingency fee basis in these circumstances represents a clear conflict of interest and cannot be independent. We have since updated our guidance to reflect this.

    The solution is not to put in place arrangements that seemingly separate the ‘grave digging’ activity from the independent data testing engagement. We will not accept these engagements as being independent either.

    We want to actively support the vast bulk of advisors that are doing the right thing and prevent those operating in the grey space from gaining a commercial advantage. We recognise the important work that tax professionals do in supporting large business GST compliance, and we value the strong relationships we have with the profession. This includes your engagement with us in the development of our approaches via consultation. We will continue to invest in growing this partnership.

    Introducing the supplementary annual GST return

    As our programs gain maturity and we continue to see the embedding of positive behaviours, in particular improved governance and systems controls, being embedded in business we are able to move toward a new phase for our justified trust programs.

    A key part of our vision for future engagement with the market is the introduction of the supplementary annual GST return. We recently announced the introduction of this return following consultation with the Large Business Stewardship Group and other stakeholders.

    The return allows us to collect information from business that allows us to more readily identify changes in business and GST positions. As we have again noted today, governance and systems is the key risk for most businesses in the large market. Having observed improvements in this aspect, are considering moving to a more targeted risk-based type approach for suitable taxpayers. However, we first need to be confident that the relevant standards are maintained.

    The return will allow us to monitor this without having to conduct one on one engagements for all taxpayers. The good news for highly compliant businesses is that if you maintain your standard and lodge the return, you can reduce the likelihood of intensive justified trust reviews. For some in the Top 1000 program, you may not be selected for a justified trust review for GST.

    The return is straightforward to complete and targeted at understanding how taxpayers have actioned recommendations from our earlier review, and key updates on governance and GST compliance for the year. It will also effectively give a single view of GST risk for the entity in a similar way to how the Reportable Tax Position Schedule gives a view of key corporate tax risks to the organisation and the ATO.

    Information requested

    We have recently provided detailed guidance and a copy of the return on our website.

    The way the supplementary annual GST return is designed to work, where we obtain a baseline level of assurance over a taxpayer as part of our assurance programs, and we can maintain the level of confidence that we have in the taxpayer’s investment in correct reporting and GST governance through the supplementary annual GST return, we can use this to tailor our future engagement.

    There are five parts to the return:

    • how the entity has actioned recommendations, areas of low assurance or red flags outlined by the ATO in their most recent GST assurance review (including any subsequent interactions with us)
    • whether the entity has maintained or increased their level of GST governance, and any material business changes or material systems changes impacting their GST control framework since their last GST assurance review
    • the reconciliation between the entity’s audited financial statements and annualised business activity statements
    • whether the entity has taken any material uncertain GST positions in the period – this includes positions which are about as likely to be correct as incorrect, even if they are reasonably arguable, positions contrary to an ATO public ruling or other ATO public advice and guidance, contrary to a private ruling, or to which an ATO Taxpayer alert or moderate or high risk rating under a Practical Compliance Guideline apply
    • and finally, whether the entity has identified any material GST errors in the period and how these have been rectified, and whether the entity has claimed any material amounts of input tax credits in the period that were referable to earlier periods due to a change in GST treatment.

    How we will use the information

    For Top 100 taxpayers, we will use the information to:

    • monitor your GST disclosures and outcomes in the intervening 3 years between assurance reviews, and
    • inform the scope and intensity of our GST assurance reviews, including refresh reviews.

    As we complete some more refresh reviews for this population over the coming 12 months, we will be able to better assess whether positive behaviours, and in particular improvements to governance, remain embedded within business. Assuming this level of confidence increases, we see opportunity for an even greater role for return in determining the level of our investment in the justified trust program in this population.

    For Top 1000 taxpayers:

    • Under our differentiated approach to Combined Assurance Reviews, we’ll assess the responses to the returns to determine the level of intensity for the next GST assurance review.
    • This may result in a less intensive GST assurance review or we may decide that a GST assurance review is not required, where the following requirements are met:
      • the taxpayer has obtained an overall medium or high assurance rating for GST
      • a stage 2 or 3 GST governance rating in their most recent assurance review
      • there are no unresolved ATO or client next actions, and
      • where the information provided in the return enables us to maintain confidence that their investment in GST governance is maintained and that GST is correctly reported.
    • Taxpayers who obtained an overall low GST assurance rating or a stage 1 GST governance rating will be subject to a GST assurance review when selected under our Combined Assurance Review program.

    Timing of lodgment

    To help support full implementation of this new requirement, we will undertake a pilot of the return with a small number of Top 100 and Top 1000 taxpayers as part of their assurance reviews. This will enable us to test the usability of the questions as part of their assurance reviews prior to the broader roll-out. If you are part of this group, we will reach out to you soon.

    All taxpayers who received a GST assurance review report by 30 June 2024 will need to lodge annually from the 2025 financial year. The key due dates for the first lodgments for the 2025 financial year include 21 August 2025 for December balancers, and 21 February 2026 for June balancers.

    You’ll be required to lodge a Supplementary annual GST return for the 2024–25 financial year if you received one of the following on or before 30 June 2024:

    • Top 100 GST Assurance Report
    • Top 1,000 Combined Assurance Review report with a GST assurance rating
    • Top 1,000 GST Streamlined Assurance Review.

    We will have a direct communication campaign to notify those who need to lodge. I encourage you to read our webpage material and to raise any questions with us at SAGR@ato.gov.au.

    Moving forward, as we assure additional taxpayers under our programs, they will be required to lodge a return starting from the financial year following the financial year you received your GST assurance report. The introduction of the return emphasises the benefits of obtaining higher assurance ratings in the initial assurance review, as in combination with the information provided annually, this puts the entity in the best position for streamlined future engagement with us for GST.

    Conclusion

    Reflecting on the last five years, the ATO and large business have made substantial progress in being able to demonstrate and improve GST compliance. The ATO has invested heavily in key initiatives that provide greater and better targeted tax certainty for large businesses (including in relation to governance and tax frameworks). We are observing strong positive signs (and in some cases improvements) of compliance. As a result, we are starting to envisage the future of GST compliance for large business, one where the intensity and in some case frequency of our justified trust reviews can be lessened. However, for this to occur we need objective evidence of high levels of compliance, we need to be confident these levels can be sustained, and we need information that will allow us to monitor ongoing GST performance. We continue to encourage large business to help us achieve this.

    MIL OSI News –

  • MIL-OSI Australia: eInvoicing-enabled entities

    Source: Australian Department of Revenue

    These Australian Government entities are registered on the Peppol network. They appear on the Peppol Directory along with hundreds of state, territory and local government organisations, and thousands of other Australian businesses who can receive eInvoices.

    If you supply to any of the entities listed below and can send eInvoices you may be paid faster. For more information visit Getting PaidExternal Link on the Department of Finance’s website or talk to your contract manager in the Government entity about any specific requirements.

    Australian Government entities able to receive eInvoices

    ABN

    Entity name

    73 147 176 148

    Administrative Review Tribunal

    80 246 994 451

    Aged Care Quality and Safety Commission

    50 802 255 175

    Asbestos and Silica Safety and Eradication Agency

    92 661 124 436

    Attorney-General’s Department

    26 331 428 522

    Australian Bureau of Statistics

    34 864 955 427

    Australian Centre for International Agriculture Research

    54 488 464 865

    Australian Charities and Not-for-profits Commission

    97 250 687 371

    Australian Commission on Safety and Quality In Health Care

    55 386 169 386

    Australian Communications and Media Authority

    94 410 483 623

    Australian Competition & Consumer Commission

    11 259 448 410

    Australian Crime Commission

    84 425 496 912

    Australian Digital Health Agency

    21 133 285 851

    Australian Electoral Commission

    17 864 931 143

    Australian Federal Police

    19 892 732 021

    Australian Film Television & Radio School

    63 384 330 717

    Australian Financial Security Authority

    81 098 497 517

    Australian Fisheries Management Authority

    69 405 937 639

    Australian Government Solicitor

    47 996 232 602

    Australian Human Rights Commission

    31 162 998 046

    Australian Industrial Chemicals Introduction Scheme

    63 257 175 248

    Australian Institute of Criminology

    64 001 053 079

    Australian Institute of Family Studies

    65 377 938 320

    Australian Maritime Safety Authority

    33 020 645 631

    Australian National Audit Office

    13 059 525 039

    Australian Office of Financial Management

    56 253 405 315

    Australian Organ & Tissue Donation and Transplantation Authority

    79 635 582 658

    Australian Prudential Regulation Authority

    99 470 863 260

    Australian Public Service Commission

    61 321 195 155

    Australian Radiation Protection and Nuclear Safety Agency (ARPANSA)

    35 931 927 899

    Australian Renewable Energy Agency

    35 201 451 156

    Australian Research Council

    86 768 265 615

    Australian Securities & Investments Commission

    37 467 566 201

    Australian Security Intelligence Organisation

    22 323 254 583

    Australian Signals Directorate

    72 581 678 650

    Australian Skills Quality Authority

    67 374 695 240

    Australian Sports Commission

    67 250 046 148

    Australian Submarine Agency

    51 824 753 556

    Australian Taxation Office

    11 764 698 227

    Australian Trade and Investment Commission

    32 770 513 371

    Australian Transaction Reports & Analysis Centre (AUSTRAC)

    65 061 156 887

    Australian Transport Safety Bureau

    64 909 221 257

    Australian War Memorial

    92 637 533 532

    Bureau of Meteorology

    21 075 951 918

    Cancer Australia

    44 808 014 470

    Civil Aviation Safety Authority

    43 669 904 352

    Clean Energy Finance Corporation

    72 321 984 210

    Clean Energy Regulator

    60 585 018 782

    Climate Change Authority

    41 640 788 304

    Comcare Australia

    64 703 642 210

    Commonwealth Grants Commission

    34 190 894 983

    Department of Agriculture, Fisheries and Forestry

    68 706 814 312

    Department of Defence

    69 289 134 420

    Department of Defence Army & Air Force Canteen Service

    12 862 898 150

    Department of Education

    96 584 957 427

    Department of Employment and Workplace Relations

    61 970 632 495

    Department of Finance

    47 065 634 525

    Department of Foreign Affairs & Trade

    83 605 426 759

    Department of Health and Aged Care

    33 380 054 835

    Department of Home Affairs

    74 599 608 295

    Department of Industry, Science and Resources

    86 267 354 017

    Department of Infrastructure, Transport, Regional Development, Communications and the Arts

    52 997 141 147

    Department of Parliamentary Services

    36 342 015 855

    Department of Social Services

    18 526 287 740

    Department of the House of Representatives

    49 775 240 532

    Department of the Parliamentary Budget Office

    23 991 641 527

    Department of the Senate

    92 802 414 793

    Department of the Treasury

    23 964 290 824

    Department of Veterans’ Affairs & the Repatriation Commission and the Military Rehabilitation and Compensation Commission

    96 257 979 159

    Digital Transformation Agency

    13 051 694 963

    Director of National Parks

    99 696 833 561

    Domestic, Family and Sexual Violence Commission

    12 212 931 598

    eSafety Commissioner

    93 614 579 199

    Fair Work Commission

    49 110 847 399

    Federal Court of Australia

    20 537 066 246

    Food Standards Australia New Zealand

    40 465 597 854

    Future Fund Board of Guardians

    53 156 699 293

    Future Fund Management Agency

    80 091 799 039

    Geoscience Australia

    12 949 356 885

    Great Barrier Reef Marine Park Authority

    27 598 959 960

    Independent Health and Aged Care Pricing Authority

    26 424 781 530

    Independent Parliamentary Expenses Authority

    59 912 679 254

    Indigenous Land and Sea Corporation

    51 248 702 319

    Inspector-General of Taxation

    38 113 072 755

    IP Australia

    13 679 821 382

    Murray-Darling Basin Authority

    47 446 409 542

    National Anti-Corruption Commission

    36 889 228 992

    National Archives of Australia

    87 361 602 478

    National Blood Authority

    75 149 374 427

    National Capital Authority

    56 552 760 098

    National Competition Council

    25 617 475 104

    National Disability Insurance Agency

    40 816 261 802

    National Emergency Management Agency

    27 855 975 449

    National Gallery of Australia

    88 601 010 284

    National Health and Medical Research Council

    15 337 761 242

    National Health Funding Body

    30 429 895 164

    National Indigenous Australians Agency

    22 385 178 289

    National Offshore Petroleum Safety and Environmental Management Authority

    67 890 861 578

    National Transport Commission

    72 581 678 650

    National Vocational Education and Training Regulator

    40 293 545 182

    NDIS Quality and Safeguards Commission

    61 900 398 761

    North Queensland Water Infrastructure Authority

    87 904 367 991

    Office of National Intelligence

    41 425 630 817

    Office of Parliamentary Counsel

    80 959 780 601

    Office of the Auditing and Assurance Standards Board

    92 702 019 575

    Office of the Australian Accounting Standards Board

    85 249 230 937

    Office of the Australian Information Commissioner

    53 003 678 148

    Office of the Commonwealth Ombudsman

    41 036 606 436

    Office of the Director of Public Prosecutions

    43 884 188 232

    Office of the Fair Work Ombudsman

    15 862 053 538

    Office of the Gene Technology Regulator

    27 478 662 745

    Office Of the Inspector-General of Aged Care

    67 332 668 643

    Office of the Inspector-General of Intelligence & Security

    67 582 329 284

    Office of the Official Secretary to the Governor-General

    87 767 208 148

    Office of the Special Investigator

    30 620 774 963

    Old Parliament House

    78 094 372 050

    Productivity Commission

    45 307 308 260

    Professional Services Review

    99 528 049 038

    Regional Investment Corporation

    45 852 104 259

    Royal Australian Mint

    25 203 754 319

    Rural Industries Research & Development Corporation

    81 840 374 163

    Safe Work Australia

    46 741 353 180

    Screen Australia

    32 745 854 352

    Seafarers Safety Rehabilitation and Compensation Authority

    90 794 605 008

    Services Australia

    17 090 574 431

    Snowy Hydro Limited

    91 314 398 574

    Special Broadcasting Service Corporation

    70 588 505 483

    Sport Integrity Australia

    50 658 250 012

    Tertiary Education Quality and Standards Agency

    18 108 001 191

    The Department of the Prime Minister and Cabinet

    40 939 406 804

    Therapeutic Goods Administration

    57 155 285 807

    Torres Strait Regional Authority

    47 641 643 874

    Workplace Gender Equality Agency

    MIL OSI News –

  • MIL-OSI Global: Rwandan-backed M23 rebel group seeks local power in DRC, not just control over mining operations

    Source: The Conversation – Africa – By Ken Matthysen, Researcher, IPIS

    The violence wrought by the Rwandan-backed rebel group M23 Movement is often narrowly framed as intended to control eastern Democratic Republic of Congo’s resource-rich mining sites. The rebel group launched its most recent offensive in 2021 and currently controls vast territories in the south-east of North Kivu province, surrounding and cutting off the main city of Goma.

    Eastern DR Congo mines produce crucial raw materials such as tin, tantalum and tungsten, as well as abundant quantities of gold. It therefore seems logical to reduce explanations of conflict to the ambition by M23, and Rwanda behind it, to control the mines directly.

    We belong to a team of researchers who examine the various dimensions of conflict from different perspectives. Our findings, based on fieldwork and conducted in collaboration with in-country experts, show that this popular analysis does not paint the full picture.

    Conflict analysis often ignores historical and local dimensions. Our investigation with the Goma-based civil society organisation Association pour le Développement des Initiatives Paysannes therefore explored the local stakes and impacts of the M23 crisis. We interviewed more than 55 people in North Kivu (DR Congo), including members of M23, as well as soldiers and armed groups fighting them, local chiefs, state agents, teachers, taximen, traders and farmers who live on the frontline of the conflict.

    Our research reveals that M23 employs a more profound strategy to boost its position and military strength (through Rwandan support) in local struggles over land, authority and rents. M23’s disruptive strategy aims to replace Congolese authorities and overhaul local governance in areas it controls in eastern DR Congo. Key to this strategy is:

    • undermining and replacing local (customary) authorities

    • taking over strategic trade routes

    • the installation of an elaborate taxation regime.

    These strategies also allow M23 – and Rwanda – to generate revenues from the local economy, including rents from DR Congo’s mineral wealth, without necessarily directly controlling mines.

    Historical struggles over land

    Interviewees attached great importance to the historical context of the M23 conflict, explaining how struggles over land date back to independence in 1960. Going back to the 1930s and 1940s, the Belgian colonial administrators already organised large movements of migrant workers from Rwanda to work on plantations in DR Congo. The Rwandophone migrants and their descendants settled in North Kivu, becoming part of the local population.

    After independence, Hutu and Tutsi (Rwandophone) communities began to jostle for control over North Kivu’s fertile farmland with the Hunde and Nyanga communities there. As grievances over access to land and property rights increased, Rwandophone communities were stigmatised as “non-indigenous” and their land claims as illegitimate.

    As the Congo Wars broke out in the 1990s, people began seeking recourse to armed groups to settle land conflicts. Before the rise of M23 in 2012, two other groups (Rassemblement Congolais pour la Démocratie and later Congrès National pour la Défense du Peuple) rose to protect the Rwandophone population in eastern DRC. They also grabbed and sold vast concessions of land – held by the state or other communities – to allied farmers and business people. These were typically from the Tutsi community.

    Given the country’s complex and under-enforced land laws, land claims became exceedingly difficult to verify or prove. This has strengthened the belief that the only way to secure access to land is by resorting to armed groups. Thus, M23 is perceived as the guardian of the Tutsi community’s access to land.

    This perception is well illustrated by a testimony of a local leader in Masisi territory:

    The wars of the last three decades have been motivated by a struggle for control over land … Indigenous people are driven out, dispossessed of their land in favour of others who are considered foreigners and refugees. … the M23 is made up of (Tutsi) pastoralists … and there are fields that their rivals had seized … it was one of their (M23) first concerns to start exploiting them.

    Most Congolese Tutsi have not asked for this “protection” by M23. But the ensuing grievances and ethnic tensions will haunt the relations between communities for years to come.

    Struggles over customary authority

    In DR Congo, customary chiefs play an important role in local land governance. They also adjudicate conflicts, bind people together through rituals, and represent the symbolic claim by a specific community to a given place.

    Many Congolese we spoke to perceive M23’s main aim to be control of power at the local level — undermining the existing authorities. The group has indeed sought to replace customary authorities with M23-appointed ones, at times assassinating Congolese chiefs. Local sources said M23 even burnt chiefdom archives, destroying evidence of claims to customary authority.

    M23’s economic grip

    Wherever M23 has a foothold, it installs an elaborate taxation regime. This involves checkpoint tolls, household taxes, dues on business, harvest taxes and forced labour. In doing so, the group generates the revenues to sustain the conflict. But this also strengthens its politico-administrative hold on the population, as taxation is a symbolic interface of public authority.

    Local armed groups that joined with the Congolese army to combat M23 deepen the problem. Called wazalendo (“patriots”), they are often unpaid and therefore rely on payments from the population to sustain their counter-offensive. As a result, taxation in eastern Congo has become heavily “militiarised”. Taxed by government forces, wazalendo and M23, civilians pay a heavy toll.

    The military nature of local governance could jeopardise future efforts to bring peace to eastern DRC.

    What about minerals?

    M23 has an impact on all aspects of local governance in eastern DR Congo. It has found ways to control and profit from the local economy in North Kivu, including mineral supply chains. It operates checkpoints along arteries and taxes minerals smuggled to Rwanda, alongside other trade flows.

    Having M23 control strategic trade routes in DR Congo, including those crossing into Uganda, is a benefit for Rwanda. From Kigali’s perspective, the resurgence of M23 in 2021 came at a perfect time to block Uganda’s efforts to improve the road network in eastern DR Congo towards its own territory. Rwanda and Uganda are locked in intense competition for Congolese informal trade, re-exporting its timber and minerals as their own, gaining taxes and foreign earnings that ought to benefit the Congolese treasury and population.

    What must be done?

    DR Congo’s resources play a large role in the M23 conflict, but our study underscores the historical roots of the conflict and its profound local impacts. These findings should inform locally meaningful and sustainable conflict resolution strategies.

    Since the M23 revival, land access, trade and security have become increasingly mediated by armed actors. Even after a possible M23 defeat, it will take years of local dialogue and mediation to undo this involvement of militia in local governance, resolve land issues, repair inter-community relations and remake customary authority. But that’s the only way to reach sustainable peace in North Kivu.

    Ken Matthysen works for the International Peace Information Service (IPIS)

    This publication has been produced with the financial assistance of the Belgian Directorate-General for Development Cooperation and Humanitarian Aid (DGD). The contents of this document are the sole responsibility of IPIS and can under no circumstances be regarded as reflecting the position of the Belgian Development Cooperation.

    – ref. Rwandan-backed M23 rebel group seeks local power in DRC, not just control over mining operations – https://theconversation.com/rwandan-backed-m23-rebel-group-seeks-local-power-in-drc-not-just-control-over-mining-operations-231318

    MIL OSI – Global Reports –

  • MIL-OSI Africa: Rwandan-backed M23 rebel group seeks local power in DRC, not just control over mining operations

    Source: The Conversation – Africa – By Ken Matthysen, Researcher, IPIS

    The violence wrought by the Rwandan-backed rebel group M23 Movement is often narrowly framed as intended to control eastern Democratic Republic of Congo’s resource-rich mining sites. The rebel group launched its most recent offensive in 2021 and currently controls vast territories in the south-east of North Kivu province, surrounding and cutting off the main city of Goma.

    Eastern DR Congo mines produce crucial raw materials such as tin, tantalum and tungsten, as well as abundant quantities of gold. It therefore seems logical to reduce explanations of conflict to the ambition by M23, and Rwanda behind it, to control the mines directly.

    We belong to a team of researchers who examine the various dimensions of conflict from different perspectives. Our findings, based on fieldwork and conducted in collaboration with in-country experts, show that this popular analysis does not paint the full picture.

    Conflict analysis often ignores historical and local dimensions. Our investigation with the Goma-based civil society organisation Association pour le Développement des Initiatives Paysannes therefore explored the local stakes and impacts of the M23 crisis. We interviewed more than 55 people in North Kivu (DR Congo), including members of M23, as well as soldiers and armed groups fighting them, local chiefs, state agents, teachers, taximen, traders and farmers who live on the frontline of the conflict.

    Our research reveals that M23 employs a more profound strategy to boost its position and military strength (through Rwandan support) in local struggles over land, authority and rents. M23’s disruptive strategy aims to replace Congolese authorities and overhaul local governance in areas it controls in eastern DR Congo. Key to this strategy is:

    • undermining and replacing local (customary) authorities

    • taking over strategic trade routes

    • the installation of an elaborate taxation regime.

    These strategies also allow M23 – and Rwanda – to generate revenues from the local economy, including rents from DR Congo’s mineral wealth, without necessarily directly controlling mines.

    Historical struggles over land

    Interviewees attached great importance to the historical context of the M23 conflict, explaining how struggles over land date back to independence in 1960. Going back to the 1930s and 1940s, the Belgian colonial administrators already organised large movements of migrant workers from Rwanda to work on plantations in DR Congo. The Rwandophone migrants and their descendants settled in North Kivu, becoming part of the local population.

    After independence, Hutu and Tutsi (Rwandophone) communities began to jostle for control over North Kivu’s fertile farmland with the Hunde and Nyanga communities there. As grievances over access to land and property rights increased, Rwandophone communities were stigmatised as “non-indigenous” and their land claims as illegitimate.

    As the Congo Wars broke out in the 1990s, people began seeking recourse to armed groups to settle land conflicts. Before the rise of M23 in 2012, two other groups (Rassemblement Congolais pour la Démocratie and later Congrès National pour la Défense du Peuple) rose to protect the Rwandophone population in eastern DRC. They also grabbed and sold vast concessions of land – held by the state or other communities – to allied farmers and business people. These were typically from the Tutsi community.

    Given the country’s complex and under-enforced land laws, land claims became exceedingly difficult to verify or prove. This has strengthened the belief that the only way to secure access to land is by resorting to armed groups. Thus, M23 is perceived as the guardian of the Tutsi community’s access to land.

    This perception is well illustrated by a testimony of a local leader in Masisi territory:

    The wars of the last three decades have been motivated by a struggle for control over land … Indigenous people are driven out, dispossessed of their land in favour of others who are considered foreigners and refugees. … the M23 is made up of (Tutsi) pastoralists … and there are fields that their rivals had seized … it was one of their (M23) first concerns to start exploiting them.

    Most Congolese Tutsi have not asked for this “protection” by M23. But the ensuing grievances and ethnic tensions will haunt the relations between communities for years to come.

    Struggles over customary authority

    In DR Congo, customary chiefs play an important role in local land governance. They also adjudicate conflicts, bind people together through rituals, and represent the symbolic claim by a specific community to a given place.

    Many Congolese we spoke to perceive M23’s main aim to be control of power at the local level — undermining the existing authorities. The group has indeed sought to replace customary authorities with M23-appointed ones, at times assassinating Congolese chiefs. Local sources said M23 even burnt chiefdom archives, destroying evidence of claims to customary authority.

    M23’s economic grip

    Wherever M23 has a foothold, it installs an elaborate taxation regime. This involves checkpoint tolls, household taxes, dues on business, harvest taxes and forced labour. In doing so, the group generates the revenues to sustain the conflict. But this also strengthens its politico-administrative hold on the population, as taxation is a symbolic interface of public authority.

    Local armed groups that joined with the Congolese army to combat M23 deepen the problem. Called wazalendo (“patriots”), they are often unpaid and therefore rely on payments from the population to sustain their counter-offensive. As a result, taxation in eastern Congo has become heavily “militiarised”. Taxed by government forces, wazalendo and M23, civilians pay a heavy toll.

    The military nature of local governance could jeopardise future efforts to bring peace to eastern DRC.

    What about minerals?

    M23 has an impact on all aspects of local governance in eastern DR Congo. It has found ways to control and profit from the local economy in North Kivu, including mineral supply chains. It operates checkpoints along arteries and taxes minerals smuggled to Rwanda, alongside other trade flows.

    Having M23 control strategic trade routes in DR Congo, including those crossing into Uganda, is a benefit for Rwanda. From Kigali’s perspective, the resurgence of M23 in 2021 came at a perfect time to block Uganda’s efforts to improve the road network in eastern DR Congo towards its own territory. Rwanda and Uganda are locked in intense competition for Congolese informal trade, re-exporting its timber and minerals as their own, gaining taxes and foreign earnings that ought to benefit the Congolese treasury and population.

    What must be done?

    DR Congo’s resources play a large role in the M23 conflict, but our study underscores the historical roots of the conflict and its profound local impacts. These findings should inform locally meaningful and sustainable conflict resolution strategies.

    Since the M23 revival, land access, trade and security have become increasingly mediated by armed actors. Even after a possible M23 defeat, it will take years of local dialogue and mediation to undo this involvement of militia in local governance, resolve land issues, repair inter-community relations and remake customary authority. But that’s the only way to reach sustainable peace in North Kivu.

    – Rwandan-backed M23 rebel group seeks local power in DRC, not just control over mining operations
    – https://theconversation.com/rwandan-backed-m23-rebel-group-seeks-local-power-in-drc-not-just-control-over-mining-operations-231318

    MIL OSI Africa –

  • MIL-OSI USA: Digital Era—Rolling Out New Modernized Driver License System

    Source: US State of Missouri

    JEFFERSON CITY — The Missouri Department of Revenue’s Motor Vehicle and Driver License (MVDL) division is preparing to deploy its modernized driver license and processing system at all license offices, with a launch date of Tues., Nov. 12. Installation of new equipment and the system conversion process for this vital upgrade will necessitate short license office closures. Customers with an expiring November driver license received an additional postcard notifying them of this transition.

    While the Department is emphasizing that license offices will be open on election day, Tues., Nov. 5, customers are advised to plan for interruptions to license office operations on the following dates:

    Wed., Nov. 6 – License offices are open but only available for motor vehicle transactions. Driver license services will be unavailable.

    Thurs., Nov. 7 – Some license offices will be closed, and many will remain open for motor vehicle services only. Driver license services will be unavailable in all offices.

    Fri., Nov. 8 – All license offices throughout the state will be closed for system conversion.

    Mon. Nov. 11 – Veterans Day. All license offices will be closed statewide in observance of the federal holiday.

    “We want to thank our customers in advance for their patience and understanding during the transition. We are confident they will come to agree that it’s a small inconvenience compared to the benefits the modernized system will provide once it becomes fully operational,” said Missouri Department of Revenue Director Wayne Wallingford, referencing the second and final phase of the modernization project, scheduled to roll out in July of 2026. “The second phase will be to the Department’s motor vehicle system, which will enable the two systems to ‘talk’ to each other. This final enhancement will make transactions much more seamless for our customers and our frontline staff.”

    Phase II work will begin immediately after Phase I is complete. The in total three-year project was made possible by 2021 legislation creating an auto dealer administrative fee for an Administrative Technology Fund, dedicated to building a new integrated MVDL computer system. The new system will replace antiquated legacy systems within the Department that include more than 50 disparate software programs with limited ability to work together.

    “Since early August, the Department has been making available training opportunities for license office staff on the new driver license system,” said the Department’s MVDL Division Director Ken Struemph. “As with any major system upgrade, we expect instances where processing times will be longer following rollout, and we encourage our customers to plan accordingly. Once fully operational, the Department will be much better positioned to fulfill Director Wallingford’s vision of providing every customer the best experience every time.”

    Phase I improvements customers can expect include the following:

    • Easier navigation of eServices, such as online driver license renewals
    • Eliminating the need for driver test results to be physically taken from the Highway Patrol by the customer to a license office
    • Mobile identification credentials
    • A user-friendly system that will reduce Department employee training and ultimately help support staff retention, both of which have associated cost savings.

    For additional information on the Department’s system modernization, please visit https://dor.mo.gov/MV-DL/index.html.

                                                                                        ###

    MIL OSI USA News –

  • MIL-OSI USA: Memorandum on Advancing the United  States’ Leadership in Artificial Intelligence; Harnessing Artificial Intelligence to Fulfill National Security Objectives; and Fostering the Safety, Security, and Trustworthiness of Artificial  Intelligence

    US Senate News:

    Source: The White House
    MEMORANDUM FOR THE VICE PRESIDENT
                   THE SECRETARY OF STATE
                   THE SECRETARY OF THE TREASURY
                   THE SECRETARY OF DEFENSE
                   THE ATTORNEY GENERAL
                   THE SECRETARY OF COMMERCE
                   THE SECRETARY OF ENERGY
                   THE SECRETARY OF HEALTH AND HUMAN SERVICES
                   THE SECRETARY OF HOMELAND SECURITY
                   THE DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET
                   THE DIRECTOR OF NATIONAL INTELLIGENCE
                   THE REPRESENTATIVE OF THE UNITED STATES OF AMERICA TO THE UNITED NATIONS
                   THE DIRECTOR OF THE CENTRAL INTELLIGENCE AGENCY
                   THE ASSISTANT TO THE PRESIDENT AND CHIEF OF STAFF
                   THE ASSISTANT TO THE PRESIDENT FOR NATIONAL SECURITY AFFAIRS
                   THE ASSISTANT TO THE PRESIDENT FOR ECONOMIC
                      POLICY AND DIRECTOR OF THE NATIONAL ECONOMIC COUNCIL
                   THE CHAIR OF THE COUNCIL OF ECONOMIC ADVISERS
                   THE DIRECTOR OF THE OFFICE OF SCIENCE AND TECHNOLOGY POLICY
                   THE ADMINISTRATOR OF THE UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT
                   THE DIRECTOR OF THE NATIONAL SCIENCE FOUNDATION
                   THE DIRECTOR OF THE FEDERAL BUREAU OF INVESTIGATION
                   THE NATIONAL CYBER DIRECTOR
                   THE DIRECTOR OF THE OFFICE OF PANDEMIC PREPAREDNESS AND RESPONSE POLICY
                   THE DIRECTOR OF THE NATIONAL SECURITY AGENCY
                   THE DIRECTOR OF THE NATIONAL GEOSPATIAL-INTELLIGENCE AGENCY
                   THE DIRECTOR OF THE DEFENSE INTELLIGENCE AGENCY
    SUBJECT:       Advancing the United States’ Leadership in
                   Artificial Intelligence; Harnessing Artificial
                   Intelligence to Fulfill National Security
                   Objectives; and Fostering the Safety, Security,
                   and Trustworthiness of Artificial Intelligence
         Section 1.  Policy.  (a)  This memorandum fulfills the directive set forth in subsection 4.8 of Executive Order 14110 of October 30, 2023 (Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence).  This memorandum provides further direction on appropriately harnessing artificial intelligence (AI) models and AI-enabled technologies in the United States Government, especially in the context of national security systems (NSS), while protecting human rights, civil rights, civil liberties, privacy, and safety in AI-enabled national security activities.  A classified annex to this memorandum addresses additional sensitive national security issues, including countering adversary use of AI that poses risks to United States national security.
         (b)  United States national security institutions have historically triumphed during eras of technological transition.  To meet changing times, they developed new capabilities, from submarines and aircraft to space systems and cyber tools.  To gain a decisive edge and protect national security, they pioneered technologies such as radar, the Global Positioning System, and nuclear propulsion, and unleashed these hard-won breakthroughs on the battlefield.  With each paradigm shift, they also developed new systems for tracking and countering adversaries’ attempts to wield cutting-edge technology for their own advantage.
         (c)  AI has emerged as an era-defining technology and has demonstrated significant and growing relevance to national security.  The United States must lead the world in the responsible application of AI to appropriate national security functions.  AI, if used appropriately and for its intended purpose, can offer great benefits.  If misused, AI could threaten United States national security, bolster authoritarianism worldwide, undermine democratic institutions and processes, facilitate human rights abuses, and weaken the rules-based international order.  Harmful outcomes could occur even without malicious intent if AI systems and processes lack sufficient protections.
         (d)  Recent innovations have spurred not only an increase in AI use throughout society, but also a paradigm shift within the AI field — one that has occurred mostly outside of Government.  This era of AI development and deployment rests atop unprecedented aggregations of specialized computational power, as well as deep scientific and engineering expertise, much of which is concentrated in the private sector.  This trend is most evident with the rise of large language models, but it extends to a broader class of increasingly general-purpose and computationally intensive systems.  The United States Government must urgently consider how this current AI paradigm specifically could transform the national security mission.
         (e)  Predicting technological change with certainty is impossible, but the foundational drivers that have underpinned recent AI progress show little sign of abating.  These factors include compounding algorithmic improvements, increasingly efficient computational hardware, a growing willingness in industry to invest substantially in research and development, and the expansion of training data sets.  AI under the current paradigm may continue to become more powerful and general-purpose.  Developing and effectively using these systems requires an evolving array of resources, infrastructure, competencies, and workflows that in many cases differ from what was required to harness prior technologies, including previous paradigms of AI.
         (f)  If the United States Government does not act with responsible speed and in partnership with industry, civil society, and academia to make use of AI capabilities in service of the national security mission — and to ensure the safety, security, and trustworthiness of American AI innovation writ large — it risks losing ground to strategic competitors.  Ceding the United States’ technological edge would not only greatly harm American national security, but it would also undermine United States foreign policy objectives and erode safety, human rights, and democratic norms worldwide.
         (g)  Establishing national security leadership in AI will require making deliberate and meaningful changes to aspects of the United States Government’s strategies, capabilities, infrastructure, governance, and organization.  AI is likely to affect almost all domains with national security significance, and its use cannot be relegated to a single institutional silo.  The increasing generality of AI means that many functions that to date have been served by individual bespoke tools may, going forward, be better fulfilled by systems that, at least in part, rely on a shared, multi-purpose AI capability.  Such integration will only succeed if paired with appropriately redesigned United States Government organizational and informational infrastructure.
         (h)  In this effort, the United States Government must also protect human rights, civil rights, civil liberties, privacy, and safety, and lay the groundwork for a stable and responsible international AI governance landscape.  Throughout its history, the United States has been a global leader in shaping the design, development, and use of new technologies not only to advance national security, but also to protect and promote democratic values.  The United States Government must develop safeguards for its use of AI tools, and take an active role in steering global AI norms and institutions.  The AI frontier is moving quickly, and the United States Government must stay attuned to ongoing technical developments without losing focus on its guiding principles.
         (i)  This memorandum aims to catalyze needed change in how the United States Government approaches AI national security policy.  In line with Executive Order 14110, it directs actions to strengthen and protect the United States AI ecosystem; improve the safety, security, and trustworthiness of AI systems developed and used in the United States; enhance the United States Government’s appropriate, responsible, and effective adoption of AI in service of the national security mission; and minimize the misuse of AI worldwide.
    Sec. 2.  Objectives.  It is the policy of the United States Government that the following three objectives will guide its activities with respect to AI and national security.
         (a)  First, the United States must lead the world’s development of safe, secure, and trustworthy AI.  To that end, the United States Government must — in partnership with industry, civil society, and academia — promote and secure the foundational capabilities across the United States that power AI development.  The United States Government cannot take the unmatched vibrancy and innovativeness of the United States AI ecosystem for granted; it must proactively strengthen it, ensuring that the United States remains the most attractive destination for global talent and home to the world’s most sophisticated computational facilities.  The United States Government must also provide appropriate safety and security guidance to AI developers and users, and rigorously assess and help mitigate the risks that AI systems could pose.
         (b)  Second, the United States Government must harness powerful AI, with appropriate safeguards, to achieve national security objectives.  Emerging AI capabilities, including increasingly general-purpose models, offer profound opportunities for enhancing national security, but employing these systems effectively will require significant technical, organizational, and policy changes.  The United States must understand AI’s limitations as it harnesses the technology’s benefits, and any use of AI must respect democratic values with regard to transparency, human rights, civil rights, civil liberties, privacy, and safety.
         (c)  Third, the United States Government must continue cultivating a stable and responsible framework to advance international AI governance that fosters safe, secure, and trustworthy AI development and use; manages AI risks; realizes democratic values; respects human rights, civil rights, civil liberties, and privacy; and promotes worldwide benefits from AI.  It must do so in collaboration with a wide range of allies and partners.  Success for the United States in the age of AI will be measured not only by the preeminence of United States technology and innovation, but also by the United States’ leadership in developing effective global norms and engaging in institutions rooted in international law, human rights, civil rights, and democratic values.
    Sec. 3.  Promoting and Securing the United States’ Foundational AI Capabilities.  (a)  To preserve and expand United States advantages in AI, it is the policy of the United States Government to promote progress, innovation, and competition in domestic AI development; protect the United States AI ecosystem against foreign intelligence threats; and manage risks to AI safety, security, and trustworthiness.  Leadership in responsible AI development benefits United States national security by enabling applications directly relevant to the national security mission, unlocking economic growth, and avoiding strategic surprise.  United States technological leadership also confers global benefits by enabling like-minded entities to collectively mitigate the risks of AI misuse and accidents, prevent the unchecked spread of digital authoritarianism, and prioritize vital research.
         3.1.  Promoting Progress, Innovation, and Competition in United States AI Development.  (a)  The United States’ competitive edge in AI development will be at risk absent concerted United States Government efforts to promote and secure domestic AI progress, innovation, and competition.  Although the United States has benefited from a head start in AI, competitors are working hard to catch up, have identified AI as a top strategic priority, and may soon devote resources to research and development that United States AI developers cannot match without appropriately supportive Government policies and action.  It is therefore the policy of the United States Government to enhance innovation and competition by bolstering key drivers of AI progress, such as technical talent and computational power.
         (b)  It is the policy of the United States Government that advancing the lawful ability of noncitizens highly skilled in AI and related fields to enter and work in the United States constitutes a national security priority.  Today, the unparalleled United States AI industry rests in substantial part on the insights of brilliant scientists, engineers, and entrepreneurs who moved to the United States in pursuit of academic, social, and economic opportunity.  Preserving and expanding United States talent advantages requires developing talent at home and continuing to attract and retain top international minds.
         (c)  Consistent with these goals:
    (i)    On an ongoing basis, the Department of State, the Department of Defense (DOD), and the Department of Homeland Security (DHS) shall each use all available legal authorities to assist in attracting and rapidly bringing to the United States individuals with relevant technical expertise who would improve United States competitiveness in AI and related fields, such as semiconductor design and production.  These activities shall include all appropriate vetting of these individuals and shall be consistent with all appropriate risk mitigation measures.  This tasking is consistent with and additive to the taskings on attracting AI talent in section 5 of Executive Order 14110.
    (ii)   Within 180 days of the date of this memorandum, the Chair of the Council of Economic Advisers shall prepare an analysis of the AI talent market in the United States and overseas, to the extent that reliable data is available.
    (iii)  Within 180 days of the date of this memorandum, the Assistant to the President for Economic Policy and Director of the National Economic Council shall coordinate an economic assessment of the relative competitive advantage of the United States private sector AI ecosystem, the key sources of the United States private sector’s competitive advantage, and possible risks to that position, and shall recommend policies to mitigate them.  The assessment could include areas including (1) the design, manufacture, and packaging of chips critical in AI-related activities; (2) the availability of capital; (3) the availability of workers highly skilled in AI-related fields; (4) computational resources and the associated electricity requirements; and (5) technological platforms or institutions with the requisite scale of capital and data resources for frontier AI model development, as well as possible other factors.
    (iv)   Within 90 days of the date of this memorandum, the Assistant to the President for National Security Affairs (APNSA) shall convene appropriate executive departments and agencies (agencies) to explore actions for prioritizing and streamlining administrative processing operations for all visa applicants working with sensitive technologies.  Doing so shall assist with streamlined processing of highly skilled applicants in AI and other critical and emerging technologies.  This effort shall explore options for ensuring the adequate resourcing of such operations and narrowing the criteria that trigger secure advisory opinion requests for such applicants, as consistent with national security objectives.
         (d)  The current paradigm of AI development depends heavily on computational resources.  To retain its lead in AI, the United States must continue developing the world’s most sophisticated AI semiconductors and constructing its most advanced AI-dedicated computational infrastructure.
         (e)  Consistent with these goals:
    (i)    DOD, the Department of Energy (DOE) (including national laboratories), and the Intelligence Community (IC) shall, when planning for and constructing or renovating computational facilities, consider the applicability of large-scale AI to their mission.  Where appropriate, agencies shall design and build facilities capable of harnessing frontier AI for relevant scientific research domains and intelligence analysis.  Those investments shall be consistent with the Federal Mission Resilience Strategy adopted in Executive Order 13961 of December 7, 2020 (Governance and Integration of Federal Mission Resilience).
    (ii)   On an ongoing basis, the National Science Foundation (NSF) shall, consistent with its authorities, use the National AI Research Resource (NAIRR) pilot project and any future NAIRR efforts to distribute computational resources, data, and other critical assets for AI development to a diverse array of actors that otherwise would lack access to such capabilities — such as universities, nonprofits, and independent researchers (including trusted international collaborators) — to ensure that AI research in the United States remains competitive and innovative.  This tasking is consistent with the NAIRR pilot assigned in section 5 of Executive Order 14110.
    (iii)  Within 180 days of the date of this memorandum, DOE shall launch a pilot project to evaluate the performance and efficiency of federated AI and data sources for frontier AI-scale training, fine-tuning, and inference.
    (iv)   The Office of the White House Chief of Staff, in coordination with DOE and other relevant agencies, shall coordinate efforts to streamline permitting, approvals, and incentives for the construction of AI-enabling infrastructure, as well as surrounding assets supporting the resilient operation of this infrastructure, such as clean energy generation, power transmission lines, and high-capacity fiber data links.  These efforts shall include coordination, collaboration, consultation, and partnership with State, local, Tribal, and territorial governments, as appropriate, and shall be consistent with the United States’ goals for managing climate risks.
    (v)    The Department of State, DOD, DOE, the IC, and the Department of Commerce (Commerce) shall, as appropriate and consistent with applicable law, use existing authorities to make public investments and encourage private investments in strategic domestic and foreign AI technologies and adjacent fields.  These agencies shall assess the need for new authorities for the purposes of facilitating public and private investment in AI and adjacent capabilities.
         3.2.  Protecting United States AI from Foreign Intelligence Threats.  (a)  In addition to pursuing industrial strategies that support their respective AI industries, foreign states almost certainly aim to obtain and repurpose the fruits of AI innovation in the United States to serve their national security goals.  Historically, such competitors have employed techniques including research collaborations, investment schemes, insider threats, and advanced cyber espionage to collect and exploit United States scientific insights.  It is the policy of the United States Government to protect United States industry, civil society, and academic AI intellectual property and related infrastructure from foreign intelligence threats to maintain a lead in foundational capabilities and, as necessary, to provide appropriate Government assistance to relevant non-government entities.
         (b)  Consistent with these goals:
    (i)   Within 90 days of the date of this memorandum, the National Security Council (NSC) staff and the Office of the Director of National Intelligence (ODNI) shall review the President’s Intelligence Priorities and the National Intelligence Priorities Framework consistent with National Security Memorandum 12 of July 12, 2022 (The President’s Intelligence Priorities), and make recommendations to ensure that such priorities improve identification and assessment of foreign intelligence threats to the United States AI ecosystem and closely related enabling sectors, such as those involved in semiconductor design and production.
    (ii)  Within 180 days of the date of this memorandum, and on an ongoing basis thereafter, ODNI, in coordination with DOD, the Department of Justice (DOJ), Commerce, DOE, DHS, and other IC elements as appropriate, shall identify critical nodes in the AI supply chain, and develop a list of the most plausible avenues through which these nodes could be disrupted or compromised by foreign actors.  On an ongoing basis, these agencies shall take all steps, as appropriate and consistent with applicable law, to reduce such risks.
         (c)  Foreign actors may also seek to obtain United States intellectual property through gray-zone methods, such as technology transfer and data localization requirements.  AI-related intellectual property often includes critical technical artifacts (CTAs) that would substantially lower the costs of recreating, attaining, or using powerful AI capabilities.  The United States Government must guard against these risks.
         (d)  Consistent with these goals:
    (i)  In furtherance of Executive Order 14083 of September 15, 2022 (Ensuring Robust Consideration of Evolving National Security Risks by the Committee on Foreign Investment in the United States), the Committee on Foreign Investment in the United States shall, as appropriate, consider whether a covered transaction involves foreign actor access to proprietary information on AI training techniques, algorithmic improvements, hardware advances, CTAs, or other proprietary insights that shed light on how to create and effectively use powerful AI systems.
         3.3.  Managing Risks to AI Safety, Security, and Trustworthiness.  (a)  Current and near-future AI systems could pose significant safety, security, and trustworthiness risks, including those stemming from deliberate misuse and accidents.  Across many technological domains, the United States has historically led the world not only in advancing capabilities, but also in developing the tests, standards, and norms that underpin reliable and beneficial global adoption.  The United States approach to AI should be no different, and proactively constructing testing infrastructure to assess and mitigate AI risks will be essential to realizing AI’s positive potential and to preserving United States AI leadership.
         (b)  It is the policy of the United States Government to pursue new technical and policy tools that address the potential challenges posed by AI.  These tools include processes for reliably testing AI models’ applicability to harmful tasks and deeper partnerships with institutions in industry, academia, and civil society capable of advancing research related to AI safety, security, and trustworthiness.
         (c)  Commerce, acting through the AI Safety Institute (AISI) within the National Institute of Standards and Technology (NIST), shall serve as the primary United States Government point of contact with private sector AI developers to facilitate voluntary pre- and post-public deployment testing for safety, security, and trustworthiness of frontier AI models.  In coordination with relevant agencies as appropriate, Commerce shall establish an enduring capability to lead voluntary unclassified pre-deployment safety testing of frontier AI models on behalf of the United States Government, including assessments of risks relating to cybersecurity, biosecurity, chemical weapons, system autonomy, and other risks as appropriate (not including nuclear risk, the assessment of which shall be led by DOE).  Voluntary unclassified safety testing shall also, as appropriate, address risks to human rights, civil rights, and civil liberties, such as those related to privacy, discrimination and bias, freedom of expression, and the safety of individuals and groups.  Other agencies, as identified in subsection 3.3(f) of this section, shall establish enduring capabilities to perform complementary voluntary classified testing in appropriate areas of expertise.  The directives set forth in this subsection are consistent with broader taskings on AI safety in section 4 of Executive Order 14110, and provide additional clarity on agencies’ respective roles and responsibilities.
         (d)  Nothing in this subsection shall inhibit agencies from performing their own evaluations of AI systems, including tests performed before those systems are released to the public, for the purposes of evaluating suitability for that agency’s acquisition and procurement.  AISI’s responsibilities do not extend to the evaluation of AI systems for the potential use by the United States Government for national security purposes; those responsibilities lie with agencies considering such use, as outlined in subsection 4.2(e) of this memorandum and the associated framework described in that subsection.
         (e)  Consistent with these goals, Commerce, acting through AISI within NIST, shall take the following actions to aid in the evaluation of current and near-future AI systems:
    (i)    Within 180 days of the date of this memorandum and subject to private sector cooperation, AISI shall pursue voluntary preliminary testing of at least two frontier AI models prior to their public deployment or release to evaluate capabilities that might pose a threat to national security.  This testing shall assess models’ capabilities to aid offensive cyber operations, accelerate development of biological and/or chemical weapons, autonomously carry out malicious behavior, automate development and deployment of other models with such capabilities, and give rise to other risks identified by AISI.  AISI shall share feedback with the APNSA, interagency counterparts as appropriate, and the respective model developers regarding the results of risks identified during such testing and any appropriate mitigations prior to deployment.
    (ii)   Within 180 days of the date of this memorandum, AISI shall issue guidance for AI developers on how to test, evaluate, and manage risks to safety, security, and trustworthiness arising from dual-use foundation models, building on guidelines issued pursuant to subsection 4.1(a) of Executive Order 14110.  AISI shall issue guidance on topics including:
    (A)  How to measure capabilities that are relevant to the risk that AI models could enable the development of biological and chemical weapons or the automation of offensive cyber operations;
    (B)  How to address societal risks, such as the misuse of models to harass or impersonate individuals;
    (C)  How to develop mitigation measures to prevent malicious or improper use of models;
    (D)  How to test the efficacy of safety and security mitigations; and
    (E)  How to apply risk management practices throughout the development and deployment lifecycle (pre-development, development, and deployment/release).
    (iii)  Within 180 days of the date of this memorandum, AISI, in consultation with other agencies as appropriate, shall develop or recommend benchmarks or other methods for assessing AI systems’ capabilities and limitations in science, mathematics, code generation, and general reasoning, as well as other categories of activity that AISI deems relevant to assessing general-purpose capabilities likely to have a bearing on national security and public safety.
    (iv)   In the event that AISI or another agency determines that a dual-use foundation model’s capabilities could be used to harm public safety significantly, AISI shall serve as the primary point of contact through which the United States Government communicates such findings and any associated recommendations regarding risk mitigation to the developer of the model.
    (v)    Within 270 days of the date of this memorandum, and at least annually thereafter, AISI shall submit to the President, through the APNSA, and provide to other interagency counterparts as appropriate, at minimum one report that shall include the following:
    (A)  A summary of findings from AI safety assessments of frontier AI models that have been conducted by or shared with AISI;
    (B)  A summary of whether AISI deemed risk mitigation necessary to resolve any issues identified in the assessments, along with conclusions regarding any mitigations’ efficacy; and
    (C)  A summary of the adequacy of the science-based tools and methods used to inform such assessments.
         (f)  Consistent with these goals, other agencies specified below shall take the following actions, in coordination with Commerce, acting through AISI within NIST, to provide classified sector-specific evaluations of current and near-future AI systems for cyber, nuclear, and radiological risks:
    (i)    All agencies that conduct or fund safety testing and evaluations of AI systems shall share the results of such evaluations with AISI within 30 days of their completion, consistent with applicable protections for classified and controlled information.
    (ii)   Within 120 days of the date of this memorandum, the National Security Agency (NSA), acting through its AI Security Center (AISC) and in coordination with AISI, shall develop the capability to perform rapid systematic classified testing of AI models’ capacity to detect, generate, and/or exacerbate offensive cyber threats.  Such tests shall assess the degree to which AI systems, if misused, could accelerate offensive cyber operations.
    (iii)  Within 120 days of the date of this memorandum, DOE, acting primarily through the National Nuclear Security Administration (NNSA) and in close coordination with AISI and NSA, shall seek to develop the capability to perform rapid systematic testing of AI models’ capacity to generate or exacerbate nuclear and radiological risks.  This initiative shall involve the development and maintenance of infrastructure capable of running classified and unclassified tests, including using restricted data and relevant classified threat information.  This initiative shall also feature the creation and regular updating of automated evaluations, the development of an interface for enabling human-led red-teaming, and the establishment of technical and legal tooling necessary for facilitating the rapid and secure transfer of United States Government, open-weight, and proprietary models to these facilities.  As part of this initiative:
    (A)  Within 180 days of the date of this memorandum, DOE shall use the capability described in subsection 3.3(f)(iii) of this section to complete initial evaluations of the radiological and nuclear knowledge, capabilities, and implications of a frontier AI model no more than 30 days after the model has been made available to NNSA at an appropriate classification level.  These evaluations shall involve tests of AI systems both without significant modifications and, as appropriate, with fine-tuning or other modifications that could enhance performance.
    (B)  Within 270 days of the date of this memorandum, and at least annually thereafter, DOE shall submit to the President, through the APNSA, at minimum one assessment that shall include the following:
    (1)  A concise summary of the findings of each AI model evaluation for radiological and nuclear risk, described in subsection 3.3(f)(iii)(A) of this section, that DOE has performed in the preceding 12 months;
    (2)  A recommendation as to whether corrective action is necessary to resolve any issues identified in the evaluations, including but not limited to actions necessary for attaining and sustaining compliance conditions appropriate to safeguard and prevent unauthorized disclosure of restricted data or other classified information, pursuant to the Atomic Energy Act of 1954; and
    (3)  A concise statement regarding the adequacy of the science-based tools and methods used to inform the evaluations.
    (iv)   On an ongoing basis, DHS, acting through the Cybersecurity and Infrastructure Security Agency (CISA), shall continue to fulfill its responsibilities with respect to the application of AISI guidance, as identified in National Security Memorandum 22 of April 30, 2024 (Critical Infrastructure Security and Resilience), and section 4 of Executive Order 14110.
         (g)  Consistent with these goals, and to reduce the chemical and biological risks that could emerge from AI:
    (i)    The United States Government shall advance classified evaluations of advanced AI models’ capacity to generate or exacerbate deliberate chemical and biological threats.  As part of this initiative:
    (A)  Within 210 days of the date of this memorandum, DOE, DHS, and AISI, in consultation with DOD and other relevant agencies, shall coordinate to develop a roadmap for future classified evaluations of advanced AI models’ capacity to generate or exacerbate deliberate chemical and biological threats, to be shared with the APNSA.  This roadmap shall consider the scope, scale, and priority of classified evaluations; proper safeguards to ensure that evaluations and simulations are not misconstrued as offensive capability development; proper safeguards for testing sensitive and/or classified information; and sustainable implementation of evaluation methodologies.
    (B)  On an ongoing basis, DHS shall provide expertise, threat and risk information, and other technical support to assess the feasibility of proposed biological and chemical classified evaluations; interpret and contextualize evaluation results; and advise relevant agencies on potential risk mitigations.
    (C)  Within 270 days of the date of this memorandum, DOE shall establish a pilot project to provide expertise, infrastructure, and facilities capable of conducting classified tests in this area.
    (ii)   Within 240 days of the date of this memorandum, DOD, the Department of Health and Human Services (HHS), DOE (including national laboratories), DHS, NSF, and other agencies pursuing the development of AI systems substantially trained on biological and chemical data shall, as appropriate, support efforts to utilize high-performance computing resources and AI systems to enhance biosafety and biosecurity.  These efforts shall include:
    (A)  The development of tools for screening in silico chemical and biological research and technology;
    (B)  The creation of algorithms for nucleic acid synthesis screening;
    (C)  The construction of high-assurance software foundations for novel biotechnologies;
    (D)  The screening of complete orders or data streams from cloud labs and biofoundries; and
    (E)  The development of risk mitigation strategies such as medical countermeasures.
    (iii)  After the publication of biological and chemical safety guidance by AISI outlined in subsection 3.3(e) of this section, all agencies that directly develop relevant dual-use foundation AI models that are made available to the public and are substantially trained on biological or chemical data shall incorporate this guidance into their agency’s practices, as appropriate and feasible.
    (iv)   Within 180 days of the date of this memorandum, NSF, in coordination with DOD, Commerce (acting through AISI within NIST), HHS, DOE, the Office of Science and Technology Policy (OSTP), and other relevant agencies, shall seek to convene academic research institutions and scientific publishers to develop voluntary best practices and standards for publishing computational biological and chemical models, data sets, and approaches, including those that use AI and that could contribute to the production of knowledge, information, technologies, and products that could be misused to cause harm.  This is in furtherance of the activities described in subsections 4.4 and 4.7 of Executive Order 14110.
    (v)    Within 540 days of the date of this memorandum, and informed by the United States Government Policy for Oversight of Dual Use Research of Concern and Pathogens with Enhanced Pandemic Potential, OSTP, NSC staff, and the Office of Pandemic Preparedness and Response Policy, in consultation with relevant agencies and external stakeholders as appropriate, shall develop guidance promoting the benefits of and mitigating the risks associated with in silico biological and chemical research.
         (h)  Agencies shall take the following actions to improve foundational understanding of AI safety, security, and trustworthiness:
    (i)   DOD, Commerce, DOE, DHS, ODNI, NSF, NSA, and the National Geospatial-Intelligence Agency (NGA) shall, as appropriate and consistent with applicable law, prioritize research on AI safety and trustworthiness.  As appropriate and consistent with existing authorities, they shall pursue partnerships as appropriate with leading public sector, industry, civil society, academic, and other institutions with expertise in these domains, with the objective of accelerating technical and socio-technical progress in AI safety and trustworthiness.  This work may include research on interpretability, formal methods, privacy enhancing technologies, techniques to address risks to civil liberties and human rights, human-AI interaction, and/or the socio-technical effects of detecting and labeling synthetic and authentic content (for example, to address the malicious use of AI to generate misleading videos or images, including those of a strategically damaging or non-consensual intimate nature, of political or public figures).
    (ii)  DOD, Commerce, DOE, DHS, ODNI, NSF, NSA, and NGA shall, as appropriate and consistent with applicable law, prioritize research to improve the security, robustness, and reliability of AI systems and controls.  These entities shall, as appropriate and consistent with applicable law, partner with other agencies, industry, civil society, and academia.  Where appropriate, DOD, DHS (acting through CISA), the Federal Bureau of Investigation, and NSA (acting through AISC) shall publish unclassified guidance concerning known AI cybersecurity vulnerabilities and threats; best practices for avoiding, detecting, and mitigating such issues during model training and deployment; and the integration of AI into other software systems.  This work shall include an examination of the role of and vulnerabilities potentially caused by AI systems used in critical infrastructure.
         (i)  Agencies shall take actions to protect classified and controlled information, given the potential risks posed by AI:
    (i)  In the course of regular updates to policies and procedures, DOD, DOE, and the IC shall consider how analysis enabled by AI tools may affect decisions related to declassification of material, standards for sufficient anonymization, and similar activities, as well as the robustness of existing operational security and equity controls to protect classified or controlled information, given that AI systems have demonstrated the capacity to extract previously inaccessible insight from redacted and anonymized data.
    Sec. 4.  Responsibly Harnessing AI to Achieve National Security Objectives.  (a)  It is the policy of the United States Government to act decisively to enable the effective and responsible use of AI in furtherance of its national security mission.  Achieving global leadership in national security applications of AI will require effective partnership with organizations outside Government, as well as significant internal transformation, including strengthening effective oversight and governance functions.
         4.1.  Enabling Effective and Responsible Use of AI.  (a)  It is the policy of the United States Government to adapt its partnerships, policies, and infrastructure to use AI capabilities appropriately, effectively, and responsibly.  These modifications must balance each agency’s unique oversight, data, and application needs with the substantial benefits associated with sharing powerful AI and computational resources across the United States Government.  Modifications must also be grounded in a clear understanding of the United States Government’s comparative advantages relative to industry, civil society, and academia, and must leverage offerings from external collaborators and contractors as appropriate.  The United States Government must make the most of the rich United States AI ecosystem by incentivizing innovation in safe, secure, and trustworthy AI and promoting industry competition when selecting contractors, grant recipients, and research collaborators.  Finally, the United States Government must address important technical and policy considerations in ways that ensure the integrity and interoperability needed to pursue its objectives while protecting human rights, civil rights, civil liberties, privacy, and safety.
         (b)  The United States Government needs an updated set of Government-wide procedures for attracting, hiring, developing, and retaining AI and AI-enabling talent for national security purposes.
         (c)  Consistent with these goals:
    (i)   In the course of regular legal, policy, and compliance framework reviews, the Department of State, DOD, DOJ, DOE, DHS, and IC elements shall revise, as appropriate, their hiring and retention policies and strategies to accelerate responsible AI adoption.  Agencies shall account for technical talent needs required to adopt AI and integrate it into their missions and other roles necessary to use AI effectively, such as AI-related governance, ethics, and policy positions.  These policies and strategies shall identify financial, organizational, and security hurdles, as well as potential mitigations consistent with applicable law.  Such measures shall also include consideration of programs to attract experts with relevant technical expertise from industry, academia, and civil society — including scholarship for service programs — and similar initiatives that would expose Government employees to relevant non-government entities in ways that build technical, organizational, and cultural familiarity with the AI industry.  These policies and strategies shall use all available authorities, including expedited security clearance procedures as appropriate, in order to address the shortfall of AI-relevant talent within Government.
    (ii)  Within 120 days of the date of this memorandum, the Department of State, DOD, DOJ, DOE, DHS, and IC elements shall each, in consultation with the Office of Management and Budget (OMB), identify education and training opportunities to increase the AI competencies of their respective workforces, via initiatives which may include training and skills-based hiring.
         (d)  To accelerate the use of AI in service of its national security mission, the United States Government needs coordinated and effective acquisition and procurement systems.  This will require an enhanced capacity to assess, define, and articulate AI-related requirements for national security purposes, as well as improved accessibility for AI companies that lack significant prior experience working with the United States Government.
         (e)  Consistent with these goals:
    (i)    Within 30 days of the date of this memorandum, DOD and ODNI, in coordination with OMB and other agencies as appropriate, shall establish a working group to address issues involving procurement of AI by DOD and IC elements and for use on NSS.  As appropriate, the working group shall consult the Director of the NSA, as the National Manager for NSS, in developing recommendations for acquiring and procuring AI for use on NSS.
    (ii)   Within 210 days of the date of this memorandum, the working group described in subsection 4.1(e)(i) of this section shall provide written recommendations to the Federal Acquisition Regulatory Council (FARC) regarding changes to existing regulations and guidance, as appropriate and consistent with applicable law, to promote the following objectives for AI procured by DOD and IC elements and for use on NSS:
    (A)  Ensuring objective metrics to measure and promote the safety, security, and trustworthiness of AI systems;
    (B)  Accelerating the acquisition and procurement process for AI, consistent with the Federal Acquisition Regulation, while maintaining appropriate checks to mitigate safety risks;  
    (C)  Simplifying processes such that companies without experienced contracting teams may meaningfully compete for relevant contracts, to ensure that the United States Government has access to a wide range of AI systems and that the AI marketplace is competitive;
    (D)  Structuring competitions to encourage robust participation and achieve best value to the Government, such as by including requirements that promote interoperability and prioritizing the technical capability of vendors when evaluating offers;
    (E)  Accommodating shared use of AI to the greatest degree possible and as appropriate across relevant agencies; and
    (F)  Ensuring that agencies with specific authorities and missions may implement other policies, where appropriate and necessary.
    (iii)  The FARC shall, as appropriate and consistent with applicable law, consider proposing amendments to the Federal Acquisition Regulation to codify recommendations provided by the working group pursuant to subsection 4.1(e)(ii) of this section that may have Government-wide application.
    (iv)   DOD and ODNI shall seek to engage on an ongoing basis with diverse United States private sector stakeholders — including AI technology and defense companies and members of the United States investor community — to identify and better understand emerging capabilities that would benefit or otherwise affect the United States national security mission.
         (f)  The United States Government needs clear, modernized, and robust policies and procedures that enable the rapid development and national security use of AI, consistent with human rights, civil rights, civil liberties, privacy, safety, and other democratic values.
         (g)  Consistent with these goals:
    (i)    DOD and the IC shall, in consultation with DOJ as appropriate, review their respective legal, policy, civil liberties, privacy, and compliance frameworks, including international legal obligations, and, as appropriate and consistent with applicable law, seek to develop or revise policies and procedures to enable the effective and responsible use of AI, accounting for the following:
    (A)  Issues raised by the acquisition, use, retention, dissemination, and disposal of models trained on datasets that include personal information traceable to specific United States persons, publicly available information, commercially available information, and intellectual property, consistent with section 9 of Executive Order 14110;
    (B)  Guidance that shall be developed by DOJ, in consultation with DOD and ODNI, regarding constitutional considerations raised by the IC’s acquisition and use of AI;
    (C)  Challenges associated with classification and compartmentalization;
    (D)  Algorithmic bias, inconsistent performance, inaccurate outputs, and other known AI failure modes;
    (E)  Threats to analytic integrity when employing AI tools;
    (F)  Risks posed by a lack of safeguards that protect human rights, civil rights, civil liberties, privacy, and other democratic values, as addressed in further detail in subsection 4.2 of this section;
    (G)  Barriers to sharing AI models and related insights with allies and partners; and
    (H)  Potential inconsistencies between AI use and the implementation of international legal obligations and commitments.
    (ii)   As appropriate, the policies described in subsection 4.1(g) of this section shall be consistent with direction issued by the Committee on NSS and DOD governing the security of AI used on NSS, policies issued by the Director of National Intelligence governing adoption of AI by the IC, and direction issued by OMB governing the security of AI used on non-NSS.
    (iii)  On an ongoing basis, each agency that uses AI on NSS shall, in consultation with ODNI and DOD, take all steps appropriate and consistent with applicable law to accelerate responsible approval of AI systems for use on NSS and accreditation of NSS that use AI systems.
         (h)  The United States’ network of allies and partners confers significant advantages over competitors.  Consistent with the 2022 National Security Strategy or any successor strategies, the United States Government must invest in and proactively enable the co-development and co-deployment of AI capabilities with select allies and partners.
         (i)  Consistent with these goals:
    (i)  Within 150 days of the date of this memorandum, DOD, in coordination with the Department of State and ODNI, shall evaluate the feasibility of advancing, increasing, and promoting co-development and shared use of AI and AI-enabled assets with select allies and partners.  This evaluation shall include:
    (A)  A potential list of foreign states with which such co-development or co-deployment may be feasible;
    (B)  A list of bilateral and multilateral fora for potential outreach;
    (C)  Potential co-development and co-deployment concepts;
    (D)  Proposed classification-appropriate testing vehicles for co-developed AI capabilities; and
    (E)  Considerations for existing programs, agreements, or arrangements to use as foundations for future co-development and co-deployment of AI capabilities.
         (j)  The United States Government needs improved internal coordination with respect to its use of and approach to AI on NSS in order to ensure interoperability and resource sharing consistent with applicable law, and to reap the generality and economies of scale offered by frontier AI models.
         (k)  Consistent with these goals:
    (i)  On an ongoing basis, DOD and ODNI shall issue or revise relevant guidance to improve consolidation and interoperability across AI functions on NSS.  This guidance shall seek to ensure that the United States Government can coordinate and share AI-related resources effectively, as appropriate and consistent with applicable law.  Such work shall include:
    (A)  Recommending agency organizational practices to improve AI research and deployment activities that span multiple national security institutions.  In order to encourage AI adoption for the purpose of national security, these measures shall aim to create consistency to the greatest extent possible across the revised practices.
    (B)  Steps that enable consolidated research, development, and procurement for general-purpose AI systems and supporting infrastructure, such that multiple agencies can share access to these tools to the extent consistent with applicable law, while still allowing for appropriate controls on sensitive data.
    (C)  Aligning AI-related national security policies and procedures across agencies, as practicable and appropriate, and consistent with applicable law.
    (D)  Developing policies and procedures, as appropriate and consistent with applicable law, to share information across DOD and the IC when an AI system developed, deployed, or used by a contractor demonstrates risks related to safety, security, and trustworthiness, including to human rights, civil rights, civil liberties, or privacy.
         4.2.  Strengthening AI Governance and Risk Management.  (a)  As the United States Government moves swiftly to adopt AI in support of its national security mission, it must continue taking active steps to uphold human rights, civil rights, civil liberties, privacy, and safety; ensure that AI is used in a manner consistent with the President’s authority as Commander in Chief to decide when to order military operations in the Nation’s defense; and ensure that military use of AI capabilities is accountable, including through such use during military operations within a responsible human chain of command and control.  Accordingly, the United States Government must develop and implement robust AI governance and risk management practices to ensure that its AI innovation aligns with democratic values, updating policy guidance where necessary.  In light of the diverse authorities and missions across covered agencies with a national security mission and the rapid rate of ongoing technological change, such AI governance and risk management frameworks shall be:
    (i)    Structured, to the extent permitted by law, such that they can adapt to future opportunities and risks posed by new technical developments;
    (ii)   As consistent across agencies as is practicable and appropriate in order to enable interoperability, while respecting unique authorities and missions;
    (iii)  Designed to enable innovation that advances United States national security objectives;
    (iv)   As transparent to the public as practicable and appropriate, while protecting classified or controlled information;
    (v)    Developed and applied in a manner and with means to integrate protections, controls, and safeguards for human rights, civil rights, civil liberties, privacy, and safety where relevant; and
    (vi)   Designed to reflect United States leadership in establishing broad international support for rules and norms that reinforce the United States’ approach to AI governance and risk management.
         (b)  Covered agencies shall develop and use AI responsibly, consistent with United States law and policies, democratic values, and international law and treaty obligations, including international humanitarian and human rights law.  All agency officials retain their existing authorities and responsibilities established in other laws and policies.
         (c)  Consistent with these goals:
    (i)  Heads of covered agencies shall, consistent with their authorities, monitor, assess, and mitigate risks directly tied to their agency’s development and use of AI.  Such risks may result from reliance on AI outputs to inform, influence, decide, or execute agency decisions or actions, when used in a defense, intelligence, or law enforcement context, and may impact human rights, civil rights, civil liberties, privacy, safety, national security, and democratic values.  These risks from the use of AI include the following:
    (A)  Risks to physical safety:  AI use may pose unintended risks to human life or property.
    (B)  Privacy harms:  AI design, development, and operation may result in harm, embarrassment, unfairness, and prejudice to individuals.
    (C)  Discrimination and bias:  AI use may lead to unlawful discrimination and harmful bias, resulting in, for instance, inappropriate surveillance and profiling, among other harms.
    (D)  Inappropriate use:  operators using AI systems may not fully understand the capabilities and limitations of these technologies, including systems used in conflicts.  Such unfamiliarity could impact operators’ ability to exercise appropriate levels of human judgment.
    (E)  Lack of transparency:  agencies may have gaps in documentation of AI development and use, and the public may lack access to information about how AI is used in national security contexts because of the necessity to protect classified or controlled information.
    (F)  Lack of accountability:  training programs and guidance for agency personnel on the proper use of AI systems may not be sufficient, including to mitigate the risk of overreliance on AI systems (such as “automation bias”), and accountability mechanisms may not adequately address possible intentional or negligent misuse of AI-enabled technologies.
    (G)  Data spillage:  AI systems may reveal aspects of their training data — either inadvertently or through deliberate manipulation by malicious actors — and data spillage may result from AI systems trained on classified or controlled information when used on networks where such information is not permitted.
    (H)  Poor performance:  AI systems that are inappropriately or insufficiently trained, used for purposes outside the scope of their training set, or improperly integrated into human workflows may exhibit poor performance, including in ways that result in inconsistent outcomes or unlawful discrimination and harmful bias, or that undermine the integrity of decision-making processes.
    (I)  Deliberate manipulation and misuse:  foreign state competitors and malicious actors may deliberately undermine the accuracy and efficacy of AI systems, or seek to extract sensitive information from such systems.
         (d)  The United States Government’s AI governance and risk management policies must keep pace with evolving technology.
         (e)  Consistent with these goals:
    (i)   An AI framework, entitled “Framework to Advance AI Governance and Risk Management in National Security” (AI Framework), shall further implement this subsection.  The AI Framework shall be approved by the NSC Deputies Committee through the process described in National Security Memorandum 2 of February 4, 2021 (Renewing the National Security Council System), or any successor process, and shall be reviewed periodically through that process.  This process shall determine whether adjustments are needed to address risks identified in subsection 4.2(c) of this section and other topics covered in the AI Framework.  The AI Framework shall serve as a national security-focused counterpart to OMB’s Memorandum M-24-10 of March 28, 2024 (Advancing Governance, Innovation, and Risk Management for Agency Use of Artificial Intelligence), and any successor OMB policies.  To the extent feasible, appropriate, and consistent with applicable law, the AI Framework shall be as consistent as possible with these OMB policies and shall be made public.
    (ii)  The AI Framework described in subsection 4.2(e)(i) of this section and any successor document shall, at a minimum, and to the extent consistent with applicable law, specify the following:
    (A)  Each covered agency shall have a Chief AI Officer who holds primary responsibility within that agency, in coordination with other responsible officials, for managing the agency’s use of AI, promoting AI innovation within the agency, and managing risks from the agency’s use of AI consistent with subsection 3(b) of OMB Memorandum M-24-10, as practicable.
    (B)  Covered agencies shall have AI Governance Boards to coordinate and govern AI issues through relevant senior leaders from the agency.
    (C)  Guidance on AI activities that pose unacceptable levels of risk and that shall be prohibited.
    (D)  Guidance on AI activities that are “high impact” and require minimum risk management practices, including for high-impact AI use that affects United States Government personnel.  Such high-impact activities shall include AI whose output serves as a principal basis for a decision or action that could exacerbate or create significant risks to national security, international norms, human rights, civil rights, civil liberties, privacy, safety, or other democratic values.  The minimum risk management practices for high-impact AI shall include a mechanism for agencies to assess AI’s expected benefits and potential risks; a mechanism for assessing data quality; sufficient test and evaluation practices; mitigation of unlawful discrimination and harmful bias; human training, assessment, and oversight requirements; ongoing monitoring; and additional safeguards for military service members, the Federal civilian workforce, and individuals who receive an offer of employment from a covered agency.
    (E)  Covered agencies shall ensure privacy, civil liberties, and safety officials are integrated into AI governance and oversight structures.  Such officials shall report findings to the heads of agencies and oversight officials, as appropriate, using existing reporting channels when feasible.
    (F)  Covered agencies shall ensure that there are sufficient training programs, guidance, and accountability processes to enable proper use of AI systems.
    (G)  Covered agencies shall maintain an annual inventory of their high-impact AI use and AI systems and provide updates on this inventory to agency heads and the APNSA.
    (H)  Covered agencies shall ensure that whistleblower protections are sufficient to account for issues that may arise in the development and use of AI and AI systems.
    (I)  Covered agencies shall develop and implement waiver processes for high-impact AI use that balance robust implementation of risk mitigation measures in this memorandum and the AI Framework with the need to utilize AI to preserve and advance critical agency missions and operations.
    (J)  Covered agencies shall implement cybersecurity guidance or direction associated with AI systems issued by the National Manager for NSS to mitigate the risks posed by malicious actors exploiting new technologies, and to enable interoperability of AI across agencies.  Within 150 days of the date of this memorandum, and periodically thereafter, the National Manager for NSS shall issue minimum cybersecurity guidance and/or direction for AI used as a component of NSS, which shall be incorporated into AI governance guidance detailed in subsection 4.2(g)(i) of this section.
         (f)  The United States Government needs guidance specifically regarding the use of AI on NSS.
         (g)  Consistent with these goals:
    (i)  Within 180 days of the date of this memorandum, the heads of the Department of State, the Department of the Treasury, DOD, DOJ, Commerce, DOE, DHS, ODNI (acting on behalf of the 18 IC elements), and any other covered agency that uses AI as part of a NSS (Department Heads) shall issue or update guidance to their components/sub-agencies on AI governance and risk management for NSS, aligning with the policies in this subsection, the AI Framework, and other applicable policies.  Department Heads shall review their respective guidance on an annual basis, and update such guidance as needed.  This guidance, and any updates thereto, shall be provided to the APNSA prior to issuance.  This guidance shall be unclassified and made available to the public to the extent feasible and appropriate, though it may have a classified annex.  Department Heads shall seek to harmonize their guidance, and the APNSA shall convene an interagency meeting at least annually for the purpose of harmonizing Department Heads’ guidance on AI governance and risk management to the extent practicable and appropriate while respecting the agencies’ diverse authorities and missions.  Harmonization shall be pursued in the following areas:
    (A)  Implementation of the risk management practices for high-impact AI;
    (B)  AI and AI system standards and activities, including as they relate to training, testing, accreditation, and security and cybersecurity; and
    (C)  Any other issues that affect interoperability for AI and AI systems.
    Sec. 5.  Fostering a Stable, Responsible, and Globally Beneficial International AI Governance Landscape.  (a)  Throughout its history, the United States has played an essential role in shaping the international order to enable the safe, secure, and trustworthy global adoption of new technologies while also protecting democratic values.  These contributions have ranged from establishing nonproliferation regimes for biological, chemical, and nuclear weapons to setting the foundations for multi-stakeholder governance of the Internet.  Like these precedents, AI will require new global norms and coordination mechanisms, which the United States Government must maintain an active role in crafting.
         (b)  It is the policy of the United States Government that United States international engagement on AI shall support and facilitate improvements to the safety, security, and trustworthiness of AI systems worldwide; promote democratic values, including respect for human rights, civil rights, civil liberties, privacy, and safety; prevent the misuse of AI in national security contexts; and promote equitable access to AI’s benefits.  The United States Government shall advance international agreements, collaborations, and other substantive and norm-setting initiatives in alignment with this policy.
         (c)  Consistent with these goals:
    (i)  Within 120 days of the date of this memorandum, the Department of State, in coordination with DOD, Commerce, DHS, the United States Mission to the United Nations (USUN), and the United States Agency for International Development (USAID), shall produce a strategy for the advancement of international AI governance norms in line with safe, secure, and trustworthy AI, and democratic values, including human rights, civil rights, civil liberties, and privacy.  This strategy shall cover bilateral and multilateral engagement and relations with allies and partners.  It shall also include guidance on engaging with competitors, and it shall outline an approach to working in international institutions such as the United Nations and the Group of 7 (G7), as well as technical organizations.  The strategy shall:
    (A)  Develop and promote internationally shared definitions, norms, expectations, and standards, consistent with United States policy and existing efforts, which will promote safe, secure, and trustworthy AI development and use around the world.  These norms shall be as consistent as possible with United States domestic AI governance (including Executive Order 14110 and OMB Memorandum M-24-10), the International Code of Conduct for Organizations Developing Advanced AI Systems released by the G7 in October 2023, the Organization for Economic Cooperation and Development Principles on AI, United Nations General Assembly Resolution A/78/L.49, and other United States-supported relevant international frameworks (such as the Political Declaration on Responsible Military Use of AI and Autonomy) and instruments.  By discouraging misuse and encouraging appropriate safeguards, these norms and standards shall aim to reduce the likelihood of AI causing harm or having adverse impacts on human rights, democracy, or the rule of law.
    (B)  Promote the responsible and ethical use of AI in national security contexts in accordance with democratic values and in compliance with applicable international law.  The strategy shall advance the norms and practices established by this memorandum and measures endorsed in the Political Declaration on Responsible Military Use of AI and Autonomy.
    Sec. 6.  Ensuring Effective Coordination, Execution, and Reporting of AI Policy.  (a)  The United States Government must work in a closely coordinated manner to make progress on effective and responsible AI adoption.  Given the speed with which AI technology evolves, the United States Government must learn quickly, adapt to emerging strategic developments, adopt new capabilities, and confront novel risks.
         (b)  Consistent with these goals:
    (i)    Within 270 days of the date of this memorandum, and annually thereafter for at least the next 5 years, the heads of the Department of State, DOD, Commerce, DOE, ODNI (acting on behalf of the IC), USUN, and USAID shall each submit a report to the President, through the APNSA, that offers a detailed accounting of their activities in response to their taskings in all sections of this memorandum, including this memorandum’s classified annex, and that provides a plan for further action.  The Central Intelligence Agency (CIA), NSA, the Defense Intelligence Agency (DIA), and NGA shall submit reports on their activities to ODNI for inclusion in full as an appendix to ODNI’s report regarding IC activities.  NGA, NSA, and DIA shall submit their reports as well to DOD for inclusion in full as an appendix to DOD’s report.
    (ii)   Within 45 days of the date of this memorandum, the Chief AI Officers of the Department of State, DOD, DOJ, DOE, DHS, OMB, ODNI, CIA, DIA, NSA, and NGA, as well as appropriate technical staff, shall form an AI National Security Coordination Group (Coordination Group).  Any Chief AI Officer of an agency that is a member of the Committee on National Security Systems may also join the Coordination Group as a full member.  The Coordination Group shall be co-chaired by the Chief AI Officers of ODNI and DOD.  The Coordination Group shall consider ways to harmonize policies relating to the development, accreditation, acquisition, use, and evaluation of AI on NSS.  This work could include development of:
    (A)  Enhanced training and awareness to ensure that agencies prioritize the most effective AI systems, responsibly develop and use AI, and effectively evaluate AI systems;
    (B)  Best practices to identify and mitigate foreign intelligence risks and human rights considerations associated with AI procurement;
    (C)  Best practices to ensure interoperability between agency deployments of AI, to include data interoperability and data sharing agreements, as appropriate and consistent with applicable law;
    (D)  A process to maintain, update, and disseminate such trainings and best practices on an ongoing basis;
    (E)  AI-related policy initiatives to address regulatory gaps implicated by executive branch-wide policy development processes; and 
    (F)  An agile process to increase the speed of acquisitions, validation, and delivery of AI capabilities, consistent with applicable law.
    (iii)  Within 90 days of the date of this memorandum, the Coordination Group described in subsection (b)(ii) of this section shall establish a National Security AI Executive Talent Committee (Talent Committee) composed of senior AI officials (or designees) from all agencies in the Coordination Group that wish to participate.  The Talent Committee shall work to standardize, prioritize, and address AI talent needs and develop an updated set of Government-wide procedures for attracting, hiring, developing, and retaining AI and AI-enabling talent for national security purposes.  The Talent Committee shall designate a representative to serve as a member of the AI and Technology Talent Task Force set forth in Executive Order 14110, helping to identify overlapping needs and address shared challenges in hiring.
    (iv)   Within 365 days of the date of this memorandum, and annually thereafter for at least the next 5 years, the Coordination Group described in subsection (b)(ii) of this section shall issue a joint report to the APNSA on consolidation and interoperability of AI efforts and systems for the purposes of national security.
         Sec. 7.  Definitions.  (a)  This memorandum uses definitions set forth in section 3 of Executive Order 14110.  In addition, for the purposes of this memorandum:
    (i)     The term “AI safety” means the mechanisms through which individuals and organizations minimize and mitigate the potential for harm to individuals and society that can result from the malicious use, misapplication, failures, accidents, and unintended behavior of AI models; the systems that integrate them; and the ways in which they are used.
    (ii)    The term “AI security” means a set of practices to protect AI systems — including training data, models, abilities, and lifecycles — from cyber and physical attacks, thefts, and damage.
    (iii)   The term “covered agencies” means agencies in the Intelligence Community, as well as all agencies as defined in 44 U.S.C. 3502(1) when they use AI as a component of a National Security System, other than the Executive Office of the President.
    (iv)    The term “Critical Technical Artifacts” (CTAs) means information, usually specific to a single model or group of related models that, if possessed by someone other than the model developer, would substantially lower the costs of recreating, attaining, or using the model’s capabilities.  Under the technical paradigm dominant in the AI industry today, the model weights of a trained AI system constitute CTAs, as do, in some cases, associated training data and code.  Future paradigms may rely on different CTAs.
    (v)     The term “frontier AI model” means a general-purpose AI system near the cutting-edge of performance, as measured by widely accepted publicly available benchmarks, or similar assessments of reasoning, science, and overall capabilities.
    (vi)    The term “Intelligence Community” (IC) has the meaning provided in 50 U.S.C. 3003.
    (vii)   The term “open-weight model” means a model that has weights that are widely available, typically through public release.
    (viii)  The term “United States Government” means all agencies as defined in 44 U.S.C. 3502(1).
         Sec. 8.  General Provisions.  (a)  Nothing in this memorandum shall be construed to impair or otherwise affect:
    (i)   the authority granted by law to an executive department or agency, or the head thereof; or
    (ii)  the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.
         (b)  This memorandum shall be implemented consistent with applicable law and subject to the availability of appropriations.
         (c)  This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
                                  JOSEPH R. BIDEN JR.

    MIL OSI USA News –

  • MIL-OSI Economics: ACP Statement on Treasury Issuing Final Rules for 45X Advanced Manufacturing Tax Credits

    Source: American Clean Power Association (ACP)

    Headline: ACP Statement on Treasury Issuing Final Rules for 45X Advanced Manufacturing Tax Credits

    IRS Final Regs Provide U.S. Businesses with Needed Certainty
    WASHINGTON DC, October 24, 2024 – The American Clean Power Association (ACP) released the following statement from ACP Chief Advocacy Officer JC Sandberg after the U.S. Department of Treasury issued a final rule for the Advanced Manufacturing Production Tax Credit (45X MPTC), which applies to clean energy components made in the United States:
    “ACP commends the Treasury Department and IRS for finalizing the advanced manufacturing tax credits that are driving historic levels of investment in domestic clean energy manufacturing.
    “The finalization of the 45X regulations provides American businesses with the certainty they need to continue building domestic supply chains that strengthen the country’s energy independence, create tens of thousands good paying American jobs, and boost the nation’s economy.”
    According to ACP’s Clean Energy Investing in America report, since August 2022 federal tax credits have helped drive:
    More than 160 new or expanded utility-scale clean energy manufacturing facilities announced in the U.S.
    More than one-quarter (44) of these facilities are already operational, creating 20,000 new American manufacturing jobs.
    More than $60 billion in new private sector capital investment directed toward domestic clean energy manufacturing.

    MIL OSI Economics –

  • MIL-OSI: Sword Group: Results for the Third Quarter of 2024

    Source: GlobeNewswire (MIL-OSI)

    Consolidated Revenue: €81.7m

    Organic growth: +15.3% (i)

    EBITDA Margin: 12.0%

    (i) on a like-for-like basis and at constant exchange rates

    KEY FIGURES
    For the 3rd quarter of 2024, consolidated revenue is €81.7m and EBITDA margin is 12.0%, or €9.8m.
    At 30 September, consolidated revenue is €238.6m, with EBITDA margin of 12.0%, or €28.7m.

    Q3 2024 ACCOUNTS

    €m

    non audited figures

    		 2024 2023 Organic

    Growth (i)
    Revenue 81.7 70.6 +15.3%
    EBITDA 9.8 8.5 –
    EBITDA Margin 12.0% 12.1% –

    (i) on a like-for-like basis and at constant exchange rates

    ACCOUNTS AS AT 30 SEPTEMBER 2024

    €m

    non audited figures

    		 2024 2023 Organic Growth (i)
    Revenue 238.6 216.7 +15.5%
    EBITDA 28.7 26.3 –
    EBITDA Margin 12.0 % 12.1% –

    (i) on a like-for-like basis and at constant exchange rates

    ANALYSIS

    The Group is on track with its forecasts, and is preparing its 2025 budgets by incorporating its new M&A strategy.

    EVENT OF THE QUARTER

    The INCOR company was integrated into the Group in the 3rd quarter of 2024.

    This entity will enable us to enter the German-speaking Swiss market, which is larger than the market in which the Group currently operates, namely Frenchspeaking Switzerland.

    OUTLOOK

    The Group confirms its annual targets for 2024 in terms of both revenue and EBITDA margin.

    Agenda

    23/01/25: Publication of Q4 2024 Revenue

    12/03/25: 2024 Annual Results Presentation meeting 10am | Paris

    About Sword Group

    Sword has 3,000+ IT/Digital specialists active in 50+ countries to accompany you in the growth of your organisation in the digital age.

    As a leader in technological and digital transformation, Sword has a solid reputation in complex IT & business project management.

    Sword optimises your processes and enhances your data.

    Contact: investorrelations@sword-group.lu 

    Attachment

    The MIL Network –

  • MIL-OSI United Kingdom: BLOG | Accounting for every pound of spending

    Source: City of Liverpool

    With just under a week to go until the Chancellor’s first budget, Council Leader Liam Robinson, explains why Liverpool City Council continues to manage our finances in a sound and prudent way.

    You’d have to have been living under a rock for the last three months not to know that the mood music coming from HM Treasury has not been positive.

    The inherited 14 years of austerity, the cost of living crisis and a £22 billion black hole in the nation’s finances means that difficult decision will need to be made.

    But we are seeing positive steps from the Government.

    A commitment to longer term financial settlements for councils; a pay rise for public sector workers; a commitment to planning reform to improve growth; funding for 300 new school-based nurseries and money for councils to build on brownfield sites is just the beginning of the change.

    Whilst we wait for the budget and for the dedicated spending review in the Spring, in Liverpool we are prudently basing our financial planning assumptions to make sure we manage our spend and make sure we account for every pound.

    In terms of spending, most of our money goes on things we are legally obliged to provide, such as adults and children’s social care to keep vulnerable people safe.  These two departments alone account for well over half of our total net budget – and demand for them has been rising due to a growing older population and more families needing support.  

    We’re also putting a huge amount of emphasis on making sure we bring in all the money we’re owed. Successes this year include:

    • Business Rates revenue up £7.2 million
    • Council Tax revenue up £9.3 million
    • Council Tax arrears collection up £1.7 million

    In addition, a review of the single person Council Tax discount to make sure only eligible households are claiming has brought in an additional £750k, while property debt enforcement has recovered £318k.  

    This programme of work will only accelerate, as we put ourselves on a firmer financial footing for the long-term. This is vital if we are to protect and improve the services each and every resident of Liverpool cherishes.

    MIL OSI United Kingdom –

  • MIL-OSI USA: Congressman Kim Highlights Youth Mental Health and Bullying Awareness Month at 80th Town Hall

    Source: United States House of Representatives – Congressman Andy Kim (NJ-03)

    WILLINGBORO, N.J. – Yesterday, Congressman Andy Kim (NJ-03) hosted a telephone town hall to hear directly from neighbors and share updates from his recent work in Congress, including raising awareness during National Bully Awareness Month and addressing the nationwide mental health crisis.

    To begin his 80th town hall, Congressman Kim highlighted his continued efforts to address youth mental health needs and close gaps to accessing care and resources. In recognition of National Bullying Awareness Month, he was joined by Jessica Smedley, LPC and Director of Counseling for West Windsor/Plainsboro Regional School District, who spoke about the role of school counselors to provide proactive mental health and academic support, collective efforts to prevent violence and bullying in schools, and resources available to students and families. 

    Congressman Kim spoke about his continued work in Congress to address the shortage of mental healthcare resources and workers, including voting to pass the largest gun violence prevention legislative package in 30 years that secured investment in programs to expand mental health and support services in schools as well as securing $1,000,000 to construct a new behavioral health clinic to serve children in Burlington County. He also addressed his “kids agenda” in Congress to combat child poverty with the Child Tax Credit, expand students’ access to nutritious meals, and deliver support to vulnerable communities, including direct support for LGBTQ+ youth.

    He also provided updates from his tour yesterday along the Northeast Corridor with NJ Transit and Amtrak leadership where he saw the successful progress of the Gateway Tunnel Project and urged the importance of continued upgrades and investigations to deliver the safe and reliable public transit New Jersey deserves.

    The Congressman answered questions from neighbors about issues on their mind, including his efforts to combat corruption, including through legislation to end the dominance of big money in politics, deliver mental health support to children with minority identities, and incentivize building to expand access to affordable housingoptions in New Jersey as well as provide emergency housing resources, like a new homeless shelter in Burlington County that he was able to secure funding for in 2022.

    To sign up for more updates from Congressman Kim, including the location and time of his next town hall, click here.

    Congressman Kim is the Ranking Member on the Military Personnel Subcommittee, and a member of the House Armed Services Committee, the Foreign Affairs Committee, and the House Select Committee on Strategic Competition between the United States and the Chinese Communist Party. More information about Congressman Kim’s accessibility, his work serving New Jersey’s 3rd Congressional District, and information on newsletters and his monthly town halls can be found on his website by clicking here.

    ###

    MIL OSI USA News –

  • MIL-OSI: Cegedim: Revenue growth continued in the third quarter of 2024

    Source: GlobeNewswire (MIL-OSI)

         
     

    PRESS RELEASE

    Quarterly financial information as of September 30, 2024
    IFRS – Regulated information – Not audited

    Cegedim: Revenue growth continued in the third quarter of 2024

    • Revenue of €156.8 million in Q3 2024, up 5.7%
    • Marketing, BPO, HR, and cloud businesses led the way
    • Revenue for the first nine months of 2024 grew 5.9% to €475.8 million

    Boulogne-Billancourt, France, October 24, 2024, after the market close.
    Revenue

      Third quarter Change Q3 2024 / 2023
    in millions of euros 2024 2023
    reclassified(1)    		 Reclassification(1) 2023
    Reported    		 Reported
    vs. reclassified(1)    		 Like for like(2)(3)
    vs. reclassified(1)
    Software & Services 75.6 76.0 -4.8 80.8 -0.5% -4.2%
    Flow 23.7 22.4 -0.4 22.8 5.5% 5.4%
    Data & Marketing 28.2 24.1 0.0 24.1 17.0% 17.1%
    BPO 21.6 19.0 0.0 19.0 13.9% 13.9%
    Cloud & Support 7.7 6.8 +5.2 1.6 12.5% 12.5%
    Cegedim 156.8 148.3 0.0 148.3 5.7% 3.8%
      First 9 months Change 9M 2023 / 2022
    in millions of euros 2024 2023
    reclassified(1)    		 Reclassification(1) 2023
    Reported    		 Reported
    vs. reclassified(1)    		 Like for like(2)(4)
    vs. reclassified(1)
    Software & Services 227.7 226.6 -15.7 242.3 0.5% -2.6%
    Flow 73.2 69.2 -1.8 71.0 5.7% 5.6%
    Data & Marketing 87.5 79.0 0.0 79.0 10.8% 10.8%
    BPO 61.5 51.8 0.0 51.8 18.8% 18.8%
    Cloud & Support 25.8 22.6 +17.5 5.1 13.9% 13.9%
    Cegedim 475.8 449.3 0.0 449.3 5.9% 4.3%

    Cegedim posted consolidated third quarter revenues up 5.7% as reported and 3.8% like for like(2) compared with the same period in 2023. Revenues to end-September rose 5.9% as reported and 4.3% like for like compared with 9M 2023. Marketing, BPO, HR, and cloud businesses all delivered solid growth in the third quarter. As expected, the Software & Services division felt the impact of comparisons with Ségur public health investment spending in 2023 and a slowdown in international sales owing to the decision to refocus the Group’s UK doctor software activities on Scotland.
    Analysis of business trends by division 

    Software & Services

    Software & Services Third quarter Change Q3 2024 / 2023 First 9 months Change 9M 2024 / 2023
    in millions of euros 2024 2023 reclassified(3) Reported vs. reclassified(1) Like for like(2)
    vs.
    reclassified(1)    		 2024 2023
    reclassified(1)    		 Reported vs. reclassified(1) Like for like(2)
    vs.
    reclassified(1)
    Cegedim Santé 20.1 18.6 8.0% -6.2% 58.9 58.4 0.9% -9.8%
    Insurance, HR, Pharmacies,
    and other services    		 42.7 43.9 -2.7% -2.7% 129.5 128.4 0.9% 0.8%
    International businesses 12.8 13.5 -5.0% -6.1% 39.3 39.8 -1.3% -2.8%
    Software & Services 75.6 76.0 -0.5% -4.2% 227.7 226.6 0.5% -2.6%

    Revenues at Cegedim Santé grew 8.0% as reported in the third quarter but fell 6.2% like for like. We did not fully meet our 2024 goal of offsetting last year’s Ségur impact and keeping like-for-like sales stable, but we are closing the gap with each quarter. Reported growth figures include Visiodent as of March 1, 2024. Visiodent’s gradual transition to Cegedim Group products for scheduling, databases, and so on is generating internal sales, which do not appear in the consolidated scope.

    Other French subsidiaries had a challenging quarter, with revenues down 2.7%. We saw positive growth at our insurance businesses, thanks to robust project-based sales, and in HR, which is still getting a boost from its client diversification strategy. Conversely, the €2 million in Ségur public health investment subsidies we recorded in Q3 2023 made for a demanding comparison in the pharmacy business, where equipment sales also flagged after accelerating last year.

    Internationally, revenues from software sales to UK doctors declined, as expected, following the decision to refocus the activity on Scotland.

    Flow

    Flow Third quarter Change Q3 2024 / 2023 First 9 months Change 9M 2024 / 2023
    in millions of euros 2024 2023
    reclassified(1)    		 Reported vs. reclassified(1) Like for like(2)
    vs. reclassified(1)    		 2024 2023 reclassified(1) Reported vs. reclassified(1) Like for like(2)
    vs. reclassified(1)
    e-business 13.5 13.5 -0.2% -0.4% 43.5 41.3 5.1% 4.8%
    Third-party payer 10.2 8.9 14.3% 14.3% 29.7 27.9 6.7% 6.7%
    Flow 23.7 22.4 5.5% 5.4% 73.2 69.2 5.7% 5.6%

    Third-quarter growth in e-business, e-invoicing, and digitized data exchanges was nearly flat, at -0.2%. Healthcare flows offset a relative slowdown in the Invoicing & Procurement segment, which last year enjoyed sustained growth in France ahead of the e-invoicing reform scheduled to take effect July 1, 2024, but which has since been postponed to September 2026.

    The digital data flow business dealing with reimbursement of healthcare payments in France (Third-party payer) experienced 14.3% yoy growth in Q3. It was boosted by strong growth in demand for its fraud and long-term illness detection offerings.

    Data & Marketing

    Data & Marketing Third quarter Change Q3 2024 / 2023 First 9 months Change 9M 2024 / 2023
    in millions of euros 2024 2023 reclassified(1) Reported vs. reclassified(1) Like for like(2)
    vs. reclassified(1)    		 2024 2023 reclassified(1) Reported vs. reclassified(1) Like for like(2)
    vs. reclassified(1)
    Data 15.1 14.6 3.4% 3.4% 43.1 43.4 -0.7% -0.7%
    Marketing 13.1 9.5 38.0% 38.0% 44.4 35.6 24.8% 24.8%
    Data & Marketing 28.2 24.1 17.0% 17.1% 87.5 79.0 10.8% 10.8%

    Data business posted 3.4% yoy growth in the third quarter, resulting in nearly stable growth over nine months. Growth was led by French sales, which were more dynamic than international sales.

    The Marketing segment had a record third quarter, up 38% owing to special ad campaigns during the Olympics. The rising popularity of our phygital media offerings in pharmacies helped the segment post 24.8% growth over the first nine months.

    BPO

    BPO Third quarter Change Q3 2024 / 2023 First 9 months Change 9M 2024 / 2023
    in millions of euros 2024 2023 reclassified(1) Reported vs. reclassified(1) Like for like(2)
    vs. reclassified(1)    		 2024 2023 reclassified(1) Reported vs. reclassified(1) Like for like(2)
    vs. reclassified
    Insurance BPO 15.9 13.8 15.7% 15.7% 44.6 35.9 24.2% 24.2%
    Business Services BPO 5.7 5.2 +9.2% +9.2% 16.9 15.9 6.5% 6.5%
    BPO 21.6 19.0 13.9% 13.9% 61.5 51.8 18.8% 18.8%

    The Insurance BPO business grew by more than 15.7% over the third quarter, chiefly owing to its overflow business, which has been flourishing since the start of the year. Growth over nine months amounted to 24.2%, partly thanks to a favorable comparison stemming from the April 1, 2023, launch of the Allianz contract.

    Business Services BPO (HR and digitalization) continues to report strong growth, up 9.2% yoy over the quarter on the back of a popular compliance offering and new clients.

    Cloud & Support

    Cloud & Support Third quarter Change Q3 2024 / 2023 First 9 months Change 9M 2024 / 2023
    in millions of euros 2024 2023
    reclassified(4)    		 Reported vs. reclassified(1) Like for like(2)
    vs.
    reclassified(1)    		 2024 2023
    reclassified(1)    		 Reported vs. reclassified(1) Like for like(2)
    vs.
    reclassified(1)
    Cloud & Support 7.7 6.8 12.5% 12.5% 25.8 22.6 13.9% 13.9%

    The Cloud & Support division’s trajectory continued over the third quarter, with growth of 12.5% reflecting our expanded range of sovereign cloud-backed products and services.

    Highlights

    Apart from the items cited below, to the best of the company’s knowledge, there were no events or changes during Q3 2024 that would materially alter the Group’s financial situation.

    • New financing arrangement

    On July 31, 2024, Cegedim announced that it had secured a new financing arrangement consisting of a €230 million syndicated loan. The arrangement is split into €180 million of lines drawn upon closing to refinance the Group’s existing debt (RCF and Euro PP, which were to mature in October 2024 and October 2025 respectively) and an additional, undrawn revolving credit facility (RCF) of €50 million. This new financing arrangement will bolster the Group’s liquidity and extend the maturity of its debt to, respectively, 5 years (€30 million, payments every six months); 6 years (€60 million, repayable upon maturity); and 7 years (€90 million, repayable upon maturity).

    Significant transactions and events post September 30, 2024

    To the best of the company’s knowledge, there were no post-closing events or changes after September 30, 2024, that would materially alter the Group’s financial situation.

    Outlook

    Based on the currently available information, the Group expects 2024 like-for-like revenue(1) growth to be towards the lower end of the 5-8% range relative to 2023. That said, we still expect recurring operating income to continue to improve.
    These targets are not forecasts and may need to be revised if there is a significant worsening of geopolitical, macroeconomic, or currency risks.

    —————

    Webcast on October 24, 2024, at 6:15 pm (Paris time)
    The webcast is available at: www.cegedim.fr/webcast
     

    The Q3 2024 revenue presentation is available here:
    https://www.cegedim.fr/documentation/Pages/presentation.aspx

    Financial calendar:

    2025 January 29 after the close

    March 27 after the close

    March 28 at 10:00 am

    April 24 after the close

    June 13 at 9:30

    July 24 after the close

    September 25 after the close

    September 26 at 10:00 am

    October 23 after the close

    		 2024 revenue

    2024 results

    SFAF meeting

    Q1 2025 revenue

    Shareholders’ general meeting

    H1 2025 revenue

    H1 2025 results

    SFAF meeting

    Q3 2025 revenue

    Financial calendar: https://www.cegedim.fr/finance/agenda/Pages/default.aspx

    Disclaimer
    This press release is available in French and in English. In the event of any difference between the two versions, the original French version takes precedence. This press release may contain inside information. It was sent to Cegedim’s authorized distributor on October 24, 2024, no earlier than 5:45 pm Paris time.
    The figures cited in this press release include guidance on Cegedim’s future financial performance targets. This forward-looking information is based on the opinions and assumptions of the Group’s senior management at the time this press release is issued and naturally entails risks and uncertainty. For more information on the risks facing Cegedim, please refer to Chapter 7, “Risk management”, section 7.2, “Risk factors and insurance”, and Chapter 3, “Overview of the financial year”, section 3.6, “Outlook”, of the 2023 Universal Registration Document filled with the AMF on April 3, 2024, under number D.24-0233.

    About Cegedim:
    Founded in 1969, Cegedim is an innovative technology and services group in the field of digital data flow management for healthcare ecosystems and B2B, and a business software publisher for healthcare and insurance professionals. Cegedim employs more than 6,500 people in more than 10 countries and generated revenue of €616 million in 2023.
    Cegedim SA is listed in Paris (EURONEXT: CGM).
    To learn more please visit: www.cegedim.fr
    And follow Cegedim on X: @CegedimGroup, LinkedIn, and Facebook.

    Aude Balleydier
    Cegedim
    Media Relations
    and Communications Manager

    Tel.: +33 (0)1 49 09 68 81
    aude.balleydier@cegedim.fr

    		 Damien Buffet
    Cegedim
    Head of Financial
    Communication

    Tel.: +33 (0)7 64 63 55 73
    damien.buffet@cegedim.com

    		 Céline Pardo
    Becoming RP Agency
    Media Relations Consultant

    Tel.:        +33 (0)6 52 08 13 66
    cegedim@becoming-group.com

    		  

    Annexes

    Breakdown of revenue by quarter and division

    Year 2024

    In € million   Q1 Q2 Q3 Q4 Total
    Software & Services   74.3 77.8 75.6   227.7
    Flow   25.3 24.2 23.7   73.2
    Data & Marketing   27.0 32.3 28.2   87.5
    BPO   20.2 19.7 21.6   61.5
    Cloud & Support   9.0 9.1 7.7   25.8
    Group revenue   155.9 163.1 156.8   475.8

    Year 2023

    In € million   Q1
    reclassified    		 Q2
    reclassified    		 Q3

    reclassified

    		 Q4
    reclassified    		 Total
    reclassified
    Software & Services   74.4 76.2 76.0   226.6
    Flow   24.0 22.8 22.4   69.2
    Data & Marketing   24.6 30.3 24.1   79.0
    BPO   14.4 18.4 19.0   51.8
    Cloud & Support   8.4 7.4 6.8   22.6
    Group revenue   145.9 155.1 148.3   449.4

    Breakdown of revenue by geographic zone, currency and division at September 30, 2024

    as a % of consolidated revenues   Geographic zone   Currency
      France EMEA
    ex. France    		 Americas   Euro GBP Other
    Software & Services   82.8% 17.1% 0.1%   86.2% 12.0% 1.7%
    Flow   91.9% 8.1% 0.0%   94.5% 5.5% 0.0%
    Data & Marketing   97.9% 2.1% 0.0%   98.0% 0.0% 2.0%
    BPO   100.0% 0.0% 0.0%   100.0% 0.0% 0.0%
    Cloud & Support   99.9% 0.1% 0.0%   100.0% 0.0% 0.0%
    Cegedim   90.1% 9.8% 0.1%   92.2% 6.6% 1.2%

    1As of January 1, 2024, our Cegedim Outsourcing and Audiprint subsidiaries—which were previously housed in the Software & Services division—as well as BSV—formerly of the Flow division—have been moved to the Cloud & Support division in order to capitalize on operating synergies between cloud activities and IT solutions integration.

    2At constant scope and exchange rates. The positive currency impact of 0.2% was mainly due to the pound sterling. The positive scope effect of 1.8% was attributable to the first-time consolidation in Cegedim’s accounts of Visiodent starting March 1, 2024.The positive currency impact of 0.1% was mainly due to the pound sterling. The positive scope effect of 1.4% was attributable to the first-time consolidation in Cegedim’s accounts of Visiodent starting March 1, 2024.

    3To take advantage of synergies, Cegedim Outsourcing, Audiprint, and BSV have been reassigned to the Cloud & Support division.At constant scope and exchange rates.

    4To take advantage of synergies, Cegedim Outsourcing, Audiprint, and BSV have been reassigned to the Cloud & Support division.At constant scope and exchange rates.

    Attachment

    The MIL Network –

  • MIL-OSI: WENDEL: Q3 2024 Trading Update

    Source: GlobeNewswire (MIL-OSI)

    PRESS RELEASE – OCTOBER 24, 2024

    Fully diluted1Net Asset Value of €184.5

    up +13.7 %2year-to-date (+5.3% since June 30)

    With the announced acquisition of Monroe Capital, Wendel dramatically expands its Asset Management platform and rebalances its business model towards more recurring cash flows and growth

    Fully diluted Net Asset Value3as of September 30, 2024: €184.5 per share

    • Fully diluted NAV per share up +16.1%4 since the start of the year when restating for the €4 dividend paid in May 2024 reflecting:
      • Strong increase in Bureau Veritas’ share price (+34% YTD)
      • Slight decrease in value of non-listed assets
      • Positive contribution of Asset Management activities (IK Partners), reflecting the increase in market multiples

    Very active implementation of new strategic directions and active portfolio rotation

    • Principal Investment:
      • €2.3 billion proceeds and value crystallization through the sale of 9% of Bureau Veritas’ share capital and the disposal of Constantia Flexibles
      • €0.7 billion invested including €625 million in Globeducate, closed on October 16
    • Asset Management:
      • €0.4 billion invested for the acquisition of 51% of IK Partners
      • $1.13 billion will be invested in equity to acquire 75% of Monroe Capital, as announced on October 22, 2024 (closing expected in the first half of 2025)

    Wendel Asset Management business is now a significant performance driver

    • Considering the announced acquisition of Monroe Capital, Wendel’s Asset Management platform will represent c.€31bn of AuM in private assets5
    • In 2025, Wendel AM business is expected to generate c.€160m6 of Fee Related Earnings (“FRE”) and c.€185m of total pre-tax profit in 2025
    • IK Partners Fee Paying AuM up +19% over the first 9 months of 2024

    Consolidated 9M 2024 sales of €5,918.1 million, up +14.6% overall and +8.9% organically

    • Very strong organic growth at Bureau Veritas (+10.4% over 9 months)
    • Solid growth at CPI (+7.9%)    
    • ACAMS (+8%) in total over 9 months, due to the earlier timing of a flagship conference than in 2023
    • Encouraging first 9 months for Stahl (+1.6% total growth), with Q3 (-4.7%) impacted by a mixed environment in its industry
    • Scalian: slight decrease of -0.2% over 9 months

    Strong financial structure and committed to remain Investment Grade

    • Debt maturity of 3.9 years with an average cost of 2.4%
    • LTV ratio at -6.8% as of September 30, 2024, and 18.9%7 on a pro forma basis
    • Pro forma total liquidity of €1.48 billion as of September 30, 2024, including €0.5 billion in cash and €875 million in committed credit facility (fully undrawn)
    Laurent Mignon, Wendel Group CEO, commented:

    “The first nine months of 2024 have been generating good value creation for shareholders, with fully diluted Net Asset Value growing by 13.7%, driven notably by Bureau Veritas’ strong stock price and operating performances.

    We continue to enhance our cash flow generation and value creation profile, by executing our strategic plan with determination, rigor and financial discipline, as demonstrated by the Monroe Capital acquisition, announced two days ago, while also focusing on premium assets in our principal investment activities, highlighted by the recent acquisition of Globeducate.

    Our transformation to a dual-strategy model is now well-grounded, with top partners in asset management such as IK Partners in private equity and now Monroe Capital in private credit.

    Following the investment in Globeducate and the announced acquisition of Monroe Capital, the priorities of Wendel’s teams are to create value on existing assets, to successfully build the private asset management platform around IK Partners and Monroe Capital, and to maintain a solid financial structure.”

    Wendel’s net asset value as of September 30, 2024: €184.5 per share on a fully diluted basis

    Wendel’s Net Asset Value (NAV) as of September 30, 2024, was prepared by Wendel to the best of its knowledge and on the basis of market data available at this date and in compliance with its methodology.

    Fully diluted Net Asset Value was €184.5 per share as of September 30, 2024 (see detail in the table below), as compared to €162.3 on December 31, 2023, representing an increase of +13.7% since the start of the year and +16.1% restated for the dividend paid in 2024. Compared to the last 20-day average share price as of September 30, the discount to the September 30, 2024, fully diluted NAV per share was -50.6%.

    Bureau Veritas contributed very positively to the increase in Net Asset Value: on September 30, its 20-day average share price was up strongly (+34.3%) compared to December 31, 2023. Impacts from share price movements from IHS Towers (-30.0%) and Tarkett (-2.8%) were negligible given the weight of Bureau Veritas in the NAV. Total value creation per share of listed assets was therefore +€26.1 over the first nine months of 2024 on a fully diluted basis.

    Unlisted assets’ contribution to the growth of the NAV was slightly negative over the first nine months of the year with a total change per share of -€1.2, reflecting a positive evolution of the market multiples and from bolt-on acquisitions, more than entirely offset by negative FX effect and selective downward revisions of outlooks for the current year (compared to December 31, 2023).

    Asset management activities were consolidated and accounted in the NAV for the first time at the end of June following the acquisition of IK Partners. There is no sponsor money included in the NAV yet, as no capital has been called. IK Partners’ valuation is up by €1.5 per share over the third quarter, driven by positive market multiples evolution.

    Cash operating costs and net financing results impacted NAV by -€1.2 over 9 months, as Wendel benefited from a positive carry. The impact of year-to-date share buybacks on fully diluted NAV per share is +€1.4 per share more as of September 30, 2024, than as of December 31, 2023. Other assets and liabilities impacted NAV by -€0.5.

    Total Net Asset Value increase amounted to €26.2 per share over the first nine months of the year before dividend payment.

    Fully diluted NAV per share of €184.5 as of September 30, 2024

    (in millions of euros)     09/30/2024 12/31/2023
    Listed investments Number of shares Share price (1) 3,800 3,867
    Bureau Veritas 120.3m/160.8m €29.9/€22.2 3,591 3,575
    IHS 63.0m/63.0m $3.1/$4.4 174 251
    Tarkett   €8.9/€9.1 35 40
    Investment in unlisted assets (2) 3,158 4,360
    Asset Management Activities (3) 449 –
    Other assets and liabilities of Wendel and holding companies (4) 95 6
    Net cash position & financial assets (5) 3,027 1,286
    Gross asset value     10,530 9,518
    Wendel bond debt     -2,386 -2,401
    IK Partners transaction deferred payment -131 –
    Net Asset Value     8,012 7,118
    Of which net debt     509 -1,115
    Number of shares     44,430,864 44,430,554
    Net Asset Value per share €180.3 €160.2
    Wendel’s 20 days share price average   €91.1 €79.9
    Premium (discount) on NAV -49.5% -50.1%
    Number of shares – fully diluted 42,469,744 43,302,016
    Fully diluted Net Asset Value, per share €184.5 €162.3
    Premium (discount) on fully diluted NAV -50.6% -50.8%

    (1)   Last 20 trading days average as of September 30, 2024, and December 31, 2023.

    (2)   Investments in unlisted companies (Stahl, Crisis Prevention Institute, ACAMS, Scalian, Wendel Growth as of September 30, 2024, also included Constantia Flexibles as of December 31, 2023). Aggregates retained for the calculation exclude the impact of IFRS16.

    (3)   IK Partners’ activity, no sponsor money has been called at this stage. It is therefore not included in the NAV at this stage.

    (4)   Of which 1,961,120 treasury shares as of September 30, 2024, and 1,128,538 treasury shares as of December 31, 2023.

    (5)   Cash position and financial assets of Wendel and holdings.

    Assets and liabilities denominated in currencies other than the euro have been converted at exchange rates prevailing on the date of the NAV calculation.

    If co-investment and management LTIP conditions are realized, subsequent dilutive effects on Wendel’s economic ownership are accounted for in NAV calculations. See page 246 of the 2023 Universal Registration Document.

    Wendel’s Principal Investments’ portfolio rotation

    Since the beginning of the year, Wendel has realized a total of €2.3 billion in disposals for its own account and has invested €0.7 billion, reflecting the acceleration of the diversification of its investment portfolio, in line with the strategy announced a few months ago:

    • Wendel announced on January 4, 2024, that it had completed the sale of Constantia Flexibles, generating total net proceeds9 for Wendel of €1,121 million for its shares, i.e. a valuation over 10% higher than the latest NAV on record before the announcement of the transaction (as at March 31, 2023).
    • Wendel announced on April 5, 2024, that it had successfully completed the sale of 40.5 million shares in Bureau Veritas, representing c.9% of the Company’s share capital, for total proceeds of approximately €1.1 billion. The transaction was carried out at a price of €27.127, or a discount of 3% from the previous day’s share price.
    • Wendel Growth realized its investment in Preligens, a leader in artificial intelligence (AI) for aerospace and defence, generating net proceeds to Wendel of c.€14.6M, translating into a gross IRR of 28%10. In addition, Wendel Growth announced on June 11, 2024, the acquisition of a minority stake in YesWeHack through an equity investment of €14.5 million.
    • Wendel reinvested €43.7m in Scalian upon the acquisition of MANNARINO Systems & Software on June 21, 2024. This Canadian company is a leading engineering services specialist for advanced technology R&D for the aviation sector, primarily in North America, with recognized expertise in safety-critical embedded software and systems.
    • On October 16, 2024, Wendel completed the acquisition of c.50% of Globeducate, one of the world’s leading international K-12 education groups, from Providence Equity Partners. Wendel invested €625 million of equity, at an Enterprise Value of c.€2 billion11, to join Providence, and both firms will now own c.50% of the group.

    Wendel’s Asset Management platform evolution

    Acquisition of Monroe Capital dramatically expands Wendel’s Asset Management platform and rebalances its business model towards more recurring cash flows and growth

    Wendel announced on October 22 that it had entered into a definitive partnership agreement including the acquisition of 75% of Monroe Capital LLC (“Monroe Capital” or “the Company”), and a sponsoring program of $800 million to accelerate Monroe Capital’s growth, and will invest in GP commitment for up to $200 million.

    For Wendel, the acquisition of a controlling stake in Monroe Capital, a private credit market leader focused on the U.S. lower middle market that has established an outstanding track record, would represent a significant and transformational advancement of the strategy it announced in March 2023 to develop its third-party asset management platform to complement its longstanding Principal Investment business.

    With IK Partners and Monroe Capital, Wendel’s third party asset management platform will reach c.€31 billion in AUM12, c.€ 455 million revenues, c.€160 million pre-tax FRE (c.€101 million in pre-tax FRE (Wendel share) by 2025 and is expected to reach €150 million (Wendel share) in pre-tax FRE by 2027 through double-digit organic growth.

    For more information, see the October 22, 2024, announcement on http://www.wendelgroup.com.

    Third Party Asset Management value creation and performance

    9 months 2024 performance

    Over the first nine months of 2024, IK Partners had particularly strong activity, generating a total of €126.4 million in revenue. Total Assets under Management (€13.3 billion, of which €3.3 billion of Dry Powder13) grew by 20% since the beginning of the year, and FPAuM14 (€9.0 billion) by 19%. Over the period, €1.7 billion of new funds were raised (IK X, PFIII and IK SO) and 7 exits have been announced, for over €1.2 billion.

    Sponsor money invested by Wendel

    Wendel committed €400 million in IK Partners funds, of which €300 million in IK X. These commitments have not yet been called.

    Principal Investment companies’ value creation and performance

    Listed Assets: 36% of Gross Asset Value

    Bureau Veritas – Strong Q3 2024 organic revenue growth; refocused portfolio with ongoing acquisitions acceleration, in line with the LEAP | 28 strategy; 2024 revenue outlook upgraded

    (Full consolidation)

    Revenue in the first nine months of 2024 totaled € 4,569.6 million, a 5.6% increase year-to-date.

    Revenue in the third quarter of 2024 amounted to € 1,547.9 million, an 8.8% increase compared to Q3 2023. Organic growth achieved a strong 13.0%, which led to 10.5% on a 9-month basis. The scope effect was a positive 0.5%, reflecting bolt-on acquisitions (contributing to +1.1%) realized in the past few quarters and partly offset by the impact of small divestments completed over the last twelve months (contributing to -0.6%). Currency fluctuations had a negative impact of 4.7%, due to the strength of the euro against most currencies.

    Three businesses delivered very strong organic growth: Marine & Offshore, up 13.2%, Industry, up 23.8%, and Certification, up 17.7%. Buildings & Infrastructure further recovered, up 9.3% organically in the third quarter (after 4.3% in the first half) while both Consumer Products Services and Agri Food & Commodities grew high-single digits organically, both reflecting improving market trends.

    Based on the 9-month performance, leveraging a healthy and growing sales pipeline and strong underlying market growth, Bureau Veritas now expects to deliver for the full year 2024:

    • 9 to 10% organic revenue growth (from “high single-digit” previously);
    • Improvement in adjusted operating margin at constant exchange rates;
    • Strong cash flow, with a cash conversion above 90%.

    For more information: https://group.bureauveritas.com

    Tarkett – Slight organic decrease year-to-date, with Q3 2024 solid organic sales growth of +2.4%, as Sports division grew at a sustained pace in the most important quarter of the year. Activity remained sluggish in flooring, particularly in EMEA and the CIS countries

    (Equity method)

    Revenue in the first nine months of 2024 amounted to €2,560.7 million, down by -1.2% compared to the same period of 2023, reflecting an organic decline of -0.4%. Sales prices remained stable over the financial year, i.e. -0.3% compared to the first nine months of 2023. In Q3 2024, Group net sales came to €1,002 million, up +1.8% compared to the third quarter of 2023. Organic growth reached +2.4%. Sales prices remained broadly stable over the year, with a slight decline of -0.5% compared to the third quarter of 2023.

    For more information: https://www.tarkett-group.com/en/investors/

    IHS Towers (not consolidated) – IHS Towers will report its Q3 2024 results in the coming weeks

    Unlisted Assets: 30% of Gross Asset Value

      Sales (in millions)
      9 months 2023 9 months 2024
    Stahl €677.3 €687.9
    CPI $103.6 $112.0
    ACAMS $67.9 $76.8
    Scalian €402.2 €401.3

    Stahl – Total sales up 1.6% for the first 9 months of 2024 on the back of Q3 market challenges in the leather market for automotive and luxury goods

    (full consolidation) 

    Stahl, the world leader in specialty coatings for flexible materials, posted total sales of €687.9 million in the first 9 months of 2024, representing a total increase of +1.6% over the period. Organically, sales were slightly down -0.4%, in a context of tougher markets in automotive and luxury goods, while FX contributed -1.3%. The acquisition of ICP Industrial Solutions Group (ISG) in March 2023 contributed positively (+3.3%) to total sales variation.

    Stahl Q3 sales were down -4.7% (-3.1% organically and -1.6% due to FX) linked to the weaker market performance of the automotive and luxury goods sectors, notably in August, which was a particularly quiet month this year as many Italian tanneries were inactive for a four-week period due to reduced activity.

    On September 27, Stahl completed the acquisition of WEILBURGER Coatings, a leading German-based manufacturer of water-based and energy cured coatings for the graphic arts and packaging industry. The transaction significantly strengthens Stahl’s packaging coatings division and supports its strategy to broaden its franchise for specialty coatings for flexible materials. This acquisition strengthens Stahl’s strategic position in Europe, positioning the company as the second-largest packaging coatings player in the region. WEILBURGER Coatings posted sales of €70 million in 2023 and has over 140 employees, primarily based in Germany.

    Stahl also announced it maintained its Platinum EcoVadis rating for the third consecutive year, reaffirming its commitment to sustainability. In August, Stahl was awarded the Living Wage certification strengthening its commitment to fair compensation and employee well-being.

    Crisis Prevention Institute reports +8.2% revenue as compared with 9M 2023

    (full consolidation)

    CPI recorded first nine months 2024 revenues of $112 million, up +8.2% compared to 9M 2023, or +8.1% organically (FX impact was +0.1%), resulting from the addition of new certified instructors across end markets and geographies, and strong consumption of training materials, signifying active training of broader staff throughout the Company’s primary customers in educational, healthcare and human services settings. The company’s year-to-date results include relatively flat year-over-year revenue for the third quarter, however, reflecting what management describes as a temporary, seasonal slowdown in new certified instructors and a difficult year-over-year comparison resulting from an unusually large enterprise program added in the third quarter of 2023.

    2024 continues to be a pivotal year for CPI in growing its impact and reach, including further global expansion with the opening of its first office in the United Arab Emirates, and new program launches, including Reframing Behavior, a new certification program designed to help educators build a more positive, supportive learning environment and prevent disruptive classroom behavior. In addition, regulatory and legislative actions continue to provide support for workplace violence prevention programs and related training, including expanded requirements in New York, Texas and California during 2024.

    ACAMS – ACAMS reports positive total growth amid accelerated transformation

    (full consolidation)

    ACAMS, the global leader in training and certifications for anti-money laundering and financial crime prevention professionals, reported year-to-date bookings of $78 million, roughly flat with reported bookings for the same period in 2023, and revenue of $77 million for the first nine months of 2024, representing 8% year-over-year growth. The results for the first nine months of 2024 reflect continued growth and market expansion in North America and Europe, largely offset by declines with customers in the Asia-Pacific region. As well, the year-to-date results include the impact of ACAMS’ flagship Las Vegas conference that was held in the third quarter of 2024 and fourth quarter of 2023. Excluding the impact of this timing difference would reduce year-over-year bookings and revenue growth for the nine months ending September 30, 2024, to -0.8% and +0.3%, respectively.

    The Company has made considerable progress in its transformation this year. Having largely completed its separation and transition to a stand-alone, independent company in 2023, ACAMS has made many investments instrumental to the Company’s future growth, including organizational changes led by the CEO, Neil Sternthal, who joined ACAMS in early 2024 and subsequently added several executives, including a new Chief Financial Officer and a Chief Revenue Officer, investments in the Company’s technology platform, business analytics and sales organizations, and new product development, most notably with the planned introduction of its Certified Anti-Fraud Specialist (CAFS) certification.

    Scalian – Slight decrease of total sales of -0.2% year-to-date, in a context of overall market slowdown

    (full consolidation since July 2023.)  

    Scalian, a European leader in digital transformation, project management and operational performance consulting, reported total revenues of €401.3 million over the first 9 months in a context of continued industry slowdown, in particular supply chain tensions in the aeronautic sector as well as the turndown of the European automotive sector. Sales are down by -2.5% organically and benefited from a positive scope effect of +2.3%.

    Scalian announced the acquisition of Dulin Technology in January 2024, a Spanish-based consulting firm specializing in cybersecurity for the financial sector, and MANNARINO Systems & Software in June 2024, a Canadian-based company that is a leading engineering services specialist with a unique know-how in advanced technology R&D for the aviation sector.

    Agenda

    Friday, December 6, 2024,

    2024 Investor Day.

    Wednesday, February 26, 2025

    Full-Year 2024 Results – Publication of NAV as of December 31, 2024, and Full-Year consolidated financial statements (post-market release)

    Thursday, April 24, 2025

    Q1 2025 Trading update – Publication of NAV as of March 31, 2025 (post-market release)

    Thursday, May 15, 2025

    Annual General Meeting

    Wednesday, July 30, 2025

    H1 2025 results – Publication of NAV as of June 30, 2025, and condensed Half-Year consolidated financial statements (post-market release)

    Appendix 1: Nine-month 2024 sales of Group companies

    Nine-month 2024 consolidated sales

    (in millions of euros) 9-month 2023 9-month 2024            Δ Organic Δ
    Bureau Veritas 4,328.0 4,569.6 +5.6% +10.4%
    Stahl (1) 677.3 687.9 +1.6% -0.4%
    Scalian (2) n.a. 409.3 n.a. n.a.
    Crisis Prevention Institute 95.6 103.1 +7.9% +8.1%
    ACAMS (3) 62.7 70.6 +12.6% +8.6%
    IK Partners(4) n.a. 77.6 n.a. n.a.
    Consolidated net sales (3)(4) 5,163.5 5,918.1 +14.6% +8.9%

    (1)   Acquisition of ICP Industrial Solutions Group (ISG) since March 2023 (sales’ contribution of €70.8M vs €62.7M as of 9M 2023)
    (2)   Scalian has a different reporting date to Wendel. Consequently, sale’s contribution corresponds to 9 months’ sales between October 1st 2023 and June 30 2024.
    (3)   The sales include a PPA restatement for an impact of -€0.5M (vs -€3.2M as of 9M 2023). Excluding this restatement, the sales amount to €71.3M vs. €66.1M as of 9M 2023. The total growth of +12.6% include a PPA effect of +4.5% and the conference revenue which generated $5,9M while this event occurred in Q4 2023 last year.        
    (4)   Contribution of five months of sales        
                                                                            

    Nine-month 2024 sales of equity accounted companies

    (in millions of euros) 9-month 2023 9-month 2024           Δ Organic Δ
    Tarkett(5) 2,592.6 2,560.7 -1.2% -0.4%

    (5)   Sales price adjustments in CIS countries are historically intended to compensate for currency movements and are therefore excluded from the “organic growth” indicator.

    Q3 2024 sales of Group companies

    Q3 2024 consolidated sales

    (in millions of euros) Q3 2023 Q3 2024             Δ Organic Δ
    Bureau Veritas 1,423.8 1,547.9 +8.8% +13.0%
    Stahl 234.3 223.3 -4.7% -3.1%
    Scalian (1) n.a. 131.1 n.a. n.a.
    Crisis Prevention Institute 42.0 41.2 -1.8% -1.0%
    ACAMS (2) 20.2 26.1 +29.1% +28.6%
    IK Partners n.a. 44.2 n.a. n.a.
    Consolidated net sales 1,720.2 2,013.8 +17.1% +10.6%

    (1)   Scalian has a different reporting date to Wendel. Consequently, sale’s contribution corresponds to 3 months’ sales between April 1st 2024 and June 30 2024.
    (2)   ACAMS Q3 2024 sales includes the conference which generated $5,9M, while this event occurred in Q4 2023 last year.                        

    Q3 2024 sales of equity accounted companies

    (in millions of euros) Q3 2023 Q3 2024           Δ Organic Δ
    Tarkett(3) 984.3 1,002.0 +1.8% +2.4%

    (3)   Sales price adjustments in CIS countries are historically intended to offset exchange rate movements, and are therefore excluded from the “organic growth” indicator.

    1 Fully-diluted NAV per share assumes all treasury shares are cancelled and a complementary liability is booked to account for all LTIP related securities in the money as of the valuation date.
    2 +13.7% compared with fully diluted NAV of €162.3 as of Dec. 31, 2023.
    3 Fully diluted of share buybacks and treasury shares. Without adjusting for dilution, NAV stands at €8,012m and €180.3 per share.
    4 Including the €4.0 per share dividend paid in 2024, and on a non-fully diluted basis NAV is up 15.0%.
    5 As of September 2024.
    6 c.€101m of FRE expected in 2025, Wendel share.

    7 Proforma of Globeducate acquisition (€-625m), sponsor money commitment in IK (€-400m), IK Partners transaction deferred payment (€-131m), Monroe Capital 75% acquisition (including estimated earnout) and GP commitments in Monroe Capital ($-200m for 2025).

    8 Proforma of Globeducate acquisition (€-625m), sponsor money commitment in IK (€-400m), IK Partners transaction deferred payment (€-131m), Monroe Capital 75% acquisition (including estimated earnout) and GP commitments in Monroe Capital ($-200m for 2025).

    9 Net proceeds after ticking fees, financial debt, dilution to the benefit of the Company’s minority investors, transaction costs and other debt-like adjustments.
    10 Gross IRR of 28%. Net IRR of 26%.
    11 EV including IFRS 16 impacts. Excluding IFRS 16, EV stands at c.€1.86 billion.
    12 As of September 2024

    13 Commitments not yet invested

    14 Fee Paying AuM

    Attachment

    The MIL Network –

  • MIL-OSI: Gevo to Report Third Quarter 2024 Financial Results on November 7, 2024

    Source: GlobeNewswire (MIL-OSI)

    ENGLEWOOD, Colo., Oct. 24, 2024 (GLOBE NEWSWIRE) — Gevo, Inc. (NASDAQ: GEVO) announced today that it will host a conference call on November 7, 2024, at 4:30 p.m. ET (2:30 p.m. MT) to report its financial results for the third quarter ended September 30, 2024.

    To participate in the live call, please register through the following event weblink: https://register.vevent.com/register/BId0c13b561f9d442ba7211ad0cbc56dbc

    After registering, participants will be provided with a dial-in number and pin.

    To listen to the conference call (audio only), please register through the following event weblink: https://edge.media-server.com/mmc/p/ggx3po5y

    A webcast replay will be available two hours after the conference call ends on November 7, 2024. The archived webcast will be available in the Investor Relations section of Gevo’s website at www.gevo.com.

    About Gevo

    Gevo’s mission is to convert renewable energy and biogenic carbon into sustainable fuels and chemicals with a net-zero or better carbon footprint. Gevo’s innovative technology can be used to make a variety of products, including sustainable aviation fuel (“SAF”), motor fuels, chemicals, and other materials. Gevo’s business model includes developing, financing, and operating production facilities for these renewable fuels and other products. It currently runs one of the largest dairy-based renewable natural gas (“RNG”) facilities in the United States. It also owns the world’s first production facility for specialty alcohol-to-jet (“ATJ”) fuels and chemicals. Gevo emphasizes the importance of sustainability by tracking and verifying the carbon footprint of its business systems through its Verity subsidiary.

    Learn more at Gevo’s website: www.gevo.com.

    PUBLIC AFFAIRS CONTACT
    Heather Manuel
    VP of Stakeholder Engagement & Partnerships
    PR@gevo.com

    INVESTOR CONTACT
    Eric Frey, PhD
    VP of Finance and Strategy
    IR@gevo.com

    The MIL Network –

  • MIL-OSI Europe: Immobilised assets: Council greenlights up to €35 billion in macro-financial assistance to Ukraine and new loan mechanism implementing G7 commitment

    Source: Council of the European Union

    The Council today adopted a financial assistance package to Ukraine, including an exceptional macro-financial assistance (MFA) loan of up to €35 billion and a loan cooperation mechanism that will support Ukraine in repaying loans for up to €45 billion provided by the EU and G7 partners.

    The financial assistance package aims at supporting Ukraine in covering its urgent financing needs that have increased due to Russia’s intensified aggression against Ukraine. The exceptional MFA will contribute to covering Ukraine´s financing gap, thereby supporting macro-financial stability in Ukraine and easing Ukraine´s external financial constraints.

    The exceptional MFA loan and eligible bilateral loans from G7 partners under the ‘Extraordinary Revenue Acceleration (ERA) Loans for Ukraine’ initiative will be repaid by future flows of extraordinary profits accruing to central securities depositories in the EU as a result of the implementation of the immobilisation of Russian sovereign assets.

    The Ukraine loan cooperation mechanism will disburse these funds – as well as possible amounts received as voluntary contributions from Member States and third countries or other sources – in the form of financial support to Ukraine, to assist it in servicing and repaying all G7 loans.

    The up to €35 billion MFA loan is the EU’s contribution to the G7 loan of up to €45 billion. The new MFA operation will be linked to policy conditions that are consistent with the Ukraine Facility, in particular the Ukraine Plan. The management and control systems proposed under the Ukraine Plan and specific provisions on the prevention of fraud and other irregularities will also apply to the MFA loan.

    EU borrowing to fund the extraordinary MFA loan to Ukraine will be guaranteed by the EU budget headroom.

    The MFA loan is expected to be made available to Ukraine before the end of 2024 and have a maximum duration of 45 years.

    According to new rules also adopted today, 95% of the proceeds that have been generated by central securities depositories (CSDs) in the EU as a result of their implementation of the immobilisation of Russian sovereign assets and that have been transferred to the Union will be allocated to the EU budget and will now be used for the Ukraine Loan Cooperation Mechanism (ULCM), which will disburse these funds in the form of financial support to Ukraine, to assist it in servicing and repaying the loans. The remaining 5% will continue to be allocated to the European Peace Facility.

    The new allocation will start applying from the second half of 2025 (to the second biannual payment of the financial contribution made in 2025 and to all payments thereafter).

    Next steps

    The legal acts adopted today will enter into force on the day after its publication in the Official Journal of the EU.

    Background

    On 19 September 2024 the Commission presented a proposal for a regulation on an exceptional macro-financial assistance (MFA) loan and a Ukraine loan cooperation mechanism. At the same time, the High representative presented a proposal for a Council implementing decision on restrictive measures in view of Russia’s actions destabilising the situation in Ukraine and, together with the Commission, a joint proposal for a Council implementing regulation concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine.

    Subject to EU law, Russia’s assets should remain immobilised until Russia ceases its war of aggression against Ukraine and compensates it for the damage caused by this war.

    In view of a speedy adoption and ensuring that the macro-financial assistance reaches Ukraine as soon as possible, the European Parliament and the Council adopted the Commission’s proposal for a regulation without changes. The European Parliament voted on the text in first reading on 22 October 2024 and the Council by written procedure, which ended today. The two implementing acts were also adopted by the Council by written procedure today.

    G7 Leaders announced in June 2024 the launch of the “Extraordinary Revenue Acceleration” loans for Ukraine, to make available approximately $ 50 billion (€45 billion) for Ukraine that will be serviced and repaid by future flows of extraordinary revenues stemming from the immobilisation of Russian sovereign assets held in the European Union and other relevant jurisdictions.  In its conclusions, the European Council on 27 June 2024 invited the Commission, the High Representative and the Council to take work forward. The financial package adopted today implements these commitments.

    Until now, extraordinary profits stemming from the immobilisation of Russian sovereign assets and available to the EU have been channelled principally through the European Peace Facility to support Ukraine’s military capabilities, and to a lesser extent through the Ukraine Facility to support the country’s reconstruction and modernisation. On 26 July 2024, a first instalment of €1.5 billion was made available by the EU in support of Ukraine.

    MIL OSI Europe News –

  • MIL-OSI USA: Newhouse Introduces Bill To Reform Telework Locality Pay for Federal Employees

    Source: United States House of Representatives – Congressman Dan Newhouse (4th District of Washington)

    Headline: Newhouse Introduces Bill To Reform Telework Locality Pay for Federal Employees

    This week, Rep. Dan Newhouse (WA-04) introduced The Federal Employee Return to Work Act to crack down on wasteful government spending and incentivize federal employees to return to in-person work. Federal employees who telework from home currently receive annual locality bonuses despite not being required to physically attend their offices located in a high-cost-of-living area. This bill is the House companion to U.S. Senator Bill Cassidy of Louisiana’s bill.

    “The federal government pays for massive offices for agency employees in Washington, D.C. and we now know that 17 of the 24 federal agencies are using less than a quarter of their space because of work from home employees,” said Rep. Newhouse.

    Newhouse continued, “If agencies wish to allow their employees to work from home, that is within their right to do so. But if they do, then the government should not be paying locality bonuses to those employees and they should be treated like any other work from home federal employee that doesn’t receive such a bonus. Taxpayers pay for federal buildings and salaries; it is time to stop wasting their money on empty buildings and unneeded work from home bonuses.”

    U.S. Senator Bill Cassidy (R-LA) said, “Federal employees get paid extra to work in higher-cost cities. But what if they don’t show up to work? Why should they get paid?” said Dr. Cassidy. “If you don’t show up for work, you don’t get paid at the same rate just for teleworking.”

    The U.S. Government Accountability Office (GAO) found that 17 of the 24 federal agencies were using 25% or less of their headquarters building’s capacity at the beginning of 2023. 

    GAO identified six agencies that were on average 91% vacant while their employees still received a 16.44% locality bonus compared to the rest of the country, regardless of their in-office attendance. These agencies included the Social Security Administration, the Small Business Administration, and the Department of Housing and Urban Development.

    The bill excludes certain federal employees who telework at least one day a week from receiving raises and special locality bonuses for their office location being in a high-cost-of-living area despite working from home.

    In the bill, the term “covered employee” means “an employee who teleworks not fewer than 1 day, or in the case of an alternative work schedule, not less than 20 percent a week.” The term does not include an employee who teleworks not fewer than 1 day a week; is disabled and receives reasonable accommodations; is a member of the Foreign Service; Federal law enforcement; Armed Services; or any other employee, the official worksite of whom is not described in section 531.605(a)(1) of title 5.

    If the employee meets the definition of “covered employee,” then they may not receive an annual adjustment under section 5303 of title 5. They shall be paid at the rate of basic pay under the applicable grade under the locality pay area designated as “Rest of U.S.”

    Full bill text can be found here.

    ###

    MIL OSI USA News –

  • MIL-OSI: TowneBank Reports Third Quarter 2024 Earnings

    Source: GlobeNewswire (MIL-OSI)

    SUFFOLK, Va., Oct. 23, 2024 (GLOBE NEWSWIRE) — TowneBank (the “Company” or “Towne”) (NASDAQ: TOWN) today reported earnings for the quarter ended September 30, 2024 of $42.95 million, or $0.57 per diluted share, compared to $44.86 million, or $0.60 per diluted share, for the quarter ended September 30, 2023.   Excluding certain items affecting comparability, core earnings (non-GAAP) were $43.39 million, or $0.58 per diluted share, in the current quarter compared to $44.88 million, or $0.60 per diluted share, for the quarter ended September 30, 2023.

    “Our third quarter results continued to deliver increased net interest income and noninterest income contributions from our diverse business model which were in line with expectations. We remain committed to prudent balance sheet management strategies. We were also excited to announce our partnership with Village Bank which will meaningfully enhance our Richmond presence, which is core to our franchise future growth. Lastly, the recently released FDIC Deposit Market Share Report for 2024 continues to demonstrate the strength of our Main Street banking model and core deposit franchise, resulting in the #1 market share, or 30%, in our legacy Virginia Beach-Norfolk-Newport News, VA-NC MSA,” said G. Robert Aston, Jr., Executive Chairman.

    Highlights for Third Quarter 2024:

    • Total revenues were $174.52 million, an increase of $1.65 million, or 0.96%, compared to third quarter 2023. Noninterest income increased $2.43 million, driven by growth in residential mortgage banking income and insurance commissions. Partially offsetting the increase in noninterest income was a $0.78 million decline in net interest income.
    • Total deposits were $14.36 billion, an increase of $482.37 million, or 3.48%, compared to third quarter 2023. Total deposits increased 0.63%, or $90.58 million, in comparison to June 30, 2024, 2.52% on an annualized basis.
    • Noninterest-bearing deposits decreased 3.99%, to $4.27 billion, compared to third quarter 2023 and represented 29.71% of total deposits. Compared to the linked quarter, noninterest-bearing deposits decreased 0.84%.
    • Loans held for investment were $11.41 billion, an increase of $239.55 million, or 2.14%, compared to September 30, 2023, but a decrease of $39.23 million, or 0.34%, compared to June 30, 2024.
    • Annualized return on common shareholders’ equity was 8.18% compared to 9.04% in third quarter 2023. Annualized return on average tangible common shareholders’ equity (non-GAAP) was 11.54% compared to 13.11% in third quarter 2023.
    • Net interest margin was 2.90% for the quarter and tax-equivalent net interest margin (non-GAAP) was 2.93%, including purchase accounting accretion of 3 basis points, compared to the prior year quarter net interest margin of 2.95% and tax-equivalent net interest margin (non-GAAP) of 2.98%, including purchase accounting accretion of 5 basis points.
    • Compared to the linked quarter, net interest margin increased 4 bp and spread increased 6 bp.  
    • The effective tax rate was 11.52% in the quarter compared to 17.34% in third quarter 2023 and 15.93% in the linked quarter. The lower effective tax rate in the current quarter was primarily due to the impact on state and federal taxes from the increase in credits and losses related to LIHTC investment properties placed in service during the period.

    “Growth has certainly been challenging in the current environment but we believe our balance sheet is well positioned to support mid-single digit growth rates as we look ahead to next year. We plan to aggressively expand Towne Insurance and evaluate other opportunities to enhance our fee-based lines of business to further drive our differentiated business model,” stated William I. Foster III, President and Chief Executive Officer.

    Quarterly Net Interest Income:

    • Net interest income was $112.28 million compared to $113.06 million for the quarter ended September 30, 2023. The decrease was driven by increased deposit costs, which were mostly offset by higher yields on earning assets.
    • On an average basis, loans held for investment, with a yield of 5.46%, represented 74.16% of earning assets at September 30, 2024 compared to a yield of 5.13% and 73.45% of earning assets in the third quarter of 2023.
    • The cost of interest-bearing deposits was 3.28% for the quarter ended September 30, 2024, compared to 2.77% in second quarter 2023. Interest expense on deposits increased $17.96 million, or 27.98%, over the prior year quarter driven by the increase in rate and growth in interest-bearing deposits.
    • Our total cost of deposits increased to 2.29% from 1.84% for the quarter ended September 30, 2023 due to a combination of higher interest-bearing deposit balances coupled with higher rates.   The Federal Reserve Open Market Committee lowered the overnight funds rate late in the third quarter. Management is expecting the decrease to have favorable impact on deposit costs in the fourth quarter of 2024.
    • Average interest-earning assets totaled $15.40 billion at September 30, 2024 compared to $15.21 billion at September 30, 2023, an increase of 1.26%. The Company anticipates approximately $604 million of cash flows from its securities portfolio to be available for reinvestment in the next twenty-four months.
    • Average interest-bearing liabilities totaled $10.25 billion, an increase of $493.95 million, or 5.06%, from prior year, driven by deposit growth. Borrowings have declined between periods. There were no short term FHLB borrowings in the third quarter of 2024, compared to an average of $248.91 million in the prior year quarter.

    Quarterly Provision for Credit Losses:

    • The quarterly provision for credit losses was a benefit of $1.10 million compared to an expense of $1.01 million in the prior year quarter and a benefit of $177 thousand in the linked quarter.
    • The allowance for credit losses on loans decreased $2.36 million in third quarter 2024, compared to the linked quarter. The decrease in the allowance was driven by a modest decline in the loan portfolio, primarily in higher-risk real estate construction and development loans, combined with continued strength in credit quality, and improvements in macroeconomic forecast scenarios utilized in our model.
    • Net loan charge-offs were $0.68 million in the quarter compared to net recoveries of $1.07 million in the prior year quarter and $19 thousand in the linked quarter.   Year-to-date 2024, net loan charge-offs were $1.18 million compared to net loan charge-offs of $2.81 million in first nine months of 2023.
    • The ratio of net charge-offs to average loans on an annualized basis was 0.02% in third quarter 2024, compared to (0.04)% in third quarter 2023 and 0.00% in the linked quarter.
    • The allowance for credit losses on loans represented 1.08% of total loans at September 30, 2024, compared to 1.12% at September 30, 2023, and 1.10% at June 30, 2024. The allowance for credit losses on loans was 18.70 times nonperforming loans compared to 17.60 times at September 30, 2023 and 19.08 times at June 30, 2024.

    Quarterly Noninterest Income:

    • Total noninterest income was $62.24 million compared to $59.81 million in 2023, an increase of $2.43 million, or 4.06%.
    • Residential mortgage banking income was $11.79 million compared to $10.65 million in third quarter 2023. Loan volume increased to $598.18 million in third quarter 2024 from $520.41 million in third quarter 2023. Both, the number of loans originated and the per-loan average balance increased in third quarter 2024 compared to third quarter 2023. Refinance activities increased in the quarter after more than a year of low activity. Residential purchase activity was 91.49% of production volume in the third quarter of 2024 compared to 95.96% in third quarter 2023.   Management expects mortgage production volumes to be positively impacted by any additional reductions in the Federal Reserve overnight rate.
    • While level with the linked quarter at 3.28%, gross margins on residential mortgage sales increased 11 basis points from 3.17% in third quarter 2023.
    • Total net insurance commissions increased $1.95 million, or 8.20%, to $25.73 million in third quarter 2024 compared to 2023. This increase was primarily attributable to increases in property and casualty commissions, which were driven by organic growth.
    • Property management fee revenue decreased 12.34%, or $1.58 million, to $11.22 million in third quarter 2024 compared to 2023. Reservation levels declined compared to the prior year.

    Quarterly Noninterest Expense:

    • Total noninterest expense was $126.90 million compared to $117.70 million in 2023, an increase of $9.20 million, or 7.81%. This increase was primarily attributable to growth in salaries and employee benefits of $4.87 million, professional fees of $1.95 million, software of $0.66 million, data processing of $0.56 million, and advertising and marketing of $0.51 million.
    • Salaries and benefits expense increases were driven by an increase in banking personnel and production incentives.
    • Investment in technology related to banking services and information monitoring continued to drive both direct and indirect costs. Professional fees increased due to consulting and outside services.   Software costs increased due to higher core system costs, while data processing increased due to higher processing costs and merchant fee increases.
    • Advertising and marketing increased, driven by business development.

    Consolidated Balance Sheet Highlights:

    • Management is focused on strategic balance sheet management with a concentration on controlled loan growth and maintaining strong levels of liquidity.
    • Total assets were $17.19 billion for the quarter ended September 30, 2024, a $119.18 million increase compared to $17.07 billion at June 30, 2024. Total assets increased $507.66 million, or 3.04%, from $16.68 billion at September 30, 2023.
    • Loans held for investment declined $39.23 million, or 0.34%, compared to the linked quarter but increased $239.55 million, or 2.14%, compared to prior year. There were declines in several loan categories from the linked quarter, with the most significant decline in the real estate construction and development category.   The Company continued to maintain strong credit discipline throughout the period.
    • Mortgage loans held for sale increased $76.27 million, or 40.56%, compared to prior year and $63.56 million, or 31.66%, compared to the linked quarter, driven by the increase in production.
    • Total deposits increased $482.37 million, or 3.48%, primarily in interest-bearing demand and time deposits, compared to prior year. In the linked quarter comparison, total deposits increased $90.58 million, or 2.52% on an annualized basis.
    • Noninterest-bearing deposits decreased $177.23 million, or 3.99%, compared to prior year and $36.15 million, or 0.84%, compared to the linked quarter, primarily in commercial and escrow accounts.
    • Total borrowings decreased $116.22 million, or 28.55%, compared to third quarter 2023 and $4.35 million, or 1.47%, compared to the linked quarter. Short-term FHLB advances were zero at each of September 30, 2024, and the linked quarter end, compared to $100 million at September 30, 2023.

    Investment Securities:

    • Total investment securities were $2.60 billion compared to $2.49 billion at June 30, 2024 and $2.54 billion at September 30, 2023. The weighted average duration of the portfolio at September 30, 2024 was 3.1 years. The carrying value of the available-for-sale debt securities portfolio included net unrealized losses of $110.62 million at September 30, 2024, compared to $172.93 million at June 30, 2024 and $238.52 million at September 30, 2023, with the changes in fair value due to the change in interest rates.

    Loans and Asset Quality:

    • Total loans held for investment were $11.41 billion at September 30, 2024, $11.45 billion June 30, 2024, and $11.17 billion at September 30, 2023.
    • Nonperforming assets were $7.47 million, or 0.04% of total assets, compared to $7.88 million, or 0.05%, at September 30, 2023, and $7.16 million, or 0.04%, in the linked quarter end.
    • Nonperforming loans were 0.06% of period end loans at September 30, 2024, September 30, 2023, and the linked quarter end.
    • Foreclosed property consisted of $884 thousand in repossessed autos at September 30, 2024, compared to $276 thousand in other real estate owned and $490 thousand in repossessed autos, for a total of $766 thousand in foreclosed property at September 30, 2023.

    Deposits and Borrowings:

    • Total deposits were $14.36 billion compared to $14.27 billion at June 30, 2024 and $13.88 billion at September 30, 2023.
    • The ratio of period end loans held for investment to deposits was 79.46% compared to 80.24% at June 30, 2024 and 80.49% at September 30, 2023.
    • Noninterest-bearing deposits were 29.71% of total deposits at September 30, 2024 compared to 30.15% at June 30, 2024 and 32.02% at September 30, 2023. Noninterest-bearing deposits declined $177.23 million, or 3.99%, compared to September 30, 2023, and $36.15 million, or 0.84%, compared to the linked quarter.
    • Total borrowings were $290.82 million compared to $295.17 million at June 30, 2024 and $407.03 million at September 30, 2023.

    Capital:

    • Common equity tier 1 capital ratio of 12.63%(1).
    • Tier 1 leverage capital ratio of 10.38%(1).
    • Tier 1 risk-based capital ratio of 12.75%(1).
    • Total risk-based capital ratio of 15.53% (1) .
    • Book value per common share was $28.59 compared to $27.62 at June 30, 2024 and $26.28 at September 30, 2023.
    • Tangible book value per common share (non-GAAP) was $21.65 compared to $20.65 at June 30, 2024 and $19.28 at September 30, 2023.

    (1) Preliminary.

    About TowneBank:
    Founded in 1999, TowneBank is a company built on relationships, offering a full range of banking and other financial services, with a focus of serving others and enriching lives. Dedicated to a culture of caring, Towne values all employees and members by embracing their diverse talents, perspectives, and experiences.

    Now celebrating 25 years, TowneBank operates 50 banking offices throughout Hampton Roads and Central Virginia, as well as Northeastern and Central North Carolina – serving as a local leader in promoting the social, cultural, and economic growth in each community. Towne offers a competitive array of business and personal banking solutions, delivered with only the highest ethical standards. Experienced local bankers providing a higher level of expertise and personal attention with local decision-making are key to the TowneBank strategy. TowneBank has grown its capabilities beyond banking to provide expertise through its affiliated companies that include Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices RW Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations. With total assets of $17.19 billion as of September 30, 2024, TowneBank is one of the largest banks headquartered in Virginia.

    Non-GAAP Financial Measures:
    This press release contains certain financial measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such non-GAAP financial measures include the following: fully tax-equivalent net interest margin, core operating earnings, core net income, tangible book value per common share, total risk-based capital ratio, tier one leverage ratio, tier one capital ratio, and the tangible common equity to tangible assets ratio. Management uses these non-GAAP financial measures to assess the performance of TowneBank’s core business and the strength of its capital position. Management believes that these non-GAAP financial measures provide meaningful additional information about TowneBank to assist investors in evaluating operating results, financial strength, and capitalization. The non-GAAP financial measures should be considered as additional views of the way our financial measures are affected by significant charges for credit costs and other factors. These non-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. The computations of the non-GAAP financial measures used in this presentation are referenced in a footnote or in the appendix to this presentation.

    Forward-Looking Statements:
    This press release contains certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only the beliefs, expectations, or opinions of TowneBank and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward-looking statements may be identified by the use of such words as: “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning, or future or conditional terms, such as “will,” “would,” “should,” “could,” “may,” “likely,” “probably,” or “possibly.” These statements may address issues that involve significant risks, uncertainties, estimates, and assumptions made by management. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include among others, competitive pressures in the banking industry that may increase significantly; changes in the interest rate environment that may reduce margins and/or the volumes and values of loans made or held as well as the value of other financial assets held; an unforeseen outflow of cash or deposits or an inability to access the capital markets, which could jeopardize our overall liquidity or capitalization; changes in the creditworthiness of customers and the possible impairment of the collectability of loans; insufficiency of our allowance for credit losses due to market conditions, inflation, changing interest rates or other factors; adverse developments in the financial industry generally, such as the recent bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer and client behavior; general economic conditions, either nationally or regionally, that may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services; geopolitical instability, including wars, conflicts, civil unrest, and terrorist attacks and the potential impact, directly or indirectly, on our business; the effects of weather-related or natural disasters, which may negatively affect our operations and/or our loan portfolio and increase our cost of conducting business; public health events (such as the COVID-19 pandemic) and governmental and societal responses to them; changes in the legislative or regulatory environment, including changes in accounting standards and tax laws, that may adversely affect our business; our ability to close the transaction with Village Bank when expected or at all because required approvals and other conditions to closing are not received or satisfied on the proposed terms or on the anticipated schedule; our integration of Village Bank’s business to the extent that it may take longer or be more difficult, time-consuming or costly to accomplish than expected; deposit attrition, operating costs, customer losses and business disruption following the Village Bank transaction, including adverse effects on relationships with employees and customers; costs or difficulties related to the integration of the businesses we have acquired may be greater than expected; expected growth opportunities or cost savings associated with pending or recently completed acquisitions may not be fully realized or realized within the expected time frame; cybersecurity threats or attacks, whether directed at us or at vendors or other third parties with which we interact, the implementation of new technologies, and the ability to develop and maintain reliable electronic systems; our competitors may have greater financial resources and develop products that enable them to compete more successfully; changes in business conditions; changes in the securities market; and changes in our local economy with regard to our market area. Any forward-looking statements made by us or on our behalf speak only as of the date they are made or as of the date indicated, and we do not undertake any obligation to update forward-looking statements as a result of new information, future events, or otherwise. For additional information on factors that could materially influence forward-looking statements included in this report, see the “Risk Factors” in TowneBank’s Annual Report on Form 10-K for the year ended December 31, 2023, and related disclosures in other filings that have been, or will be, filed by TowneBank with the Federal Deposit Insurance Corporation.

    Media contact:
    G. Robert Aston, Jr., Executive Chairman, 757-638-6780
    William I. Foster III, President and Chief Executive Officer, 757-417-6482

    Investor contact:
    William B. Littreal, Chief Financial Officer, 757-638-6813

     
    TOWNEBANK
    Selected Financial Highlights (unaudited)
    (dollars in thousands, except per share data)
         
        Three Months Ended
        September 30,   June 30,   March 31,   December 31,   September 30,
        2024       2024       2024       2023       2023  
    Income and Performance Ratios:                  
      Total revenue $ 174,518     $ 174,970     $ 167,102     $ 155,546     $ 172,864  
      Net income   43,126       43,039       35,127       28,545       44,745  
      Net income available to common shareholders   42,949       42,856       34,687       28,804       44,862  
      Net income per common share – diluted   0.57       0.57       0.46       0.39       0.60  
      Book value per common share   28.59       27.62       27.33       27.24       26.28  
      Book value per common share – tangible (non-GAAP)   21.65       20.65       20.31       20.28       19.28  
      Return on average assets   1.00 %     1.01 %     0.83 %     0.68 %     1.06 %
      Return on average assets – tangible (non-GAAP)   1.09 %     1.11 %     0.92 %     0.77 %     1.17 %
      Return on average equity   8.12 %     8.43 %     6.84 %     5.75 %     8.96 %
      Return on average equity – tangible (non-GAAP)   11.42 %     12.03 %     9.87 %     8.53 %     12.97 %
      Return on average common equity   8.18 %     8.49 %     6.89 %     5.79 %     9.04 %
      Return on average common equity – tangible (non-GAAP)   11.54 %     12.16 %     9.98 %     8.62 %     13.11 %
      Noninterest income as a percentage of total revenue   35.66 %     37.68 %     38.23 %     30.74 %     34.60 %
    Regulatory Capital Ratios (1):                  
      Common equity tier 1   12.63 %     12.43 %     12.20 %     12.18 %     12.19 %
      Tier 1   12.75 %     12.55 %     12.32 %     12.29 %     12.31 %
      Total   15.53 %     15.34 %     15.10 %     15.06 %     15.09 %
      Tier 1 leverage ratio   10.38 %     10.25 %     10.15 %     10.17 %     10.06 %
    Asset Quality:                  
      Allowance for credit losses on loans to nonperforming loans 18.70x   19.08x   18.01x   18.48x   17.60x
      Allowance for credit losses on loans to period end loans   1.08 %     1.10 %     1.10 %     1.12 %     1.12 %
      Nonperforming loans to period end loans   0.06 %     0.06 %     0.06 %     0.06 %     0.06 %
      Nonperforming assets to period end assets   0.04 %     0.04 %     0.05 %     0.05 %     0.05 %
      Net charge-offs (recoveries) to average loans (annualized)   0.02 %     — %     0.02 %     — %   (0.04 )%
      Net charge-offs (recoveries) $ 677     $ (19 )   $ 520     $ 68     $ (1,074 )
                         
      Nonperforming loans $ 6,588     $ 6,582     $ 6,987     $ 6,843     $ 7,110  
      Foreclosed property   884       581       780       908       766  
      Total nonperforming assets $ 7,472     $ 7,163     $ 7,767     $ 7,751     $ 7,876  
      Loans past due 90 days and still accruing interest $ 510     $ 368     $ 323     $ 735     $ 970  
      Allowance for credit losses on loans $ 123,191     $ 125,552     $ 125,835     $ 126,461     $ 125,159  
    Mortgage Banking:                  
      Loans originated, mortgage $ 421,571     $ 430,398     $ 289,191     $ 302,616     $ 348,387  
      Loans originated, joint venture   176,612       196,583       135,197       126,332       172,021  
      Total loans originated $ 598,182     $ 626,981     $ 424,388     $ 428,948     $ 520,408  
      Number of loans originated   1,637       1,700       1,247       1,237       1,487  
      Number of originators   159       169       176       181       192  
      Purchase %   91.49 %     94.85 %     95.66 %     95.06 %     95.96 %
      Loans sold $ 526,998     $ 605,134     $ 410,895     $ 468,014     $ 567,291  
      Rate lock asset $ 1,548     $ 1,930     $ 1,681     $ 895     $ 1,348  
      Gross realized gain on sales and fees as a % of loans originated   3.28 %     3.28 %     3.34 %     3.06 %     3.17 %
    Other Ratios:                  
      Net interest margin   2.90 %     2.86 %     2.72 %     2.83 %     2.95 %
      Net interest margin-fully tax-equivalent (non-GAAP)   2.93 %     2.89 %     2.75 %     2.86 %     2.98 %
      Average earning assets/total average assets   90.43 %     90.36 %     90.52 %     90.48 %     90.73 %
      Average loans/average deposits   80.07 %     80.80 %     81.48 %     80.72 %     80.75 %
      Average noninterest deposits/total average deposits   30.19 %     30.06 %     30.25 %     31.69 %     33.50 %
      Period end equity/period end total assets   12.58 %     12.24 %     12.24 %     12.21 %     11.90 %
      Efficiency ratio (non-GAAP)   70.93 %     68.98 %     73.25 %     76.17 %     66.21 %
      (1) Current reporting period regulatory capital ratios are preliminary.            
     
    TOWNEBANK
    Selected Data (unaudited)
    (dollars in thousands)
     
    Investment Securities             % Change
      Q3   Q3   Q2   Q3 24 vs.   Q3 24 vs.
    Available-for-sale securities, at fair value   2024       2023       2024     Q3 23   Q2 24
    U.S. agency securities $ 291,814     $ 300,161     $ 281,934     (2.78 )%   3.50 %
    U.S. Treasury notes   28,655       26,721       27,701     7.24 %   3.44 %
    Municipal securities   455,722       484,587       442,474     (5.96 )%   2.99 %
    Trust preferred and other corporate securities   91,525       74,024       88,228     23.64 %   3.74 %
    Mortgage-backed securities issued by GSEs and GNMA   1,496,631       1,079,303       1,411,883     38.67 %   6.00 %
    Allowance for credit losses   (1,171 )     (1,343 )     (1,541 )   (12.81 )%   (24.01 )%
    Total $ 2,363,176     $ 1,963,453     $ 2,250,679     20.36 %   5.00 %
    Gross unrealized gains (losses) reflected in financial statements            
    Total gross unrealized gains $ 6,703     $ 475     $ 1,983     1,311.16 %   238.02 %
    Total gross unrealized losses   (117,319 )     (238,993 )     (174,911 )   (50.91 )%   (32.93 )%
    Net unrealized gains (losses) and other adjustments on AFS securities $ (110,616 )   $ (238,518 )   $ (172,928 )   (53.62 )%   (36.03 )%
    Held-to-maturity securities, at amortized cost                  
    U.S. agency securities $ 102,428     $ 101,659     $ 102,234     0.76 %   0.19 %
    U.S. Treasury notes   96,942       433,015       97,171     (77.61 )%   (0.24 )%
    Municipal securities   5,342       5,249       5,318     1.77 %   0.45 %
    Trust preferred corporate securities   2,133       2,185       2,147     (2.38 )%   (0.65 )%
    Mortgage-backed securities issued by GSEs   5,577       5,746       5,618     (2.94 )%   (0.73 )%
    Allowance for credit losses   (77 )     (85 )     (79 )   (9.41 )%   (2.53 )%
    Total $ 212,345     $ 547,769     $ 212,409     (61.23 )%   (0.03 )%
                       
    Total gross unrealized gains $ 323     $ 82     $ 175     293.90 %   84.57 %
    Total gross unrealized losses   (7,929 )     (23,505 )     (12,880 )   (66.27 )%   (38.44 )%
    Net unrealized gains (losses) in HTM securities $ (7,606 )   $ (23,423 )   $ (12,705 )   (67.53 )%   (40.13 )%
    Total unrealized gains (losses) on AFS and HTM securities $ (118,222 )   $ (261,941 )   $ (185,633 )   (54.87 )%   (36.31 )%
                  % Change
    Loans Held For Investment Q3   Q3   Q2   Q3 24 vs.   Q3 24 vs.
        2024       2023       2024     Q3 23   Q2 24
    Real estate – construction and development $ 1,118,669     $ 1,325,976     $ 1,190,768     (15.63 )%   (6.05 )%
    Commercial real estate – owner occupied   1,655,345       1,686,888       1,673,582     (1.87 )%   (1.09 )%
    Commercial real estate – non owner occupied   3,179,699       3,025,985       3,155,958     5.08 %   0.75 %
    Real estate – multifamily   750,906       542,611       682,537     38.39 %   10.02 %
    Residential 1-4 family   1,891,216       1,818,843       1,887,420     3.98 %   0.20 %
    HELOC   408,565       371,861       408,273     9.87 %   0.07 %
    Commercial and industrial business (C&I)   1,256,511       1,237,524       1,297,538     1.53 %   (3.16 )%
    Government   521,681       523,456       517,954     (0.34 )%   0.72 %
    Indirect   546,887       548,621       558,216     (0.32 )%   (2.03 )%
    Consumer loans and other   83,039       91,206       79,501     (8.95 )%   4.45 %
    Total $ 11,412,518     $ 11,172,971     $ 11,451,747     2.14 %   (0.34 )%
                       
                  % Change
    Deposits Q3   Q3   Q2   Q3 24 vs.   Q3 24 vs.
        2024       2023       2024     Q3 23   Q2 24
    Noninterest-bearing demand $ 4,267,628     $ 4,444,861     $ 4,303,773     (3.99 )%   (0.84 )%
    Interest-bearing:                  
    Demand and money market accounts   6,990,103       6,764,415       6,940,086     3.34 %   0.72 %
    Savings   319,970       350,031       312,881     (8.59 )%   2.27 %
    Certificates of deposits   2,785,469       2,321,498       2,715,848     19.99 %   2.56 %
    Total   14,363,170       13,880,805       14,272,588     3.48 %   0.63 %
     
    TOWNEBANK
    Average Balances, Yields and Rate Paid (unaudited)
    (dollars in thousands)
     
      Three Months Ended   Three Months Ended   Three Months Ended
      September 30, 2024   June 30, 2024   September 30, 2023
          Interest   Average       Interest   Average       Interest   Average
      Average   Income/   Yield/   Average   Income/   Yield/   Average   Income/   Yield/
      Balance   Expense   Rate (1)   Balance   Expense   Rate (1)   Balance   Expense   Rate (1)
    Assets:                                  
    Loans (net of unearned income
    and deferred costs)    		 $ 11,419,428     $ 156,610     5.46 %   $ 11,471,669     $ 155,374     5.45 %   $ 11,169,924     $ 144,457     5.13 %
    Taxable investment securities   2,376,102       20,940     3.53 %     2,368,476       21,671     3.66 %     2,373,731       18,645     3.14 %
    Tax-exempt investment securities   168,768       1,686     4.00 %     156,503       1,521     3.89 %     206,639       1,993     3.86 %
    Total securities   2,544,870       22,626     3.56 %     2,524,979       23,192     3.67 %     2,580,370       20,638     3.20 %
    Interest-bearing deposits   1,226,445       15,249     4.95 %     1,182,816       14,512     4.93 %     1,230,582       15,031     4.85 %
    Mortgage loans held for sale   208,513       3,247     6.23 %     165,392       2,945     7.12 %     227,426       3,928     6.91 %
    Total earning assets   15,399,256       197,732     5.11 %     15,344,856       196,023     5.14 %     15,208,302       184,054     4.80 %
    Less: allowance for loan losses   (125,331 )             (126,792 )             (125,553 )        
    Total nonearning assets   1,754,216               1,764,418               1,680,110          
    Total assets $ 17,028,141             $ 16,982,482             $ 16,762,859          
    Liabilities and Equity:                                  
    Interest-bearing deposits                                  
    Demand and money market $ 6,917,622     $ 48,896     2.81 %   $ 6,896,176     $ 48,161     2.81 %   $ 6,605,853     $ 41,381     2.49 %
    Savings   315,338       842     1.06 %     317,774       845     1.07 %     356,116       938     1.05 %
    Certificates of deposit   2,723,437       32,390     4.73 %     2,715,615       33,017     4.89 %     2,236,102       21,852     3.88 %
    Total interest-bearing deposits   9,956,397       82,128     3.28 %     9,929,565       82,023     3.32 %     9,198,071       64,171     2.77 %
    Borrowings   33,867       (25 )   (0.29 )%     100,165       1,627     6.43 %     299,105       3,382     4.42 %
    Subordinated debt, net   256,309       2,237     3.49 %     256,093       2,236     3.49 %     255,446       2,245     3.52 %
    Total interest-bearing liabilities   10,246,573       84,340     3.27 %     10,285,823       85,886     3.36 %     9,752,622       69,798     2.84 %
    Demand deposits   4,305,783               4,267,590               4,633,856          
    Other noninterest-bearing liabilities   370,736               383,447               389,912          
    Total liabilities   14,923,092               14,936,860               14,776,390          
    Shareholders’ equity   2,105,049               2,045,622               1,986,469          
    Total liabilities and equity $ 17,028,141             $ 16,982,482             $ 16,762,859          
    Net interest income (tax-equivalent basis) (4)     $ 113,392             $ 110,137             $ 114,256      
    Reconciliation of Non-GAAP Financial Measures                                
    Tax-equivalent basis adjustment       (1,110 )             (1,089 )             (1,198 )    
    Net interest income (GAAP)     $ 112,282             $ 109,048             $ 113,058      
                                       
    Interest rate spread (2)(4)         1.84 %           1.78 %           1.96 %
    Interest expense as a percent of average earning assets       2.18 %           2.25 %           1.82 %
    Net interest margin (tax-equivalent basis) (3)(4)       2.93 %           2.89 %           2.98 %
    Total cost of deposits         2.29 %           2.32 %           1.84 %
                                       
    (1) Yields and interest income are presented on a tax-equivalent basis using the federal statutory tax rate of 21%.
    (2) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax-equivalent.
    (3) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax-equivalent.
    (4) Non-GAAP.
     
    TOWNEBANK
    Average Balances, Yields and Rate Paid (unaudited)
    (dollars in thousands)
     
      Nine Months Ended   Nine Months Ended
      September 30, 2024   September 30, 2023
          Interest   Average       Interest   Average
      Average   Income/   Yield/   Average   Income/   Yield/
      Balance   Expense   Rate (1)   Balance   Expense   Rate (1)
    Assets:                      
    Loans (net of unearned income and deferred costs) $ 11,423,458     $ 463,794     5.42 %   $ 11,159,329     $ 417,808     5.01 %
    Taxable investment securities   2,395,007       61,327     3.41 %     2,420,634       52,656     2.90 %
    Tax-exempt investment securities   162,294       4,756     3.91 %     201,535       5,883     3.89 %
    Total securities   2,557,301       66,083     3.45 %     2,622,169       58,539     2.98 %
    Interest-bearing deposits   1,192,319       43,995     4.93 %     1,179,952       40,168     4.55 %
    Mortgage loans held for sale   163,755       7,908     6.44 %     168,822       8,079     6.38 %
    Total earning assets   15,336,833       581,780     5.07 %     15,130,272       524,594     4.64 %
    Less: allowance for loan losses   (126,508 )             (120,420 )        
    Total nonearning assets   1,748,215               1,637,952          
    Total assets $ 16,958,540             $ 16,647,804          
    Liabilities and Equity:                      
    Interest-bearing deposits                      
    Demand and money market $ 6,880,752     $ 145,042     2.82 %   $ 6,349,422     $ 96,742     2.04 %
    Savings   320,696       2,569     1.07 %     376,282       2,676     0.95 %
    Certificates of deposit   2,674,509       94,928     4.74 %     1,964,718       47,358     3.22 %
    Total interest-bearing deposits   9,875,957       242,539     3.28 %     8,690,422       146,776     2.26 %
    Borrowings   115,171       4,679     5.34 %     505,856       17,644     4.60 %
    Subordinated debt, net   256,094       6,710     3.49 %     253,612       6,650     3.50 %
    Total interest-bearing liabilities   10,247,222       253,928     3.31 %     9,449,890       171,070     2.42 %
    Demand deposits   4,265,971               4,873,945          
    Other noninterest-bearing liabilities   381,547               353,459          
    Total liabilities   14,894,740               14,677,294          
    Shareholders’ equity   2,063,800               1,970,510          
    Total liabilities and equity $ 16,958,540             $ 16,647,804          
    Net interest income (tax-equivalent basis)(4)     $ 327,852             $ 353,524      
    Reconciliation of Non-GAAP Financial Measures                    
    Tax-equivalent basis adjustment       (3,304 )             (3,477 )    
    Net interest income (GAAP)     $ 324,548             $ 350,047      
                           
    Interest rate spread (2)(4)         1.76 %           2.22 %
    Interest expense as a percent of average earning assets       2.21 %           1.51 %
    Net interest margin (tax-equivalent basis) (3)(4)       2.86 %           3.12 %
    Total cost of deposits         2.29 %           1.45 %
                           
    (1) Yields and interest income are presented on a tax-equivalent basis using the federal statutory rate of 21%.
    (2) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax-equivalent.
    (3) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax-equivalent.
    (4) Non-GAAP.
     
    TOWNEBANK
    Consolidated Balance Sheets
    (dollars in thousands, except share data)
       
         
      September 30,   December 31,
        2024       2023  
      (unaudited)   (audited)
    ASSETS      
    Cash and due from banks $ 131,068     $ 85,584  
    Interest-bearing deposits at FRB   1,061,596       939,356  
    Interest-bearing deposits in financial institutions   103,400       103,417  
    Total Cash and Cash Equivalents   1,296,064       1,128,357  
    Securities available for sale, at fair value (amortized cost of $2,474,963 and $2,292,963, and allowance for credit losses of $1,171 and $1,498 at September 30, 2024 and December 31, 2023, respectively)   2,363,176       2,129,342  
    Securities held to maturity, at amortized cost (fair value $204,816 and $462,656 at September 30, 2024 and December 31, 2023, respectively)   212,422       477,592  
    Less: Allowance for credit losses   (77 )     (84 )
    Securities held to maturity, net of allowance for credit losses   212,345       477,508  
    Other equity securities   12,681       13,792  
    FHLB stock   12,134       21,372  
    Total Securities   2,600,336       2,642,014  
    Mortgage loans held for sale   264,320       149,987  
    Loans, net of unearned income and deferred costs   11,412,518       11,329,021  
    Less: allowance for credit losses   (123,191 )     (126,461 )
    Net Loans   11,289,327       11,202,560  
    Premises and equipment, net   365,764       337,598  
    Goodwill   457,619       456,335  
    Other intangible assets, net   63,265       64,634  
    BOLI   279,325       277,445  
    Other assets   572,000       576,109  
    TOTAL ASSETS $ 17,188,020     $ 16,835,039  
           
    LIABILITIES AND EQUITY      
    Deposits:      
    Noninterest-bearing demand $ 4,267,628     $ 4,342,701  
    Interest-bearing:      
    Demand and money market accounts   6,990,103       6,757,619  
    Savings   319,970       336,492  
    Certificates of deposit   2,785,469       2,456,394  
    Total Deposits   14,363,170       13,893,206  
    Advances from the FHLB   3,405       203,958  
    Subordinated debt, net   256,444       255,796  
    Repurchase agreements and other borrowings   30,970       32,826  
    Total Borrowings   290,819       492,580  
    Other liabilities   371,316       393,375  
    TOTAL LIABILITIES   15,025,305       14,779,161  
    Preferred stock, authorized and unissued shares – 2,000,000   —       —  
    Common stock, $1.667 par value: 150,000,000 shares authorized;      
    75,068,662 and 74,893,462 shares issued at      
    September 30, 2024 and December 31, 2023, respectively   125,139       124,847  
    Capital surplus   1,117,279       1,112,761  
    Retained earnings   985,343       921,126  
    Common stock issued to deferred compensation trust, at cost:      
    1,056,823 and 1,004,717 shares at September 30, 2024 and December 31, 2023, respectively   (22,224 )     (20,813 )
    Deferred compensation trust   22,224       20,813  
    Accumulated other comprehensive income (loss)   (81,482 )     (118,762 )
    TOTAL SHAREHOLDERS’ EQUITY   2,146,279       2,039,972  
    Noncontrolling interest   16,436       15,906  
    TOTAL EQUITY   2,162,715       2,055,878  
    TOTAL LIABILITIES AND EQUITY $ 17,188,020     $ 16,835,039  
     
    TOWNEBANK
    Consolidated Statements of Income (unaudited)
    (dollars in thousands, except per share data)
                   
                   
      Three Months Ended   Nine Months Ended
      September 30,   September 30,
        2024       2023       2024       2023  
    INTEREST INCOME:              
    Loans, including fees $ 155,792     $ 143,605     $ 461,316     $ 415,351  
    Investment securities   22,334       20,292       65,257       57,519  
    Interest-bearing deposits in financial institutions and federal funds sold   15,249       15,031       43,995       40,168  
    Mortgage loans held for sale   3,247       3,928       7,908       8,079  
    Total interest income   196,622       182,856       578,476       521,117  
    INTEREST EXPENSE:              
    Deposits   82,128       64,171       242,539       146,776  
    Advances from the FHLB   29       3,438       3,408       16,838  
    Subordinated debt, net   2,237       2,245       6,710       6,650  
    Repurchase agreements and other borrowings   (54 )     (56 )     1,271       806  
    Total interest expense   84,340       69,798       253,928       171,070  
    Net interest income   112,282       113,058       324,548       350,047  
    PROVISION FOR CREDIT LOSSES   (1,100 )     1,007       (2,154 )     16,232  
    Net interest income after provision for credit losses   113,382       112,051       326,702       333,815  
    NONINTEREST INCOME:              
    Residential mortgage banking income, net   11,786       10,648       35,685       31,380  
    Insurance commissions and related income, net   25,727       23,777       75,297       69,098  
    Property management income, net   11,221       12,800       42,306       40,433  
    Real estate brokerage income, net   —       (63 )     —       3,562  
    Service charges on deposit accounts   3,117       2,823       9,548       8,577  
    Credit card merchant fees, net   1,830       2,006       5,042       5,232  
    Investment commissions, net   2,835       2,363       7,759       6,581  
    BOLI   1,886       1,814       6,966       5,196  
    Gain on sale of equity investment   20       554       20       9,386  
    Other income   3,814       3,084       9,345       9,083  
    Net gain/(loss) on investment securities   —       —       74       —  
    Total noninterest income   62,236       59,806       192,042       188,528  
    NONINTEREST EXPENSE:              
    Salaries and employee benefits   72,123       67,258       214,849       204,124  
    Occupancy   9,351       9,027       28,490       27,579  
    Furniture and equipment   4,657       4,100       13,769       12,733  
    Amortization – intangibles   3,130       3,610       9,675       10,744  
    Software   6,790       6,130       19,947       17,922  
    Data processing   4,701       4,140       13,223       11,504  
    Professional fees   4,720       2,770       11,689       8,948  
    Advertising and marketing   4,162       3,653       12,268       12,012  
    Other expenses   17,266       17,014       52,565       61,762  
    Total noninterest expense   126,900       117,702       376,475       367,328  
    Income before income tax expense and noncontrolling interest   48,718       54,155       142,269       155,015  
    Provision for income tax expense   5,592       9,410       20,977       28,424  
    Net income $ 43,126     $ 44,745     $ 121,292     $ 126,591  
    Net income attributable to noncontrolling interest   (177 )     117       (800 )     (1,680 )
    Net income attributable to TowneBank $ 42,949     $ 44,862     $ 120,492     $ 124,911  
    Per common share information              
    Basic earnings $ 0.57     $ 0.60     $ 1.61     $ 1.67  
    Diluted earnings $ 0.57     $ 0.60     $ 1.61     $ 1.67  
    Cash dividends declared $ 0.25     $ 0.25     $ 0.75     $ 0.73  
     
    TOWNEBANK
    Consolidated Balance Sheets – Five Quarter Trend
    (dollars in thousands, except share data)
     
                       
      September 30,   June 30,   March 31,   December 31,   September 30,
        2024       2024       2024       2023       2023  
      (unaudited)   (unaudited)   (unaudited)   (audited)   (unaudited)
    ASSETS                  
    Cash and due from banks $ 131,068     $ 140,028     $ 75,802     $ 85,584     $ 83,949  
    Interest-bearing deposits at FRB   1,061,596       1,062,115       926,635       939,356       1,029,276  
    Interest-bearing deposits in financial institutions   103,400       99,303       98,673       103,417       102,527  
    Total Cash and Cash Equivalents   1,296,064       1,301,446       1,101,110       1,128,357       1,215,752  
    Securities available for sale   2,363,176       2,250,679       2,204,101       2,129,342       1,963,453  
    Securities held to maturity   212,422       212,488       312,510       477,592       547,854  
    Less: allowance for credit losses   (77 )     (79 )     (82 )     (84 )     (85 )
    Securities held to maturity, net of allowance for credit losses   212,345       212,409       312,428       477,508       547,769  
    Other equity securities   12,681       13,566       13,661       13,792       14,062  
    FHLB stock   12,134       12,134       12,139       21,372       16,634  
    Total Securities   2,600,336       2,488,788       2,542,329       2,642,014       2,541,918  
    Mortgage loans held for sale   264,320       200,762       150,727       149,987       188,048  
    Loans, net of unearned income and deferred costs   11,412,518       11,451,747       11,452,343       11,329,021       11,172,971  
    Less: Allowance for credit losses   (123,191 )     (125,552 )     (125,835 )     (126,461 )     (125,159 )
    Net Loans   11,289,327       11,326,195       11,326,508       11,202,560       11,047,812  
    Premises and equipment, net   365,764       340,348       342,569       337,598       335,522  
    Goodwill   457,619       457,619       457,619       456,335       456,684  
    Other intangible assets, net   63,265       65,460       68,758       64,634       67,496  
    BOLI   279,325       277,434       279,293       277,445       275,240  
    Other assets   572,000       610,791       615,324       576,109       551,884  
    TOTAL ASSETS $ 17,188,020     $ 17,068,843     $ 16,884,237     $ 16,835,039     $ 16,680,356  
    LIABILITIES AND EQUITY                  
    Deposits:                  
    Noninterest-bearing demand $ 4,267,628     $ 4,303,773     $ 4,194,132     $ 4,342,701     $ 4,444,861  
    Interest-bearing:                  
    Demand and money market accounts   6,990,103       6,940,086       6,916,701       6,757,619       6,764,415  
    Savings   319,970       312,881       326,179       336,492       350,031  
    Certificates of deposit   2,785,469       2,715,848       2,689,062       2,456,394       2,321,498  
    Total Deposits   14,363,170       14,272,588       14,126,074       13,893,206       13,880,805  
    Advances from the FHLB   3,405       3,591       3,775       203,958       104,139  
    Subordinated debt, net   256,444       256,227       256,011       255,796       255,580  
    Repurchase agreements and other borrowings   30,970       35,351       31,198       32,826       47,315  
    Total Borrowings   290,819       295,169       290,984       492,580       407,034  
    Other liabilities   371,316       411,770       401,307       393,375       408,305  
    TOTAL LIABILITIES   15,025,305       14,979,527       14,818,365       14,779,161       14,696,144  
                       
    Preferred stock   —       —       —       —       —  
    Common stock, $1.667 par value   125,139       125,090       125,009       124,847       124,837  
    Capital surplus   1,117,279       1,115,759       1,114,038       1,112,761       1,111,152  
    Retained earnings   985,343       961,162       937,065       921,126       911,042  
    Common stock issued to deferred compensation trust, at cost   (22,224 )     (22,756 )     (20,915 )     (20,813 )     (20,740 )
    Deferred compensation trust   22,224       22,756       20,915       20,813       20,740  
    Accumulated other comprehensive income (loss)   (81,482 )     (129,224 )     (126,586 )     (118,762 )     (179,043 )
    TOTAL SHAREHOLDERS’ EQUITY   2,146,279       2,072,787       2,049,526       2,039,972       1,967,988  
    Noncontrolling interest   16,436       16,529       16,346       15,906       16,224  
    TOTAL EQUITY   2,162,715       2,089,316       2,065,872       2,055,878       1,984,212  
    TOTAL LIABILITIES AND EQUITY $ 17,188,020     $ 17,068,843     $ 16,884,237     $ 16,835,039     $ 16,680,356  
     
    TOWNEBANK
    Consolidated Statements of Income – Five Quarter Trend (unaudited)
    (dollars in thousands, except share data)
       
       
      Three Months Ended
      September 30,   June 30,   March 31,   December 31,   September 30,
        2024       2024       2024       2023       2023  
    INTEREST INCOME:                  
    Loans, including fees $ 155,792     $ 154,549     $ 150,974     $ 146,810     $ 143,605  
    Investment securities   22,334       22,928       19,996       20,464       20,292  
    Interest-bearing deposits in financial institutions and federal funds sold   15,249       14,512       14,234       13,967       15,031  
    Mortgage loans held for sale   3,247       2,945       1,716       2,886       3,928  
    Total interest income   196,622       194,934       186,920       184,127       182,856  
    INTEREST EXPENSE:                  
    Deposits   82,128       82,023       78,388       73,200       64,171  
    Advances from the FHLB   29       942       2,438       917       3,438  
    Subordinated debt, net   2,237       2,236       2,236       2,236       2,245  
    Repurchase agreements and other borrowings   (54 )     685       640       41       (56 )
    Total interest expense   84,340       85,886       83,702       76,394       69,798  
    Net interest income   112,282       109,048       103,218       107,733       113,058  
    PROVISION FOR CREDIT LOSSES   (1,100 )     (177 )     (877 )     2,446       1,007  
    Net interest income after provision for credit losses   113,382       109,225       104,095       105,287       112,051  
    NONINTEREST INCOME:                  
    Residential mortgage banking income, net   11,786       13,422       10,477       8,035       10,648  
    Insurance commissions and related income, net   25,727       24,031       25,539       21,207       23,777  
    Property management income, net   11,221       14,312       16,773       7,358       12,800  
    Real estate brokerage income, net   —       —       —       (32 )     (63 )
    Service charges on deposit accounts   3,117       3,353       3,079       3,056       2,823  
    Credit card merchant fees, net   1,830       1,662       1,551       1,476       2,006  
    Investment commissions, net   2,835       2,580       2,343       2,380       2,363  
    BOLI   1,886       3,238       1,842       2,206       1,814  
    Other income   3,834       3,324       2,206       2,127       3,638  
    Net gain/(loss) on investment securities   —       —       74       —       —  
    Total noninterest income   62,236       65,922       63,884       47,813       59,806  
    NONINTEREST EXPENSE:                  
    Salaries and employee benefits   72,123       71,349       71,377       66,035       67,258  
    Occupancy   9,351       9,717       9,422       9,308       9,027  
    Furniture and equipment   4,657       4,634       4,478       4,445       4,100  
    Amortization – intangibles   3,130       3,298       3,246       3,411       3,610  
    Software   6,790       7,056       6,100       6,743       6,130  
    Data processing   4,701       4,606       3,916       3,529       4,140  
    Professional fees   4,720       3,788       3,180       3,339       2,770  
    Advertising and marketing   4,162       3,524       4,582       3,377       3,653  
    Other expenses   17,266       16,012       19,290       21,708       17,014  
    Total noninterest expense   126,900       123,984       125,591       121,895       117,702  
    Income before income tax expense and noncontrolling interest   48,718       51,163       42,388       31,205       54,155  
    Provision for income tax expense   5,592       8,124       7,261       2,660       9,410  
    Net income   43,126       43,039       35,127       28,545       44,745  
    Net income attributable to noncontrolling interest   (177 )     (183 )     (440 )     259       117  
    Net income attributable to TowneBank $ 42,949     $ 42,856     $ 34,687     $ 28,804     $ 44,862  
    Per common share information                  
    Basic earnings $ 0.57     $ 0.57     $ 0.46     $ 0.39     $ 0.60  
    Diluted earnings $ 0.57     $ 0.57     $ 0.46     $ 0.39     $ 0.60  
    Basic weighted average shares outstanding   74,940,827       74,925,877       74,816,420       74,773,335       74,750,294  
    Diluted weighted average shares outstanding   75,141,661       75,037,955       74,979,501       74,793,557       74,765,515  
    Cash dividends declared $ 0.25     $ 0.25     $ 0.25     $ 0.25     $ 0.25  
                       
    TOWNEBANK
    Banking Segment Financial Information (unaudited)
    (dollars in thousands)
     
                       
      Three Months Ended   Nine Months Ended   Increase/(Decrease)
      September 30,   June 30,   September 30,   YTD 2024 over 2023
        2024       2023       2024       2024       2023     Amount   Percent
    Revenue                          
    Net interest income $ 111,569     $ 112,189     $ 108,029     $ 322,280     $ 349,165     $ (26,885 )   (7.70 )%
    Service charges on deposit accounts   3,117       2,823       3,352       9,548       8,577       971     11.32 %
    Credit card merchant fees   1,830       2,006       1,662       5,042       5,232       (190 )   (3.63 )%
    Investment commissions, net   2,835       2,363       2,580       7,759       6,581       1,178     17.90 %
    Other income   4,828       4,224       4,840       13,096       12,012       1,084     9.02 %
    Subtotal   12,610       11,416       12,434       35,445       32,402       3,043     9.39 %
    Net gain/(loss) on investment securities   —       —       —       74       —       74     N/M
    Total noninterest income   12,610       11,416       12,434       35,519       32,402       3,117     9.62 %
    Total revenue   124,179       123,605       120,463       357,799       381,567       (23,768 )   (6.23 )%
                               
    Provision for credit losses   (1,043 )     1,206       (170 )     (2,189 )     16,442       (18,631 )   (113.31 )%
                               
    Expenses                          
    Salaries and employee benefits   47,148       42,727       46,640       140,261       128,161       12,100     9.44 %
    Occupancy   6,963       6,637       7,194       21,217       19,717       1,500     7.61 %
    Furniture and equipment   3,878       3,273       3,810       11,336       10,150       1,186     11.68 %
    Amortization of intangible assets   1,072       1,296       1,117       3,352       3,918       (566 )   (14.45 )%
    Other expenses   26,674       22,595       23,587       77,215       80,215       (3,000 )   (3.74 )%
    Total expenses   85,735       76,528       82,348       253,381       242,161       11,220     4.63 %
    Income before income tax, corporate allocation and noncontrolling interest   39,487       45,871       38,285       106,607       122,964       (16,357 )   (13.30 )%
    Corporate allocation   1,223       1,291       1,232       3,524       3,763       (239 )   (6.35 )%
    Income before income tax provision and noncontrolling interest   40,710       47,162       39,517       110,131       126,727       (16,596 )   (13.10 )%
    Provision for income tax expense   3,495       7,440       5,130       12,731       21,204       (8,473 )   (39.96 )%
    Net income   37,215       39,722       34,387       97,400       105,523       (8,123 )   (7.70 )%
    Noncontrolling interest   (29 )     —       (58 )     34       —       34     N/M
    Net income attributable to TowneBank $ 37,186     $ 39,722     $ 34,329     $ 97,434     $ 105,523     $ (8,089 )   (7.67 )%
                               
    Efficiency ratio (non-GAAP)   68.18 %     60.86 %     67.43 %     69.89 %     62.44 %     7.45 %   11.93 %
     
    TOWNEBANK
    Realty Segment Financial Information (unaudited)
    (dollars in thousands)
     
           
      Three Months Ended   Nine Months Ended   Increase/(Decrease)
      September 30,   June 30,   September 30,   YTD 2024 over 2023
        2024       2023       2024       2024       2023     Amount   Percent
    Revenue                          
    Residential mortgage brokerage income, net $ 12,211     $ 10,955     $ 13,996     $ 37,006     $ 32,964     $ 4,042     12.26 %
    Real estate brokerage income, net   —       (63 )     —       —       3,562       (3,562 )   (100.00 )%
    Title insurance and settlement fees   —       —       —       —       443       (443 )   (100.00 )%
    Property management fees, net   11,221       12,800       14,312       42,306       40,433       1,873     4.63 %
    Income (loss) from unconsolidated subsidiary   51       (63 )     67       148       (884 )     1,032     116.74 %
    Gain on equity investment   —       —       —       —       8,833       (8,833 )   (100.00 )%
    Net interest and other income   906       1,163       1,317       3,007       1,984       1,023     51.56 %
    Total revenue   24,389       24,792       29,692       82,467       87,335       (4,868 )   (5.57 )%
                               
    Provision for credit losses   (57 )     (199 )     (7 )     35       (210 )     245     116.67 %
                               
    Expenses                          
    Salaries and employee benefits   12,355       12,881       12,370       36,913       41,670       (4,757 )   (11.42 )%
    Occupancy   1,638       1,669       1,811       5,019       5,559       (540 )   (9.71 )%
    Furniture and equipment   604       600       596       1,794       1,933       (139 )   (7.19 )%
    Amortization of intangible assets   637       742       781       2,094       2,166       (72 )   (3.32 )%
    Other expenses   8,839       9,544       9,136       26,174       27,319       (1,145 )   (4.19 )%
    Total expenses   24,073       25,436       24,694       71,994       78,647       (6,653 )   (8.46 )%
                               
    Income before income tax, corporate allocation and noncontrolling interest   373       (445 )     5,005       10,438       8,898       1,540     17.31 %
    Corporate allocation   (484 )     (600 )     (490 )     (1,322 )     (1,800 )     478     (26.56 )%
    Income before income tax provision and noncontrolling interest   (111 )     (1,045 )     4,515       9,116       7,098       2,018     28.43 %
    Provision for income tax expense   18       (99 )     1,163       2,336       1,769       567     32.05 %
    Net income   (129 )     (946 )     3,352       6,780       5,329       1,451     27.23 %
    Noncontrolling interest   (148 )     117       (125 )     (834 )     (1,680 )     846     (50.36 )%
    Net income attributable to TowneBank $ (277 )   $ (829 )   $ 3,227     $ 5,946     $ 3,649     $ 2,297     62.95 %
                               
    Efficiency ratio excluding gain on equity investment (non-GAAP)   96.09 %     99.61 %     80.54 %     84.76 %     97.43 %   (12.67 )%   (13.00 )%
                               
    TOWNEBANK
    Insurance Segment Financial Information (unaudited)
    (dollars in thousands)
     
                       
      Three Months Ended   Nine Months Ended   Increase/(Decrease)
      September 30,   June 30,   September 30,   YTD 2024 over 2023
        2024       2023       2024       2024       2023     Amount   Percent
    Commission and fee income                          
    Property and casualty $ 23,157     $ 22,103     $ 22,225     $ 66,104     $ 60,259     $ 5,845     9.70 %
    Employee benefits   4,483       4,245       4,404       13,712       13,393       319     2.38 %
    Specialized benefit services   —       133       —       10       445       (435 )   (97.75 )%
    Total commissions and fees   27,640       26,481       26,629       79,826       74,097       5,729     7.73 %
                               
    Contingency and bonus revenue   2,731       2,335       2,951       10,185       9,343       842     9.01 %
    Other income   25       557       6       41       573       (532 )   (92.84 )%
    Total revenue   30,396       29,373       29,586       90,052       84,013       6,039     7.19 %
                               
    Employee commission expense   4,446       4,906       4,771       13,728       14,340       (612 )   (4.27 )%
    Revenue, net of commission expense   25,950       24,467       24,815       76,324       69,673       6,651     9.55 %
                               
    Salaries and employee benefits   12,620       11,650       12,339       37,675       34,293       3,382     9.86 %
    Occupancy   750       721       712       2,254       2,303       (49 )   (2.13 )%
    Furniture and equipment   175       227       228       639       650       (11 )   (1.69 )%
    Amortization of intangible assets   1,421       1,572       1,400       4,229       4,660       (431 )   (9.25 )%
    Other expenses   2,126       1,568       2,263       6,303       4,614       1,689     36.61 %
    Total operating expenses   17,092       15,738       16,942       51,100       46,520       4,580     9.85 %
    Income before income tax, corporate allocation and noncontrolling interest   8,858       8,729       7,873       25,224       23,153       2,071     8.94 %
    Corporate allocation   (739 )     (691 )     (742 )     (2,202 )     (1,963 )     (239 )   12.18 %
    Income before income tax provision and noncontrolling interest   8,119       8,038       7,131       23,022       21,190       1,832     8.65 %
    Provision for income tax expense   2,079       2,069       1,831       5,910       5,451       459     8.42 %
    Net income   6,040       5,969       5,300       17,112       15,739       1,373     8.72 %
    Noncontrolling interest   —       —       —       —       —       —     — %
    Net income attributable to TowneBank $ 6,040     $ 5,969     $ 5,300     $ 17,112     $ 15,739     $ 1,373     8.72 %
                               
    Provision for income taxes   2,079       2,069       1,831       5,910       5,451       459     8.42 %
    Depreciation, amortization and interest expense   1,550       1,726       1,529       4,632       5,115       (483 )   (9.44 )%
    EBITDA (non-GAAP) $ 9,669     $ 9,764     $ 8,660     $ 27,654     $ 26,305     $ 1,349     5.13 %
                               
    Efficiency ratio (non-GAAP)   60.44 %     59.21 %     62.63 %     61.43 %     60.55 %     0.88 %   1.45 %
     
    TOWNEBANK
    Reconciliation of Non-GAAP Financial Measures
    (dollars in thousands)
             
      Three Months Ended   Nine Months Ended
      September 30,   September 30,   June 30,   September 30,   September 30,
        2024       2023       2024       2024       2023  
                       
    Return on average assets (GAAP)   1.00 %     1.06 %     1.01 %     0.95 %     1.00 %
    Impact of excluding average goodwill and other intangibles and amortization   0.09 %     0.11 %     0.10 %     0.09 %     0.11 %
    Return on average tangible assets (non-GAAP)   1.09 %     1.17 %     1.11 %     1.04 %     1.11 %
                       
    Return on average equity (GAAP)   8.12 %     8.96 %     8.43 %     7.80 %     8.48 %
    Impact of excluding average goodwill and other intangibles and amortization   3.30 %     4.01 %     3.60 %     3.31 %     3.87 %
    Return on average tangible equity (non-GAAP)   11.42 %     12.97 %     12.03 %     11.11 %     12.35 %
                       
    Return on average common equity (GAAP)   8.18 %     9.04 %     8.49 %     7.86 %     8.54 %
    Impact of excluding average goodwill and other intangibles and amortization   3.36 %     4.07 %     3.67 %     3.37 %     3.95 %
    Return on average tangible common equity
    (non-GAAP)    		   11.54 %     13.11 %     12.16 %     11.23 %     12.49 %
                       
    Book value (GAAP) $ 28.59     $ 26.28     $ 27.62     $ 28.59     $ 26.28  
    Impact of excluding average goodwill and other intangibles and amortization   (6.94 )     (7.00 )     (6.97 )     (6.94 )     (7.00 )
    Tangible book value (non-GAAP) $ 21.65     $ 19.28     $ 20.65     $ 21.65     $ 19.28  
                       
    Efficiency ratio (GAAP)   72.71 %     68.09 %     70.86 %     72.88 %     68.20 %
    Impact of exclusions (1.78 )%   (1.88 )%   (1.88 )%   (1.86 )%   (0.82 )%
    Efficiency ratio (non-GAAP)   70.93 %     66.21 %     68.98 %     71.02 %     67.38 %
                       
    Average assets (GAAP) $ 17,028,141     $ 16,762,859     $ 16,982,482     $ 16,958,540     $ 16,647,804  
    Less: average goodwill and intangible assets   522,219       526,445       525,122       523,335       526,375  
    Average tangible assets (non-GAAP) $ 16,505,922     $ 16,236,414     $ 16,457,360     $ 16,435,205     $ 16,121,429  
                       
    Average equity (GAAP) $ 2,105,049     $ 1,986,469     $ 2,045,622     $ 2,063,800     $ 1,970,510  
    Less: average goodwill and intangible assets   522,219       526,445       525,122       523,335       526,375  
    Average tangible equity (non-GAAP) $ 1,582,830     $ 1,460,024     $ 1,520,500     $ 1,540,465     $ 1,444,135  
                       
    Average common equity (GAAP) $ 2,088,674     $ 1,969,898     $ 2,029,150     $ 2,047,482     $ 1,954,850  
    Less: average goodwill and intangible assets   522,219       526,445       525,122       523,335       526,375  
    Average tangible common equity (non-GAAP) $ 1,566,455     $ 1,443,453     $ 1,504,028     $ 1,524,147     $ 1,428,475  
                       
    Net income (GAAP) $ 42,949     $ 44,862     $ 42,856     $ 120,492     $ 124,911  
    Amortization of intangibles, net of tax   2,473       2,852       2,605       7,643       8,488  
    Tangible net income (non-GAAP) $ 45,422     $ 47,714     $ 45,461     $ 128,135     $ 133,399  
                       
    Total revenue (GAAP) $ 174,518     $ 172,864     $ 174,970     $ 516,590     $ 538,575  
    Net (gain)/loss on investment securities   —       —       —       (74 )     —  
    Other nonrecurring (income) loss   (20 )     (554 )     —       (20 )     (9,386 )
    Total Revenue for efficiency calculation (non-GAAP) $ 174,498     $ 172,310     $ 174,970     $ 516,496     $ 529,189  
                       
    Noninterest expense (GAAP) $ 126,900     $ 117,702     $ 123,984     $ 376,475     $ 367,328  
    Less: amortization of intangibles   3,130       3,610       3,298       9,675       10,744  
    Noninterest expense net of amortization (non-GAAP) $ 123,770     $ 114,092     $ 120,686     $ 366,800     $ 356,584  
     
    TOWNEBANK
    Reconciliation of Non-GAAP Financial Measures
    (dollars in thousands, except per share data)
                         
                         
    Reconciliation of GAAP Earnings to Operating Earnings Excluding Certain Items Affecting Comparability   Three Months Ended
        September 30,   June 30,   March 31,   December 31,   September 30,
          2024       2024       2023       2023       2023  
    Net income (GAAP)   $ 42,949     $ 42,856     $ 34,687     $ 28,804     $ 44,862  
                         
    Adjustments                    
    Plus: Acquisition-related expenses, net of tax     460       18       564       56       458  
    Plus: FDIC special assessment, net of tax     —       (310 )     1,021       4,083       —  
    Less: Gain on sale of equity investments, net of noncontrolling interest     (16 )     —       —       (1,846 )     (438 )
    Core operating earnings, excluding certain items affecting comparability (non-GAAP)   $ 43,393     $ 42,564     $ 36,272     $ 31,097     $ 44,882  
    Weighted average diluted shares     75,141,661       75,037,955       74,979,501       74,793,557       74,765,515  
    Diluted EPS (GAAP)   $ 0.57     $ 0.57     $ 0.46     $ 0.39     $ 0.60  
    Diluted EPS, excluding certain items affecting comparability (non-GAAP)   $ 0.58     $ 0.57     $ 0.48     $ 0.42     $ 0.60  
    Average assets   $ 17,028,141     $ 16,982,482     $ 16,864,235     $ 16,683,041     $ 16,762,859  
    Average tangible equity   $ 1,582,830     $ 1,520,500       1,517,600     $ 1,465,216     $ 1,460,024  
    Average common tangible equity   $ 1,566,455     $ 1,504,028     $ 1,501,494     $ 1,449,052     $ 1,443,453  
    Return on average assets, excluding certain items affecting comparability (non-GAAP)     1.01 %     1.01 %     0.87 %     0.74 %     1.06 %
    Return on average tangible equity, excluding certain items affecting comparability (non-GAAP)     11.53 %     11.95 %     10.29 %     9.15 %     12.97 %
    Return on average common tangible equity, excluding certain items affecting comparability (non-GAAP)     11.65 %     12.08 %     10.40 %     9.25 %     13.13 %
    Efficiency ratio, excluding certain items affecting comparability (non-GAAP)     72.45 %     70.85 %     74.84 %     78.33 %     67.76 %
                         
    TOWNEBANK
    Reconciliation of Non-GAAP Financial Measures
    (dollars in thousands, except per share data)
             
             
    Reconciliation of GAAP Earnings to Operating Earnings Excluding Certain Items Affecting Comparability   Nine Months Ended
        September 30,   September 30,
          2024       2023  
    Net income (GAAP)   $ 120,492     $ 124,911  
             
    Adjustments        
    Plus: Acquisition-related expenses, net of tax     1,040       7,718  
    Plus: FDIC special assessment, net of tax     711       —  
    Plus: Initial provision for acquired loans, net of tax     —       3,166  
    Less: Gain on sale of equity investments, net of noncontrolling interest and tax     (16 )     (5,951 )
    Core operating earnings, excluding certain items affecting comparability (non-GAAP)   $ 122,227     $ 129,844  
    Weighted average diluted shares     75,043,848       74,618,743  
    Diluted EPS (GAAP)   $ 1.61     $ 1.67  
    Diluted EPS, excluding certain items affecting comparability (non-GAAP)   $ 1.63     $ 1.74  
    Average assets   $ 16,958,540     $ 16,647,804  
    Average tangible equity   $ 1,540,465     $ 1,444,135  
    Average tangible common equity   $ 1,524,147     $ 1,428,475  
    Return on average assets, excluding certain items affecting comparability (non-GAAP)     0.96 %     1.04 %
    Return on average tangible equity, excluding certain items affecting comparability (non-GAAP)     11.26 %     12.81 %
    Return on average common tangible equity, excluding certain items affecting comparability (non-GAAP)     11.38 %     12.95 %
    Efficiency ratio, excluding certain items affecting comparability (non-GAAP)     72.68 %     67.61 %

    The MIL Network –

  • MIL-OSI: Live Oak Bancshares, Inc. Reports Third Quarter 2024 Results

    Source: GlobeNewswire (MIL-OSI)

    WILMINGTON, N.C., Oct. 23, 2024 (GLOBE NEWSWIRE) — Live Oak Bancshares, Inc. (NYSE: LOB) (“Live Oak” or “the Company”) today reported third quarter of 2024 net income of $13.0 million, or $0.28 per diluted share.

    “Live Oak delivered historic production levels this quarter as our teams continue to put capital into the hands of business owners across the country,” said Live Oak Chairman and Chief Executive Officer James S. (Chip) Mahan III. “We believe our business momentum is in an exciting place and our conservative approach to growth is driving positive operating leverage, revenue, and deeper customer relationships.”

    Third Quarter 2024 Key Measures

    (Dollars in thousands, except per share data)       Increase (Decrease)    
      3Q 2024   2Q 2024   Dollars   Percent   3Q 2023
    Total revenue(1) $ 129,932     $ 125,479     $ 4,453       3.5 %   $ 127,301  
    Total noninterest expense   77,589       77,656       (67 )     (0.1 )     74,262  
    Income before taxes   17,841       36,058       (18,217 )     (50.5 )     42,760  
    Effective tax rate   27.0 %     25.2 %     n/a       n/a       6.9 %
    Net income $ 13,025     $ 26,963     $ (13,938 )     (51.7 )%   $ 39,793  
    Diluted earnings per share   0.28       0.59       (0.31 )     (52.5 )     0.88  
    Loan and lease production:                  
    Loans and leases originated $ 1,757,856     $ 1,171,141     $ 586,715       50.1 %   $ 1,073,255  
    % Fully funded   42.4 %     38.2 %     n/a       n/a       52.2 %
    Total loans and leases: $ 10,191,868     $ 9,535,766     $ 656,102       6.9 %   $ 8,775,235  
    Total assets:   12,607,346       11,868,570       738,776       6.2       10,950,460  
    Total deposits:   11,400,547       10,707,031       693,516       6.5       10,003,642  

    (1) Total revenue consists of net interest income and total noninterest income.

    Loans and Leases

    As of September 30, 2024, the total loan and lease portfolio was $10.19 billion, 6.9% above its level at June 30, 2024, and 16.1% above its level a year ago. Excluding historical Paycheck Protection Program loans, the third quarter of 2024 was the Company’s highest loan production quarter of all time. Compared to the second quarter of 2024, loans and leases held for investment increased $659.8 million, or 7.2%, to $9.83 billion while loans held for sale decreased $3.7 million, or 1.0%, to $360.0 million. Average loans and leases were $9.76 billion during the third quarter of 2024 compared to $9.38 billion during the second quarter of 2024. 

    The total loan and lease portfolio at September 30, 2024, and June 30, 2024, was comprised of 34.5% and 36.4% of guaranteed loans, respectively.

    Loan and lease originations totaled $1.76 billion during the third quarter of 2024, an increase of $586.7 million, or 50.1%, from the second quarter of 2024. Loan and lease originations increased $684.6 million, or 63.8%, from the third quarter of 2023.

    Deposits

    Total deposits increased to $11.40 billion at September 30, 2024, an increase of $693.5 million compared to June 30, 2024, and an increase of $1.40 billion compared to September 30, 2023. The increase in total deposits from prior periods was to support growth in the loan and lease portfolio as well as the Company’s targeted liquidity levels.

    Average total interest-bearing deposits for the third quarter of 2024 increased $287.5 million, or 2.8%, to $10.56 billion, compared to $10.27 billion for the second quarter of 2024. The ratio of average total loans and leases to average interest-bearing deposits was 92.5% for the third quarter of 2024, compared to 91.4% for the second quarter of 2024.

    Borrowings

    Borrowings totaled $115.4 million at September 30, 2024 compared to $117.7 million and $25.8 million at June 30, 2024, and September 30, 2023, respectively. During the first quarter of 2024, the Company increased long-term borrowings by $100.0 million through an unsecured 5.95% fixed rate 60-month term loan with a third party correspondent bank. This increase in borrowings was to strategically enhance capital levels in order to accommodate future growth expectations.

    Net Interest Income

    Net interest income for the third quarter of 2024 was $97.0 million compared to $91.3 million for the second quarter of 2024 and $89.4 million for the third quarter of 2023. The net interest margin for the third quarter of 2024 and second quarter of 2024 was 3.33% and 3.28%, respectively, an increase of five basis points quarter over quarter. During the third quarter of 2024, the average cost of interest-bearing liabilities increased by two basis points, while the average yield on interest-earning assets increased by six basis points.

    The increase in net interest income for the third quarter of 2024 compared to the third quarter of 2023 was largely driven by growth in average loans and leases held for investment. Partially mitigating this increase was a decrease in the net interest margin by four basis points arising from an increase in deposits and borrowings, combined with the increase in average cost of funds, outpacing the increase in average yield on interest-earning assets.

    Noninterest Income

    Noninterest income for the third quarter of 2024 was $32.9 million, a decrease of $1.2 million compared to the second quarter of 2024, and a decrease of $5.0 million compared to the third quarter of 2023. The primary drivers in noninterest income changes are outlined below.

    The loan servicing asset revaluation resulted in a loss of $4.2 million for the third quarter of 2024 compared to a $11.3 million gain for the third quarter of 2023. This decrease between periods was principally due to the third quarter of 2023 change in valuation techniques used to estimate the fair value of servicing rights which resulted in a nonrecurring gain of $13.7 million during that period.

    Net gains on sales of loans was $16.6 million, a $2.3 million increase compared to the second quarter of 2024 and a $4.0 million increase compared to the third quarter of 2023. The increase in net gains on sales of loans for both compared periods was the result of higher levels of market premiums combined with increased loan sale volumes. The average guaranteed loan sale premium was 107%, 106% and 105% for the third and second quarters of 2024 and third quarter of 2023, respectively. The volume of guaranteed loans sold was $266.3 million for the third quarter of 2024 compared to $250.5 million sold in the second quarter of 2024 and $225.6 million sold in the third quarter of 2023.

    Loans accounted for under the fair value option had a net gain of $2.3 million for the third quarter of 2024, compared to a net gain of $172 thousand for the second quarter of 2024 and a net loss of $568 thousand for the third quarter of 2023. The increased levels of net gains arising from the valuation of loans accounted for under the fair value option compared to the second quarter of 2024 was largely associated with lower market interest rates. The increase in net gains when compared to the third quarter of 2023 was principally due to the third quarter of 2023 change in valuation techniques used to estimate the fair value of loans measured at fair value, which resulted in a nonrecurring gain of $1.3 million during that period.

    Management fee income decreased by $2.2 million, as compared to both the second quarter of 2024 and third quarter of 2023. This decrease was the result of a restructuring of the Canapi Funds in the third quarter of 2024. In connection with that restructuring, the Company’s subsidiary Canapi Advisors voluntarily withdrew as an advisor to the funds. The Company remains an investor in the Canapi Funds and continues its focus on new and emerging financial technology companies.

    Other noninterest income for the third quarter of 2024 totaled $7.1 million compared to $11.0 million for the second quarter of 2024 and $3.5 million for the third quarter of 2023. The quarter over quarter decrease of $3.9 million was largely related to a $6.7 million gain arising from the sale of one of the Company’s aircraft in the second quarter of 2024, partially offset by a $2.4 million gain from the sale of a building in the third quarter of 2024. The $3.6 million increase compared to the third quarter of 2023 was largely related to the above mentioned $2.4 million gain from the sale of an idle building and accompanying land that was determined earlier in 2024 not to be best suited to serve the Company’s future expansion plans.

    Noninterest Expense

    Noninterest expense for the third quarter of 2024 totaled $77.6 million compared to $77.7 million for the second quarter of 2024 and $74.3 million for the third quarter of 2023. Compared to the third quarter of 2023, the increase in noninterest expense was principally impacted by smaller balance increases in various expense categories, partially offset by $2.2 million in decreased levels of FDIC insurance expense. The decrease in FDIC insurance expense was the product of favorable changes in the Company’s FDIC assessment rates.

    Asset Quality

    During the third quarter of 2024, the Company recognized net charge-offs for loans carried at historical cost of $1.7 million, compared to $8.3 million in the second quarter of 2024 and $9.1 million in the third quarter of 2023. Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended September 30, 2024, June 30, 2024, and September 30, 2023, was 0.08%, 0.38% and 0.48%, respectively.

    Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $8.7 million and $9.6 million accounted for under the fair value option at September 30, 2024, and June 30, 2024, respectively, increased to $49.4 million, or 0.52% of loans and leases held for investment which are carried at historical cost, at September 30, 2024, compared to $37.3 million, or 0.42%, at June 30, 2024.

    Provision for Credit Losses

    The provision for credit losses for the third quarter of 2024 totaled $34.5 million compared to $11.8 million for the second quarter of 2024 and $10.3 million for the third quarter of 2023. The level of provision expense in the third quarter of 2024 was primarily the result of specific reserve increases on individually evaluated loans and continued growth of the loan and lease portfolio. Provision expense for three individually evaluated loan relationships amounted to $13.6 million, or 60.0% and 56.3% of the increase in the total provision for loan and lease losses when compared to the second quarter of 2024 and third quarter of 2023, respectively.

    The allowance for credit losses on loans and leases totaled $168.7 million at September 30, 2024, compared to $137.9 million at June 30, 2024. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost was 1.78% and 1.57% at September 30, 2024, and June 30, 2024, respectively.

    Income Tax

    Income tax expense and related effective tax rate was $4.8 million and 27.0% for the third quarter of 2024, $9.1 million and 25.2% for the second quarter of 2024 and $3.0 million and 6.9% for the third quarter of 2023, respectively. The lower level of income tax expense for the third quarter of 2024 compared to the second quarter of 2024 was primarily the result of the decreased level of pretax income. The higher level of income tax expense for the third quarter of 2024 as compared to the third quarter of 2023 was primarily the result of lower levels of anticipated investment tax credits in 2024 as compared to the prior year.

    Conference Call

    Live Oak will host a conference call to discuss the Company’s financial results and business outlook tomorrow, October 24, 2024, at 9:00 a.m. ET. The call will be accessible by telephone and webcast using Conference ID: 04478. A supplementary slide presentation will be posted to the website prior to the event, and a replay will be available for 12 months following the event. The conference call details are as follows:

    Live Telephone Dial-In

    U.S.: 800.549.8228
    International: +1 646.564.2877
    Pass Code: None Required

    Live Webcast Log-In

    Webcast Link: investor.liveoakbank.com
    Registration: Name and Email Required
    Multi-Factor Code: Provided After Registration

    Important Note Regarding Forward-Looking Statements

    Statements in this press release that are based on other than historical data or that express the Company’s plans or expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements based on historical data are not intended and should not be understood to indicate the Company’s expectations regarding future events. Forward-looking statements provide current expectations or forecasts of future events or determinations. These forward-looking statements are not guarantees of future performance or determinations, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this press release. Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include changes in Small Business Administration (“SBA”) rules, regulations or loan products, including the Section 7(a) program, changes in SBA standard operating procedures or changes in Live Oak Banking Company’s status as an SBA Preferred Lender; changes in rules, regulations or procedures for other government loan programs, including those of the United States Department of Agriculture; the impacts of global health crises and pandemics, such as the Coronavirus Disease 2019 (COVID-19) pandemic, on trade (including supply chains and export levels), travel, employee productivity and other economic activities that may have a destabilizing and negative effect on financial markets, economic activity and customer behavior; adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments; a reduction in or the termination of the Company’s ability to use the technology-based platform that is critical to the success of its business model, including a failure in or a breach of operational or security systems or those of its third-party service providers; technological risks and developments, including cyber threats, attacks, or events; competition from other lenders; the Company’s ability to attract and retain key personnel; market and economic conditions and the associated impact on the Company; operational, liquidity and credit risks associated with the Company’s business; changes in political and economic conditions, including any prolonged U.S. government shutdown; the impact of heightened regulatory scrutiny of financial products and services and the Company’s ability to comply with regulatory requirements and expectations; a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget; adverse results, including related fees and expenses, from pending or future lawsuits, government investigations or private actions; and the other factors discussed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov). Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

    About Live Oak Bancshares, Inc.

    Live Oak Bancshares, Inc. (NYSE: LOB) is a financial holding company and the parent company of Live Oak Bank. Live Oak Bancshares and its subsidiaries partner with businesses that share a groundbreaking focus on service and technology to redefine banking. To learn more, visit www.liveoakbank.com.

    Contacts:

    Walter J. Phifer | CFO | Investor Relations | 910.202.6926
    Claire Parker | Corporate Communications | Media Relations | 910.597.1592

    Live Oak Bancshares, Inc.
    Quarterly Statements of Income (unaudited)
    (Dollars in thousands, except per share data)

      Three Months Ended   3Q 2024 Change vs.
      3Q 2024   2Q 2024   1Q 2024   4Q 2023   3Q 2023   2Q 2024   3Q 2023
    Interest income                     %   %
    Loans and fees on loans $ 192,170     $ 181,840     $ 176,010     $ 169,531     $ 162,722       5.7       18.1  
    Investment securities, taxable   9,750       9,219       8,954       8,746       8,701       5.8       12.1  
    Other interest earning assets   7,016       7,389       7,456       8,259       9,188       (5.0 )     (23.6 )
    Total interest income   208,936       198,448       192,420       186,536       180,611       5.3       15.7  
    Interest expense                          
    Deposits   110,174       105,358       101,998       96,695       90,914       4.6       21.2  
    Borrowings   1,762       1,770       311       265       287       (0.5 )     513.9  
    Total interest expense   111,936       107,128       102,309       96,960       91,201       4.5       22.7  
    Net interest income   97,000       91,320       90,111       89,576       89,410       6.2       8.5  
    Provision for credit losses   34,502       11,765       16,364       8,995       10,279       193.3       235.7  
    Net interest income after provision for credit losses   62,498       79,555       73,747       80,581       79,131       (21.4 )     (21.0 )
    Noninterest income                          
    Loan servicing revenue   8,040       7,347       7,624       7,342       6,990       9.4       15.0  
    Loan servicing asset revaluation   (4,207 )     (2,878 )     (2,744 )     (3,974 )     11,335       (46.2 )     (137.1 )
    Net gains on sales of loans   16,646       14,395       11,502       12,891       12,675       15.6       31.3  
    Net gain (loss) on loans accounted for under the fair value option   2,255       172       (219 )     (170 )     (568 )     1211.0       497.0  
    Equity method investments (loss) income   (1,393 )     (1,767 )     (5,022 )     47       (1,034 )     21.2       (34.7 )
    Equity security investments gains (losses), net   909       161       (529 )     (384 )     (783 )     464.6       216.1  
    Lease income   2,424       2,423       2,453       2,439       2,498       —       (3.0 )
    Management fee income   1,116       3,271       3,271       3,309       3,277       (65.9 )     (65.9 )
    Other noninterest income   7,142       11,035       9,761       8,607       3,501       (35.3 )     104.0  
    Total noninterest income   32,932       34,159       26,097       30,107       37,891       (3.6 )     (13.1 )
    Noninterest expense                          
    Salaries and employee benefits   44,524       46,255       47,275       44,274       42,947       (3.7 )     3.7  
    Travel expense   2,344       2,328       2,438       1,544       2,197       0.7       6.7  
    Professional services expense   3,287       3,061       1,878       3,052       1,762       7.4       86.5  
    Advertising and marketing expense   2,473       3,004       3,692       2,501       3,446       (17.7 )     (28.2 )
    Occupancy expense   2,807       2,388       2,247       2,231       2,129       17.5       31.8  
    Technology expense   9,081       7,996       7,723       8,402       7,722       13.6       17.6  
    Equipment expense   3,472       3,511       3,074       3,480       3,676       (1.1 )     (5.5 )
    Other loan origination and maintenance expense   4,872       3,659       3,911       3,937       3,498       33.2       39.3  
    Renewable energy tax credit investment impairment (recovery)   115       170       (927 )     14,575       —       (32.4 )     100.0  
    FDIC insurance   1,933       2,649       3,200       4,091       4,115       (27.0 )     (53.0 )
    Other expense   2,681       2,635       3,226       5,117       2,770       1.7       (3.2 )
    Total noninterest expense   77,589       77,656       77,737       93,204       74,262       (0.1 )     4.5  
    Income before taxes   17,841       36,058       22,107       17,484       42,760       (50.5 )     (58.3 )
    Income tax expense (benefit)   4,816       9,095       (5,479 )     1,321       2,967       (47.0 )     62.3  
    Net income $ 13,025     $ 26,963     $ 27,586     $ 16,163     $ 39,793       (51.7 )     (67.3 )
    Earnings per share                          
    Basic $ 0.28     $ 0.60     $ 0.62     $ 0.36     $ 0.89       (53.3 )     (68.5 )
    Diluted $ 0.28     $ 0.59     $ 0.60     $ 0.36     $ 0.88       (52.5 )     (68.2 )
    Weighted average shares outstanding                          
    Basic   45,073,482       44,974,942       44,762,308       44,516,646       44,408,997          
    Diluted   45,953,947       45,525,082       45,641,210       45,306,506       45,268,745          

    Live Oak Bancshares, Inc.
    Quarterly Balance Sheets (unaudited)
    (Dollars in thousands)

      As of the quarter ended   3Q 2024 Change vs.
      3Q 2024   2Q 2024   1Q 2024   4Q 2023   3Q 2023   2Q 2024   3Q 2023
    Assets                     %   %
    Cash and due from banks $ 666,585     $ 615,449     $ 597,394     $ 582,540     $ 534,774       8.3       24.6  
    Certificates of deposit with other banks   250       250       250       250       3,750       —       (93.3 )
    Investment securities available-for-sale   1,233,466       1,151,195       1,120,622       1,126,160       1,099,878       7.1       12.1  
    Loans held for sale   359,977       363,632       310,749       387,037       572,604       (1.0 )     (37.1 )
    Loans and leases held for investment(1)   9,831,891       9,172,134       8,912,561       8,633,847       8,202,631       7.2       19.9  
    Allowance for credit losses on loans and leases   (168,737 )     (137,867 )     (139,041 )     (125,840 )     (121,273 )     (22.4 )     (39.1 )
    Net loans and leases   9,663,154       9,034,267       8,773,520       8,508,007       8,081,358       7.0       19.6  
    Premises and equipment, net   267,032       267,864       258,071       257,881       258,041       (0.3 )     3.5  
    Foreclosed assets   8,015       8,015       8,561       6,481       6,701       —       19.6  
    Servicing assets   52,553       51,528       49,343       48,591       47,127       2.0       11.5  
    Other assets   356,314       376,370       387,059       354,476       346,227       (5.3 )     2.9  
    Total assets $ 12,607,346     $ 11,868,570     $ 11,505,569     $ 11,271,423     $ 10,950,460       6.2       15.1  
    Liabilities and shareholders’ equity                          
    Liabilities                          
    Deposits:                          
    Noninterest-bearing $ 258,844     $ 264,013     $ 226,668     $ 259,270     $ 239,536       (2.0 )     8.1  
    Interest-bearing   11,141,703       10,443,018       10,156,693       10,015,749       9,764,106       6.7       14.1  
    Total deposits   11,400,547       10,707,031       10,383,361       10,275,019       10,003,642       6.5       14.0  
    Borrowings   115,371       117,745       120,242       23,354       25,847       (2.0 )     346.4  
    Other liabilities   83,672       82,745       74,248       70,384       70,603       1.1       18.5  
    Total liabilities   11,599,590       10,907,521       10,577,851       10,368,757       10,100,092       6.3       14.8  
    Shareholders’ equity                          
    Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding   —       —       —       —       —       —       —  
    Class A common stock (voting)   361,925       356,381       349,648       344,568       340,929       1.6       6.2  
    Class B common stock (non-voting)   —       —       —       —       —       —       —  
    Retained earnings   707,026       695,172       669,307       642,817       627,759       1.7       12.6  
    Accumulated other comprehensive loss   (61,195 )     (90,504 )     (91,237 )     (84,719 )     (118,320 )     32.4       48.3  
    Total shareholders’ equity   1,007,756       961,049       927,718       902,666       850,368       4.9       18.5  
    Total liabilities and shareholders’ equity $ 12,607,346     $ 11,868,570     $ 11,505,569     $ 11,271,423     $ 10,950,460       6.2       15.1  

    (1) Includes $343.4 million, $363.0 million, $379.2 million, $388.0 million and $410.1 million measured at fair value for the quarters ended September 30, 2024, June 30, 2024, March 31, 2024, December 31, 2023, and September 30, 2023, respectively.

     

    Live Oak Bancshares, Inc.
    Statements of Income (unaudited)
    (Dollars in thousands, except per share data)

      Nine Months Ended
      September 30, 2024   September 30, 2023
    Interest income      
    Loans and fees on loans $ 550,020     $ 454,136  
    Investment securities, taxable   27,923       24,751  
    Other interest earning assets   21,861       22,852  
    Total interest income   599,804       501,739  
    Interest expense      
    Deposits   317,530       243,512  
    Borrowings   3,843       2,498  
    Total interest expense   321,373       246,010  
    Net interest income   278,431       255,729  
    Provision for credit losses   62,631       42,328  
    Net interest income after provision for credit losses   215,800       213,401  
    Noninterest income      
    Loan servicing revenue   23,011       20,057  
    Loan servicing asset revaluation   (9,829 )     8,860  
    Net gains on sales of loans   42,543       33,654  
    Net gain (loss) on loans accounted for under the fair value option   2,208       (3,369 )
    Equity method investments (loss) income   (8,182 )     (6,041 )
    Equity security investments gain (losses), net   541       (585 )
    Lease income   7,300       7,568  
    Management fee income   7,658       10,015  
    Other noninterest income   27,938       11,467  
    Total noninterest income   93,188       81,626  
    Noninterest expense      
    Salaries and employee benefits   138,054       130,778  
    Travel expense   7,110       7,378  
    Professional services expense   8,226       4,685  
    Advertising and marketing expense   9,169       10,058  
    Occupancy expense   7,442       6,259  
    Technology expense   24,800       23,456  
    Equipment expense   10,057       11,517  
    Other loan origination and maintenance expense   12,442       10,867  
    Renewable energy tax credit investment (recovery) impairment   (642 )     69  
    FDIC insurance   7,782       12,579  
    Other expense   8,542       12,035  
    Total noninterest expense   232,982       229,681  
    Income before taxes   76,006       65,346  
    Income tax expense   8,432       7,611  
    Net income $ 67,574     $ 57,735  
    Earnings per share      
    Basic $ 1.50     $ 1.30  
    Diluted $ 1.48     $ 1.28  
    Weighted average shares outstanding      
    Basic   44,937,409       44,298,798  
    Diluted   45,707,245       45,023,739  

    Live Oak Bancshares, Inc.
    Quarterly Selected Financial Data
    (Dollars in thousands, except per share data)

      As of and for the three months ended
      3Q 2024   2Q 2024   1Q 2024   4Q 2023   3Q 2023
    Income Statement Data                  
    Net income $ 13,025     $ 26,963     $ 27,586     $ 16,163     $ 39,793  
    Per Common Share                  
    Net income, diluted $ 0.28     $ 0.59     $ 0.60     $ 0.36     $ 0.88  
    Dividends declared   0.03       0.03       0.03       0.03       0.03  
    Book value   22.32       21.35       20.64       20.23       19.12  
    Tangible book value(1)   22.24       21.28       20.57       20.15       19.04  
    Performance Ratios                  
    Return on average assets (annualized)   0.43 %     0.93 %     0.98 %     0.58 %     1.46 %
    Return on average equity (annualized)   5.21       11.39       11.93       7.36       18.68  
    Net interest margin   3.33       3.28       3.33       3.32       3.37  
    Efficiency ratio(1)   59.72       61.89       66.89       77.88       58.34  
    Noninterest income to total revenue   25.35       27.22       22.46       25.16       29.76  
    Selected Loan Metrics                  
    Loans and leases originated $ 1,757,856     $ 1,171,141     $ 805,129     $ 981,703     $ 1,073,255  
    Outstanding balance of sold loans serviced   4,452,750       4,292,857       4,329,097       4,238,328       4,028,575  
    Asset Quality Ratios                  
    Allowance for credit losses to loans and leases held for investment(3)   1.78 %     1.57 %     1.63 %     1.53 %     1.56 %
    Net charge-offs(3) $ 1,710     $ 8,253     $ 3,163     $ 4,428     $ 9,122  
    Net charge-offs to average loans and leases held for investment(2) (3)   0.08 %     0.38 %     0.15 %     0.22 %     0.48 %
                       
    Nonperforming loans and leases at historical cost(3)                  
    Unguaranteed $ 49,398     $ 37,340     $ 43,117     $ 39,285     $ 33,255  
    Guaranteed   166,177       122,752       105,351       95,678       65,837  
    Total   215,575       160,092       148,468       134,963       99,092  
    Unguaranteed nonperforming historical cost loans and leases, to loans and leases held for investment(3)   0.52 %     0.42 %     0.51 %     0.48 %     0.43 %
                       
    Nonperforming loans at fair value(4)                  
    Unguaranteed $ 8,672     $ 9,590     $ 7,942     $ 7,230     $ 6,518  
    Guaranteed   49,822       51,570       47,620       41,244       39,378  
    Total   58,494       61,160       55,562       48,474       45,896  
    Unguaranteed nonperforming fair value loans to fair value loans held for investment(4)   2.53 %     2.64 %     2.09 %     1.86 %     1.59 %
                       
    Capital Ratios                  
    Common equity tier 1 capital (to risk-weighted assets)   11.19 %     11.85 %     11.89 %     11.73 %     11.63 %
    Tier 1 leverage capital (to average assets)   8.60       8.71       8.69       8.58       8.56  

    Notes to Quarterly Selected Financial Data
    (1) See accompanying GAAP to Non-GAAP Reconciliation.
    (2) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.
    (3) Loans and leases at historical cost only (excludes loans measured at fair value).
    (4) Loans accounted for under the fair value option only (excludes loans and leases carried at historical cost).

    Live Oak Bancshares, Inc.
    Quarterly Average Balances and Net Interest Margin
    (Dollars in thousands)

      Three Months Ended
    September 30, 2024    		   Three Months Ended
    June 30, 2024
      Average Balance   Interest   Average Yield/Rate   Average Balance   Interest   Average Yield/Rate
    Interest-earning assets:                      
    Interest-earning balances in other banks $ 519,340     $ 7,016       5.37 %   $ 555,570     $ 7,389       5.35 %
    Investment securities   1,287,410       9,750       3.01       1,263,675       9,219       2.93  
    Loans held for sale   409,902       9,859       9.57       387,824       9,329       9.67  
    Loans and leases held for investment(1)   9,354,522       182,311       7.75       8,997,164       172,511       7.71  
    Total interest-earning assets   11,571,174       208,936       7.18       11,204,233       198,448       7.12  
    Less: Allowance for credit losses on loans and leases   (137,285 )             (136,668 )        
    Noninterest-earning assets   567,098               562,488          
    Total assets $ 12,000,987             $ 11,630,053          
    Interest-bearing liabilities:                      
    Interest-bearing checking $ 350,239     $ 4,892       5.56 %   $ 304,505     $ 4,267       5.64 %
    Savings   5,043,930       51,516       4.06       4,804,037       48,617       4.07  
    Money market accounts   134,481       190       0.56       128,625       186       0.58  
    Certificates of deposit   5,028,830       53,576       4.24       5,032,856       52,288       4.18  
    Total deposits   10,557,480       110,174       4.15       10,270,023       105,358       4.13  
    Borrowings   116,925       1,762       6.00       119,321       1,770       5.97  
    Total interest-bearing liabilities   10,674,405       111,936       4.17       10,389,344       107,128       4.15  
    Noninterest-bearing deposits   237,387               223,026          
    Noninterest-bearing liabilities   90,079               70,667          
    Shareholders’ equity   999,116               947,016          
    Total liabilities and shareholders’ equity $ 12,000,987             $ 11,630,053          
    Net interest income and interest rate spread     $ 97,000       3.01 %       $ 91,320       2.97 %
    Net interest margin           3.33               3.28  
    Ratio of average interest-earning assets to average interest-bearing liabilities           108.40 %             107.84 %

    (1) Average loan and lease balances include non-accruing loans and leases.

    Live Oak Bancshares, Inc.
    GAAP to Non-GAAP Reconciliation
    (Dollars in thousands)

      As of and for the three months ended
      3Q 2024   2Q 2024   1Q 2024   4Q 2023   3Q 2023
    Total shareholders’ equity $ 1,007,756     $ 961,049     $ 927,718     $ 902,666     $ 850,368  
    Less:                  
    Goodwill   1,797       1,797       1,797       1,797       1,797  
    Other intangible assets   1,606       1,644       1,682       1,721       1,759  
    Tangible shareholders’ equity (a) $ 1,004,353     $ 957,608     $ 924,239     $ 899,148     $ 846,812  
    Shares outstanding (c)   45,151,691       45,003,856       44,938,673       44,617,673       44,480,215  
    Total assets $ 12,607,346     $ 11,868,570     $ 11,505,569     $ 11,271,423     $ 10,950,460  
    Less:                  
    Goodwill   1,797       1,797       1,797       1,797       1,797  
    Other intangible assets   1,606       1,644       1,682       1,721       1,759  
    Tangible assets (b) $ 12,603,943     $ 11,865,129     $ 11,502,090     $ 11,267,905     $ 10,946,904  
    Tangible shareholders’ equity to tangible assets (a/b)   7.97 %     8.07 %     8.04 %     7.98 %     7.74 %
    Tangible book value per share (a/c) $ 22.24     $ 21.28     $ 20.57     $ 20.15     $ 19.04  
    Efficiency ratio:                  
    Noninterest expense (d) $ 77,589     $ 77,656     $ 77,737     $ 93,204     $ 74,262  
    Net interest income   97,000       91,320       90,111       89,576       89,410  
    Noninterest income   32,932       34,159       26,097       30,107       37,891  
    Total revenue (e) $ 129,932     $ 125,479     $ 116,208     $ 119,683     $ 127,301  
    Efficiency ratio (d/e)   59.72 %     61.89 %     66.89 %     77.88 %     58.34 %
    Pre-provision net revenue (e-d) $ 52,343     $ 47,823     $ 38,471     $ 26,479     $ 53,039  
                                           

    This press release presents non-GAAP financial measures. The adjustments to reconcile from the non-GAAP financial measures to the applicable GAAP financial measure are included where applicable in financial results presented in accordance with GAAP. The Company considers these adjustments to be relevant to ongoing operating results. The Company believes that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for period-to-period comparisons, which will assist regulators, investors, and analysts in analyzing the operating results or financial position of the Company. The non-GAAP financial measures are used by management to assess the performance of the Company’s business, for presentations of Company performance to investors, and for other reasons as may be requested by investors and analysts. The Company further believes that presenting the non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that applied by management. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although non-GAAP financial measures are frequently used by shareholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.

    The MIL Network –

  • MIL-OSI: First Bank Announces Third Quarter 2024 Net Income of $8.2 Million

    Source: GlobeNewswire (MIL-OSI)

    Results reflect strong loan and deposit growth, solid asset quality, and balance sheet optimization initiatives

    HAMILTON, N.J., Oct. 23, 2024 (GLOBE NEWSWIRE) — First Bank (Nasdaq Global Market: FRBA) (the Bank) today announced results for the third quarter of 2024. Net income for the third quarter of 2024 was $8.2 million, or $0.32 per diluted share. Return on average assets, return on average equity and return on average tangible equity[i] for the third quarter of 2024 were 0.88%, 8.15% and 9.42%, respectively. The Bank recorded a net loss of $1.3 million, or a loss of $0.05 per diluted share, and losses on average assets, equity, and tangible equityi of 0.14%, 1.43%, and 1.66%, respectively, for the third quarter of 2023. Financial results for the third quarter of 2023 were negatively impacted by the Malvern Bancorp acquisition, completed in July 2023, primarily due to the merger-related expenses and the initial credit loss expense on acquired loans.

    Third Quarter 2024 Performance Highlights:

    • Total loans of $3.09 billion at September 30, 2024 grew $89.5 million, or 11.9%, annualized, from the linked quarter ended June 30, 2024. Loan growth occurred late in the quarter, which is reflected in average loan balance increase of only $12.2 million during the quarter ended September 30, 2024. The growth was primarily driven by $56.9 million expansion within the Commercial and Industrial and Owner-occupied commercial real estate loan categories.
    • Total deposits of $3.05 billion at September 30, 2024 grew $82.4 million, or 11.1%, annualized, from the linked quarter. Growth occurred across all deposit categories, as non-interest bearing demand, interest bearing demand, money market and savings, and time deposits increased $19.3 million, $23.3 million, $36.3 million, and $3.6 million, respectively, from the second quarter of 2024.
    • Tangible book value per share[ii] grew to $13.84 at September 30, 2024, increasing 11.2%, annualized, from $13.46 at June 30, 2024.
    • The Bank continued to prioritize balance sheet efficiency, selling approximately $11.7 million of investment securities during the quarter ended September 30, 2024 which resulted in a $555,000 net loss on the sale of investments during the quarter. The Bank also completed a restructuring of its bank-owned life insurance (BOLI) portfolio during the quarter which resulted in approximately $24 million in terminated policies and the acquisition of approximately $20 million in new policies. As a result of the restructure, the Bank recorded a $1.1 million enhancement to the cash surrender value and recognized additional income tax expense totaling $1.2 million.
    • Strong asset quality continued, with nonperforming assets decreasing by 9 basis points to 0.47% of total assets at September 30, 2024 from 0.56% at June 30, 2024.

    Patrick L. Ryan, President and CEO of First Bank, reflected on the Bank’s performance, stating, “First Bank’s outstanding third quarter growth is an outcome of a well-executed long-term strategy. We have worked to build teams, products, and operating structures that promote quality growth over the long term, and the results are evident. Our teams added high-quality loans and deposits across all categories. We also continued to optimize the Bank’s efficiency as our efficiency ratio[iii] remained below 60% for the 21st consecutive quarter. We continued to enact strategies to enhance future profitability and complement our organic growth efforts including ongoing balance sheet restructuring through the sale of certain lower-yielding investment securities, and we opportunistically restructured our BOLI policies during the quarter, an initiative that will be accretive to future earnings. The current quarter highlighted our efforts to build our core community banking customer base while we expand our specialty banking teams and continued investment in technology to improve the customer experience.”   

    Mr. Ryan added, “We are pleased with our ability to generate solid returns for our shareholders, including this quarter’s 11% annualized growth in tangible book value per share. We continue to explore a variety of opportunities to drive future earnings. Our recent receipt of regulatory approval to initiate stock repurchases also adds to our toolkit of options to support continued and growing returns for our shareholders.”

    Income Statement

    In the third quarter of 2024, the Bank’s net interest income increased to $30.1 million, growing $1.5 million, or 5.2%, compared to the same period in 2023. The increase was primarily due to net interest margin expansion in the third quarter of 2024 compared to the third quarter of 2023. Net interest income decreased $446,000, or 1.5%, from the linked second quarter of 2024. The modest decrease was primarily due to net interest margin compression and the timing of our loan growth, which occurred late in the third quarter, limiting interest income received during the quarter. During the third quarter, a $606,000 increase in interest income compared to the second quarter of 2024 was primarily related to higher earning asset balances, which was offset by a $1.1 million increase in interest expense, resulting from increased deposit costs and a higher level of average borrowings.

    The Bank’s tax equivalent net interest margin of 3.49% for the third quarter of 2024 represented an increase of 13 basis points from the quarter ended September 30, 2023 and a decrease of 13 basis points from the linked quarter ended June 30, 2024. The Bank’s tax equivalent net interest margin includes the impact of amortization and accretion of premiums and discounts from fair value measurements of assets acquired and liabilities assumed in acquisitions. Amortization of premiums and accretion of discounts from fair value measurements of assets acquired and liabilities assumed in acquisitions totaled $3.4 million during the third quarter of 2024, compared to $2.7 million for the quarter ended September 30, 2023 and $3.6 million for the quarter ended June 30, 2024. The Bank’s net interest margin declined compared to the linked second quarter due to lower acquisition accounting accretion income, increased levels of average borrowings, lower average loan yields, and higher interest bearing deposit costs.

    The Bank recorded a credit loss expense totaling $1.6 million during the third quarter of 2024, compared to $63,000 recorded during the second quarter of 2024 and $6.7 million recorded for the third quarter of 2023. The Bank’s credit loss expense for the third quarter of 2024 was commensurate with robust organic loan growth during the quarter and continued to reflect strong and stable asset quality. Credit loss expense for the third quarter of 2023 included a $5.5 million credit loss recorded to establish the allowance for credit losses on the acquired Malvern loan portfolio.

    In the third quarter of 2024, the Bank recorded non-interest income of $2.5 million, compared to $193,000 during the same period in 2023 and $689,000 in the second quarter of 2024. The increase in non-interest income was primarily related to approximately $1.1 million in one-time enhancement to the cash surrender value of BOLI that resulted from the aforementioned BOLI restructuring transaction during the quarter, as well as higher yields earned on the new BOLI policies purchased during the quarter. Additionally, the Bank recorded $135,000 in net gains on the sale of loans during third quarter 2024, compared to net losses on the sale of loans totaling $900,000 and $704,000 in the linked and prior year quarters, respectively. This was partially offset by $555,000 in net losses on the sale of investment securities during third quarter 2024, while no investment securities sales were executed in the linked quarter, and $527,000 in net losses were recognized during the third quarter of 2023.

    Non-interest expense for the third quarter of 2024 was $18.6 million, a decrease of $4.8 million, or 20.6%, compared to $23.4 million for the prior year quarter. Lower non-interest expense was largely due to $7.0 million in merger-related expenses recorded during the third quarter of 2023. Excluding merger-related expenses, non-interest expense grew $2.2 million, or 13.3%, including an increase of $849,000 in salaries and employee benefits due to merit increases and a larger employee base. Other real estate owned (OREO) expense totaled $662,000 during third quarter 2024, with no similar expense recorded in third quarter 2023. The increase reflects a $363,000 impairment of an OREO asset along with other legal and real estate tax expenses recorded during the quarter. Additionally, other professional fees increased $312,000 primarily related to increases in personnel placement costs, consulting fees, and tax services.

    On a linked quarter basis, non-interest expense increased $691,000, or 3.8%, from $18.0 million for the second quarter of 2024. The largest impact on expenses compared to the linked quarter is the aforementioned $363,000 OREO impairment expense during third quarter 2024. Salaries and employee benefits expense increased by $207,000 primarily due to a larger employee base. These were partially offset by modest decreases in marketing and advertising costs, as well as travel and entertainment expenses.

    Income tax expense for the three months ended September 30, 2024 was $4.2 million with an effective tax rate of 33.9%, compared to an income tax benefit of $78,000 for the third quarter of 2023 and an income tax expense of $2.1 million with an effective tax rate of 16.2% for the second quarter of 2024. The effective tax rate for the third quarter of 2024 included approximately $1.2 million of tax expense recorded related to the BOLI restructuring. Excluding this impact, the effective tax rate would have been approximately 24% for the third quarter of 2024. The effective tax rate for the second quarter of 2024 was lower compared to the first quarter due to the recently enacted New Jersey Corporate Transit Fee, which resulted in a change in tax rate and a revaluation of the Bank’s deferred tax assets. A tax benefit of $1.1 million was booked as a discrete item in the second quarter for this change in tax rate.  With the expected negative ongoing impact of the New Jersey Corporate Transit Fee, we anticipate our future effective tax rate will range between 24% and 25%.

    Balance Sheet

    Total assets increased $148.3 million, or 4.1%, from December 31, 2023 to September 30, 2024. Total loans increased $66.0 million, or 2.2%, from December 31, 2023 to September 30, 2024. Growth totaling $116.3 million across the owner-occupied commercial real estate and commercial and industrial loan portfolios was partially offset by a decline of commercial investor real estate loans totaling $47.8 million, including multi-family and construction and development, during the first nine months of 2024. The Bank continues to prioritize relationship-based commercial and industrial lending while actively managing our exposure in investor real estate lending.

    Total assets grew $141.9 million, or 15.6% annualized, during the quarter ended September 30, 2024. Growth included an increase of $71.5 million in cash and cash equivalents related to the opportunistic addition of FHLB advances when interest rates declined during the quarter. Total loans increased by $89.5 million, or 11.9%, annualized, during the quarter ended September 30, 2024. Growth across the owner-occupied commercial real estate and commercial and industrial loan portfolios totaled $56.9 million, while commercial investor real estate loans, including multi-family and construction and development, grew $27.5 million, and consumer and residential real estate loans grew $5.2 million.

    Total deposits increased by $82.4 million, or 11.1% annualized, during the quarter ended September 30, 2024. Growth occurred across all categories, with non-interest bearing demand, interest bearing demand, money market and savings, and time deposits increasing $19.3 million, $23.3 million, $36.3 million, and $3.6 million, respectively, from the second quarter of 2024. Our team continued to focus on attracting new deposit relationships while maintaining existing core balances.

    Nearly all of the Bank’s deposit growth for the first nine months of 2024 occurred during the quarter ended September 30, 2024. We also experienced a slight shift in the mix of customer balances over the nine-month period. The Bank grew non-interest bearing demand deposits by $17.3 million in a challenging interest rate environment, while total interest-bearing deposits experienced a shift toward higher-costing deposits. During the first nine months of 2024, increases in money market and savings deposits and time deposits totaled $64.2 million and $32.3 million, respectively, partially offset by a decline in interest bearing demand deposits totaling $31.3 million.

    During the nine months ended September 30, 2024, stockholders’ equity increased by $31.2 million, primarily due to net income, partially offset by dividends.

    As of September 30, 2024, the Bank continued to exceed all regulatory capital requirements to be considered well-capitalized, with a Tier 1 Leverage ratio of 9.53%, a Tier 1 Risk-Based capital ratio of 9.65%, a Common Equity Tier 1 Capital ratio of 9.65%, and a Total Risk-Based capital ratio of 11.55%. The tangible stockholders’ equity to tangible assets ratio[IV] increased to 9.41% as of September 30, 2024 compared to 8.89% at December 31, 2023.

    Asset Quality

    First Bank’s asset quality metrics for the third quarter of 2024 remained favorable. Total nonperforming loans declined from $25.0 million at December 31, 2023 to $12.0 million at September 30, 2024, while total nonperforming assets declined from $25.0 million to $17.7 million during the same period. 

    The Bank recorded net charge-offs of $386,000 during the third quarter of 2024, compared to net charge-offs of $175,000 during the second quarter of 2024 and net charge-offs of $1.1 million in the third quarter of 2023. The allowance for credit losses on loans as a percentage of total loans measured 1.21% at September 30, 2024, compared to 1.21% at June 30, 2024 and 1.40% at December 31, 2023.  The decline from December 31, 2023 to September 30, 2024 reflected the $5.5 million charge-off and elimination of the Bank’s reserves on a purchase credit deteriorated loan transferred to OREO during the first quarter of 2024.

    Liquidity and Borrowings

    The Bank increased its liquidity position in the third quarter of 2024. Total cash and cash equivalents increased by $71.5 million to $312.3 million at September 30, 2024. Borrowings increased by $49.9 million compared to June 30, 2024, as the Bank increased its FHLB borrowings.

    Management believes the Bank’s current liquidity position, coupled with our various contingent funding sources, provides us with a strong liquidity base and a diverse source of funding options.    

    Cash Dividend Declared

    On October 15, 2024, the Bank’s Board of Directors declared a quarterly cash dividend of $0.06 per share to common stockholders of record at the close of business on November 8, 2024, payable on November 22, 2024.

    Share Repurchase Program

    The Board of Directors has authorized and the Bank has received regulatory approvals for a new share repurchase program. The program provides for the repurchase of up to 1.0 million shares of First Bank common stock for an aggregate repurchase amount of up to $16.0 million. The timing, price and volume of repurchases will be based on market conditions, relevant securities laws and other factors. The stock repurchases may be made from time to time on the open market or in privately negotiated transactions. The stock repurchase program does not require First Bank to repurchase any specific number of shares, and First Bank may terminate the repurchase program at any time. The share repurchase program will expire on September 30, 2025.

    Conference Call and Earnings Release Supplement

    Additional details on the quarterly results and the Bank are included in the attached earnings release supplement. http://ml.globenewswire.com/Resource/Download/8c344bfa-6975-4f79-872b-2307433b1520

    First Bank will host its earnings call on Thursday, October 24, 2024 at 9:00 AM Eastern Time. The direct dial toll free number for the live call is 1-800-715-9871 and the access code is 1578641. For those unable to participate in the call, a replay will be available by dialing 1-800-770-2030 (access code 8550862) from one hour after the end of the conference call until January 22, 2025. Replay information will also be available on First Bank’s website at www.firstbanknj.com under the “About Us” tab. Click on “Investor Relations” to access the replay of the conference call.

    About First Bank

    First Bank is a New Jersey state-chartered bank with 26 full-service branches in Cinnaminson, Delanco, Denville, Ewing, Fairfield, Flemington (2), Hamilton, Lawrence, Monroe, Morristown, Pennington, Randolph, Somerset and Williamstown, New Jersey; and Coventry, Devon, Doylestown, Glenn Mills, Lionville, Malvern, Paoli, Trevose, Warminster and West Chester, Pennsylvania; and Palm Beach, Florida. With $3.76 billion in assets as of September 30, 2024, First Bank offers a full range of deposit and loan products to individuals and businesses throughout the New York City to Philadelphia corridor. First Bank’s common stock is listed on the Nasdaq Global Market under the symbol “FRBA.”

    Forward Looking Statements

    This press release contains certain forward-looking statements, either express or implied, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information regarding First Bank’s future financial performance, business and growth strategy, projected plans and objectives, and related transactions, integration of acquired businesses, ability to recognize anticipated operational efficiencies, and other projections based on macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material. Such forward-looking statements are based on various facts and derived utilizing important assumptions, current expectations, estimates and projections about First Bank, any of which may change over time and some of which may be beyond First Bank’s control. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing. Further, certain factors that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to: changes in market interest rates on funding costs, yield on interest earning assets, credit quality and strength of underlying collateral and the effect of such changes on the market value of First Bank’s investment securities portfolio; whether First Bank can: successfully implement its growth strategy, including identifying acquisition targets and consummating suitable acquisitions, integrate acquired entities and realize anticipated efficiencies, sustain its internal growth rate, and provide competitive products and services that appeal to its customers and target markets; difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the market areas in which First Bank operates and in which its loans are concentrated, including the effects of declines in housing market values; the effects of the recent turmoil in the banking industry (including the failures of two financial institutions in early 2023); the impact of public health emergencies, such as COVID-19, on First Bank, its operations and its customers and employees; an increase in unemployment levels and slowdowns in economic growth; First Bank’s level of nonperforming assets and the costs associated with resolving any problem loans including litigation and other costs; the extensive federal and state regulation, supervision and examination governing almost every aspect of First Bank’s operations, including changes in regulations affecting financial institutions and expenses associated with complying with such regulations; uncertainties in tax estimates and valuations, including due to changes in state and federal tax law; First Bank’s ability to comply with applicable capital and liquidity requirements, including First Bank’s ability to generate liquidity internally or raise capital on favorable terms, including continued access to the debt and equity capital markets; and possible changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to “Forward-Looking Statements” and “Risk Factors” in First Bank’s Annual Report on Form 10-K and any updates to those risk factors set forth in First Bank’s proxy statement, subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. If one or more events related to these or other risks or uncertainties materialize, or if First Bank’s underlying assumptions prove to be incorrect, actual results may differ materially from what First Bank anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and First Bank does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. All forward-looking statements, expressed or implied, included in this communication are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that First Bank or persons acting on First Bank’s behalf may issue.

    _____________

    i Return on average tangible equity is a non-U.S. GAAP financial measure and is calculated by dividing net income by average tangible equity (average equity minus average goodwill and other intangible assets).  For a reconciliation of this non-U.S. GAAP financial measure, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release.

    ii Tangible book value per share is a non-U.S. GAAP financial measure and is calculated by dividing common shares outstanding by tangible equity (equity minus goodwill and other intangible assets).  For a reconciliation of this non-U.S. GAAP financial measure, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release.

    iii The efficiency ratio is a non-U.S. GAAP financial measure and is calculated by dividing non-interest expense less merger-related expenses by adjusted total revenue (net interest income plus non-interest income).  For a reconciliation of this non-U.S. GAAP financial measure, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release.

    iv Tangible stockholders’ equity to tangible assets ratio is a non-U.S. GAAP financial measure and is calculated by dividing tangible equity (equity minus goodwill and other intangible assets) by tangible assets (total assets minus goodwill and other intangible assets).  For a reconciliation of this non-U.S. GAAP financial measure, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release.

    FIRST BANK
    CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
    (in thousands, except for share data, unaudited)
     
      September 30,
    2024    		   December 31,
    2023
    Assets          
    Cash and due from banks $ 35,456     $ 25,652  
    Restricted cash   9,200       13,770  
    Interest bearing deposits with banks   267,643       188,529  
    Cash and cash equivalents   312,299       227,951  
    Interest bearing time deposits with banks   743       996  
    Investment securities available for sale, at fair value   74,549       94,142  
    Investment securities held to maturity, net of allowance for credit losses of $206 at September 30, 2024 and $200 at December 31, 2023 (fair value of $39,049 and $38,486 at September 30, 2024 and December 31, 2023, respectively)   43,659       44,059  
    Equity securities, at fair value   1,860       1,888  
    Restricted investment in bank stocks   13,845       10,469  
    Other investments   11,141       9,841  
    Loans, net of deferred fees and costs   3,087,488       3,021,501  
    Less: Allowance for credit losses   (37,434 )     (42,397 )
    Net loans   3,050,054       2,979,104  
    Premises and equipment, net   20,331       21,627  
    Other real estate owned, net   5,637       –  
    Accrued interest receivable   13,502       14,763  
    Bank-owned life insurance   84,727       86,435  
    Goodwill   44,166       44,166  
    Other intangible assets, net   9,318       10,812  
    Deferred income taxes, net   31,448       30,875  
    Other assets   40,374       32,199  
    Total assets $ 3,757,653     $ 3,609,327  
               
    Liabilities and Stockholders’ Equity          
    Liabilities:          
    Non-interest bearing deposits $ 519,079     $ 501,763  
    Interest bearing deposits   2,530,991       2,465,806  
    Total deposits   3,050,070       2,967,569  
    Borrowings   236,999       179,140  
    Subordinated debentures   29,926       55,261  
    Accrued interest payable   5,078       2,813  
    Other liabilities   33,510       33,644  
    Total liabilities   3,355,583       3,238,427  
    Stockholders’ Equity:          
    Preferred stock, par value $2 per share; 10,000,000 shares authorized; no shares issued and outstanding   –       –  
    Common stock, par value $5 per share; 40,000,000 shares authorized; 27,367,984 shares issued and 25,186,920 shares outstanding at September 30, 2024 and 27,149,186 shares issued and 24,968,122 shares outstanding at December 31, 2023   135,415       134,552  
    Additional paid-in capital   124,014       122,881  
    Retained earnings   167,792       140,563  
    Accumulated other comprehensive loss   (3,773 )     (5,718 )
    Treasury stock, 2,181,064 shares at September 30, 2024 and December 31, 2023   (21,378 )     (21,378 )
    Total stockholders’ equity   402,070       370,900  
    Total liabilities and stockholders’ equity $ 3,757,653     $ 3,609,327  
                   
    FIRST BANK
    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
    (in thousands, except for share data, unaudited)
     
      Three Months Ended   Nine Months Ended
      September 30,   September 30,
      2024   2023   2024   2023
    Interest and Dividend Income                      
    Investment securities—taxable $ 1,201     $ 1,151     $ 3,661     $ 3,128  
    Investment securities—tax-exempt   35       86       109       158  
    Interest bearing deposits with banks, Federal funds sold and other   3,972       2,593       10,479       6,029  
    Loans, including fees   50,957       46,088       151,039       111,536  
    Total interest and dividend income   56,165       49,918       165,288       120,851  
                           
    Interest Expense                      
    Deposits   23,081       18,470       66,253       40,574  
    Borrowings   2,550       1,914       6,859       4,939  
    Subordinated debentures   440       940       1,224       1,821  
    Total interest expense   26,071       21,324       74,336       47,334  
    Net interest income   30,094       28,594       90,952       73,517  
    Credit loss expense   1,579       6,650       944       8,237  
    Net interest income after credit loss expense   28,515       21,944       90,008       65,280  
                           
    Non-Interest Income                      
    Service fees on deposit accounts   362       280       1,056       741  
    Loan fees   218       152       437       259  
    Income from bank-owned life insurance   1,819       544       3,213       1,291  
    Losses on sale of investment securities, net   (555 )     (527 )     (555 )     (734 )
    Gains (losses) on sale of loans, net   135       (704 )     (536 )     (393 )
    Gains on recovery of acquired loans   35       24       209       95  
    Other non-interest income   465       424       1,308       1,026  
    Total non-interest income   2,479       193       5,132       2,285  
                           
    Non-Interest Expense                      
    Salaries and employee benefits   10,175       9,326       30,181       25,320  
    Occupancy and equipment   2,080       1,915       6,188       5,107  
    Legal fees   245       270       801       671  
    Other professional fees   943       631       2,628       1,880  
    Regulatory fees   728       595       1,970       1,345  
    Directors’ fees   272       224       784       631  
    Data processing   800       907       2,355       2,206  
    Marketing and advertising   310       220       983       693  
    Travel and entertainment   233       140       762       519  
    Insurance   245       272       740       624  
    Other real estate owned expense, net   662       –       879       38  
    Merger-related expenses   –       7,028       –       7,710  
    Other expense   1,951       1,958       6,136       4,020  
    Total non-interest expense   18,644       23,486       54,407       50,764  
    Income Before Income Taxes   12,350       (1,349 )     40,733       16,801  
    Income tax expense   4,188       (78 )     8,986       4,284  
    Net Income (loss) $ 8,162     $ (1,271 )   $ 31,747     $ 12,517  
                           
    Basic earnings (loss) per common share $ 0.32     $ (0.05 )   $ 1.26     $ 0.60  
    Diluted earnings (loss) per common share $ 0.32     $ (0.05 )   $ 1.26     $ 0.59  
                           
    Basic weighted average common shares outstanding   25,172,927       23,902,478       25,114,685       20,928,847  
    Diluted weighted average common shares outstanding   25,342,462       23,902,478       25,265,250       21,057,655  
                                   
    FIRST BANK
    AVERAGE BALANCE SHEETS WITH INTEREST AND AVERAGE RATES
    (dollars in thousands, unaudited)
     
      Three Months Ended September 30,
      2024   2023
      Average         Average   Average         Average
      Balance   Interest   Rate(5)   Balance   Interest   Rate(5)
    Interest earning assets                                
    Investment securities (1) (2) $ 137,216     $ 1,244     3.61 %   $ 169,244     $ 1,255       2.94 %
    Loans (3)   3,010,116       50,957     6.73 %     3,003,703       46,088       6.09 %
    Interest bearing deposits with banks,                                
    Federal funds sold and other   265,474       3,593     5.38 %     182,128       2,395       5.22 %
    Restricted investment in bank stocks   12,768       257     8.01 %     10,284       196       7.56 %
    Other investments   12,776       122     3.80 %     9,162       2       0.09 %
    Total interest earning assets (2)   3,438,350       56,173     6.50 %     3,374,521       49,936       5.87 %
    Allowance for credit losses   (36,612 )               (41,216 )            
    Non-interest earning assets   271,105                 232,045              
    Total assets $ 3,672,843               $ 3,565,350              
                                     
    Interest bearing liabilities                                
    Interest bearing demand deposits $ 587,045     $ 3,974     2.69 %   $ 674,417     $ 4,038       2.38 %
    Money market deposits   1,064,045       10,573     3.95 %     952,042       8,386       3.49 %
    Savings deposits   149,057       563     1.50 %     174,412       490       1.11 %
    Time deposits   690,723       7,902     4.55 %     655,288       5,556       3.36 %
    Total interest bearing deposits   2,490,870       23,012     3.68 %     2,456,159       18,470       2.98 %
    Borrowings   206,588       2,550     4.91 %     163,746       1,914       4.64 %
    Subordinated debentures   29,908       440     5.88 %     51,101       940       7.36 %
    Total interest bearing liabilities   2,727,366       26,002     3.79 %     2,671,006       21,324       3.17 %
    Non-interest bearing deposits   506,084                 507,866              
    Other liabilities   40,858                 33,106              
    Stockholders’ equity   398,535                 353,372              
    Total liabilities and stockholders’ equity $ 3,672,843               $ 3,565,350              
    Net interest income/interest rate spread (2)         30,171     2.71 %           28,612       2.70 %
    Net interest margin (2) (4)             3.49 %                 3.36 %
    Tax equivalent adjustment (2)         (8 )               (18 )      
    Net interest income       $ 30,163               $ 28,594        
                                         

    (1) Average balance of investment securities available for sale is based on amortized cost. 
    (2) Interest and average rates are presented on a tax equivalent basis using a federal income tax rate of 21%. 
    (3) Average balances of loans include loans on nonaccrual status. 
    (4) Net interest income divided by average total interest earning assets. 
    (5) Annualized.

    FIRST BANK
    AVERAGE BALANCE SHEETS WITH INTEREST AND AVERAGE RATES
    (dollars in thousands, unaudited)
     
      Nine Months Ended September 30,
      2024   2023
      Average         Average   Average         Average
      Balance   Interest   Rate(5)   Balance   Interest   Rate(5)
    Interest earning assets                              
    Investment securities (1) (2) $ 143,528     $ 3,793     3.53 %   $ 155,128     $ 3,319     2.86 %
    Loans (3)   2,995,895       151,039     6.73 %     2,590,409       111,536     5.76 %
    Interest bearing deposits with banks,                              
    Federal funds sold and other   231,171       9,404     5.43 %     143,922       5,403     5.02 %
    Restricted investment in bank stocks   11,461       699     8.15 %     9,327       454     6.51 %
    Other investments   12,262       376     4.10 %     8,902       172     2.58 %
    Total interest earning assets (2)   3,394,317       165,311     6.51 %     2,907,688       120,884     5.56 %
    Allowance for credit losses   (37,000 )               (33,664 )          
    Non-interest earning assets   265,368                 174,246            
    Total assets $ 3,622,685               $ 3,048,270            
                                   
    Interest bearing liabilities                              
    Interest bearing demand deposits $ 599,025     $ 11,453     2.55 %   $ 445,318     $ 6,492     1.95 %
    Money market deposits   1,046,911       30,921     3.95 %     840,688       20,177     3.21 %
    Savings deposits   156,416       1,756     1.50 %     155,370       1,202     1.03 %
    Time deposits   680,194       22,054     4.33 %     586,827       12,703     2.89 %
    Total interest bearing deposits   2,482,546       66,184     3.56 %     2,028,203       40,574     2.67 %
    Borrowings   181,844       6,859     5.04 %     149,042       4,939     4.43 %
    Subordinated debentures   34,071       1,224     4.79 %     36,949       1,821     6.57 %
    Total interest bearing liabilities   2,698,461       74,267     3.68 %     2,214,194       47,334     2.86 %
    Non-interest bearing deposits   494,971                 490,211            
    Other liabilities   41,971                 29,939            
    Stockholders’ equity   387,282                 313,926            
    Total liabilities and stockholders’ equity $ 3,622,685               $ 3,048,270            
    Net interest income/interest rate spread (2)         91,044     2.83 %           73,550     2.70 %
    Net interest margin (2) (4)             3.58 %               3.38 %
    Tax equivalent adjustment (2)         (23 )               (33 )    
    Net interest income       $ 91,021               $ 73,517      
                                       

    (1) Average balance of investment securities available for sale is based on amortized cost.
    (2) Interest and average rates are presented on a tax equivalent basis using a federal income tax rate of 21%.
    (3) Average balances of loans include loans on nonaccrual status.
    (4) Net interest income divided by average total interest earning assets.
    (5) Annualized.

    FIRST BANK
    QUARTERLY FINANCIAL HIGHLIGHTS
    (in thousands, except for share and employee data, unaudited)
     
      As of or For the Quarter Ended
      9/30/2024   6/30/2024   3/31/2024   12/31/2023   9/30/2023
    EARNINGS                            
    Net interest income $ 30,094     $ 30,540     $ 30,318     $ 30,999     $ 28,594  
    Credit loss (benefit) expense   1,579       63       (698 )     (294 )     6,650  
    Non-interest income   2,479       689       1,964       (3,000 )     193  
    Non-interest expense   18,644       17,953       17,810       17,936       23,486  
    Income tax expense   4,188       2,140       2,658       1,977       (78 )
    Net income   8,162       11,073       12,512       8,380       (1,271 )
                                 
    PERFORMANCE RATIOS                            
    Return on average assets (1)   0.88 %     1.23 %     1.41 %     0.93 %     (0.14 %)
    Adjusted return on average assets (1) (2)   0.93 %     1.31 %     1.39 %     1.38 %     1.07 %
    Return on average equity (1)   8.15 %     11.52 %     13.36 %     9.06 %     (1.43 %)
    Adjusted return on average equity (1) (2)   8.56 %     12.26 %     13.17 %     13.38 %     10.75 %
    Return on average tangible equity (1) (2)   9.42 %     13.40 %     15.64 %     10.67 %     (1.66 %)
    Adjusted return on average tangible equity (1) (2)   9.89 %     14.26 %     15.41 %     15.75 %     12.50 %
    Net interest margin (1) (3)   3.49 %     3.62 %     3.64 %     3.68 %     3.36 %
    Yield on loans (1)   6.73 %     6.81 %     6.66 %     6.49 %     6.09 %
    Total cost of deposits (1)   3.05 %     3.01 %     2.83 %     2.63 %     2.47 %
    Efficiency ratio (2)   58.49 %     55.88 %     55.56 %     53.79 %     54.83 %
                                 
    SHARE DATA                            
    Common shares outstanding   25,186,920       25,144,983       25,096,449       24,968,122       24,926,919  
    Basic earnings per share $ 0.32     $ 0.44     $ 0.50     $ 0.34     $ (0.05 )
    Diluted earnings per share   0.32       0.44       0.50       0.33       (0.05 )
    Adjusted diluted earnings per share (2)   0.34       0.47       0.49       0.49       0.40  
    Book value per share   15.96       15.61       15.23       14.85       14.48  
    Tangible book value per share (2)   13.84       13.46       13.06       12.65       12.26  
                                 
    MARKET DATA                            
    Market value per share $ 15.20     $ 12.74     $ 13.74     $ 14.70     $ 10.78  
    Market value / Tangible book value   109.83 %     94.65 %     105.20 %     116.18 %     87.96 %
    Market capitalization $ 382,841     $ 320,347     $ 344,825     $ 367,031     $ 268,712  
                                 
    CAPITAL & LIQUIDITY                            
    Stockholders’ equity / assets   10.70 %     10.86 %     10.64 %     10.28 %     10.15 %
    Tangible stockholders’ equity / tangible assets (2)   9.41 %     9.50 %     9.27 %     8.89 %     8.72 %
    Loans / deposits   101.23 %     101.02 %     100.75 %     101.82 %     101.80 %
                                 
    ASSET QUALITY                            
    Net charge-offs $ 386     $ 175     $ 5,293     $ 209     $ 1,122  
    Net charge-offs (recoveries), excluding PCD loan charge-off (4)   386       175       (201 )     209       1,122  
    Nonperforming loans   12,014       14,227       17,054       24,989       24,158  
    Nonperforming assets   17,651       20,226       23,053       24,989       24,158  
    Net charge offs / average loans (1)   0.05 %     0.02 %     0.72 %     0.03 %     0.15 %
    Net charge offs (recoveries), excluding PCD loan charge-off / average loans (1) (4)   0.05 %     0.02 %     (0.03 %)     0.03 %     0.15 %
    Nonperforming loans / total loans   0.39 %     0.47 %     0.57 %     0.83 %     0.80 %
    Nonperforming assets / total assets   0.47 %     0.56 %     0.64 %     0.69 %     0.68 %
    Allowance for credit losses on loans / total loans   1.21 %     1.21 %     1.22 %     1.40 %     1.42 %
    Allowance for credit losses on loans / nonperforming loans   311.59 %     254.81 %     213.42 %     169.66 %     177.50 %
                                 
    OTHER DATA                            
    Total assets $ 3,757,653     $ 3,615,731     $ 3,591,398     $ 3,609,327     $ 3,558,426  
    Total loans   3,087,488       2,998,029       2,992,423       3,021,501       3,020,778  
    Total deposits   3,050,070       2,967,634       2,970,262       2,967,569       2,967,455  
    Total stockholders’ equity   402,070       392,489       382,254       370,900       361,037  
    Number of full-time equivalent employees   313       294       288       286       286  
                                           

    (1) Annualized.
    (2) Non-U.S. GAAP financial measure that we believe provides management and investors with information that is useful in understanding our financial performance and condition.  See accompanying table, “Non-U.S. GAAP Financial Measures,” for calculation and reconciliation.
    (3) Tax equivalent using a federal income tax rate of 21%.
    (4) Excludes $5.5 million in a PCD loan charge-off in first quarter of 2024, which was reserved for through purchase accounting marks at the time of the Malvern acquisition.

    FIRST BANK
    QUARTERLY FINANCIAL HIGHLIGHTS
    (dollars in thousands, unaudited)
     
      As of the Quarter Ended
      9/30/2024   6/30/2024   3/31/2024   12/31/2023   9/30/2023
    LOAN COMPOSITION                            
    Commercial and industrial $ 546,541     $ 530,996     $ 508,911     $ 506,849     $ 478,120  
    Commercial real estate:                            
    Owner-occupied   688,988       647,625       625,643       612,352       607,888  
    Investor   1,170,508       1,143,954       1,172,311       1,221,702       1,269,134  
    Construction and development   193,460       190,108       184,816       186,829       168,192  
    Multi-family   267,861       270,238       279,668       271,058       275,825  
    Total commercial real estate   2,320,817       2,251,925       2,262,438       2,291,941       2,321,039  
    Residential real estate:                            
    Residential mortgage and first lien home equity loans   143,953       144,978       154,704       156,024       158,487  
    Home equity–second lien loans and revolving lines of credit   49,891       46,882       45,869       44,698       46,239  
    Total residential real estate   193,844       191,860       200,573       200,722       204,726  
    Consumer and other   29,518       26,321       23,702       25,343       20,208  
    Total loans prior to deferred loan fees and costs   3,090,720       3,001,102       2,995,624       3,024,855       3,024,093  
    Net deferred loan fees and costs   (3,232 )     (3,073 )     (3,201 )     (3,354 )     (3,315 )
    Total loans $ 3,087,488     $ 2,998,029     $ 2,992,423     $ 3,021,501     $ 3,020,778  
                                 
    LOAN MIX                            
    Commercial and industrial   17.7 %     17.7 %     17.0 %     16.8 %     15.8 %
    Commercial real estate:                            
    Owner-occupied   22.3 %     21.6 %     20.9 %     20.3 %     20.1 %
    Investor   37.9 %     38.2 %     39.2 %     40.4 %     42.0 %
    Construction and development   6.3 %     6.3 %     6.2 %     6.2 %     5.6 %
    Multi-family   8.7 %     9.0 %     9.3 %     9.0 %     9.1 %
    Total commercial real estate   75.2 %     75.1 %     75.6 %     75.9 %     76.8 %
    Residential real estate:                            
    Residential mortgage and first lien home equity loans   4.7 %     4.8 %     5.2 %     5.1 %     5.3 %
    Home equity–second lien loans and revolving lines of credit   1.6 %     1.6 %     1.5 %     1.5 %     1.5 %
    Total residential real estate   6.3 %     6.4 %     6.7 %     6.6 %     6.8 %
    Consumer and other   0.9 %     0.9 %     0.8 %     0.8 %     0.7 %
    Net deferred loan fees and costs   (0.1 %)     (0.1 %)     (0.1 %)     (0.1 %)     (0.1 %)
    Total loans   100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
                                           
    FIRST BANK
    QUARTERLY FINANCIAL HIGHLIGHTS
    (dollars in thousands, unaudited)
     
      As of the Quarter Ended
      9/30/2024   6/30/2024   3/31/2024   12/31/2023   9/30/2023
    DEPOSIT COMPOSITION                            
    Non-interest bearing demand deposits $ 519,079     $ 499,765     $ 470,749     $ 501,763     $ 493,703  
    Interest bearing demand deposits   597,802       574,515       580,864       629,110       623,338  
    Money market and savings deposits   1,235,637       1,199,382       1,219,634       1,171,440       1,228,832  
    Time deposits   697,552       693,972       699,015       665,256       621,582  
    Total Deposits $ 3,050,070     $ 2,967,634     $ 2,970,262     $ 2,967,569     $ 2,967,455  
                                 
    DEPOSIT MIX                            
    Non-interest bearing demand deposits   17.0 %     16.8 %     15.8 %     16.9 %     16.6 %
    Interest bearing demand deposits   19.6 %     19.4 %     19.6 %     21.2 %     21.0 %
    Money market and savings deposits   40.5 %     40.4 %     41.1 %     39.5 %     41.4 %
    Time deposits   22.9 %     23.4 %     23.5 %     22.4 %     21.0 %
    Total Deposits   100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
                                           
    FIRST BANK
    NON-U.S. GAAP FINANCIAL MEASURES
    (in thousands, except for share data, unaudited)
     
      As of or For the Quarter Ended
      9/30/2024   6/30/2024   3/31/2024   12/31/2023   9/30/2023
    Return on Average Tangible Equity                            
    Net income (numerator) $ 8,162     $ 11,073     $ 12,512     $ 8,380     $ (1,271 )
                                 
    Average stockholders’ equity $ 398,535     $ 386,644     $ 376,542     $ 366,950     $ 353,372  
    Less: Average Goodwill and other intangible assets, net   53,823       54,347       54,790       55,324       49,491  
    Average Tangible stockholders’ equity (denominator) $ 344,712     $ 332,297     $ 321,752     $ 311,626     $ 303,881  
                                 
    Return on Average Tangible equity (1)   9.42 %     13.40 %     15.64 %     10.67 %     -1.66 %
                                 
    Tangible Book Value Per Share                            
    Stockholders’ equity $ 402,070     $ 392,489     $ 382,254     $ 370,900     $ 361,037  
    Less: Goodwill and other intangible assets, net   53,484       54,026       54,483       54,978       55,554  
    Tangible stockholders’ equity (numerator) $ 348,586     $ 338,463     $ 327,771     $ 315,922     $ 305,483  
                                 
    Common shares outstanding (denominator)   25,186,920       25,144,983       25,096,449       24,968,122       24,926,919  
                                 
    Tangible book value per share $ 13.84     $ 13.46     $ 13.06     $ 12.65     $ 12.26  
                                 
    Tangible Equity / Tangible Assets                            
    Stockholders’ equity $ 402,070     $ 392,489     $ 382,254     $ 370,900     $ 361,037  
    Less: Goodwill and other intangible assets, net   53,484       54,026       54,483       54,978       55,554  
    Tangible stockholders’ equity (numerator) $ 348,586     $ 338,463     $ 327,771     $ 315,922     $ 305,483  
                                 
    Total assets $ 3,757,653     $ 3,615,731     $ 3,591,398     $ 3,609,327     $ 3,558,426  
    Less: Goodwill and other intangible assets, net   53,484       54,026       54,483       54,978       55,554  
    Tangible total assets (denominator) $ 3,704,169     $ 3,561,705     $ 3,536,915     $ 3,554,349     $ 3,502,872  
                                 
    Tangible stockholders’ equity / tangible assets   9.41 %     9.50 %     9.27 %     8.89 %     8.72 %
                                 
    Efficiency Ratio                            
    Non-interest expense $ 18,644     $ 17,953     $ 17,810     $ 17,936     $ 23,486  
    Less: Merger-related expenses   –       –       –       338       7,028  
    Adjusted non-interest expense (numerator) $ 18,644     $ 17,953     $ 17,810     $ 17,598     $ 16,458  
                                 
    Net interest income $ 30,094     $ 30,540     $ 30,318     $ 30,999     $ 28,594  
    Non-interest income   2,479       689       1,964       (3,000 )     193  
    Total revenue   32,573       31,229       32,282       27,999       28,787  
    Add: Losses on sale of investment securities, net   555       –       –       916       527  
    (Subtract) Add: (Gains) losses on sale of loans, net   (135 )     900       (229 )     3,799       704  
    Less: Bank Owned Life Insurance Enhancement   (1,116 )     –       –       –       –  
    Adjusted total revenue (denominator) $ 31,877     $ 32,129     $ 32,053     $ 32,714     $ 30,018  
                                 
    Efficiency ratio   58.49 %     55.88 %     55.56 %     53.79 %     54.83 %
                                           

    (1) Annualized.

    FIRST BANK
    NON-U.S. GAAP FINANCIAL MEASURES
    (dollars in thousands, except for share data, unaudited)
     
      For the Quarter Ended
      9/30/2024   6/30/2024   3/31/2024   12/31/2023   9/30/2023
                                 
    Adjusted diluted earnings per share,                            
    Adjusted return on average assets, and                            
    Adjusted return on average equity                            
                                 
    Net income $ 8,162     $ 11,073     $ 12,512     $ 8,380     $ (1,271 )
    Add: Merger-related expenses(1)   –       –       –       267       5,552  
    Add: Credit loss expense on acquired loan portfolio(1)   –       –       –       –       4,323  
    Add (subtract): Losses (gains) on sale of loans, net(1)   (107 )     711       (181 )     3,001       556  
    Add: Losses on sale of investment securities, net(1)   438       –       –       724       416  
    Add: Net Impact of Bank Owned Life Insurance Restructuring(2)   79       –       –       –       –  
    Adjusted net income $ 8,572     $ 11,784     $ 12,331     $ 12,372     $ 9,576  
                                 
    Diluted weighted average common shares outstanding   25,342,462       25,258,785       25,199,381       25,089,495       24,029,910  
    Average assets $ 3,672,843     $ 3,618,912     $ 3,575,748     $ 3,561,261     $ 3,565,350  
    Average equity $ 398,535     $ 386,644     $ 376,542     $ 366,950     $ 353,372  
    Average Tangible Equity $ 344,712     $ 332,297     $ 321,752     $ 311,626     $ 303,881  
                                 
    Adjusted diluted earnings per share $ 0.34     $ 0.47     $ 0.49     $ 0.49     $ 0.40  
    Adjusted return on average assets(3)   0.93 %     1.31 %     1.39 %     1.38 %     1.07 %
    Adjusted return on average equity(3)   8.56 %     12.26 %     13.17 %     13.38 %     10.75 %
    Adjusted return on average tangible equity(3)   9.89 %     14.26 %     15.41 %     15.75 %     12.50 %
                                           

    (1) Items are tax-effected using a federal income tax rate of 21%.
    (2) Includes the net impact of the new Bank Owned Life Insurance enhancement and the increased tax expense on the terminated policies.
    (3) Annualized.

    The MIL Network –

  • MIL-OSI: CVB Financial Corp. Reports Earnings for the Third Quarter 2024

    Source: GlobeNewswire (MIL-OSI)

    Third Quarter 2024

    • Net Earnings of $51 million, or $0.37 per share
    • Return on Average Assets of 1.23%
    • Return on Average Tangible Common Equity of 14.93%
    • Net Interest Margin of 3.05%

    Ontario, CA, Oct. 23, 2024 (GLOBE NEWSWIRE) — CVB Financial Corp. (NASDAQ:CVBF) and its subsidiary, Citizens Business Bank (the “Company”), announced earnings for the quarter ended September 30, 2024.

    CVB Financial Corp. reported net income of $51.2 million for the quarter ended September 30, 2024, compared with $50.0 million for the second quarter of 2024 and $57.9 million for the third quarter of 2023. Diluted earnings per share were $0.37 for the third quarter, compared to $0.36 for the prior quarter and $0.42 for the same period last year. Net income of $51.2 million for the third quarter of 2024 produced an annualized return on average equity (“ROAE”) of 9.40%, an annualized return on average tangible common equity (“ROATCE”) of 14.93%, and an annualized return on average assets (“ROAA”) of 1.23%.

    David Brager, President and Chief Executive Officer of Citizens Business Bank, commented, “We are pleased with our third quarter results. The Bank continues to execute on our strategy of banking the best small to medium sized businesses in the markets we serve. The results in the third quarter represent our 190th consecutive quarter of profitability. I am very proud of the commitment of our associates to our mission and the loyalty of our customers to our shared vision of success.“

    Highlights for the Third Quarter of 2024

    • Net interest margin of 3.05%
    • Efficiency Ratio of 46.5%
    • TCE Ratio = 9.7% & CET1 Ratio > 15%
    • Net income grew by 2.4%, compared to the second quarter of 2024
    • Deposits and customer repurchase agreements increased $408 million compared to the end of the second quarter of 2024
    • Noninterest-bearing deposits were 59% of total deposits
    • Early redemption of $1.3 billion of Bank Term Funding Program borrowings
    • Sold $312 million in AFS securities for a loss of $11.6 million
    • Executed the sale and leaseback of two buildings generating gains of $9.1 million
    • Loans declined by $109 million, or 1.3% from the end of the second quarter of 2024
    • Net recoveries were $156,000 for the third quarter of 2024

    INCOME STATEMENT HIGHLIGHTS

      Three Months Ended   Nine Months Ended  
      September 30,
    2024
    		     June 30,
    2024
    		     September 30,
    2023
    		     September 30,
    2024
    		     September 30,
    2023
    		    
      (Dollars in thousands, except per share amounts)
    Net interest income $ 113,619     $ 110,849     $ 123,371     $ 336,929     $ 368,634    
    Recapure of (provision for) credit losses   –       –       (2,000 )     –       (4,000 )  
    Noninterest income   12,834       14,424       14,309       41,371       40,167    
    Noninterest expense   (58,835 )     (56,497 )     (55,058 )     (175,103 )     (163,956 )  
    Income taxes   (16,394 )     (18,741 )     (22,735 )     (53,339 )     (67,918 )  
    Net earnings $ 51,224     $ 50,035     $ 57,887     $ 149,858     $ 172,927    
    Earnings per common share:                  
    Basic $ 0.37     $ 0.36     $ 0.42     $ 1.07     $ 1.24    
    Diluted $ 0.37     $ 0.36     $ 0.42     $ 1.07     $ 1.24    
                       
    NIM   3.05 %     3.05 %     3.31 %     3.06 %     3.32 %  
    ROAA   1.23 %     1.24 %     1.40 %     1.23 %     1.41 %  
    ROAE   9.40 %     9.57 %     11.33 %     9.43 %     11.50 %  
    ROATCE   14.93 %     15.51 %     18.82 %     15.19 %     19.24 %  
    Efficiency ratio   46.53 %     45.10 %     39.99 %     46.29 %     40.11 %  

    Net Interest Income
    Net interest income was $113.6 million for the third quarter of 2024. This represented a $2.8 million, or 2.50%, increase from the second quarter of 2024, and a $9.8 million, or 7.90%, decrease from the third quarter of 2023. The quarter-over-quarter increase in net interest income was primarily due to a $7.0 million increase in interest income resulting from a $513 million average increase in our interest-earning balances due from the Federal Reserve, partially offset by a $3.8 million increase in interest on deposits. The decline in net interest income compared to the third quarter of 2023 was primarily due to a 26 basis point decline in net interest margin.

    Net Interest Margin
    Our tax equivalent net interest margin was 3.05% for both the second and third quarters of 2024, compared to 3.31% for the third quarter of 2023. Our cost of funds compared to the second quarter of 2024 increased nine basis points, which was offset by a six basis point increase in our interest-earning asset yield. The six basis point increase in our interest-earning asset yield was due to a five basis point increase in loan yields and funds on deposit at the Federal Reserve increasing as a percentage of earnings assets to 8.2%, from 4.8% in the prior quarter. Average funds held at the Federal Reserve of $1.22 billion, grew by $513 million from the second quarter of 2024, earning 5.4% on average for the third quarter. Our cost of funds increased in the third quarter to 1.47%, as our cost of deposits and customer repurchase agreements increased by 14 basis points to 1.01%. The cost of interest-bearing non-maturity deposits increased from the prior quarter by 22 basis points. On average, borrowings decreased by $121 million compared to the second quarter, while continuing to have an average cost of 4.77%. The 26 basis point decrease in net interest margin compared to the third quarter of 2023, was primarily the result of a 55 basis point increase in cost of funds. This increase in cost of funds from the prior year quarter was the result of a 46 basis point increase in the cost of deposits and an increase in the level of borrowings, which grew on average by $411 million. A 25 basis point increase in earning asset yields over the prior year quarter partially offset the increase in funding costs. The higher earning asset yields, included higher loan yields, which grew from 5.07% for the third quarter of 2023 to 5.31% for the third quarter of 2024. The higher earning asset yield was also the result of the increase in average funds held at the Federal Reserve, which grew from 3.1% of earning assets in the third quarter of 2023 to 8.2% in the third quarter of 2024.

    Earning Assets and Deposits
    On average, total earning assets grew by $262 million, or 1.79%, quarter-over-quarter. This growth includes the $513 million increase in average funds on deposit at the Federal Reserve. Investment securities and loans declined on average by $126.9 million and $126.3 million, respectively, when compared to the second quarter of 2024. The decline in investment securities includes the impact of selling approximately $300 million of AFS securities during the third quarter. Compared to the third quarter of 2023, the mix of assets changed modestly, with the average balance of investment securities decreasing by $462.6 million, declining from 37% to 34% of total earning assets. Conversely, the average amount of funds held at the Federal Reserve increased by $748.8 million, growing from 3.1% of total earning assets in the third quarter of 2023 to 8.2% for the third quarter of 2024. Noninterest-bearing deposits declined on average by $28.4 million, or 0.40%, from the second quarter of 2024 and interest-bearing deposits and customer repurchase agreements increased on average by $279.2 million. Compared to the third quarter of 2023, total deposits and customer repurchase agreements declined on average by $503.7 million, or 3.90%, including a decline of $688 million, or 8.8%, in noninterest-bearing deposits. Non-maturity interest-bearing deposits and customer repurchase agreements decreased by $247.5 million on average, while time deposits grew on average by $431.9 million. On average, noninterest-bearing deposits were 59.10% of total deposits during the most recent quarter, compared to 60.20% for the second quarter of 2024 and 62.09% for the third quarter of 2023.

        Three Months Ended  
    SELECTED FINANCIAL HIGHLIGHTS September 30, 2024   June 30, 2024   September 30, 2023  
        (Dollars in thousands)  
    Yield on average investment securities (TE)   2.67 %     2.71 %     2.64 %  
    Yield on average loans   5.31 %     5.26 %     5.07 %  
    Yield on average earning assets (TE)   4.43 %     4.37 %     4.18 %  
    Cost of deposits   0.98 %     0.88 %     0.52 %  
    Cost of funds   1.47 %     1.38 %     0.92 %  
    Net interest margin (TE)   3.05 %     3.05 %     3.31 %  
                               
    Average Earning Asset Mix Avg   % of Total   Avg   % of Total   Avg   % of Total
      Total investment securities $ 5,080,033   34.01 %   $ 5,206,959   35.49 %   $ 5,542,590   37.20 %  
      Interest-earning deposits with other institutions   1,232,551   8.25 %     716,916   4.89 %     473,391   3.18 %  
      Loans   8,605,270   57.61 %     8,731,587   59.51 %     8,862,462   59.48 %  
      Total interest-earning assets   14,935,866         14,673,474         14,900,003      

    Provision for Credit Losses
    There was no provision for credit losses in the third and second quarter of 2024, compared to $2.0 million in provision in the third quarter of 2023. Net recoveries for the third quarter of 2024 were $156,000, compared to net charge-offs $31,000 in the prior quarter. Allowance for credit losses represented 0.97% of gross loans at September 30, 2024, compared to 0.95% at June 30, 2024.

    Noninterest Income
    Noninterest income was $12.8 million for the third quarter of 2024, compared with $14.4 million for the second quarter of 2024 and $14.3 million for the third quarter of 2023. During the third quarter of 2024, the Bank executed sale-leaseback transactions with the sale of two buildings, which operate as Banking Centers, and were simultaneously leased back, resulting in a pre-tax net gain of $9.1 million. The gains on selling the buildings were offset by realizing a pre-tax net loss of $11.6 million on the sale of $312 million of AFS securities. Third quarter income from Bank Owned Life Insurance (“BOLI”) increased by $557,000 from the second quarter of 2024 and increased by $2 million compared to the third quarter of 2023. We experienced $320,000 in death benefits that exceeded the asset value on certain policies in the third quarter of 2024, compared to no death benefits in the second quarter of 2024 and no death benefits in the third quarter of 2023. The year-over-year increase of $2 million in BOLI income was primarily due to the restructuring and enhancements in BOLI policies during the fourth quarter of 2023. Trust and investment service fees grew by 4.0% or $137,000 compared to the prior quarter and by 9.8% or $319,000 compared to the third quarter of 2023.  

    Noninterest Expense
    Noninterest expense for the third quarter of 2024 was $58.8 million, compared to $56.5 million for the second quarter of 2024 and $55.0 million for the third quarter of 2023. The $2.3 million quarter-over-quarter increase included a $1.2 million increase in staff related expense, as annual salary increases took effect in July. The $690,000 quarter-over-quarter increase in regulatory assessments was due to the $700,000 accrual adjustment in the second quarter of 2024 related the FDIC special assessment. There was a $750,000 recapture of provision for unfunded loan commitments in the third quarter of 2024, compared to a $500,000 recapture of provision in the second quarter of 2024 and $900,000 recaptured in the third quarter of 2023. Occupancy and equipment expense grew by $432,000 or 7%, compared to the prior quarter, including the impact of the two buildings that were sold and leased back during the third quarter.

    The $3.8 million increase in noninterest expense year-over-year included increased staff related expenses of $1.9 million, or 5.48%. Professional services increased $738,000, including a $627,000 increase in legal expense year-over-year. Occupancy and equipment expense increased by $586,000, or 10.43% and software expense increased $258,000, or 7% year-over-year. As a percentage of average assets, noninterest expense was 1.42% for the third quarter of 2024, compared to 1.40% for the second quarter of 2024 and 1.33% for the third quarter of 2023. The efficiency ratio for the third quarter of 2024 was 46.53%, compared to 45.10% for the second quarter of 2024 and 39.99% for the third quarter of 2023.  

    Income Taxes
    Our effective tax rate for the nine months ended September 30, 2024 was 26.25%, compared with 28.20% for the same period of 2023. Our estimated annual effective tax rate can vary depending upon the level of tax-advantaged income from municipal securities and BOLI, as well as available tax credits.

    BALANCE SHEET HIGHLIGHTS

    Assets
    The Company reported total assets of $15.4 billion at September 30, 2024. This represented a decrease of $748.3 million, or 4.63%, from total assets of $16.15 billion at June 30, 2024. The decrease in assets included a $416.9 million decrease in interest-earning balances due from the Federal Reserve, a $304.8 million decrease in investment securities, and a $109.4 million decrease in net loans.

    Total assets decreased by $617.8 million, or 3.86%, from total assets of $16.02 billion at December 31, 2023. The decrease in assets included a $549.9 million decrease in investment securities, and a $328.4 million decrease in net loans, partially offset by a $142.9 million increase in interest-earning balances due from the Federal Reserve.

    Total assets at September 30, 2024 decreased by $499.8 million, or 3.14%, from total assets of $15.90 billion at September 30, 2023. The decrease in assets was primarily due to a $491.8 million decrease in investment securities and a $299.0 million decrease in net loans, partially offset by an increase of $188.6 million in interest-earning balances due from the Federal Reserve and a $57.1 million increase in the cash surrender value of BOLI.

    Sale-Leaseback Transaction
    During the third quarter of 2024, the Bank executed sale-leaseback transactions and sold two buildings, that are utilized as Banking Centers, for an aggregate sale price of $17 million. The Bank simultaneously entered into lease agreements with the respective purchasers for initial terms of 15 and 18 years. These sale-leaseback transactions resulted in a pre-tax net gain of $9.1 million for the third quarter of 2024. The Bank also recorded Right of Use (“ROU”) assets and corresponding operating lease liabilities each totaling $11.2 million.

    Investment Securities and BOLI
    Total investment securities were $4.87 billion at September 30, 2024, a decrease of $549.9 million, or 10.14% from December 31, 2023, and a decrease of $491.8 million, or 9.17%, from $5.36 billion at September 30, 2023.  

    At September 30, 2024, investment securities available-for-sale (“AFS”) totaled $2.47 billion, inclusive of a pre-tax net unrealized loss of $367.7 million. AFS securities decreased by $280.2 million from the prior quarter end, by $490.5 million, or 16.59%, from December 31, 2023 and decreased by $407.6 million, or 14.19%, from $2.87 billion at September 30, 2023. Pre-tax unrealized loss decreased by $120.2 million from the end of the prior quarter, and declined by $82.1 million from December 31, 2023 and by $260.7 million from September 30, 2023.

    Concurrent with the sale-leaseback transactions during the third quarter of 2024, the Bank sold AFS securities with a book value of $312 million, resulting in a net pre-tax loss of $11.6 million.

    At September 30, 2024, investment securities held-to-maturity (“HTM”) totaled $2.41 billion, a decrease of $24.6 million from the prior quarter end, a $59.4 million, or 2.41% decline from December 31, 2023, and a decrease of $84.2 million, or 3.38%, from September 30, 2023.

    Combined, the AFS and HTM investments in mortgage backed securities (“MBS”) and collateralized mortgage obligations (“CMO”) totaled $3.82 billion or approximately 78% of the total investment securities at September 30, 2024. Virtually all of our MBS and CMO are issued or guaranteed by government or government sponsored enterprises, which have the implied guarantee of the U.S. Government. In addition, at September 30, 2024, we had $552.6 million of Government Agency securities that represent approximately 11.3% of the total investment securities.

    Our combined AFS and HTM municipal securities totaled $485.7 million as of September 30, 2024, or 10% of our total investment portfolio. These securities are located in 35 states. Our largest concentrations of holdings by state, as a percentage of total municipal bonds, are located in Texas at 16.09%, Minnesota at 11.07%, and California at 9.71%.

    At September 30, 2024, the Company had $316.6 million of Bank Owned Life insurance (“BOLI”), compared to $308.7 million at December 31, 2023 and $259.5 million at September 30, 2023. The $57.1 million increase in value of BOLI, when compared to September 30, 2023, was primarily due to a restructuring of the Company’s life insurance policies at the end of 2023, including a $4.5 million write-down in value on surrender policies that was offset by a $10.9 million enhancement to cash surrender values, as well as additional policy purchases totaling $41 million. This restructuring has increased returns on our BOLI policies resulting in additional non-taxable noninterest income in 2024.

    Loans
    Total loans and leases, at amortized cost, of $8.57 billion at September 30, 2024 decreased by $109.3 million, or 1.26%, from June 30, 2024. The quarter-over quarter decrease in loans included decreases of $46.3 million in commercial real estate loans, $37.5 million in construction loans, $19.7 million in commercial and industrial loans, and $8.1 million in dairy & livestock and agribusiness loans.

    Total loans and leases, at amortized cost, decreased by $332.3 million, or 3.73%, from December 31, 2023. The decrease in total loans included decreases of $165.9 million in commercial real estate loans, $70.5 million in dairy & livestock and agribusiness loans, $52.0 million in construction loans, and $33.4 million in commercial and industrial loans.

    Total loans and leases, at amortized cost, decreased by $305.1 million, or 3.44%, from September 30, 2023. The $305.1 million decrease included decreases of $224.4 million in commercial real estate loans, $48.3 million in construction loans, $13.1 million in SBA loans, $9.0 million in dairy & livestock and agribusiness loans, and $8.0 million in municipal lease financings.

    Asset Quality
    During the third quarter of 2024, we experienced credit charge-offs of $26,000 and total recoveries of $182,000, resulting in net recoveries of $156,000. The allowance for credit losses (“ACL”) totaled $82.9 million at September 30, 2024, compared to $82.8 million at June 30, 2024 and $89.0 million at September 30, 2023. At September 30, 2024, ACL as a percentage of total loans and leases outstanding was 0.97%. This compares to 0.95% at June 30, 2024 and 0.98% at December 31, 2023 and 1.00% at September 30, 2023.

    Nonperforming loans, defined as nonaccrual loans, including modified loans on nonaccrual, plus loans 90 days past due and accruing interest, and nonperforming assets, defined as nonperforming plus OREO, are highlighted below.

    Nonperforming Assets and Delinquency Trends September 30,
    2024    		   June 30,
    2024    		   September 30,
    2023    		    
               
    Nonperforming loans   (Dollars in thousands)    
    Commercial real estate   $ 18,794     $ 21,908     $ 3,655      
    SBA     151       337       1,050      
    Commercial and industrial     2,825       2,712       4,672      
    Dairy & livestock and agribusiness     143       –       243      
    SFR mortgage     –       –       339      
    Consumer and other loans     –       –       4      
    Total   $ 21,913     $ 24,957     $ 9,963   [1]  
    % of Total loans     0.26 %     0.29 %     0.11 %    
    OREO                
    Commercial real estate   $ –     $ –     $ –      
    Commercial and industrial     647       647       –      
    SFR mortgage     –       –       –      
    Total   $ 647     $ 647     $ –      
                     
    Total nonperforming assets   $ 22,560     $ 25,604     $ 9,963      
    % of Nonperforming assets to total assets     0.15 %     0.16 %     0.06 %    
                     
    Past due 30-89 days (accruing)                
    Commercial real estate   $ 30,701     $ 43     $ 136      
    SBA     –       –       –      
    Commercial and industrial     64       103       –      
    Dairy & livestock and agribusiness     –       –       –      
    SFR mortgage     –       –       –      
    Consumer and other loans     –       –       –      
    Total   $ 30,765     $ 146     $ 136      
    % of Total loans     0.36 %     0.00 %     0.00 %    
                     
    Classified Loans   $ 124,606     $ 124,728     $ 92,246      
         
    [1] Includes $2.6 million of nonaccrual loans past due 30-89 days.    

    The $3.0 million decrease in nonperforming loans from June 30, 2024 was primarily due to the payoff of one nonperforming commercial real estate loans totaling $2.3 million and $1.4 million in paydowns of nonperforming commercial real estate loans associated with two relationships. Past due loans grew to more than $30 million on September 30, 2024. Classified loans are loans that are graded “substandard” or worse. Classified loans decreased $122,000 quarter-over-quarter, primarily due to a $668,000 net decrease in classified commercial real estate loans, which included the payoff of 4 loans totaling $11.5 million that were partially offset by the addition of six classified commercial real estate loans in the third quarter of 2024. Classified dairy & livestock and agribusiness loans declined by $3.5 million due to paydowns and classified commercial and industrial loans increased $3.5 million primarily due to the addition of one classified commercial and industrial loan.

    Deposits & Customer Repurchase Agreements
    Deposits of $12.07 billion and customer repurchase agreements of $394.5 million totaled $12.47 billion at September 30, 2024. This represented a net increase of $407.9 million compared to June 30, 2024. Total deposits at September 30, 2024 included $400 million in brokered time deposits. Total deposits and customer repurchase agreements increased $761.7 million, or 6.51%, when compared to $11.71 billion at December 31, 2023 partially due to the growth in brokered deposits, and decreased $161.3 million, or 1.28% when compared to $12.63 billion at September 30, 2023.

    Noninterest-bearing deposits were $7.14 billion at September 30, 2024, an increase of $46.7 million, or 0.66%, when compared to $7.09 billion at June 30, 2024. Noninterest-bearing deposits decreased by $69.4 million, or 0.96% when compared to $7.21 billion at December 31, 2023, and decreased by $449.8 million, or 5.93% when compared to $7.59 billion at September 30, 2023. At September 30, 2024, noninterest-bearing deposits were 59.12% of total deposits, compared to 60.13% at June 30, 2024, 63.03% at December 31, 2023, and 61.39% at September 30, 2023.

    Borrowings
    As of September 30, 2024, total borrowings consisted of $500 million of FHLB advances. The FHLB advances include maturities of $300 million, at an average cost of approximately 4.73%, maturing in May of 2026, and $200 million, at a cost of 4.27% maturing in May of 2027. During the third quarter of 2024, we repaid the $1.3 billion of borrowings from the Federal Reserve’s Bank Term Funding Program, with a cost of 4.76%, that were scheduled to mature in January of 2025.

    Capital
    The Company’s total equity was $2.20 billion at September 30, 2024. This represented an overall increase of $119.9 million from total equity of $2.08 billion at December 31, 2023. Increases to equity included $149.9 million in net earnings and a $48.7 million increase in other comprehensive income, that were partially offset by $83.9 million in cash dividends. We engaged in no stock repurchases during the first nine months of 2024. Our tangible book value per share at September 30, 2024 was $10.17.

    Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory standards. 

            CVB Financial Corp. Consolidated  
    Capital Ratios   Minimum Required Plus Capital Conservation Buffer   September 30, 2024   December 31, 2023   September 30, 2023  
                       
    Tier 1 leverage capital ratio   4.0 %   10.6 %   10.3 %   10.0 %  
    Common equity Tier 1 capital ratio   7.0 %   15.8 %   14.6 %   14.4 %  
    Tier 1 risk-based capital ratio   8.5 %   15.8 %   14.6 %   14.4 %  
    Total risk-based capital ratio   10.5 %   16.6 %   15.5 %   15.3 %  
                       
    Tangible common equity ratio       9.7 %   8.5 %   7.7 %  
                       

    CitizensTrust

    As of September 30, 2024, CitizensTrust had approximately $4.7 billion in assets under management and administration, including $3.3 billion in assets under management. Revenues were $3.6 million for the third quarter of 2024, compared to $3.2 million for the same period of 2023. CitizensTrust provides trust, investment and brokerage related services, as well as financial, estate and business succession planning.

    Corporate Overview
    CVB Financial Corp. (“CVBF”) is the holding company for Citizens Business Bank. CVBF is one of the 10 largest bank holding companies headquartered in California with more than $15 billion in total assets. Citizens Business Bank is consistently recognized as one of the top performing banks in the nation and offers a wide array of banking, lending and investing services with more than 60 banking centers and three trust office locations serving California.

    Shares of CVB Financial Corp. common stock are listed on the NASDAQ under the ticker symbol “CVBF”. For investor information on CVB Financial Corp., visit our Citizens Business Bank website at www.cbbank.com and click on the “Investors” tab.

    Conference Call
    Management will hold a conference call at 7:30 a.m. PDT/10:30 a.m. EDT on Thursday, October 24, 2024 to discuss the Company’s third quarter 2024 financial results. The conference call can be accessed live by registering at: https://register.vevent.com/register/BI6b56a1a5e9bf45efa402c04252b87308

    The conference call will also be simultaneously webcast over the Internet; please visit our Citizens Business Bank website at www.cbbank.com and click on the “Investors” tab to access the call from the site. Please access the website 15 minutes prior to the call to download any necessary audio software. This webcast will be recorded and available for replay on the Company’s website approximately two hours after the conclusion of the conference call and will be available on the website for approximately 12 months.

    Safe Harbor
    Certain statements set forth herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will likely result”, “aims”, “anticipates”, “believes”, “could”, “estimates”, “expects”, “hopes”, “intends”, “may”, “plans”, “projects”, “seeks”, “should”, “will,” “strategy”, “possibility”, and variations of these words and similar expressions help to identify these forward-looking statements, which involve risks and uncertainties that could cause actual results or performance to differ materially from those projected. These forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company including, without limitation, plans, strategies, goals and statements about the Company’s outlook regarding revenue and asset growth, financial performance and profitability, capital and liquidity levels, loan and deposit levels, growth and retention, yields and returns, loan diversification and credit management, stockholder value creation, tax rates, the impact of economic developments, and the impact of acquisitions we have made or may make. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company, and there can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors, in addition to those set forth below, could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements.

    General risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct business; the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market and monetary fluctuations; the effect of acquisitions we have made or may make, including, without limitation, the failure to obtain the necessary regulatory approvals, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target, key personnel and customers into our operations; the timely development of competitive products and services and the acceptance of these products and services by new and existing customers; the impact of changes in financial services policies, laws, and regulations, including those concerning banking, taxes, securities, and insurance, and the application thereof by regulatory agencies; the effectiveness of our risk management framework and quantitative models; changes in the level of our nonperforming assets and charge-offs; the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters; possible credit related impairments or declines in the fair value of loans and securities held by us; possible impairment charges to goodwill on our balance sheet; changes in customer spending, borrowing, and savings habits; the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; periodic fluctuations in commercial or residential real estate prices or values; our ability to attract or retain deposits (including low cost deposits) or to access government or private lending facilities and other sources of liquidity; the possibility that we may reduce or discontinue the payment of dividends on our common stock; changes in the financial performance and/or condition of our borrowers; changes in the competitive environment among financial and bank holding companies and other financial service providers; technological changes in banking and financial services; systemic or non-systemic bank failures or crises; geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism, and/or military conflicts, which could impact business and economic conditions in the United States and abroad; catastrophic events or natural disasters, including earthquakes, drought, climate change or extreme weather events that may affect our assets, communications or computer services, customers, employees or third party vendors; public health crises and pandemics, and their effects on our asset credit quality, business operations, and employees, as well as the impact on general economic and financial market conditions; cybersecurity threats and fraud and the costs of defending against them, including the costs of compliance with legislation or regulations to combat fraud and cybersecurity threats; our ability to recruit and retain key executives, board members and other employees, and our ability to comply with federal and state employment laws and regulations; ongoing or unanticipated regulatory or legal proceedings or outcomes; and our ability to manage the risks involved in the foregoing. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company’s 2023 Annual Report on Form 10-K filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

    The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.

    Non-GAAP Financial Measures — Certain financial information provided in this earnings release has not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and is presented on a non-GAAP basis. Investors and analysts should refer to the reconciliations included in this earnings release and should consider the Company’s non-GAAP measures in addition to, not as a substitute for or as superior to, measures prepared in accordance with GAAP. These measures may or may not be comparable to similarly titled measures used by other companies.

    CVB FINANCIAL CORP. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (Unaudited)
    (Dollars in thousands)
                 
                 
        September 30,
    2024    		   December 31,
    2023    		   September 30,
    2023
     
    Cash and due from banks   $ 200,651     $ 171,396     $ 176,488  
    Interest-earning balances due from Federal Reserve     252,809       109,889       64,207  
    Total cash and cash equivalents     453,460       281,285       240,695  
    Interest-earning balances due from depository institutions     24,338       8,216       4,108  
    Investment securities available-for-sale     2,465,585       2,956,125       2,873,163  
    Investment securities held-to-maturity     2,405,254       2,464,610       2,489,441  
    Total investment securities     4,870,839       5,420,735       5,362,604  
    Investment in stock of Federal Home Loan Bank (FHLB)     18,012       18,012       18,012  
    Loans and lease finance receivables     8,572,565       8,904,910       8,877,632  
    Allowance for credit losses     (82,942 )     (86,842 )     (88,995 )
    Net loans and lease finance receivables     8,489,623       8,818,068       8,788,637  
    Premises and equipment, net     36,275       44,709       44,561  
    Bank owned life insurance (BOLI)     316,553       308,706       259,468  
    Intangibles     11,130       15,291       16,736  
    Goodwill     765,822       765,822       765,822  
    Other assets     417,164       340,149       402,372  
    Total assets   $ 15,403,216     $ 16,020,993     $ 15,903,015  
    Liabilities and Stockholders’ Equity            
    Liabilities:            
    Deposits:            
    Noninterest-bearing   $ 7,136,824     $ 7,206,175     $ 7,586,649  
    Investment checking     504,028       552,408       560,223  
    Savings and money market     3,745,707       3,278,664       3,906,187  
    Time deposits     685,930       396,395       305,727  
    Total deposits     12,072,489       11,433,642       12,358,786  
    Customer repurchase agreements     394,515       271,642       269,552  
    Other borrowings     500,000       2,070,000       1,120,000  
    Other liabilities     238,381       167,737       203,276  
    Total liabilities     13,205,385       13,943,021       13,951,614  
    Stockholders’ Equity            
    Stockholders’ equity     2,472,660       2,401,541       2,378,539  
    Accumulated other comprehensive loss, net of tax     (274,829 )     (323,569 )     (427,138 )
    Total stockholders’ equity     2,197,831       2,077,972       1,951,401  
    Total liabilities and stockholders’ equity   $ 15,403,216     $ 16,020,993     $ 15,903,015  
                 
    CVB FINANCIAL CORP. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED AVERAGE BALANCE SHEETS
    (Unaudited)
    (Dollars in thousands)
                         
                         
          Three Months Ended
    		    Nine Months Ended
        September 30,
    2024    		   June 30,
    2024    		   September 30,
    2023    		   September 30,
    2024    		   September 30,
    2023
    Assets                    
    Cash and due from banks   $ 162,383     $ 162,724     $ 176,133     $ 162,385     $ 176,559  
    Interest-earning balances due from Federal Reserve     1,216,671       704,023       467,873       786,282       285,573  
    Total cash and cash equivalents     1,379,054       866,747       644,006       948,667       462,132  
    Interest-earning balances due from depository institutions     15,880       12,893       5,518       13,161       7,630  
    Investment securities available-for-sale     2,661,990       2,764,096       3,040,965       2,774,981       3,139,369  
    Investment securities held-to-maturity     2,418,043       2,442,863       2,501,625       2,439,427       2,524,799  
    Total investment securities     5,080,033       5,206,959       5,542,590       5,214,408       5,664,168  
    Investment in stock of FHLB     18,012       18,012       21,560       18,012       27,460  
    Loans and lease finance receivables     8,605,270       8,731,587       8,862,462       8,720,058       8,905,697  
    Allowance for credit losses     (82,810 )     (82,815 )     (86,986 )     (83,788 )     (86,222 )
    Net loans and lease finance receivables     8,522,460       8,648,772       8,775,476       8,636,270       8,819,475  
    Premises and equipment, net     38,906       43,624       45,315       42,291       45,731  
    Bank owned life insurance (BOLI)     315,435       312,645       258,485       312,574       257,358  
    Intangibles     11,819       13,258       17,526       13,216       19,256  
    Goodwill     765,822       765,822       765,822       765,822       765,822  
    Other assets     365,740       390,834       357,280       368,951       343,782  
    Total assets   $ 16,513,161     $ 16,279,566     $ 16,433,578     $ 16,333,372     $ 16,412,814  
    Liabilities and Stockholders’ Equity                    
    Liabilities:                    
    Deposits:                    
    Noninterest-bearing   $ 7,124,952     $ 7,153,315     $ 7,813,120     $ 7,153,557     $ 7,908,749  
    Interest-bearing     4,931,220       4,728,864       4,769,897       4,705,566       4,624,848  
    Total deposits     12,056,172       11,882,179       12,583,017       11,859,123       12,533,597  
    Customer repurchase agreements     363,959       287,128       340,809       320,280       461,478  
    Other borrowings     1,729,405       1,850,330       1,318,098       1,856,771       1,273,521  
    Other liabilities     196,832       157,463       164,624       174,328       133,046  
    Total liabilities     14,346,368       14,177,100       14,406,548       14,210,502       14,401,642  
    Stockholders’ Equity                    
    Stockholders’ equity     2,479,766       2,456,945       2,383,922       2,456,348       2,357,028  
    Accumulated other comprehensive loss, net of tax     (312,973 )     (354,479 )     (356,892 )     (333,478 )     (345,856 )
    Total stockholders’ equity     2,166,793       2,102,466       2,027,030       2,122,870       2,011,172  
    Total liabilities and stockholders’ equity   $ 16,513,161     $ 16,279,566     $ 16,433,578     $ 16,333,372     $ 16,412,814  
                         
    CVB FINANCIAL CORP. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
    (Unaudited)
    (Dollars in thousands, except per share amounts)
                         
                         
          Three Months Ended
    		        Nine Months Ended
        September 30,
    2024    		   June 30,
    2024    		   September 30,
    2023    		   September 30,
    2024    		   September 30,
    2023
    Interest income:                    
    Loans and leases, including fees   $ 114,929     $ 114,200     $ 113,190     $ 345,478     $ 332,574
    Investment securities:                    
    Investment securities available-for-sale     20,178       21,225       22,441       62,849       61,393
    Investment securities held-to-maturity     13,284       13,445       13,576       40,131       41,272
    Total investment income     33,462       34,670       36,017       102,980       102,665
    Dividends from FHLB stock     375       377       598       1,171       1,430
    Interest-earning deposits with other institutions     16,986       9,825       6,422       32,884       11,583
    Total interest income     165,752       159,072       156,227       482,513       448,252
    Interest expense:                    
    Deposits     29,821       25,979       16,517       77,166       32,647
    Borrowings and customer repurchase agreements     22,312       22,244       16,339       68,418       46,971
    Total interest expense     52,133       48,223       32,856       145,584       79,618
    Net interest income before provision for (recapture of) credit losses     113,619       110,849       123,371       336,929       368,634
    Provision for (recapture of) credit losses     –       –       2,000       –       4,000
    Net interest income after provision for (recapture of) credit losses     113,619       110,849       121,371       336,929       364,634
    Noninterest income:                    
    Service charges on deposit accounts     5,120       5,117       5,062       15,273       15,244
    Trust and investment services     3,565       3,428       3,246       10,217       9,475
    Loss on sale of AFS investment securities     (11,582 )     –       –       (11,582 )     –
    Gain on sale leaseback transactions     9,106       –       –       9,106       –
    Other     6,625       5,879       6,001       18,357       15,448
    Total noninterest income     12,834       14,424       14,309       41,371       40,167
    Noninterest expense:                    
    Salaries and employee benefits     36,647       35,426       34,744       108,474       103,539
    Occupancy and equipment     6,204       5,772       5,618       17,541       16,585
    Professional services     2,855       2,726       2,117       7,836       6,375
    Computer software expense     3,906       3,949       3,648       11,380       10,372
    Marketing and promotion     1,964       1,956       1,628       5,550       4,664
    Amortization of intangible assets     1,286       1,437       1,567       4,161       5,006
    (Recapture of) provision for unfunded loan commitments     (750 )     (500 )     (900 )     (1,250 )     –
    Other     6,723       5,731       6,636       21,411       17,415
    Total noninterest expense     58,835       56,497       55,058       175,103       163,956
    Earnings before income taxes     67,618       68,776       80,622       203,197       240,845
    Income taxes     16,394       18,741       22,735       53,339       67,918
    Net earnings   $ 51,224     $ 50,035     $ 57,887     $ 149,858     $ 172,927
                         
    Basic earnings per common share   $ 0.37     $ 0.36     $ 0.42     $ 1.07     $ 1.24
    Diluted earnings per common share   $ 0.37     $ 0.36     $ 0.42     $ 1.07     $ 1.24
    Cash dividends declared per common share   $ 0.20     $ 0.20     $ 0.20     $ 0.60     $ 0.60
                         
    CVB FINANCIAL CORP. AND SUBSIDIARIES
    SELECTED FINANCIAL HIGHLIGHTS
    (Unaudited)
    (Dollars in thousands, except per share amounts)
                         
        Three Months Ended   Nine Months Ended
        September 30,
    2024    		   June 30,
    2024    		   September 30,
    2023    		   September 30,
    2024    		   September 30,
    2023
    Interest income – tax equivalent (TE)   $ 166,285     $ 159,607     $ 156,771     $ 484,120     $ 449,888  
    Interest expense     52,133       48,223       32,856       145,584       79,618  
    Net interest income – (TE)   $ 114,152     $ 111,384     $ 123,915     $ 338,536     $ 370,270  
                         
    Return on average assets, annualized     1.23 %     1.24 %     1.40 %     1.23 %     1.41 %
    Return on average equity, annualized     9.40 %     9.57 %     11.33 %     9.43 %     11.50 %
    Efficiency ratio [1]     46.53 %     45.10 %     39.99 %     46.29 %     40.11 %
    Noninterest expense to average assets, annualized     1.42 %     1.40 %     1.33 %     1.43 %     1.34 %
    Yield on average loans     5.31 %     5.26 %     5.07 %     5.29 %     4.99 %
    Yield on average earning assets (TE)     4.43 %     4.37 %     4.18 %     4.38 %     4.04 %
    Cost of deposits     0.98 %     0.88 %     0.52 %     0.87 %     0.35 %
    Cost of deposits and customer repurchase agreements     1.01 %     0.87 %     0.51 %     0.87 %     0.34 %
    Cost of funds     1.47 %     1.38 %     0.92 %     1.39 %     0.75 %
    Net interest margin (TE)     3.05 %     3.05 %     3.31 %     3.06 %     3.32 %
    [1] Noninterest expense divided by net interest income before provision for credit losses plus noninterest income.        
                         
    Tangible Common Equity Ratio (TCE) [2]                    
      CVB Financial Corp. Consolidated     9.71 %     8.68 %     7.73 %        
      Citizens Business Bank     9.59 %     8.57 %     7.63 %        
    [2] (Capital – [GW+Intangibles])/(Total Assets – [GW+Intangibles])        
                         
    Weighted average shares outstanding                    
    Basic     138,649,763       138,583,510       138,345,000       138,415,424       138,360,531  
    Diluted     138,839,499       138,669,058       138,480,633       138,548,651       138,481,462  
    Dividends declared   $ 27,977     $ 28,018     $ 27,901     $ 83,881     $ 83,695  
    Dividend payout ratio [3]     54.62 %     56.00 %     48.20 %     55.97 %     48.40 %
    [3] Dividends declared on common stock divided by net earnings.        
                         
    Number of shares outstanding – (end of period)     139,678,314       139,677,162       139,337,699          
    Book value per share   $ 15.73     $ 15.12     $ 14.00          
    Tangible book value per share   $ 10.17     $ 9.55     $ 8.39          
                         
        September 30,
    2024    		   December 31,
    2023    		   September 30,
    2023    		        
                   
    Nonperforming assets:                    
    Nonaccrual loans   $ 21,913     $ 21,302     $ 9,963          
    Other real estate owned (OREO), net     647       –       –          
    Total nonperforming assets   $ 22,560     $ 21,302     $ 9,963          
    Modified loans/performing troubled debt restructured loans (TDR) [4]   $ 15,769     $ 9,460     $ 7,304          
                         
    [4] Effective January 1, 2023, performing and nonperforming TDRs are reflected as Loan Modifications to borrowers experiencing financial difficulty.        
                         
    Percentage of nonperforming assets to total loans outstanding and OREO     0.26 %     0.24 %     0.11 %        
    Percentage of nonperforming assets to total assets     0.15 %     0.13 %     0.06 %        
    Allowance for credit losses to nonperforming assets     367.65 %     407.67 %     893.26 %        
                         
        Three Months Ended    Nine Months Ended
        September 30,
    2024    		   June 30,
    2024    		   September 30,
    2023    		   September 30,
    2024    		   September 30,
    2023
    Allowance for credit losses:                    
     Beginning balance   $ 82,786     $ 82,817     $ 86,967     $ 86,842     $ 85,117  
    Total charge-offs     (26 )     (51 )     (26 )     (4,344 )     (224 )
    Total recoveries on loans previously charged-off     182       20       54       444       102  
    Net recoveries (charge-offs)     156       (31 )     28       (3,900 )     (122 )
    Provision for (recapture of) credit losses     –       –       2,000       –       4,000  
    Allowance for credit losses at end of period   $ 82,942     $ 82,786     $ 88,995     $ 82,942     $ 88,995  
                         
    Net recoveries (charge-offs) to average loans     0.002 %     -0.000 %     0.000 %     -0.045 %     -0.001 %
                         
    CVB FINANCIAL CORP. AND SUBSIDIARIES  
    SELECTED FINANCIAL HIGHLIGHTS  
    (Unaudited)  
    (Dollars in millions)  
                                             
    Allowance for Credit Losses by Loan Type                                    
                                             
        September 30, 2024   December 31, 2023   September 30, 2023    
        Allowance
    For Credit
    Losses    		   Allowance
    as a % of
    Total Loans
    by Respective
    Loan Type    		   Allowance
    For Credit
    Losses    		   Allowance
    as a % of
    Total Loans
    by Respective
    Loan Type    		   Allowance
    For Credit
    Losses    		   Allowance
    as a % of
    Total Loans
    by Respective
    Loan Type    		    
                                             
    Commercial real estate   $ 69.7     1.05 %     $ 69.5     1.02 %     $ 70.9     1.04 %      
    Construction     0.5     3.07 %       1.3     1.91 %       1.0     1.59 %      
    SBA     2.5     0.92 %       2.7     0.99 %       3.0     1.08 %      
    Commercial and industrial     5.3     0.56 %       9.1     0.94 %       9.3     0.99 %      
    Dairy & livestock and agribusiness     3.8     1.12 %       3.1     0.75 %       3.6     1.01 %      
    Municipal lease finance receivables     0.2     0.28 %       0.2     0.29 %       0.3     0.33 %      
    SFR mortgage     0.4     0.16 %       0.5     0.20 %       0.5     0.20 %      
    Consumer and other loans     0.5     0.99 %       0.4     0.85 %       0.4     0.82 %      
                                             
    Total   $ 82.9     0.97 %     $ 86.8     0.98 %     $ 89.0     1.00 %      
                                             
    CVB FINANCIAL CORP. AND SUBSIDIARIES  
    SELECTED FINANCIAL HIGHLIGHTS  
    (Unaudited)  
    (Dollars in thousands, except per share amounts)  
                               
    Quarterly Common Stock Price  
                               
          2024       2023       2022    
    Quarter End   High   Low   High   Low   High   Low  
    March 31,   $ 20.45   $ 15.95     $ 25.98     $ 16.34     $ 24.37     $ 21.36    
    June 30,   $ 17.91   $ 15.71     $ 16.89     $ 10.66     $ 25.59     $ 22.37    
    September 30,   $ 20.29   $ 16.08     $ 19.66     $ 12.89     $ 28.14     $ 22.63    
    December 31,   $ –   $ –     $ 21.77     $ 14.62     $ 29.25     $ 25.26    
                               
    Quarterly Consolidated Statements of Earnings  
                               
            Q3   Q2   Q1   Q4   Q3  
              2024       2024       2024       2023       2023    
    Interest income                          
    Loans and leases, including fees       $ 114,929     $ 114,200     $ 116,349     $ 115,721     $ 113,190    
    Investment securities and other         50,823       44,872       41,340       42,357       43,037    
    Total interest income         165,752       159,072       157,689       158,078       156,227    
    Interest expense                          
    Deposits         29,821       25,979       21,366       18,888       16,517    
    Borrowings and customer repurchase agreements     22,312       22,244       23,862       19,834       16,339    
    Total interest expense         52,133       48,223       45,228       38,722       32,856    
    Net interest income before (recapture of)                      
    provision for credit losses         113,619       110,849       112,461       119,356       123,371    
    (Recapture of) provision for credit losses     –       –       –       (2,000 )     2,000    
    Net interest income after (recapture of)                      
    provision for credit losses         113,619       110,849       112,461       121,356       121,371    
                               
    Noninterest income         12,834       14,424       14,113       19,163       14,309    
    Noninterest expense         58,835       56,497       59,771       65,930       55,058    
    Earnings before income taxes         67,618       68,776       66,803       74,589       80,622    
    Income taxes         16,394       18,741       18,204       26,081       22,735    
    Net earnings       $ 51,224     $ 50,035     $ 48,599     $ 48,508     $ 57,887    
                               
    Effective tax rate         24.25 %     27.25 %     27.25 %     34.97 %     28.20 %  
                               
    Basic earnings per common share       $ 0.37     $ 0.36     $ 0.35     $ 0.35     $ 0.42    
    Diluted earnings per common share     $ 0.37     $ 0.36     $ 0.35     $ 0.35     $ 0.42    
                               
    Cash dividends declared per common share   $ 0.20     $ 0.20     $ 0.20     $ 0.20     $ 0.20    
                               
    Cash dividends declared       $ 27,977     $ 28,018     $ 27,886     $ 27,945     $ 27,901    
                               
    CVB FINANCIAL CORP. AND SUBSIDIARIES
    SELECTED FINANCIAL HIGHLIGHTS
    (Unaudited)
    (Dollars in thousands)
                         
    Loan Portfolio by Type
        September 30, June 30,   March 31,   December 31,   September 30,
          2024       2024       2024       2023       2023  
                         
    Commercial and industrial   $ 6,618,637     $ 6,664,925     $ 6,720,538     $ 6,784,505     $ 6,843,059  
    Construction     14,755       52,227       58,806       66,734       63,022  
    SBA     272,001       267,938       268,320       270,619       283,124  
    SBA – PPP     1,255       1,757       2,249       2,736       3,233  
    Commercial and industrial     936,489       956,184       963,120       969,895       938,064  
    Dairy & livestock and agribusiness     342,445       350,562       351,624       412,891       351,463  
    Municipal lease finance receivables     67,585       70,889       72,032       73,590       75,621  
    SFR mortgage     267,181       267,593       276,475       269,868       268,171  
    Consumer and other loans     52,217       49,771       57,549       54,072       51,875  
    Gross loans, at amortized cost     8,572,565       8,681,846       8,770,713       8,904,910       8,877,632  
    Allowance for credit losses     (82,942 )     (82,786 )     (82,817 )     (86,842 )     (88,995 )
    Net loans   $ 8,489,623     $ 8,599,060     $ 8,687,896     $ 8,818,068     $ 8,788,637  
                         
                         
                         
    Deposit Composition by Type and Customer Repurchase Agreements
                         
        September 30, June 30,   March 31,   December 31,   September 30,
          2024       2024       2024       2023       2023  
                         
    Noninterest-bearing   $ 7,136,824     $ 7,090,095     $ 7,112,789     $ 7,206,175     $ 7,586,649  
    Investment checking     504,028       515,930       545,066       552,408       560,223  
    Savings and money market     3,745,707       3,409,320       3,561,512       3,278,664       3,906,187  
    Time deposits     685,930       774,980       675,554       396,395       305,727  
    Total deposits     12,072,489       11,790,325       11,894,921       11,433,642       12,358,786  
                         
    Customer repurchase agreements     394,515       268,826       275,720       271,642       269,552  
    Total deposits and customer repurchase agreements   $ 12,467,004     $ 12,059,151     $ 12,170,641     $ 11,705,284     $ 12,628,338  
                         
    CVB FINANCIAL CORP. AND SUBSIDIARIES  
    SELECTED FINANCIAL HIGHLIGHTS  
    (Unaudited)  
    (Dollars in thousands)  
                           
    Nonperforming Assets and Delinquency Trends  
        September 30, June 30,   March 31,   December 31,   September 30,
    		  
          2024       2024       2024       2023       2023    
    Nonperforming loans:                      
    Commercial real estate   $ 18,794     $ 21,908     $ 10,661     $ 15,440     $ 3,655    
    Construction     –       –       –       –       –    
    SBA     151       337       54       969       1,050    
    Commercial and industrial     2,825       2,712       2,727       4,509       4,672    
    Dairy & livestock and agribusiness     143       –       60       60       243    
    SFR mortgage     –       –       308       324       339    
    Consumer and other loans     –       –       –       –       4    
    Total   $ 21,913     $ 24,957     $ 13,810     $ 21,302     $ 9,963   [1]
    % of Total loans     0.26 %     0.29 %     0.16 %     0.24 %     0.11 %  
                           
    Past due 30-89 days (accruing):                      
    Commercial real estate   $ 30,701     $ 43     $ 19,781     $ 300     $ 136    
    Construction     –       –       –       –       –    
    SBA     –       –       408       108       –    
    Commercial and industrial     64       103       6       12       –    
    Dairy & livestock and agribusiness     –       –       –       –       –    
    SFR mortgage     –       –       –       201       –    
    Consumer and other loans     –       –       –       18       –    
    Total   $ 30,765     $ 146     $ 20,195     $ 639     $ 136    
    % of Total loans     0.36 %     0.00 %     0.23 %     0.01 %     0.00 %  
                           
    OREO:                      
    Commercial real estate   $ –     $ –     $ –     $ –     $ –    
    SBA     –       –       –       –       –    
    Commercial and industrial     647       647       647       –       –    
    SFR mortgage     –       –       –       –       –    
    Total   $ 647     $ 647     $ 647     $ –     $ –    
    Total nonperforming, past due, and OREO   $ 53,325     $ 25,750     $ 34,652     $ 21,941     $ 10,099    
    % of Total loans     0.62 %     0.30 %     0.40 %     0.25 %     0.11 %  
                           
      [1] Includes $2.6 million of nonaccrual loans past due 30-89 days.                
                           
       
    CVB FINANCIAL CORP. AND SUBSIDIARIES  
    SELECTED FINANCIAL HIGHLIGHTS  
    (Unaudited)  
                       
    Regulatory Capital Ratios  
                       
                       
                       
            CVB Financial Corp. Consolidated  
    Capital Ratios   Minimum Required Plus
    Capital Conservation Buffer    		   September 30,
    2024    		   December 31,
    2023    		   September 30,
    2023    		  
                       
    Tier 1 leverage capital ratio   4.0 %   10.6 %   10.3 %   10.0 %  
    Common equity Tier 1 capital ratio   7.0 %   15.8 %   14.6 %   14.4 %  
    Tier 1 risk-based capital ratio   8.5 %   15.8 %   14.6 %   14.4 %  
    Total risk-based capital ratio   10.5 %   16.6 %   15.5 %   15.3 %  
                       
    Tangible common equity ratio       9.7 %   8.5 %   7.7 %  
                       
    Tangible Book Value Reconciliations (Non-GAAP)
     
    The tangible book value per share is a Non-GAAP disclosure. The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company’s performance. The following is a reconciliation of tangible book value to the Company stockholders’ equity computed in accordance with GAAP, as well as a calculation of tangible book value per share as of September 30, 2024, December 31, 2023 and September 30, 2023.   
     
                   
          September 30,
    2024    		   December 31,
    2023    		   September 30,
    2023    		  
          (Dollars in thousands, except per share amounts)  
                 
    Stockholders’ equity   $ 2,197,831     $ 2,077,972     $ 1,951,401  
    Less: Goodwill     (765,822 )     (765,822 )     (765,822 )
    Less: Intangible assets     (11,130 )     (15,291 )     (16,736 )
    Tangible book value   $ 1,420,879     $ 1,296,859     $ 1,168,843  
    Common shares issued and outstanding     139,678,314       139,344,981       139,337,699  
    Tangible book value per share   $ 10.17     $ 9.31     $ 8.39  
                 
    Return on Average Tangible Common Equity Reconciliations (Non-GAAP)
                             
    The return on average tangible common equity is a non-GAAP disclosure. The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company’s performance. The following is a reconciliation of net income, adjusted for tax-effected amortization of intangibles, to net income computed in accordance with GAAP; a reconciliation of average tangible common equity to the Company’s average stockholders’ equity computed in accordance with GAAP; as well as a calculation of return on average tangible common equity.
     
          Three Months Ended     Nine Months Ended
          September 30, June 30,   September 30, September 30, September 30,
            2024       2024       2023       2024       2023    
          (Dollars in thousands)  
                             
      Net Income   $ 51,224     $ 50,035     $ 57,887     $ 149,858     $ 172,927    
      Add: Amortization of intangible assets     1,286       1,437       1,567       4,161       5,006    
      Less: Tax effect of amortization of intangible assets [1]     (380 )     (425 )     (463 )     (1,230 )     (1,480 )  
      Tangible net income   $ 52,130     $ 51,047     $ 58,991     $ 152,789     $ 176,453    
                             
      Average stockholders’ equity   $ 2,166,793     $ 2,102,466     $ 2,027,030     $ 2,122,870     $ 2,011,172    
      Less: Average goodwill     (765,822 )     (765,822 )     (765,822 )     (765,822 )     (765,822 )  
      Less: Average intangible assets     (11,819 )     (13,258 )     (17,526 )     (13,216 )     (19,256 )  
      Average tangible common equity   $ 1,389,152     $ 1,323,386     $ 1,243,682     $ 1,343,832     $ 1,226,094    
                             
      Return on average equity, annualized [2]     9.40 %     9.57 %     11.33 %     9.43 %     11.50 %  
      Return on average tangible common equity, annualized [2]     14.93 %     15.51 %     18.82 %     15.19 %     19.24 %  
                             
                             
      [1] Tax effected at respective statutory rates.                      
      [2] Annualized where applicable.                      
                             

    Contact:        
    David A. Brager        
    President and Chief Executive Officer
    (909) 980-4030

    The MIL Network –

  • MIL-OSI: Update: Eagle Bancorp, Inc. Announces Third Quarter 2024 Results

    Source: GlobeNewswire (MIL-OSI)

    BETHESDA, Md., Oct. 23, 2024 (GLOBE NEWSWIRE) — Eagle Bancorp, Inc. (“Eagle”, the “Company”) (NASDAQ: EGBN), the Bethesda-based holding company for EagleBank, one of the largest community banks in the Washington D.C. area, reported its unaudited results for the third quarter ended September 30, 2024.

    Eagle reported net income of $21.8 million or $0.72 per share for the third quarter 2024, compared to a net loss of $83.8 million during the second quarter in which the Company recorded a $104.2 million impairment in the value of goodwill. Operating net income1 in the second quarter, adjusted to exclude the impairment charge on goodwill, was $20.4 million or $0.67 per share per diluted share. Pre-provision net revenue (“PPNR”)1 in the third quarter was $35.2 million compared to a pre-provision net loss of $69.8 million for the prior quarter, or $34.4 million of PPNR when adjusted to exclude the impairment charge on goodwill1.

    The $1.4 million increase in operating net income1 over the prior quarter is attributed to a positive variance of $2.2 million related to the change in provision for unfunded commitments; $1.6 million increase in non-interest income; and a $490 thousand increase in net interest income, offset by a $1.3 million increase in operating non-interest expense, adjusted to exclude the impairment charge on goodwill, and a $1.1 million increase in provision for credit losses.

    “We continue to strategically position the Company for future growth as evidenced by actions taken during the quarter with the refinancing of our maturing subordinated debt and the recalibration of our common dividend strategy,” said Susan G. Riel, President and Chief Executive Officer of the Company. “We announced the addition of Evelyn Lee to our senior leadership as our Chief Lending Officer for our commercial lending team. As a 25 year banker in the Washington D.C. market, I am excited about accomplishing our strategic goal of continuing to build out our commercial banker group and pursuing diversification of the loan portfolio and growing our relationship deposits,” added Ms. Riel.

    Eric R. Newell, Chief Financial Officer of the Company said, “Raising senior debt in the third quarter demonstrates the confidence debt investors have in our vision and the future of the Company. Operating performance was stable from last quarter evidenced by operating net income1 increasing $1.4 million to $21.8 million in the third quarter. We continued to build our reserve for credit losses, with coverage as a percentage of total held for investment loans at 1.40% increasing 7 basis points from last quarter. Common equity tier one capital increased to 14.5% and our tangible common equity1 ratio exceeds 10%.”

    Ms. Riel added, “I thank all of our employees for their hard work and their commitment to a culture of respect, diversity and inclusion in both the workplace and the communities we serve.”

    Third Quarter 2024 Highlights

    • The Company repaid $70 million of maturing subordinated debt and issued $77.7 million of 10% unsecured senior debt maturing September 30, 2029.
    • During the quarter, the Company announced a recalibration of the common stock dividend to $0.165 per share from $0.45 per share in the second quarter an action estimated to retain an additional $32 million of capital annually to meet growth and investment objectives.
    • The ACL as a percentage of total loans held for investment was 1.40% at quarter-end; up from 1.33% at the prior quarter-end. Performing office coverage2 was 4.55% at quarter-end; as compared to 4.05% at the prior quarter-end.
    • Nonperforming assets increased $38.2 million to $137.1 million as of September 30, 2024 and were 1.22% of total assets compared to 0.88% as of June 30, 2024. Inflows to non-performing loans in the quarter totaled $45.5 million offset by $9 million of outflows, of which $5 million was the loan held for sale at June 30, 2024 and an increase of other real estate owned of $2.0 million. The inflows were predominantly associated with $27.3 million in mixed use land loans and $17.9 million in an assisted living facility loan.
    • Substandard loans declined $17.0 million to $391.3 million and special mention loans increased $57.1 million to $365.0 million at September 30, 2024.
    • Net charge-offs for the third quarter were 0.26% compared to 0.11% for the second quarter 2024. Of the total $5.3 million of net charge offs in the quarter, $3.8 million is associated with a senior living property that has not stabilized.
    • The net interest margin (“NIM”) decreased slightly to 2.37% for the third quarter 2024, compared to 2.40% for the prior quarter, primarily due to continued decline in average non-interest bearing deposits. Net interest income increased $490 thousand from the second quarter to $71.8 million in the third quarter.
    • At quarter-end, the common equity ratio, tangible common equity ratio1, and common equity tier 1 capital (to risk-weighted assets) ratio were 10.86%, 10.86%, and 14.54%, respectively.
    • Total estimated insured deposits at quarter-end were $6.4 billion, or 74.5% of deposits, stable from the second quarter total of 72.5% of deposits.
    • Total on-balance sheet liquidity and available capacity was $4.6 billion at quarter-end compared to $4.0 billion at June 30, 2024.

    Income Statement

    • Net interest income was $71.8 million for the third quarter 2024, compared to $71.4 million for the prior quarter. The increase in net interest income was primarily driven by an increase in the average balances of deposits held with other banks and average loans partially offset by higher average interest-bearing deposits and higher rates paid on those deposits in the third quarter from the prior quarter.
    • Provision for credit losses was $10.1 million for the third quarter 2024, compared to $9.0 million for the prior quarter. The increase in the provision quarter over quarter reflects higher net charge-offs in the third quarter from the prior quarter. Reserve for unfunded commitments was a reversal of $1.6 million due to lower unfunded commitments in our construction portfolio. This compared to a reserve for unfunded commitments in the prior quarter of $0.6 million.
    • Noninterest income was $6.95 million for the third quarter 2024, compared to $5.33 million for the prior quarter. The primary driver for the increase was higher swap fee income.
    • Noninterest expense was $43.6 million for the third quarter 2024, compared to $146.5 million for the prior quarter. The decrease over the comparative quarters was primarily due to a goodwill impairment charge of $104.2 million in the second quarter 2024. When excluding the goodwill impairment charge, the increase quarter over quarter was associated with increased FDIC insurance expense.

    Loans and Funding

    • Total loans were $8.0 billion at September 30, 2024, down 0.4% from the prior quarter-end. The decrease in total loans was driven by a reduction in commercial loans and income producing commercial real estate loans from the prior quarter-end, partially offset by increased fundings of ongoing construction projects for commercial and residential properties.

      At September 30, 2024, income-producing commercial real estate loans secured by office properties other than owner-occupied properties were 10.8% of the total loan portfolio, down from 11.3% at the prior quarter-end.

    • Total deposits at quarter-end were $8.5 billion, up $273.5 million, or 3.3%, from the prior quarter-end. The increase was primarily attributable to an increase in time deposits from the company’s digital acquisition channel. Period end deposits have increased $165 million when compared to prior year comparable period end of September 30, 2023.
    • Other short-term borrowings were $1.2 billion at September 30, 2024, down 25.3% from the prior quarter-end as maturing FHLB borrowings were paid down with increased cash from deposits.

    Asset Quality

    • Allowance for credit losses was 1.40% of total loans held for investment at September 30, 2024, compared to 1.33% at the prior quarter-end. Performing office coverage was 4.55% at quarter-end; as compared to 4.05% at the prior quarter-end.
    • Net charge-offs were $5.3 million for the quarter compared to $2.3 million in the second quarter of 2024.
    • Nonperforming assets were $137.1 million at September 30, 2024.
      • NPAs as a percentage of assets were 1.22% at September 30, 2024, compared to 0.88% at the prior quarter-end. At September 30, 2024, other real estate owned consisted of four properties with an aggregate carrying value of $2.7 million. The increase in NPAs was predominantly associated with $27.3 million in mixed use land loans and $17.9 million in an assisted living facility loan.
      • Loans 30-89 days past due were $56.3 million at September 30, 2024, compared to $8.4 million at the prior quarter-end. Of the total increase, $25 million was brought current subsequent to quarter-end.

    Capital

    • Total shareholders’ equity was $1.2 billion at September 30, 2024, up 4.8% from the prior quarter-end. The increase in shareholders’ equity of $56.0 million was primarily due to increased valuations of available-for-sale securities and an increase in retained earnings.
    • Book value per share and Tangible book value per share3 was $40.61, up $1.86 from the prior quarter-end.

    Additional financial information: The financial information that follows provides more detail on the Company’s financial performance for the three months ended September 30, 2024 as compared to the three months ended June 30, 2024 and September 30, 2023, as well as eight quarters of trend data. Persons wishing additional information should refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and other reports filed with the SEC.

    About Eagle Bancorp: The Company is the holding company for EagleBank, which commenced operations in 1998. The Bank is headquartered in Bethesda, Maryland, and operates through twelve banking offices and four lending offices located in Suburban Maryland, Washington, D.C. and Northern Virginia. The Company focuses on building relationships with businesses, professionals and individuals in its marketplace, and is committed to a culture of respect, diversity, equity and inclusion in both its workplace and the communities in which it operates.

    Conference call: Eagle Bancorp will host a conference call to discuss its third quarter 2024 financial results on Thursday, October 24, 2024 at 10:00 a.m. Eastern Time.

    The listen-only webcast can be accessed at:

    • https://edge.media-server.com/mmc/p/79xpxyi2
    • For analysts who wish to participate in the conference call, please register at the following URL:

      https://register.vevent.com/register/BI6cdce3c45a9f49219ea94a6f7c9fa083

    • A replay of the conference call will be available on the Company’s website through November 7, 2024: https://www.eaglebankcorp.com/

    Forward-looking statements: This press release contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward-looking statements can be identified by use of words such as “may,” “will,” “can,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” “could,” “strive,” “feel” and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market (including volatility in interest rates and interest rate policy; the current inflationary environment; competitive factors) and other conditions (such as the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks), which by their nature are not susceptible to accurate forecast and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results in the future may differ materially from those indicated herein. For details on factors that could affect these expectations, see the risk factors and other cautionary language included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and in other periodic and current reports filed with the SEC. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company’s past results are not necessarily indicative of future performance, and nothing contained herein is meant to or should be considered and treated as earnings guidance of future quarters’ performance projections. All information is as of the date of this press release. Any forward-looking statements made by or on behalf of the Company speak only as to the date they are made. Except to the extent required by applicable law or regulation, the Company undertakes no obligation to revise or update publicly any forward-looking statement for any reason.

    Eagle Bancorp, Inc.
    Consolidated Statements of Operations (Unaudited)
    (Dollars in thousands, except per share data)
               
      Three Months Ended
      September 30,   June 30,   September 30,
        2024       2024       2023  
    Interest Income          
    Interest and fees on loans $ 139,836     $ 137,616     $ 132,273  
    Interest and dividends on investment securities   12,578       12,405       13,732  
    Interest on balances with other banks and short-term investments   21,296       19,568       15,067  
    Interest on federal funds sold   103       142       77  
    Total interest income   173,813       169,731       161,149  
    Interest Expense          
    Interest on deposits   81,190       76,846       70,929  
    Interest on customer repurchase agreements   332       330       311  
    Interest on other short-term borrowings   20,448       21,202       18,152  
    Interest on long-term borrowings $ —       —       1,038  
    Total interest expense   101,970       98,378       90,430  
    Net Interest Income   71,843       71,353       70,719  
    Provision for Credit Losses   10,094       8,959       5,644  
    Provision (Reversal) for Credit Losses for Unfunded Commitments   (1,593 )     608       (839 )
    Net Interest Income After Provision for Credit Losses   63,342       61,786       65,914  
               
    Noninterest Income          
    Service charges on deposits   1,747       1,653       1,631  
    Gain on sale of loans   20       37       (5 )
    Net gain on sale of investment securities   3       3       5  
    Increase in cash surrender value of bank-owned life insurance   731       709       669  
    Other income   4,450       2,930       4,047  
    Total noninterest income   6,951       5,332       6,347  
    Noninterest Expense          
    Salaries and employee benefits   21,675       21,770       21,549  
    Premises and equipment expenses   2,794       2,894       3,095  
    Marketing and advertising   1,588       1,662       768  
    Data processing   3,435       3,495       3,194  
    Legal, accounting and professional fees   3,433       2,705       2,162  
    FDIC insurance   7,399       5,917       3,342  
    Goodwill impairment   —       104,168       —  
    Other expenses   3,290       3,880       3,523  
    Total noninterest expense   43,614       146,491       37,633  
    (Loss) Income Before Income Tax Expense   26,679       (79,373 )     34,628  
    Income Tax Expense   4,864       4,429       7,245  
    Net (Loss) Income $ 21,815     $ (83,802 )   $ 27,383  
               
    (Loss) Earnings Per Common Share          
    Basic $ 0.72     $ (2.78 )   $ 0.91  
    Diluted $ 0.72     $ (2.78 )   $ 0.91  
                           

            

    Eagle Bancorp, Inc.
    Consolidated Balance Sheets (Unaudited)
    (Dollars in thousands, except per share data)
      September 30,   June 30,   September 30,
        2024       2024       2023  
    Assets          
    Cash and due from banks $ 16,383     $ 10,803     $ 8,625  
    Federal funds sold   9,610       5,802       13,611  
    Interest-bearing deposits with banks and other short-term investments   584,491       526,228       235,819  
    Investment securities available-for-sale at fair value (amortized cost of $1,550,038, $1,613,659, and $1,732,722, respectively, and allowance for credit losses of $17, $17 and $17, respectively)   1,433,006       1,584,435       1,474,945  
    Investment securities held-to-maturity at amortized cost, net of allowance for credit losses of $1,237, $2,012 and $2,010, respectively (fair value of $868,425, $856,275 and $923,313, respectively)   961,925       982,955       1,032,485  
    Federal Reserve and Federal Home Loan Bank stock   37,728       54,274       25,689  
    Loans held for sale   —       5,000       —  
    Loans   7,970,269       8,001,739       7,916,391  
    Less: allowance for credit losses   (111,867 )     (106,301 )     (83,332 )
    Loans, net   7,858,402       7,895,438       7,833,059  
    Premises and equipment, net   8,291       8,788       11,216  
    Operating lease right-of-use assets   15,167       16,250       20,151  
    Deferred income taxes   74,381       86,236       98,987  
    Bank-owned life insurance   115,064       114,333       112,234  
    Goodwill and intangible assets, net   21       129       105,239  
    Other real estate owned   2,743       773       1,487  
    Other assets   167,840       174,396       190,667  
    Total Assets $ 11,285,052     $ 11,465,840     $ 11,164,214  
    Liabilities and Shareholders’ Equity          
    Liabilities          
    Deposits:          
    Noninterest-bearing demand $ 1,609,823     $ 1,693,955     $ 2,072,665  
    Interest-bearing transaction   903,300       1,123,980       932,779  
    Savings and money market   3,316,819       3,165,314       3,129,773  
    Time deposits   2,710,908       2,284,099       2,241,089  
    Total deposits   8,540,850       8,267,348       8,376,306  
    Customer repurchase agreements   32,040       39,220       25,689  
    Other short-term borrowings   1,240,000       1,659,979       1,300,001  
    Long-term borrowings   75,812       —       69,887  
    Operating lease liabilities   18,755       20,016       24,422  
    Reserve for unfunded commitments   5,060       6,653       6,183  
    Other liabilities   147,111       139,348       145,842  
    Total Liabilities   10,059,628       10,132,564       9,948,330  
    Shareholders’ Equity          
    Common stock, par value $0.01 per share; shares authorized 100,000,000, shares issued and outstanding 30,173,200 30,180,482, and 30,185,732, respectively   298       297       296  
    Additional paid-in capital   382,284       380,142       372,394  
    Retained earnings   967,019       949,863       1,054,699  
    Accumulated other comprehensive loss   (124,177 )     (160,843 )     (211,505 )
    Total Shareholders’ Equity   1,225,424       1,169,459       1,215,884  
    Total Liabilities and Shareholders’ Equity $ 11,285,052     $ 11,302,023     $ 11,164,214  
                           

     

    Loan Mix and Asset Quality
    (Dollars in thousands)
     
      September 30,   June 30,   September 30,
        2024       2024       2023  
      Amount %   Amount %   Amount %
    Loan Balances – Period End:                
    Commercial $ 1,154,349     14 %   $ 1,238,261     15 %   $ 1,418,760     18 %
    PPP loans   348     — %     407     — %     588     — %
    Income producing – commercial real estate   4,155,120     52 %     4,217,525     53 %     4,147,301     52 %
    Owner occupied – commercial real estate   1,276,240     16 %     1,263,714     16 %     1,182,959     15 %
    Real estate mortgage – residential   57,223     1 %     61,338     1 %     76,511     1 %
    Construction – commercial and residential   1,174,591     15 %     1,063,764     13 %     904,282     11 %
    Construction – C&I (owner occupied)   100,662     1 %     99,526     1 %     129,616     2 %
    Home equity   51,567     1 %     52,773     1 %     53,917     1 %
    Other consumer   169     — %     4,431     — %     2,457     — %
    Total loans $ 7,970,269     100 %   $ 8,001,739     100 %   $ 7,916,391     100 %
                                             
      Three Months Ended or As Of
      September 30,   June 30,   September 30,
        2024       2024       2023  
    Asset Quality:          
    Net charge-offs $ 5,303     $ 2,285     $ 340  
    Nonperforming loans $ 134,371     $ 98,169     $ 70,148  
    Other real estate owned $ 2,743     $ 773     $ 1,757  
    Nonperforming assets $ 137,114     $ 98,942     $ 71,905  
    Special mention $ 364,983     $ 307,906     $ 158,182  
    Substandard $ 391,301     $ 408,311     $ 219,001  
                           
    Eagle Bancorp, Inc.
    Consolidated Average Balances, Interest Yields And Rates vs. Prior Quarter (Unaudited)
    (Dollars in thousands)
                           
      Three Months Ended
      September 30, 2024   June 30, 2024
      Average Balance   Interest   Average
    Yield/Rate    		   Average Balance   Interest   Average
    Yield/Rate
    ASSETS                      
    Interest earning assets:                      
    Interest-bearing deposits with other banks and other short-term investments $ 1,577,464     $ 21,296       5.37 %   $ 1,455,007     $ 19,568       5.41 %
    Loans held for sale (1)   4,936       1       0.08 %     8,045       100       5.00 %
    Loans (1) (2) $ 8,026,524       139,835       6.93 %     8,003,206       137,516       6.91 %
    Investment securities available-for-sale (2)   1,479,598       7,336       1.97 %     1,478,856       7,048       1.92 %
    Investment securities held-to-maturity (2)   974,366       5,242       2.14 %     995,274       5,357       2.16 %
    Federal funds sold   10,003       103       4.10 %     13,058       142       4.37 %
    Total interest earning assets   12,072,891     $ 173,813       5.73 %     11,953,446     $ 169,731       5.71 %
    Total noninterest earning assets   397,006               510,725          
    Less: allowance for credit losses   (108,998 )             (102,671 )        
    Total noninterest earning assets   288,008               408,054          
    TOTAL ASSETS $ 12,360,899             $ 12,361,500          
                           
    LIABILITIES AND SHAREHOLDERS’ EQUITY                    
    Interest bearing liabilities:                      
    Interest-bearing transaction $ 1,656,676     $ 14,596       3.51 %   $ 1,636,795     $ 16,100       3.96 %
    Savings and money market   3,254,128       34,896       4.27 %     3,321,001       33,451       4.05 %
    Time deposits   2,517,944       31,698       5.01 %     2,215,693       27,295       4.95 %
    Total interest bearing deposits   7,428,748       81,190       4.35 %     7,173,489       76,846       4.31 %
    Customer repurchase agreements   38,045       332       3.47 %     38,599       330       3.44 %
    Other short-term borrowings   1,615,867       20,448       5.03 %     1,682,684       21,202       5.07 %
    Long-term borrowings   824       —       — %     —       —       — %
    Total interest bearing liabilities   9,083,484     $ 101,970       4.47 %     8,894,772     $ 98,378       4.45 %
    Noninterest bearing liabilities:                      
    Noninterest bearing demand   1,915,666               2,051,777          
    Other liabilities   160,272               151,324          
    Total noninterest bearing liabilities   2,075,938               2,203,101          
    Shareholders’ equity   1,201,477               1,263,627          
    TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 12,360,899             $ 12,361,500          
    Net interest income     $ 71,843             $ 71,353      
    Net interest spread           1.26 %             1.26 %
    Net interest margin           2.37 %             2.40 %
    Cost of funds           3.69 %             3.61 %

    (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 $4.8 million for the three months ended September 30, 2024 and June 30, 2024, respectively.
    (2) Interest and fees on loans and investments exclude tax equivalent adjustments.

    Eagle Bancorp, Inc.
    Consolidated Average Balances, Interest Yields And Rates vs. Year Ago Quarter (Unaudited)
    (Dollars in thousands)
                           
      Three Months Ended September 30,
        2024       2023  
      Average Balance   Interest   Average
    Yield/Rate    		   Average Balance   Interest   Average
    Yield/Rate
    ASSETS                      
    Interest earning assets:                      
    Interest bearing deposits with other banks and other short-term investments $ 1,577,464     $ 21,296       5.37 %   $ 1,127,451     $ 15,067       5.30 %
    Loans held for sale (1)   4,936       1       0.08 %     —       —       — %
    Loans (1) (2)   8,026,524       139,835       6.93 %     7,795,144       132,273       6.73 %
    Investment securities available-for-sale (2)   1,479,598       7,336       1.97 %     1,554,348       8,126       2.07 %
    Investment securities held-to-maturity (2)   974,366       5,242       2.14 %     1,047,515       5,606       2.12 %
    Federal funds sold   10,003       103       4.10 %     7,728       77       3.95 %
    Total interest earning assets   12,072,891     $ 173,813       5.73 %     11,532,186     $ 161,149       5.54 %
    Total noninterest earning assets   397,006               489,683          
    Less: allowance for credit losses   (108,998 )             (78,964 )        
    Total noninterest earning assets   288,008               410,719          
    TOTAL ASSETS $ 12,360,899             $ 11,942,905          
                           
    LIABILITIES AND SHAREHOLDERS’ EQUITY                    
    Interest bearing liabilities:                      
    Interest bearing transaction $ 1,656,676     $ 14,596       3.51 %   $ 1,421,522     $ 12,785       3.57 %
    Savings and money market   3,254,128       34,896       4.27 %     3,113,755       32,855       4.19 %
    Time deposits   2,517,944       31,698       5.01 %     2,162,582       25,289       4.64 %
    Total interest bearing deposits   7,428,748       81,190       4.35 %     6,697,859       70,929       4.20 %
    Customer repurchase agreements   38,045       332       3.47 %     36,082       311       3.42 %
    Other short-term borrowings   1,615,867       20,448       5.03 %     1,610,097       19,190       4.73 %
    Long-term borrowings   824       —       — %     —       —       — %
    Total interest bearing liabilities   9,083,484     $ 101,970       4.47 %     8,344,038     $ 90,430       4.30 %
    Noninterest bearing liabilities:                      
    Noninterest bearing demand   1,915,666               2,248,782          
    Other liabilities   160,272               114,923          
    Total noninterest bearing liabilities   2,075,938               2,363,705          
    Shareholders’ equity   1,201,477               1,235,162          
    TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 12,360,899             $ 11,942,905          
    Net interest income     $ 71,843             $ 70,719      
    Net interest spread           1.26 %             1.24 %
    Net interest margin           2.37 %             2.43 %
    Cost of funds           3.69 %             3.39 %

    (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.
    (2) Interest and fees on loans and investments exclude tax equivalent adjustments.

    Eagle Bancorp, Inc.
    Statements of Operations and Highlights Quarterly Trends (Unaudited)
    (Dollars in thousands, except per share data)
                                   
      Three Months Ended
      September 30,   June 30,   March 31,   December 31,   September 30,   June 30,   March 31,   December 31,
    Income Statements:   2024       2024       2024       2023       2023       2023       2023       2022  
    Total interest income $ 173,813     $ 169,731     $ 175,602     $ 167,421     $ 161,149     $ 156,510     $ 140,247     $ 129,130  
    Total interest expense   101,970       98,378       100,904       94,429       90,430       84,699       65,223       43,530  
    Net interest income   71,843       71,353       74,698       72,992       70,719       71,811       75,024       85,600  
    Provision (reversal) for credit losses   10,094       8,959       35,175       14,490       5,644       5,238       6,164       (464 )
    Provision (reversal) for credit losses for unfunded commitments   (1,593 )     608       456       (594 )     (839 )     318       848       161  
    Net interest income after provision for (reversal of) credit losses   63,342       61,786       39,067       59,096       65,914       66,255       68,012       85,903  
    Noninterest income before investment gain (loss)   6,948       5,329       3,585       2,891       6,342       8,593       3,721       5,326  
    Net gain (loss) on sale of investment securities   3       3       4       3       5       2       (21 )     3  
    Total noninterest income   6,951       5,332       3,589       2,894       6,347       8,595       3,700       5,329  
    Salaries and employee benefits   21,675       21,770       21,726       18,416       21,549       21,957       24,174       23,691  
    Premises and equipment expenses   2,794       2,894       3,059       2,967       3,095       3,227       3,317       3,292  
    Marketing and advertising   1,588       1,662       859       1,071       768       884       636       1,290  
    Goodwill impairment   —       104,168       —       —       —       —       —       —  
    Other expenses   17,557       15,997       14,353       14,644       12,221       11,910       12,457       10,645  
    Total noninterest expense   43,614       146,491       39,997       37,098       37,633       37,978       40,584       38,918  
    (Loss) income before income tax expense   26,679       (79,373 )     2,659       24,892       34,628       36,872       31,128       52,314  
    Income tax expense   4,864       4,429       2,997       4,667       7,245       8,180       6,894       10,121  
    Net (loss) income $ 21,815     $ (83,802 )   $ (338 )   $ 20,225     $ 27,383     $ 28,692     $ 24,234     $ 42,193  
    Per Share Data:                              
    (Loss) earnings per weighted average common share, basic $ 0.72     $ (2.78 )   $ (0.01 )   $ 0.68     $ 0.91     $ 0.94     $ 0.78     $ 1.32  
    (Loss) earnings per weighted average common share, diluted $ 0.72     $ (2.78 )   $ (0.01 )   $ 0.67     $ 0.91     $ 0.94     $ 0.78     $ 1.32  
    Weighted average common shares outstanding, basic   30,173,852       30,185,609       30,068,173       29,925,557       29,910,218       30,454,766       31,109,267       31,819,631  
    Weighted average common shares outstanding, diluted   30,241,699       30,185,609       30,068,173       29,966,962       29,944,692       30,505,468       31,180,346       31,898,619  
    Actual shares outstanding at period end   30,173,200       30,180,482       30,185,732       29,925,612       29,917,982       29,912,082       31,111,647       31,346,903  
    Book value per common share at period end $ 40.61     $ 38.75     $ 41.72     $ 42.58     $ 40.64     $ 40.78     $ 39.92     $ 39.18  
    Tangible book value per common share at period end (1) $ 40.61     $ 38.74     $ 38.26     $ 39.08     $ 37.12     $ 37.29     $ 36.57     $ 35.86  
    Dividend per common share $ 0.165     $ 0.45     $ 0.45     $ 0.45     $ 0.45     $ 0.45     $ 0.45     $ 0.45  
    Performance Ratios (annualized):                              
    Return on average assets   0.70 %     (2.73 )%     (0.01 )%     0.65 %     0.91 %     0.96 %     0.86 %     1.49 %
    Return on average common equity   7.22 %     (26.67 )%     (0.11 )%     6.48 %     8.80 %     9.24 %     7.92 %     13.57 %
    Return on average tangible common equity (1)   7.22 %     (28.96 )%     (0.11 )%     7.08 %     9.61 %     10.08 %     8.65 %     14.82 %
    Net interest margin   2.37 %     2.40 %     2.43 %     2.45 %     2.43 %     2.49 %     2.77 %     3.14 %
    Efficiency ratio (2)   55.4 %     191.0 %     51.1 %     48.9 %     48.8 %     47.2 %     51.6 %     42.8 %
    Other Ratios:                              
    Allowance for credit losses to total loans (3)   1.40 %     1.33 %     1.25 %     1.08 %     1.05 %     1.00 %     1.01 %     0.97 %
    Allowance for credit losses to total nonperforming loans   83 %     110 %     109 %     131 %     119 %     268 %     1,160 %     1,151 %
    Nonperforming assets to total assets   1.22 %     0.88 %     0.79 %     0.57 %     0.64 %     0.28 %     0.08 %     0.08 %
    Net charge-offs (recoveries) (annualized) to average total loans (3)   0.26 %     0.11 %     1.07 %     0.60 %     0.02 %     0.29 %     0.05 %     0.05 %
    Tier 1 capital (to average assets)   10.94 %     10.58 %     10.26 %     10.73 %     10.96 %     10.84 %     11.42 %     11.63 %
    Total capital (to risk weighted assets)   15.74 %     15.07 %     14.87 %     14.79 %     14.54 %     14.51 %     14.74 %     14.94 %
    Common equity tier 1 capital (to risk weighted assets)   14.54 %     13.92 %     13.80 %     13.90 %     13.68 %     13.55 %     13.75 %     14.03 %
    Tangible common equity ratio (1)   10.86 %     10.35 %     10.03 %     10.12 %     10.04 %     10.21 %     10.36 %     10.18 %
    Average Balances (in thousands):                              
    Total assets $ 12,360,899     $ 12,361,500     $ 12,784,470     $ 12,283,303     $ 11,942,905     $ 11,960,111     $ 11,426,056     $ 11,255,956  
    Total earning assets $ 12,072,891     $ 11,953,446     $ 12,365,497     $ 11,837,722     $ 11,532,186     $ 11,546,050     $ 11,004,817     $ 10,829,703  
    Total loans (3) $ 8,026,524     $ 8,003,206     $ 7,988,941     $ 7,963,074     $ 7,795,144     $ 7,790,555     $ 7,712,023     $ 7,379,198  
    Total deposits $ 9,344,414     $ 9,225,266     $ 9,501,661     $ 9,471,369     $ 8,946,641     $ 8,514,938     $ 8,734,125     $ 9,524,139  
    Total borrowings $ 1,654,736     $ 1,721,283     $ 1,832,947     $ 1,401,917     $ 1,646,179     $ 2,102,507     $ 1,359,463     $ 411,060  
    Total shareholders’ equity $ 1,201,477     $ 1,263,627     $ 1,289,656     $ 1,238,763     $ 1,235,162     $ 1,245,647     $ 1,240,978     $ 1,233,705  

    (1) A reconciliation of non-GAAP financial measures to the nearest GAAP measure is provided in the tables that accompany this document.
    (2) Computed by dividing noninterest expense by the sum of net interest income and noninterest income.
    (3) Excludes loans held for sale.

    GAAP Reconciliation to Non-GAAP Financial Measures (unaudited)
    (dollars in thousands, except per share data)
               
      September 30,   June 30,   September 30,
        2024       2024       2023  
    Tangible common equity          
    Common shareholders’ equity $ 1,225,424     $ 1,169,459     $ 1,215,884  
    Less: Intangible assets   (21 )     (129 )     (105,239 )
    Tangible common equity $ 1,225,403     $ 1,169,330     $ 1,110,645  
               
    Tangible common equity ratio          
    Total assets $ 11,285,052     $ 11,302,023     $ 11,164,214  
    Less: Intangible assets   (21 )     (129 )     (105,239 )
    Tangible assets $ 11,285,031     $ 11,301,894     $ 11,058,975  
               
    Tangible common equity ratio   10.86 %     10.35 %     10.04 %
               
    Per share calculations          
    Book value per common share $ 40.61     $ 38.75     $ 40.64  
    Less: Intangible book value per common share   —       (0.01 )     (3.52 )
    Tangible book value per common share $ 40.61     $ 38.74     $ 37.12  
               
    Shares outstanding at period end   30,173,200       30,180,482       29,917,982  
                           
        Three Months Ended
        September 30,   June 30,   September 30,
          2024       2024       2023  
    Average tangible common equity            
    Average common shareholders’ equity   $ 1,201,477     $ 1,263,627     $ 1,235,162  
    Less: Average intangible assets     (24 )     (99,827 )     (104,639 )
    Average tangible common equity   $ 1,201,453     $ 1,163,800     $ 1,130,523  
                 
    Return on average tangible common equity            
    Net (loss) income   $ 21,815     $ (83,802 )   $ 27,383  
    Return on average tangible common equity     7.22 %   (28.96)%     9.61 %
                 
    Net (loss) income   $ 21,815     $ (83,802 )   $ 27,383  
    Add back of goodwill impairment   $ —       104,168       —  
    Operating net (loss) income (Non-GAAP)     21,815       20,366       27,383  
    Operating Return on average tangible common equity (Non-GAAP)     7.22 %     7.04 %     9.61 %
                 
    Efficiency ratio            
    Net interest income   $ 71,843     $ 71,353     $ 70,719  
    Noninterest income     6,951       5,332       6,347  
    Operating revenue   $ 78,794     $ 76,685     $ 77,066  
    Noninterest expense   $ 43,614     $ 146,491     $ 37,633  
    Add back of goodwill impairment     —       (104,168 )     —  
    Operating Noninterest expense (Non-GAAP)     43,614       42,323       37,633  
                 
    Efficiency ratio     55.35 %     191.03 %     48.83 %
    Operating Efficiency ratio (Non-GAAP)     55.35 %     55.19 %     48.83 %
                 
    Pre-provision net revenue            
    Net interest income   $ 71,843     $ 71,353     $ 70,719  
    Noninterest income     6,951       5,332       6,347  
    Less: Noninterest expense     (43,614 )     (146,491 )     (37,633 )
    Pre-provision net revenue   $ 35,180     $ (69,806 )   $ 39,433  
                 
    Pre-provision net revenue   $ 35,180     $ (69,806 )   $ 39,433  
    Add back of goodwill impairment   $ —     $ 104,168     $ —  
    Operating Pre-provision net revenue (Non-GAAP)   $ 35,180     $ 34,362     $ 39,433  
                 

    Tangible common equity, tangible common equity to tangible assets (the “tangible common equity ratio”), tangible book value per common share, average tangible common equity, annualized return on average tangible common equity, and the operating annualized return on average tangible common equity are non-GAAP financial measures derived from GAAP based amounts. The Company calculates the tangible common equity ratio by excluding the balance of intangible assets from common shareholders’ equity, or tangible common equity, and dividing by tangible assets. The Company calculates tangible book value per common share by dividing tangible common equity by common shares outstanding, as compared to book value per common share, which the Company calculates by dividing common shareholders’ equity by common shares outstanding. The Company calculates the annualized return on average tangible common equity ratio by dividing net income available to common shareholders by average tangible common equity, which is calculated by excluding the average balance of intangible assets from the average common shareholders’ equity. The Company calculates the operating annualized return on average tangible common equity ratio by dividing operating net income available to common shareholders, which adds back the goodwill impairment, by average tangible common equity, which is calculated by excluding the average balance of intangible assets from the average common shareholders’ equity. The Company considers this information important to shareholders as the significant impact of the goodwill impairment is a one-time event that obscures the operating performance of the company. Further related to other measures, tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk based ratios, and as such is useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions.

    The efficiency ratio is a non-GAAP measure calculated by dividing GAAP noninterest expense by the sum of GAAP net interest income and GAAP noninterest income. The efficiency ratio measures a bank’s overhead as a percentage of its revenue. The Company believes that reporting the non-GAAP efficiency ratio more closely measures its effectiveness of controlling operational activities. Further, the operating efficiency ratio is measured by dividing non-GAAP noninterest expense, which excludes the goodwill impairment, by the sum of GAAP net interest income and GAAP noninterest income. The Company considers this information important to shareholders as the significant impact of the goodwill impairment is a one-time event that obscures the operating performance of the company.

    Pre-provision net revenue is a non-GAAP financial measure calculated by subtracting noninterest expenses from the sum of net interest income and noninterest income. The Company considers this information important to shareholders because it illustrates revenue excluding the impact of provisions and reversals to the allowance for credit losses on loans. Operating pre-provision net revenue is a non-GAAP financial measure calculated by subtracting noninterest expenses with the impact of the goodwill impairment added back from the sum of net interest income and noninterest income. The Company considers this information important to shareholders as the significant impact of the goodwill impairment is a one-time event that obscures the operating performance of the company.

        Three Months Ended
        September 30,   June 30,   September 30,
          2024       2024       2023  
    Net (loss) income   $ 21,815     $ (83,802 )   $ 27,383  
    Add back of goodwill impairment     —       104,168       —  
    Operating Net (loss) income (Non-GAAP)   $ 21,815     $ 20,366     $ 27,383  
                 
    (Loss) earnings per share (diluted)4   $ 0.72     $ (2.78 )   $ 0.91  
    Add back of goodwill impairment per share (diluted)     —       3.45       —  
    Operating earnings (loss) per share (diluted) (Non-GAAP)   $ 0.72     $ 0.67     $ 0.91  
                 

    Operating net (loss) income and operating (loss) earnings per share (diluted) are non-GAAP financial measures derived from GAAP based amounts. The Company calculates operating net (loss) income by excluding from net (loss) income the one-time goodwill impairment of $104.2 million. During the second quarter of 2024, the Company performed an annual impairment test as a result of management’s evaluation of current economic conditions, and concluded that goodwill had become impaired, which resulted in an impairment charge of $104.2 million to reduce the carrying value of the Company’s goodwill to zero. The Company calculates operating earnings (loss) per share (diluted) by dividing the one-time goodwill impairment of $104.2 million by the weighted average shares outstanding (diluted) for the three and six months ended June 30, 2024. The Company considers this information important to shareholders because operating net (loss) income and operating (loss) earnings per share (diluted) provides investors insight into how Company earnings changed exclusive of the impairment charge to allow investors to better compare the Company’s performance against historical periods. The table above provides a reconciliation of operating net income (loss) and operating earnings (loss) per share (diluted) to the nearest GAAP measure.

    _______________
    1     A reconciliation of non-GAAP financial measures and the nearest GAAP measures is provided in the GAAP Reconciliation to Non-GAAP Financial Measure that accompany this document.
    2 Calculated as the ACL attributable to loans collateralized by performing office properties as a percentage of total loans.
    3 A reconciliation of non-GAAP financial measures and the nearest GAAP measures is provided in the GAAP Reconciliation to Non-GAAP Financial Measure that accompany this document.
    4 For periods ended with a net loss, anti-dilutive financial instruments have been excluded from the calculation of GAAP diluted EPS. Operating diluted EPS calculations include the impact of outstanding equity-based awards for all periods.

    EAGLE BANCORP, INC.
    CONTACT:
    Eric R. Newell
    240.497.1796

    For the September 30, 2024 Earnings Presentation, click http://ml.globenewswire.com/Resource/Download/d55e221f-6ef9-45bd-8784-011bf19dce58

    The MIL Network –

  • MIL-OSI USA: Brownley, Schneider, Kildee Introduce Legislation to Expand Sustainable Aviation Fuel Production and Reduce Carbon Emissions

    Source: United States House of Representatives – Julia Brownley (D-CA)

    Washington, DC – Today, Congresswoman Julia Brownley (CA-26), Congressman Brad Schneider (IL-10), and Congressman Dan Kildee (MI-08) announced the introduction of the Expanding Clean Fuel Production Act, a bill that would extend the clean fuel production tax credit, also known as Section 45z, of the Inflation Reduction Act for 10 years. The Inflation Reduction Act created the clean fuel production credit (CFPC) for transportation fuel with zero or low greenhouse gas emissions, including sustainable aviation fuel (SAF). This credit currently expires at the end of 2027. 

    “The 45z tax credit has been critical in helping to ramp up U.S. production of sustainable aviation fuel,” said Congresswoman Brownley. “However, we need to extend the credit long-term to provide market certainty and to ensure a safe and reliable supply of SAF to meet the needs of the aviation industry. I appreciate Congressman Schneider and Congressman Kildee’s partnership on this bill, and I look forward to working with stakeholders in the environmental, energy, and aviation community to extend the 45z credit and promote U.S. investment in this critical domestic fuel source.” 

    “I’m proud to introduce this legislation with Reps. Kildee and Brownley to extend the SAF credit, boost production of clean fuels and position the U.S. as a global leader in production and use of sustainable fuels,” said Congressman Schneider. “A ten-year extension would allow for sustained investment in production to accelerate the transition to cleaner fuels and to significantly cut greenhouse gas emissions from the aviation industry, in particular. We are already seeing the impact of the Inflation Reduction Act’s investments on U.S. production of sustainable fuels.” 

    “In my home state of Michigan, we have already seen the harmful effects of climate change on our Great Lakes,” said Congressman Kildee. “This legislation will help us continue producing clean energy and fuels here in the United States, to help create good paying jobs, provide new markets to Michigan farmers, and reduce carbon emissions from airplanes and other vehicles.”

    “As the leading U.S. airline in SAF use and advocacy, we know that extending incentives for U.S. SAF producers by a full ten years is a necessary first step to grow the industry,” said Lauren Riley, Chief Sustainability Officer for United Airlines. “The continued leadership of Representatives Schneider, Kildee and Brownley is helping to assure U.S. competitiveness in SAF and clean fuels, while boosting U.S. agricultural producers and rural communities. We look forward to working with Representatives Schneider, Kildee and Brownley and their colleagues on both sides of the aisle to ensure that this tax credit is both extended and enhanced in a way that will maximize investment in SAF and other clean, low-carbon fuels.” 

    “Sustainable Aviation Fuel (SAF) is the single most important method to decarbonize aviation in the coming decades, and LanzaJet applauds the leadership of Representatives Schneider, Kildee, and Brownley in advancing SAF tax incentives that will catalyze domestic investment in this critical sector,” said Jimmy Samartzis, LanzaJet CEO. “As the original sponsors of the IRA’s SAF Blender’s Tax Credit via the Sustainable Skies Act, Reps Schneider, Kildee, and Brownley continue to lay the foundation for a vibrant U.S. SAF industry by providing for ten years of policy certainty for domestic SAF producers via this important bill.  We look forward to continuing to work with Representatives Schneider, Kildee, and Brownley to develop policy proposals that will both extend and enhance the IRA’s short term SAF tax credits and enable achievement of the goals of the SAF Grand Challenge.”   

    “We applaud Representative Schneider and his colleagues Representatives Kildee and Brownley for their efforts to extend incentives for SAF,” said Alison Graab, Executive Director of the SAF Coalition. “We look forward to working with them on both an extension as well as enhancing and strengthening the incentive. Advancing sustainable aviation fuel demonstrates a clear commitment to the environmental and economic promises SAF holds, and incentives that are durable and attract investment are essential to unlocking that potential and driving the progress needed to sustain and grow the SAF industry.”

    The Inflation Reduction Act (IRA) of 2022 enacted a tax credit for the production of SAF, aiming to halve carbon emissions in the aviation sector. The credit was inspired by a SAF credit included in the Sustainable Skies Act, which Congresswoman Brownley authored with Representatives Schneider and Kildee in 2021. 

    ###

    Issues: 118th Congress, Climate Crisis, Energy and Environment, Transportation and Infrastructure

    MIL OSI USA News –

  • MIL-OSI USA: Attorney General Bonta Announces Awardees of 2024-2025 Tobacco Grant Program, Seizure of $1 Million of Illegal Flavored Tobacco Products

    Source: US State of California Department of Justice

    OAKLAND – California Attorney General Rob Bonta today announced the recipients of the California Department of Justice (DOJ)’s Fiscal Year 2024-2025 Proposition 56 Tobacco Grant Program. The grant recipients are 76 local government agencies located throughout the state, including law enforcement agencies, prosecuting agencies, public health departments, cities and counties that will receive more than $28.5 million to support their efforts to reduce illegal tobacco sales to underage youth. This year’s funding prioritized retail enforcement and education as part of Attorney General Bonta’s commitment to fighting the illegal sales and marketing of tobacco products to minors. Funded activities include “flavor ban” enforcement efforts, shoulder tap and minor decoy operations, retailer education programs, tobacco retail license inspections, task force coordination, training for officers on tobacco laws and ordinances, monitoring retailer compliance, and more.

    The Attorney General also announced the results of Operation Up in Smoke, the DOJ’s first-ever statewide retail tobacco enforcement operation. The operation targeted and seized illegal flavored tobacco products at retail locations and cited retailers who sell these products to minors. Fourteen local agencies, who were current and past recipients of the DOJ Tobacco Grant program, and two other state agencies were part of this year’s operation.

    “The alarming rise in youth exposure to nicotine, particularly though vaping and e-cigarette demands urgent and decisive action. At the California Department of Justice, we are doing just that and reaffirming our commitment to safeguarding youth from the harmful effects of nicotine products through strict enforcement,” said Attorney General Rob Bonta. “Our enforcement operation shows firsthand how we crack down on the sale and distribution of illegal tobacco products. Funds from today’s grants to partners across the state will allow us to continue holding accountable those who break the law, and ensure a healthier, safer future for the next generation.”

    “We look forward to our continued partnership with California Attorney General Rob Bonta and the Department of Justice to keep our community healthy and safe,” said Fresno City Attorney Andrew Janz. “In the City of Fresno, 85% of our schools have a smoke shop within a 1000-foot radius who routinely sell products that are designed by appearance and taste to appeal to minors.  This funding allows the City of Fresno to continue safeguarding our youth, preventing them from becoming the next generation of lifelong tobacco users.”

    “Everyone knows that tobacco products are marketed to teenagers to try to get them addicted at a young age,” said Long Beach City Prosecutor Doug Haubert. “In Long Beach, we are working with our law enforcement and health department partners to stop the sale of tobacco products to youth.  We are going to increase enforcement, especially targeting retailers who have a history of violations. We appreciate the opportunity to partner with California DOJ and Attorney General Rob Bonta as part of this statewide effort.”

    “The City of Vallejo is looking forward to utilizing this incredible $932,000 Tobacco Grant from the Department of Justice to help us with issues surrounding tobacco use by minors,” said Assistant City Manager of Vallejo Gillian Haen. “This generous grant will help our City with enforcement actions from retail inspections through enforcement as well as retailer and code enforcement education.”

    “The Modesto Police Department is thrilled to have received funding through the DOJ for Tobacco Enforcement,” said Modesto Police Department. “This support highlights our urgent need to combat the rising rates of tobacco use among youth in our community, particularly the alarming appeal of flavored tobacco products. We have already seen the overwhelming amount of these products in our city, and this grant will significantly enhance our enforcement efforts and educational initiatives and hold those accountable for targeting these harmful products that pose a significant risk to our children’s health. Additionally, we will address the criminal element that often surrounds tobacco retail stores, working to reduce illegal activities that compromise the safety of our neighborhoods. In collaboration with the Stanislaus County District Attorney’s Office, the City Attorney’s Office, and our community, we are committed to a comprehensive approach through enforcement, education, and prosecution. Together, we will create a safer environment for our youth and foster a healthier community.”

    “This grant gives us the tools to crackdown on those who sell tobacco and nicotine, including banned flavored tobacco products, to minors,” said Chula Vista Police Department. “This grant also gives CVPD the opportunity to conduct operations to gather information on persons selling narcotics to the public in licensed tobacco retail stores. By joining forces with the DOJ, we will be able to target and hold responsible anyone who harms our community and our youth under the guise of legitimate businesses.”

    “This grant will enable the City of Rancho Cordova to make significant progress in reducing the use of flavored tobacco products among the youth in the community,” said City of Rancho Cordova. “The city’s Code Enforcement team will carry out a comprehensive operation, engaging with every tobacco retailer in the city to provide education and resources aimed at ensuring compliance.”

    Tobacco use is the number one preventable killer in the United States. Smoking-related illness accounts for approximately 40,000 deaths annually in California. Nicotine, a key component of cigarettes and most e-cigarettes, is highly addictive and harmful to the developing brains of children and young adults.

    DOJ’s Tobacco Grant Program aims to reduce childhood addiction to tobacco products by supporting local partners who:

    • Enforce the statewide retail flavor ban and similar local retail flavor ordinances.
    • Prosecute and penalize retailers who sell or market tobacco products to youth under the age of 21, including over the internet.
    • Educate and inform tobacco retailers on state and local tobacco laws.
    • Investigate and inspect for retailer licensing compliance.

    The program is funded by Proposition 56, the California Healthcare, Research and Prevention Tobacco Tax Act of 2016. With this year’s awards, the Tobacco Grant Program has distributed approximately $212 million in grant funding to over 470 grantees through a competitive process.

    Operation Up in Smoke resulted in the seizure of at least 50,000 illegal flavored tobacco products amounting to over $1,000,000 in value. Unstamped cigarettes, counterfeit stamps, non-MSA cigarettes, cannabis, and illegal gambling machines, were also items seized in this operation. The following state and local agencies were involved in this year’s operation: California Department of Justice: Tobacco Unit and Tax Recovery in the Underground Economy (TRUE); California Department of Public Health – Office of Youth Tobacco Enforcement (OYTE); California Department of Tax and Fee Administration – Tax Investigations and Inspections Bureau (CDTFA); Alameda County Sheriff’s Office; Calistoga Police Department; Chula Vista Police Department; Clovis Police Department; Inglewood Police Department; Irvine Police Department; Los Angeles City Attorney’s Office; Long Beach City Prosecutor; Riverside Sheriff’s Department; Sacramento County Sheriff’s Office; Santa Cruz Police Department; County of San Diego Health and Human Services Agency; Shasta County Health and Human Services Agency; Sonoma County Department of Health Service.

    To see the full list of 2024-2025 Tobacco Grant Program recipients and learn more about the grant application process and qualifications, please click here.

    To see further details about this year’s Operation Up in Smoke, please click here.

    MIL OSI USA News –

  • MIL-OSI: ChampionX Reports Third Quarter 2024 Results

    Source: GlobeNewswire (MIL-OSI)

    • Revenue of $906.5 million
    • Net income attributable to ChampionX of $72.0 million
    • Adjusted net income of $85.9 million
    • Adjusted EBITDA of $197.5 million
    • Income before income taxes margin of 11.2%
    • Adjusted EBITDA margin of 21.8%
    • Cash from operating activities of $141.3 million and free cash flow of $108.1 million

    THE WOODLANDS, Texas, Oct. 23, 2024 (GLOBE NEWSWIRE) — ChampionX Corporation (NASDAQ: CHX) (“ChampionX” or the “Company”) today announced third quarter of 2024 results. Revenue was $906.5 million, net income attributable to ChampionX was $72.0 million, and adjusted EBITDA was $197.5 million. Income before income taxes margin was 11.2% and adjusted EBITDA margin was 21.8%. Cash from operating activities was $141.3 million and free cash flow was $108.1 million.

    CEO Commentary

    “The third quarter demonstrated the resiliency of our ChampionX portfolio as we delivered strong adjusted EBITDA and adjusted EBITDA margin, and generated robust free cash flow. These results were the direct result of our employees around the world remaining laser-focused on serving our customers well, and I am grateful to them for their dedication to our corporate purpose of improving lives,” ChampionX’s President and Chief Executive Officer Sivasankaran “Soma” Somasundaram said.

    “During the third quarter of 2024, we generated revenue of $907 million, which decreased 4% year-over-year, as growth in North America, Middle East & Africa, Europe, and Asia Pacific was offset by Latin America, which was impacted by lower sales in Mexico. Revenue from all areas other than Mexico increased 6% year-over-year. Our revenue increased 1% sequentially, with both North America and international revenues increasing slightly versus the second quarter. North America revenues were up 2% sequentially, driven primarily by higher sales volumes in our artificial lift business. International revenues were up 1% sequentially, driven, in part, by the contribution of RMSpumptools, which was acquired during the quarter. We generated net income attributable to ChampionX of $72 million, income before income taxes margin of 11.2%, and we delivered adjusted EBITDA of $198 million, representing a 21.8% adjusted EBITDA margin, our highest level as ChampionX, which speaks to the productivity and profitability focus of our team.

    “Cash flow from operating activities was $141 million during the third quarter, which represented 196% of net income attributable to ChampionX, and we generated strong free cash flow of $108 million, which represented 55% of our adjusted EBITDA for the period. We remain confident in achieving at least 50% adjusted EBITDA to free cash flow conversion for 2024. Our balance sheet and financial position remain strong, ending the third quarter with approximately $1.1 billion of liquidity, including $389 million of cash and $671 million of available capacity on our revolving credit facility.”

    Agreement to be Acquired by SLB

    On April 2, 2024, SLB (NYSE: SLB) and ChampionX jointly announced a definitive Agreement and Plan of Merger (the “Merger Agreement”) for SLB to purchase ChampionX in an all-stock transaction. The transaction was unanimously approved by the ChampionX board of directors and the transaction received the approval of the ChampionX stockholders at a special meeting held on June 18, 2024. The transaction is subject to regulatory approvals and other customary closing conditions. It is currently anticipated that the closing of the transaction will occur in the first quarter of 2025.

    ChampionX may continue to pay its regular quarterly cash dividends with customary record and payment dates, subject to certain limitations under the Merger Agreement. Given the pending acquisition of ChampionX by SLB, ChampionX has discontinued providing quarterly guidance and will not host a conference call or webcast to discuss its third quarter 2024 results.

    Production Chemical Technologies

    Production Chemical Technologies revenue in the third quarter of 2024 was $559.5 million, a decrease of $10.0 million, or 2%, sequentially, due primarily to lower international sales volumes.

    Segment operating profit was $87.3 million and adjusted segment EBITDA was $120.6 million. Segment operating profit margin was 15.6%, an increase of 60 basis points, sequentially, and adjusted segment EBITDA margin was 21.6%, an increase of 94 basis points, sequentially. The sequential increase in segment operating profit margin and adjusted segment EBITDA margin was driven by strong cost management, productivity improvements, and favorable product mix.

    Production & Automation Technologies

    Production & Automation Technologies revenue in the third quarter of 2024 was $275.7 million, an increase of $31.2 million, or 13%, sequentially, due primarily to higher artificial lift systems demand in North America, and the acquisition of RMSpumptools, which was completed during the quarter. Revenue from digital products was $57.9 million in the third quarter of 2024, an increase of 7% sequentially, driven by increased customer activity in North America.

    Segment operating profit was $34.1 million and adjusted segment EBITDA was $69.6 million. Segment operating profit margin was 12.4%, an increase of 330 basis points, sequentially, and adjusted segment EBITDA margin was 25.2%, an increase of 118 basis points, sequentially. The increase in segment operating profit margin and adjusted segment EBITDA margin was driven by higher sales volumes, productivity improvements, and favorable product mix.

    Drilling Technologies

    Drilling Technologies revenue in the third quarter of 2024 was $51.8 million, a decrease of $1.1 million, or 2%, sequentially, driven by lower sales volumes in the bearings product line associated with customers managing inventory levels.

    Segment operating profit was $11.5 million and adjusted segment EBITDA was $12.9 million. Segment operating profit margin was 22.2%, compared to 22.4% in the prior quarter, and adjusted segment EBITDA margin was 24.8%, a decrease of 2 basis points, sequentially, due primarily to lower volumes.

    Reservoir Chemical Technologies

    Reservoir Chemical Technologies revenue in the third quarter 2024 was $20.5 million, a decrease of $6.6 million, or 24%, sequentially, driven by lower sales volumes in the U.S. and internationally.

    Segment operating profit was $1.7 million and adjusted segment EBITDA was $3.3 million. Segment operating profit margin was 8.2%, a decrease of 793 basis points, sequentially, and adjusted segment EBITDA margin was 16.0%, a decrease of 592 basis points, sequentially. The decrease in segment operating profit margin and adjusted segment EBITDA margin was driven by lower volumes.

    Other Business Highlights

    • ChampionX won the Gulf Energy Information Excellence Award for best coating / corrosion advancement technology for its AnX coiled rod product line. The company was a finalist in four additional categories: SMARTEN™ XE ESP control system in the best controls, instrumentation, automation technology category; Pump Checker™ gas lift analysis module in the best digital transformation – upstream category; Chemical Technologies Decarbonization Program in the best HSE contribution category; and the ChampionX Diversity, Equality, and Inclusion programs in the DE&I in energy category.

    Other Business Highlights: Production Chemical Technologies and Reservoir Chemical Technologies

    • In the Asia Pacific region, ChampionX secured a significant new contract to provide both engineering services and the initial chemical supply for a new Floating Production Storage and Offloading (FPSO) unit, set to be deployed at a large gas condensate field in Australasia. Operations are scheduled to begin in the first half of 2025 and contribute significantly to regional Liquified Natural Gas (LNG) production capacity. This strategic win further strengthens our presence in the region and reinforces our commitment to delivering innovative, high-quality solutions to our upstream customers.
    • ChampionX was awarded a large first-fill contract to supply multiple production chemicals for corrosion inhibitors, scale inhibitors, and biocides for a major onshore oil and gas incremental project in Saudi Arabia.
    • ChampionX has secured a first-fill contract to supply production chemicals for a significant gas development program in Qatar.
    • ChampionX secured a multi-million-dollar order for a novel application of UltraFab in Carbon Capture, Utilization, and Storage (CCUS) for delivery in 2025.
    • ChampionX recently completed the pre-commission cleaning, chemical treatment, and readiness work for the 303-mile natural gas Mountain Valley Pipeline connecting Marcellus and Utica shale production to markets in the Mid- and South-Atlantic regions.
    • In the Canadian oil sands, ChampionX completed a steam additive first-fill program for a major technology development trial, leading to additional market interest.
    • ChampionX was awarded a three-year contract extension from a major producer in the San Juan Basin in California, recognizing our service, people, and commitment to helping the producer achieve their strategic goals as reasons for the extension.
    • As part of an initiative to expand our technology into adjacent markets, ChampionX Reservoir Chemical Technologies was awarded business with a premier supplier of local sand used for hydraulic fracturing in the Permian Basin. Our solution affords the supplier a significant savings on sand drying costs and is designed to increase operational throughput.

    Other Business Highlights: Production & Automation Technologies

    • In the third quarter, ChampionX completed the acquisition of RMSpumptools, a provider of advanced mechanical and electrical solutions for complex ESP systems. The acquisition expands ChampionX’s international footprint while providing greater opportunities for RMSpumptools in North America. Soon after the acquisition close, our Permian ESP team collaborated with RMSpumptools to deliver a sand control solution to a major oil company operating in the Permian basin.
    • ChampionX Artificial Lift expanded its Latin America footprint into Ecuador with a contract award for two 400HP multiplex surface pump systems for jet lift applications. This accomplishment is the result of a strengthening partnership with a Latin America independent operator that is expanding its operations from Colombia to Ecuador. Unlike typical systems, the surface pump and oil vessel required for jet lifted wells will be built on one skid with all the necessary piping, which reduces assembly time at the wellsite.
    • Building on the combined strengths of our XSPOC artificial lift software and the acquisition of Artificial Lift Performance Limited Pump Checker software, ChampionX introduced ALLY™ production optimization digital solutions, debuting a modern interface with user-friendly dashboards and intuitive workflows, paired with powerful performance—ingesting, processing, and displaying more data than ever before. It is a one-stop-shop for production teams to manage and optimize their producing assets, regardless of lift type or equipment provider. Building on the launch of this new digital solution, in the third quarter ChampionX secured seven new clients for our production optimization software solution.
    • ChampionX launched the PCS Ferguson new generation SMARTEN™ Unify control system, which is engineered to deliver sophisticated digital automation and optimization capabilities at a cost of ownership that fits within the narrow economic profile of plunger lifted wells. SMARTEN Unify provides enhanced visibility to what is happening “live” at any second in a plunger lift system, eliminating the need for operating based on calculated guesses.

    Other Business Highlights: Drilling Technologies

    • Drilling Technologies’ diamond bearings products continue to see positive test results in additional downhole drilling and completion tools applications.
    • Drilling Technologies’ diamond inserts business had significant new products launches with four major customers.

    About Non-GAAP Measures

    In addition to financial results determined in accordance with generally accepted accounting principles in the United States (“GAAP”), this news release presents non-GAAP financial measures. Management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income attributable to ChampionX and adjusted diluted earnings per share attributable to ChampionX, provide useful information to investors regarding the Company’s financial condition and results of operations because they reflect the core operating results of our businesses and help facilitate comparisons of operating performance across periods. In addition, free cash flow, free cash flow to adjusted EBITDA ratio, and free cash flow to revenue ratio are used by management to measure our ability to generate positive cash flow for debt reduction and to support our strategic objectives. Although management believes the aforementioned non-GAAP financial measures are good tools for internal use and the investment community in evaluating ChampionX’s overall financial performance, the foregoing non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is included in the accompanying financial tables.

    About ChampionX

    ChampionX is a global leader in chemistry solutions, artificial lift systems, and highly engineered equipment and technologies that help companies drill for and produce oil and gas safely, efficiently, and sustainably around the world. ChampionX’s expertise, innovative products, and digital technologies provide enhanced oil and gas production, transportation, and real-time emissions monitoring throughout the lifecycle of a well. To learn more about ChampionX, visit our website at www.ChampionX.com. 

    Forward-Looking Statements

    This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements relating to the proposed transaction between SLB and ChampionX, including statements regarding the benefits of the transaction and the anticipated timing of the transaction, and information regarding the businesses of SLB and ChampionX, including expectations regarding outlook and all underlying assumptions, SLB’s and ChampionX’s objectives, plans and strategies, information relating to operating trends in markets where SLB and ChampionX operate, statements that contain projections of results of operations or of financial condition and all other statements other than statements of historical fact that address activities, events or developments that SLB or ChampionX intends, expects, projects, believes or anticipates will or may occur in the future. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. All statements in this communication, other than statements of historical fact, are forward-looking statements that may be identified by the use of the words “outlook,” “guidance,” “expects,” “believes,” “anticipates,” “should,” “estimates,” “intends,” “plans,” “seeks,” “targets,” “may,” “can,” “believe,” “predict,” “potential,” “projected,” “projections,” “precursor,” “forecast,” “ambition,” “goal,” “scheduled,” “think,” “could,” “would,” “will,” “see,” “likely,” and other similar expressions or variations, but not all forward-looking statements include such words. These forward-looking statements involve known and unknown risks and uncertainties, and which may cause SLB’s or ChampionX’s actual results and performance to be materially different from those expressed or implied in the forward-looking statements. Factors and risks that may impact future results and performance include, but are not limited to those factors and risks described in Part I, “Item 1. Business”, “Item 1A. Risk Factors”, and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in SLB’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on January 24, 2024 and Part 1, Item 1A, “Risk Factors” in ChampionX’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 6, 2024, and each of their respective, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. These include, but are not limited to, and in each case as a possible result of the proposed transaction on each of SLB and ChampionX: the ultimate outcome of the proposed transaction between SLB and ChampionX, including the effect of the announcement of the proposed transaction; the ability to operate the SLB and ChampionX respective businesses, including business disruptions; difficulties in retaining and hiring key personnel and employees; the ability to maintain favorable business relationships with customers, suppliers and other business partners; the terms and timing of the proposed transaction; the occurrence of any event, change or other circumstance that could give rise to the termination of the proposed transaction; the anticipated or actual tax treatment of the proposed transaction; the ability to satisfy closing conditions to the completion of the proposed transaction (including the adoption of the merger agreement in respect of the proposed transaction by ChampionX stockholders); other risks related to the completion of the proposed transaction and actions related thereto; the ability of SLB and ChampionX to integrate the business successfully and to achieve anticipated synergies and value creation from the proposed transaction; changes in demand for SLB’s or ChampionX’s products and services; global market, political and economic conditions, including in the countries in which SLB and ChampionX operate; the ability to secure government regulatory approvals on the terms expected, at all or in a timely manner; the extent of growth of the oilfield services market generally, including for chemical solutions in production and midstream operations; the global macro-economic environment, including headwinds caused by inflation, rising interest rates, unfavorable currency exchange rates, and potential recessionary or depressionary conditions; the impact of shifts in prices or margins of the products that SLB or ChampionX sells or services that SLB or ChampionX provides, including due to a shift towards lower margin products or services; cyber-attacks, information security and data privacy; the impact of public health crises, such as pandemics (including COVID-19) and epidemics and any related company or government policies and actions to protect the health and safety of individuals or government policies or actions to maintain the functioning of national or global economies and markets; trends in crude oil and natural gas prices, including trends in chemical solutions across the oil and natural gas industries, that may affect the drilling and production activity, profitability and financial stability of SLB’s and ChampionX’s customers and therefore the demand for, and profitability of, their products and services; litigation and regulatory proceedings, including any proceedings that may be instituted against SLB or ChampionX related to the proposed transaction; failure to effectively and timely address energy transitions that could adversely affect the businesses of SLB or ChampionX, results of operations, and cash flows of SLB or ChampionX; and disruptions of SLB’s or ChampionX’s information technology systems.

    These risks, as well as other risks related to the proposed transaction, are included in the Form S-4 and proxy statement/prospectus that was filed with the SEC in connection with the proposed transaction. While the list of factors presented here is, and the list of factors presented in the registration statement on Form S-4 are, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. For additional information about other factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to SLB’s and ChampionX’s respective periodic reports and other filings with the SEC, including the risk factors identified in SLB’s and ChampionX’s Annual Reports on Form 10-K, respectively, and SLB’s and ChampionX’s subsequent Quarterly Reports on Form 10-Q. The forward-looking statements included in this communication are made only as of the date hereof. Neither SLB nor ChampionX undertakes any obligation to update any forward-looking statements to reflect subsequent events or circumstances, except as required by law.

    Investor Contact: Byron Pope
    byron.pope@championx.com 
    281-602-0094

    Media Contact: John Breed
    john.breed@championx.com 
    281-403-5751

    CHAMPIONX CORPORATION
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
    (UNAUDITED)

      Three Months Ended   Nine Months Ended
      September 30,   June 30,   September 30,   September 30,
    (in thousands, except per share amounts)   2024       2024       2023       2024       2023  
    Revenue $ 906,533     $ 893,272     $ 939,783     $ 2,721,946     $ 2,814,730  
    Cost of goods and services   608,764       613,426       647,923       1,845,127       1,957,309  
    Gross profit   297,769       279,846       291,860       876,819       857,421  
    Costs and expenses:                  
    Selling, general and administrative expense   180,501       182,995       162,317       535,910       485,617  
    (Gain) loss on sale-leaseback transaction and disposal group   57       —       —       (29,826 )     12,965  
    Interest expense, net   14,137       15,421       13,744       43,493       40,754  
    Foreign currency transaction (gains) losses, net   3,505       (2,767 )     7,992       793       21,683  
    Other expense (income), net   (2,176 )     938       (1,994 )     1,689       (13,494 )
    Income before income taxes   101,745       83,259       109,801       324,760       309,896  
    Provision for income taxes   28,078       27,868       29,009       82,542       69,334  
    Net income   73,667       55,391       80,792       242,218       240,562  
    Net income attributable to noncontrolling interest   1,659       2,822       3,081       4,718       3,522  
    Net income attributable to ChampionX $ 72,008     $ 52,569     $ 77,711     $ 237,500     $ 237,040  
                       
    Earnings per share attributable to ChampionX:                  
    Basic $ 0.38     $ 0.28     $ 0.40     $ 1.25     $ 1.20  
    Diluted $ 0.37     $ 0.27     $ 0.39     $ 1.23     $ 1.18  
                       
    Weighted-average shares outstanding:                  
    Basic   190,496       190,426       195,881       190,575       197,058  
    Diluted   193,362       193,257       199,592       193,655       201,025  
                                           

    CHAMPIONX CORPORATION
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (UNAUDITED)

    (in thousands) September 30, 2024   December 31, 2023
    ASSETS      
    Current Assets:      
    Cash and cash equivalents $ 389,109     $ 288,557  
    Receivables, net   434,107       534,534  
    Inventories, net   546,817       521,549  
    Prepaid expenses and other current assets   68,218       80,777  
    Total current assets   1,438,251       1,425,417  
           
    Property, plant and equipment, net   760,775       773,552  
    Goodwill   729,783       669,064  
    Intangible assets, net   270,361       243,553  
    Other non-current assets   178,490       130,116  
    Total assets $ 3,377,660     $ 3,241,702  
           
    LIABILITIES AND EQUITY      
    Current Liabilities:      
    Current portion of long-term debt $ 6,203     $ 6,203  
    Accounts payable   455,485       451,680  
    Other current liabilities   278,498       324,866  
    Total current liabilities   740,186       782,749  
           
    Long-term debt   592,161       594,283  
    Other long-term liabilities   246,296       203,639  
    Stockholders’ equity:      
    ChampionX stockholders’ equity   1,814,310       1,676,622  
    Noncontrolling interest   (15,293 )     (15,591 )
    Total liabilities and equity $ 3,377,660     $ 3,241,702  
                   

    CHAMPIONX CORPORATION
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (UNAUDITED)

      Nine Months Ended September 30,
    (in thousands)   2024       2023  
    Cash flows from operating activities:      
    Net income $ 242,218     $ 240,562  
    Depreciation and amortization   183,291       177,226  
    (Gain) loss on sale-leaseback transaction and disposal group   (29,826 )     12,965  
    Loss on Argentina Blue Chip Swap transaction   7,086       —  
    Deferred income taxes   (16,810 )     (15,380 )
    Loss (gain) on disposal of fixed assets   868       (1,480 )
    Receivables   115,269       85,181  
    Inventories   (40,118 )     (50,011 )
    Accounts payable   (30,577 )     (7,018 )
    Other assets   6,665       17,470  
    Leased assets   (24,193 )     (38,597 )
    Other operating items, net   (31,442 )     (49,600 )
    Net cash flows provided by operating activities   382,431       371,318  
           
    Cash flows from investing activities:      
    Capital expenditures   (101,403 )     (110,965 )
    Proceeds from sale of fixed assets   9,323       12,328  
    Proceeds from sale-leaseback transaction   44,292       —  
    Purchase of investments   (31,526 )     —  
    Sale of investments   24,358       —  
    Acquisitions, net of cash acquired   (123,269 )     —  
    Net cash used for investing activities   (178,225 )     (98,637 )
           
    Cash flows from financing activities:      
    Proceeds from long-term debt   —       15,500  
    Repayment of long-term debt   (4,652 )     (43,625 )
    Repurchases of common stock   (49,399 )     (159,730 )
    Dividends paid   (52,430 )     (48,309 )
    Other   3,854       (384 )
    Net cash used for financing activities   (102,627 )     (236,548 )
           
    Effect of exchange rate changes on cash and cash equivalents   (1,027 )     (1,314 )
           
    Net increase in cash and cash equivalents   100,552       34,819  
    Cash and cash equivalents at beginning of period   288,557       250,187  
    Cash and cash equivalents at end of period $ 389,109     $ 285,006  
                   

    CHAMPIONX CORPORATION
    BUSINESS SEGMENT DATA
    (UNAUDITED)

      Three Months Ended
      September 30,   June 30,   September 30,
    (in thousands)   2024       2024       2023  
    Segment revenue:          
    Production Chemical Technologies $ 559,539     $ 569,577     $ 604,254  
    Production & Automation Technologies   275,700       244,487       256,148  
    Drilling Technologies   51,792       52,888       54,869  
    Reservoir Chemical Technologies   20,531       27,123       25,093  
    Corporate and other   (1,029 )     (803 )     (581 )
    Total revenue $ 906,533     $ 893,272     $ 939,783  
               
    Income before income taxes:        
    Segment operating profit (loss):          
    Production Chemical Technologies $ 87,260     $ 85,388     $ 94,560  
    Production & Automation Technologies   34,136       22,207       28,299  
    Drilling Technologies   11,501       11,863       12,255  
    Reservoir Chemical Technologies   1,675       4,363       2,461  
    Total segment operating profit   134,572       123,821       137,575  
    Corporate and other   18,690       25,141       14,030  
    Interest expense, net   14,137       15,421       13,744  
    Income before income taxes $ 101,745     $ 83,259     $ 109,801  
               
    Operating profit margin / income before income taxes margin:          
    Production Chemical Technologies   15.6 %     15.0 %     15.6 %
    Production & Automation Technologies   12.4 %     9.1 %     11.0 %
    Drilling Technologies   22.2 %     22.4 %     22.3 %
    Reservoir Chemical Technologies   8.2 %     16.1 %     9.8 %
    ChampionX Consolidated   11.2 %     9.3 %     11.7 %
               
    Adjusted EBITDA          
    Production Chemical Technologies $ 120,622     $ 117,421     $ 133,101  
    Production & Automation Technologies   69,604       58,848       59,288  
    Drilling Technologies   12,867       13,149       13,786  
    Reservoir Chemical Technologies   3,292       5,954       4,198  
    Corporate and other   (8,873 )     (12,139 )     (12,837 )
    Adjusted EBITDA $ 197,512     $ 183,233     $ 197,536  
               
    Adjusted EBITDA margin          
    Production Chemical Technologies   21.6 %     20.6 %     22.0 %
    Production & Automation Technologies   25.2 %     24.1 %     23.1 %
    Drilling Technologies   24.8 %     24.9 %     25.1 %
    Reservoir Chemical Technologies   16.0 %     22.0 %     16.7 %
    ChampionX Consolidated   21.8 %     20.5 %     21.0 %
                           

    CHAMPIONX CORPORATION
    RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
    (UNAUDITED)

      Three Months Ended
      September 30,   June 30,   September 30,
    (in thousands)   2024       2024       2023  
    Net income attributable to ChampionX $ 72,008     $ 52,569     $ 77,711  
    Pre-tax adjustments:          
    (Gain) loss on sale leaseback transaction and disposal group(1)   57       —       —  
    Russia sanctions compliance and impacts(2)   109       32       95  
    Restructuring and other related charges   5,317       7,927       1,228  
    Merger transaction costs(3)   8,312       15,059       —  
    Acquisition costs and related adjustments(4)   753       574       —  
    Intellectual property defense   69       531       220  
    Merger-related indemnification responsibility   —       —       722  
    Tulsa, Oklahoma storm damage   —       —       1,895  
    Foreign currency transaction (gains) losses, net   3,505       (2,767 )     7,992  
    Loss on Argentina Blue Chip Swap transaction   —       2,994       —  
    Tax impact of adjustments   (4,259 )     (5,722 )     (2,702 )
    Adjusted net income attributable to ChampionX   85,871       71,197       87,161  
    Tax impact of adjustments   4,259       5,722       2,702  
    Net income attributable to noncontrolling interest   1,659       2,822       3,081  
    Depreciation and amortization   63,508       60,203       61,839  
    Provision for income taxes   28,078       27,868       29,009  
    Interest expense, net   14,137       15,421       13,744  
    Adjusted EBITDA $ 197,512     $ 183,233     $ 197,536  

    _______________________

    (1) Amount represents the gain on the sale and leaseback of certain buildings and land.
    (2) Includes charges incurred related to legal and professional fees to comply with, as well as additional foreign currency exchange losses associated with, the sanctions imposed in Russia.
    (3) Includes costs incurred in relation to the Merger Agreement with Schlumberger Limited, including third party legal and professional fees.
    (4) Includes costs incurred for the acquisition of businesses.
       
      Three Months Ended
      September 30,   June 30,   September 30,
    (in thousands)   2024       2024       2023  
    Diluted earnings per share attributable to ChampionX $ 0.37     $ 0.27     $ 0.39  
    Per share adjustments:          
    (Gain) loss on sale leaseback transaction and disposal group   —       —       —  
    Russia sanctions compliance and impacts   —       —       —  
    Restructuring and other related charges   0.03       0.04       0.01  
    Merger transaction costs   0.04       0.08       —  
    Acquisition costs and related adjustments   —       —       —  
    Intellectual property defense   —       —       —  
    Merger-related indemnification responsibility   —       —       0.01  
    Tulsa, Oklahoma storm damage   —       —       0.01  
    Foreign currency transaction (gains) losses, net   0.02       (0.01 )     0.04  
    Loss on Argentina Blue Chip Swap transaction   —       0.02       —  
    Tax impact of adjustments   (0.02 )     (0.03 )     (0.02 )
    Adjusted diluted earnings per share attributable to ChampionX $ 0.44     $ 0.37     $ 0.44  
                           

    CHAMPIONX CORPORATION
    RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES BY SEGMENT
    (UNAUDITED)

      Three Months Ended
      September 30,   June 30,   September 30,
    (in thousands)   2024       2024       2023  
    Production Chemical Technologies          
    Segment operating profit $ 87,260     $ 85,388     $ 94,560  
    Non-GAAP adjustments   7,073       5,851       9,079  
    Depreciation and amortization   26,289       26,182       29,462  
    Segment adjusted EBITDA $ 120,622     $ 117,421     $ 133,101  
               
    Production & Automation Technologies          
    Segment operating profit $ 34,136     $ 22,207     $ 28,299  
    Non-GAAP adjustments   1,656       6,000       2,089  
    Depreciation and amortization   33,812       30,641       28,900  
    Segment adjusted EBITDA $ 69,604     $ 58,848     $ 59,288  
               
    Drilling Technologies          
    Segment operating profit $ 11,501     $ 11,863     $ 12,255  
    Non-GAAP adjustments   54       —       (8 )
    Depreciation and amortization   1,312       1,286       1,539  
    Segment adjusted EBITDA $ 12,867     $ 13,149     $ 13,786  
               
    Reservoir Chemical Technologies          
    Segment operating profit $ 1,675     $ 4,363     $ 2,461  
    Non-GAAP adjustments   3       11       72  
    Depreciation and amortization   1,614       1,580       1,665  
    Segment adjusted EBITDA $ 3,292     $ 5,954     $ 4,198  
               
    Corporate and other          
    Segment operating profit $ (32,827 )   $ (40,562 )   $ (27,774 )
    Non-GAAP adjustments   9,336       12,488       920  
    Depreciation and amortization   481       514       273  
    Interest expense, net   14,137       15,421       13,744  
    Segment adjusted EBITDA $ (8,873 )   $ (12,139 )   $ (12,837 )
                           

    Free Cash Flow

      Three Months Ended
      September 30,   June 30,   September 30,
    (in thousands)   2024       2024       2023  
    Free Cash Flow          
    Cash flows from operating activities $ 141,298     $ 67,625     $ 163,030  
    Less: Capital expenditures, net of proceeds from sale of fixed assets   (33,248 )     (29,310 )     (48,469 )
    Free cash flow $ 108,050     $ 38,315     $ 114,561  
               
    Cash From Operating Activities to Revenue Ratio          
    Cash flows from operating activities $ 141,298     $ 67,625     $ 163,030  
    Revenue $ 906,533     $ 893,272     $ 939,783  
               
    Cash from operating activities to revenue ratio   16 %     8 %     17 %
               
    Free Cash Flow to Revenue Ratio          
    Free cash flow $ 108,050     $ 38,315     $ 114,561  
    Revenue $ 906,533     $ 893,272     $ 939,783  
               
    Free cash flow to revenue ratio   12 %     4 %     12 %
               
    Free Cash Flow to Adjusted EBITDA Ratio          
    Free cash flow $ 108,050     $ 38,315     $ 114,561  
    Adjusted EBITDA $ 197,512     $ 183,233     $ 197,536  
               
    Free cash flow to adjusted EBITDA ratio   55 %     21 %     58 %

    The MIL Network –

  • MIL-OSI USA: Wyden, Colleagues Call on Feds to Prosecute Tax Prep Companies for Illegally Sharing Sensitive Personal and Financial Taxpayer Data

    US Senate News:

    Source: United States Senator Ron Wyden (D-Ore)

    October 23, 2024

    Lawmakers: “DOJ has the sole authority to enforce the criminal statute on behalf of the millions of taxpayers harmed by this unauthorized disclosure of their sensitive personal and financial data.”

    Washington D.C.— U.S. Senator Ron Wyden said today he has joined Senate and House colleagues to urge the Department of Justice to act against major tax preparation companies illegally sharing protected and sensitive taxpayer information with Big Tech firms. 

    “We write to urge you to investigate and prosecute the criminal behavior of major tax preparation companies identified in our investigation and confirmed by the Treasury Inspector General for Tax Administration and the Internal Revenue Service,” the lawmakers wrote.

    Last month, the U.S. Treasury Inspector General for Tax Administration released an audit report confirming that four online tax preparation companies broke the law by sharing legally protected and sensitive taxpayer information with Big Tech firms without taxpayer consent.  Specifically, the report found that consent statements being used by the tax prep companies did not clearly identify the intended use of taxpayer data, a violation of Treasury regulations. The IRS agreed with that assessment. 

    “The penalties for knowingly or recklessly disclosing or using tax return information include up to 1 year in prison, and penalties of up to $1000 per violation. DOJ has the sole authority to enforce the criminal statute on behalf of the millions of taxpayers harmed by this unauthorized disclosure of their sensitive personal and financial data,” the lawmakers continued.

    Tax prep companies used pixels, computer code that tracks a user’s website activity, to obtain sensitive personal and financial information, including approximate income and refund amounts, for millions of taxpayers who filed their taxes online with these companies. Meta then used that information for advertising and to train its AI algorithm. 

    The U.S. Treasury Inspector General for Tax Administration conducted a detailed review of four tax preparation companies, and found the companies did not obtain proper taxpayer consent for the release of their information. 

    “Accountability for these tax preparation companies – who disclosed millions of taxpayers’ tax return data…is essential for protecting the rule of law and the privacy of taxpayers,” concluded the lawmakers. 

    The IRS recently announced the expansion of the highly successful Direct File program to 24 total states, including Oregon – making 30 million taxpayers eligible to file for free, securely, and directly with the IRS. However, many taxpayers still rely on private tax prep companies. 

    The letter was led by U.S. Senator Elizabeth Warren (D-Mass.). Along with Wyden, the letter was also signed by Senator Richard Blumenthal (D-Conn.) and U.S. House Representative Katie Porter (D-Calif.).

    The full text of the letter is here.

    MIL OSI USA News –

  • MIL-OSI New Zealand: 30,000 households get FamilyBoost payments

    Source: New Zealand Government

    Almost 30,000 households have now received their first payments under the FamilyBoost childcare payment scheme and thousands more will receive them soon, Finance Minister Nicola Willis says.

     “In total, $11.5 million has been paid out to 29,805 households after only three weeks of claims being open,” Nicola Willis says.

     “High housing, food and childcare costs have made life tough for many families in recent years, so I am delighted that at the same time as interest rates are coming down, we are able to relieve more of the pressure on people’s wallets. 

     “Around 100,000 households a year are estimated to be eligible for FamilyBoost, which is a payment to parents and caregivers of 25 per cent of their early childhood education costs – up to $150 a fortnight. 

     “I encourage all eligible parents and caregivers to register and make a claim – I want households receiving the money that is available to them. To do so, people simply need to register for FamilyBoost in myIR and submit their early childhood invoices to Inland Revenue.”

     For more information about FamilyBoost, including how to register and claim, visit ird.govt.nz/FamilyBoost 

    MIL OSI New Zealand News –

  • MIL-OSI: Northfield Bancorp, Inc. Announces Third Quarter 2024 Results

    Source: GlobeNewswire (MIL-OSI)

    NOTABLE ITEMS FOR THE QUARTER INCLUDE:

    • DILUTED EARNINGS PER SHARE WERE $0.16 FOR THE CURRENT QUARTER COMPARED TO $0.14 FOR THE TRAILING QUARTER, AND $0.19 FOR THE THIRD QUARTER OF 2023.
    • NET INTEREST MARGIN REMAINED RELATIVELY STABLE AT 2.08% FOR THE CURRENT QUARTER AS COMPARED TO 2.09% FOR THE TRAILING QUARTER.
    • AVERAGE YIELD ON INTEREST-EARNING ASSETS DECREASED ONE BASIS POINT TO 4.38%, WHILE THE AVERAGE COST OF INTEREST-BEARING LIABILITIES REMAINED STABLE AT 2.95% FOR THE CURRENT QUARTER AS COMPARED TO THE TRAILING QUARTER.
    • DEPOSITS (EXCLUDING BROKERED) DECREASED MODESTLY BY $5.1 MILLION, OR LESS THAN 1% ANNUALIZED, COMPARED TO JUNE 30, 2024, AND INCREASED $15.0 MILLION, OR 0.5% ANNUALIZED, FROM DECEMBER 31, 2023. COST OF DEPOSITS AT SEPTEMBER 30, 2024 WAS 2.07% AS COMPARED TO 2.10% AT JUNE 30, 2024.
    • LOAN BALANCES DECLINED BY $27.2 MILLION, OR 2.7% ANNUALIZED, FROM JUNE 30, 2024, WITH DECREASES IN COMMERCIAL, MULTIFAMILY AND RESIDENTIAL REAL ESTATE LOANS OFFSET BY INCREASES IN HOME EQUITY, CONSTRUCTION AND LAND, AND COMMERCIAL AND INDUSTRIAL LOANS.
    • ASSET QUALITY REMAINS STRONG DESPITE AN INCREASE IN NON-PERFORMING LOANS IN THE CURRENT QUARTER. NON-PERFORMING LOANS TO TOTAL LOANS WAS 0.75% AT SEPTEMBER 30, 2024 AND 0.42% AT JUNE 30, 2024.
    • THE COMPANY MAINTAINED STRONG LIQUIDITY WITH APPROXIMATELY $597 MILLION IN UNPLEDGED AVAILABLE-FOR-SALE SECURITIES AND LOANS READILY AVAILABLE-FOR-PLEDGE OF APPROXIMATELY $699 MILLION.
    • THE COMPANY REPURCHASED 560,683 SHARES FOR A COST OF $6.3 MILLION. THERE IS NO REMAINING CAPACITY UNDER THE CURRENT REPURCHASE PROGRAM.
    • CASH DIVIDEND DECLARED OF $0.13 PER SHARE OF COMMON STOCK, PAYABLE ON NOVEMBER 20, 2024, TO STOCKHOLDERS OF RECORD AS OF NOVEMBER 6, 2024.

    WOODBRIDGE, N.J., Oct. 23, 2024 (GLOBE NEWSWIRE) — NORTHFIELD BANCORP, INC. (Nasdaq:NFBK) (the “Company”), the holding company for Northfield Bank, reported net income of $6.5 million, or $0.16 per diluted share for the three months ended September 30, 2024, compared to $6.0 million, or $0.14 per diluted share, for the three months ended June 30, 2024, and $8.2 million, or $0.19 per diluted share, for the three months ended September 30, 2023. For the nine months ended September 30, 2024, net income totaled $18.7 million, or $0.45 per diluted share, compared to $29.4 million, or $0.67 per diluted share, for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, net income reflected $795,000, or $0.02 per share, of additional tax expense related to options that expired in June 2024, and $683,000, or $0.01 per share, of severance expense related to staffing realignments. For the nine months ended September 30, 2023, net income reflected $440,000, or $0.01 per share of severance expense. The decrease in net income for the nine months ended September 30, 2024, compared to the comparable prior year period was primarily the result of a decrease in net interest income, which was negatively impacted by higher funding costs, partially offset by improved interest and non-interest income.

    Commenting on the quarter, Steven M. Klein, the Company’s Chairman, President and Chief Executive Officer stated, “In the third quarter, the Northfield team continued to focus on financial performance, serving the businesses and consumers in our marketplace, and improving upon our operating efficiencies.” Mr. Klein continued, “We delivered solid financial performance for the quarter, increasing our net income, and earnings per share, as we manage our strong capital levels, core deposit and loan relationships, asset quality, and operating expenses. While significant risks remain, the decrease in short-term market interest rates late in the third quarter should provide increased economic activity in our marketplace and opportunities for our Company.”

    Mr. Klein further noted, “I am pleased to announce that the Board of Directors has declared a cash dividend of $0.13 per common share, payable on November 20, 2024 to stockholders of record on November 6, 2024.”

    Results of Operations

    Comparison of Operating Results for the Nine Months Ended September 30, 2024 and 2023

    Net income was $18.7 million and $29.4 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. Significant variances from the comparable prior year period are as follows: a $10.9 million decrease in net interest income, a $1.3 million increase in the provision for credit losses on loans, a $1.5 million increase in non-interest income, a $3.2 million increase in non-interest expense, and a $3.1 million decrease in income tax expense.

    Net interest income for the nine months ended September 30, 2024, decreased $10.9 million, or 11.4%, to $84.8 million, from $95.7 million for the nine months ended September 30, 2023 due to a $34.8 million increase in interest expense, which was partially offset by a $23.9 million increase in interest income. The increase in interest expense was largely driven by the cost of interest-bearing liabilities, which increased by 96 basis points to 2.93% for the nine months ended September 30, 2024, from 1.97% for the nine months ended September 30, 2023, driven primarily by a 114 basis point increase in the cost of interest-bearing deposits from 1.42% to 2.56% for the nine months ended September 30, 2024, and a 31 basis point increase in the cost of borrowings from 3.58% to 3.89% due to rising market interest rates and a shift in the composition of the deposit portfolio towards higher-costing certificates of deposit and a greater reliance on borrowings. The increase in interest expense was also due to a $277.1 million, or 7.0%, increase in the average balance of interest-bearing liabilities, including an increase of $149.8 million in the average balance of borrowed funds and a $127.1 million increase in average interest-bearing deposits. The increase in interest income was primarily due to a $156.1 million, or 2.9%, increase in the average balance of interest-earning assets coupled with a 47 basis point increase in the yield on interest-earning assets, which increased to 4.35% for the nine months ended September 30, 2024, from 3.88% for the nine months ended September 30, 2023, due to the rising rate environment. The increase in the average balance of interest-earning assets was primarily due to increases in the average balance of interest-earning deposits in financial institutions of $111.7 million, the average balance of other securities of $91.6 million, and the average balance of mortgage-backed securities of $88.5 million, partially offset by a decrease in the average balance of loans of $133.4 million.

    Net interest margin decreased by 34 basis points to 2.07% for the nine months ended September 30, 2024, from 2.41% for the nine months ended September 30, 2023. The decrease in net interest margin was primarily due to interest-bearing liabilities repricing at a faster rate than interest-earning assets. The net interest margin was negatively affected by approximately 12 basis points due to a $300 million low risk leverage strategy implemented in the first quarter of 2024. In January 2024, the Company borrowed $300.0 million from the Federal Reserve Bank through the Bank Term Funding Program at favorable terms and conditions and invested the proceeds in interest-bearing deposits in other financial institutions and investment securities. The Company accreted interest income related to purchased credit-deteriorated (“PCD”) loans of $1.1 million for the nine months ended September 30, 2024, as compared to $1.0 million for the nine months ended September 30, 2023. Net interest income for the nine months ended September 30, 2024, included loan prepayment income of $648,000 as compared to $1.3 million for the nine months ended September 30, 2023.

    The provision for credit losses on loans increased by $1.3 million to $2.3 million for the nine months ended September 30, 2024, compared to $1.1 million for the nine months ended September 30, 2023, primarily due to an increase in the specific reserve component of the allowance for credit losses, which was partially offset by a decrease in the general reserve component of the allowance for credit losses. The increase in the specific reserve was related to a single commercial and industrial relationship totaling $12.5 million that experienced credit deterioration and was placed on non-accrual during the current quarter, which has a specific reserve of $1.3 million and incurred a charge-off of $878,000. The decline in the general reserve component of the allowance for credit losses resulted from a decline in loan balances and an improvement in the macroeconomic forecast for the current period within our Current Expected Credit Loss (“CECL”) model, partially offset by an increase in reserves related to changes in model assumptions, including the slowing of prepayment speeds, and an increase in reserves in the commercial and industrial and home equity and lines of credit portfolios related to an increase in non-performing loans in these portfolios and higher loan balances. Net charge-offs were $4.7 million for the nine months ended September 30, 2024, primarily due to $3.9 million in net charge-offs on small business unsecured commercial and industrial loans, as compared to net charge-offs of $5.2 million for the nine months ended September 30, 2023. Management continues to closely monitor the small business unsecured commercial and industrial loan portfolio, which totaled $31.0 million at September 30, 2024.

    Non-interest income increased by $1.5 million, or 18.7%, to $9.8 million for the nine months ended September 30, 2024, compared to $8.3 million for the nine months ended September 30, 2023. The increase was primarily due to increases of $790,000 in fees and service charges for customer services, related to an increase in overdraft fees and service charges on deposit accounts, $260,000 in income on bank owned life insurance, and $874,000 in gains on trading securities, net. Partially offsetting the increases was a $303,000 decrease in other income, primarily due to lower swap fee income. Gains on trading securities in the nine months ended September 30, 2024, were $1.6 million, as compared to $723,000 in the nine months ended September 30, 2023. The trading portfolio is utilized to fund the Company’s deferred compensation obligation to certain employees and directors of the plan. The participants of this plan, at their election, defer a portion of their compensation. Gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of changes in the trading securities market values. Therefore, the Company records an equal and offsetting amount in compensation expense, reflecting the change in the Company’s obligations under the plan.

    Non-interest expense increased $3.2 million, or 5.2%, to $65.7 million for the nine months ended September 30, 2024, compared to $62.5 million for the nine months ended September 30, 2023. The increase was primarily due to a $3.3 million increase in employee compensation and benefits, primarily attributable to higher salary expense, related to annual merit increases and higher medical expense, and an increase of $874,000 in deferred compensation expense, which is described above, and had no effect on net income. Employee compensation and benefits expense also includes severance expense of $683,000 for the nine months ended September 30, 2024, as compared to $440,000 for the nine months ended September 30, 2023. During the second quarter of 2024, due to current economic conditions, the Company implemented a workforce reduction plan which included modest layoffs and staffing realignments. The annual estimated cost savings of this plan is $2.0 million, pre-tax. Partially offsetting the increase was a $461,000 decrease in stock compensation expense related to performance stock awards not expected to vest. Additionally, non-interest expense included a $727,000 increase in credit loss expense/(benefit) for off-balance sheet exposure due to a provision of $337,000 recorded during the nine months ended September 30, 2024, as compared to a benefit of $390,000 for the comparative prior year period. The benefit in the prior year period was attributable to a decrease in the pipeline of loans committed and awaiting closing. Partially offsetting the increases was a $552,000 decrease in advertising expense due to a change in marketing strategy and the timing of specific deposit and lending campaigns.

    The Company recorded income tax expense of $7.9 million for the nine months ended September 30, 2024, compared to $11.0 million for the nine months ended September 30, 2023, with the decrease due to lower taxable income partially offset by a higher effective tax rate. The effective tax rate for the nine months ended September 30, 2024, was 29.7% compared to 27.2% for the nine months ended September 30, 2023. In June 2024, options granted in 2014 expired and resulted in additional tax expense of $795,000, contributing to the higher effective tax rate for the nine months ended September 30, 2024.

    Comparison of Operating Results for the Three Months Ended September 30, 2024 and 2023

    Net income was $6.5 million and $8.2 million for the quarters ended September 30, 2024 and September 30, 2023, respectively. Significant variances from the comparable prior year quarter are as follows: a $1.5 million decrease in net interest income, a $2.4 increase in the provision for credit losses on loans, a $1.5 million increase in non-interest income, a $189,000 decrease in non-interest expense, and a $513,000 decrease in income tax expense.

    Net interest income for the quarter ended September 30, 2024, decreased $1.5 million, or 4.9%, to $28.2 million, from $29.7 million for the quarter ended September 30, 2023, due to an $8.0 million increase in interest expense, partially offset by an $6.6 million increase in interest income. The increase in interest expense was largely driven by the impact of rising market interest rates and a $227.0 million, or 5.7%, increase in the average balance of interest-bearing liabilities, including increases of $158.4 million and $68.4 million in the average balance of interest-bearing deposits and borrowed funds, respectively. The increase in interest income was primarily due to a $155.1 million, or 3.0%, increase in the average balance of interest-earning assets coupled with a 38 basis point increase in yields on interest-earning assets due to the rising rate environment. The increase in the average balance of interest-earning assets was due to increases in the average balance of mortgage-backed securities of $240.3 million, the average balance of other securities of $64.0 million, and the average balance of interest-earning deposits in financial institutions of $26.8 million, partially offset by decreases in the average balance of loans outstanding of $172.8 million and the average balance of Federal Home Loan Bank of New York stock of $3.2 million.

    Net interest margin decreased by 17 basis points to 2.08% for the quarter ended September 30, 2024, from 2.25% for the quarter ended September 30, 2023, primarily due to the cost of interest-bearing liabilities increasing faster than the repricing of interest-earning assets. The cost of interest-bearing liabilities increased by 64 basis points to 2.95% for the quarter ended September 30, 2024, from 2.31% for the quarter ended September 30, 2023, driven primarily by a 77 basis point increase in the cost of interest-bearing deposits from 1.82% to 2.59%, and a 30 basis point increase in the cost of borrowings from 3.63% to 3.93%. The increase in the cost of interest-bearing liabilities was partially offset by an increase in the yield on interest-earning assets, which increased by 38 basis points to 4.38% for the quarter ended September 30, 2024, from 4.00% for the quarter ended September 30, 2023. Net interest income for the quarter ended September 30, 2024, included loan prepayment income of $87,000, as compared to $183,000 for the quarter ended September 30, 2023. The Company accreted interest income related to PCD loans of $327,000 for the quarter ended September 30, 2024, as compared to $325,000 for the quarter ended September 30, 2023.

    The provision for credit losses on loans increased by $2.4 million to $2.5 million for the quarter ended September 30, 2024, from a provision of $188,000 for the quarter ended September 30, 2023, primarily due to an increase in the specific reserve component of the allowance for credit losses, which was partially offset by a decrease in the general reserve component of the allowance for credit losses. The increase in the specific reserve was related to a single commercial and industrial relationship that experienced credit deterioration and was placed on non-accrual during the current quarter, which has a specific reserve of $1.3 million and incurred a charge-off of $878,000. The decline in the general reserve component of the allowance for credit losses resulted from a decline in loan balances and an improvement in the macroeconomic forecast for the current period within our CECL model, partially offset by an increase in reserves related to changes in model assumptions, including the slowing of prepayment speeds, and an increase in reserves in the commercial and industrial portfolio related to an increase in non-performing loans and higher loan balances. Net charge-offs were $2.1 million for the quarter ended September 30, 2024, and included $1.4 million in net charge-offs on small business unsecured loans, as compared to net charge-offs of $2.9 million for the quarter ended September 30, 2023.

    Non-interest income increased by $1.5 million, or 68.7%, to $3.6 million for the quarter ended September 30, 2024, from $2.1 million for the quarter ended September 30, 2023, primarily due to a $294,000 increase in fees and service charges, primarily related to higher overdraft fees, a $1.0 million increase in gains on trading securities, net, and a $185,000 increase in other income, primarily due to higher swap fee income. For the quarter ended September 30, 2024, gains on trading securities, net, were $710,000, compared to losses of $295,000 in the quarter ended September 30, 2023. Gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of, changes in the trading securities market values. Therefore, the Company records an equal and offsetting amount in compensation expense, reflecting the change in the Company’s obligations under the Plan.

    Non-interest expense decreased by $189,000, or 0.9%, to $20.4 million for the quarter ended September 30, 2024, from $20.6 million for the quarter ended September 30, 2023. The decrease was primarily due to decreases of $386,000 in occupancy expense, attributable to lower real estate taxes, common area maintenance and electricity costs, $214,000 in data processing costs, attributable to a decrease in ongoing core processing costs related to a prior technology-related contract renewed at favorable terms, and $132,000 in advertising expense. Partially offsetting the decreases was a $504,000 increase in compensation and employee benefits, which included a $1.0 million increase in expense related to the Company’s deferred compensation plan which is described above, and had no effect on net income, that was offset by lower medical expense.

    The Company recorded income tax expense of $2.4 million for the quarter ended September 30, 2024, compared to $2.9 million for the quarter ended September 30, 2023, with the decrease due to lower taxable income. The effective tax rate for the quarter ended September 30, 2024 was 26.6%, compared to 26.0% for the quarter ended September 30, 2023.

    Comparison of Operating Results for the Three Months Ended September 30, 2024 and June 30, 2024

    Net income was $6.5 million and $6.0 million for the quarters ended September 30, 2024, and June 30, 2024, respectively. Significant variances from the prior quarter are as follows: an $458,000 decrease in net interest income, a $3.2 million increase in the provision for credit losses on loans, a $719,000 increase in non-interest income, a $2.6 million decrease in non-interest expense, and an $850,000 decrease in income tax expense.

    Net interest income for the quarter ended September 30, 2024, decreased by $458,000, or 1.6%, primarily due to a $902,000 decrease in interest income, partially offset by a $444,000 decrease in interest expense on deposits and borrowings. The decrease in interest income was primarily due to a $124.4 million decrease in the average balance of interest-earning assets. The decrease in the average balance of interest-earning assets was primarily due to decreases in the average balance of interest-earning deposits in financial institutions of $91.6 million, the average balance of other securities of $60.5 million, and the average balance of loans outstanding of $48.1 million, partially offset by an increase in the average balance of mortgage-backed securities of $76.5 million. The decrease in interest expense on deposits and borrowings was primarily due to a $105.8 million, or 2.5%, decrease in the average balance of interest-bearing liabilities attributable to a $73.2 million decrease in the average balance of interest-bearing deposits and a $32.7 million decrease in the average balance of borrowed funds.

    Net interest margin decreased by one basis point to 2.08% from 2.09% for the quarter ended June 30, 2024, primarily due to a one basis point decrease in yields on interest-earning assets whereas the cost of interest-bearing liabilities remained level. Net interest income for the quarter ended September 30, 2024, included loan prepayment income of $87,000 as compared to $210,000 for the quarter ended June 30, 2024. The Company accreted interest income related to PCD loans of $327,000 for the quarter ended September 30, 2024, as compared to $321,000 for the quarter ended June 30, 2024.

    The provision for credit losses on loans increased by $3.2 million to $2.5 million for the quarter ended September 30, 2024, from a benefit of $618,000 for the quarter ended June 30, 2024. The increase in the provision for the current quarter was primarily due to an increase in the specific reserve component of the allowance for credit losses, attributable to a single commercial and industrial relationship that experienced credit deterioration and was placed on non-accrual during the current quarter, higher reserves related to changes in model assumptions during the current quarter, including the slowing of prepayment speeds and higher net-charge-offs. Net charge-offs were $2.1 million for the quarter ended September 30, 2024, as compared to net charge-offs of $1.6 million for the quarter ended June 30, 2024.

    Non-interest income increased by $719,000, or 25.1%, to $3.6 million for the quarter ended September 30, 2024, from $2.9 million for the quarter ended June 30, 2024. The increase was primarily due to a $522,000 increase in gains on sales of trading securities, net, and a $192,000 increase in other income, primarily due to higher swap fee income. For the quarter ended September 30, 2024, gains on trading securities, net, were $710,000, compared to gains of $188,000 for the quarter ended June 30, 2024.

    Non-interest expense decreased by $2.6 million, or 11.4%, to $20.4 million for the quarter ended September 30, 2024, from $23.0 million for the quarter ended June 30, 2024. The decrease was primarily due to a $2.0 million decrease in compensation and employee benefits, primarily attributable to a decrease in salaries and medical expense due to lower employee headcount, partially offset by a $522,000 increase in expense related to the Company’s deferred compensation plan which had no effect on net income. Also contributing to the decrease were decreases of $192,000 in occupancy expense, $397,000 in data processing costs, attributable to a decrease in ongoing core processing costs resulting from a prior technology-related contract renewed at favorable terms, $200,000 in advertising expense, and $122,000 in other non-interest expense. Partially offsetting the decreases was a $262,000 increase in professional fees, primarily due to an increase in outsourced audit services.

    The Company recorded income tax expense of $2.4 million for the quarter ended September 30, 2024, compared to $3.2 million for the quarter ended June 30, 2024. The effective tax rate for the quarter ended September 30, 2024 was 26.6%, compared to 35.0% for the quarter ended June 30, 2024. During the quarter ended June 30, 2024, options granted in 2014 expired and resulted in additional tax expense of $795,000, contributing to the higher effective tax rate for the quarter ended June 30, 2024.

    Financial Condition

    Total assets increased by $132.5 million, or 2.4%, to $5.73 billion at September 30, 2024, from $5.60 billion at December 31, 2023. The increase was primarily due to increases in available-for-sale debt securities of $268.0 million, or 33.7%, and cash and cash equivalents of $3.4 million, or 1.5%, partially offset by a decrease in loans receivable of $139.7 million, or 3.3%.

    Cash and cash equivalents increased by $3.4 million, or 1.5%, to $232.9 million at September 30, 2024, from $229.5 million at December 31, 2023. Balances fluctuate based on the timing of receipt of security and loan repayments and the redeployment of cash into higher-yielding assets such as loans and securities, or the funding of deposit outflows or borrowing maturities.

    Loans held-for-investment, net, decreased by $139.7 million, or 3.3%, to $4.06 billion at September 30, 2024 from $4.20 billion at December 31, 2023, primarily due to decreases in multifamily, commercial and one-to-four family residential real estate loans, partially offset by increases in home equity and lines of credit, construction and land, and commercial and industrial loans. The decrease in loan balances reflects the Company remaining strategically focused on both managing the concentration of its commercial and multifamily real estate loan portfolios and disciplined loan pricing, as well as lower customer demand in the recent elevated interest rate environment. Multifamily loans decreased $110.1 million, or 4.0%, to $2.64 billion at September 30, 2024 from $2.75 billion at December 31, 2023, commercial real estate loans decreased $51.4 million, or 5.5%, to $878.2 million at September 30, 2024 from $929.6 million at December 31, 2023, one-to-four family residential loans decreased $11.1 million, or 6.9%, to $149.7 million at September 30, 2024 from $160.8 million at December 31, 2023, and other loans decreased $925,000, or 35.8%, to $1.7 million at September 30, 2024 from $2.6 million at December 31, 2023. Partially offsetting these decreases were increases in commercial and industrial loans of $19.1 million, or 12.3%, to $174.4 million at September 30, 2024 from $155.3 million at December 31, 2023, home equity and lines of credit of $8.4 million, or 5.2%, to $171.9 million at September 30, 2024 from $163.5 million at December 31, 2023, and construction and land loans of $2.1 million, or 6.6%, to $33.0 million at September 30, 2024 from $31.0 million at December 31, 2023.

    As of September 30, 2024, non-owner occupied commercial real estate loans (as defined by regulatory guidance) to total risk-based capital was estimated at approximately 447%. Management believes that Northfield Bank (the “Bank”) maintains appropriate risk management practices including risk assessments, board-approved underwriting policies and related procedures, which include monitoring Bank portfolio performance, performing market analysis (economic and real estate), and stressing of the Bank’s commercial real estate portfolio under severe, adverse economic conditions. Although management believes the Bank has implemented appropriate policies and procedures to manage its commercial real estate concentration risk, the Bank’s regulators could require it to implement additional policies and procedures or could require it to maintain higher levels of regulatory capital, which might adversely affect its loan originations, the Company’s ability to pay dividends, and overall profitability.

    Our real estate portfolio includes credit risk exposure to loans collateralized by office buildings and multifamily properties in New York State subject to some form of rent regulation limiting rent increases for rent stabilized multifamily properties. At September 30, 2024, office-related loans represented $183.6 million, or 4.5% of our total loan portfolio, with an average balance of $1.7 million (although we have originated these type of loans in amounts substantially greater than this average) and a weighted average loan-to-value ratio of 59%. Approximately 41% were owner-occupied. The geographic locations of the properties collateralizing our office-related loans are: 50.7% in New York, 47.8% in New Jersey and 1.5% in Pennsylvania. At September 30, 2024, our largest office-related loan had a principal balance of $90.0 million (with a net active principal balance for the Bank of $29.9 million as we have a 33.3% participation interest), was secured by an office facility located in Staten Island, New York, and was performing in accordance with its original contractual terms. At September 30, 2024, multifamily loans that have some form of rent stabilization or rent control totaled approximately $447.5 million, or approximately 11% of our total loan portfolio, with an average balance of $1.7 million (although we have originated these type of loans in amounts substantially greater than this average) and a weighted average loan-to-value ratio of 51%. At September 30, 2024, our largest rent-regulated loan had a principal balance of $16.9 million, was secured by an apartment building located in Staten Island, New York, and was performing in accordance with its original contractual terms. Management continues to closely monitor its office and rent-regulated portfolios. For further details on our rent-regulated multifamily portfolio see “Asset Quality”.

    PCD loans totaled $9.3 million and $9.9 million at September 30, 2024 and December 31, 2023, respectively. The majority of the remaining PCD loan balance consists of loans acquired as part of a Federal Deposit Insurance Corporation-assisted transaction. The Company accreted interest income of $327,000 and $1.1 million attributable to PCD loans for the three and nine months ended September 30, 2024, respectively, as compared to $325,000 and $1.0 million for the three and nine months ended September 30, 2023, respectively. PCD loans had an allowance for credit losses of approximately $2.9 million at September 30, 2024.

    Loan balances are summarized as follows (dollars in thousands):

      September 30, 2024   June 30, 2024   December 31, 2023
    Real estate loans:          
    Multifamily $         2,640,944     $         2,665,202     $         2,750,996  
    Commercial mortgage           878,173               896,157               929,595  
    One-to-four family residential mortgage           149,682               151,948               160,824  
    Home equity and lines of credit           171,946               167,852               163,520  
    Construction and land           33,024               32,607               30,967  
    Total real estate loans           3,873,769               3,913,766               4,035,902  
    Commercial and industrial loans           174,253               165,586               154,984  
    PPP loans           160               202               284  
    Other loans           1,660               2,322               2,585  
    Total commercial and industrial, PPP, and other loans           176,073               168,110               157,853  
    Loans held-for-investment, net (excluding PCD)           4,049,842               4,081,876               4,193,755  
    PCD loans           9,264               9,344               9,899  
    Total loans held-for-investment, net $         4,059,106     $         4,091,220     $         4,203,654  

    The Company’s available-for-sale debt securities portfolio increased by $268.0 million, or 33.7%, to $1.06 billion at September 30, 2024, from $795.5 million at December 31, 2023. The increase was primarily attributable to purchases of securities, partially offset by paydowns, maturities and calls. At September 30, 2024, $869.4 million of the portfolio consisted of residential mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. In addition, the Company held $74.9 million in U.S. Government agency securities, $118.5 million in corporate bonds, substantially all of which were investment grade, and $684,000 in municipal bonds at September 30, 2024. Unrealized losses, net of tax, on available-for-sale debt securities and held-to-maturity securities approximated $19.6 million and $219,000, respectively, at September 30, 2024, and $32.5 million and $279,000, respectively, at December 31, 2023.

    Equity securities were $10.7 million at September 30, 2024 and $10.6 million at December 31, 2023. Equity securities are primarily comprised of an investment in a Small Business Administration Loan Fund. This investment is utilized by the Bank as part of its Community Reinvestment Act program.

    Total liabilities increased $132.3 million, or 2.7%, to $5.03 billion at September 30, 2024, from $4.90 billion at December 31, 2023. The increase was primarily attributable to an increase in borrowings of $131.6 million, partially offset by a decrease in total deposits of $2.9 million. The Company routinely utilizes brokered deposits and borrowed funds to manage interest rate risk, the cost of interest-bearing liabilities, and funding needs related to loan originations and deposit activity.

    Deposits decreased $2.9 million, or 0.1%, to $3.88 billion at September 30, 2024 as compared to December 31, 2023. Brokered deposits decreased by $17.9 million, or 17.9%, due to maturities that were replaced by borrowings. Deposits, excluding brokered deposits, increased $15.0 million, or 0.4%. The increase in deposits, excluding brokered deposits, was primarily attributable to increases of $80.9 million in time deposits, partially offset by decreases of $14.9 million in transaction accounts, $14.7 million in savings accounts, and $36.3 million in money market accounts. Growth in time deposits was attributable to the current interest rate environment and offering competitive interest rates to attract deposits. Estimated gross uninsured deposits at September 30, 2024 were $1.71 billion. This total includes fully collateralized uninsured governmental deposits and intercompany deposits of $859.3 million, leaving estimated uninsured deposits of approximately $852.2 million, or 22.0%, of total deposits. At December 31, 2023, estimated uninsured deposits totaled $869.9 million, or 22.4% of total deposits.

    Deposit account balances are summarized as follows (dollars in thousands):

      September 30, 2024   June 30, 2024   December 31, 2023
    Transaction:          
    Non-interest bearing checking $         681,741     $         685,574     $         694,903  
    Negotiable orders of withdrawal and interest-bearing checking           1,230,176               1,251,342               1,231,943  
    Total transaction           1,911,917               1,936,916               1,926,846  
    Savings and money market:          
    Savings           911,067               916,598               925,744  
    Money market           265,800               255,550               302,122  
    Brokered money market           —               —               50,000  
    Total savings           1,176,867               1,172,148               1,277,866  
    Certificates of deposit:          
    $250,000 and under           585,606               568,809               525,454  
    Over $250,000           119,033               120,601               98,269  
    Brokered           82,146               —               50,000  
    Total certificates of deposit           786,785               689,410               673,723  
    Total deposits $         3,875,569     $         3,798,474     $         3,878,435  

    Included in the table above are business and municipal deposit account balances as follows (dollars in thousands):

      September 30, 2024   June 30, 2024   December 31, 2023
               
    Business customers $         869,990     $         866,403     $         893,296  
    Municipal (governmental) customers $         799,249     $         815,086     $         768,556  

    Borrowed funds increased to $1.05 billion at September 30, 2024, from $920.5 million at December 31, 2023. The increase in borrowings for the period was primarily due to a $205.5 million increase in borrowings under the Federal Reserve Bank Term Funding Program, which included favorable terms and conditions as compared to FHLB advances. Management utilizes borrowings to mitigate interest rate risk, for short-term liquidity, and to a lesser extent from time to time, as part of leverage strategies.

    The following table sets forth borrowing maturities (excluding overnight borrowings and subordinated debt) and the weighted average rate by year at September 30, 2024 (dollars in thousands):

    Year   Amount (1)   Weighted Average Rate
    2024   $25,000   4.71%
    2025   483,184   4.00%
    2026   148,000   4.36%
    2027   173,000   3.19%
    2028   154,288   3.96%
        $983,472   3.92%
             
    __________________________________________________
    (1) Borrowings maturing in 2025 include $300.0 million of FRB borrowings that can be repaid without any penalty.

    Total stockholders’ equity increased by $119,000 to $699.6 million at September 30, 2024, from $699.4 million at December 31, 2023. The increase was attributable to net income of $18.7 million for the nine months ended September 30, 2024, a $14.1 million increase in accumulated other comprehensive income, associated with an increase in the estimated fair value of our debt securities available-for-sale portfolio due to the increase in market interest rates, and a $1.9 million increase in equity award activity, partially offset by $18.1 million in stock repurchases and $16.5 million in dividend payments. On April 24, 2024, the Board of Directors of the Company approved a $5.0 million stock repurchase program, which was completed in May 2024, and on June 14, 2024, the Board of Directors of the Company approved a $10.0 million stock repurchase program. During the nine months ended September 30, 2024, the Company repurchased 1.8 million of its common stock outstanding at an average price of $10.03 for a total of $18.1 million pursuant to the approved stock repurchase programs. As of September 30, 2024, the Company had no remaining capacity under its current repurchase program.

    The Company’s most liquid assets are cash and cash equivalents, corporate bonds, and unpledged mortgage-related securities issued or guaranteed by the U.S. Government, Fannie Mae, or Freddie Mac, that we can either borrow against or sell. We also have the ability to surrender bank-owned life insurance contracts. The surrender of these contracts would subject the Company to income taxes and penalties for increases in the cash surrender values over the original premium payments. We also have the ability to obtain additional funding from the FHLB and Federal Reserve Bank of New York utilizing unencumbered and unpledged securities and multifamily loans. The Company expects to have sufficient funds available to meet current commitments in the normal course of business. The Company’s on-hand liquidity ratio as of September 30, 2024 was 16.4%.

    The Company had the following primary sources of liquidity at September 30, 2024 (dollars in thousands): 

    Cash and cash equivalents(1) $ 218,733
    Corporate bonds(2) $ 104,633
    Multifamily loans(2) $ 699,343
    Mortgage-backed securities (issued or guaranteed by the U.S. Government, Fannie Mae, or Freddie Mac)(2) $ 491,985
       
    __________________________________________________
    (1) Excludes $14.2 million of cash at Northfield Bank.
    (2) Represents estimated remaining borrowing potential.

    The Company and the Bank utilize the Community Bank Leverage Ratio (“CBLR”) framework. The CBLR replaces the risk-based and leverage capital requirements in the generally applicable capital rules. At September 30, 2024, the Company and the Bank’s estimated CBLR ratios were 12.03% and 12.26%, respectively, which exceeded the minimum requirement to be considered well-capitalized of 9%.

    Asset Quality

    The following table details total non-accrual loans (excluding PCD), non-performing assets, loans over 90 days delinquent on which interest is accruing, and accruing loans 30 to 89 days delinquent at September 30, 2024, June 30, 2024, and December 31, 2023 (dollars in thousands):

      September 30, 2024   June 30, 2024   December 31, 2023
    Non-accrual loans:          
    Held-for-investment          
    Real estate loans:          
    Multifamily $         2,651       $         2,691       $         2,709    
    Commercial           8,823                 10,244                 6,491    
    One-to-four family residential           66                 69                 104    
    Home equity and lines of credit           1,123                 1,124                 499    
    Commercial and industrial           15,117                 2,570                 305    
    Other           6                 6                 7    
    Total non-accrual loans           27,786                 16,704                 10,115    
    Loans delinquent 90 days or more and still accruing:          
    Held-for-investment          
    Real estate loans:          
    Multifamily           —                 —                 201    
    Commercial           1,161                 —                 —    
    One-to-four family residential           304                 136                 406    
    Home equity and lines of credit           343                 467                 711    
    Commercial and industrial           835                 —                 —    
    Total loans held-for-investment delinquent 90 days or more and still accruing           2,643                 603                 1,318    
    Total non-performing loans/assets $         30,429       $         17,307       $         11,433    
    Non-performing loans to total loans           0.75   %             0.42   %             0.27   %
    Non-performing assets to total assets           0.53   %             0.30   %             0.20   %
    Accruing loans 30 to 89 days delinquent $         16,057       $         6,265       $         8,683    

    The Company’s non-performing loans at September 30, 2024 totaled $30.4 million, or 0.75%, of total loans as compared to $11.4 million, or 0.27%, at December 31, 2023. The $19.0 million increase in non-performing loans was primarily attributable to an increase in non-performing commercial and industrial loans of $15.6 million and an increase of $3.5 million in non-performing commercial real estate loans. One commercial and industrial relationship with an outstanding balance of $12.5 million at September 30, 2024, experienced credit deterioration and was placed on non-accrual status during the third quarter of 2024. The loan is currently in the process of being restructured and we expect to receive a partial payment of $10.0 million on or before October 31, 2024, with the remaining $2.5 million to be repaid over three years. The loan was individually evaluated for impairment, we charged off $878,000 and provided a specific reserve of $1.3 million. Additionally, management evaluated the collateral from the Company and assets subject to personal guarantees and, based on current estimates, believes there is adequate collateral and assets to support the current value of the loan absent the expected repayment of $10.0 million. Another commercial and industrial relationship with an outstanding balance of $750,000 is in the process of maturity extension. Additionally, there was an increase in non-performing unsecured small business loans. Unsecured small business loans totaled $31.0 million and $37.4 million at September 30, 2024 and December 31, 2023, respectively. Management continues to closely monitor the small business unsecured commercial and industrial loan portfolio.

    The increase in non-performing commercial real estate loans was primarily attributable to one loan with a balance of $4.4 million, which was put on non-accrual status during the first quarter of 2024. Based on the results of the impairment analysis for this loan, no impairment reserve was necessary as the loan is adequately covered by collateral (a private residence and retail property, both located in New Jersey), with aggregate appraised values totaling $8.7 million.

    Accruing Loans 30 to 89 Days Delinquent

    Loans 30 to 89 days delinquent and on accrual status totaled $16.1 million, $6.3 million and $8.7 million at September 30, 2024, June 30, 2024, and December 31, 2023, respectively. The following table sets forth delinquencies for accruing loans by type and by amount at September 30, 2024, June 30, 2024, and December 31, 2023 (dollars in thousands):
      

      September 30, 2024   June 30, 2024   December 31, 2023
    Held-for-investment          
    Real estate loans:          
    Multifamily $         2,259     $         168     $         740  
    Commercial           5,689               1,557               1,010  
    One-to-four family residential           2,286               1,769               3,339  
    Home equity and lines of credit           1,369               786               817  
    Commercial and industrial loans           4,450               1,977               2,767  
    Other loans           4               8               10  
    Total delinquent accruing loans held-for-investment $         16,057     $         6,265     $         8,683  

    The increase in multifamily delinquent loans was primarily due to two relationships totaling $1.5 million that became current subsequent to September 30, 2024. The increase in commercial real estate delinquent loans was primarily due to two participation loans totaling $5.6 million that matured, and the lead bank is in the process of extending their maturity and should become current in the fourth quarter of 2024. The increase in commercial and industrial delinquent loans from December 31, 2023, was primarily due to two loans to one borrower totaling $1.5 million which we expect to become current in the fourth quarter of 2024, and, to a lesser extent, an increase in delinquencies in unsecured small business loans.

    Subsequent to the quarter end, $1.1 million of home equity and lines of credit loans, $1.5 million of one-to-four family residential loans, and $1.5 million of commercial and industrial loans became current.

    PCD Loans (Held-for-Investment)

    The Company accounts for PCD loans at estimated fair value using discounted expected future cash flows deemed to be collectible on the date acquired. Based on its detailed review of PCD loans and experience in loan workouts, management believes it has a reasonable expectation about the amount and timing of future cash flows and accordingly has classified PCD loans ($9.3 million at September 30, 2024 and $9.9 million at December 31, 2023, respectively) as accruing, even though they may be contractually past due. At September 30, 2024, 2.1% of PCD loans were past due 30 to 89 days, and 24.6% were past due 90 days or more, as compared to 2.9% and 27.1%, respectively, at December 31, 2023.

    Our multifamily loan portfolio at September 30, 2024 totaled $2.64 billion, or 65% of our total loan portfolio, of which $447.5 million, or 11%, included loans collateralized by properties in New York with units subject to some percentage of rent regulation. The table below sets forth details about our multifamily loan portfolio in New York (dollars in thousands).

    % Rent Regulated   Balance   % Portfolio Total NY Multifamily Portfolio   Average Balance   Largest Loan   LTV*   Debt Service Coverage Ratio (DSCR)*   30-89 Days Delinquent   Non-Accrual   Special Mention   Substandard
    0   $         286,728             39.1   %   $         1,166     $         16,603     51.0%   1.57x   $         1,709     $         534     $         782     $         874  
    >0-10             4,745             0.7                 1,582               2,128     51.4   1.46             —               —               —               —  
    >10-20             18,681             2.5                 1,437               2,865     49.2   1.59             —               —               —               —  
    >20-30             19,585             2.7                 2,176               5,512     54.1   1.64             —               —               —               —  
    >30-40             15,183             2.1                 1,265               3,088     48.3   1.63             —               —               —               —  
    >40-50             22,208             3.0                 1,306               2,740     48.2   1.84             —               —               —               —  
    >50-60             9,452             1.3                 1,575               2,341     39.9   2.03             —               —               —               —  
    >60-70             19,201             2.6                 3,200               11,339     53.0   1.46             —               —               —               —  
    >70-80             22,405             3.1                 2,489               4,914     48.0   1.53             —               —               —               —  
    >80-90             20,820             2.8                 1,157               3,148     46.6   1.71             —               —               —               —  
    >90-100             295,256             40.1                 1,779               16,909     52.6   1.65             —               2,117               1,204               4,482  
    Total   $         734,264     100.0   %   $         1,454     $         16,909     51.2%   1.62x   $         1,709     $         2,651     $         1,986     $         5,356  

    The table below sets forth our New York rent-regulated loans by county (dollars in thousands).

    County   Balance   LTV*   DSCR*
    Bronx   $         118,400     51.7%   1.64x
    Kings             191,745     51.5%   1.66
    Nassau             2,176     36.2%   1.88
    New York             49,871     47.3%   1.64
    Queens             38,864     44.3%   1.81
    Richmond             28,790     60.6%   1.64
    Westchester             17,689     61.8%   1.37
    Total   $         447,535     51.4%   1.65x
                 
    * Weighted Average

    None of the loans that are rent-regulated in New York are interest only. During the remainder of 2024, one loan with an aggregate principal balance of $1.8 million will re-price.

    About Northfield Bank

    Northfield Bank, founded in 1887, operates 38 full-service banking offices in Staten Island and Brooklyn, New York, and Hunterdon, Middlesex, Mercer, and Union counties, New Jersey. For more information about Northfield Bank, please visit www.eNorthfield.com.

    Forward-Looking Statements: This release may contain certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “should,” “plan,” “estimate,” “predict,” “continue,” and “potential” or the negative of these terms or other comparable terminology. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of Northfield Bancorp, Inc. Any or all of the forward-looking statements in this release and in any other public statements made by Northfield Bancorp, Inc. may turn out to be wrong. They can be affected by inaccurate assumptions Northfield Bancorp, Inc. might make or by known or unknown risks and uncertainties as described in our SEC filings, including, but not limited to, those related to general economic conditions, particularly in the market areas in which the Company operates, changes in liquidity, the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio, competition among depository and other financial institutions, including with respect to fees and interest rates, changes in laws or government regulations or policies affecting financial institutions, including changes in the monetary policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, changes in asset quality, prepayment speeds, charge-offs and/or credit loss provisions, our ability to access cost-effective funding, changes in the value of our goodwill or other intangible assets, changes in regulatory fees, assessments and capital requirements, inflation and changes in the interest rate environment that reduce our margins, reduce the fair value of financial instruments or reduce our ability to originate loans, cyber security and fraud risks against our information technology and those of our third-party providers and vendors, the effects of war, conflict, and acts of terrorism, our ability to successfully integrate acquired entities, adverse changes in the securities markets, and the effects of the COVID-19 pandemic. Consequently, no forward-looking statement can be guaranteed. Northfield Bancorp, Inc. does not intend to update any of the forward-looking statements after the date of this release, or conform these statements to actual events.

     
    (Tables follow)
     
    NORTHFIELD BANCORP, INC.
    SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
    (Dollars in thousands, except per share amounts) (unaudited)
                   
                  At or For the
      At or For the Three Months Ended   Nine Months Ended
      September 30,   June 30   September 30,
      2024   2023   2024   2024   2023
    Selected Financial Ratios:                  
    Performance Ratios (1)                  
    Return on assets (ratio of net income to average total assets)         0.46   %           0.59   %           0.41   %           0.43   %           0.71   %
    Return on equity (ratio of net income to average equity)         3.74               4.74               3.45               3.59               5.69    
    Average equity to average total assets         12.24               12.49               12.00               12.09               12.44    
    Interest rate spread         1.42               1.69               1.44               1.42               1.91    
    Net interest margin         2.08               2.25               2.09               2.07               2.41    
    Efficiency ratio (2)         64.07               64.65               72.89               69.44               60.06    
    Non-interest expense to average total assets         1.43               1.49               1.60               1.53               1.50    
    Non-interest expense to average total interest-earning assets         1.50               1.56               1.68               1.60               1.57    
    Average interest-earning assets to average interest-bearing liabilities         128.75               132.21               128.47               128.63               133.66    
    Asset Quality Ratios:                  
    Non-performing assets to total assets         0.53               0.19               0.30               0.53               0.19    
    Non-performing loans (3) to total loans (4)         0.75               0.24               0.42               0.75               0.24    
    Allowance for credit losses to non-performing loans         115.67               378.67               200.96               115.67               378.67    
    Allowance for credit losses to total loans held-for-investment, net (5)         0.87               0.91               0.85               0.87               0.91    
    (1) Annualized where appropriate.
    (2) The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.
    (3) Non-performing loans consist of non-accruing loans and loans 90 days or more past due and still accruing (excluding PCD loans), and are included in total loans held-for-investment, net.
    (4) Includes originated loans held-for-investment, PCD loans, acquired loans and loans held-for-sale.
    (5) Includes originated loans held-for-investment, PCD loans, and acquired loans.
     
    NORTHFIELD BANCORP, INC.
    CONSOLIDATED BALANCE SHEETS
    (Dollars in thousands, except share and per share amounts) (unaudited)
     
      September 30, 2024   June 30, 2024   December 31, 2023
    ASSETS:          
    Cash and due from banks $         14,193     $         14,575     $         13,889  
    Interest-bearing deposits in other financial institutions           218,733               138,914               215,617  
    Total cash and cash equivalents           232,926               153,489               229,506  
    Trading securities           13,759               12,939               12,549  
    Debt securities available-for-sale, at estimated fair value           1,063,486               1,119,439               795,464  
    Debt securities held-to-maturity, at amortized cost           9,681               9,749               9,866  
    Equity securities           10,699               13,964               10,629  
    Loans held-for-sale           4,897               —               —  
    Loans held-for-investment, net           4,059,106               4,091,220               4,203,654  
    Allowance for credit losses           (35,197 )             (34,780 )             (37,535 )
    Net loans held-for-investment           4,023,909               4,056,440               4,166,119  
    Accrued interest receivable           19,299               19,343               18,491  
    Bank-owned life insurance           174,482               173,483               171,543  
    Federal Home Loan Bank of New York stock, at cost           37,269               41,785               39,667  
    Operating lease right-of-use assets           28,943               29,305               30,202  
    Premises and equipment, net           22,973               23,628               24,771  
    Goodwill           41,012               41,012               41,012  
    Other assets           47,516               51,785               48,577  
    Total assets $         5,730,851     $         5,746,361     $         5,598,396  
               
    LIABILITIES AND STOCKHOLDERS’ EQUITY:          
    LIABILITIES:          
    Deposits $         3,875,569     $         3,798,474     $         3,878,435  
    Securities sold under agreements to repurchase           —               —               25,000  
    Federal Home Loan Bank advances and other borrowings           990,871               1,089,727               834,272  
    Subordinated debentures, net of issuance costs           61,386               61,331               61,219  
    Lease liabilities           33,529               34,035               35,205  
    Advance payments by borrowers for taxes and insurance           22,492               26,113               25,102  
    Accrued expenses and other liabilities           47,440               43,657               39,718  
    Total liabilities           5,031,287               5,053,337               4,898,951  
               
    STOCKHOLDERS’ EQUITY:          
    Total stockholders’ equity           699,564               693,024               699,445  
    Total liabilities and stockholders’ equity $         5,730,851     $         5,746,361     $         5,598,396  
               
    Total shares outstanding           42,904,342               43,466,961               44,524,929  
    Tangible book value per share (1) $         15.35     $         15.00     $         14.78  
    (1) Tangible book value per share is calculated based on total stockholders’ equity, excluding intangible assets (goodwill and core deposit intangibles), divided by total shares outstanding as of the balance sheet date. Core deposit intangibles were $90, $111, and $154 at September 30, 2024, June 30, 2024, and December 31, 2023, respectively, and are included in other assets.
     
    NORTHFIELD BANCORP, INC.
    CONSOLIDATED STATEMENTS OF INCOME
    (Dollars in thousands, except share and per share amounts) (unaudited)
     
      For the Three Months Ended   For the Nine Months Ended
      September 30,   June 30,   September 30,
        2024       2023       2024       2024       2023  
    Interest income:                  
    Loans $         46,016     $         46,213     $         45,967     $         138,030     $         135,220  
    Mortgage-backed securities           8,493               3,664               7,355               20,246               11,170  
    Other securities           2,684               1,095               3,506               10,031               3,593  
    Federal Home Loan Bank of New York dividends           914               933               935               2,819               2,125  
    Deposits in other financial institutions           1,211               831               2,457               7,060               2,225  
    Total interest income           59,318               52,736               60,220               178,186               154,333  
    Interest expense:                  
    Deposits           20,304               13,614               20,664               60,241               31,918  
    Borrowings           9,949               8,593               10,041               30,653               24,182  
    Subordinated debt           836               837               828               2,492               2,484  
    Total interest expense           31,089               23,044               31,533               93,386               58,584  
    Net interest income           28,229               29,692               28,687               84,800               95,749  
    Provision/(benefit) for credit losses           2,542               188               (618 )             2,339               1,082  
    Net interest income after (benefit)/provision for credit losses           25,687               29,504               29,305               82,461               94,667  
    Non-interest income:                  
    Fees and service charges for customer services           1,611               1,317               1,570               4,796               4,006  
    Income on bank-owned life insurance           999               920               976               2,939               2,679  
    (Losses)/gains on available-for-sale debt securities, net           (7 )             —               1               (6 )             (17 )
    Gains/(losses) on trading securities, net           710               (295 )             188               1,597               723  
    Gain on sale of loans           —               99               51               51               134  
    Other           265               80               73               441               744  
    Total non-interest income           3,578               2,121               2,859               9,818               8,269  
    Non-interest expense:                  
    Compensation and employee benefits           11,424               10,920               13,388               37,577               34,310  
    Occupancy           3,030               3,416               3,222               9,805               10,032  
    Furniture and equipment           450               479               477               1,411               1,393  
    Data processing           1,780               1,994               2,177               6,104               6,308  
    Professional fees           943               883               681               2,433               2,622  
    Advertising           282               414               482               1,282               1,834  
    Federal Deposit Insurance Corporation insurance           626               591               649               1,863               1,763  
    Credit loss expense/(benefit) for off-balance sheet exposures           151               160               103               337               (390 )
    Other           1,692               1,710               1,814               4,891               4,598  
    Total non-interest expense           20,378               20,567               22,993               65,703               62,470  
    Income before income tax expense           8,887               11,058               9,171               26,576               40,466  
    Income tax expense           2,364               2,877               3,214               7,882               11,019  
    Net income $         6,523     $         8,181     $         5,957     $         18,694     $         29,447  
    Net income per common share:                  
    Basic $         0.16     $         0.19     $         0.14     $         0.45     $         0.67  
    Diluted $         0.16     $         0.19     $         0.14     $         0.45     $         0.67  
    Basic average shares outstanding           41,028,213               42,866,246               41,999,541               41,794,149               43,848,873  
    Diluted average shares outstanding           41,088,637               42,918,174               42,002,650               41,829,230               43,927,350  
     
    NORTHFIELD BANCORP, INC.
    ANALYSIS OF NET INTEREST INCOME
    (Dollars in thousands) (unaudited)
     
      For the Three Months Ended
      September 30, 2024   June 30, 2024   September 30, 2023
      Average Outstanding Balance   Interest   Average Yield/ Rate (1)   Average Outstanding Balance   Interest   Average Yield/ Rate (1)   Average Outstanding Balance   Interest   Average Yield/ Rate (1)
    Interest-earning assets:                                  
    Loans (2) $         4,079,974     $         46,016             4.49   %   $         4,128,105     $         45,967             4.48   %   $         4,252,752     $         46,213             4.31   %
    Mortgage-backed securities (3)           901,042               8,493             3.75                 824,498               7,355             3.59                 660,753               3,664             2.20    
    Other securities (3)           273,312               2,684             3.91                 333,855               3,506             4.22                 209,341               1,095             2.08    
    Federal Home Loan Bank of New York stock           38,044               914             9.56                 38,707               935             9.72                 41,278               933             8.97    
    Interest-earning deposits in financial institutions           99,837               1,211             4.83                 191,470               2,457             5.16                 73,005               831             4.52    
    Total interest-earning assets           5,392,209               59,318             4.38                 5,516,635               60,220             4.39                 5,237,129               52,736             4.00    
    Non-interest-earning assets           275,342                       265,702                       248,315          
    Total assets $         5,667,551             $         5,782,337             $         5,485,444          
                                       
    Interest-bearing liabilities:                                  
    Savings, NOW, and money market accounts $         2,417,725     $         12,717             2.09   %   $         2,490,372     $         13,183             2.13   %   $         2,408,218     $         8,865             1.46   %
    Certificates of deposit           700,763               7,587             4.31                 701,272               7,481             4.29                 551,904               4,749             3.41    
    Total interest-bearing deposits           3,118,488               20,304             2.59                 3,191,644               20,664             2.60                 2,960,122               13,614             1.82    
    Borrowed funds           1,008,338               9,949             3.93                 1,041,035               10,041             3.88                 939,922               8,593             3.63    
    Subordinated debt           61,350               836             5.42                 61,294               828             5.43                 61,127               837             5.43    
    Total interest-bearing liabilities           4,188,176               31,089             2.95                 4,293,973               31,533             2.95                 3,961,171               23,044             2.31    
    Non-interest bearing deposits           683,283                       691,384                       739,266          
    Accrued expenses and other liabilities           102,233                       103,082                       100,103          
    Total liabilities           4,973,692                       5,088,439                       4,800,540          
    Stockholders’ equity           693,859                       693,898                       684,904          
    Total liabilities and stockholders’ equity $         5,667,551             $         5,782,337             $         5,485,444          
                                       
    Net interest income     $         28,229             $         28,687             $         29,692      
    Net interest rate spread (4)                 1.42   %                   1.44   %                   1.69   %
    Net interest-earning assets (5) $         1,204,033             $         1,222,662             $         1,275,958          
    Net interest margin (6)                 2.08   %                   2.09   %                   2.25   %
    Average interest-earning assets to interest-bearing liabilities                 128.75   %                   128.47   %                   132.21   %
    (1) Average yields and rates are annualized.
    (2) Includes non-accruing loans.
    (3) Securities available-for-sale and other securities are reported at amortized cost.
    (4) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
    (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
    (6) Net interest margin represents net interest income divided by average total interest-earning assets.
       
      For the Nine Months Ended
      September 30, 2024   September 30, 2023
      Average Outstanding Balance   Interest   Average Yield/ Rate (1)   Average Outstanding Balance   Interest   Average Yield/ Rate (1)
    Interest-earning assets:                      
    Loans (2) $         4,127,409     $         138,030             4.47   %   $         4,260,827     $         135,220             4.24   %
    Mortgage-backed securities (3)           791,850               20,246             3.42                 703,320               11,170             2.12    
    Other securities (3)           332,831               10,031             4.03                 241,280               3,593             1.99    
    Federal Home Loan Bank of New York stock           38,781               2,819             9.71                 41,093               2,125             6.91    
    Interest-earning deposits in financial institutions           184,420               7,060             5.11                 72,683               2,225             4.09    
    Total interest-earning assets           5,475,291               178,186             4.35                 5,319,203               154,333             3.88    
    Non-interest-earning assets           269,180                       244,319          
    Total assets $         5,744,471             $         5,563,522          
                           
    Interest-bearing liabilities:                      
    Savings, NOW, and money market accounts $         2,457,320     $         38,231             2.08   %   $         2,443,400     $         19,194             1.05   %
    Certificates of deposit           685,510               22,010             4.29                 572,283               12,724             2.97    
    Total interest-bearing deposits           3,142,830               60,241             2.56                 3,015,683               31,918             1.42    
    Borrowed funds           1,052,589               30,653             3.89                 902,802               24,182             3.58    
    Subordinated debt           61,294               2,492             5.43                 61,164               2,484             5.43    
    Total interest-bearing liabilities $         4,256,713               93,386             2.93       $         3,979,649               58,584             1.97    
    Non-interest bearing deposits           691,406                       788,991          
    Accrued expenses and other liabilities           101,639                       102,765          
    Total liabilities           5,049,758                       4,871,405          
    Stockholders’ equity           694,713                       692,117          
    Total liabilities and stockholders’ equity $         5,744,471             $         5,563,522          
                           
    Net interest income     $         84,800             $         95,749      
    Net interest rate spread (4)                 1.42   %                   1.91   %
    Net interest-earning assets (5) $         1,218,578             $         1,339,554          
    Net interest margin (6)                 2.07   %                   2.41   %
    Average interest-earning assets to interest-bearing liabilities                 128.63   %                   133.66   %
    (1) Average yields and rates are annualized. 
    (2) Includes non-accruing loans. 
    (3) Securities available-for-sale and other securities are reported at amortized cost.
    (4) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
    (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
    (6) Net interest margin represents net interest income divided by average total interest-earning assets.

    Company Contact:
    William R. Jacobs
    Chief Financial Officer
    Tel: (732) 499-7200 ext. 2519

    The MIL Network –

  • MIL-OSI: Northrim BanCorp Earns $8.8 Million, or $1.57 Per Diluted Share, in Third Quarter 2024

    Source: GlobeNewswire (MIL-OSI)

    ANCHORAGE, Alaska, Oct. 23, 2024 (GLOBE NEWSWIRE) — Northrim BanCorp, Inc. (NASDAQ:NRIM) (“Northrim” or the “Company”) today reported net income of $8.8 million, or $1.57 per diluted share, in the third quarter of 2024, compared to $9.0 million, or $1.62 per diluted share, in the second quarter of 2024, and $8.4 million, or $1.48 per diluted share, in the third quarter a year ago. The increase in third quarter 2024 profitability as compared to the third quarter a year ago was primarily the result of an increase in mortgage banking income and higher net interest income, which was only partially offset by higher other operating expenses and a higher provision for credit losses.

    Dividends per share in the third quarter of 2024 increased to $0.62 per share as compared to $0.61 per share in the second quarter of 2024 and $0.60 per share in the third quarter of 2023.

    “We had strong deposit-funded loan growth in the third quarter,” said Mike Huston, Northrim’s President and Chief Executive Officer. “Deposits and loans both increased 7% from the end of the second quarter. Our deposit market share increased by 4% in the past year and by 42% in the past five years as our investments in people, expanded branch network, and differentiated service continue to attract new customers and strengthen existing relationships.”

    Third Quarter 2024 Highlights:

    • Net interest income in the third quarter of 2024 increased 7% to $28.8 million compared to $27.1 million in the second quarter of 2024 and increased 9% compared to $26.4 million in the third quarter of 2023.
    • Net interest margin on a tax equivalent basis (“NIMTE”)* was 4.35% for the third quarter of 2024, up 5-basis points from the second quarter of 2024 and up 14-basis points from the third quarter a year ago.
    • Return on average assets (“ROAA”) was 1.22% and return on average equity (“ROAE”) was 13.69% for the third quarter of 2024.
    • Portfolio loans were $2.01 billion at September 30, 2024, up 7% from the preceding quarter and up 17% from a year ago, primarily due to new customer relationships, expanding market share, and to retaining certain mortgages originated by Residential Mortgage, a subsidiary of Northrim Bank (the “Bank”), in the loan portfolio.
    • Total deposits were $2.63 billion at September 30, 2024, up 7% from the preceding quarter, and up 8% from $2.43 billion a year ago. Non-interest bearing demand deposits increased 8% from the preceding quarter and decreased slightly year-over-year to $763.6 million at September 30, 2024 and represent 29% of total deposits.
    • The average cost of interest-bearing deposits was 2.24% at September 30, 2024, up from 2.21% at June 30, 2024 and 1.75% at September 30, 2023.
    • Mortgage loan originations increased to $248.0 million in the third quarter of 2024, up from $181.5 million in the second quarter of 2024 and $153.4 million in the third quarter a year ago. Mortgage loans funded for sale were $210.0 million in the third quarter of 2024, compared to $152.3 million in the second quarter of 2024 and $131.9 million in the third quarter of 2023.
    Financial Highlights   Three Months Ended 
    (Dollars in thousands, except per share data) September 30,
    2024    		 June 30, 2024 March 31, 2024 December 31,
    2023    		 September 30,
    2023
    Total assets $2,963,392   $2,821,668 $2,759,560   $2,807,497   $2,790,189  
    Total portfolio loans $2,007,565   $1,875,907 $1,811,135   $1,789,497   $1,720,091  
    Total deposits $2,625,567   $2,463,806 $2,434,083   $2,485,055   $2,427,930  
    Total shareholders’ equity $260,050   $247,200 $239,327   $234,718   $225,259  
    Net income $8,825   $9,020 $8,199   $6,613   $8,374  
    Diluted earnings per share $1.57   $1.62 $1.48   $1.19   $1.48  
    Return on average assets   1.22 %   1.31 %   1.19 %   0.93 %   1.22 %
    Return on average shareholders’ equity   13.69 %   14.84 %   13.84 %   11.36 %   14.67 %
    NIM   4.29 %   4.24 %   4.16 %   4.06 %   4.15 %
    NIMTE*   4.35 %   4.30 %   4.22 %   4.12 %   4.21 %
    Efficiency ratio   66.11 %   68.78 %   68.93 %   72.21 %   66.64 %
    Total shareholders’ equity/total assets   8.78 %   8.76 %   8.67 %   8.36 %   8.07 %
    Tangible common equity/tangible assets*   8.28 %   8.24 %   8.14 %   7.84 %   7.54 %
    Book value per share $47.27   $44.93   $43.52   $42.57   $40.60  
    Tangible book value per share* $44.36   $42.03   $40.61   $39.68   $37.72  
    Dividends per share $0.62   $0.61   $0.61   $0.60   $0.60  
    Common stock outstanding   5,501,943     5,501,562     5,499,578     5,513,459     5,548,436  


    *     References to NIMTE, tangible book value per share, and tangible common equity to tangible common assets, (all of which exclude intangible assets) represent non-GAAP financial measures. Management has presented these non-GAAP measurements in this earnings release, because it believes these measures are useful to investors. See the end of this release for reconciliations of these non-GAAP financial measures to GAAP financial measures.

    Alaska Economic Update
    (Note: sources for information included in this section are included on page 12.)

    The Alaska Department of Labor (“DOL”) has reported Alaska’s seasonally adjusted unemployment rate in August of 2024 was 4.6% compared to the U.S. rate of 4.2%. The total number of payroll jobs in Alaska, not including uniformed military, increased 1.8% or 6,400 jobs between August of 2023 and August of 2024.

    According to the DOL, the Construction sector had the largest growth in new jobs through August compared to the prior year. The Construction sector added 2,600 positions for a year over year growth rate of 12.9% between August of 2023 and 2024. The larger Health Care sector grew by 2,000 jobs for an annual growth rate of 4.9% over the same period. The Oil & Gas sector increased by 6.5% or 500 new direct jobs. Professional and Business Services added 1,000 jobs year over year through August of 2024, up 3.4%. The Government sector grew by 700 jobs for 0.9% growth, adding 500 Federal jobs and 200 Local government positions in Alaska. The only sectors to decline between August 2023 and August 2024 were Manufacturing (primarily seafood processing) shrinking 1,300 positions and Information, down 200 jobs.

    Alaska’s Gross State Product (“GSP”) in the second quarter of 2024, was estimated to be $69.8 billion in current dollars, according to the Federal Bureau of Economic Analysis (“BEA”). Alaska’s inflation adjusted “real” GSP increased 6.5% in 2023, placing Alaska fifth best of all 50 states. However, in the second quarter of 2024 Alaska decreased at an annualized rate of 1.1%, compared to the average U.S. growth rate of 3%. Alaska’s real GSP decline in the second quarter of 2024 was primarily caused by a slowdown in the Mining, Oil & Gas; and Transportation and Warehousing sectors.

    The BEA also calculated Alaska’s seasonally adjusted personal income at $55.4 billion in the second quarter of 2024. This was an annualized improvement of 4% for Alaska, compared to the national average of 5.3%.

    The monthly average price of Alaska North Slope (“ANS”) crude oil was at an annual high of $89.05 in April of 2024 and averaged $74.06 in September of this year. The Alaska Department of Revenue (“DOR”) calculated ANS crude oil production was 479 thousand barrels per day (“bpd”) in Alaska’s fiscal year ending June 30, 2023 and declined to 461 thousand bpd in Alaska’s fiscal year 2024. Starting in fiscal year 2025 it is projected to grow to 477 thousand bpd. The DOR projects the number to grow rapidly and reach 640 thousand bpd by fiscal year 2033. This is primarily a result of new production coming on-line in and around the NPR-A region west of Prudhoe Bay.

    According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 5.2% in 2023 to $480,207, following a 7.6% increase in 2022. This was the sixth consecutive year of price increases.   In the first nine months of 2024 the average price continues to increase 6.8% to an average sale of
    $512,815.

    The average sales price for single family homes in the Matanuska Susitna Borough rose 4% in 2023 to $397,589, after increasing 9.9% in 2022. This continues a trend of average price increases for more than a decade in the region. In the first nine months of 2024 the average sales price increased 4.6% in the Matanuska Susitna Borough to $415,709. These two markets represent where the vast majority of the Bank’s residential lending activity occurs.

    The Alaska Multiple Listing Services reported a 1.2% decrease in the number of units sold in Anchorage when comparing January to September of 2023 and 2024. There were 5.4% less homes sold in the Matanuska Susitna Borough for the same nine month time period in 2024 compared to the prior year.

    Northrim Bank sponsors the Alaskanomics blog to provide news, analysis, and commentary on Alaska’s economy. Join the conversation at Alaskanomics.com, or for more information on the Alaska economy, visit: www.northrim.com and click on the “Business Banking” link and then click “Learn.” Information from our website is not incorporated into, and does not form, a part of this earnings release.

    Review of Income Statement

    Consolidated Income Statement

    In the third quarter of 2024, Northrim generated a ROAA of 1.22% and a ROAE of 13.69%, compared to 1.31% and 14.84%, respectively, in the second quarter of 2024 and 1.22% and 14.67%, respectively, in the third quarter a year ago.

    Net Interest Income/Net Interest Margin

    Net interest income increased 7% to $28.8 million in the third quarter of 2024 compared to $27.1 million in the second quarter of 2024 and increased 9% compared to $26.4 million in the third quarter of 2023. Interest expense on deposits increased to $10.1 million in the third quarter of 2024 compared to $9.5 million in the second quarter and $7.1 million in the third quarter of 2023.

    NIMTE* was 4.35% in the third quarter of 2024 up from 4.30% in the preceding quarter and 4.21% in the third quarter a year ago. NIMTE* increased 14 basis points in the third quarter of 2024 compared to the third quarter of 2023 primarily due to a favorable change in the mix of earning-assets towards higher loan balances as a percentage of total earning-assets, higher earning-assets, and higher yields on those assets which were only partially offset by an increase in costs on interest-bearing deposits. The weighted average interest rate for new loans booked in the third quarter of 2024 was 7.24% compared to 7.90% in the second quarter of 2024 and 7.44% in the third quarter a year ago. The yield on the investment portfolio in the third quarter of 2024 decreased slightly to 2.80% from 2.82% in the second quarter of 2024 and increased from 2.43% in the third quarter of 2023. “We continue to see the benefit of new loan volume and repricing outweigh the modest increase in deposit costs in the third quarter of 2024,” said Jed Ballard, Chief Financial Officer. Northrim’s NIMTE* continues to remain above the peer average of 3.13% posted by the S&P U.S. Small Cap Bank Index with total market capitalization between $250 million and $1 billion as of June 30, 2024.

    Provision for Credit Losses

    Northrim recorded a provision for credit losses of $2.1 million in the third quarter of 2024, which was comprised of of a $325,000 provision for credit losses on unfunded commitments and a provision for credit losses on loans of $1.7 million. The provision for unfunded commitments was primarily due to an increase in unfunded commitments, as well as an increase in estimated loss rates due to changes in mix and management’s assessment of economic conditions. The increase to the provision for credit losses on loans was primarily a result of loan growth, as well as an increase in the provision for loans individually evaluated and an increase in estimated loss rates. This compares to a benefit to the provision for credit losses of $120,000 in the second quarter of 2024, and provision for credit losses of $1.2 million in the third quarter a year ago.

    Nonperforming loans, net of government guarantees, increased slightly during the quarter to $5.0 million at September 30, 2024, compared to $4.8 million at June 30, 2024, and decreased from $5.1 million at September 30, 2023.

    The allowance for credit losses on loans was 394% of nonperforming loans, net of government guarantees, at the end of the third quarter of 2024, compared to 365% three months earlier and 326% a year ago.

    Other Operating Income

    In addition to home mortgage lending, Northrim has interests in other businesses that complement its core community banking activities, including purchased receivables financing and wealth management. Other operating income contributed $11.6 million, or 29% of total third quarter 2024 revenues, as compared to $9.6 million, or 26% of revenues in the second quarter of 2024, and $8.0 million, or 23% of revenues in the third quarter of 2023. The increase in other operating income in the third quarter of 2024 as compared to the preceding quarter and the third quarter of 2023 was primarily the result of an increase in mortgage banking income due to a higher volume of mortgage activity. See further discussion regarding mortgage activity during the second quarter contained under “Home Mortgage Lending” below. The fair market value of marketable equity securities increased $576,000 in the third quarter of 2024 compared to a decrease of $60,000 in the prior quarter and an increase of $12,000 in the third quarter of 2023. The increase in other operating income in the third quarter of 2024 as compared to the third quarter a year ago was due primarily to an increase in mortgage banking income as a result of higher volume of mortgage activity due to our expansion in Arizona, Colorado, and the Pacific Northwest markets, as well as an increase in fair value of marketable equity securities.

    Other Operating Expenses

    Operating expenses were $26.7 million in the third quarter of 2024, compared to $25.2 million in the second quarter of 2024, and $22.9 million in the third quarter of 2023. The increase in other operating expenses in the third quarter of 2024 compared to the second quarter of 2024 was primarily due to an increase in salaries and other personnel expense, including $653,000 in mortgage commissions expense due to higher mortgage volume and a $979,000 increase in profit share expense, which was partially offset by a $836,000 decrease in medical claims expense. The increase in other operating expenses in the third quarter of 2024 compared to a year ago was primarily due to an increase in salaries and other personnel expense, as well as an increase in OREO expense due to a gain on sale recorded in the third quarter of 2023 for proceeds received related to a government guarantee on an OREO property sold in December 2022.

    Income Tax Provision

    In the third quarter of 2024, Northrim recorded $2.8 million in state and federal income tax expense for an effective tax rate of 24.2%, compared to $2.5 million, or 21.9% in the second quarter of 2024 and $1.9 million, or 18.4% in the third quarter a year ago. The increase in the tax rate in the third quarter of 2024 as compared to the third quarter of 2023 is primarily the result of a decrease in tax credits and tax exempt interest income as a percentage of pre-tax income in 2024 as compared to 2023.

    Community Banking

    In the most recent deposit market share data from the FDIC, Northrim’s deposit market share in Alaska increased to 15.66% of Alaska’s total deposits as of June 30, 2024 compared to 15.04% of Alaska’s total deposits as of June 30, 2023. This represents 62 basis points of growth in market share percentage for Northrim during that period while, according to the FDIC, the total deposits in Alaska were up 2.3% during the same period. Northrim opened a branch in Kodiak in the first quarter of 2023, a loan production office in Homer in the second quarter of 2023, a permanent branch in Nome in the third quarter of 2023, and a branch in Homer in the first quarter of 2024. See below for further discussion regarding the Company’s deposit movement for the quarter.

    Northrim is committed to meeting the needs of the diverse communities in which it operates. As a testament to that support, the Bank has branches in four regions of Alaska identified by the Federal Reserve as ‘distressed or underserved non-metropolitan middle-income geographies’.

    Net interest income in the Community Banking segment totaled $25.9 million in the third quarter of 2024, compared to $24.3 million in the second quarter of 2024 and $24.1 million in the third quarter of 2023. Net interest income increased 7% in the third quarter of 2024 as compared to the second quarter of 2024 mostly due to higher interest income on loans. This increase was only partially offset by higher interest expense on deposits and borrowings and lower interest income on portfolio investments.

    Other operating expenses in the Community Banking segment totaled $19.1 million in the third quarter of 2024, up $588,000 or 3% from $18.5 million in the second quarter of 2024, and up $2.1 million or 13% from $16.9 million in the third quarter a year ago. The increase in the third quarter of 2024 as compared to the prior quarter was mostly due to an increases in salaries and other personnel expense, marketing expense, and professional fees. The increase in the third quarter of 2024 as compared to the third quarter a year ago was primarily due to an increase in OREO expense due to a gain on sale recorded in the third quarter of 2023 for proceeds received related to a government guarantee on an OREO property sold in December 2022, as well as increases in salaries and other personnel expense and marketing expense.

    The following tables provide highlights of the Community Banking segment of Northrim:

      Three Months Ended
      September   March 31, December September
    (Dollars in thousands, except per share data) 30, 2024 June 30, 2024   2024   31, 2023   30, 2023
    Net interest income $25,901 $24,278 $24,215 $24,456 $24,050
    (Benefit) provision for credit losses 1,492 (184)   197   885   1,190
    Other operating income 4,540 3,693   3,813   4,048   3,597
    Other operating expense 19,085 18,497   17,552   18,516   16,946
    Income before provision for income taxes 9,864 9,658   10,279   9,103   9,511
    Provision for income taxes 2,316 2,004   2,242   1,941   1,709
    Net income $7,548 $7,654 $8,037 $7,162 $7,802
    Weighted average shares outstanding, diluted 5,583,055 5,558,580   5,554,930   5,578,491   5,624,906
    Diluted earnings per share $1.34 $1.37 $1.45 $1.29 $1.39
      Year-to-date
    (Dollars in thousands, except per share data) September
    30, 2024    		 September
    30, 2023
    Net interest income $ 74,394 $ 71,502
    Provision for credit losses   1,505   2,957
    Other operating income   12,046   9,564
    Other operating expense   55,134   52,168
    Income before provision for income taxes   29,801   25,941
    Provision for income taxes   6,562   5,216
    Net income Community Banking segment $ 23,239 $ 20,725
    Weighted average shares outstanding, diluted   5,574,135   5,688,687
    Diluted earnings per share $ 4.16 $ 3.64

    Home Mortgage Lending

    During the third quarter of 2024, mortgage loans funded for sale increased to $210.0 million, compared to $152.3 million in the second quarter of 2024, and $131.9 million in the third quarter of 2023.

    During the third quarter of 2024, the Bank purchased Residential Mortgage-originated loans of $38.1 million of which roughly two-thirds were jumbos and one-third were mortgages for second homes, with a weighted average interest rate of 6.59%, up from $29.2 million and 6.82% in the second quarter of 2024, and up from $21.6 million and 6.60% in the third quarter of 2023. The increase in mortgage loans funded for investment has increased net interest income in the Home Mortgage Lending segment. Net interest income contributed $2.9 million to total revenue in the third quarter of 2024, up from $2.8 million in the prior quarter, and up from $2.3 million in the third quarter a year ago.

    The Arizona, Colorado, and the Pacific Northwest mortgage expansion markets were responsible for 20% of Residential Mortgage’s $248 million total production in the third quarter of 2024, 22% of $182 million total production in the second quarter of 2024, and 8% of $153 million total production in the third quarter of 2023.

    The net change in fair value of mortgage servicing rights decreased mortgage banking income by $968,000 during the third quarter of 2024 compared to a decrease of $81,000 for the second quarter of 2024 and a decrease of $310,000 for the third quarter of 2023. Mortgage servicing revenue increased to $2.6 million in the third quarter of 2024 from $2.2 million in the prior quarter and from $2.4 million in the third quarter of 2023 due to an increase in production of Alaska Housing Finance Corporation (AHFC) mortgages, which contribute to servicing revenues at origination. In the third quarter of 2024, the Company’s servicing portfolio increased $64.8 million, which included $87.3 million in new mortgage loans, net of amortization and payoffs of $22.5 million as compared to a net increase of $41.8 million in the second quarter of 2024 and $58.2 million in the third quarter of 2023.

    As of September 30, 2024, Northrim serviced 4,187 loans in its $1.17 billion home-mortgage-servicing portfolio, a 6% increase compared to the $1.10 billion serviced as of the end of the second quarter of 2024, and a 19% increase from the $982.1 million serviced a year ago.

    The following tables provide highlights of the Home Mortgage Lending segment of Northrim:

      Three Months Ended  
        September       March 31,     December     September  
    (Dollars in thousands, except per share data)   30, 2024   June 30, 2024   2024     31, 2023     30, 2023  
    Mortgage commitments $77,591   $88,006   $56,208   $22,926   $50,128  
    Mortgage loans funded for sale $209,960   $152,339   $84,324   $79,742   $131,863  
    Mortgage loans funded for investment   38,087     29,175     17,403     27,114     21,585  
    Total mortgage loans funded $248,047   $181,514   $101,727   $106,856   $153,448  
    Mortgage loan refinances to total fundings   6 %   6 %   4 %   4 %   5 %
    Mortgage loans serviced for others $1,166,585   $1,101,800   $1,060,007   $1,044,516   $982,098  
    Net realized gains on mortgage loans sold $5,079   $3,188   $1,980   $1,462   $2,491  
    Change in fair value of mortgage loan commitments, net   60     391     386     (296 )   (289 )
    Total production revenue   5,139     3,579     2,366     1,166     2,202  
    Mortgage servicing revenue   2,583     2,164     1,561     2,180     2,396  
    Change in fair value of mortgage servicing rights:                              
    Due to changes in model inputs of assumptions1   (566 )   239     289     (707 )   —  
    Other2   (402 )   (320 )   (314 )   (301 )   (310 )
    Total mortgage servicing revenue, net   1,615     2,083     1,536     1,172     2,086  
    Other mortgage banking revenue   293     222     129     99     117  
    Total mortgage banking income $7,047   $5,884   $4,031   $2,437   $4,405  
               
    Net interest income $2,941   $2,775   $2,232   $2,276   $2,300  
    Provision (benefit) for credit losses   571     64     (48 )   —     —  
    Mortgage banking income   7,047     5,884     4,031     2,437     4,405  
    Other operating expense   7,643     6,697     6,086     5,477     5,951  
    Income (loss) before provision for income taxes   1,774     1,898     225     (764 )   754  
    Provision (benefit) for income taxes   497     532     63     (215 )   182  
    Net income (loss) $1,277   $1,366   $162     ($549 ) $572  
    Weighted average shares outstanding, diluted   5,583,055     5,558,580     5,554,930     5,578,491     5,624,906  
    Diluted earnings per share $0.23   $0.25   $0.03     ($0.10 ) $0.09  

    1Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.
    2Represents changes due to collection/realization of expected cash flows over time.

      Year-to-date
    (Dollars in thousands, except per share data) September
    30, 2024    		 September
    30, 2023
    Mortgage loans funded for sale $446,623   $296,412  
    Mortgage loans funded for investment   84,665     119,144  
    Total mortgage loans funded $531,288   $415,556  
    Mortgage loan refinances to total fundings   6 %   5 %
             
    Net realized gains on mortgage loans sold $10,247   $6,366  
    Change in fair value of mortgage loan commitments, net   837     194  
    Total production revenue   11,084     6,560  
    Mortgage servicing revenue   6,308     5,188  
    Change in fair value of mortgage servicing rights:            
    Due to changes in model inputs of assumptions1   (38 )   (215 )
    Other2   (1,036 )   (1,464 )
    Total mortgage servicing revenue, net   5,234     3,509  
    Other mortgage banking revenue   644     257  
    Total mortgage banking income $16,962   $10,326  
    Net interest income $7,948   $5,022  
    Provision for credit losses   587     —  
    Mortgage banking income   16,962     10,326  
    Other operating expense   20,426     18,020  
    Income before provision for income taxes   3,897     (2,672 )
    Provision for income taxes   1,092     (728 )
    Net (loss) income Home Mortgage Lending segment $2,805     ($1,944 )
    Weighted average shares outstanding, diluted   5,574,135     5,688,687  
    Diluted (loss) earnings per share $0.51     ($0.34 )


    1    Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.
    2Represents changes due to collection/realization of expected cash flows over time.

    Balance Sheet Review

    Northrim’s total assets were $2.96 billion at September 30, 2024, up 5% from the preceding quarter and up 6% from a year ago. Northrim’s loan-to-deposit ratio was 76% at September 30, 2024, consistent with 76% at June 30, 2024,
    and up from 71% at September 30, 2023.

    At September 30, 2024, our liquid assets, investments, and loans maturing within one year were $1.07 billion and our funds available for borrowing under our existing lines of credit were $641.7 million. Given these sources of liquidity and our expectations for customer demands for cash and for our operating cash needs, we believe our sources of liquidity to be sufficient for the foreseeable future.

    Average interest-earning assets were $2.67 billion in the third quarter of 2024, up 4% from $2.57 billion in the second quarter of 2024 and up 6% from $2.52 billion in the third quarter a year ago. The average yield on interest- earning assets was 5.92% in the third quarter of 2024, up from 5.83% in the preceding quarter and 5.48% in the third quarter a year ago.

    Average investment securities decreased to $619.0 million in the third quarter of 2024, compared to $640.0 million in the second quarter of 2024 and $715.8 million in the third quarter a year ago. The average net tax equivalent yield on the securities portfolio was 2.80% for the third quarter of 2024, down from 2.82% in the preceding quarter

    and up from 2.43% in the year ago quarter. The average estimated duration of the investment portfolio at September 30, 2024, was approximately 2.3 years compared to approximately 2.8 years at September 30, 2023. As of September 30, 2024, $105.1 million of available for sale securities with a weighted average yield of 0.61% are scheduled to mature in the next six months, $73.0 million with a weighted average yield of 2.48% are scheduled to mature in six months to one year, and $177.8 million with a weighted average yield of 1.31% are scheduled to mature in the following year, representing a total of $355.9 million or 13% of earning assets that are scheduled to mature in the next 24 months.

    Total unrealized losses, net of tax, on available for sale securities decreased by $7.6 million in the third quarter of 2024 resulting in total unrealized loss, net of tax, of $7.6 million compared to $15.2 million at June 30, 2024, and $26.5 million a year ago. The average maturity of the available for sale securities with the majority of the unrealized loss is 1.3 years. Total unrealized losses on held to maturity securities were $2.1 million at September 30, 2024, compared to $3.0 million at June 30, 2024, and $4.5 million a year ago.

    Average interest bearing deposits in other banks increased to $28.4 million in the third quarter of 2024 from $17.4 million in the second quarter of 2024 and decreased from $42.3 million in the third quarter of 2023, as deposit balances increased and cash was used to fund the loan growth and provide liquidity.

    Portfolio loans were $2.01 billion at September 30, 2024, up 7% from the preceding quarter and up 17% from a year ago. Portfolio loans, excluding consumer mortgage loans, were $1.76 billion at September 30, 2024, up $105.2 million or 6% from the preceding quarter and up 14% from a year ago. This increase was diversified throughout the loan portfolio including commercial real estate nonowner-occupied and multi-family loans increasing by $33.2 million, construction loans increasing by $31.4 million, and commercial real estate owner-occupied loans increasing $29.0 million from the preceding quarter. Average portfolio loans in the third quarter of 2024 were $1.93 billion, which was up 5% from the preceding quarter and up 14% from a year ago. Yields on average portfolio loans in the third quarter of 2024 increased to 6.91% from 6.87% in the second quarter and from 6.61% in the third quarter of 2023. The increase in the yield on portfolio loans in the third quarter of 2024 compared to the second quarter of 2024 and the third quarter a year ago is primarily due to loan repricing due to the increases in interest rates and new loans booked at higher rates due to changes in the interest rate environment. The yield on new portfolio loans, excluding consumer mortgage loans, was 7.43% in the third quarter of 2024 as compared to 8.26% in the second quarter of 2024 and 7.75% in the third quarter of 2023. The drop in yields on new loan production was largely related to the large volume of new commercial real estate versus commercial loans, as noted above, as well as slightly better credit quality of the loans originated in the third quarter of 2024.

    Alaskans continue to account for substantially all of Northrim’s deposit base. Total deposits were $2.63 billion at September 30, 2024, up 7% from $2.46 billion at June 30, 2024, and up 8% from $2.43 billion a year ago. “The increase in deposits in the third quarter of 2024 were consistent with our customers’ business cycles and a result of continued acquisition of new relationships,” said Ballard. At September 30, 2024, 73% of total deposits were held in business accounts and 27% of deposit balances were held in consumer accounts. Northrim had approximately 34,000 deposit customers with an average balance of $48,000 as of September 30, 2024. Northrim had 22 customers with balances over $10 million as of September 30, 2024, which accounted for $978.4 million, or 38%, of total deposits. Demand deposits increased by 8% from the prior quarter and decreased slightly year-over-year to
    $763.6 million at September 30, 2024. Demand deposits remained consistent at 29% of total deposits at both September 30, 2024 and June 30, 2024 down from 31% of total deposits at September 30, 2023. Average interest- bearing deposits were up 4% to $1.80 billion with an average cost of 2.24% in the third quarter of 2024, compared to $1.73 billion and an average cost of 2.21% in the second quarter of 2024, and up 11% compared to $1.62 billion and an average cost of 1.75% in the third quarter of 2023. Uninsured deposits totaled $1.12 billion or 43% of total deposits as of September 30, 2024 compared to $1.1 billion or 46% of total deposits as of December 31, 2022. Since interest rates began increasing in 2022, Northrim has taken a proactive, targeted approach to increase deposit rates.

    Shareholders’ equity was $260.1 million, or $47.27 book value per share, at September 30, 2024, compared to $247.2 million, or $44.93 book value per share, at June 30, 2024 and $225.3 million, or $40.60 book value per share, a year ago. Tangible book value per share* was $44.36 at September 30, 2024, compared to $42.03 at June

    30, 2024, and $37.72 per share a year ago. The increase in shareholders’ equity in the third quarter of 2024 as compared to the second quarter of 2024 was largely the result of earnings of $8.8 million and an increase in the fair value of the available for sale securities portfolio, which increased $7.6 million, net of tax, which were only partially offset by dividends paid of $3.4 million. The Company did not repurchase any shares of common stock in the third quarter of 2024 and has 110,000 shares remaining under the current share repurchase program as of September 30, 2024. Tangible common equity to tangible assets* was 8.28% as of September 30, 2024, compared to 8.24% as of June 30, 2024 and 7.54% as of September 30, 2023. Northrim continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” with Tier 1 Capital to Risk Adjusted Assets of 11.53% at September 30, 2024, compared to 11.68% at June 30, 2024, and 11.67% at September 30, 2023.

    Asset Quality

    Northrim believes it has a consistent lending approach throughout economic cycles, which emphasizes appropriate loan-to-value ratios, adequate debt coverage ratios, and competent management.

    Nonperforming assets (“NPAs”) net of government guarantees were $5.3 million at September 30, 2024, up from $5.1 million at June 30, 2024 and $5.2 million a year ago. Of the NPAs at September 30, 2024, $3.0 million, or 61%, are nonaccrual loans related to three commercial relationships.

    Net adversely classified loans were $6.5 million at September 30, 2024, as compared to $7.1 million at June 30, 2024, and $7.3 million a year ago. Adversely classified loans are loans that Northrim has classified as substandard, doubtful, and loss, net of government guarantees. Net loan recoveries were $96,000 in the third quarter of 2024, compared to net loan recoveries of $26,000 in the second quarter of 2024, and net loan recoveries of $96,000 in the third quarter of 2023. Additionally, Northrim had 11 loan modifications to borrowers experiencing financial difficulty totaling $3.1 million, net of government guarantees in the third quarter of 2024.

    Northrim had $127.4 million, or 6% of portfolio loans, in the Healthcare sector, $110.4 million, or 5% of portfolio loans, in the Tourism sector, $96.6 million, or 5% of portfolio loans, in the Accommodations sector, $83.6 million, or 4% of portfolio loans, in the Fishing sector, $70.6 million, or 3% of portfolio loans, in the Aviation (non-tourism) sector, $67.7 million, or 3% of portfolio loans, in the Retail sector, and $53.1 million, or 3% in the Restaurants and Breweries sector as of September 30, 2024.

    Northrim estimates that $82.0 million, or approximately 4% of portfolio loans, had direct exposure to the oil and gas industry in Alaska, as of September 30, 2024, and $1.6 million of these loans are adversely classified. As of September 30, 2024, Northrim has an additional $29.7 million in unfunded commitments to companies with direct exposure to the oil and gas industry in Alaska, and no unfunded commitments on adversely classified loans. Northrim defines direct exposure to the oil and gas sector as loans to borrowers that provide oilfield services and other companies that have been identified as significantly reliant upon activity in Alaska related to the oil and gas industry, such as lodging, equipment rental, transportation and other logistics services specific to this industry.

    About Northrim BanCorp

    Northrim BanCorp, Inc. is the parent company of Northrim Bank, an Alaska-based community bank with 20 branches in Anchorage, Eagle River, the Matanuska Valley, the Kenai Peninsula, Juneau, Fairbanks, Nome, Kodiak, Ketchikan, and Sitka, serving 90% of Alaska’s population; and an asset-based lending division in Washington; and a wholly-owned mortgage brokerage company, Residential Mortgage Holding Company, LLC. The Bank differentiates itself with its detailed knowledge of Alaska’s economy and its “Customer First Service” philosophy. Pacific Wealth Advisors, LLC is an affiliated company of Northrim BanCorp.

    www.northrim.com

    Forward-Looking Statement

    This release may contain “forward-looking statements” as that term is defined for purposes of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are, in effect, management’s attempt to predict future events, and thus are subject to various risks and uncertainties. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. All statements, other than statements of historical fact, regarding our financial position, business strategy, management’s plans and objectives for future operations are forward-looking statements. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” and “intend” and words or phrases of similar meaning, as they relate to Northrim and its management are intended to help identify forward-looking statements. Although we believe that management’s expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. Forward-looking statements, are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include: potential further increases in interest rates; the value of securities held in our investment portfolio; the impact of the results of government initiatives on the regulatory landscape, natural resource extraction industries, and capital markets; the impact of declines in the value of commercial and residential real estate markets, high unemployment rates, inflationary pressures and slowdowns in economic growth; changes in banking regulation or actions by bank regulators; inflation, supply-chain constraints, and potential geopolitical instability, including the wars in Ukraine and the Middle East; financial stress on borrowers (consumers and businesses) as a result of higher rates or an uncertain economic environment; the general condition of, and changes in, the Alaska economy; our ability to maintain or expand our market share or net interest margin; the sufficiency of our provision for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to current expected credit losses accounting guidance; our ability to maintain asset quality; our ability to implement our marketing and growth strategies; our ability to identify and address cyber-security risks, including security breaches, “denial of service attacks,” “hacking,” and identity theft; disease outbreaks; and our ability to execute our business plan. Further, actual results may be affected by competition on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry and economy. In addition, there are risks inherent in the banking industry relating to collectability of loans and changes in interest rates. Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and from time to time are disclosed in our other filings with the Securities and Exchange Commission. However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations. These forward- looking statements are made only as of the date of this release, and Northrim does not undertake any obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this release.

    References:

    https://www.bea.gov/

    http://almis.labor.state.ak.us/

    http://www.tax.alaska.gov/programs/oil/prevailing/ans.aspx

    http://www.tax.state.ak.us/

    www.mba.org

    https://www.alaskarealestate.com/MLSMember/RealEstateStatistics.aspx

    https://www.capitaliq.spglobal.com/web/client?auth=inherit&overridecdc=1&#markets/indexFinancials


    Income     Statement

    (Dollars in thousands, except per share data) Three Months Ended Year-t o-date
    (Unaudited) September 30, June 30, September 30, September 30, September 30,
        2024   2024     2023     2024     2023  
    Interest Income:                  
    Interest and fees on loans $34,863 $32,367   $29,097   $97,680   $79,104  
    Interest on portfolio investments   4,164   4,310     4,727     12,994     14,018  
    Interest on deposits in banks   389   232     584     1,459     2,901  
    Total interest income   39,416   36,909     34,408     112,133     96,023  
    Interest Expense:                            
    Interest expense on deposits   10,123   9,476     7,138     28,779     17,835  
    Interest expense on borrowings   451   380     920     1,012     1,664  
    Total interest expense   10,574   9,856     8,058     29,791     19,499  
    Net interest income   28,842   27,053     26,350     82,342     76,524  
    (Benefit) provision for credit losses   2,063   (120 )   1,190     2,092     2,957  
    Net interest income after provision for credit losses   26,779   27,173     25,160     80,250     73,567  
    Other Operating Income:                             
    Mortgage banking income   7,047   5,884     4,405     16,962     10,326  
    Bankcard fees   1,196   1,105     1,022     3,218     2,916  
    Purchased receivable income   1,033   1,242     1,180     3,620     3,175  
    Service charges on deposit accounts   605   572     550     1,726     1,512  
    Unrealized gain (loss) on marketable equity securities   576   (60 )   12     830     (445 )
    Other income   1,130   834     833     2,652     2,406  
    Total other operating income   11,587   9,577     8,002     29,008     19,890  
    Other Operating Expense:                            
    Salaries and other personnel expense   17,549   16,627     15,657     49,593     46,324  
    Data processing expense   2,618   2,601     2,589     7,878     7,321  
    Occupancy expense   1,911   1,843     1,857     5,716     5,611  
    Professional and outside services   903   726     803     2,384     2,326  
    Marketing expense   860   690     499     2,063     1,996  
    Insurance expense   596   692     640     2,067     1,844  
    OREO expense, net rental income and gains on sale   2   2     (784 )   (387 )   (766 )
    Intangible asset amortization expense   —   —     4     —     11  
    Other operating expense   2,289   2,013     1,631     6,246     5,521  
    Total other operating expense   26,728   25,194     22,896     75,560     70,188  
                                 
    Income before provision for income taxes   11,638   11,556     10,266     33,698     23,269  
    Provision for income taxes   2,813   2,536     1,892     7,654     4,488  
    Net income $8,825 $9,020   $8,374   $26,044   $18,781  
    Basic EPS $1.60 $1.64   $1.50   $4.73   $3.34  
    Diluted EPS $1.57 $1.62   $1.48   $4.67   $3.30  
    Weighted average shares outstanding, basic   5,501,943   5,500,588     5,569,238     5,500,703     5,630,948  
    Weighted average shares outstanding, diluted   5,583,055   5,558,580     5,624,906     5,574,135     5,688,687  
    Balance Sheet
    (Dollars in thousands)
    (Unaudited)    		 September 30, June 30, September 30,
        2024     2024     2023  
    Assets:            
    Cash and due from banks $42,805   $33,364   $31,276  
    Interest bearing deposits in other banks   60,071     21,058     79,952  
    Investment securities available for sale, at fair value   545,210     584,964     652,150  
    Investment securities held to maturity   36,750     36,750     36,750  
    Marketable equity securities, at fair value   12,957     12,381     10,615  
    Investment in Federal Home Loan Bank stock   4,318     4,929     6,334  
    Loans held for sale   97,937     85,926     63,151  
                       
    Portfolio loans   2,007,565     1,875,907     1,720,091  
    Allowance for credit losses, loans   (19,528 )   (17,694 )   (16,491 )
    Net portfolio loans   1,988,037     1,858,213     1,703,600  
    Purchased receivables, net   23,564     25,722     34,578  
    Mortgage servicing rights, at fair value   21,570     21,077     19,396  
    Other real estate owned, net   —     —     150  
    Premises and equipment, net   39,625     40,393     40,920  
    Lease right of use asset   7,616     8,244     9,673  
    Goodwill and intangible assets   15,967     15,967     15,973  
    Other assets   66,965     72,680     85,671  
    Total assets $2,963,392   $2,821,668   $2,790,189  
    Liabilities:            
    Demand deposits $763,595   $704,471   $764,647  
    Interest-bearing demand   979,238     906,010     875,814  
    Savings deposits   245,043     238,156     265,799  
    Money market deposits   201,821     195,159     230,814  
    Time deposits   435,870     420,010     290,856  
    Total deposits   2,625,567     2,463,806     2,427,930  
    Other borrowings   13,354     43,961     63,781  
    Junior subordinated debentures   10,310     10,310     10,310  
    Lease liability   7,635     8,269     9,673  
    Other liabilities   46,476     48,122     53,236  
    Total liabilities   2,703,342     2,574,468     2,564,930  
    Shareholders’ Equity:                  
    Total shareholders’ equity   260,050     247,200     225,259  
    Total liabilities and shareholders’ equity $2,963,392   $2,821,668   $2,790,189  

    Additional Financial Information
    (Dollars in thousands)
    (Unaudited)

    Composition of Portfolio Loans

        September 30,
    2024    		 June 30, 2024 March 31, 2024 December 31,
    2023    		 September 30,
    2023
      Balance % of
    total    		 Balance % of
    total    		 Balance % of
    total    		 Balance % of
    total    		 Balance % of
    total
    Commercial loans $492,414   24 % $495,781   26 % $475,220   26 % $486,057   27 % $492,145   28 %
    Commercial real estate:                    
    Owner occupied properties   412,827   20 %   383,832   20 %   372,507   20 %   368,357   20 %   359,019   21 %
    Nonowner occupied and                    
    multifamily properties   584,302   31 %   551,130   30 %   529,904   30 %   519,115   30 %   509,939   30 %
    Residential real estate:                    
    1-4 family properties                    
    secured by first liens   248,514   12 %   222,026   12 %   218,552   12 %   203,534   11 %   180,719   10 %
    1-4 family properties                    
    secured by junior liens &                    
    revolving secured by first liens   45,262   2 %   41,258   2 %   35,460   2 %   33,783   2 %   27,342   2 %
    1-4 family construction   39,794   2 %   29,510   2 %   27,751   2 %   31,239   2 %   32,374   2 %
    Construction loans   185,362   9 %   154,009   8 %   153,537   8 %   149,788   8 %   120,909   7 %
    Consumer loans   7,836   — %   6,679   — %   6,444   — %   6,180   — %   5,930   — %
    Subtotal   2,016,311       1,884,225       1,819,375       1,798,053       1,728,377    
    Unearned loan fees, net   (8,746 )     (8,318 )     (8,240 )     (8,556 )     (8,286 )  
    Total portfolio loans $2,007,565     $1,875,907     $1,811,135     $1,789,497     $1,720,091    


    Composition     of Deposits

      September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023
      Balance % of
    total    		 Balance % of
    total    		 Balance % of
    total    		 Balance % of
    total    		 Balance % of
    total
    Demand deposits $763,595 29 % $704,471 29 % $714,244 29 % $749,683 31 % $764,647 31 %
    Interest-bearing demand   979,238 37 %   906,010 36 %   889,581 37 %   927,291 37 %   875,814 36 %
    Savings deposits   245,043 9 %   238,156 10 %   246,902 10 %   255,338 10 %   265,799 11 %
    Money market deposits   201,821 8 %   195,159 8 %   209,785 9 %   221,492 9 %   230,814 10 %
    Time deposits   435,870 17 %   420,010 17 %   373,571 15 %   331,251 13 %   290,856 12 %
    Total deposits $2,625,567   $2,463,806   $2,434,083   $2,485,055   $2,427,930  

    Additional Financial Information
    (Dollars in thousands)
    (Unaudited)

    Asset Quality   

        September 30,
    2024     		   June 30,
    2024    		   September 30,
    2023    		  
    Nonaccrual loans $4,944   $4,830   $6,492  
    Loans 90 days past due and accruing   17   17   28  
    Total nonperforming loans   4,961   4,847   6,520  
    Nonperforming loans guaranteed by government   —   —   (1,455)  
    Net nonperforming loans   4,961   4,847   5,065  
    Other real estate owned —   —   150  
    Repossessed assets 297   297   —  
    Net nonperforming assets $5,258   $5,144   $5,215  
    Nonperforming loans, net of government guarantees / portfolio loans   0.25 %  0.26 % 0.29 %
    Nonperforming loans, net of government guarantees / portfolio loans, net of government guarantees   0.26 % 0.28 % 0.31 %
    Nonperforming assets, net of government guarantees / total assets   0.18 % 0.18 %  0.19 %
    Nonperforming assets, net of government guarantees / total assets net of government guarantees   0.19 % 0.19 %  0.19 %
    Adversely classified loans, net of government guarantees $6,503   $7,068   $7,250  
    Special mention loans, net of government guarantees $9,641   $8,902   $5,457  
    Loans 30-89 days past due and accruing, net of government guarantees / portfolio loans   0.08 % 0.03 % — % 
    Loans 30-89 days past due and accruing, net of government guarantees / portfolio loans, net of government guarantees   0.09 % 0.04 %  — %
    Allowance for credit losses / portfolio loans   0.97 %  0.94 % 0.96 %
    Allowance for credit losses / portfolio loans, net of government guarantees   1.04 %  1.01 %  1.02 %
    Allowance for credit losses / nonperforming loans, net of government guarantees   394 % 365 %  326 %
    Gross loan charge-offs for the quarter $15   $—   $91  
    Gross loan recoveries for the quarter   ($111)   ($26)   ($187)  
    Net loan (recoveries) charge-offs for the quarter   ($96)   ($26)   ($96)  
    Net loan charge-offs (recoveries) year-to-date   ($164)   ($68)   ($134)  
    Net loan charge-offs (recoveries) for the quarter / average loans, for the quarter   —  %  —  %  (0.01) % 
    Net loan charge-offs (recoveries) year-to-date / average loans, year-to-date annualized   (0.01) %  (0.01)  %  (0.01) % 
           

    Additional Financial Information
    (Dollars in thousands)
    (Unaudited)

    Average Balances, Yields, and Rates                

      Three Months Ended
      September 30, 2024   June 30, 2024   September 30, 2023  
      Average Balance Average
    Tax
    Equivalent
    Yield/Rate    		 Average
    Balance    		 Average
    Tax
    Equivalent
    Yield/Rate    		 Average
    Balance    		 Average
    Tax
    Equivalent
    Yield/Rate
    Assets            
    Interest bearing deposits in other banks $ 28,409   5.28 % $ 17,352   5.27 % $ 42,273   5.39 %
    Portfolio investments   619,012   2.80 %   639,980   2.82 %   715,767   2.43 %
    Loans held for sale   93,689   6.20 %   65,102   6.08 %   62,350   6.34 %
    Portfolio loans   1,933,181   6.91 %   1,845,832   6.87 %   1,695,736   6.61 %
    Total interest-earning assets   2,674,291   5.92 %   2,568,266   5.83 %   2,516,126   5.48 %
    Nonearning assets   196,266       204,509       205,770    
    Total assets $ 2,870,557     $ 2,772,775     $ 2,721,896    

    Liabilities and Shareholders’ Equity

    		            
    Interest-bearing deposits $ 1,796,107   2.24 % $ 1,725,013   2.21 % $ 1,619,478   1.75 %
    Borrowings   43,555   4.07 %   38,390   3.92 %   76,681   4.73 %
    Total interest-bearing liabilities   1,839,662   2.29 %   1,763,403   2.25 %   1,696,159   1.88 %
    Noninterest-bearing demand deposits   722,000       706,339       747,147    
    Other liabilities   52,387       58,549       52,078    
    Shareholders’ equity   256,508       244,484       226,512    
    Total liabilities and shareholders’ equity $ 2,870,557     $ 2,772,775     $ 2,721,896    
    Net spread   3.63 %   3.58 %   3.60 %
    NIM   4.29 %   4.24 %   4.15 %
    NIMTE*   4.35 %   4.30 %   4.21 %
    Cost of funds   1.64 %   1.60 %   1.31 %
    Average portfolio loans to average            
    interest-earning assets   72.29 %     71.87 %     67.39 %  
    Average portfolio loans to average total deposits   76.77 %     75.92 %     71.65 %  
    Average non-interest deposits to average            
    total deposits   28.67 %     29.05 %     31.57 %  
    Average interest-earning assets to average            
    interest-bearing liabilities   145.37 %     145.64 %     148.34 %  

    Additional Financial Information
    (Dollars in thousands) (Unaudited)

    Average Balances, Yields, and Rates        

      Year-to-date
      September 30, 2024   September 30, 2023
      Average Average
    Tax Equivalent    		   Average Average
    Tax Equivalent
    Balance Yield/Rate   Balance Yield/Rate
    Assets          
    Interest bearing deposits in other banks $35,747   5.34 %   $79,362   4.82 %
    Portfolio investments   643,221   2.82 %     723,693   2.41 %
    Loans held for sale   63,917   6.14 %     40,433   6.06 %
    Portfolio loans   1,857,756   6.85 %     1,608,293   6.46 %
    Total interest-earning assets   2,600,641   5.81 %     2,451,781   5.30 %
    Nonearning assets   200,619         192,430    
    Total assets $2,801,260       $2,644,211    

    Liabilities and Shareholders’ Equity

    		          
    Interest-bearing deposits $1,751,179   2.20 %   $1,577,308   1.51 %
    Borrowings   35,327   3.76 %     52,075   4.23 %
    Total interest-bearing liabilities   1,786,506   2.23 %     1,629,383   1.60 %
    Noninterest-bearing demand deposits   711,197         746,251    
    Other liabilities   57,097         42,596    
    Shareholders’ equity   246,460         225,981    
    Total liabilities and shareholders’ equity $2,801,260       $2,644,211    
    Net spread   3.58 %     3.70 %
    NIM   4.23 %     4.17 %
    NIMTE*   4.29 %     4.24 %
    Cost of funds   1.59 %     1.10 %
    Average portfolio loans to average interest-earning assets   71.43 %       65.60 %  
    Average portfolio loans to average total deposits   75.45 %       69.22 %  
    Average non-interest deposits to average total deposits   28.88 %       32.12 %  
    Average interest-earning assets to average interest-bearing liabilities   145.57 %       150.47 %  

    Additional Financial Information
    (Dollars in thousands, except per share data)
    (Unaudited)

    Capital Data (At quarter end)

         
                September 30, 2024       June 30, 2024   September 30, 2023
    Book value per share           $47.27   $44.93   $40.60  
    Tangible book value per share*           $44.36   $42.03   $37.72  
    Total shareholders’ equity/total assets           8.78 %  8.76 %    8.07  %
    Tangible Common Equity/Tangible Assets*           8.28 %  8.24 %    7.54  %
    Tier 1 Capital / Risk Adjusted Assets           11.53 %  11.68 %    11.67  %
    Total Capital / Risk Adjusted Assets           12.50 %  12.58 %    12.58  %
    Tier 1 Capital / Average Assets           9.08 %  9.17 %    9.02  %
    Shares outstanding           5,501,943   5,501,562     5,548,436  
    Total unrealized loss on AFS debt securities, net of income taxes           ($7,617)   ($15,197)     ($26,526 )
    Total unrealized gain on derivatives and hedging activities, net of
    income taxes    		           $863   $1,212   $1,485  
         
    Profitability Ratios    
        September 30, 
    2024    		   June 30,
    2024    		   March 31, 
    2024    		   December 31, 2023   September 30,
    2023

    For the quarter:

    		    
    NIM         4.29%   4.24%   4.16%   4.06%     4.15%  
    NIMTE*         4.35%   4.30%   4.22%   4.12%     4.21%  
    Efficiency ratio         66.11%   68.78%   68.93%   72.21%     66.64%  
    Return on average assets         1.22%   1.31%   1.19%   0.93%     1.22%  
    Return on average equity         13.69%   14.84%   13.84%   11.36%     14.67%  
      September 30,   September 30,  
    2024   2023
    Year-to-date:      
    NIM 4.23 % 4.17 %
    NIMTE* 4.29 % 4.24 %
    Efficiency ratio 67.86 % 72.79 %
    Return on average assets 1.24 % 0.95 %
    Return on average equity 14.12 % 11.11 %


    *Non-GAAP     Financial Measures
    (Dollars and shares in thousands, except per share data) (Unaudited)

    Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of the Company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP.

    Net interest margin on a tax equivalent basis

    Net interest margin on a tax equivalent basis (“NIMTE”) is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax equivalent basis using a combined federal and state statutory rate of 28.43% in both 2024 and 2023. The most comparable GAAP measure is net interest margin and the following table sets forth the reconciliation of NIMTE to net interest margin for the periods indicated.

      Three Months Ended
        September 30,       March 31,     December     September 30,  
        2024   June 30, 2024   2024     31, 2023     2023  
    Net interest income $28,842   $27,053   $26,447   $26,732   $26,350  
    Divided by average interest-bearing assets   2,674,291     2,568,266     2,558,558     2,612,297     2,516,126  
    Net interest margin (“NIM”)2   4.29 %   4.24 %   4.16 %   4.06 %   4.15 %
    Net interest income $28,842   $27,053   $26,447   $26,732   $26,350  
    Plus: reduction in tax expense related to
    tax-exempt interest income    		   385     378     379     374     373  
        $29,227     $27,431     $26,826     $27,106     $26,723  
    Divided by average interest-bearing assets NIMTE2   2,674,291     2,568,266     2,558,558     2,612,297     2,516,126  
        4.35 %   4.30 %   4.22 %   4.12 %   4.21 %
      Year-to-date
      September 30, September 30,
      2024     2023  
    Net interest income $82,342   $76,524  
    Divided by average interest-bearing assets   2,600,641     2,451,781  
    Net interest margin (“NIM”)3   4.23 %   4.17 %
    Net interest income
    Plus: reduction in tax expense related to    		 $82,342   $76,524  
    tax-exempt interest income   1,142     1,202  
      $83,484   $77,726  
    Divided by average interest-bearing assets   2,600,641     2,451,781  
    NIMTE3   4.29 %   4.24 %


    2    Calculated using actual days in the quarter divided by 366 for the quarters ended in 2024 and 365 for the quarters ended in 2023, respectively.

    3Calculated using actual days in the year divided by 366 for year-to-date period in 2024 and 365 for year-to-date period in 2023, respectively.


    *Non-GAAP Financial Measures
    (Dollars and shares in thousands, except per share data)
    (Unaudited)

    Tangible Book Value Per Share

    Tangible book value per share is a non-GAAP measure defined as shareholders’ equity, less intangible assets, divided by shares outstanding. The most comparable GAAP measure is book value per share and the following table sets forth the reconciliation of tangible book value per share and book value per share for the periods indicated.

        September 30, 
    2024    		   June 30, 2024   March 31, 
    2024    		   December
    31, 2023    		   September 30,
    2023
    Total shareholders’ equity $260,050 $247,200 $239,327 $234,718 $225,259
    Divided by shares outstanding   5,502   5,502   5,500   5,513   5,548
    Book value per share $47.27 $44.93 $43.52 $42.57 $40.60
        September 30, 
    2024    		   June 30, 2024   March 31, 
    2024    		   December
    31, 2023    		   September 30,
    2023
    Total shareholders’ equity $260,050 $247,200 $239,327 $234,718 $225,259
    Less: goodwill and intangible assets   15,967   15,967   15,967   15,967   15,973
      $244,083 $231,233 $223,360 $218,751 $209,286
    Divided by shares outstanding   5,502   5,502   5,500   5,513   5,548
    Tangible book value per share $44.36 $42.03 $40.61 $39.68 $37.72


    Tangible     Common Equity to Tangible Assets

    Tangible common equity to tangible assets is a non-GAAP ratio that represents total equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets. The most comparable GAAP measure of shareholders’ equity to total assets is calculated by dividing total shareholders’ equity by total assets and the following table sets forth the reconciliation of tangible common equity to tangible assets and shareholders’ equity to total assets.

    Northrim BanCorp, Inc. September 30,     March 31,   December September 30,
      2024 June 30, 2024   2024     31, 2023     2023  
    Total shareholders’ equity $260,050 $247,200 $239,327   $234,718   $225,259  
    Total assets 2,963,392 2,821,668   2,759,560     2,807,497     2,790,189  
    Total shareholders’ equity to total assets 8.78 % 8.76 %   8.67 %   8.36 %   8.07 %
    Northrim BanCorp, Inc. September 30,   March 31, December September 30,
      2024 June 30, 2024   2024     31, 2023     2023  
    Total shareholders’ equity $260,050 $247,200 $239,327   $234,718   $225,259  
    Less: goodwill and other intangible assets, net 15,967 15,967   15,967     15,967     15,973  
    Tangible common shareholders’ equity $244,083 $231,233 $223,360   $218,751   $209,286  
    Total assets $2,963,392 $2,821,668 $2,759,560   $2,807,497   $2,790,189  
    Less: goodwill and other intangible assets, net 15,967 15,967   15,967     15,967     15,973  
    Tangible assets $2,947,425 $2,805,701 $2,743,593   $2,791,530   $2,774,216  
    Tangible common equity ratio 8.28 % 8.24 %   8.14 %   7.84 %   7.54 %

    Note Transmitted on GlobeNewswire on October 23, 2024, at 2:30 pm Alaska Standard Time.

       
    Contact: Mike Huston, President, CEO, and COO
      (907) 261-8750
      Jed Ballard, Chief Financial Officer
      (907) 261-3539

    The MIL Network –