Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Dime Community Bancshares, Inc., a New York corporation, is a bank holding company formed in 1988. On a parent-only basis, the Holding Company has minimal operations, other than as owner of Dime Community Bank. The Holding Company is dependent on dividends from its wholly-owned subsidiary, Dime Community Bank, its own earnings, additional capital raised, and borrowings as sources of funds. The information in this report reflects principally the financial condition and results of operations of the Bank. The Bank's results of operations are primarily dependent on its net interest income, which is the difference between interest income on loans and investments and interest expense on deposits and borrowings. The Bank also generates non-interest income, such as fee income on deposit and loan accounts, merchant credit and debit card processing programs, loan swap fees, investment services, income from its title insurance subsidiary, and net gains on sales of securities and loans. The level of non-interest expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses, expenses from the Bank’s title insurance subsidiary, and income tax expense, further affects our net income. Certain reclassifications have been made to prior year amounts and the related discussion and analysis to conform to the current year presentation. These reclassifications did not have an impact on net income or total stockholders' equity.
Selected Financial Highlights and Other Data
(Dollars in Thousands Except Per Share Amounts)
At or For the
At or For the
Three Months Ended
Nine Months Ended
September 30,
September 30,
2024
2023
2024
2023
Per Share Data:
Reported EPS (Diluted)
$
0.29
$
0.34
$
1.13
$
1.92
Cash dividends paid per common share
0.25
0.25
0.75
0.74
Book value per common share
29.31
28.03
29.31
28.03
Dividend payout ratio
86.21
%
73.53
%
66.37
%
38.54
%
Performance and Other Selected Ratios:
Return on average assets
0.39
%
0.44
%
0.49
%
0.78
%
Return on average equity
4.19
4.91
5.24
8.78
Net interest spread
1.32
1.31
1.24
1.60
Net interest margin
2.50
2.34
2.37
2.52
Average interest-earning assets to average interest-bearing liabilities
144.77
141.02
141.80
142.84
Non-interest expense to average assets
1.71
1.73
1.63
1.56
Efficiency ratio
65.9
70.5
64.6
59.0
Loan-to-deposit ratio at end of period
95.4
102.0
95.4
102.0
Effective tax rate
26.87
35.07
27.77
28.48
Asset Quality Summary:
Non-performing loans (1)
$
49,463
$
23,320
$
49,463
$
23,320
Non-performing assets
49,463
23,320
49,463
23,320
Net charge-offs
4,199
4,864
8,578
10,084
Non-performing assets/Total assets
0.36
%
0.17
%
0.36
%
0.17
%
Non-performing loans/Total loans
0.45
0.21
0.45
0.21
Allowance for credit losses/Total loans
0.78
0.67
0.78
0.67
Allowance for credit losses/Non-performing loans
172.29
311.16
172.29
311.16
(1) Non-performing loans are defined as all loans on non-accrual status.
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Critical Accounting Estimates
Note 1. Summary of Significant Accounting Policies, to the Company’s Audited Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2023 contains a summary of significant accounting policies. These accounting policies may require various levels of subjectivity, estimates or judgment by management. Policies with respect to the methodologies it uses to determine the allowance for credit losses on loans held for investment and fair value of loans acquired in a business combination are critical accounting policies because they are important to the presentation of the Company’s consolidated financial condition and results of operations. These critical accounting estimates involve a significant degree of complexity and require management to make difficult and subjective judgments which often necessitate assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions or estimates could result in material variations in the Company’s consolidated results of operations or financial condition.
Management has reviewed the following critical accounting estimates and related disclosures with its Audit Committee.
Allowance for Credit Losses on Loans Held for Investment
Methods and Assumptions Underlying the Estimate
The allowance for credit losses is established and maintained through a provision for credit losses based on expected losses inherent in our loan portfolio. Management evaluates the adequacy of the allowance on a quarterly basis, and additions to the allowance are charged to expense and realized losses, net of recoveries, are charged against the allowance.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In determining the allowance for credit losses for loans that share similar risk characteristics, the Company utilizes a model which compares the amortized cost basis of the loan to the net present value of expected cash flows to be collected. Expected credit losses are determined by aggregating the individual cash flows and calculating a loss percentage by loan segment, or pool, for loans that share similar risk characteristics. For a loan that does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. Within the model, assumptions are made in the determination of probability of default, loss given default, reasonable and supportable economic forecasts, prepayment rate, curtailment rate, and recovery lag periods. Management assesses the sensitivity of key assumptions at least annually by stressing the assumptions to understand the impact on the model.
Statistical regression is utilized to relate historical macro-economic variables to historical credit loss experience of a peer group of banks that operate in and around Dime’s footprint. These models are then utilized to forecast future expected loan losses based on expected future behavior of the same macro-economic variables. Adjustments to the quantitative results are made using qualitative factors. These factors include: (1) lending policies and procedures and the experience, ability, and depth of the lending management and other relevant staff; (2) international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the condition of various markets; (3) the nature and volume of the loan portfolio; (4) the volume and severity of past due loans; (5) the quality of our loan review system; (6) the value of underlying collateral for collateralized loans; (7) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (8) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.
The Company evaluates loans that do not share risk characteristics on an individual basis based on various factors. Factors that may be considered are borrower delinquency trends and non-accrual status, probability of foreclosure or note sale, changes in the borrower’s circumstances or cash collections, borrower’s industry, or other facts and circumstances of the loan or collateral. The expected credit loss is measured based on net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For collateral dependent loans, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, less estimated costs to sell.
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Uncertainties Regarding the Estimate
Estimating the timing and amounts of future losses is subject to significant management judgment as these projected cash flows rely upon the estimates discussed above and factors that are reflective of current or future expected conditions. These estimates depend on the duration of current overall economic conditions, industry, borrower, or portfolio specific conditions. Volatility in certain credit metrics and differences between expected and actual outcomes are to be expected.
Customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance. Bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or loan charge-offs.
Impact on Financial Condition and Results of Operations
If our assumptions prove to be incorrect, the allowance for credit losses may not be sufficient to cover expected losses in the loan portfolio, resulting in additions to the allowance. Future additions or reductions to the allowance may be necessary based on changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance through charges to earnings which would materially decrease our net income.
We may experience significant credit losses if borrowers experience financial difficulties, which could have a material adverse effect on our operating results.
In addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance for credit losses. Such agencies may require the Bank to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination.
Liquidity and Capital Resources
The Board of Directors has approved a liquidity policy that it reviews and updates at least annually. Senior management is responsible for implementing the policy. The Bank’s Asset Liability Committee (“ALCO”) is responsible for general oversight and strategic implementation of the policy and management of the appropriate departments are designated responsibility for implementing any strategies established by ALCO. On a daily basis, appropriate senior management receives a current cash position report and 30-day forecast to ensure that all short-term obligations are timely satisfied, and that adequate liquidity exists to fund future activities. Reports detailing the Bank’s liquidity reserves are presented to appropriate senior management on at least a monthly basis, and the Board of Directors at each of its meetings. In addition, a twelve-month liquidity forecast is presented to ALCO in order to assess potential future liquidity concerns. A forecast of cash flow data for the upcoming 12 months is presented to the Board of Directors no less than annually. Given recent banking industry events, management is also monitoring the level of uninsured deposits on a daily basis.
Liquidity is primarily needed to meet customer borrowing commitments and deposit withdrawals, either on demand or on contractual maturity, to repay borrowings as they mature, to fund current and planned expenditures and to make new loans and investments as opportunities arise. The Bank’s primary sources of funding for its lending and investment activities include deposits, loan, investment security principal and interest payments and advances from the FHLBNY. The Bank may also sell or securitize selected multifamily residential, mixed-use or one-to-four family residential real estate loans to private sector secondary market purchasers and has in the past sold such loans to FNMA and FHLMC. The Company may additionally issue debt or equity under appropriate circumstances. Although maturities and scheduled amortization of loans and investments are predictable sources of funds, deposit flows and prepayments on real estate loans and MBS are influenced by interest rates, economic conditions and competition.
The Bank is a member of American Financial Exchange (“AFX”), through which it may either borrow or lend funds on an overnight or short-term basis with other member institutions. The availability of funds changes daily.
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The Bank gathers deposits in direct competition with commercial banks, savings banks and brokerage firms, many among the largest in the nation. It must additionally compete for deposit monies against the stock and bond markets, especially during periods of strong performance in those arenas. The Bank’s deposit flows are affected primarily by the pricing and marketing of its deposit products compared to its competitors, as well as the market performance of depositor investment alternatives such as the U.S. bond or equity markets. To the extent that the Bank is responsive to general market increases or declines in interest rates, its deposit flows should not be materially impacted. However, favorable performance of the equity or bond markets could adversely impact the Bank’s deposit flows.
Total deposits (including escrow) increased $886.7 million during the nine months ended September 30, 2024, compared to an increase of $382.1 million during the nine months ended September 30, 2023. Within deposits, core deposits ( i.e., non-CDs) increased $1.08 billion during the nine months ended September 30, 2024 compared to an increase of $55.2 million during the nine months ended September 30, 2023. The increase in core deposits was primarily due to growth in business deposits. In the event that the Bank should require funds beyond its ability or desire to generate them internally, additional sources of funds are available through a borrowing line at the FHLBNY, borrowing capacity at the AFX, lines of credit with unaffiliated correspondent banks, and various brokered deposit sources. At September 30, 2024, the Bank had remaining borrowing capacity of $1.98 billion through the FHLBNY, subject to customary minimum FHLBNY common stock ownership requirements ( i.e. , 4.5% of the Bank’s outstanding FHLBNY borrowings).
The Bank reduced its outstanding FHLBNY advances by $805.0 million during the nine months ended September 30, 2024, compared to a $8.0 million decrease during the nine months ended September 30, 2023. See Note 12. “FHLBNY Advances” for further information.
Subordinated debentures totaled $272.3 million at September 31, 2024 compared to $200.2 million at December 31, 2023. The increase was due to the Company’s issuance of subordinated notes that are described in more detail in Note 13. “Subordinated Debentures” to our Consolidated Financial Statements for further information.
During the nine months ended September 30, 2024 and 2023, business loan originations totaled $236.1 million and $209.7 million, respectively. During the nine months ended September 30, 2024, and 2023, real estate loan originations (excluding owner-occupied commercial real estate) totaled $147.2 million and $604.7 million, respectively.
The Company and the Bank are subject to minimum regulatory capital requirements imposed by their primary federal regulators. As a general matter, these capital requirements are based on the amount and composition of an institution’s assets. At September 30, 2024, both the Company and the Bank were in compliance with all applicable regulatory capital requirements and the Bank was considered "well capitalized" for all regulatory purposes.
The following table summarizes Company and Bank capital ratios calculated under the Basel III Capital Rules framework as of the period indicated:
Actual Ratios at September 30, 2024
Basel III
Consolidated
Minimum
To Be Categorized as
Bank
Company
Requirement
“Well Capitalized” (1)
Tier 1 common equity ratio
13.6
%
10.2
%
4.5
%
6.5
%
Tier 1 risk-based capital ratio
13.6
11.3
6.0
8.0
Total risk-based capital ratio
14.4
14.8
8.0
10.0
Tier 1 leverage ratio
10.6
8.8
4.0
5.0
(1) Only the Bank is subject to these requirements.
During the nine months ended September 30, 2024, the Holding Company did not repurchase any shares of its common stock. The Holding Company repurchased 36,813 shares of its common stock at an aggregate cost of $947 thousand during the nine months ended September 30, 2023. As of September 30, 2024, 1,566,947 shares remained available for purchase under the authorized share repurchase programs. See "Part II - Item 2. Other Information - Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities" for additional information about repurchases of common stock.
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The Holding Company paid $5.5 million in cash dividends on its preferred stock during the nine months ended September 30, 2024, and 2023, respectively.
The Holding Company paid $28.5 million and $28.0 million in cash dividends on its common stock during the nine months ended September 30, 2024, and 2023, respectively.
Contractual Obligations
The Bank generally has borrowings outstanding in the form of FHLBNY advances, short-term or overnight borrowings, subordinated debt, as well as customer CDs with fixed contractual interest rates. In addition, the Bank is obligated to make rental payments under leases on certain of its branches and equipment.
Off-Balance Sheet Arrangements
As part of its loan origination business, the Bank generally has outstanding commitments to extend credit to borrowers, which are originated pursuant to its regular underwriting standards. Available lines of credit may not be drawn on or may expire prior to funding, in whole or in part, and amounts are not estimates of future cash flows. As of September 30, 2024, the Bank had $63.8 million of firm loan commitments that were accepted by the borrowers. All of these commitments are expected to close during the remainder of the year ending December 31, 2024.
Additionally, in connection with a loan securitization completed in December 2017, the Bank executed a reimbursement agreement with FHLMC that obligates the Company to reimburse FHLMC for any contractual principal and interest payments on defaulted loans, not to exceed 10% of the original principal amount of the loans comprising the aggregate balance of the loan pool at securitization. The maximum exposure under this reimbursement obligation is $28.0 million. The Bank has pledged $27.9 million of pass-through MBS issued by GSEs as collateral.
Asset Quality
General
We do not originate or purchase loans, either whole loans or loans underlying MBS, which would have been considered subprime loans at origination, i.e ., real estate loans advanced to borrowers who did not qualify for market interest rates because of problems with their income or credit history. See Note 6 to our unaudited condensed Consolidated Financial Statements for a discussion of evaluation for impaired securities.
Monitoring and Collection of Delinquent Loans
Our management reviews delinquent loans on a monthly basis and reports to our Board of Directors at each regularly scheduled Board meeting regarding the status of all non-performing and otherwise delinquent loans in our loan portfolio.
Our loan servicing policies and procedures require that an automated late notice be sent to a delinquent borrower as soon as possible after a payment is ten days late in the case of multifamily residential, commercial real estate loans, and commercial and industrial (“C&I”) loans, or fifteen days late in connection with one-to-four family or consumer loans. Thereafter, periodic letters are mailed and phone calls placed to the borrower until payment is received. When contact is made with the borrower at any time prior to foreclosure, we will attempt to obtain the full payment due or negotiate a repayment schedule with the borrower to avoid foreclosure.
Accrual of interest is generally discontinued on a loan that meets any of the following three criteria: (i) full payment of principal or interest is not expected; (ii) principal or interest has been in default for a period of 90 days or more (unless the loan is both deemed to be well secured and in the process of collection); or (iii) an election has otherwise been made to maintain the loan on a cash basis due to deterioration in the financial condition of the borrower. Such non-accrual determination practices are applied consistently to all loans regardless of their internal classification or designation. Upon entering non-accrual status, we reverse all outstanding accrued interest receivable.
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We generally initiate foreclosure proceedings on real estate loans when a loan enters non-accrual status based upon non-payment, unless the borrower is paying in accordance with an agreed upon modified payment agreement. We obtain an updated appraisal to calculate a potential collateral shortfall and to reserve appropriately for the potential loss. Upon completion of a foreclosure action, the property securing the loan is transferred to Other Real Estate Owned (“OREO”) status. We generally attempt to utilize all available remedies, such as note sales in lieu of foreclosure, in an effort to resolve non-accrual loans and OREO properties as quickly and prudently as possible in consideration of market conditions, the physical condition of the property and any other mitigating circumstances. We have not initiated any expected or imminent foreclosure proceedings that are likely to have a material adverse impact on our Consolidated Financial Statements. In the event that a non-accrual loan is subsequently brought current, it is returned to accrual status once the doubt concerning collectability has been removed and the borrower has demonstrated performance in accordance with the loan terms and conditions for a period of generally at least six months.
The C&I portfolio is actively managed by our lenders and underwriters. Most credit facilities typically require an annual review of the exposure and borrowers are required to submit annual financial reporting and loans are structured with financial covenants to indicate expected performance levels. Smaller C&I loans are monitored based on performance and the ability to draw against a credit line is curtailed if there are any indications of credit deterioration. Guarantors are also required to update their financial reporting. All exposures are risk rated and those entering adverse ratings due to financial performance concerns of the borrower or material delinquency of any payments or financial reporting are subjected to added management scrutiny. Measures taken typically include amendments to the amount of the available credit facility, requirements for increased collateral, additional guarantor support or a material enhancement to the frequency and quality of financial reporting. Loans determined to reach adverse risk rating standards are monitored closely by Credit Administration to identify any potential credit losses. When warranted, loans reaching a Substandard rating could be reassigned to the Workout Group for direct handling.
Non-accrual Loans
Within our held-for-investment loan portfolio, non-accrual loans totaled $49.5 million at September 30, 2024 and $29.1 million at December 31, 2023.
The following is a reconciliation of non-accrual loans as of the dates indicated:
September 30,
December 31,
September 30,
2024
2023
2023
(Dollars in thousands)
Non-accrual loans:
Business loans
$
25,411
$
18,574
$
19,555
One-to-four family residential, including condominium and cooperative apartment
3,880
3,248
2,874
Multifamily residential and residential mixed-use
—
—
—
Non-owner-occupied commercial real estate
19,509
6,620
15
ADC
657
657
657
Other loans
6
—
219
Total non-accrual loans
$
49,463
$
29,099
$
23,320
Ratios:
Total non-accrual loans to total loans
0.45
%
0.27
%
0.21
%
Total non-performing assets to total assets
0.36
0.21
0.17
Loan Restructurings
The accrual status of each restructured loan is determined separately in accordance with our policies for determining accrual or non-accrual status. At the time the modification agreement is entered into between the Bank and the borrower the loan can be on either accrual or non-accrual status. If a loan is on non-accrual status at the time it is restructured, it continues to be classified as non-accrual until the borrower has demonstrated compliance with the modified loan terms for a period of at least six months. Conversely, if at the time of restructuring the loan is performing (and accruing) it will remain accruing throughout its restructured period, unless the loan subsequently meets any of the criteria for non-accrual status under our policy and agency regulations.
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Within the allowance for credit losses, losses are estimated for restructured loans on accrual status as well as restructured loans on non-accrual status that are one-to-four family loans or consumer loans, on a pooled basis with loans that share similar risk characteristics. Restructured loans on non-accrual status excluding one-to-four family and consumer loans are individually evaluated to determine expected credit losses. For restructured loans that are collateral-dependent where the Bank has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and we expect repayment of the loan to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of collateral, less the estimated costs to sell, and the amortized cost basis of the loan as of the measurement date. For non-collateral-dependent loans, the allowance for credit losses is measured based on the difference between the present value of expected cash flows and the amortized cost basis of the loan as of the measurement date.
OREO
Property acquired by the Bank, or a subsidiary, as a result of foreclosure on a mortgage loan or a deed in lieu of foreclosure is classified as OREO. Upon entering OREO status, we obtain a current appraisal on the property and reassess the likely realizable value ( a/k/a fair value) of the property quarterly thereafter. OREO is carried at the lower of the fair value or book balance, with any write downs recognized through a provision recorded in non-interest expense. Only the appraised value, or either a contractual or formal marketed value that falls below the appraised value, is used when determining the likely realizable value of OREO at each reporting period. We typically seek to dispose of OREO properties in a timely manner. As a result, OREO properties have generally not warranted subsequent independent appraisals.
There was no carrying value of OREO properties on our Consolidated Statement of Financial Condition at September 30, 2024 or December 31, 2023. We did not recognize any provisions for losses on OREO properties during the nine months ended September 30, 2024 or 2023.
Past Due Loans
Loans Delinquent 30 to 59 Days
At September 30, 2024, there were $8.2 million of loans between 30 and 59 days past due. At December 31, 2023, there were $12.0 million of loans between 30 and 59 days past due. The 30 to 59-day delinquency levels fluctuate monthly and are generally considered a less accurate indicator of near-term credit quality trends than non-accrual loans.
Loans Delinquent 60 to 89 Days
At September 30, 2024, there were $30.0 million of loans between 60 and 89 days past due. At December 31, 2023, there were $1.3 million of loans 60 and 89 days past due. The 60 to 89-day delinquency levels fluctuate monthly and are generally considered a less accurate indicator of near-term credit quality trends than non-accrual loans.
Accruing Loans 90 Days or More Past Due
There were no accruing loans 90 days or more past due at September 30, 2024 or at December 31, 2023.
Allowance for Off-Balance Sheet Exposures
The Bank maintains an allowance, recorded in other liabilities, associated with unfunded loan commitments accepted by the borrower. The amount of our allowance was $3.1 million and $2.7 million at September 30, 2024 and December 31, 2023, respectively. Any increases or reductions in this allowance are recognized in provision for credit losses.
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Allowance for Credit Losses
Provision for credit losses for the nine months ended September 30, 2024 was $22.4 million, compared to a credit loss recovery of $950 thousand for the nine months ended September 30, 2023. The $22.4 million credit loss provision for the nine months ended September 30, 2024, was related to a combination of factors including, provisioning for growth and individually analyzed loans in the business loan portfolio as well as provisioning for the pooled multifamily loan portfolio. The $950 thousand credit loss recovery for the nine months ended September 30, 2023, was primarily associated with a reduction in reserves on pooled Purchased Credit Deteriorated (“PCD”) loans that were acquired as part of the Company’s 2021 Merger.
For a further discussion of the allowance for credit losses and related activity during the nine months ended September 30, 2024 and 2023, please see Note 7 to the condensed Consolidated Financial Statements.
The following table presents our allowance for credit losses allocated by loan type and the percent of loans in each category to total loans as of the dates indicated.
September 30, 2024
December 31, 2023
Percent
Percent
of Loans
of Loans
in Each
in Each
Category
Category
Allocated
to Total
Allocated
to Total
(Dollars in thousands)
Amount
Loans
Amount
Loans
Business loans
$
45,026
24.36
%
$
35,962
21.44
%
One-to-four family residential and cooperative/condominium apartment
8,646
8.57
6,813
8.24
Multifamily residential and residential mixed-use
12,503
35.52
7,237
37.31
Non-owner-occupied commercial real estate
16,302
30.13
19,623
31.39
ADC
2,521
1.37
1,989
1.57
Other loans
223
0.05
119
0.05
Total
$
85,221
100.00
%
$
71,743
100.00
%
The following table sets forth information about our allowance for credit losses at or for the dates indicated:
At or for the Nine Months Ended September 30,
(Dollars in thousands)
2024
2023
Total loans outstanding at end of period (1)
$
10,886,387
$
10,850,611
Average total loans outstanding during the period (2)
10,800,951
10,753,282
Allowance for credit losses balance at end of period
85,221
72,563
Allowance for credit losses to total loans at end of period
0.78
%
0.67
%
Non-performing loans to total loans at end of period
0.45
0.21
Allowance for credit losses to total non-performing loans at end of period
172.29
311.16
Ratio of net charge-offs to average loans outstanding during the period:
Business loans
0.25
%
0.60
%
One-to-four family residential and cooperative/condominium apartment
—
—
Multifamily residential and residential mixed-use
0.13
—
Non-owner-occupied commercial real estate
—
—
ADC
—
—
Other loans
1.19
0.94
Total
0.11
0.13
(1) Total loans represent gross loans (excluding loans held for sale), inclusive of deferred fees/costs and premiums/discounts.
(2) Total average loans represent gross loans (including loans held for sale), inclusive of deferred loan fees/costs and premiums/discounts.
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Comparison of Financial Condition at September 30, 2024 and December 31, 2023
Assets . Assets totaled $13.75 billion at September 30, 2024, $110.5 million above their level at December 31, 2023, primarily due to increases of $168.5 million in cash and due from banks, $105.1 million in the loan portfolio and $22.6 million in BOLI, partially offset by decreases of $113.8 million in total investment securities, $34.5 million in restricted stock, $16.5 million in derivative assets and $9.8 million in premises and fixed assets.
Total loans, net of allowance increased $105.1 million during the nine months ended September 30, 2024, to $10.81 billion at period end. During the nine months ended September 30, 2024, we had loan originations of $383.4 million.
Total investment securities decreased $113.8 million during the nine months ended September 30, 2024, to $1.37 billion at period end, primarily due to proceeds from principal payments, calls and maturities of $167.1 million, offset by purchases of $21.0 million and a decrease in unrealized losses of $32.3 million. There were no transfers to or from securities held-to-maturity during the nine months ended September 30, 2024.
Premises and fixed assets decreased $9.8 million during the nine months ended September 30, 2024, to $35.1 million at period end, primarily due to the sale of two Bank owned buildings.
Total restricted stock decreased $34.5 million during the nine months ended September 30, 2024, to $64.2 million at period end, primarily due to a reduction in FHLBNY advances.
Liabilities . Total liabilities increased $72.8 million during the nine months ended September 30, 2024, to $12.48 billion at period end, primarily due to an increase of $886.7 million in deposits (including mortgage escrow accounts) and an increase of $72.1 million in subordinated debt, partially offset by decreases of $805.0 million in FHLBNY advances, $39.1 million in derivative cash collateral and $23.2 million in derivative liabilities.
Subordinated debt increased $72.1 million during the nine months ended September 30, 2024, to $272.3 million at period end, due to the Company raising $74.8 million of gross proceeds from a registered public offering of its 9.000% fixed-to-floating rate subordinated notes due 2034 (the “Notes”).
Stockholders’ Equity . Stockholders’ equity increased $37.7 million during the nine months ended September 30, 2024, to $1.26 billion at period end, primarily due to net income of $49.5 million and other comprehensive income of $18.6 million, partially offset by common stock dividends of $29.3 million, and preferred stock dividends of $5.5 million.
Comparison of Operating Results for the Three Months Ended September 30, 2024 and 2023
General. Net income was $13.3 million during the three months ended September 30, 2024, compared to net income of $15.0 million for the three months ended September 30, 2023. During the three months ended September 30, 2024, net interest income increased by $3.4 million, the credit loss provision increased by $9.8 million, non-interest income decreased by $297 thousand, non-interest expense decreased by $1.8 million, and income tax expense decreased by $3.2 million, compared to the three months ended September 30, 2023.
The discussion of net interest income for the three months ended September 30, 2024 and 2023 should be read in conjunction with the following tables, which set forth certain information related to the Consolidated Statements of Operations for those periods, and which also present the average yield on assets and average cost of liabilities for the periods indicated. The average yields and costs were derived by dividing income or expense by the average balance of their related assets or liabilities during the periods represented. Average balances were derived from average daily balances. No tax-equivalent adjustments have been made for interest income exempt from federal, state, and local taxation. The yields include loan fees consisting of amortization of loan origination and commitment fees and certain direct and indirect origination costs, prepayment fees, and late charges that are considered adjustments to yields. Net loan fees included in interest income were $849 thousand during the three months ended September 30, 2024. Net loan fees included in interest income were $320 thousand during the three months ended September 30, 2023. The increase in net loan fees was primarily due to increases in prepayment penalty fees and deferred fees on loans in 2024.
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Analysis of Net Interest Income
Three Months Ended September 30,
2024
2023
Average
Average
Average
Yield/
Average
Yield/
Balance
Interest
Cost
Balance
Interest
Cost
Assets:
(Dollars in thousands)
Interest-earning assets:
Business loans (1) (3) (6)
$
2,609,934
$
46,656
7.11
%
$
2,260,203
$
38,384
6.74
%
One-to-four family residential, including condo and coop (3) (6)
924,150
11,024
4.75
879,688
9,165
4.13
Multifamily residential and residential mixed-use (3) (6)
3,902,220
45,790
4.67
4,114,476
46,099
4.45
Non-owner-occupied commercial real estate (3) (6)
3,297,760
44,804
5.40
3,382,927
44,184
5.18
ADC (3)
147,875
3,505
9.43
222,039
5,075
9.07
Other loans (3)
4,891
49
3.99
6,156
88
5.67
Securities
1,493,492
7,766
2.07
1,619,960
7,916
1.94
Other short-term investments
353,924
4,645
5.22
498,612
6,930
5.51
Total interest-earning assets
12,734,246
164,239
5.13
%
12,984,061
157,841
4.82
%
Non-interest earning assets
768,507
775,432
Total assets
$
13,502,753
$
13,759,493
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing checking (2)
$
798,024
$
4,635
2.31
%
$
786,892
$
2,896
1.46
%
Money market
3,771,562
36,841
3.89
2,975,267
24,275
3.24
Savings (2)
2,102,282
19,492
3.69
2,342,424
20,316
3.44
CDs
1,232,984
13,057
4.21
1,494,491
15,020
3.99
Total interest-bearing deposits
7,904,852
74,025
3.73
7,599,074
62,507
3.26
FHLBNY advances
528,652
4,455
3.35
1,250,717
14,370
4.56
Subordinated debt, net
271,450
4,307
6.31
200,232
2,553
5.06
Other short-term borrowings
131
2
6.07
120
2
6.61
Total borrowings
800,233
8,764
4.36
1,451,069
16,925
4.63
Derivative cash collateral
91,305
1,526
6.65
156,795
1,930
4.88
Total interest-bearing liabilities
8,796,390
84,315
3.81
%
9,206,938
81,362
3.51
%
Non-interest-bearing checking (2)
3,209,502
3,065,186
Other non-interest-bearing liabilities
223,546
265,559
Total liabilities
12,229,438
12,537,683
Stockholders' equity
1,273,315
1,221,810
Total liabilities and stockholders' equity
$
13,502,753
$
13,759,493
Net interest income
$
79,924
$
76,479
Net interest rate spread (4)
1.32
%
1.31
%
Net interest-earning assets
$
3,937,856
$
3,777,123
Net interest margin (5)
2.50
%
2.34
%
Ratio of interest-earning assets to interest-bearing liabilities
144.77
%
141.02
%
Deposits (including non-interest-bearing checking accounts) (2)
$
11,114,354
$
74,025
2.65
%
$
10,664,260
$
62,507
2.33
%
(1) Business loans include commercial and industrial loans and owner-occupied commercial real estate loans.
(2) Includes mortgage escrow deposits.
(3) Amounts are net of deferred origination costs/(fees) and allowance for credit losses, and include loans held for sale.
(4) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average-interest earning assets.
(6) At September 30, 2024, the loan portfolio included a fair value hedge basis point adjustment to the carrying amount of hedged owner-occupied commercial real estate in business loans, one-to-four family residential mortgage loans, multifamily residential mortgage loans and non-owner occupied commercial real estate loans.
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Rate/Volume Analysis
Rate/Volume Analysis
Three Months Ended September 30, 2024
Compared to Three Months Ended September 30, 2023
Increase / (Decrease) Due to:
Volume
Rate
Total
(Dollars in thousands)
Interest-earning assets:
Business loans (1) (2)
$
5,112
$
3,160
$
8,272
One-to-four family residential, including condo and coop
481
1,378
1,859
Multifamily residential and residential mixed-use
(4,849)
4,540
(309)
Non-owner-occupied commercial real estate
(2,469)
3,089
620
ADC
(2,265)
695
(1,570)
Other loans
(21)
(18)
(39)
Securities
(1,071)
921
(150)
Other short-term investments
(1,860)
(425)
(2,285)
Total interest-earning assets
$
(6,942)
$
13,340
$
6,398
Interest-bearing liabilities:
Interest-bearing checking
$
(667)
$
2,407
$
1,740
Money market
4,705
7,860
12,565
Savings
(5,087)
4,263
(824)
CDs
(3,977)
2,014
(1,963)
FHLBNY advances
(9,463)
(452)
(9,915)
Subordinated debt, net
960
794
1,754
Other short-term borrowings
(49)
49
—
Derivative cash collateral
(917)
513
(404)
Total interest-bearing liabilities
$
(14,495)
$
17,448
$
2,953
Net change in net interest income
$
7,553
$
(4,108)
$
3,445
(1) Business loans include commercial and industrial loans and owner-occupied commercial real estate loans.
(2) Amounts are net of deferred origination costs/(fees) and allowance for credit losses, and include loans held for sale.
Net interest income. Net interest income was $79.9 million during the three months ended September 30, 2024, an increase of $3.4 million from the three months ended September 30, 2023. Average interest-earning assets were $12.73 billion for the three months ended September 30, 2024, a decrease of $250.0 million from $12.98 billion for the three months ended September 30, 2023. Net interest margin was 2.50% during the three months ended September 30, 2024, up from 2.34% during the three months ended September 30, 2023.
Interest Income. Interest income was $164.2 million during the three months ended September 30, 2024, compared to $157.8 million during the three months ended September 30, 2023. During the three months ended September 30, 2024, interest income increased $6.4 million from the three months ended September 30, 2023, primarily reflecting increases in interest income of $8.3 million on business loans, $1.9 million on one-to-four family loans and $620 thousand on non-owner-occupied loans.
The increased interest income on business loans was due to a $349.7 million increase in the average balances and a 37-basis point increase in the yield of such loans in the period. The increased interest income on one-to-four family loans was related to a 62-basis point increase in the yield and a $44.5 million increase in the average balances of such loans in the period. The increased interest income on non-owner-occupied loan income was related to a 22-basis point increase in the yield, partially offset by a decrease of $85.2 million in the average balances of such loans in the period. Increased yields on loans were a result of the rising interest rate environment.
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Interest Expense. Interest expense was $84.3 million during the three months ended September 30, 2024, compared to $81.4 million during the three months ended September 30, 2023. During the three months ended September 30, 2024, interest expense increased $2.9 million, primarily reflecting an increase in interest expense of $11.5 million on deposits and an increase of $1.8 million in interest expense on subordinated debt, partially offset by a $9.9 million decrease in interest expense on FHLBNY advances. The increased interest expense on deposits primarily reflects a 65-basis point increase in rates paid on money market deposits and a $796.3 million increase in average balances of such deposits. The increased interest expense on subordinated debt was due to a $71.2 million increase in the average balance of such debt and a 125-basis point increase in the cost of subordinated debt in the period. The decreased interest expense on FHLBNY advances was due to a $722.1 million decrease in the average balance of such advances and a 121-basis point decrease in the cost of FHLBNY advances in the period. The increases in interest expense on money market accounts was primarily due to price competition among banks and other financial institutions and the rising interest rate environment.
Provision for Credit Losses. We recorded a credit loss provision of $11.6 million during the three months ended September 30, 2024, compared to a credit loss provision of $1.8 million for the three months ended September 30, 2023. The $11.6 million credit loss provision for the three months ended September 30, 2024, was primarily associated with increased provisioning for the Bank’s business loan portfolio. The $1.8 million credit loss provision for the three months ended September 30, 2023, was primarily associated with increased provisioning for individually analyzed loans.
Non-Interest Income. Non-interest income was $7.6 million during the three months ended September 30, 2024, compared to $7.9 million during the three months ended September 30, 2023. During the three months ended September 30, 2024, non-interest income decreased $297 thousand from the three months ended September 30, 2023, reflecting a decrease of $651 thousand related to loan level derivative income, partially offset by an increase of $338 thousand from fair value change in equity securities and loans held for sale.
Non-Interest Expense. Non-interest expense was $57.7 million during the three months ended September 30, 2024, compared to $59.5 million during the three months ended September 30, 2023. During the three months ended September 30, 2024, non-interest expense decreased $1.8 million from the three months ended September 30, 2023, primarily due to a decrease of $8.6 million in severance expense, partially offset by a $5.6 million increase in salaries and employee benefits.
Non-interest expense was 1.71% and 1.73% of average assets during the three months ended September 30, 2024 and 2023, respectively.
Income Tax Expense. Income tax expense was $4.9 million during the three months ended September 30, 2024, compared to income tax expense of $8.1 million during the three months ended September 30, 2023. The reported effective tax rate for the three months ended September 30, 2024 was 26.9%, and 35.1% for the three months ended September 30, 2023. The September 30, 2023 effective tax rate reflected non-deductible severance expense in the period.
Comparison of Operating Results for the Nine Months Ended September 30, 2024 and 2023
General. Net income was $49.5 million during the nine months ended September 30, 2024, compared to net income of $79.8 million for the nine months ended September 30, 2023. During the nine months ended September 30, 2024, net interest income decreased by $15.5 million, credit loss provision increased by $23.3 million, non-interest expense increased by $6.8 million, non-interest income increased by $2.6 million, and income tax expense decreased by $12.7 million, compared to the nine months ended September 30, 2023.
The discussion of net interest income for the nine months ended September 30, 2024 and 2023 should be read in conjunction with the following tables, which set forth certain information related to the Consolidated Statements of Operations for those periods, and which also present the average yield on assets and average cost of liabilities for the periods indicated. The average yields and costs were derived by dividing income or expense by the average balance of their related assets or liabilities during the periods represented. Average balances were derived from average daily balances. No tax-equivalent adjustments have been made for interest income exempt from federal, state, and local taxation. The yields include loan fees consisting of amortization of loan origination and commitment fees and certain direct and indirect origination costs, prepayment fees, and late charges that are considered adjustments to yields. Net loan fees
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included in interest income were $545 thousand during the nine months ended September 30, 2024. Net loan fees included in interest income were $975 thousand during the nine months ended September 30, 2023. The decrease in net loan fees was primarily due to the decline in loan deferred fees and costs, and the decline in loan prepayment fees in 2024.
Analysis of Net Interest Income
Nine Months Ended September 30,
2024
2023
Average
Average
Average
Yield/
Average
Yield/
Balance
Interest
Cost
Balance
Interest
Cost
Assets:
(Dollars in thousands)
Interest-earning assets:
Business loans (1) (3) (6)
$
2,440,113
$
128,813
7.05
%
$
2,240,390
$
108,790
6.49
%
One-to-four family residential, including condo and coop (3) (6)
898,941
30,762
4.57
832,439
25,442
4.09
Multifamily residential and residential mixed-use (3) (6)
3,953,593
137,584
4.65
4,104,684
133,571
4.35
Non-owner-occupied commercial real estate (3) (6)
3,342,570
134,308
5.37
3,346,130
126,438
5.05
ADC (3)
160,598
10,835
9.01
222,897
15,197
9.12
Other loans (3)
5,136
190
4.94
6,742
306
6.07
Securities
1,536,280
23,553
2.05
1,653,662
24,261
1.96
Other short-term investments
454,002
18,621
5.48
446,757
16,599
4.97
Total interest-earning assets
12,791,233
484,666
5.06
%
12,853,701
450,604
4.69
%
Non-interest earning assets
780,477
769,869
Total assets
$
13,571,710
$
13,623,570
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing checking (2)
$
670,957
$
7,357
1.46
%
$
860,602
$
7,499
1.17
%
Money market
3,543,314
100,672
3.80
2,797,250
56,409
2.70
Savings (2)
2,268,534
65,411
3.85
2,316,463
52,291
3.02
CDs
1,426,805
46,532
4.36
1,404,025
36,196
3.45
Total interest-bearing deposits
7,909,610
219,972
3.71
7,378,340
152,395
2.76
FHLBNY advances
763,839
23,027
4.03
1,277,828
43,076
4.51
Subordinated debt, net
224,794
9,464
5.62
200,254
7,659
5.11
Other short-term borrowings
70
3
5.72
4,211
120
3.81
Total borrowings
988,703
32,494
4.39
1,482,293
50,855
4.59
Derivative cash collateral
122,278
5,244
5.73
137,737
4,904
4.76
Total interest-bearing liabilities
9,020,591
257,710
3.82
%
8,998,370
208,154
3.09
%
Non-interest-bearing checking (2)
3,054,455
3,149,251
Other non-interest-bearing liabilities
238,028
264,527
Total liabilities
12,313,074
12,412,148
Stockholders' equity
1,258,636
1,211,422
Total liabilities and stockholders' equity
$
13,571,710
$
13,623,570
Net interest income
$
226,956
$
242,450
Net interest rate spread (4)
1.24
%
1.60
%
Net interest-earning assets
$
3,770,642
$
3,855,331
Net interest margin (5)
2.37
%
2.52
%
Ratio of interest-earning assets to interest-bearing liabilities
141.80
%
142.84
%
Deposits (including non-interest-bearing checking accounts) (2)
$
10,964,065
$
219,972
2.68
%
$
10,527,591
$
152,395
1.94
%
(1) Business loans include commercial and industrial loans and owner-occupied commercial real estate loans.
(2) Includes mortgage escrow deposits.
(3) Amounts are net of deferred origination costs/(fees) and allowance for credit losses, and include loans held for sale.
(4) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average-interest earning assets.
(6) At September 30, 2024, the loan portfolio included a fair value hedge basis point adjustment to the carrying amount of hedged owner-occupied commercial real estate in business loans, one-to-four family residential mortgage loans, multifamily residential mortgage loans and non-owner occupied commercial real estate loans.
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Rate/Volume Analysis
Nine Months Ended September 30, 2024
Compared to Nine Months Ended September 30, 2023
Increase / (Decrease) Due to:
Volume
Rate
Total
Interest-earning assets:
Business loans (1) (2)
$
10,167
$
9,856
$
20,023
One-to-four family residential, including condo and coop
2,182
3,138
5,320
Multifamily residential and residential mixed-use
(5,063)
9,076
4,013
Non-owner-occupied commercial real estate
(141)
8,011
7,870
ADC
(4,215)
(147)
(4,362)
Other loans
(66)
(50)
(116)
Securities
(1,772)
1,064
(708)
Other short-term investments
293
1,729
2,022
Total interest-earning assets
$
1,385
$
32,677
$
34,062
Interest-bearing liabilities:
Interest-bearing checking
$
(1,836)
$
1,694
$
(142)
Money market
18,154
26,109
44,263
Savings
(1,179)
14,299
13,120
CDs
679
9,657
10,336
FHLBNY advances
(16,405)
(3,644)
(20,049)
Subordinated debt, net
989
816
1,805
Other short-term borrowings
(148)
31
(117)
Derivative cash collateral
(606)
946
340
Total interest-bearing liabilities
$
(352)
$
49,908
$
49,556
Net change in net interest income
$
1,737
$
(17,231)
$
(15,494)
(1) Business loans include commercial and industrial loans and owner-occupied commercial real estate loans.
(2) Amounts are net of deferred origination costs/(fees) and allowance for credit losses, and include loans held for sale.
Net interest income. Net interest income was $227.0 million during the nine months ended September 30, 2024, a decrease of $15.5 million from the nine months ended September 30, 2023. Average interest-earning assets were $12.79 billion for the nine months ended September 30, 2024, a decrease of $62.5 million from $12.85 billion for the nine months ended September 30, 2023. Net interest margin was 2.37% during the nine months ended September 30, 2024, down from 2.52% during the nine months ended September 30, 2023.
Interest Income. Interest income was $484.7 million during the nine months ended September 30, 2024, compared to $450.6 million during the nine months ended September 30, 2023. During the nine months ended September 30, 2024, interest income increased $34.1 million from the nine months ended September 30, 2023, primarily reflecting increases in interest income of $20.0 million on business loans, $7.9 million on non-owner-occupied loans, $5.3 million on one-to-four family loans, $4.0 million on multifamily loans, and $2.0 million on other short-term investments.
The increased interest income on business loans was due to a $199.7 million increase in the average balance and a 56-basis point increase in the yield of such loans in the period. The increased interest income on non-owner-occupied loan income was related to a 32-basis point increase in the yield, partially offset by a decrease of $3.6 million in average balances of such loans in the period. The increased interest income on multifamily loans was related to a 30-basis point increase in the yield, partially offset by a decrease of $151.1 million in the average balances of such loans in the period. The increased interest income on one-to-four family loans was related to a 48-basis point increase in the yield and a $66.5 million increase in the average balances of such loans in the period. The increased interest income on short-term investments was related to a 51-basis point increase in the yield and a $7.2 million increase in the average balances of such short-term investments in the period. Increased yields on interest-earning assets were a result of the rising interest rate environment.
Interest Expense. Interest expense was $257.7 million during the nine months ended September 30, 2024, compared to $208.2 million during the nine months ended September 30, 2023. During the nine months ended September 30, 2024, interest expense increased $49.5 million, primarily reflecting an increase in interest expense of $67.6 million on deposits, an increase of $1.8 million on subordinated debt and an increase of $340 thousand in the interest expense on derivative cash collateral, partially offset by a $20.0 million decrease in interest expense on FHLBNY advances. The increased interest expense on deposits primarily reflects a 110-basis point increase in rates paid on money market accounts and a
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$746.1 million increase in average balances of such deposits, a 83-basis point increase in rates paid on savings accounts, partially offset by a decrease of $47.9 million in average balances of such deposits, and a 91-basis point increase in rates paid on CDs and an increase of $22.8 million in average balances of such deposits. The increased interest expense on subordinated debt was due to a $24.5 million increase in the average balance of such debt and a 51-basis point increase in the cost of subordinated debt in the period. The increased interest expense on derivative cash collateral reflects 97-basis point increase in rates paid on derivative cash collateral, partially offset by a decrease of $15.5 million in average balances of such cash collateral. The decreased interest expense on FHLBNY advances was due to a $514.0 million decrease in the average balance of such advances and a 48-basis point decrease in the cost of such FHLBNY advances in the period . The increases in interest expenses on money market accounts, saving accounts and CDs were primarily due to price competition among banks and other financial institutions and the rising interest rate environment.
Provision for Credit Losses. We recorded a credit loss provision of $22.4 million during the nine months ended September 30, 2024, compared to a credit loss recovery of $950 thousand for the nine months ended September 30, 2023. The $22.4 million credit loss provision for the nine months ended September 30, 2024, was primarily associated with increased provisioning for the Bank’s business and multifamily loan portfolios. The $950 thousand credit loss recovery for the nine months ended September 30, 2023 was primarily associated with a reduction in reserves on pooled PCD loans that were acquired as part of the Company’s 2021 Merger.
Non-Interest Income. Non-interest income was $29.9 million during the nine months ended September 30, 2024, compared to $27.3 million during the nine months ended September 30, 2023. During the nine months ended September 30, 2024, non-interest income increased $2.6 million from the nine months ended September 30, 2023. The increase was primarily due to an increase of $6.7 million from a gain on sale of the Bank’s premises, partially offset by a decrease of $4.7 million related to loan level derivative income. In addition, the prior period included $1.4 million of net losses on sale of securities.
Non-Interest Expense. Non-interest expense was $165.9 million during the nine months ended September 30, 2024, compared to $159.2 million during the nine months ended September 30, 2023. During the nine months ended September 30, 2024, non-interest expense increased $6.8 million from the nine months ended September 30, 2023, primarily due to a $13.3 million increase in salaries and employee benefits, partially offset by a $9.0 million decrease in severance expense.
Non-interest expense was 1.63% and 1.56% of average assets during the nine months ended September 30, 2024 and 2023, respectively.
Income Tax Expense. Income tax expense was $19.0 million during the nine months ended September 30, 2024, compared to income tax expense of $31.8 million during the nine months ended September 30, 2023. The reported effective tax rate for the nine months ended September 30, 2024, was 27.8%, and 28.5% for the nine months ended September 30, 2023.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.